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 December 31,1998
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 February 10,1999, there were 743,100 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 7-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
i
PART I. Financial Information
Item 1. Financial Statements
Sobieski Bancorp, Inc. And Subsidiary
Condensed Consolidated Statements Of Financial Condition
December 31,1998 and June 30,1998
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1998 1998
(Unaudited)
<S> <C> <C>
Cash, including interest-bearing
deposits in other financial
institutions of $843,185 and $442,725,
respectively $ 2,796,368 $ 1,291,426
Certificates of deposit 100,000 -
Investment securities, available-for-sale
(amortized cost of $881,448 and $499,267,
respectively) 875,565 499,720
Investment securities, held-to-maturity
(market value of approximately $200,000) 200,000 -
Mortgage-backed securities, available-
for-sale (amortized cost of $549,580
and $603,381, respectively) 542,818 594,550
Mortgage-backed securities, held-to
- -maturity (market value of
approximately $8,594,800 and $9,888,300,
respectively) 8,638,666 9,943,105
Loans, net 86,007,730 76,712,631
Federal Home Loan Bank stock, at cost 1,200,500 922,500
Property and equipment, net 1,913,921 1,923,506
Other assets 634,287 609,130
Total assets $102, 909,855 $ 92,496,568
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 66,565,123 $ 60,517,246
Federal Home Loan Bank advances 23,250,000 18,450,000
Advances from borrowers for taxes
and insurance 325,843 374,627
Accrued income taxes 8,507 105,735
Accrued interest and other expenses 172,925 184,565
Total liabilities 90,322,398 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 9,234,764 9,217,094
Retained earnings, substantially
restricted 7,140,824 6,963,420
Net unrealized depreciation of
securities available-for-sale ( 8,346) ( 5,529)
16,376,902 16,184,645
Less: Treasury stock, at cost,
236,088 and 201,821 shares, respectively 3,321,639 2,816,402
Unallocated Employee Stock Ownership
Plan shares; 46,781 shares and 50,385
shares, respectively 467,806 503,848
Total stockholders' equity 12,587,457 12,864,395
Total liabilities and stockholders'
equity $ 102,909,855 $ 92,496,568
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
Sobieski Bancorp, Inc. And Subsidiary
Condensed Consolidated Statements Of Income
for the three and six months ended December 31,1998 and 1997
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31 , Ended December 31,
1998 1997 1998 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest Income:
Loans $ 1,650,020 $ 1,350,644 3,217,800 2,576,481
Mortgage-backed
securities 132,340 190,399 273,471 397,130
Investment securities 7,721 22,824 14,126 41,827
Interest-bearing deposits 69,348 29,344 116,394 73,690
Total interest income 1,859,429 1,593,211 3,621,791 3,089,128
Interest expense:
Interest on deposits 781,644 683,745 1,530,267 1,356,894
Interest on borrowings 309,044 221,242 603,719 379,701
Total interest expense 1,090,688 904,987 2,133,986 1,736,595
Net interest income 768,741 688,224 1,487,805 1,352,533
Provision for loan
losses 25,000 -- 40,000 --
Net interest income
after provision for
loan losses 743,741 688,224 1,447,805 1,352,533
Non-interest income:
Fees and service charges 36,101 31,444 75,470 58,879
Other income 5,320 (434) 5,368 19,473
Total non-interest income 41,421 31,010 80,838 78,352
Non-interest expenses:
Compensation and benefits 275,577 284,206 558,563 571,628
Occupancy and equipment 77,770 74,315 151,436 143,175
Federal deposit insurance
premiums 8,818 9,317 18,002 18,680
Advertising and promotion 12,321 7,766 22,193 13,941
Service bureau expense 39,792 36,414 77,543 71,242
Other operating expenses 107,492 116,406 175,942 202,787
Total non-interest
expenses 521,770 528,424 1,003,679 1,021,453
Income before income
taxes 263,392 190,810 524,964 409,432
Provision for income
taxes 115,000 64,000 224,400 159,000
Net income 148,392 126,810 300,564 250,432
