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 UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to __________.
Commission File Number 000-18887
COLONIAL TRUST COMPANY
(Exact name of registrant as specified in its charter)
Arizona 75-2294862
(State of Incorporation) (IRS Employer identification Number)
5336 N. 19th Avenue
Phoenix, Arizona 85015
(Address of principal executive offices)
602-242-5507
(Registrant's telephone number)
NONE
(Former name, address and fiscal year, if changed since last report)
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 __________
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.
Yes __________ No __________
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date.
At July 31, 2001, there were approximately 732,124 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes _________ No___X______
2
COLONIAL TRUST COMPANY
INDEX
Page
Part I. Financial Information:
Item 1: Financial Statements 3
Condensed Balance Sheets 3
Condensed Statements of Earnings 4
Condensed Statements of Cash Flows 5
Notes to Condensed Financial Statements 6
Item 2: Management's Discussion and Analysis or
Plan of Operation 8
Part II. Other Information
Item 1: Legal Proceedings 11
Item 2: Changes in Securities 12
Item 3: Default Upon Senior Securities 12
Item 4: Submission of Matters to a Vote of Security Holders 12
Item 5: Other Information 12
Item 6a: Exhibits 12
Item 6b: Reports on Form 8-K 12
SIGNATURES 12
3
COLONIAL TRUST COMPANY
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
(Unaudited)
ASSETS June 30, 2001 March 31, 2001
------------- --------------
Cash and cash equivalents $134,472 $319,204
Receivables 957,480 824,111
Note receivable 608,686 381,507
Property, furniture and equipment, net 764,283 796,036
Excess of cost over fair value acquired, net 113,869 116,911
Other assets 116,441 97,478
Restricted cash 522,133 515,831
------- -------
$3,217,364 $3,051,078
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $306,457 $304,797
Income tax payable 41,256 -
Deferred income taxes 12,193 12,193
------ ------
Total Liabilities 359,906 316,990
Stockholders' equity:
Common stock, no par value;
25,000,000 shares authorized,
732,177 (unaudited) issued and
outstanding at June 30, 2001 and
720,843 issued and outstanding
at March 31, 2001 614,286 578,911
Additional paid-in capital 506,208 506,208
Retained earnings 1,736,964 1,648,969
--------- ---------
Total Stockholders' Equity 2,857,458 2,734,088
$3,217,364 $3,051,078
========== ==========
See accompanying notes to condensed financial statements.
4
COLONIAL TRUST COMPANY
Condensed Statements of Earnings (Unaudited)
Three-month periods
Ended June 30,
--------------
Revenues: 2001 2000
---- ----
Bond servicing income $583,488 $716,997
IRA servicing fees-corporate 180,282 183,579
IRA servicing fees-personal trust 66,355 45,345
Trust fee income 238,652 182,127
Interest income 18,414 17,222
------ ------
Total revenue 1,087,191 1,145,270
General and administrative expenses 931,322 859,961
------- -------
Earnings before income taxes 155,869 285,309
Income taxes 63,791 122,327
------ -------
Net earnings $92,078 $162,982
======= ========
Basic net earnings per common share $.13 $.22
==== ====
Diluted net earnings per common share $.12 $.22
==== ====
Weighted average shares outstanding -basic 730,174 735,697
======= =======
Weighted average shares outstanding-diluted 754,578 757,640
======= =======
See accompanying notes to condensed financial statements.
5
COLONIAL TRUST COMPANY
Condensed Statements of Cash Flows (Unaudited)
Three-month periods
Ended June 30,
--------------
2001 2000
---- ----
Cash flows from operating activities:
Net earnings $92,078 $162,982
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 41,069 36,984
Increase in receivables (133,369) (36,300)
(Increase) decrease in other assets (18,963) 9,660
Increase (Decrease) in accounts payable and
accrued liabilities 1,660 (38,356)
Increase in income tax payable 41,256 17,328
------ ------
Net cash provided by operating activities 23,731 152,298
Cash flows from investing activities:
Purchase of property, furniture and equipment (6,274) (2,802)
Additions to note receivable (227,179) (4,552)
Payments received on note receivable - 175,000
Increase in restricted cash (6,302) (7,645)
------ ------
Net cash (used in) provided by investing
activities (239,755) 160,001
Cash flows from financing activities:
Proceeds from issuance of common stock under
stock option plan 35,375 -
Purchase and retirement of common stock (4,083) (130,052)
------ --------
Net cash provided by (used in) financing activities 31,292 (130,052)
Increase (decrease) in cash and cash equivalents (184,732) 182,247
Cash and cash equivalents at beginning of period 319,204 9,260
------- -----
Cash and cash equivalents at end of period $134,472 $191,507
======== ========
See accompanying notes to condensed financial statements.
