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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] 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: 716,999
Transitional Small Business Disclosure Format (check one):
Yes _________ No ___X______
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COLONIAL TRUST COMPANY
INDEX
Page
Part I. Financial Information:
Item 1: Financial Statements 3
Condensed Balance Sheets 3
Condensed Statements of Earnings 4
Condensed Statements of Cash Flows 5
Notes to Condensed Financial Statements 6
Item 2: Management's Discussion and Analysis or
Plan of Operation 8
Part II. Other Information
Item 1: Legal Proceedings 10
Item 2: Changes in Securities 10
Item 3: Default Upon Senior Securities 10
Item 4: Other Information 11
Item 5: Exhibits and Reports on Form 8-K 11
SIGNATURES 11
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COLONIAL TRUST COMPANY
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
(Unaudited)
ASSETS June 30, 2000 March 31, 2000
------------- --------------
Cash and cash equivalents $ 191,507 $ 9,260
Receivables 838,422 802,122
Note receivable 207,939 378,387
Property, furniture and equipment, net 811,956 843,095
Excess of cost over fair value acquired, net 126,038 129,081
Other assets 90,761 100,421
Restricted cash 510,201 502,556
---------- ----------
$2,776,824 $2,764,922
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 158,776 $ 197,132
Income tax payable 63,629 46,301
Deferred income taxes 7,249 7,249
---------- ----------
Total Liabilities 229,654 250,682
Stockholders' equity:
Common stock, no par value;
25,000,000 shares authorized, 717,558 issued and
outstanding at June 30, 2000 and 755,234
issued and outstanding at March 31, 2000 555,177 555,177
Additional paid-in capital 505,347 505,347
Retained earnings 1,486,646 1,453,716
---------- ----------
Total Stockholders' Equity 2,547,170 2,514,240
$2,776,824 $2,764,922
========== ==========
See accompanying notes to condensed financial statements.
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COLONIAL TRUST COMPANY
Condensed Statements of Earnings (Unaudited)
Three-month periods
Ended June 30,
-----------------------
Revenues: 2000 1999
---- ----
Bond servicing income $ 716,997 $544,988
IRA servicing fees-corporate 186,459 172,008
IRA servicing fees-personal trust 45,345 50,924
Trust fee income 182,127 111,970
Interest income 17,222 16,898
---------- ----------
Total revenue 1,148,150 896,788
General and administrative expenses 862,841 698,815
---------- ----------
Earnings before income taxes 285,309 197,973
Income taxes 122,327 80,971
---------- ----------
Net earnings $ 162,982 $ 117,002
========== ==========
Basic net earnings per common share $ .22 $ .15
========== ==========
Diluted net earnings per common share $ .22 $ .15
========== ==========
Weighted average shares outstanding - basic 735,697 760,287
========== ==========
Weighted average shares outstanding-diluted 757,640 782,897
========== ==========
See accompanying notes to condensed financial statements.
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COLONIAL TRUST COMPANY
Condensed Statements of Cash Flows (Unaudited)
Three-month periods
Ended June 30,
--------------
2000 1999
---- ----
Cash flows from operating activities:
Net earnings $ 162,982 $ 117,002
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization 36,984 29,158
Increase in receivables (36,300) (11,473)
(Increase) decrease in other assets 9,660 (8,231)
Decrease in accounts payable and accrued liabilities (38,356) (145,424)
Increase (decrease) in income tax payable 17,328 (64,029)
--------- ---------
Net cash provided by (used in) operating activities 152,298 (82,997)
Cash flows from investing activities:
Purchase of property, furniture and equipment (2,802) (51,850)
Additions to note receivable (4,552) (7,116)
Payments received on note receivable 175,000 100,000
Increase in restricted cash (7,645) (3,893)
--------- ---------
Net cash provided by investing activities 160,001 37,141
Cash flows from financing activities:
Purchase and retirement of common stock (130,052) (6,516)
--------- ---------
Net cash used in financing activities (130,052) (6,516)
Increase (decrease) in cash and cash equivalents 182,247 (52,372)
Cash and cash equivalents at beginning of period 9,260 175,256
--------- ---------
Cash and cash equivalents at end of period $ 191,507 $ 122,884
========= =========
See accompanying notes to condensed financial statements.
