1
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 December 31, 2003
[ ] 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: 760,843
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
Unaudited Condensed Balance Sheets 3
Unaudited Condensed Statements of Operations 4
Unaudited Condensed Statements of Cash Flows 5
Notes to Unaudited Condensed Financial Statements 6
Item 2: Management's Discussion and Analysis or
Plan of Operation 11
Item 3: Controls and Procedures 18
Part II. Other Information
Item 1: Legal Proceedings 19
Item 2: Changes in Securities 19
Item 3: Default Upon Senior Securities 19
Item 4: Submission of Matters to a Vote of Security Holders 20
Item 5: Other Information 20
Item 6a: Exhibits 20
Item 6b: Reports on Form 8-K 20
SIGNATURES 20
3
COLONIAL TRUST COMPANY
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
(Unaudited)
ASSETS December 31, 2003 March 31, 2003
----------------- --------------
Cash and cash equivalents $314,581 $243,048
Receivables 1,012,774 1,145,631
Note receivable 640,168 353,635
Income taxes receivable - 5,864
Property and equipment, net 617,676 665,503
Excess of cost over fair value acquired, net 104,729 104,729
Restricted cash 506,429 506,377
Other assets 129,189 99,436
------- ------
$3,325,546 $3,124,223
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $381,780 $305,990
-------- --------
Stockholders' equity:
Common stock, no par value;
25,000,000 shares authorized,
760,843 issued and outstanding at
December 31, 2003 and 757,884 issued
and outstanding at March 31, 2003 698,286 689,286
Additional paid-in capital 506,208 506,208
Retained earnings 1,739,272 1,622,739
--------- ---------
Total Stockholders' Equity 2,943,766 2,818,233
--------- ---------
$3,325,546 $3,124,223
========== ==========
See accompanying notes to condensed financial statements.
4
COLONIAL TRUST COMPANY
Unaudited Condensed Statements of Operations
Three-month periods Nine-month periods
Ended December 31 Ended December 31
Revenues 2003 2002 2003 2002
---- ---- ---- ----
Bond servicing revenue $430,652 $428,284 $1,345,971 $1,285,902
IRA servicing fees-corporate 115,036 114,329 413,165 445,665
IRA servicing fees-personal trust 84,249 73,408 239,945 220,041
Trust fee income 470,949 309,436 1,424,233 958,244
Interest & other income 8,949 7,779 28,531 26,204
----- ----- ------ ------
Total revenue 1,109,835 933,236 3,451,845 2,936,056
General and administrative
expenses 1,084,988 1,181,727 3,254,279 3,124,571
--------- --------- --------- ---------
Earnings (loss) before income
taxes 24,847 (248,491) 197,566 (188,515)
Income taxes (benefit) 10,187 (101,881) 80,961 (77,291)
------ -------- ------ -------
Net earnings (loss) $14,660 ($146,610) $116,605 ($111,224)
======= ========= ======== =========
Basic net earnings (loss)
per common share $.02 ($.19) $.15 ($.15)
---- ----- ---- -----
Diluted net earnings (loss)
per common share (1) $.02 ($.19) $.15 ($.15)
---- ----- ---- -----
Weighted average shares outstanding
- -basic 758,288 757,892 758,012 738,349
======= ======= ======= =======
Weighted average shares outstanding
- -diluted (1) 758,931 757,892 760,155 738,349
======= ======= ======= =======
(1) Stock options are not included in diluted EPS where there is a net loss
since they are anti-dilutive.
See accompanying notes to condensed financial statements.
5
COLONIAL TRUST COMPANY
Unaudited Condensed Statements of Cash Flows
Nine-month periods
Ended December 31,
2003 2002
---- ----
Cash flows from operating activities:
Net earnings (loss) $116,605 ($111,224)
Adjustments to reconcile net earnings (loss) to
Net cash provided by (used in) operating activities:
Depreciation and amortization 68,991 89,169
Loss on disposal of assets 6,496 -
Decrease (increase) in receivables 132,857 (118,011)
Decrease (increase) in income taxes receivable 5,864 (53,081)
Increase in other assets (29,753) (19,417)
Increase in accounts payable and accrued liabilities 75,790 146,895
------ -------
Net cash provided by (used in) operating activities 376,850 (65,669)
Cash flows from investing activities:
Purchase of property and equipment (27,660) (68,576)
Additions to note receivable (286,533) (7,419)
Payments received on note receivable - 100,000
Decrease (increase) in restricted cash (52) 11,067
---- ------
Net cash provided by (used in) investing activities (314,245) 35,072
Cash flows from financing activities:
Proceeds from issuance of common stock under
stock option plan 9,000 75,000
Purchase and retirement of common stock (72) (6,454)
---- -------
Net cash provided by financing activities 8,928 68,546
Increase in cash and cash equivalents 71,533 37,949
Cash and cash equivalents at beginning of period 243,048 166,592
------- -------
Cash and cash equivalents at end of period $314,581 $204,541
======== ========
See accompanying notes to condensed financial statements.
6
COLONIAL TRUST COMPANY
Notes to Unaudited Condensed Financial Statements
1. Significant Accounting Policies
-------------------------------
In the opinion of Colonial Trust Company (the "Company" or "Colonial"), the
accompanying unaudited condensed financial statements contain all adjustments
necessary to present fairly the financial position, results of operations and
cash flows for the periods presented. The results for the three and nine months
ended December 31, 2003 are not necessarily indicative of the results for the
full fiscal year. The accompanying condensed financial 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 as of and for the year ended March 31, 2003.
