A
TRANSACTION STATEMENT
UNDER
SECTION 13(e) OF
THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 13e-3 THEREUNDER
AMENDMENT NO. 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Rule 13e-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities and Exchange Act of 1934)
COLONIAL TRUST COMPANY
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(Name of the Issuer)
Mr. John K. Johnson
President and Chief Executive Officer
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(Name of Person(s) Filing Statement)
COMMON STOCK, NO PAR VALUE PER SHARE
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(Title of Class of Securities)
N/A
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(CUSIP Number of Class of Securities)
COLONIAL TRUST COMPANY
5336 N. 19th Avenue
PHOENIX, ARIZONA 85015
(602) 242-5507
WITH COPIES TO:
JOHN M. WELCH, ESQ.
Carey Herbert, esq.
SQUIRE, SANDERS & DEMPSEY L.L.P.
TWO RENAISSANCE SQUARE
40 NORTH CENTRAL AVENUE, SUITE 2700
PHOENIX, ARIZONA 85004-4498
(602) 528-4000
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(Name, Address, and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
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B
This statement is filed in connection with (check the appropriate box):
a./x/ The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C, or Rule
13e-3(c) under the Securities Exchange Act of 1934.
b. / / The filing of a registration statement under the Securities
Act of 1933.
c. / / A tender offer.
d. / / None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. /x/
Check the following box if this is a final amendment reporting the results of
the transaction. / /
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CALCULATION OF FILING FEE
TRANSACTION VALUATION* AMOUNT OF FILING FEE
$3,432,817.00 * $686.56 **
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* Calculated, for the purposes of determining the filing fee only, in
accordance with Rule 0-11(b) under the Securities Exchange Act of 1934, as
amended.
** Calculated based on transaction valuation multiplied by one-fiftieth of one
percent.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount previously paid: $686.56 Filing party: Colonial Trust Company
Form or registration no.: Schedule 13E-3 Date filed: May 10, 2004
C
Table of Contents
Page
ITEM 1. SUMMARY TERM SHEET...............................................1
ITEM 2. SUBJECT COMPANY INFORMATION......................................1
ITEM 3. IDENTITY AND BACKGROUND OF THE FILING PERSON.....................2
ITEM 4. TERMS OF THE TRANSACTION.........................................3
ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.........3
ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS...............4
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS......................5
ITEM 8. FAIRNESS OF THE TRANSACTION......................................5
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS...................6
ITEM 10. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION................6
ITEM 11. INTEREST IN SECURITIES OF THE SUBJECT COMPANY....................7
ITEM 12. THE SOLICITATION OR RECOMMENDATION...............................7
ITEM 13. FINANCIAL INFORMATION............................................7
ITEM 14. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED..........8
ITEM 15. ADDITIONAL INFORMATION...........................................8
ITEM 16. EXHIBITS.........................................................8
1
INTRODUCTION
This Rule 13E-3 Transaction Statement (this "Schedule 13E-3") is being
filed by Colonial Trust Company (the "Company"). The Company is submitting to
its stockholders a proposal to approve and adopt a Certificate of Amendment to
the Company's Amended and Restated Certificate of Incorporation providing for a
one-for-35,032 reverse stock split of each of the Company's no par value Common
Stock (the "Reverse Stock Split"). The Reverse Stock Split is upon the terms and
subject to the conditions set forth in the Company's Notice and Proxy Statement
(the "Proxy Statement") for the Company's Special Meeting of Stockholders
scheduled to be held on _________, 2004 (the "Special Meeting").
The information contained in the Proxy Statement, including all exhibits
thereto, is hereby expressly incorporated herein by reference. As of the date
hereof, the Proxy Statement is in preliminary form and is subject to completion
or amendment. This Schedule 13E-3 will be amended to reflect such completion or
amendment of the Proxy Statement. Capitalized terms used but not defined herein
shall have the meanings given to them in the Proxy Statement.
All references to subsections in the Items below are to the subsection of
the applicable Item in Regulation M-A.
ITEM 1. SUMMARY TERM SHEET. The information set forth in the Proxy Statement
under the caption "Summary of the Transactions - Plan of Liquidation and
Dissolution" is incorporated herein by reference pursuant to General
Instruction G to Schedule 13E-3.
ITEM 2. SUBJECT COMPANY INFORMATION.
(a) Name and address. Colonial Trust Company is the subject company of this
Schedule 13E-3. The principal office of the Company is located at 5336 N. 19th
Avenue, Phoenix, Arizona 85015, and the Company's telephone number is (602)
242-5507.
(b) Securities. As of May 5, 2004, the Company had 760,843 shares of no par
value Common Stock issued and outstanding.
(c) Trading market and price. The Company's Common Stock is not listed on
any exchange, and there is no established trading market for the Common Stock.
The Company attempts to match prospective buyers and sellers of its Common
Stock. Based on information available to the Company, the range of high and low
sales prices during each quarter in the period April 1, 2002 - March 31, 2004
are as follows:
Period High Low
2002
2nd Quarter $3.50 $3.50
3rd Quarter n/a (1) n/a (1)
4th Quarter n/a (1) n/a (1)
2
2003
1st Quarter $3.50 $3.50
2nd Quarter n/a (1) n/a (1)
3rd Quarter n/a (2) n/a (2)
4th Quarter $3.50 $3.50
2004
1st Quarter n/a (1) n/a (1)
(1) Based on available information, there were no sales during this
period.
(2) The Company believes that two private parties completed a sale
during this period of 31,431 shares, but the Company has no
information concerning the sales price in this transaction.
(d) Dividends. No dividends have been paid by the Company on its Common
Stock during the past two years. The Company does not intend to pay dividends on
its Common Stock in the immediate future.
(e) Prior underwritten public offerings. None.
(f) Prior stock purchases. During the period April 1, 2002 - March 31,
2004, the Company repurchased a total of 1,891 shares of its Common Stock. The
purchase price in all such repurchase transactions was $3.50 per share.
ITEM 3. IDENTITY AND BACKGROUND OF THE FILING PERSON.
(a) Name and Address. Colonial Trust Company, the subject company, is the
filing person of this statement. The Company's business address is 5336 N. 19th
Avenue, Phoenix, Arizona 85015, and its telephone number is (602) 242-5507.
(b) Business and background of entities. Not applicable.
(c) Business and background of natural persons.
(1) and (2). The information set forth under "Item 10: Directors,
Executive Officers, Promoters and Control Persons" of the
Company's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 2003, filed on June 30, 2003, is incorporated herein by
reference pursuant to General Instruction F to Schedule 13E-3.
(3) During the last five years, neither the Company nor, to its
knowledge, any of the directors or executive officers thereof has
been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors).
(4) During the last five years, neither the Company nor, to its
knowledge, any of the directors or executive officers of the
Company was a party to any judicial or administrative proceeding
(except for matters that were dismissed without sanction or
settlement) that resulted in a judgment, decree or final order
enjoining such person from further violations of, or prohibiting
activities subject to, federal or state securities laws or
finding any violation of those laws.
3
(5) All directors and executive officers of the Company are United
States citizens.
ITEM 4. TERMS OF THE TRANSACTION.
(a) Material terms. The information set forth under the captions "Summary
of the Transactions - Plan of Liquidation and Dissolution"; "Adoption of Plan of
Liquidation and Dissolution and Amendment to the Company's Articles of
Incorporation to Effect Reverse Stock Split for Purposes of Making Liquidating
Distributions (Proposal Number 3) - Funds Anticipated to be Available for
Distribution to Stockholders"; "Background of the Transactions - Purposes of and
Reasons for the Transactions"; "Adoption of Plan of Liquidation and Dissolution
and Amendment to the Company's Articles of Incorporation to Effect Reverse Stock
Split for Purposes of Making Liquidating Distributions (Proposal Number 3) -
Vote Required and Board Recommendation"; "Additional Information About the
Proposals - Interests of our Directors and Officers in the Transactions";
"Adoption of Plan of Liquidation and Dissolution and Amendment to the Company's
Articles of Incorporation to Effect Reverse Stock Split for Purposes of Making
Liquidating Distributions (Proposal Number 3) - Federal Income Tax Consequences
of the Plan of Liquidation"; "Additional Information About the Proposals -
Income Tax Effects of a Distribution Following the Approval of Either, But Not
Both of, Proposal No. 1 and Proposal No. 2, or Either the Corporate Trust Sale
or the Wealth Management Sale is Consummated, But Not Both" and Appendix A of
the Proxy Statement is incorporated herein by reference pursuant to General
Instructions F and G to Schedule 13E-3.