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COLONIAL TRUST COMPANY
Notes to Condensed Financial Statements
1. Significant Accounting Policies
In the opinion of Colonial Trust Company (the "Company"), the
accompanying unaudited condensed financial statements contain all
adjustments necessary to present fairly the financial position, the
results of operations and cash flows for the periods presented. The
accompanying statements do not include all disclosures considered
necessary for a fair presentation in conformity with generally accepted
accounting principles. Therefore, it is recommended that these
accompanying statements be read in conjunction with the financial
statements appearing in the Company's Annual Report on Form 10-KSB for
the year ended March 31, 2000.
(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'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 38 states. The issuers are primarily
churches and other non-profit organizations. As trustee, the
Company receives, holds, invests and disburses the bond
proceeds as directed by the applicable trust indenture and
receives weekly or monthly sinking fund payments from the
issuer of bonds, and, 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 Personal Trust segment provides investment
management, administration and custodial services for
customers with various securities held in trust or in
investment agency accounts.
(b) Revenue Recognition
Under the trust indentures with organizations issuing bonds,
Colonial, for its services, principally earns revenues based
on three fee structures. The first fee structure allows
Colonial to invest trust funds held for disbursement and
retain the gains and earnings therefrom. The second fee
structure requires the issuing institution to pay a percentage
of the bond proceeds to the Company for set-up and printing
costs during the first year. The third fee structure entitles
Colonial to interest earnings up to 2.5% of daily trust funds
held in bond program fund accounts in lieu of a set-up fee.
Annual maintenance fees and bond printing costs are charged as
a percentage of the related bond issuance. Colonial also
receives fees for services provided as custodian for
self-directed individual retirement accounts.
In connection with providing investment management,
administration and custodial services, Colonial earns revenue
based on two fee structures. The first fee structure is
established as a percentage of the fiduciary assets which
Colonial holds as trustee or agent. Fees are assessed on a
quarterly basis to individual accounts according to the
quarter's end fair market value of the supporting fiduciary
assets. The second fee structure relates to an annual fee
which is set up to cover the maintenance of fiduciary assets
which Colonial holds in both trust and self-directed IRA
accounts.
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(c) Computation of Basic and Diluted Net Earning Per Common Share
Basic EPS is computed based on weighted average shares
outstanding and excludes any potential dilution from stock
options, warrants and other common stock equivalents. Diluted
EPS reflects potential dilution from the exercise or
conversion of securities into common stock or from other
contracts to issue common stock.
2. Note receivable
On December 1, 1990, the Company entered into a Master Note and Letter
Agreement with Church Loans and Investment Trust, Inc., its former
parent corporation. The Master Note, in the maximum amount of
$1,000,000, is due on demand, bears interest payable monthly at 1% less
than the prime rate and is unsecured. Amounts advanced from time to
time may be prepaid and re-borrowed.
3. Earnings Per Share
A reconciliation from basic earnings per share to diluted earnings per
share for the periods ended June 30, 2000, and June 30, 1999 follows:
Three-month period
Ended June 30,
--------------
2000 1999
---- ----
Net earnings $162,982 $117,002
-------- --------
Basic EPS
- -weighted average shares outstanding 735,697 760,287
-------- --------
Basic EPS $ .22 $ .15
-------- --------
Basic EPS
- -weighted average shares outstanding 735,697 760,287
Effect of dilutive securities:
Stock options 21,943 22,610
-------- --------
Diluted EPS-weighted average shares outstanding 757,640 782,897
-------- --------
Diluted EPS $ .22 $ .15
-------- --------
4. Business Segments
Operating results and other financial data are presented for the
principal business segments of the Company as of and for the
three-month periods ended June 30, 2000 and June 30, 1999. The Company
has two distinct business segments consisting of Corporate Trust
services and Personal Trust services.