(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, and the District of Columbia. The issuers are
primarily churches and other non-profit organizations. From time to
time, the Company serves as trustee and/or paying agent on bond
offerings of for-profit organizations. However, the Company's Board of
Directors adopted a policy on October 8, 2001 pursuant to which the
Company will not serve as indenture trustee on for-profit issuances
without a unanimous consent of the Company's Trust & Investments
Committee and the Board of Directors. Since this policy was adopted,
the Company has not agreed to serve as indenture trustee on any new
bond issues of for-profit entities. 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, as paying agent, pays the
semi-annual principal and interest payments to the bondholder.
The Company also serves as trustee of self-directed individual
retirement accounts for certain bondholders or employees of religious
organizations.
The Company's Wealth Management Group segment provides investment
management, administration and custodial services for customers with
various securities held in trust or in investment agency accounts. The
Company also acts as custodian for self-directed individual retirement
accounts through its Wealth Management Group.
On December 30, 2003, the Company entered into a Purchase and
Assumption Agreement with Happy Bancshares, Inc. and its subsidiary,
First State Bank (the "Agreement"), pursuant to which the Company
agreed, subject to the satisfaction of certain conditions described in
the Agreement, to sell to First State Bank substantially all of the
assets of its Corporate Trust segment and certain other assets, more
fully described in "Part I: Item 2-Management's Discussion and Analysis
or Plan of Operation-Agreement to Sell Corporate Trust Division".
The Company is continuing to actively consider and analyze potential
merger, sale and other strategic opportunities with respect to the
Wealth Management Group segment that may benefit the Company and its
stockholders.
(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 trustee for self-directed individual
retirement accounts.
7
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 which 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 each account. The second fee structure relates to
an annual minimum fee that 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 1/12th of the
published annual minimum.
(c) Computation of Basic and Diluted Net Earnings Per Common Share
--------------------------------------------------------------
Basic earnings (loss) per share 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.
(d) Stock Based Compensation
------------------------
We apply the intrinsic value-based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations including FASB
Interpretation No. 44, "Accounting for Certain Transactions involving
Stock Compensation an interpretation of APB Opinion No. 25" to account
for our fixed plan stock options. Under this method, compensation
expense is recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. SFAS No.
123, "Accounting for Stock-Based Compensation," established accounting
and disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. As allowed by
SFAS No. 123, we have elected to continue to apply the intrinsic
value-based method of accounting described above and have adopted the
disclosure requirements of SFAS No. 123. Accordingly, we do not
recognize compensation expense for any of our stock-based plans because
we do not issue options at exercise prices below the market value at
date of grant. Had compensation cost for our stock-based plans been
determined consistent with SFAS No. 123, our net earnings and earnings
per share would have been adjusted to the pro forma amounts indicated
below (in thousands, except per share data):
Three months ended Nine months ended
December 31, 2003 December 31, 2003
----------------- -----------------
Net earnings as reported $ 14,660 $ 116,605
Total stock-based employee
compensation expense/income
determined under fair value
based method for all awards,
net of related tax effects 399 2,172
-------- ---------
Pro forma net earnings $ 14,261 $ 114,433
-------- ---------
Basic earnings per share:
As reported $.02 $ .15
Pro forma $.02 $ .15
Diluted earnings per share:
As reported $.02 $.15
Pro forma $.02 $.15
8
2. Note receivable
---------------
On December 1, 1990, the Company entered into a Master Note and Letter Agreement
with Church Loans and Investment Trust, 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 (Loss) Per Share
-------------------------
A reconciliation from basic earnings (loss) per share to diluted earnings (loss)
per share for the three-month and nine-month periods ended December 31, 2003,
and December 31, 2002 follows:
Three-month periods Nine-month periods
Ended December 31, Ended December 31,
2003 2002 2003 2002
---- ---- ---- ----
Net earnings (loss) $14,660 ($146,610) $116,605 ($111,224)
------- ---------- -------- ----------
Basic EPS
-weighted average
shares outstanding 758,288 757,892 758,012 738,349
======= ======= ======= =======
Basic EPS $.02 ($.19) $.15 ($.15)
==== ====== ==== ======
Basic EPS
-weighted average
shares outstanding 758,288 757,892 758,012 738,349
Effect of dilutive securities:
Stock options 643 - 2,143 -
--- ---- ----- ----
Diluted EPS
-weighted average
shares outstanding 758,931 757,892 760,155 738,349
======= ======= ======= =======
Diluted EPS (1) $.02 ($.19) $.15 ($.15)
==== ====== ==== ======
Stock options not included in
Diluted EPS since anti-dilutive - 36,725 - 36,725
==== ====== ==== ======
(1) Stock options are not included in diluted EPS where there is a net loss
since they are anti-dilutive.
9
4. Business Segments
-----------------
Operating results and other financial data are presented for the principal
business segments of the Company for the three-month and nine-month periods
ended December 31, 2003 and December 31, 2002. The Company has two distinct
business segments consisting of Corporate Trust services and Wealth Management
Group services.
In computing operating profit by business segment, interest and other income,
portions of administrative expenses and other items not considered direct
operating expenses were considered to be in the other category.
