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 March 31,1999
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 May 12, 1999, there were 729,432 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
March 31,1999 and June 30,1998
<TABLE>
<CAPTION>
March 31, June 30,
ASSETS 1999 1998
(Unaudited)
<S> <C> <C>
Cash, including interest-bearing
deposits in other financial
institutions of $3,211,760 and
$442,725, respectively $3,582,489 $ 1,291,426
Investment securities, available-for-sale
(amortized cost of $580,213 and
$499,267, respectively) 573,094 499,720
Investment securities, held-to-maturity
(market value of approximately $188,400) 200,000 -
Mortgage-backed securities,
available-for-sale (amortized cost of
$513,927 and $603,381, respectively) 507,845 594,550
Mortgage-backed securities, held-to-maturity
(market value of approximately $8,064,500
and $9,888,300, respectively) 8,111,046 9,943,105
Loans, net 86,265,138 76,712,631
Federal Home Loan Bank stock, at cost 1,200,500 922,500
Property and equipment, net 1,918,217 1,923,506
Other assets 744,167 609,130
-
Total assets $103,102,496 $ 92,496,568
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 66,328,846 $ 60,517,246
Federal Home Loan Bank advances 23,250,000 18,450,000
Advances from borrowers for taxes
and insurance 655,123 374,627
Accrued income taxes 27,864 105,735
Accrued interest and other expenses 380,213 184,565
Total liabilities 90,642,046 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 9,235,696 9,217,094
Retained earnings, substantially
restricted 7,237,459 6,963,420
Net unrealized depreciation of
securities available-for-sale ( 8,714) ( 5,529)
16,474,101 16,184,645
Less: Treasury stock, at cost,
251,248 and 201,821 shares,respectively 3,545,845 2,816,402
Unallocated Employee Stock Ownership
Plan shares; 46,781 shares and 50,385
shares, respectively 467,806 503,848
Total stockholders' equity 12,460,450 12,864,395
Total liabilities and stockholders'equity $ 103,102,496 $ 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 nine months ended March 31,1999 and 1998
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31, Ended March 31,
1999 1998 1999 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest Income:
Loans $ 1,644,468 $ 1,389,466 $ 4,862,268 $ 3,965,947
Mortgage-backed
securities 123,049 181,223 396,520 578,353
Investment securities 11,749 29,875 25,875 71,702
Interest-bearing deposits 49,002 26,033 165,396 99,723
Total interest income 1,828,268 1,626,597 5,450,059 4,715,725
Interest expense:
Interest on deposits 749,737 684,764 2,280,004 2,041,657
Interest on borrowings 303,838 241,600 907,557 621,302
Total interest expense 1,053,575 926,364 3,187,561 2,662,959
Net interest income 774,693 700,233 2,262,498 2,052,766
Provision for loan losses 15,000 -- 55,000 --
Net interest income after
provision for loan losses 759,693 700,233 2,207,498 2,052,766
Non-interest income:
Fees and service charges 36,796 31,298 112,266 90,177
Gain on sales of securities -- 6,563 -- 6,563
Other income 5,654 110 11,022 19,583
Total non-interest income 42,450 37,971 123,288 116,323
Non-interest expenses:
Compensation and benefits 280,597 284,126 839,160 855,754
Occupancy and equipment 85,440 69,382 236,876 212,557
Federal deposit insurance
premiums 9,943 9,196 27,945 27,876
Advertising and promotion 9,340 10,338 31,533 24,279
Service bureau expense 53,952 35,760 131,495 107,002
Other operating expenses 91,164 87,999 267,106 290,786
Total non-interest expenses 530,436 496,801 1,534,115 1,518,254
Income before income taxes 271,707 241,403 796,671 650,835
Provision for income taxes 115,600 116,556 340,000 275,556
Net income 156,107 124,847 456,671 375,279
Other comprehensive income,
net of tax: Unrealized
appreciation (Depreciation)
of available
for-sale-securities (368) (1,261) (3,185) 12,572
Total comprehensive income $ 155,739 $ 123,536 $ 453,486 $ 387,851
Basic earnings per
common share $ 0.23 $ 0.18 $ 0.65 $ 0.53
Diluted earnings per
common share $ 0.23 $ 0.17 $ 0.65 $ 0.52
Dividends per
common share $ 0.08 $ 0.08 $ 0.24 $ 0.24
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
Sobieski Bancorp, Inc. And Subsidiary
Condensed Consolidated Statements Of Cash Flows
for the nine months ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Nine Months
Ended December 31,
1999 1998
(Unaudited)
<S> <C> <C>
Cash flows provided by (used in)
operating activities:
Net income $ 456,671 $ 375,279
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation of property