(b) Purchases. Not applicable.
(c) Different terms. The information set forth under the caption
"Additional Information About the Proposals - Interests of our Directors and
Officers in the Transactions" of the Proxy Statement is incorporated herein by
reference pursuant to General Instruction G to Schedule 13E-3.
(d) Appraisal rights. Under Arizona law, our stockholders are entitled to
dissenter's rights in connection with the Plan of Liquidation and Dissolution by
virtue of the proposed reverse stock split amendment. The information set forth
under the caption "Additional Information About the Proposals - Appraisal
Rights" and Appendix B of the Proxy Statement is incorporated herein by
reference pursuant to General Instruction G to Schedule 13E-3.
(e) Provisions for unaffiliated security holders. None.
(f ) Eligibility for listing or trading. Not Applicable.
ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
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(a)-(c) Transactions; significant corporate events; Negotiations or
contacts. The information contained under the captions "Item 1: Description of
Business - Growth Plans" and "Item 13: Certain Relationships and Related
Transactions" in the Company's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 2003, filed on June 30, 2003, and "Background of the
Transactions - Past Contacts and Negotiations" in the Proxy Statement, is
incorporated herein by reference pursuant to General Instructions F and G o
Schedule 13E-3.
(d) Conflicts of interest. Not applicable.
(e) Agreements involving the Company's securities. The information
contained under the caption "Additional Information About the Proposals -
Interests of our Directors and Officers in the Transactions" and "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy Statement is
incorporated herein pursuant to General Instruction G to Schedule 13E-3.
ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
(a) Purposes. Not applicable.
(b) Use of securities acquired. No securities will be acquired in the
Reverse Stock Split.
(c) Plans.
(1) The information contained under "Adoption of Plan of Liquidation
and Dissolution and Amendment to the Company's Articles of
Incorporation to Effect Reverse Stock Split for Purposes of
Making Liquidating Distributions (Proposal No. 3)", "Sale of the
Corporate Trust Business (Proposal No. 1)" and "Sale of the
Wealth Management Group Business" (Proposal No. 2)" in the Proxy
Statement is incorporated herein pursuant to General Instruction
G to Schedule 13E-3.
(2) The information contained under "Adoption of Plan of Liquidation
and Dissolution and Amendment to the Company's Articles of
Incorporation to Effect Reverse Stock Split for Purposes of
Making Liquidating Distributions (Proposal No. 3)", "Sale of the
Corporate Trust Business (Proposal No. 1)" and "Sale of the
Wealth Management Group Business" (Proposal No. 2)" in the Proxy
Statement is incorporated herein pursuant to General Instruction
G to Schedule 13E-3.
(3) Not applicable.
(4) The information contained under "Additional Information About the
Proposals - Interests of our Directors and Officers in the
Transaction" in the Proxy Statement is incorporated herein
pursuant to General Instruction G to Schedule 13E-3.
(5) The information contained under "Adoption of Plan of Liquidation
and Dissolution and Amendment to the Company's Articles of
Incorporation to Effect Reverse Stock Split for Purposes of
Making Liquidating Distributions (Proposal No. 3) - Principal
Provisions of the Plan of Liquidation and Dissolution" in the
Proxy Statement is incorporated herein pursuant to General
Instruction G to Schedule 13E-3.
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(6) Not applicable.
(7) The information contained under "Adoption of Plan of Liquidation
and Dissolution and Amendment to the Company's Articles of
Incorporation to Effect Reverse Stock Split for Purposes of
Making Liquidating Distributions (Proposal No. 3) - Provisions of
the Plan of Liquidation and Dissolution" in the Proxy Statement
is incorporated herein pursuant to General Instruction G to
Schedule 13E-3.
(8) The information contained under "Adoption of Plan of Liquidation
and Dissolution and Amendment to the Company's Articles of
Incorporation to Effect Reverse Stock Split for Purposes of
Making Liquidating Distributions (Proposal No. 3) - Provisions of
the Plan of Liquidation and Dissolution" in the Proxy Statement
is incorporated herein pursuant to General Instruction G to
Schedule 13E-3.
(d) Subject company negotiations. Not applicable.
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS.
(a) Purposes. The information contained under "Background of the
Transactions - Purposes of and Reasons for the Transactions" and "Adoption of
Plan of Liquidation and Dissolution and Amendment to the Company's Articles of
Incorporation to Effect Reverse Stock Split for Purposes of Making Liquidating
Distributions (Proposal No. 3") in the Proxy Statement is incorporated herein
pursuant to General Instruction G to Schedule 13E-3.
(b) Alternatives. The information contained under "Background of the
Transactions - Past Contacts and Negotiations" in the Proxy Statement is
incorporated herein pursuant to General Instruction G to Schedule 13E-3.
(c) Reasons. The information contained under "Background of the
Transactions - Purposes of and Reasons for the Transactions" in the Proxy
Statement is incorporated herein pursuant to General Instruction G to Schedule
13E-3.
(d) Effects. The information contained under "Adoption of Plan of
Liquidation and Dissolution and Amendment to the Company's Articles of
Incorporation to Effect Reverse Stock Split for Purposes of Making Liquidating
Distributions (Proposal No. 3) - Principal Provisions of the Plan of Liquidation
and Dissolution"; "Adoption of Plan of Liquidation and Dissolution and Amendment
to the Company's Articles of Incorporation to Effect Reverse Stock Split for
Purposes of Making Liquidating Distributions (Proposal No. 3) - Federal Income
Tax Consequences of the Plan of Liquidation"; and "Additional Information About
the Proposals - Income Tax Effects of a Distribution Following the Approval of
Either, But Not Both of, Proposal No. 1 and Proposal No. 2, or Either the
Corporate Trust Sale or the Wealth Management Sale is Consummated, But Not Both"
in the Proxy Statement is incorporated herein pursuant to General Instruction G
to Schedule 13E-3.
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ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) - (e) Fairness; factors considered in determining fairness; approval of
security holders; unaffiliated representative; approval of directors. The
information contained under "Adoption of Plan of Liquidation and Dissolution and
Amendment to the Company's Articles of Incorporation to Effect Reverse Stock
Split for Purposes of Making Liquidating Distributions (Proposal No. 3) - Vote
Required and Board Recommendation"; "Risk Factors - Risks Related to the Plan of
Liquidation and our Dissolution"; "Information about the Special Meeting -
Recommendation of the Board of Directors"; "Additional Information About the
Proposals - Reasons for the Board's Recommendations"; and "Additional
Information About the Proposals - Opinion of Bank Advisory Group" in the Proxy
Statement and Appendix C to the Proxy Statement is incorporated herein pursuant
to General Instruction G to Schedule 13E-3.
(f) Other offers. The information contained under "Background of the
Transactions - Past Contacts and Negotiations" in the Proxy Statement is
incorporated herein pursuant to General Instruction G to Schedule 13E-3.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS.
(a) - (c) Report, opinion or appraisal; preparer and summary of the report,
opinion or appraisal; availability of documents. The information contained under
the caption "Additional Information About the Proposals - Opinion of Bank
Advisory Group" in the Proxy Statement is incorporated herein pursuant to
General Instruction G to Schedule 13E-3.
The opinion of Bank Advisory Group is attached as Appendix C to the Proxy
Statement and is incorporated herein by reference to the Proxy Statement
pursuant to General Instruction G to Schedule 13E-3. The opinion of Bank
Advisory Group will be made available at the Company's executive office during
regular business hours for inspection and copying by any interested stockholder
of the Company or representative who has been so designated in writing.
ITEM 10. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) Sources of funds. The information contained under "Sale of the
Corporate Trust Business (Proposal No. 1) - Use of Proceeds from the Corporate
Trust Sale"; "Sale of the Wealth Management Business (Proposal No. 2) - Use of
Proceeds from the Wealth Management Sale"; and "Adoption of Plan of Liquidation
and Dissolution and Amendment to the Company's Articles of Incorporation to
Effect Reverse Stock Split for Purposes of Making Liquidating Distributions
(Proposal Number 3) - Funds Anticipated to be Available for Distribution to
Stockholders" in the Proxy Statement is incorporated herein pursuant to General
Instruction G to Schedule 13E-3.
(b) Conditions. The information contained under "Sale of the Corporate
Trust Business (Proposal No. 1) - Other Material Terms of the Corporate Trust
Sale" and "Sale of the Wealth Management Business (Proposal No. 2) - Other
Material Terms of the Wealth Management Sale" in the Proxy Statement is
incorporated herein pursuant to General Instruction G to Schedule 13E-3.