Wealth
Three-month periods: Corporate Management Other Total
Trust Group
-------- -------- ------ ----------
December 31, 2003
- -----------------
Bond Servicing Revenue $430,652 - - $430,652
IRA Servicing Fees 115,036 $84,249 - 199,285
Trust Fee Income - 470,949 - 470,949
Interest & Other Income - - $8,949 8,949
-------- -------- ------ ----------
$545,688 $555,198 $8,949 $1,109,835
-------- -------- ------ ----------
General & Administrative
Expenses $368,063 $428,239 $288,686 $1,084,988
-------- -------- -------- ----------
December 31, 2002
- -----------------
Bond Servicing Revenue $428,284 - - $428,284
IRA Servicing Fees 114,329 $73,408 - 187,737
Trust Fee Income - 309,436 - 309,436
Interest & Other Income - - $7,779 7,779
-------- -------- ------ --------
$542,613 $382,844 $7,779 $933,236
-------- -------- ------ --------
General & Administrative
Expenses $546,845 $332,550 $302,332 $1,181,727
-------- -------- -------- ----------
Wealth
Nine-month periods: Corporate Management Other Total
Trust Group
-------- --------- ------ ----------
December 31, 2003
- -----------------
Bond Servicing Revenue $1,345,971 - - $1,345,971
IRA Servicing Fees 413,165 $239,945 - 653,110
Trust Fee Income - 1,424,233 - 1,424,233
Interest & Other Income - - $28,531 28,531
---------- ---------- ------- ----------
$1,759,136 $1,664,178 $28,531 $3,451,845
---------- ---------- ------- ----------
General & Administrative
Expenses $1,074,961 $1,249,660 $929,658 $3,254,279
---------- ---------- ------- ----------
Total Assets by Segment $792,073 $364,578 $2,168,894 $3,325,546
-------- -------- ---------- ----------
December 31, 2002
- -----------------
Bond Servicing Revenue $1,285,902 - - $1,285,902
IRA Servicing Fees 445,665 $220,041 - 665,706
Trust Fee Income - 958,244 - 958,244
Interest & Other Income - - $26,204 26,204
---------- ---------- ------- ----------
$1,731,567 $1,178,285 $26,204 $2,936,056
---------- ---------- ------- ----------
General & Administrative
Expenses $1,305,576 $951,967 $867,028 $3,124,571
---------- -------- -------- ----------
Total Assets by Segment $865,546 $271,912 $1,854,533 $2,991,991
-------- -------- ---------- ----------
10
5. Commitments and Contingencies
-----------------------------
Colonial is subject to the maintenance of a minimum capital requirement of
$500,000 pursuant to State of Arizona (the State) banking regulations, all of
which must be "liquid" (as defined by the State) as of December 31, 2003. To
satisfy this requirement, Colonial owns certificates of deposit held with banks
totaling $506,429 at December 31, 2003. These assets are classified as
restricted cash in the accompanying balance sheets.
Colonial is involved in lawsuits and claims incidental to the ordinary course of
its operations. In the opinion of management, based on consultation with legal
counsel, with the possible exception of the event mentioned below, the effect of
such matters will not have a material adverse effect on the Company.
Dorothy Castenada, as Personal Representative of the Estate of Dorothy Long, vs.
Colonial Trust Company (PB 2002-000207).
The Company is a defendant in a lawsuit filed in the (Arizona) Maricopa County
Superior Court, Probate Division, by the personal representative of the Dorothy
Long Trust (the "Trust"), a trust for which the Company served as trustee. The
personal representative has alleged that the Company breached its duties as
trustee in connection with the Trust.
The Company filed a counter-petition against the personal representative of the
Trust and also filed a third-party complaint against counsel for the personal
representative at the time the allegedly-wrongful acts occurred. In its
Complaint, the personal representative sought damages of approximately $200,000
against the Company, representing the amount of loan fees incurred by the Trust
as a result of the allegedly-wrongful acts of the Company, plus (i) the return
by the Company of certain trustee's fees, attorneys' fees and costs which the
Company previously received from the Trust, (ii) the payment by the Company of
costs and attorneys' fees incurred by the personal representative, and (iii)
pre-judgment interest on the above loan fees.
A trial in the above matter took place on November 3-5, 2003. At the conclusion
of the trial, the Court issued a bench ruling: (a) that the Company and counsel
for the personal representative had breached their respective fiduciary duties
to the Trust, (b) that the Company and counsel for the personal representative
were each liable for fifty percent (50%) of the after-tax damage suffered by the
Trust as a result of its payment of the above loan fees, and (c) ordering that
Colonial be removed as Trustee for the Trust and replaced by a new trustee
identified by the Court. The personal representative has submitted a form of
Order for approval by the Court; however, counsel for the personal
representative has objected to this form of Order and has submitted its own
proposed Order to the Court, which the Company has notified the Court that it
approves. No ruling has been made by the Court with respect to the Orders
submitted to it. Certain parties in the litigation, including the Company, will
have the right to appeal all or portions of the Court's Order when issued.
The Company has accrued a liability on its December 31, 2003 balance sheet of
$47,750 as a result of the foregoing. This accrued liability represents the
Company's current best estimate of the Company's liability for the after-tax
damages suffered as a result of the Trust's payment of the loan fees described
above. The Company has also included approximately $38,000 for legal fees
relating to this litigation incurred in the quarter ended December 31, 2003 in
its general and administrative expenses. It is also possible that the Company
will incur additional liability as a result of the above litigation, including
without limitation an obligation to repay to the Trust certain of the trustee's
fees, attorneys' fees and costs previously paid to the Company from Trust
Assets. However, the Company is presently unable to determine whether it will
incur any such additional liability, the amount, if any, of such potential
liability, or the period in which such potential liability may be capable of
calculation.