Other comprehensive
income, net of tax :
Unrealized appreciation
(Depreciation)
of available for-sale-
securities (2,914) 3,424 (2,817) 13,833
Total comprehensive
income $ 145,478 $ 130,234 $ 297,747 $ 264,265
Basic earnings per
common share $ 0.21 $ 0.18 $ 0.42 $ 0.35
Diluted earnings per
common share $ 0.21 $ 0.17 $ 0.42 $ 0.34
Dividends per common
share $ 0.08 $ 0.08 $ 0.16 $ 0.16
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
Sobieski Bancorp, Inc. And Subsidiary
Condensed Consolidated Statements Of Cash Flows
for the six months ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Six Months
Ended December 31,
1998 1997
(Unaudited)
<S> <C> <C>
Cash flows provided by (used in)
operating activities:
Net income $ 300,564 $ 250,432
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation of property and
equipment 54,119 53,087
Provision for loan losses 40,000 -
Gain on sale of real estate owned, net - ( 2,085)
Contribution to Employee Stock
Ownership Plan 55,268 67,006
Contribution to Recognition and
Retention Plan 39,966 62,220
Amortization of premiums and
accretion of discounts, net 52,249 51,515
Deferral (Amortization) of loan fees 15,774 ( 26,471)
Increase in other assets ( 23,706) ( 47,620)
Decrease in accrued income taxes ( 97,228) ( 51,837)
Increase (decrease) in accrued
interest and other expenses 12,904 (13,704)
Net cash provided by operating
activities 449,910 342,543
Cash flows provided by (used in)
investing activities:
Purchase of investment securities (782,201) -
Purchase of certificates of deposit (100,000) -
Proceeds from maturities of
certificates of deposit -- 99,000
Proceeds from maturities of
investment securities 200,000 700,000
Principal reductions of
mortgage-backed securities 1,306,010 1,166,301
Net increase in loans made to
customers and principal collections
on loans ( 9,350,873) (7,870,571)
Purchase of Federal Home Loan
Bank stock (278,000) (236,500)
Proceeds from sale of real
estate owned - 13,122
Purchase of property and
equipment (44,534) ( 12,470)
Net cash used in investing
activities ( 9,049,598) ( 6,141,118)
Cash flows provided by (used in)
financing activities:
Net increase (decrease) in
deposits 6,047,877 (1,775,340)
Increases (decrease) in advances
from borrowers for taxes and
insurance (48,784) 35,434
Federal Home Loan Bank advances 10,800,000 19,350,000
Repayment of Federal Home Loan
Bank advances (6,000,000) (12,000,000)
Purchase of treasury stock (571,303) ---
Cash dividends (123,160) ( 125,884)
Net cash provided by financing
activities 10,104,630 5,484,210
Increase (decrease) in cash and
cash equivalents 1,504,942 (314,365)
Cash and cash equivalents,
beginning of period 1,291,426 1,251,373
Cash and cash equivalents,
end of period $ 2,796,368 $ 937,008
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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.
B. CONVERSION TO STOCK SAVINGS 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
4
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 December 31, 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 December 31,1998 aggregated $280,000 and $185,392, respectively.
Earnings Per Common Share
Basic earnings per share are computed by dividing net income by the
weighted average number of shares of common stock outstanding. For
the three and six-month periods ended December 31,1998, the weighted
average number of common shares used in the computation of basic
earnings per share were 699,705 and 707,565, respectively. The
weighted average number of common shares for the same periods in
1997 were 708,130 and 705,623, respectively.
5
Sobieski Bancorp, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements, Concluded
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 and six-month periods ended
December 31,1998, the weighted average number of common shares used
in the computation of diluted earnings per share were 704,222 and
714,471, respectively. The weighted average number of common shares
for the same periods in 1997 were 733,918 and 727,934,respectively.