6
COLONIAL TRUST COMPANY
Notes to Condensed Financial Statements
1. Significant Accounting Policies
---------------------------------
In the opinion of Colonial Trust Company (the "Company"), the accompanying
unaudited condensed financial statements contain all adjustments necessary
to present fairly the financial position, the results of operations and
cash flows for the periods presented. The accompanying statements do not
include all disclosures considered necessary for a fair presentation in
conformity with accounting principles generally accepted in the United
States of America. Therefore, it is recommended that these accompanying
statements be read in conjunction with the financial statements appearing
in the Company's Annual Report on Form 10-KSB for the year ended March 31,
2001.
(a) Nature of Business
------------------
The Company was incorporated on August 15, 1989, in the State of
Arizona for the purpose of engaging in the business of acting as a
fiduciary. The Company is domiciled in the State of Arizona and is
regulated by the Arizona Banking Department. The Company's common
stock is registered under the Securities Exchange Act of 1934.
The Company serves as trustee under various bond indentures for
issuers of bonds in 41 states. The issuers are primarily churches and
other religious organizations. From time to time, the Company serves
as trustee and/or paying agent on bond offerings of for-profit
organizations. As trustee, the Company receives, holds, invests and
disburses the bond proceeds as directed by the applicable trust
indenture and receives weekly or monthly sinking fund payments from
the issuer of bonds, and, in turn, pays the semiannual principal and
interest payments to the bondholders.
The Company also serves as trustee of self-directed individual
retirement accounts for certain bondholders or employees of religious
organizations.
The Company's Personal Trust segment provides investment management,
administration and custodial services for customers with various
securities held in trust or in investment agency accounts.
(b) Revenue Recognition
-------------------
Under the trust indentures with organizations issuing bonds, Colonial,
for its services, principally earns revenues based on three fee
structures. The first fee structure allows Colonial to invest trust
funds held for disbursement and retain the gains and earnings
therefrom. The second fee structure requires the issuing institution
to pay a percentage of the bond proceeds to the Company for set-up and
printing costs during the first year. Additionally, an annual
maintenance fee is required each succeeding year. The third fee
structure entitles Colonial to interest earnings up to 2.5% of daily
trust funds held in bond program fund accounts in lieu of a set-up
fee. Annual maintenance fees and bond printing costs are charged as a
percentage of the related bond issuance. Colonial also receives fees
for services provided as custodian for self-directed individual
retirement accounts.
In connection with providing investment management, administration and
custodial services, Colonial earns revenue based on two fee
structures. The first fee structure is established as a percentage of
the fiduciary assets Colonial holds as trustee or agent. Fees are
assessed on a monthly basis to individual accounts according to the
prior month end fair market value of the each account. The second fee
structure relates to an annual fee which is set up to cover the
maintenance of fiduciary assets Colonial holds in both trust and
self-directed IRA accounts. Minimum fees are assessed monthly based on
one twelfth of the published annual minimum.
7
(c) Computation of Earnings Per Common Share
-----------------------------------------
Basic EPS is computed based on weighted average shares outstanding and
excludes any potential dilution from stock options, warrants and other
common stock equivalents. Diluted EPS reflects potential dilution from
the exercise or conversion of securities into common stock or from
other contracts to issue common stock.
2. Note receivable
---------------
On December 1, 1990, the Company entered into a Master Note and Letter
Agreement with Church Loans and Investment Trust, Inc., its former parent
corporation. The Master Note, in the maximum amount of $1,000,000, is due
on demand, bears interest payable monthly at 1% less than the prime rate
and is unsecured. Amounts advanced from time to time may be prepaid and
re-borrowed.