11
Item 2. Management's Discussion and Analysis or Plan of Operation
Critical Accounting Policies
----------------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make a number of estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements. Such estimates and assumptions affect the reported amounts
of revenues and expenses during the reporting period. On an ongoing
basis, management of the Company evaluates estimates and assumptions
based upon historical experience and various other factors and
circumstances. The Company believes its estimates and assumptions are
reasonable in the circumstances; however, actual results may differ
from these estimates under different future conditions.
Management believes that the estimates and assumptions that are most
important to the portrayal of the Company's financial condition and
results of operations, in that they require management's most
difficult, subjective or complex judgments, form the basis for the
accounting policies deemed to be most critical to the Company. These
critical accounting policies relate to revenue recognition and
contingencies related to litigation. The Company recognizes revenue
when earned based on three fee structures which are discussed in note 1
of the Company's financial statements included in this Form 10-QSB.
Liability estimates for contingencies related to litigation are
determined based on the probability of loss using the best information
available at each reporting date. Developments related to changes in
material contingencies are reviewed on an on-going basis, and serve as
the basis for changes in recorded liabilities, if any. Management
believes estimates and assumptions related to these critical accounting
policies are appropriate under the circumstances. There have been no
changes in assumptions since the fiscal year end of March 31, 2003 and
estimates have been updated through December 31, 2003. However, should
future events or occurrences result in unanticipated consequences,
there could be a material impact on our future financial condition or
results of operations. In particular, with respect to the litigation
described in "Part II - Item 1. Legal Proceedings," entry of an order
requiring the Company to pay sums in excess of the amount accrued by
the Company on its December 31, 2003 balance sheet would change the
Company's estimate of its probablility of loss with respect to that
litigation.
Results of Operations-Three-Month Periods Ended December 31, 2003 and
December 31, 2002.
------------------
The Company had net earnings of $14,660, or $.02 per diluted share, for
the quarter ended December 31, 2003, compared to a net loss of
$146,610, or $.19 per diluted share, for the quarter ended December 31,
2002, an increase in net earnings of 110%. The Company had total
revenue of $1,109,835 for the period ended December 31, 2003, compared
to total revenue of $933,236 for the period ended December 31, 2002, an
increase of 19%.
The Corporate Trust segment's revenue increased to $545,688 for the
period ended December 31, 2003, compared to $542,613 for the period
ended December 31, 2002, an increase of 1%. The Wealth Management Group
segment's revenue increased to $555,198 for the period ended December
31, 2003, compared to $382,844 for the period ended December 31, 2002,
an increase of 45%.
12
The Corporate Trust segment's bond servicing income increased to
$430,652 for the period ended December 31, 2003, compared to $428,284
for the period ended December 31, 2002, an increase of 1%. The increase
in bond servicing income is an immaterial amount, however there were
several larger items that substantially offset each other. These
included approximately $27,000 in interest collected on accounts
receivable for delinquent bond issuers. This item was reclassified
during the current quarter from "Other" under the Business Segments
because it relates directly to the bond servicing business. This
increase in bond servicing revenue was partially offset by the
following. Annual maintenance fees were approximately $17,000 less in
the current quarter as a result of increased bond calls that resulted
from bond issuers refinancing into traditional loans or other products
that do not generate fees for the Company. Bond calls amounted to
approximately $27 million and $115 million in original principal
amounts in the three and nine-month periods ended December 31, 2003,
respectively; additionally, schedule b fees, which are additional
interest received from bond issuers due to interest rates being below
4%, were approximately $16,000 less in the current period primarily due
to lower fund balances on which the fees are calculated. At December
31, 2003, the Company was serving as trustee and paying agent on 415
bond offerings totaling approximately $370,276,000 in original
principal amount; at December 31, 2002, the Company was serving as
trustee and paying agent on 502 bond offerings totaling approximately
$472,000,000 in original principal amount.
Revenue from the Corporate Trust segment's IRA servicing activities
increased slightly to $115,036 for the period ended December 31, 2003,
compared to $114,329 for the period ended December 31, 2002, an
increase of less than 1% which is an immaterial amount. Revenue from
the Wealth Management Group segment's IRA servicing activities
increased to $84,249 for the period ended December 31, 2003, compared
to $73,408 for the period ended December 31, 2002, an increase of 15%.
This increase was due to an increase in the number of IRA's being
serviced by the Company. At December 31, 2003, the Corporate Trust
segment was servicing 9,662 IRA's with an aggregate value of
approximately $193,764,000, and the Wealth Management Group segment was
servicing 298 IRA's with an aggregate value of approximately
$69,100,000. At December 31, 2002, the Corporate Trust segment was
servicing 9,993 IRA's with an aggregate value of approximately
$178,700,000, and the Wealth Management Group segment was servicing 285
accounts with an aggregate value of approximately $55,300,000.