(c) Expenses. The information contained under "Adoption of Plan of
Liquidation and Dissolution and Amendment to the Company's Articles of
Incorporation to Effect Reverse Stock Split for Purposes of Making Liquidating
Distributions (Proposal No. 3) - Principal Provisions of the Plan of Liquidation
- - Dissolution" in the Proxy Statement is incorporated herein pursuant to General
Instruction G to Schedule 13E-3.
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(d) Borrowed funds. Not applicable.
ITEM 11. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) Securities ownership. The information contained under "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy Statement is
incorporated herein pursuant to General Instruction G to Schedule 13E-3.
(b) Securities transactions. None.
ITEM 12. THE SOLICITATION OR RECOMMENDATION.
(a)-(c) Solicitation or recommendation; reasons; intent to tender. Not
applicable.
(d) Intent to tender or vote in a going-private transaction. Based on
information available to the Company as of the date of filing of this Schedule
13E-3 in preliminary form, all of the Company's directors and executive officers
intend to vote in favor of "Adoption of Plan of Liquidation and Dissolution and
Amendment to the Company's Articles of Incorporation to Effect Reverse Stock
Split for Purposes of Making Liquidating Distributions (Proposal No. 3)" at the
Special Meeting.
(e) Recommendation of others. Based on information available to the Company
as of the date of filing of this Schedule 13E-3 in preliminary form, the
Company's directors have each recommended that stockholders vote in favor of
"Adoption of Plan of Liquidation and Dissolution and Amendment to the Company's
Articles of Incorporation to Effect Reverse Stock Split for Purposes of Making
Liquidating Distributions (Proposal No. 3)" at the Special Meeting.
ITEM 13. FINANCIAL INFORMATION.
(a) Financial information. The Company's audited financial statements and
unaudited interim financial statements required by Item 1010(a) of Regulation
M-A are incorporated by reference into the Proxy Statement from the Company's
Annual Report on Form 10-KSB for the year ended March 31, 2003 and from the
Company's Quarterly Reports on Form 10-QSB for the quarters ended June 30, 2003,
September 30, 2003 and December 31, 2003. The information contained under
"Selected Financial Data" and "Information About the Special Meeting - Where To
Find Additional Information" in the Proxy Statement is incorporated herein
pursuant to General Instructions F and G to Schedule 13E-3.
(b) Pro forma information. Not Applicable.
Information incorporated herein by reference has been filed by the Company
with the SEC as stated above. You may obtain copies of these reports, statements
or other information that the Company files from the Public Reference Section of
the SEC at 450 Fifth Street N.W., Washington D.C. 20549 at prescribed rates.
Copies of such materials may also be accessed through the SEC's Internet site at
www.sec.gov.
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ITEM 14. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.
(a) - (b) Solicitations or recommendations; employees or corporate assets.
The information contained under "Information about the Special Meeting -
Solicitation" in the Proxy Statement is incorporated herein pursuant to General
Instruction G to Schedule 13E-3.
ITEM 15. ADDITIONAL INFORMATION.
(a) Agreements, regulatory requirements and legal proceedings. Not
applicable.
(b) Other material information. The information set forth in the Proxy
Statement and each Appendix thereto is incorporated herein pursuant to General
Instruction G to Schedule 13E-3.
ITEM 16. EXHIBITS.
(a) The Preliminary Proxy Statement on Schedule 14A, as filed with the SEC
on June __, 2004, is incorporated herein pursuant to General Instruction G to
Schedule 13E-3.
(b) Not applicable.
(c) (i) The fairness opinion of Bank Advisory Group, dated May 4, 2004,
attached as Appendix C to the Preliminary Proxy Statement on Schedule 14A, as
filed with the SEC on June __, 2004, is incorporated herein pursuant to General
Instruction G to Schedule 13E-3.
(ii) The fair market valuation opinion of Bank Advisory Group, dated
June 10, 2003, is attached hereto as Exhibit (c)(ii).
(d) Not applicable.
(e) Not applicable.
(f) The information set forth under the caption "Additional Information
About the Proposals - Appraisal Rights" and Appendix B of the Proxy Statement is
incorporated herein by reference pursuant to General Instruction G to Schedule
13E-3.
(g) Not applicable.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
By: /s/ John K. Johnson
Name: John K. Johnson
Date: June __, 2004
10
Exhibit (c)(ii)
Fair Market Valuation Opinion of The Bank Advisory Group, dated June 10, 2003
June 10, 2003
Confidential
Mr. John Johnson
President
Colonial Trust Company
5336 North 19th Avenue
Phoenix, Arizona 85015
Re: Cash fair market evaluation range of 757,884 shares (100%) of the
outstanding common stock of Colonial Trust Company, Phoenix, Arizona
("Colonial"), as of March 31, 2003, for use in the potential sale of the
organization; and, an analysis of the additional value which could be
potentially produced by an undetermined acquirer
Dear Mr. Johnson:
As part of its line of professional services, The Bank Advisory Group, L.L.C.
specializes in rendering valuation opinions of financial institutions
nationwide. These valuations are required for a multitude of reasons, including
tax and estate planning, employee stock ownership plans, private placements,
buy/sell agreements, exchange ratio determinations, dissenters' rights
proceedings, reverse stock splits, fairness opinion letters, public offerings,
together with mergers and acquisitions. Broad and extensive participation in the
field of financial securities appraisal on the part of the firm's principals,
allows The Bank Advisory Group, L.L.C. to be especially knowledgeable with
regard to valuation theory and the rulings and guidelines of the Internal
Revenue Service and the Office of the Comptroller of the Currency involving
valuation methodology, and judicial decisions regarding financial institution
valuation matters.
In our capacity as an expert in this field, you have asked our opinion as to the
cash fair market value range of 757,884 shares (100%) of the outstanding common
stock of Colonial Trust Company, Phoenix, Arizona, as of March 31, 2003, for use
in the potential sale of the organization; and, an analysis of the additional
value which could be potentially produced by an undetermined acquirer.
In order to accomplish our assignment, you have provided us with the relevant
financial statements for Colonial Trust Company, as of March 31, 2003. In
addition, through communications both oral and written, information was provided
pertaining to the immediate past operating history of Colonial, the primary
competition within the trade area of Colonial, and other information deemed
pertinent to the evaluation.
In rendering an opinion as to the cash fair market value range of the stock, we
have considered the nature and history of Colonial Trust Company, the
competitive and economic outlook for the trade area and for the financial
industry in general, the book value and financial condition of Colonial, its
future earnings and dividend paying capacity, the size of the block valued, and
the prevailing market prices of stocks for financial institutions which manage
assets as their primary line of business. However, we have not independently
verified the financial condition and performance of Colonial. Accordingly, we
have relied upon the data provided by or on behalf of Colonial to be true and
accurate in all material respects.
Definitions of Value
The IRS defines "fair market value" as the price at which a willing buyer and a
willing seller, both being adequately informed of the relevant facts about the
subject business, could reasonably consummate a purchase/sale transaction,
neither party acting under any compulsion to do so and with both parties
possessing the ability to perform under a mutual agreement. In the case of this
appraisal of 100% of the outstanding shares of Colonial Trust Company, this
market-oriented definition of the fair market value of a company's stock is
applicable only by reference to the recent activities of buyers of other trust
companies prior to the effective date of this appraisal. Accordingly, in Section
III of this report, we have provided an analysis of the prices paid for United
States companies whose primary line of business was asset management, who
reported assets under management below $1 billion, and who were acquired during
the period of January 2001 - March 2003.
The subjective analysis - as described in IRS Revenue Ruling 59-60, specifically
outlined for national banks in OCC Bulletin 88-22 and Banking Circular 259, and
generally discussed in numerous case law studies and various writings regarding
fair value determination - of net asset value, market value, and investment
value (as they are defined later in this report), and as influenced by the
appraisal expert's judgment and experience, is the appropriate approach to be
used by appraisal experts when determining the fair market value of the shares
of a corporation operating as a going concern.
The appropriate definition for cash fair market value as it is used in this
report is: that value arrived at by analyzing all relevant valuation variables
and employing all applicable valuation techniques or methodologies. The approach
used by The Bank Advisory Group to derive the cash fair market value of 100% of
the common stock of Colonial Trust Company encompasses all of the relevant
techniques and methods described in the following paragraphs.