3. Earnings Per Share
------------------
A reconciliation from basic earnings per share to diluted earnings per
share for the periods ended June 30, 2001, and June 30, 2000 follows:
Three-month period
Ended June 30,
--------------
2001 2000
---- ----
Net earnings $92,078 $162,982
------- --------
Basic EPS
-weighted average shares outstanding 730,174 735,697
------- -------
Basic EPS $.13 $.22
---- ----
Basic EPS
-weighted average shares outstanding 730,174 735,697
Effect of dilutive securities:
Stock options 24,404 21,943
------ ------
Diluted EPS-weighted average shares
outstanding 754,578 757,640
------- -------
Diluted EPS $.12 $.22
---- ----
4. Business Segments
-----------------
Operating results and other financial data are presented for the principal
business segments of the Company as of and for the three-month periods
ended June 30, 2001 and 2000, respectively. The Company has two distinct
business segments consisting of Corporate Trust services and Personal Trust
services.
In computing operating profit by business segment, interest income,
portions of administrative expenses and other items not considered direct
operating expenses were considered to be in the Other category.
8
Three-month periods: Corporate Personal Other Total
Trust Trust
_______ _______ _______ _______
June 30, 2001
Bond Servicing Income $583,488 - - $583,488
IRA Servicing Fees 180,282 $66,355 - 246,637
Trust Fee Income - 238,652 - 238,652
Interest Income - - $18,414 18,414
------- ------ ------- ------
$763,770 $305,007 $18,414 $1,087,191
-------- -------- ------- ----------
General & Administrative
Expenses $357,833 $251,974 $321,515 $931,322
-------- -------- -------- --------
June 30, 2000
Bond Servicing Income $716,997 - - $716,997
IRA Servicing Fees 183,579 $45,345 - 228,924
Trust Fee Income - 182,127 - 182,127
Interest Income - - $17,222 17,222
------- ------ ------- ------
$900,576 $227,472 $17,222 $1,145,270
-------- -------- ------- ----------
General & Administrative
Expenses $386,670 $174,411 $298,880 $859,961
-------- -------- -------- --------
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations-Three-Month Periods Ended June 30, 2001
-------------------------------------------------------------
and June 30, 2000
-----------------
The Company had net earnings of $92,078, or $.12 diluted earnings per
share, for the period ended June 30, 2001, compared to net earnings of
$162,982, or $.22 diluted earnings per share, for the period ended June 30,
2000, a decrease in net earnings of 44%. The Company had total revenue of
$1,087,191 for the period ended June 30, 2001, compared to total revenue of
$1,145,270 for the period ended June 30, 2000, a decrease of 5%.
The Corporate Trust segment's income decreased to $763,770 for the period
ended June 30, 2001 compared to $900,576 for the period ended June 30,
2000, a decrease of 15%. The Personal Trust segment's income increased to
$305,007 for the period ended June 30, 2001, compared to $227,472 for the
period ended June 30, 2000, an increase of 34%.
The Corporate Trust segment's bond servicing income decreased to $583,488
for the period ended June 30, 2001, compared to $716,997 for the period
ended June 30, 2000, a decrease of 19%. The decrease in bond servicing
revenue was primarily attributable to a decrease in the dollar volume of
new nonprofit bond issuances for which the Company was serving as trustee
and paying agent in the quarter ended June 30, 2001, compared to new
nonprofit bond issuances originated in quarter ended June 30, 2000. Such
decrease was primarily attributable to less favorable market conditions in
the quarter ended June 30, 2001 compared to the prior year. At June 30,
2001, the Company was serving as trustee and paying agent on 467 bond
offerings totaling approximately $459,500,000 in original principal amount;
at June 30, 2000, the Company was serving as trustee and paying agent on
458 bond offerings totaling approximately $458,000,000 in original
principal amount.