In computing operating profit by business segment, interest income,
portions of administrative expenses and other items not considered
direct operating expenses were considered to be in the Other category.
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Three-month periods: Corporate Personal Other Total
Trust Trust
June 30, 2000
Bond Servicing Income $ 716,997 -- -- $ 716,997
IRA Servicing Fees 186,459 $ 45,345 -- 231,804
Trust Fee Income -- 182,127 -- 182,127
Interest Income -- -- $ 17,222 17,222
---------- ---------- ---------- ----------
$ 903,456 $ 227,472 $ 17,222 $1,148,150
---------- ---------- ---------- ----------
General & Administrative
Expenses $ 389,550 $ 174,411 $ 298,880 $ 862,841
---------- ---------- ---------- ----------
June 30, 1999
Bond Servicing Income $ 544,988 -- -- $ 544,988
IRA Servicing Fees 172,008 $ 50,924 -- 222,932
Trust Fee Income -- 111,970 -- 111,970
Interest Income -- -- $ 16,898 16,898
---------- ---------- ---------- ----------
$ 716,996 $ 162,894 $ 16,898 $ 896,788
---------- ---------- ---------- ----------
General & Administrative
Expenses $ 339,504 $ 145,449 $ 213,862 $ 698,815
---------- ---------- ---------- ----------
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations-Three-Month Periods Ended June 30, 2000 and June
30, 1999
The Company had net earnings of $162,982, or $.22 diluted earnings per
share, for the period ended June 30, 2000, compared to net earnings of
$117,002, or $.15 diluted earnings per share, for the period ended June
30, 1999, an increase in net earnings of 39%. The Company had total
revenue of $1,148,150 for the period ended June 30, 2000, compared to
total revenue of $896,788 for the period ended June 30, 1999, an
increase of 28%.
The Corporate Trust segment's income increased to $903,456 for the
period ended June 30, 2000 compared to $716,996 for the period ended
June 30, 1999, an increase of 26%. The Personal Trust segment's income
increased to $227,472 for the period ended June 30, 2000, compared to
$162,894 for the period ended June 30, 1999, an increase of 40%.
The Corporate Trust segment's bond servicing income increased to
$716,997 for the period ended June 30, 2000, compared to $544,988 for
the period ended June 30, 1999, an increase of 32%. The increase in
bond servicing income was primarily attributable to the increase in the
number of bond accounts serviced by the Company. At June 30, 2000, the
Company was serving as trustee and paying agent on 458 bond offerings
totaling approximately $458,000,000 in original principal amount; at
June 30, 1999, the Company was serving as trustee and paying agent on
451 bond offerings totaling approximately $404,000,000 in original
principal amount.
Revenue from the Corporate Trust segment's IRA Account servicing
activities increased to $186,459 for the period ended June 30, 2000,
compared to $172,008 for the period ended June 30, 1999, an increase of
8%. This increase was due to an increase in the number of IRA accounts
serviced by the Company and a change in the fee schedules used for
charging IRA servicing fees. Revenue from the Personal Trust segment's
IRA Account servicing activities decreased to $45,345 for the period
ended June 30, 2000, compared to $50,924 for the period ended June 30,
1999, a decrease of 11%. The decrease in IRA revenue was primarily due
to timing differences involved in the collection of IRA servicing fees.
At June 30, 2000,
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the Corporate Trust segment was servicing 9,413 IRA Accounts with an
aggregate value of approximately $157,000,000, and the Personal Trust
segment was servicing 226 IRA accounts with an aggregate value of
approximately $45,038,000. At June 30, 1999, the Corporate Trust
segment was servicing 8,231 IRA Accounts with an aggregate value of
approximately $128,000,000, and the Personal Trust segment was
servicing 217 accounts with an aggregate value of approximately
$40,000,000.