Valuation Variables
The relative importance of the key valuation variables differs from one
valuation scenario to the next. Most financial institution appraisal experts
tend to agree that the primary financial variables to be considered are
earnings, equity, dividends or dividend-paying capacity, asset quality and cash
flow. In most, if not all instances, value is further tempered by other
nonfinancial factors, including marketability/liquidity, voting rights or block
size, history of past sales of the financial company's stock or other substitute
market's price levels, nature and relationship of the other shareholdings in the
company, and other special ownership or management considerations. In performing
this appraisal, we focused on both the relevant financial and nonfinancial
variables that were appropriate to be considered in this valuation situation.
Financial Analysis
Historical financial information for Colonial Trust Company is set forth in
Section V of the adjoining material. We have reviewed the condition and
performance of Colonial at and for the twelve-month periods ending March 31,
2001 - 2003, utilizing general financial data provided by the management of
Colonial. The review of such financial information, fully considered together
with appropriate nonfinancial information, is essential in determining a cash
fair market value range for an organization such as Colonial Trust Company.
Financial Projections
Financial projections for Colonial Trust Company are set forth in Section II of
the adjoining material. Although reviewed by the management of Colonial Trust
Company, these financial projections were developed primarily by The Bank
Advisory Group, L.L.C. based on our analysis of data pertaining to Colonial, and
represent our estimation of Colonial's future financial condition and
performance.
General Discussion of Valuation Methodologies
There exist three types of fair market value approaches that are commonly
recognized and employed, when appropriate, by appraisal experts in valuing the
stock or assets of a going concern. The three broad value types or methods are:
net asset value, market value, and investment value.
When valuing a financial organization, the Net Asset Value approach is
frequently defined as the value of the net worth of the company, including every
kind of property and value. This approach normally assumes liquidation or sale
on the date of appraisal with the recognition of securities gains or losses,
real estate appreciation or depreciation, or changes in the net value of its
assets. As such, it is not the best approach to use when valuing a going
concern. However, it would be applicable when valuing any nonoperating or "held"
assets at a "shell" holding company (such as excess real estate, or low- or
non-dividend paying equity securities held for long-term investment purposes).
Accordingly, we did review the March 31, 2003 equity capital position of
Colonial Trust Company in determining our cash fair market value range, but
placed the least emphasis on the Net Asset Value appraisal methodology.
The Market Value approach is generally defined as the price at which
knowledgeable buyers and sellers would agree, and is frequently used to
determine the price of the appraised stock when both the quantity and the
quality of the trade data are deemed sufficient. However, the lack of
availability of trade data that is comparable to the stock being appraised may
result in the need to employ other valuation approaches.
When valuing a "control" position in a financial organization, a comparison is
typically made to the prices paid in recent acquisitions of similar financial
organizations. Accordingly, we have reviewed the prices paid for "control" of
selected United States asset management companies, and have provided an analysis
of the data available for those transactions in Section III of the adjoining
information. Additionally, we have summarized the information in the table
presented below. These financial institutions represent United States companies
acquired during January 2001 - March 2003 which focus on asset management and
reported assets under management below $1 billion at announcement date. These
organizations possessed the following financial traits and related price levels,
on average:
Trust
All Deals Company
With Stated Deals With
Values Stated Values
- -------------------------------------------------------------------------------
Average Administered Assets (000s) $381,000 $175,000
Total Price $6,760 $900
Price/Assets 1.77 % 0.51 %
# of Transactions 4 2
When sufficient, comparable trade data is available, the market value deserves
greater consideration than the net asset value, and equal or possibly greater
consideration than the investment value. However, as illustrated in the prior
table as well as in the complete analysis set forth in Section III, the number
of transactions and the related financial and pricing information are
considerably limited, thus severely restricting our reliance on the Market Value
approach for determining a cash fair market value range for Colonial.
Generally speaking, when valuing the stock of a going concern, one of the most
important valuation types is the Investment Value, sometimes referred to as the
income value or earnings value. The investment or earnings value of any
financial organization's stock is, simply stated, an estimate of the present
value of the future benefits, usually earnings, cash flow, or dividends, that
will accrue to the stock. An earnings value is comprised of two major
components: annual future earnings and an appropriate capitalization rate (the
present value discount rate), and is defined by the following formula:
Net Present Value = (SIGMA) [valuesi/(1 + rate)i]
We believe the utilization of net earnings, rather than cash flows, for this
investment value methodology is appropriate given the minimal level of
long-term, non-earning investments typically held by a trust company. Thus, for
most asset management organizations, the absence of significant non-cash
depreciation and/or amortization expense produces little variance between the
net earnings and cash flow streams. Additionally, the utilization of net
earnings in calculating the present value of benefits is a widely understood and
accepted practice in the valuation of financial institutions.
Our twelve-year financial projections of the future performance of Colonial
Trust Company through March 31, 2015 were based on our analysis of the financial
service industry, market area, and current financial condition of and historical
levels of growth and earnings for Colonial, as well as information provided to
us by the management of Colonial. In order to create a ninety-year earnings
stream for Colonial, we applied the following growth rates to Colonial's net
earnings: 4.00% for the eight years following 2015, and 3.00% for the remaining
seventy years. In consideration that the assumed investment horizon of likely
buyers of Colonial's shares is undefined, but is presumed to be long-term, the
rate of growth applied to Colonial's earnings must be one that could reasonably
be expected to be sustained indefinitely. Over a prolonged period of time, it is
practically impossible to sustain growth at a rate that exceeds the sum of the
anticipated rate of inflation plus the expected overall population growth for
the trade area(s), as further influenced by the presumed degree of competition
from both current and future competitors
When the three value methodologies (net asset, market, and investment) are
subjectively analyzed, using the appraiser's experience and judgment, an
acceptable cash fair market value range is determined.
Conclusion (Colonial Trust Company Operating as a Public Company)
When the net asset value, market value, and investment value approaches were
appropriately considered and all other relevant valuation variables and factors
analyzed, the cash fair market value range of 757,884 shares (100%) of the
outstanding common stock of Colonial Trust Company, as of March 31, 2003, for
the purpose defined in this letter, was determined to be $2,950,000 - $3,250,000
in aggregate. A summary analysis of the three appraisal methodologies and their
related values in connection with the appraisal of Colonial Trust Company is set
forth in Section I of the adjoining information.
Determination of the Cash Fair Market Value Range of
Colonial Trust Company (Operating as a Private Company)
Additionally, we note that you have requested The Bank Advisory Group to
determine the cash fair market value range of 100% of the outstanding common
shares of Colonial Trust Company, as of March 31, 2003, assuming Colonial
operated as a private company. While there would be little or no difference in
the initial financial condition of Colonial assuming its operation as a private
company, the elimination of expenses incurred by Colonial to satisfy the
financial reporting requirements of public companies would materially improve
Colonial's operating performance. Thus, the improved net earnings stream would
materially impact the Investment Value approach in determining a cash fair
market value range for Colonial's outstanding common shares.
Accordingly, we revised the financial projections for Colonial Trust Company set
forth in Section II of the adjoining material to exclude the regulatory
reporting expenses required of Colonial as a public company. The revised
financial projections for Colonial are also set forth in Section II. Again,
please note that although reviewed by the management of Colonial Trust Company,
these financial projections were developed primarily by The Bank Advisory Group,
L.L.C. based on our analysis of data pertaining to Colonial, and represent our
estimation of Colonial's future financial condition and performance assuming its
operation as a private organization.
We utilized the same discount rates and earnings growth rates for Colonial Trust
Company in determining the Investment Value of Colonial assuming its operation
as a private company. Moreover, we again reviewed Colonial's value range as
determined with the Net Asset Value and Market Value appraisal methodologies.
When the three value methodologies (net asset, market, and investment) were
subjectively analyzed, using our experience and judgment, we concluded that the
cash fair market value range of 757,884 shares (100%) of the outstanding common
stock of Colonial Trust Company, as of March 31, 2003, for the purpose defined
in this letter and assuming Colonial was a private company, was $3,500,000 -
$3,800,000 in aggregate. Again, a summary analysis of the three appraisal
methodologies and their related values in connection with the appraisal of
Colonial Trust Company (operating as a private organization) is set forth in
Section I of the adjoining information.
These value ranges represents our opinion regarding the cash fair market value
of the common stock of Colonial Trust Company. Any determination of the fairness
or equitableness of an offer entailing the issuance of stock, or any other
noncash form of consideration, in exchange for the common stock of Colonial
Trust Company would require additional analysis of our part. Such additional
analysis would include a determination of the value of the securities offered
along with an in-depth financial analysis of the potential buyer.