Revenue from the Corporate Trust segment's IRA servicing activities
decreased to $180,282 for the period ended June 30, 2001, compared to
$183,579 for the period ended June 30, 2000, a decrease of 2%. This
decrease in Corporate Trust IRA revenue was partially due to certain
maintenance fees which were paid previous to the current quarter ended June
30, 2001 by the Stevens Financial Group, and are no longer being paid to
the Company due to the filing of the Stevens Bankruptcy petition (see "Part
II - item 1 - Legal Proceedings"). Additionally, maintenance fees from 135
IRA accounts added in the year ended June 30, 2001 will not commence until
after June 30, 2001. Revenue from the Personal Trust segment's IRA
servicing activities increased to $66,355 for the period ended June 30,
2001, compared to $45,345 for the period ended June 30, 2000, an increase
of 46%. The increase in Personal Trust IRA revenue was primarily due to an
increase in the number of IRA's serviced by the Company. At June 30, 2001,
the Corporate Trust segment was servicing 9,623 IRA's with an aggregate
value of approximately $175,500,000 and the Personal Trust segment was
servicing 230 IRA's with an aggregate value of approximately $46,800,000.
At June 30, 2000, the Corporate Trust segment was servicing 9,413 IRA's
with an aggregate value of approximately $157,000,000, and the Personal
Trust segment was servicing 226 IRA's with an aggregate value of
approximately $45,040,000.
9
The Personal Trust segment's trust income increased to $238,652 for the
period ended June 30, 2001, compared to $182,127 for the period ended June
30, 2000, an increase of 31%. The increase in trust income was primarily
due to the increase in the number of trust investment accounts or other
accounts serviced by the Company. At June 30, 2001, the Personal Trust
segment was serving as trustee or agent for 641 trust, investment, or other
accounts with an aggregate value of approximately $138,000,000. At June 30,
2000, the Personal Trust segment was serving as Trustee or agent for 341
trust, investment, or other accounts with a fair market value of
approximately $80,000,000.
Interest income increased to $18,414 for the period ended June 30, 2001,
compared to $17,222 for the period ended June 30, 2000, an increase of 7%.
The increase was primarily attributable to a larger balance held for
investment in the Master Demand Note.
The Corporate Trust segment's general and administrative expenses decreased
in the aggregate to $357,833 for the period ended June 30, 2001, compared
to $386,670 for the period ended June 30, 2000, but increased to 47% of
segment revenues for the period ended June 30, 2001, compared to 43% of
segment revenues for the period ended June 30, 2000. The Personal Trust
segment's general and administrative expenses increased in the aggregate to
$251,974 for the period ending June 30, 2001, compared to $174,411 for the
period ended June 30, 2000, and increased to 83% of segment revenues for
the period ended June 30, 2001, compared to 77% of segment revenues for the
period ended June 30, 2000. The decrease in the Corporate Trust segment's
general and administrative expenses was primarily due to a reduction in
marketing personnel expenses. The increase in the Personal Trust segment's
general and administrative expenses was due primarily to an increase in
personnel as well as additional expenses involved in administering the
Company's increased trust servicing business. The increase in general and
administrative expenses as a percentage of segment revenues for the
Corporate Trust segment was due to expenses remaining relatively constant
but being applied to significantly decreased revenue base. The increase in
general and administrative expenses as a percentage of segment revenues for
the Personal Trust segment was primarily due to increased personnel costs
in anticipation of increased revenues.
The Company's effective income tax rate was 40.9% for the three-month
period ended June 30, 2001, and 42.9% for the three-month period ended June
30, 2000.
Liquidity and Capital Resources
-------------------------------
Under Arizona law, the Company is required to maintain net capital of at
least $500,000; the Company's net capital was $2,857,458 on June 30, 2001.
Arizona law also requires that the Company's net capital meet certain
liquidity requirements. Specifically, $500,000 of such net capital must
meet the Arizona Banking Department's liquidity requirements. Additional
capital requirements may be imposed upon the Company in the future as a
result of Arizona legislation which will become effective on August 9,
2001. For further discussion of possible future additional capital
requirements, see "Item 1: Regulation, Licensing and Supervision" of the
Company's 10-KSB for fiscal year ended March 31, 2001. At June 30, 2001,
$522,133 of the Company's net capital met the Department's liquidity
requirements. The Company believes that it will be able to satisfy its
working capital and capital expenditure requirements for the foreseeable
future from existing cash balances, from anticipated cash flow from
operating activities, and from funds available under the Company's Master
Note with its former parent, Church Loans and Investments Trust.