The Wealth Management Group segment's trust fee income increased to
$470,949 for the period ended December 31, 2003, compared to $309,436
for the period ended December 31, 2002, an increase of 52%. The
increase in trust fee income was primarily due to the addition of a
single trust relationship which commenced in January 2003, accounting
for approximately $138,000 of the increase in this current period, and
approximately $20,000 in one-time death related trust service fees in
the current quarter. It should be noted that revenue from the single
trust relationship previously mentioned will most likely cease in the
first calendar quarter of 2004. At December 31, 2003, the Wealth
Management Group segment was serving as trustee or agent for 598 trust,
investment, or other accounts with a fair market value of approximately
$241,500,000. At December 31, 2002, the Wealth Management Group segment
was serving as trustee or agent for 643 trust, investment, or other
accounts with a fair market value of approximately $111,700,000.
Interest income increased to $8,949 for the period ended December 31,
2003, compared to $7,779 for interest and other income in the period
ended December 31, 2002, an increase of 15%. The increase was primarily
attributable to higher balances generating greater income on the master
note receivable. The Corporate Trust segment's general and
administrative expenses decreased in the aggregate to $368,063 for the
period ended December 31, 2003, compared to $546,845 for the period
ended December 31, 2002, a decrease of 33%, and decreased to 67% of
segment revenues for the period ended December 31, 2003, from 101% of
segment revenues for the period ended December 31, 2002. The Wealth
Management Group segment's general and administrative expenses
increased in the aggregate to $428,239 for the period ending December
31, 2003, compared to $332,550 for the period ended December 31, 2002,
an increase of 29%, but decreased to 77% of segment revenues for the
period ended December 31, 2003, compared to 87% of segment revenues for
the period ended December 31, 2002. The Corporate Trust segment's
general and administrative expenses as a percentage of revenues
decreased primarily as a result of several large expenses included in
the previous quarter but not in the current quarter. First, in the
previous quarter, the Company incurred approximately $86,000 for the
Stevens Bankruptcy Proceeding and the Adversary Proceeding, including
the settlement payment net of insurance reimbursements. Second, in the
previous quarter, the Company incurred expenses, of approximately
$91,000 as a result of reconciliation item write-offs. The increase in
Wealth Management Group segment's general and administrative expenses
were due primarily to an increase in personnel costs of approximately
$45,000, including a new business development officer and support
staff, increased commission expense and investment advisory fees of
approximately $41,000 associated with administering the single trust
relationship added in January 2003, and litigation expense of
approximately $38,000 related to the Dorothy Long lawsuit which is more
fully explained at Note 5 - Commitments and Contingencies. These items
were partially offset by higher soft dollar expense reimbursements of
approximately $27,000.
13
The Company's effective income tax rate was 41.0 % for the three-month
periods ended December 31, 2003 and 2002.
Results of Operations-Nine-Month Periods Ended December 31, 2003 and
December 31, 2002 .
-------------------
The Company had net earnings of $116,605, or $.15 per diluted share,
for the period ended December 31, 2003, compared to a net loss of
$111,224, or $.15 per diluted share, for the period ended December 31,
2002, an increase in net earnings of 205%. The Company had total
revenue of $3,451,845 for the period ended December 31, 2003, compared
to total revenue of $2,936,056 for the period ended December 31, 2002,
an increase of 18%.
The Corporate Trust segment's revenue increased to $1,759,136 for the
period ended December 31, 2003, compared to $1,731,567 for the period
ended December 31, 2002, an increase of 2%. The Wealth Management Group
segment's revenue increased to $1,664,178 for the period ended December
31, 2003, compared to $1,178,285 for the period ended December 31,
2002, an increase of 41%.
The Corporate Trust segment's bond servicing income increased to
$1,345,971 for the period ended December 31, 2003, compared to
$1,285,902 for the period ended December 31, 2002, an increase of 5%.
The increase in bond servicing income was primarily attributable to the
following factors. First, interest income collected on accounts
receivable for delinquent bond issuers in the nine months ended
December 31, 2003 was approximately $67,000 greater than the previous
period. This item was reclassified during the current period from
"Other" under the Business Segments because it relates directly to the
bond servicing business. Second, the Company generated approximately
$39,000 more in bond call fees as a result of bond issuers refinancing
into traditional loans or other products that do not generate fees for
the Company; bond calls of approximately $115 million and $55 million
in original principal amounts occurred in the nine-month periods ended
December 31, 2003, and 2002 respectively. Third, the Company's revenues
from miscellaneous trust services were approximately $26,000 higher in
the current period as compared with the prior nine-month period. These
items were partially offset by the following factors. First, interest
earnings on investments were approximately $35,000 less than the
previous period due to lower interest rates, partially offset by higher
investment balances generating these earnings in the current period.
Second, annual maintenance fees were approximately $39,000 less in the
current period despite an increase of approximately $3 million in new
non-profit bond issues in the current period over the prior period.
This decrease was caused by a greater number of bond calls (more fully
explained above) in the current period, which reduced the overall total
of outstanding bond issues in the current period on which the Company
earns annual fees. The above factors are expected to continue to
negatively impact such revenues in the foreseeable future.
14
Revenue from the Corporate Trust segment's IRA servicing activities
decreased to $413,165 for the period ended December 31, 2003, compared
to $445,665 for the period ended December 31, 2002, a decrease of 7%.
The decrease in the Corporate Trust segment's IRA revenues was
primarily due to a reduction in interest earnings caused by lower
interest rates, partially offset by earnings on higher un-invested
customer cash balances. The decrease in Corporate Trust segment's IRA
interest earnings was partially offset by approximately $23,000 in
higher account termination or conversion fees in the current period. In
the nine-month period ended December 31, 2003, there was a net decrease
of 465 in the number of IRA accounts managed by the Corporate Trust
segment; however, the aggregate value of accounts under management
increased by approximately $10 million. Revenue from the Wealth
Management Group segment's IRA servicing activities increased to
$239,945 for the period ended December 31, 2003, compared to $220,041
for the period ended December 31, 2002, an increase of 9%. The increase
in the Wealth Management Group segment's IRA revenue was primarily due
to an increase in the number and market value of accounts serviced by
the Company.