Finally, please note that the level of interest a specific acquirer might
possess for Colonial Trust Company could vary considerably as a result of one or
more specific attributes possessed by Colonial Trust Company. Those attributes
include such factors as market presence, trade area economics/demographics,
lending focus, or deposit clientele. Accordingly, the varying level of
motivation that a particular acquirer might possess for acquiring Colonial Trust
Company could result in a material increase or decrease in our cash fair market
value conclusion.
Analysis of the Additional Value of Colonial Trust Company
Potentially Derived From an Acquirer
Finally, we note that you requested The Bank Advisory Group to analyze potential
post-sale value that might be produced by an acquirer. Specifically, you
requested that we analyze (i) the savings potentially realizable from the
elimination of service charges currently paid by Colonial Trust Company; and,
(ii) the additional interest income that could be derived from the investment of
managed funds currently held in self-directed IRA accounts.
In analyzing the potential savings related to service charges incurred by
Colonial Trust Company for maintenance of accounts in which a percentage of
Colonial's managed funds are held, we reviewed both the most recent Account
Analysis Statements provided by Colonial's management, together with the most
recent Functional Cost Analysis performed by the Federal Reserve System. We
estimate that the annual after-tax savings potential achievable through the
consolidation of these accounts by an acquirer to approximate $30.5 thousand. We
then grew the potential service charge savings at a level commensurate with the
asset growth rates utilized in developing Colonial's financial projections. We
then calculated a present value of the twelve-year earnings stream utilizing a
13% discount rate, a rate we believe appropriate given the current interest rate
environment, Colonial's recent financial condition and performance, and our
experience in valuing hundreds of community financial companies. The present
value for the service charge savings approximated $220 thousand.
Additionally, we analyzed the potential increase in interest income to be
realized through the redeployment of approximately $20 million in self-directed
IRA accounts in a mixture of loans and securities by a potential acquirer. In
order to estimate yields potential realizable from the additional loans and
securities, we analyzed the average loan and securities yields for profitable
commercial banks located in urban/suburban markets of the following states
(Arizona, California, Colorado, Nevada, New Mexico, Texas, and Utah), and
reporting total assets between $100 million and $1 billion, as of December 31,
2002 (the "Bank Sample"). The Bank Sample reported an average loan/deposit ratio
of approximately 74%, an average loan yield of approximately 7.40%, and an
average securities yield approximating 5.00%. Utilizing these yields as a basis,
together with an assumed savings rate of 1.00% and a marginal tax rate of 41%,
we calculated the income potentially derived from an acquirer's ability to
redeploy these funds into a loan/securities mix.
Specifically, we analyzed the funds redeployment under two different scenarios:
(i) utilizing a loans/securities mix which ranged from 65%/35% to 85%/15%; and,
(ii) utilizing loan/security yields which ranged from 6.4%/4.0% to 8.4%/6.0%, or
100 basis points below/above the averages for the Bank Sample. We applied these
two scenarios to the anticipated $20 million in available funds, growing the
related income stream at a level commensurate with the asset growth rates
utilized in developing Colonial's financial projections. We then calculated a
present value of each twelve-year earnings stream utilizing the previously-noted
discount rate of 13%.
The range of present values for the earnings stream related to the range of
loans/securities splits equaled $4.7 million - $5.1 million. Moreover, the range
of present values for the earnings stream related to the range of loans and
securities yields equaled $4.1 million - $5.8 million. We note that the range of
present values assume a 100% redeployment of self-directed IRA accounts in loans
and securities. We additionally note that the stated range of present values
exclude related costs of originating and maintaining loan and securities
portfolios (administrative, bad debt expense, etc.). Moreover, we note that
while potential acquirers may be willing to compensate the selling shareholder
group for potential "merger savings" or "earnings enhancements" through a higher
purchase price, the great majority of the value corresponding with "merger
synergies" is typically retained by the acquirer, in recognition that the buyer
is responsible for developing and implementing the strategies required to
produce the "merger savings" or "earnings enhancements."
This opinion, and the adjoining material, are provided to you solely for the
confidential, internal use of the Board of Directors of Colonial Trust Company;
and, without the prior written consent of The Bank Advisory Group, they may not
be quoted in whole or in part, or otherwise referred to in any report or
document or furnished or otherwise communicated to any person outside the Board
of Directors of Colonial Trust Company, with the sole exception of its legal
counsel.
Respectfully submitted,
The Bank Advisory Group, l.l.c.
By________________________________________________
Cash Fair Market Range Evaluation
of 757,884 shares (100%) of
the outstanding Common Stock of
Colonial Trust Company
Phoenix, Arizona
As of March 31, 2002
Beginning
Section Number Section Contents Page Number
I Cash Fair Market Value Range Summary 1
II Financial Projections: 2
>> Colonial Operating as a Public Company
>> Colonial Operating as a Private Company
III Prices Paid Analysis - Recently Acquired Asset
Management Organizations in the United States 4
IV Analysis of Savings Accounts Redeployment 5
V Historical Financial Data - Colonial Trust Company 6
VI Company Profile - The Bank Advisory Group, L.L.C. 8
1
Section I
Cash Fair Market Value Range Summary
- -------------------------------------------------------------------------------
C a s h F a i r M a r k e t R a n g e S u m m a r y
Cash Fair Market Range Evaluation
"of 757,884 (100%) of"
the Outstanding Common Shares of
Colonial Trust Company
"Phoenix, Arizona"
$ in thousands
Low End High End
Cash Fair Market Value Range Determination for Colonial
as a public-held company
Net Asset Value Approach (utilizing 3/31/03
Equity Capital) "$2,673" "$2,955"
Market Value Approach (utilizing 0.51% of
Managed Assets) "$2,304" "$2,547"
Investment Value Approach:
11x - 13x Projected 2003 Net Earnings "$2,464" "$2,912"
11x - 13x Projected 2004 Net Earnings "$4,186" "$4,186"
Present Value of Projected 90-Year Net
Earnings Stream "$4,095" "$4,527"
Cash Fair Market Value Range Conclusion
(as a publicly-held company) "$2,950" "$3,250"
Corresponding Valuation Multiples:
Equity Capital (03/30/03) 1.05x 1.15x
Net Earnings (2003 projected) 13.17x 14.51x
Net Earnings (2004 projected) 9.16x 10.09x
Cash Fair Market Value Range Determination for
Colonial as a privately-held company:
Net Asset Value Approach (utilizing 3/31/03
Equity Capital) "$2,673" "$2,955"
Market Value Approach (utilizing 0.51% of
Managed Assets) "$2,304" "$2,547"
Investment Value Approach:
11x - 13x Projected 2003 Net Earnings "$3,322" "$3,926"