10
The Company's cash and cash equivalents decreased from $319,204 on March
31, 2001, to $134,472 on June 30, 2001, while the note receivable increased
from $381,507 on March 31, 2001, to $608,686 on June 30, 2001. The decrease
in the cash and cash equivalents was primarily due to advances under the
Master Demand Note and payments for costs and expenses associated with the
Stevens Bankruptcy Proceeding (see "Part II Item 1: Legal Proceedings)",
offset by cash flows from operating activities during the quarter ended
March 31, 2001. The Company's net property and equipment decreased from
$796,036 on March 31, 2001, to $764,283 on June 30, 2001. The decrease was
primarily due to depreciation on existing furniture, equipment and computer
software. The Company believes that capital expenditure requirements for
the foreseeable future will be covered by excess cash flow from operations.
Impact of Recently Issued Accounting Standards
----------------------------------------------
In July 2001, the FASB issued Statement No. 141, Business Combinations
("Statement 141"), and Statement No. 142, Goodwill and Other Intangible
Assets ("Statement 142"). Statement 141 requires that the purchase method
of accounting be used for all business combinations initiated after June
30, 2001 as well as all purchase method business combinations completed
after June 30, 2001. Statement 141 also specifies criteria intangible
assets acquired in a purchase method business combination must meet to be
recognized and reported apart from goodwill, noting that any purchase price
allocable to an assembled workforce may not be accounted for separately.
Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement
142. Statement 142 will also require that intangible assets with definite
useful lives be amortized over their respective estimated useful lives to
their estimated residual values, and reviewed for impairment in accordance
with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of.
The Company is required to adopt the provisions of Statement 141
immediately and Statement 142 effective April 1, 2002. Furthermore, any
goodwill and any intangible asset determined to have an indefinite useful
life that are acquired in a purchase business combination completed after
June 30, 2001 will not be amortized, but will continue to be evaluated for
impairment in accordance with the appropriate pre-Statement 142 accounting
literature. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 will continue to be amortized
prior to the adoption of Statement 142.
Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in
a prior purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in Statement
141 for recognition apart from goodwill. Upon adoption of Statement 142,
the Company will be required to reassess the useful lives and residual
values of all intangible assets acquired in purchase business combinations,
and make any necessary amortization period adjustments by the end of the
first interim period after adoption. In addition, to the extent an
intangible asset is identified as having an indefinite useful life, the
Company will be required to test the intangible asset for impairment in
accordance with the provisions of Statement 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in
the first interim period.
In connection with the transitional goodwill impairment evaluation,
Statement 142 will require the Company to perform an assessment of whether
there is an indication that goodwill is impaired as of the date of
adoption. To accomplish this the Company must identify its reporting units
and determine the carrying value of each reporting unit by assigning the
assets and liabilities, including the existing goodwill and intangible
assets, to those reporting units as of the date of adoption. The Company
will then have up to six months from the date of adoption to determine the
fair value of each reporting unit and compare it to the reporting unit's
carrying amount. To the extent a reporting unit's carrying amount exceeds
its fair value, an indication exists that the reporting unit's goodwill may
be impaired and the Company must perform the second step of the
transitional impairment test. In the second step, the Company must compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of its assets (recognized
and unrecognized) and liabilities in a manner similar to a purchase price
allocation in accordance with Statement 141, to its carrying amount, both
of which would be measured as of the date of adoption. This second step is
required to be completed as soon as possible, but no later than the end of
the year of adoption. Any transitional impairment loss will be recognized
as the cumulative effect of a change in accounting principle in the
Company's statement of earnings.
11
As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of $113,869, which will be subject to the transition
provisions of Statements 141 and 142. Amortization expense related to
goodwill was $12,170 and $3,042 for the year ended March 31, 2001 and the 3
months ended June 30, 2001, respectively. Because of the extensive effort
needed to comply with adopting Statements 141 and 142, it is not
practicable to reasonably estimate the impact of adopting these Statements
on the Company's financial statements at the date of this report, including
whether any transitional impairment losses will be required to be
recognized as the cumulative effect of a change in accounting principle.
Market Risk
-----------
In the opinion of management, our market risk factors have not changed
materially from those set forth in the Company's 10-KSB for the year ended
March 31, 2001.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995.