The Wealth Management Group segment's trust fee income increased to
$1,424,233 for the period ended December 31, 2003, compared to $958,244
for the period ended December 31, 2002, an increase of 49%. The
increase in trust fee income was primarily due to the following
factors. First, the Company added a single trust relationship which
commenced January 2003, accounting for approximately $411,000 of the
increase in the current period (it should be noted that revenue from
this relationship will most likely cease in the first calendar quarter
of 2004). Second, trust fee income also increased during the current
period because of termination fees of approximately $34,000 received by
the Company on a single agency trust account in the current period.
Interest and other income increased to $28,531 for the period ended
December 31, 2003, compared to $26,204 for interest and other income in
the period ended December 31, 2002, an increase of 9%. The net increase
was primarily attributable to higher balances generating greater income
on the master note receivable.
The Corporate Trust segment's general and administrative expenses
decreased in the aggregate to $1,074,961 for the period ended December
31, 2003, compared to $1,305,576 for the prior period, a decrease of
18%, and decreased to 61% of segment revenues for the period ended
December 31, 2003, compared to 75% for the period ended December 31,
2002. The Wealth Management Group segment's general and administrative
expenses increased in the aggregate to $1,249,660 for the period ended
December 31, 2003, compared to $951,967 for the period ended December
31, 2002, an increase of 31%, but decreased to 75% of segment revenues
for the period ended December 31, 2003, compared to 81% of segment
revenues for the period ended December 31, 2002. The Corporate Trust
segment's general and administrative expenses decreased in the
aggregate primarily as a result of several large expenses included in
the previous nine months but not in the current nine months. First, the
Company incurred expences of approximately $118,000 in the previous
period as a result of the Stevens Bankruptcy Proceeding and the
Adversary Proceeding, including the settlement payment net of insurance
reimbursements. Second, the Company incurred expenses of approximately
$143,000 in the previous period as a result of trust account
reconciliation item write-offs. The increase in Wealth Management Group
segment's general and administrative expenses were due primarily to an
increase in personnel costs of approximately $101,000, including a new
business development officer and support staff, increased commission
expense and investment advisory fees of approximately $174,000
associated with administering the single trust relationship added in
January 2003, and litigation expense of approximately $86,000 related
to the Dorothy Long lawsuit (which is more fully explained at Note 5 -
Commitments and Contingencies). These items were partially offset by
higher soft dollar expense reimbursements of approximately $80,000.
The Company's effective income tax rate remained constant at 41% for
the nine-month periods ended December 31, 2003 and December 31, 2002.
15
Liquidity and Capital Resources
-------------------------------
Under legislation effective on July 20, 1996, the Company is required
to maintain net capital of at least $500,000; the Company's net capital
was $2,943,766 on December 31, 2003. 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 became effective on August 9, 2001 and to
which the Company became subject on December 31, 2002. For further
discussion of possible future additional capital requirements, see
"Part I Item 1: Regulation, Licensing and Supervision" of the Company's
10-KSB for fiscal year ended March 31, 2003. At December 31, 2003,
$506,429 of the Company's net capital met the Department's liquidity
requirements.
The Company's cash and cash equivalents increased from $243,048 on
March 31, 2003, to $314,581 on December 31, 2003, while the note
receivable increased from $353,635 on March 31, 2003, to $640,168 on
December 31, 2003. The increase in the cash and cash equivalents was
primarily due to net cash provided by operating profits and substantial
collections of receivables from delinquent bond issuers of
approximately $377,000, partially offset by payments of approximately
$287,000 advanced under the note receivable in order to generate higher
interest earnings and approximately $28,000 in purchases of property,
furniture and equipment. The increase in the note receivable was due to
advances made and interest accrued of approximately $287,000 mentioned
above. The Company's net property and equipment decreased from $665,503
on March 31, 2003, to $617,676 on December 31, 2003. The decrease was
primarily due to depreciation of existing property and equipment
exceeding the purchase of additional furniture, equipment and computer
hardware and software for employees.
The Company believes that it will be able to satisfy its regulatory
capital, working capital and capital expenditure requirements
(including amounts required to be paid as a result of the litigation
discussed in "Part II: Item 1- Legal Proceedings") 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,
which totaled approximately $640,000 at December 31, 2003.
16
Agreement to Sell Corporate Trust Division
------------------------------------------
On December 30, 2003, the Company entered into a Purchase and
Assumption Agreement with Happy Bancshares, Inc. and its subsidiary,
First State Bank (the "Agreement"), pursuant to which the Company
agreed, subject to the satisfaction of certain conditions described in
the Agreement, to sell to First State Bank substantially all of the
assets of its Corporate Trust segment and certain other assets,
including without limitation (a) certain accrued fees, receivables,
prepaid expenses and rights under contracts ("Contracts") of Corporate
Trust, (b) all equipment and personal property used in the conduct of
the business of Corporate Trust, (c) the real property and facilities
located at 5336 N. 19th Avenue, Phoenix, Arizona which comprise the
Company's corporate headquarters, and (d) all furniture and fixtures
located on the above-referenced real estate. First State Bank also
agreed to assume certain liabilities associated with Corporate Trust,
including without limitation (i) Corporate Trust's accrued expenses,
(ii) certain liabilities and obligations with respect to the Contracts,
(iii) a prorated portion of the real estate taxes attributable to the
real estate being purchased, and (iv) liabilities under certain
equipment lease agreements, hardware maintenance agreements and related
agreements. The parties further agreed that at the Closing under the
Agreement, First State Bank would be the substitute fiduciary for the
Company on each of the Company's accounts of Corporate Trust and that,
effective as of such Closing, the Company would be released from all
fiduciary duties with respect to Corporate Trust. It is anticipated
that First State Bank would operate Corporate Trust from the Company's
current headquarters following the Closing under the Agreement.