11x - 13x Projected 2004 Net Earnings "$4,758" "$4,758"
Present Value of Projected 90-Year Net
Earnings Stream "$5,056" "$5,588"
Cash Fair Market Value Range Conclusion
(as a privately-held company) "$3,500" "$3,800"
Corresponding Valuation Multiples:
Equity Capital (03/30/03) 1.24x 1.35x
Net Earnings (2003 projected) 11.59x 12.58x
Net Earnings (2004 projected) 9.56x 10.38x
2
Section II
Financial Projections:
- --------------------------------------------------------------------------------
Colonial Operating as a Public Company
Projected Summary Balance Sheet & Income Statement
for
Colonial Trust Company
"Phoenix, Arizona"
Dollars in (000)
3/31/2003 3/31/2004 3/31/2005 3/31/2006 3/31/2007
Discretionary Assets $204,000 $218,280 $231,377 $245,259 $259,975
Non-Discretionary Assets $271,600 $290,612 $308,049 $326,532 $346,124
Total Assets $3,086 $3,302 $3,500 $3,675 $3,841
Asset Composition:
Cash & cash equivalents 243 264 263 257 269
Receivables 1,112 1,189 1,260 1,323 1,383
Note receivable 354 396 420 441 461
PP&E 665 660 630 625 614
Goodwill 105 105 105 105 105
Restricted cash 506 561 595 625 653
Other 101 126 228 299 356
Capital (computed as
a % of assets) $2,814 $3,005 $3,185 $3,344 $3,495
A/P & other accruing
liabilities 272 297 315 331 346
(continued)
3/31/2008 3/31/2009 3/31/2010 3/31/2011
Discretionary Assets $275,573 $289,352 $303,820 $319,011
Non-Discretionary Assets $366,891 $385,236 $404,497 $424,722
Total Assets $3,994 $4,154 $4,320 $4,493
Asset Composition:
Cash & cash equivalents 280 291 302 315
Receivables 1,438 1,495 1,555 1,617
Note receivable 479 498 518 539
PP&E 599 623 648 674
Goodwill 105 105 105 105
Restricted cash 679 706 734 764
Other 414 435 457 479
Capital (computed as
a % of assets) $3,635 $3,780 $3,931 $4,089
A/P & other accruing
liabilities 359 374 389 404
(continued)
3/31/2012 3/31/2013 3/31/2014 3/31/2015
Discretionary Assets $334,961 $348,360 $362,294 $376,786
Non-Discretionary Assets $445,958 $463,797 $482,348 $501,642
Total Assets $4,673 $4,859 $5,054 $5,256
Asset Composition:
Cash & cash equivalents 327 340 354 368
Receivables 1,682 1,749 1,819 1,892
Note receivable 561 583 606 631
PP&E 701 729 758 788
Goodwill 105 105 105 105
Restricted cash 794 826 859 894
Other 502 527 552 578
Capital (computed as
a % of assets) $4,252 $4,422 $4,599 $4,783
A/P & other accruing
liabilities 421 437 455 473
- --------------------------------------------------------------------------------
2004 2005 2006 2007 2008 2009
Revenue:
Bond servicing income $1,776 $1,755 $1,674 $1,773 $1,879 $1,992
IRA servicing fees -
corporate 672 702 732 776 822 871
IRA servicing fees -
personal 360 401 445 471 499 529
Trust income 1,896 2,056 2,275 2,410 2,554 2,708
Interest income 96 100 105 111 117 124
Total Revenue $4,800 $5,015 $5,230 $5,540 $5,872 $6,225
General & Administrative Expense $4,420 $4,470 $4,690 $4,910 $5,168 $5,416
Net Income Before Taxes 380 545 540 630 705 809
Income Tax Expense 156 223 221 258 289 332
Net Income $224 $322 $319 $372 $416 $477
(continued)
2010 2011 2012 2013 2014 2015
Revenue:
Bond servicing income $2,092 $2,196 $2,306 $2,421 $2,530 $2,644
IRA servicing fees -
corporate 915 961 1,009 1,059 1,107 1,157
IRA servicing fees -
personal 556 583 613 643 672 702
Trust income 2,843 2,985 3,135 3,291 3,439 3,594
Interest income 131 137 144 151 158 165
Total Revenue $6,536 $6,863 $7,206 $7,566 $7,907 $8,262
General & Administrative Expense $5,621 $5,833 $6,125 $6,431 $6,721 $7,023
Net Income Before Taxes 915 1,029 1,081 1,135 1,186 1,239
Income Tax Expense 375 422 443 465 486 508
Net Income $540 $607 $638 $670 $700 $731
- --------------------------------------------------------------------------------
2004 2005 2006 2007 2008 2009
As a % of Revenue:
Bond servicing income 37.00% 35.00% 32.00% 32.00% 32.00% 32.00%
IRA servicing fees -
corporate 14.00% 14.00% 14.00% 14.00% 14.00% 14.00%
IRA servicing fees -
personal 7.50% 8.00% 8.50% 8.50% 8.50% 8.50%
Trust income 39.50% 41.00% 43.50% 43.50% 43.50% 43.50%
Interest income 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
General & Administrative
Expense 92.08% 89.13% 89.67% 88.63% 88.00% 87.00%
(continued)
2010 2011 2012 2013 2014 2015
As a % of Revenue:
Bond servicing income 32.00% 32.00% 32.00% 32.00% 32.00% 32.00%
IRA servicing fees -
corporate 14.00% 14.00% 14.00% 14.00% 14.00% 14.00%
IRA servicing fees -
personal 8.50% 8.50% 8.50% 8.50% 8.50% 8.50%
Trust income 43.50% 43.50% 43.50% 43.50% 43.50% 43.50%
Interest income 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
General & Administrative
Expense 86.00% 85.00% 85.00% 85.00% 85.00% 85.00%
- --------------------------------------------------------------------------------
3
Colonial Operating as a Private Company
Projected Summary Balance Sheet & Income Statement
for
Colonial Trust Company
"Phoenix, Arizona"
(Assuming its Operation as a Private Organization)
Dollars in (000)
3/31/2003 3/31/2004 3/31/2005 3/31/2006 3/31/2007
Discretionary Assets $204,000 $218,280 $231,377 $245,259 $259,975
Non-Discretionary Assets $271,600 $290,612 $308,049 $326,532 $346,124
Total Assets $3,086 $3,302 $3,500 $3,675 $3,841
Asset Composition:
Cash & cash equivalents 243 264 263 257 269
Receivables 1,112 1,189 1,260 1,323 1,383
Note receivable 354 396 420 441 461
PP&E 665 660 630 625 614
Goodwill 105 105 105 105 105
Restricted cash 506 561 595 625 653
Other 101 126 228 299 356
Capital (computed as
a % of assets) $2,814 $3,005 $3,185 $3,344 $3,495
A/P & other accruing
liabilities 272 297 315 331 346
(continued)
3/31/2008 3/31/2009 3/31/2010 3/31/2011
Discretionary Assets $275,573 $289,352 $303,820 $319,011
Non-Discretionary Assets $366,891 $385,236 $404,497 $424,722
Total Assets $3,994 $4,154 $4,320 $4,493
Asset Composition:
Cash & cash equivalents 280 291 302 315
Receivables 1,438 1,495 1,555 1,617
Note receivable 479 498 518 539
PP&E 599 623 648 674
Goodwill 105 105 105 105
Restricted cash 679 706 734 764
Other 414 435 457 479
Capital (computed as
a % of assets) $3,635 $3,780 $3,931 $4,089
A/P & other accruing
liabilities 359 374 389 404
(continued)
3/31/2012 3/31/2013 3/31/2014 3/31/2015
Discretionary Assets $334,961 $348,360 $362,294 $376,786
Non-Discretionary Assets $445,958 $463,797 $482,348 $501,642
Total Assets $4,673 $4,859 $5,054 $5,256
Asset Composition:
Cash & cash equivalents 327 340 354 368
Receivables 1,682 1,749 1,819 1,892
Note receivable 561 583 606 631
PP&E 701 729 758 788
Goodwill 105 105 105 105
Restricted cash 794 826 859 894
Other 502 527 552 578
Capital (computed as
a % of assets) $4,252 $4,422 $4,599 $4,783
A/P & other accruing
liabilities 421 437 455 473
- --------------------------------------------------------------------------------
2004 2005 2006 2007 2008 2009
Revenue:
Bond servicing income $1,776 $1,755 $1,674 $1,773 $1,879 $1,992
IRA servicing fees -
corporate 672 702 732 776 822 871
IRA servicing fees -
personal 360 401 445 471 499 529
Trust income 1,896 2,056 2,275 2,410 2,554 2,708
Interest income 96 100 105 111 117 124
Total Revenue $4,800 $5,015 $5,230 $5,540 $5,872 $6,225
General & Administrative
Expense $4,288 $4,395 $4,505 $4,715 $4,933 $5,167
Net Income Before Taxes 512 620 725 825 940 1,058
Income Tax Expense 210 254 297 338 385 434
Net Income $302 $366 $428 $487 $554 $624
(continued)
2010 2011 2012 2013 2014 2015
Revenue:
Bond servicing income $2,092 $2,196 $2,306 $2,421 $2,530 $2,644
IRA servicing fees -
corporate 915 961 1,009 1,059 1,107 1,157
IRA servicing fees -
personal 556 583 613 643 672 702