and equipment 83,298 82,516
Provision for loan losses 55,000 -
Gain on sale of investment
securities - ( 6,563)
Gain on sale of real estate
owned, net - (2,085)
Contribution to Employee Stock
Ownership Plan 55,268 67,007
Contribution to Recognition and
Retention Plan 68,823 42,064
Amortization of premiums and
accretion of discounts, net 75,196 77,553
Amortization of deferred loan fees 18,736 (12,701)
Increase in other assets (133,397) (108,652)
Increase (decrease) in accrued
income taxes (77,871) 31,570
Increase in accrued interest and
other expenses 195,646 76,792
Net cash provided by operating
activities 797,370 622,780
Cash flows provided by
investing activities:
Purchase of investment
securities ( 782,201) -
Purchase of certificates
of deposit (100,000) -
Proceeds from maturities of
certificates of deposit 100,000 198,000
Proceeds from maturities of
investment securities 500,000 1,706,563
Principal reductions of
mortgage-backed securities 1,847,572 1,695,250
Net increase in loans made to
customers and principal
collections on loans (9,626,243) (10,454,333)
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 (78,009) (15,762)
Net cash used in investing
activities (8,416,881) (7,093,660)
Cash flows provided by
(used in) financing activities:
Net increase in deposits 5,811,600 840,384
Increases in advances from
borrowers for taxes and insurance 280,496 402,200
Federal Home Loan Bank advances 10,800,000 25,100,000
Repayment of Federal Home Loan
Bank advances (6,000,000) (18,650,000)
Purchase of treasury stock (798,890) ---
Cash dividends (182,632) (188,603)
Net cash provided by financing
activities 9,910,574 7,503,981
Increase in cash
and cash equivalents 2,291,063 1,033,101
Cash and cash equivalents,
beginning of period 1,291,426 1,251,373
Cash and cash equivalents,
end of period $ 3,582,489 $ 2,284,474
</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.
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
March 31, 1999.
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 March 31,1999 aggregated $295,000 and $157,400, 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 nine-month periods ended March 31,1999, the weighted average
number of common shares used in the computation of basic earnings per
share were 682,940 and 699,350, respectively. The weighted average number
of common shares for the same periods in 1998 were 710,911 and 707,457,
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 nine-month periods ended March 31,1999,
the weighted average number of common shares used in the computation of
diluted earnings per share were 686,678 and 705,207, respectively. The
weighted average number of common shares for the same periods in 1998
were 728,306 and 728,130, 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 $41,200 for the nine-month period ended
March 31, 1999.
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 $10.6 million during the nine
months ended March 31, 1999 to $103.1 million from $92.5 million at
June 30, 1998. This increase was mainly due to increases in net loans
of $9.6 million,
and interest-bearing demand deposits in other financial institutions
of $2.8 million, offset by a decrease of $1.6 million 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 $11 million from $79.6 million
at June 30, 1998 to $90.6 million at March 31, 1999. 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
$5.8 million from $60.5 million at June 30, 1998 to $66.3 million at
March 31, 1999. The deposit increase was the result of continued
competitive market pricing of our deposits in a continuing low interest
rate environment.
Stockholders' equity decreased by $404,000 to $12.46 million at
March 31, 1999 from $12.86 million at June 30, 1998, principally the
result of $799,000 of treasury stock purchases and dividends paid of
$183,000, 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
March 31, 1999 of $156,000 which is an increase of $31,000 over net
income of $125,000 for the same period in 1998. For the nine months
ended March 31, 1999, net income was $457,000 which is an increase of
$82,000 over the reported net income of $375,000 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 $775,000 and
$2.26 million for the three and nine-month periods ended March 31, 1999,
respectively, as compared to $700,000 and $2.05 million for the same
periods in the prior year. The increase of $75,000 and $210,000 for the
three and nine-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
loan volume offset by lower loan rates.