The purchase price to be paid by First State at the Closing will be
paid in cash and will equal the sum of (i) $819,000, representing the
agreed-upon value of the above-referenced real estate, (ii) the
aggregate book value of the Corporate Trust assets being purchased,
less the book value of the Corporate Trust liabilities being assumed,
at the Closing, and (iii) $550,000, representing the goodwill premium
paid to the Company.
Subject to credit checks, First State Bank has agreed to offer
employment, effective as of the Closing, to all of the current
employees of Corporate Trust, including John K. Johnson, Cecil Glovier
and Ian Currie, the President, Chief Operating Officer and
Controller/Treasurer, respectively, of the Company. Messrs. Johnson and
Glovier also executed employment and non-competition agreements to be
effective at the Closing.
The Agreement is subject to the approval of the shareholders of the
Company, receipt of all required regulatory approvals, the Company's
receipt of a fairness opinion from its investment banker, Bank Advisory
Group, and certain other customary closing conditions. If such
approvals are received and all Closing conditions are satisfied, it is
expected that Closing under the Agreement would occur in the second
quarter of 2004.
Potential Sale of Wealth Management Group
-----------------------------------------
The Company is continuing to actively consider and analyze potential
merger, sale and other strategic opportunities with respect to the
Wealth Management Group segment that may benefit the Company and its
stockholders.
New Accounting Pronouncements
-----------------------------
In November 2002, the EITF reached a consensus on Issue 00-21,
Multiple-Deliverable Revenue Arrangements ("EITF 00-21"). EITF 00-21
addresses how to account for arrangements that may involve the delivery
or performance of multiple products, services, and/or rights to use
assets. The consensus mandates how to identify whether goods or
services or both which are to be delivered separately in a bundled
sales arrangement should be accounted for separately because they are
"separate units of accounting." The guidance can affect the timing of
revenue recognition for such arrangements, even though it does not
change rules governing the timing or pattern of revenue recognition of
individual items accounted for separately. The final consensus will be
applicable to agreements entered into in fiscal periods beginning after
June 15, 2003 with early adoption permitted. Additionally, companies
will be permitted to apply the consensus guidance to all existing
arrangements as the cumulative effect of change in accounting principle
in accordance with APB Opinion No. 20, Accounting Changes. The adoption
of EITF 00-21 did not have a material impact on its financial position
or results of operations.
17
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation-Transition
and Disclosure ("SFAS 148"). SFAS 148 amends Statement of Financial
Accounting Standards No. 123. Accounting for Stock-Based Compensation
("SFAS 123"), and provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. SFAS 148 also amends the disclosure
requirements of SFAS 123 to require more prominent and frequent
disclosures in financial statements about the effects of stock-based
compensation. The transition guidance and annual disclosure provisions
of SFAS 148 are effective for financial statements issued for fiscal
years ending after December 15, 2002. The interim disclosure provisions
are effective for financial reports containing financial statements for
interim periods beginning after December 15, 2002. The adoption of SFAS
148 did not have a material impact on the Company's financial position
and results of operations.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," which amends SFAS 133
for certain decisions made by the FASB Derivatives Implementation
Group. In particular, SFAS 149 (1) clarifies under what circumstances a
contract with an initial net investment meets the characteristic of a
derivative, (2) clarifies when a derivative contains a financing
component, (3) amends the definition of an underlying to conform it to
language used in FIN 45, and (4) amends certain other existing
pronouncements. This Statement is effective for contracts entered into
or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. In addition, most provisions of SFAS
149 are to be applied prospectively. The adoption of SFAS 149 did not
have a material impact upon the Company's financial position, cash
flows or results of operations.
In May 2003, the FASB issued SFAS 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS 150 establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). SFAS 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. It
is to be implemented by reporting the cumulative effect of a change in
an accounting principle for financial instruments created before the
issuance date of the Statement and still existing at the beginning of
the interim period of adoption. Restatement is not permitted. The
adoption of SFAS 150 did not have a material impact upon the Company's
financial position, cash flows or results of operations.
In January 2003, the EITF reached a consensus on Issue No. 02-16,
"Accounting by a Reseller for Cash Consideration Received From a
Vendor." EITF Issue No. 02-16 provides guidance on how resellers of
vendors' products should account for cash consideration received from
their vendors. The provisions of EITF Issue No. 02-16 applies to
arrangements, including modifications of existing arrangements, entered
into after December 31, 2002 and are implemented in this document. The
adoption of EITF Issue No. 02-16 did not have a material impact on the
Company's financial position or results of operations.