Trust income 2,843 2,985 3,135 3,291 3,439 3,594
Interest income 131 137 144 151 158 165
Total Revenue $6,536 $6,863 $7,206 $7,566 $7,907 $8,262
General & Administrative
Expense $5,360 $5,627 $5,909 $6,204 $6,483 $6,775
Net Income Before Taxes 1,176 1,235 1,297 1,362 1,423 1,487
Income Tax Expense 482 506 532 558 584 610
Net Income $694 $729 $765 $804 $840 $877
- --------------------------------------------------------------------------------
2004 2005 2006 2007 2008 2009
As a % of Revenue:
Bond servicing income 37.00% 35.00% 32.00% 32.00% 32.00% 32.00%
IRA servicing fees -
corporate 14.00% 14.00% 14.00% 14.00% 14.00% 14.00%
IRA servicing fees -
personal 7.50% 8.00% 8.50% 8.50% 8.50% 8.50%
Trust income 39.50% 41.00% 43.50% 43.50% 43.50% 43.50%
Interest income 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
General & Administrative
Expense 89.33% 87.64% 86.14% 85.11% 84.00% 83.00%
(continued)
2010 2011 2012 2013 2014 2015
As a % of Revenue:
Bond servicing income 32.00% 32.00% 32.00% 32.00% 32.00% 32.00%
IRA servicing fees -
corporate 14.00% 14.00% 14.00% 14.00% 14.00% 14.00%
IRA servicing fees -
personal 8.50% 8.50% 8.50% 8.50% 8.50% 8.50%
Trust income 43.50% 43.50% 43.50% 43.50% 43.50% 43.50%
Interest income 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
General & Administrative
Expense 82.00% 82.00% 82.00% 82.00% 82.00% 82.00%
- --------------------------------------------------------------------------------
4
Section III
Prices Paid Analysis - Recently Acquired Asset Management
Organizations in the United States
- --------------------------------------------------------------------------------
Listing of Acquired Trust Operations
Year(s): Jan 2001 - Jun 2003 Geographic Area: United States
Managed Asset Size: Under $1B
Administered LTM Deal Total Price/
Assets Type of Revenues Struc- Price Price/ Revenues
Selling Organization Acquiring Organization Date $(000) Operations $(000) ture $(000) Assets % Multiple
- -------------------- ---------------------- ----- -------- ---------- ------- ----- ------ ------- -----------
First National Bank Union BanCal Corp. May-02 $800,000 Trust Adm. $1,428 NM $1,900 0.24% 1.33x
(trust ops) San Francisco, CA
San Diego, CA
Beacon Fiduciary Bank of New York Co. Jun-02 $700,000 Wealth Mgmt. NM NM NM NA NA
Advisors New York, NY
Chestnut Hill, MA
Sentry Trust Company Sun Bancorp, Inc. Apr-03 $400,000 Trust Adm., NM Other $16,800 4.20% NA
Chambersburg, PA Lewisburg, PA Wealth Mgmt.,
Brokerage &
Other
George K. Baum Gold Banc Corp. Oct-02 $350,000 Trust Adm. NM NM $1,800 0.51% NA
Holdings, Inc. Leawood, KS
Kansas City, MO
Midway Natl Bank Minnesota Mutual Feb-02 $350,000 Trust Adm. NM NM NM NA NA
(Trust ops) Companies
Mendota Heights, MN St. Paul, MN
Legacy South, Inc. Northern Trust Nov-02 $300,000 Wealth Mgmt. NM NM $11,500 3.83% NA
Atlanta, GA Corporation
Chicago, Illinois
Central Bancompany Bank of New York Co. Dec-01 $250,000 Trust Adm. NM NM NM NA NA
(Trust ops) New York, NY
Jefferson City, MO
TrustCo Holding, Inc. MountainBank Financial Jul-02 $55,000 Trust Adm. ($576) Stock $1,800 3.27% NA
Greenville, SC Corp. Wealth Mgmt.
Hendersonville, NC
Averages (Deals with Stated Value) (4) $381,000 $6,760 1.77% 1.33x
Averages (Trust Only Deals with Stated Value)(2) $175,000 $900 0.51% NA
Averages (All Deals) (7) $400,625 NA NA NA
5
Section IV
Analysis of Savings Accounts Redeployment
- -------------------------------------------------------------------------------
2004 2005 2006 2007 2008 2009
Utilizing a Range of Loans/Securities Blends:
Scenario #1 (Midpoint Loan %) A $609 $645 $678 $708 $737 $766
Scenario #2 (Low End Loan %) B $656 $695 $730 $763 $794 $825
Scenario #3 (High End Loan %) C $713 $755 $793 $829 $862 $897
Utilizing a Range of Loans/Securities Yields:
Scenario #4 (Midpoint Yields) D $656 $695 $730 $763 $794 $825
Scenario #5 (Low End Yields) E $538 $570 $599 $626 $651 $677
Scenario #6 (High End Yields) F $774 $821 $862 $900 $936 $974
(continued)
2010 2011 2012 2013
Utilizing a Range of Loans/Securities Blends:
Scenario #1 (Midpoint Loan %) A $797 $828 $862 $896
Scenario #2 (Low End Loan %) B $858 $893 $928 $966
Scenario #3 (High End Loan %) C $932 $970 $1,009 $1,049
Utilizing a Range of Loans/Securities Yields:
Scenario #4 (Midpoint Yields) D $858 $893 $928 $966
Scenario #5 (Low End Yields) E $704 $732 $761 $792
Scenario #6 (High End Yields) F $1,013 $1,053 $1,095 $1,139
(continued)
12 Year
2014 2015 NPV
Utilizing a Range of Loans/Securities Blends:
Scenario #1 (Midpoint Loan %) A $932 $969 $4,384
Scenario #2 (Low End Loan %) B $1,004 $1,044 $4,723
Scenario #3 (High End Loan %) C $1,091 $1,134 $5,131
Utilizing a Range of Loans/Securities Yields:
Scenario #4 (Midpoint Yields) D $1,004 $1,044 $4,723
Scenario #5 (Low End Yields) E $824 $856 $3,874
Scenario #6 (High End Yields) F $1,185 $1,232 $5,573
A: Assuming savings accounts invested in a 75% loans/25% securities mix
utilizing a loan yield of 7.4%, a securities yield of 5.0%, a
savings rate of 1.0%, and a marginal tax rate of 41%.
B: Assuming savings accounts invested in a 65% loans/35% securities mix
utilizing a loan yield of 7.4%, a securities yield of 5.0%, a
savings rate of 1.0%, and a marginal tax rate of 41%.
C: Assuming savings accounts invested in a 85% loans/15% securities mix
utilizing a loan yield of 7.4%, a securities yield of 5.0%, a
savings rate of 1.0%, and a marginal tax rate of 41%.
D: Assuming savings accounts invested in a 75% loans/25% securities mix
utilizing a loan yield of 7.4%, a securities yield of 5.0%, a
savings rate of 1.0%, and a marginal tax rate of 41%.
E: Assuming savings accounts invested in a 75% loans/25% securities mix
utilizing a loan yield of 6.4%, a securities yield of 4.0%, a
savings rate of 1.0%, and a marginal tax rate of 41%.
F: Assuming savings accounts invested in a 75% loans/25% securities mix
utilizing a loan yield of 8.4%, a securities yield of 6.0%, a
savings rate of 1.0%, and a marginal tax rate of 41%.
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6
Section V
Historical Financial Data - Colonial Trust Company
Statements of Condition and Income
Colonial Trust Company
Phoenix, Arizona
Statement of Condition
($ in thousands)
ASSETS 3/31/2003 3/31/2002 3/31/2001
Cash & cash equivalents $243 $167 $319
Receivables 1,112 853 824
Note receivable 354 324 382
Income taxes receivable 0 112 22
Fixed assets 665 706 796
Goodwill 105 105 117
Restricted cash 506 522 516
Other assets 101 99 75
Total Assets $3,086 $2,888 $3,051
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES
Account payable & other $272 $214 $305
Deferred income taxes 0 0 12
Total Liabilities $272 $214 $317
STOCKHOLDERS' EQUITY
Common stock $689 $614 $579
Capital surplus 506 506 506
Retained earnings 1,619 1,554 1,649
Total Stockholders' Equity $2,814 $2,674 $2,734
Total Liabilities &
Stockholders' Equity $3,086 $2,888 $3,051
7
U n a u d i t e d F i n a n c i a l S t a t e m e n t s
Colonial Trust Company
Phoenix, Arizona
Statement of Income & Expenses
($ in thousands)
For the Twelve Months Ending
Income: 3/31/2003 3/31/2002 3/31/2001
Bond servicing $1,874 $1,930 $2,430
IRA servicing - corporate 553 607 559
IRA servicing - personal 293 258 281
Trust 1,369 984 866
Interest & other 73 86 88
Total Interest Income 4,162 3,865 4,224
General & Administrative Expenses: 4,041 3,989 3,646
Net Income Before Taxes 121 (124) 578
Income Taxes 50 (41) 237
NET INCOME $71 $(83) $341
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8
Section VI
Company Profile: - The Bank
Advisory Group, l.l.c.