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 Standards (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
officers'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 are being
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 $24,300 for the six-month period ended
December 31, 1998.
6
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 shareholder 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 $10.4 million during the six months
ended December 31, 1998 to $102.9 million from $92.5 million at
June 30, 1998. This increase was mainly due to increases in net loans of
$9.3 million, cash and due from financial institutions of $1.1 million
and interest-bearing demand deposits in other financial institutions of
$400,000, offset by a decrease of $780,000 in the securities portfolio
used to fund loan growth. The increase in loans receivable was a result
of purchasing participation interests in commercial loans, and increased
originations for commercial, home equity and mortgage loans.
The Company's total liabilities increased $10.7 million from $79.6 million
at June 30, 1998 to $90.3 million at December 31, 1998. The increase was
attributable in part to an increase in Federal Home Loan Bank ("FHLB")
advances of $4.8 million. These advances along with deposit growth were
primarily used to fund the increase in net originated loans and purchases
of participation interests in commercial loans. Deposits increased
$6.1 million from $60.5 million at June 30, 1998 to $66.6 million at
December 31, 1998. The deposit increase was the result of continued
competitive market pricing in a continuing declining interest rate
environment coupled with the uncertainties of a volatile stock market.
Stockholders' equity decreased by $277,000 to $12.59 million at
December 31, 1998 from $12.86 million at June 30, 1998, principally the
result of $571,000 of treasury stock purchases and dividends paid of
$123,000, offset by net income.
7
Item 2. Management's Discussion And Analysis of Financial
Condition And Results of Operations, Continued.
Results of Operations
General. The Company recorded net income for the three months ended
December 31, 1998 of $148,000 which is an increase of $21,000 over net
income of $127,000 for the same period in 1997. For the six months
ended December 31, 1998, net income was $301,000 which is an increase
of $51,000 over the reported net income of $250,000 for the comparable
period in the prior year.
Net Interest Income. The Company's net income is primarily dependent
upon net interest income. Net interest income was $769,000 and
$1.49 million for the three and six-month periods ended December 31, 1998,
respectively, as compared to $688,000 and $1.35 million for the same
periods in the prior year. The increase of $81,000 and $140,000 for the
three and six-month periods, respectively, was primarily a result of
increased income earned on loans offset in part by increases in interest
paid on deposits, and interest paid on increased FHLB advances. The
increase in interest income earned on loans was generated by net increased
loans volume offset by lower loan rates.
Interest expense for the three and six month periods ended
December 31, 1998 was $1.09 million and $2.13 million, respectively,
as compared to $905,000 and $1.74 million for the comparable period in
the prior year. The increases in interest expense for the three and
six-month periods ended December 31, 1998 was attributable to increased
interest paid on FHLB advances and increased interest paid on deposits.
Provisions for Loan Losses. During the three and six months ended
December 31, 1998 the Company had provisions of $25,000 and $40,000,
respectively, with no provisions for the comparable periods in the prior
year. At December 31, 1998, the Company's allowance for loan losses
totaled $280,000 or .33% of net loans and 151% 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 increased $10,000 to $41,000 for the three months ended
December 31, 1998 as compared to $31,000 for the same period last
year and increased $3,000 to $81,000 for the six months ended
December 31, 1998 from $78,000 for the same period in 1997. These
increases were due primarily to increased fee income and service
charges on customer accounts along with added letter of credit fee
income, offset by non-recurring loss recoveries recognized in the
previous year.
8
Item 2. Management's Discussion And Analysis of Financial
Condition And Results of Operations, Continued
Non-Interest Expenses. Non-interest expenses were $522,000 and
$1.00 million for the three and six-month periods ended
December 31, 1998, respectively, compared to $528,000 and
$1.02 million for the same periods last year. The decrease of
$18,000 for the six-month period ended December 31,1998 compared to
the same period last year was due to lower compensation and benefits,
federal deposit insurance premiums and other operating expenses offset
by increases in occupancy and equipment and advertising and promotion
expenditures.