Our quarterly report on Form 10-QSB contains various forward-looking
statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act, and is subject to the safe
harbors created thereby. Forward-looking statements are often characterized
by the words "believes," "estimates," "anticipates," "projects" or
"expects," or similar expressions. Forward-looking statements are
inherently subject to risks and uncertainties, some of which cannot be
predicted or quantified. Actual results could differ materially because of
the following factors, among others: the Company's continued involvement in
each of its current business segments; the Company's success in maintaining
relationships with the broker/dealers with whom it currently does business;
the success of the Company's efforts to develop relationships with other
broker/dealers who can serve as a source of referrals for the Company; the
continued employment of key management; the success of the Company in its
business development efforts; the continuation of the Company's investment
advisory agreements with HIA, WIS and FSG and their success in managing the
trust and investment agency accounts for which they provide services; the
Company's ability to recover the costs it has incurred and will incur in
the future in connection with the bankruptcy proceeding of Stevens
Financial Group, Inc. ("Stevens"), which costs total approximately $200,000
through July 31, 2001; whether one or more parties will assert claims or
institute legal proceedings against the Company related to the Company's
services as indenture trustee on the Stevens bond offerings; increased
staffing or office needs not currently anticipated; competitive factors,
such as increased competition for the services provided by the Company in
one or more of its business segments; the Company's successful performance
of its duties as trustee and/or paying agent on bond offerings, as trustee
for IRA's, and as manager, administrator and custodian for trust and
investment agency accounts; and changes in rules and regulations adversely
impacting the Company's business segments. Other factors are detailed in
the sections entitled "Management's Discussion and Analysis or Plan of
Operation - Risk Factors" in our most recent report on Form 10-KSB, in
Exhibit 99 attached to this Quarterly Report on 10-QSB, and elsewhere in
our Securities and Exchange Commission filings. By making these
forward-looking statements, we undertake no obligation to update these
statements for revisions or changes after the date of this report.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
The Company is a party to various legal proceedings arising in the ordinary
course of business. While it is not feasible to predict the ultimate
disposition of these matters, in the opinion of management their outcome,
with the possible exception of the event mentioned below, will not have a
material adverse effect on the financial condition or results of operations
of the Company.
On March 19, 2001, Stevens Financial Group, Inc. ("Stevens") filed a
Voluntary Petition under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the District of Arizona (Case No.
01-03105-ECF-RTB) (the "Stevens Bankruptcy Proceeding"). The Company serves
as Trustee under seven Trust Indentures (the "Stevens Trust Indentures")
which secure obligations of Stevens under certain Time Certificates and
Fixed Rate Investments (debt instruments). Stevens has defaulted on all
outstanding debt instruments. Based on information provided to the Company
to date, the aggregate principal amount of the outstanding debt instruments
is approximately $64 million, and accrued and unpaid interest on these debt
instruments through March 19, 2001 (the date of the initiation of the
Stevens Bankruptcy Proceeding) is approximately $13.5 million.
To date, no legal proceedings are pending against the Company related to
the Stevens Bankruptcy Proceeding or the Company's services as Indenture
Trustee under the Stevens Trust Indentures. However, the Company has
incurred costs and expenses of approximately $200,000 through July 31, 2001
in connection with the Stevens Bankruptcy Proceeding. The Company will
continue to incur additional costs and expenses related to this matter for
the foreseeable future. Such costs and expenses may be material, and the
Company may not be able to recover such costs in the Stevens Bankruptcy
Proceeding. In the event such costs and expenses are material and the
Company does not recover those costs and expenses, this would have a
material adverse effect on the Company's financial condition and results of
operations. Additionally, claims may be asserted or litigation may be
initiated against the Company relating to its service as Indenture Trustee
under the Stevens Trust Indentures.
Item 2: Changes in Securities
None.
Item 3: Default 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) Exhibit No. Description
----------- -----------
99 Risk Factors
(b) Reports on Form 8-K:
None.
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.
COLONIAL TRUST COMPANY
DATE: August 14, 2001 BY: /s/ John K. Johnson
John K. Johnson
Its: President
DATE: August 14, 2001 BY: /s/ Ian B. Currie
Ian B. Currie
Its: Controller