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Company Profile
The Bank Advisory Group, L.L.C. is a specialized consulting firm focusing on
providing stock valuations together with traditional merger & acquisition
advisory services exclusively to financial institutions located throughout the
United States, or to groups of individuals associated with U.S.-based financial
institutions. Together, the principals of The Bank Advisory Group have developed
special insight and skills as a result of over one thousand stock valuations and
merger & acquisition transactions in which they have acted as advisors over the
past two decades. The principals of The Bank Advisory Group, L.L.C. are directly
involved with the projects for which the firm has been engaged to render advice,
thereby assuring that each client relationship receives advice of the highest
quality.
As part of its line of professional services, The Bank Advisory Group, L.L.C.
specializes in rendering valuation opinions of banks and bank holding companies
nationwide. These valuations are required for a multitude of reasons, including
tax and estate planning, employee stock ownership plans, private placements,
buy/sell agreements, exchange ratio determinations, dissenters' rights
proceedings, reverse stock splits, fairness opinion letters, public offerings,
mergers and acquisitions. Broad and extensive participation in the field of bank
securities appraisal on the part of the firm's principals, allows The Bank
Advisory Group, L.L.C. to be especially knowledgeable with regard to valuation
theory and the rulings and guidelines of the Internal Revenue Service and the
Office of the Comptroller of the Currency involving valuation methodology, and
judicial decisions regarding bank stock valuation matters.
In connection with providing merger and acquisition services to community banks
nationwide, the principals of The Bank Advisory Group have participated in well
over 1,000 client relationships involving the fair market evaluation of control
and/or minority blocks of stock. Additionally, the principals of The Bank
Advisory Group have represented hundreds of clients involved in bank
mergers/acquisitions, performing services in the areas of strategic planning,
pro forma financial analysis, negotiating support, and pricing and structure
analysis. Finally, we frequently identify key regulatory issues and offer
assistance in developing appropriate responses; and, we assist bank holding
companies in identifying financing options and in obtaining financing. We
believe this level of experience qualifies The Bank Advisory Group as one of the
preeminent providers of specialized investment advisory services to the
community banking industry.
Company Mission To provide high-quality and unimpeachable financial advisory
services - principally bank stock valuations, bank merger & acquisition
advice and analysis, and related services - in a timely and cost-effective
manner to our core clients, which consist of U.S. community banks and their
owners.
The Bank Advisory Group's mission determines the priorities of our professional
engagements, and the way in which we measure our accomplishments. The Bank
Advisory Group's sole focus is on ownership issues concerning U.S. community
banks. Thus, The Bank Advisory Group neither performs work that is unrelated to
our mission, nor do we seek to serve clients that have underlying goals in
conflict with our mission.
Basic Attributes of Professional Employees
The Bank Advisory Group is comprised of professionals possessing three basic
characteristics:
o Friendly and amicable approach to client services
o Professional attitude, with a focus on meeting client needs
o Impeccable integrity and trustworthiness, both personally and
professionally
The Bank Advisory Group believes that the absence of any one of these three
priorities precludes us from effectively implementing our mission. Also, by
displaying these three attributes, The Bank Advisory Group is able to attract
long-term clients that possess the same basic qualities.
Shared Values of Professional Employees
The Bank Advisory Group's professionals have shared values that provide a basic
framework within which our business is conducted. These shared values are:
o We do not measure our progress or success by revenue figures or number of
engagements, but rather by our contribution to the successes of our clients
o We do not talk about our clients or their successes and failures, but
rather, in communicating with future clients, we will discuss the lessons
that we have learned as we have worked with existing and former clients
o We seek to derive conclusions and recommendations drawn from rigorous and
objective analysis - not perceptions or unsubstantiated opinions
o While we all have personal lives governed by individual goals and
aspirations, we make an overreaching effort to place our clients' needs and
our company mission ahead of our personal needs
Principals
Robert L. Walters, Chairman
Bob Walters established The Bank Advisory Group in 1989. For over ten years
prior to that, Mr. Walters headed the community bank merger & acquisitions and
bank stock valuation advisory services of Sheshunoff & Company. As a result of
his twenty-five plus years of specialized experience, he is
nationally-recognized as an expert in both of these fields.
More specifically, in the field of community bank mergers & acquisitions, Mr.
Walters has assisted hundreds of banks in developing negotiating strategies,
formulating pricing and structure alternatives, and seeking alternative
buyers/sellers/merger partners. Representing both buyers and sellers of
community banks, as well as jointly representing banks involved in strategic
alliances and mergers-of-equals, Mr. Walters has compiled a depth and breath of
experience that is unparalleled in the community bank investment banking
business.
Additionally, since the early 1980s, Mr. Walters has participated in over 1,000
client relationships involving the evaluation of both "control" and "minority"
blocks of community bank stocks. In this regard, Mr. Walters has frequently
provided expert witness testimony regarding the valuation of community bank
stocks.
Since the first edition of the Shehunoff publication The Prices Paid for U.S.
Banks in 1981, Mr. Walters has provided national leadership regarding the
analysis of data regarding "control" price levels paid for community banks.
Specifically, he is a recognized expert in quantifying the financial
determinants of community bank value for both "control" and "minority" ownership
positions.
In the late 1970s and early 1980s while at Sheshunoff, Mr. Walters pioneered the
use of the "Call Report" data, and he has designed numerous bank peer group
financial analysis tools that have become nationally-recognized standards in the
community banking industry. As such, Mr. Walters is a recognized expert in the
field of bank performance analysis.
Mr. Walters has spoken at numerous national and state bank trade association
seminars and conventions on bank financial performance analysis, bank mergers &
acquisitions, and bank stock valuation issues, and he has authored numerous
articles and "white papers" in these areas.
Mr. Walters is also a principal in The Bank CEO Network, an educational program
which provides current information on the banking industry to community bank
presidents and chief executive officers from throughout the United States. Mr.
Walters graduated from Texas A&M University with a BBA in Accounting.
J. Stephen Skaggs, President
Stephen Skaggs is an organizing partner of The Bank Advisory Group, L.L.C. Mr.
Skaggs has worked extensively with community banks nationwide in developing
negotiating strategies, formulating pricing and structure alternatives,
evaluating merger & acquisition options, and providing fair market evaluations
of control or minority blocks of bank stock.
With 20+ years of experience in the areas in which The Bank Advisory Group
specializes, Mr. Skaggs has been involved in well over 600 fair market
evaluations of bank stock for purposes of merger & acquisition transactions,
employee stock ownership plans, federal estate tax returns, and collateral
assessments. He has substantial experience in assisting banks and groups of
investors in successfully completing bank holding company formations and
expansions; and, he has assisted numerous banking organizations, as both buyers
and sellers, in formulating strategic M&A plans.
Prior to forming The Bank Advisory Group, Mr. Skaggs was a Vice President in the
Investment Banking Division at Alex Sheshunoff & Company, Inc. from 1983 through
1989. During his years at Sheshunoff, he conceived and designed many of the bank
and thrift financial ratio analysis products and publications produced by
Sheshunoff Information Services, and he co-authored the widely-used publication,
Buying, Selling, Merging Banks.
After graduating with a BBA in Finance from Texas A&M University, Mr. Skaggs
worked as a credit analyst with InterFirst Bank Dallas, N.A., followed by a
position as an analyst in the Bank Holding Company Applications Division of the
Federal Reserve Bank of Dallas.
Daniel R. Jackson, Executive Vice President
Daniel Jackson is a principal of The Bank Advisory Group, L.L.C., having joined
the firm in 1990. Mr. Jackson has worked extensively with community banks
nationwide in developing negotiating strategies, formulating pricing and
structure alternatives, evaluating merger & acquisition options, and providing
fair market evaluations of control or minority blocks of bank stock.
With thirteen years of experience in the areas in which The Bank Advisory Group
specializes, Mr. Jackson has been involved in well over 400 fair market
evaluations of bank stock for purposes of merger & acquisition transactions,
employee stock ownership plans, federal estate tax returns, and collateral
assessments. Mr. Jackson possesses considerable experience in assisting banks
and groups of investors in successfully completing bank holding company
formations and expansions; and, he has assisted numerous banking organizations,
as both buyers and sellers, in formulating strategic M&A plans.
Prior to joining The Bank Advisory Group, Mr. Jackson served as a Commissioned
Examiner with the Federal Reserve Bank of Dallas from 1986 through 1990, serving
initially as a field examiner, then as an analyst with the Reserve Bank's
Special Monitoring Unit for critically impaired banking organizations. Mr.
Jackson previously served as an lending/credit administration officer with a
community bank in Austin, Texas, and as a credit analyst with a subsidiary of
InterFirst Corporation, Dallas, Texas. Mr. Jackson holds a BBA in Accounting
from the University of Texas in Austin.