Income Taxes. Income taxes for the six months ended December 31, 1998
were $224,000 on pre-tax income of $525,000, an effective tax rate of
42.7%. For the six months ended December 31, 1997, income taxes were
$159,000 on pre-tax income of $409,000, an effective tax rate of 38.8%
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
4% 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 December 31,1998, the Company's liquidity ratio was
19.05%.
At December 31,1998, 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 December 31,1998,
the Company had outstanding commitments to extend credit which amounted
to $5.5 million (including $2.4 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 December 31,1998, the Association had tangible capital of $9.6 million
or 9.5% of adjusted total assets which was $8.1 million above the minimum
capital requirement of $1.5 million or 1.5% of adjusted total assets.
At December 31,1998, the Association had core capital of $9.6 million or
9.5% of adjusted total assets which was $6.6 million above the minimum
capital requirement of $3.0 million or 3.0% of adjusted total assets.
9
Item 2. Management's Discussion And Analysis of Financial
Condition And Results of Operations, Continued
At December 31, 1998, the Association had total risk-based capital of
$9.9 million and risk-weighted assets of $52.5 million or total risk-based
capital of 18.9% of risk-weighted assets. This amount was $5.7 million
above the minimum regulatory risk-based capital requirement of
$4.2 million, or 8.0% of risk-weighted assets.
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 beginning July 1, 1998. In
the year of initial adoption, the Company is not 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. Bank
Insurance Fund insured institutions will pay 1.3 cents per $100 of
domestic deposits until the year 2000 when the assessment will be
imposed at the same rate on all FDIC insured institutions.
10
Item 2. Management's Discussion And Analysis of Financial
Condition And Results of Operations, Continued
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.
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 December 31, 1998, it is estimated that
the plan is over 90% complete.
The Company will continue to assess the impact of the Year 2000 Problem
on the remainder of its computer-based systems and applications throughout
1999. The Company has completed testing of all its mission critical
systems and applications and has not encountered any material difficulties
during the testing process.
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 Year 2000 compliance. The Company is
investing in new or upgraded technology that has definable value
lasting beyond the Year 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.
11
Item 2. Management's Discussion And Analysis of Financial
Condition And Results of Operations, Concluded
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
suppliers 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
Company 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.
12
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
None
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
13
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: February 12,1999
By: /s/s Thomas F. Gruber
Thomas F. Gruber
President and Chief Executive Officer
Date: February 12,1999
By: /s/s Arthur Skale
Arthur Skale
Chief Financial Officer
14
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MO
[FISCAL-YEAR-END] JUN-30-1999
[PERIOD-END] DEC-31-1998
[CASH] 2,796,368
[SECURITIES] 10,357,049
[RECEIVABLES] 86,287,730
[ALLOWANCES] 280,000
[INVENTORY] -0-
[CURRENT-ASSETS] 1,834,787
[PP&E] 1,913,921
[DEPRECIATION] - 0-
[TOTAL-ASSETS] 102,909,855
[CURRENT-LIABILITIES] 90,322,398
[BONDS] -0-
[PREFERRED-MANDATORY] - 0-
[PREFERRED] - 0-
[COMMON] 9,660
[OTHER-SE] 12,577,797
[TOTAL-LIABILITY-AND-EQUITY] 102,909,855
[SALES] -0-
[TOTAL-REVENUES] 3,702,629
[CGS] -0-
[TOTAL-COSTS] -0-
[OTHER-EXPENSES] 992,679
[LOSS-PROVISION] 40,000
[INTEREST-EXPENSE] 2,133,986
[INCOME-PRETAX] 535,964
[INCOME-TAX] 235,400
[INCOME-CONTINUING] -0-
<DISCOUNTINUED> -0-
[EXTRAORDINARY] -0-
[CHANGES] -0-
[NET-INCOME] 300,564
[EPS-PRIMARY] .42
[EPS-DILUTED] .42
</TABLE>