18
Item 3. Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, the Company carried
out an evaluation of the effectiveness of the design and operation of
the Company's disclosure controls and procedures as of December 31,
2003. This evaluation was carried out under the supervision and with
the participation of the Company's management, including our Chief
Executive Officer and our Controller/Treasurer. Based upon that
evaluation, our Chief Executive Officer and our Controller/Treasurer
concluded that the Company's disclosure controls and procedures are
effective. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect
internal controls subsequent to the date the Company carried out its
evaluation.
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed
in Company reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include controls and procedures
designed to ensure that information required to be disclosed in Company
reports filed under the Exchange Act is accumulated and communicated to
management, including the Company's Chief Executive Officer and
Controller/Treasurer as appropriate, to allow timely decisions
regarding required disclosure.
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, 2003.
"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 agreement to sell substantially all of the assets of its
Corporate Trust segment and certain other assets, to Happy Bancshares,
Inc., subject to the satisfaction of certain conditions described in
the Agreement; the Company's continuation to actively consider and
analyze potential merger, sale and other strategic opportunities with
respect to the Wealth Management Group segment that may benefit the
Company and its stockholders; 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; a continuation of low interest
rates which (i) may make traditional loans more attractive and result
in the refinancing of bond financings (for which the Company earns fees
as trustee and / or paying agent) into traditional loans (for which the
Company does not earn fees), and (ii) will continue to negatively
impact segments of the Company's revenues (such as revenues from the
Corporate Trust segment's bond servicing activities, which are impacted
to a significant extent by interest rates); 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 Hackett Investment Advisors, Inc., Meridian Investment
Management, PlanMember Advisory Corp., and Stellar Capital Management
and their success in managing the trust and investment agency accounts
for which they provide services; 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, trustee and custodian for trust
and investment agency accounts; the Company's potential additional
liability as a result of the litigation discussed in "Part II: Item 1:
Legal Proceedings"; 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 Annual Report on Form
10-KSB for the year ended March 31, 2003, 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.
19
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.
Dorothy Castenada, as Personal Representative of the Estate of Dorothy Long, vs.
Colonial Trust Company (PB 2002-000207).
The Company is a defendant in a lawsuit filed in the (Arizona) Maricopa County
Superior Court, Probate Division, by the personal representative of the Dorothy
Long Trust (the "Trust"), a trust for which the Company served as trustee. The
personal representative has alleged that the Company breached its duties as
trustee in connection with the Trust.
The Company filed a counter-petition against the personal representative of the
Trust and also filed a third-party complaint against counsel for the personal
representative at the time the allegedly-wrongful acts occurred. In its
Complaint, the personal representative sought damages of approximately $200,000
against the Company, representing the amount of loan fees incurred by the Trust
as a result of the allegedly-wrongful acts of the Company, plus (i) the return
by the Company of certain trustee's fees, attorneys' fees and costs which the
Company previously received from the Trust, (ii) the payment by the Company of
costs and attorneys' fees incurred by the personal representative, and (iii)
pre-judgment interest on the above loan fees.
A trial in the above matter took place on November 3-5, 2003. At the conclusion
of the trial, the Court issued a bench ruling: (a) that the Company and counsel
for the personal representative had breached their respective fiduciary duties
to the Trust, (b) that the Company and counsel for the personal representative
were each liable for fifty percent (50%) of the after-tax damage suffered by the
Trust as a result of its payment of the above loan fees, and (c) ordering that
Colonial be removed as Trustee for the Trust and replaced by a new trustee
identified by the Court. The personal representative has submitted a form of
Order for approval by the Court; however, counsel for the personal
representative has objected to this form of Order and has submitted its own
proposed Order to the Court, which the Company has notified the Court that it
approves. No ruling has been made by the Court with respect to the Orders
submitted to it. Certain parties in the litigation, including the Company, will
have the right to appeal all or portions of the Court's Order when issued.
The Company has accrued a liability on its December 31, 2003 balance sheet of
$47,750 as a result of the foregoing. This accrued liability represents the
Company's current best estimate of the Company's liability for the after-tax
damages suffered as a result of the Trust's payment of the loan fees described
above. Approximately $38,000 has also been included in general and
administrative expenses in the quarter ended December 31, 2003 for legal fees
relating to this litigation. It is also possible that the Company will incur
additional liability as a result of the above litigation, including without
limitation an obligation to repay to the Trust certain of the trustee's fees,
attorneys' fees and costs previously paid to the Company from Trust Assets.
However, the Company is presently unable to determine whether it will incur any
such additional liability, the amount, if any, of such potential liability, or
the period in which such potential liability may be capable of calculation.
Item 2: Changes in Securities
None.
Item 3: Default Upon Senior Securities
None.
20
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(a) Risk Factors
31.1 Certification of John K. Johnson pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Ian B. Currie pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of John K. Johnson pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Ian B. Currie pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
The Company filed a Form 8-K on January 28, 2004 relating to a
Purchase and Assumption Agreement with Happy Bancshares, Inc.
and its subsidiary, First State Bank, pursuant to which the
Company agreed, subject to the satisfaction of certain
conditions, to sell substantially all of the assets of its
Corporate Trust division and certain other assets. See "Part I:
Item 2-Management's Discussion and Analysis or Plan of
Operation-Agreement to Sell Corporate Trust Division".
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: February 17, 2004 BY: /s/ John K. Johnson
John K. Johnson
Its: President
DATE: February 17, 2004 BY: /s/ Ian B. Currie
Ian B. Currie
Its: Controller & Treasurer