Interest expense for the three and nine month periods ended March 31, 1999
was $1.05 million and $3.19 million, respectively, as compared to $926,000
and $2.66 million for the comparable period in the prior year. The
increases in interest expense for the three and nine-month periods ended
March 31, 1999 was attributable to increased interest paid on FHLB
advances and increased interest paid on deposits.
Provisions for Loan Losses. During the three and nine months ended
March 31, 1999 the Company had provisions of $15,000 and $55,000,
respectively, with no provisions for the comparable periods in the prior
year. At March 31, 1999, the Company's allowance for loan losses totaled
$295,000 or .34% of net loans and 187% 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 $4,000 to $42,000 for the three months ended
March 31, 1999 as compared to $38,000 for the same period last year
and increased $7,000 to $123,000 for the nine months ended March 31, 1999
from $116,000 for the same period in 1998. These increases were due
primarily to increased fee income and service charges on customer accounts
along with added letter of credit fee income.
8
Item 2. Management's Discussion And Analysis of Financial
Condition And Results of Operations, Continued
Non-Interest Expenses. Non-interest expenses were $530,000 and
$1.53 million for the three and nine-month periods ended March 31, 1999,
respectively, compared to $497,000 and $1.52 million for the same periods
last year. The decrease of $16,000 for the nine-month period ended
March 31,1999 compared to the same period last year was due to lower
compensation and benefits, and other operating expenses offset by
increases in occupancy and equipment, advertising and promotion and
service bureau expenses.
Income Taxes. Income taxes for the nine months ended March 31, 1999
were $340,000 on pre-tax income of $797,000, an effective tax rate of
42.7%. For the nine months ended March 31, 1998, income taxes were
$275,000 on pre-tax income of $651,000, an effective tax rate of
42.3%
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 March 31,1999, the Company's liquidity
ratio was 17.42%.
At March 31, 1999, 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 March 31,1999, the Company
had outstanding commitments to extend credit which amounted to
$6.3 million (including $2.7 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 March 31,1999, the Association had tangible capital of $9.8 million
or 9.5% of adjusted total assets which was $8.2 million above the minimum
capital requirement of $1.6 million or 1.5% of adjusted total assets.
At March 31,1999, the Association had core capital of $9.8 million or
9.5% of adjusted total assets which was $6.7 million above the minimum
capital requirement of $3.1 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 March 31, 1999, the Association had total risk-based capital of
$10.1 million and risk-weighted assets of $52.7 million or total
risk-based capital of 19.1% of risk-weighted assets. This amount was
$5.9 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
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 March 31, 1999, it is estimated that the plan is
over 95% 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: May 13, 1999
By: /s/s Thomas F. Gruber
Thomas F. Gruber
President and Chief Executive Officer
Date: May 13, 1999
By: /s/s Arthur Skale
Arthur Skale
Chief Financial Officer
14
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MO
[FISCAL-YEAR-END] 06-30-1999
[PERIOD-END] 03-31-1999
[SECURITIES] 9,391,985
[RECEIVABLES] 86,560,138
[ALLOWANCES] 295,000
[INVENTORY] -0-
[CURRENT-ASSETS] 5,527,156
[PP&E] 1,918,217
[DEPRECIATION] - 0-
[TOTAL-ASSETS] 103,102,496
[CURRENT-LIABILITIES] 90,942,046
[BONDS] -0-
[PREFERRED-MANDATORY] - 0-
[PREFERRED] - 0-
[COMMON] 9,660
[OTHER-SE] 12,450,790
[TOTAL-LIABILITY-AND-EQUITY] 103,102,496
[SALES] -0-
[TOTAL-REVENUES] 5,573,347
[CGS] -0-
[TOTAL-COSTS] -0-
[OTHER-EXPENSES] 1,534,115
[LOSS-PROVISION] 55,000
[INTEREST-EXPENSE] 3,187,561
[INCOME-PRETAX] 796,671
[INCOME-TAX] 340,000
[INCOME-CONTINUING] -0-
<DISCOUNTINUED> -0-
[EXTRAORDINARY] -0-
[CHANGES] -0-
<NEW-INCOME> 456,671
[EPS-PRIMARY] .65
[EPS-DILUTED] .65
</TABLE>