The Personal Trust segment's trust income increased to $182,127 for the
period ended June 30, 2000, compared to $111,970 for the period ended
June 30, 1999, an increase of 63%. The increase in trust income was
primarily due to the increase in the number of trust investment
accounts or other accounts serviced by the Company. At June 30, 2000,
the Personal Trust segment was serving as trustee or agent for 341
trust, investment, or other accounts with an aggregate value of
approximately $80,000,000. At June 30, 1999, the Personal Trust segment
was serving as Trustee or agent for 261 trust, investment accounts, or
other accounts with a fair market value of approximately $65,000,000.
Interest income increased to $17,222 for the period ended June 30,
2000, compared to $16,898 for the period ended June 30, 1999, an
increase of 2%. The increase was primarily attributable to an increase
in interest rates. Funds were removed from the master trust note in
order to repurchase stock from existing shareholders and to provide
cash for the Company's operations.
The Corporate Trust segment's general and administrative expenses
increased in the aggregate to $389,550 for the period ended June 30,
2000, compared to $339,504 for the period ended June 30, 1999, but
decreased to 43% of segment revenues for the period ended June 30,
2000, compared to 47% of segment revenues for the period ended June 30,
1999. The Personal Trust segment's general and administrative expenses
increased in the aggregate to $174,411 for the period ending June 30,
2000, compared to $145,449 for the period ended June 30, 1999, but
decreased to 77% of segment revenues for the period ended June 30,
2000, compared to 89% of segment revenues for the period ended June 30,
1999. The increases in the Corporate Trust and Personal Trust segment's
general and administrative expenses were due primarily to an increase
in personnel as well as additional expenses involved in administering
the Company's increased trust servicing business. The decreases in
general and administrative expenses as a percentage of segment revenues
for both the Corporate Trust and Personal Trust segments was due to the
Company's ability to spread its general and administrative expenses
over an expanded revenue base.
The Company's effective income tax rate was 42.9% for the three-month
period ended June 30, 2000, and 40.9% for the three-month period ended
June 30, 1999.
Year 2000
As of the date hereof, the Company has not experienced any Year 2000
problems with its systems nor does the Company anticipate any problems.
However, there can be no guarantee that future system problems related
to Year 2000 will not have a material impact on the Company's
operations. The Company's third party vendors with which it has
relationships also did not experience any Year 2000 problems which
materially impacted the Company's operations. However, there can be no
guarantee that future problems with third party vendors' computer
systems related to Year 2000 will not have a material impact on the
Company's operations.
The Company's expenditures related to be Year 2000 compliant (primarily
a reallocation of current personnel's time from other projects to the
year 2000 remediation plan) were not material, and the Company has
expensed all costs associated with the Year 2000 remediation plan.
However, there can be no assurance that the ultimate cost to identify
and implement solutions to future problems related to Year 2000 will
not be material to the Company. See the Company's Form 10-QSB for the
period ended September 30, 1999 for a discussion of the Company's Year
2000 remediation plan.
Liquidity and Capital Resources
Under legislation effective on July 20, 1996, the Company is required
to maintain net capital of at least
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$500,000; the Company's net capital was $2,547,170 on June 30, 2000.
The legislation 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 by July 19, 1999. At June 30, 2000, $510,201 of the
Company's net capital met the Department's liquidity requirements. The
Company has satisfied these liquidity requirements and believes that it
will be able to maintain its compliance with these liquidity
requirements from cash on hand and other assets of the Company. The
Company also believes that it will be able to satisfy its working
capital and capital expenditure requirements for the foreseeable future
from existing cash balances, from anticipated cash flow from operating
activities, and from funds available under the Company's Master Note
with its former parent, Church Loans and Investments Trust.
The Company's cash and cash equivalents increased from $9,260 on March
31, 2000, to $191,507 on June 30, 2000, while the note receivable
decreased from $378,387 on March 31, 2000, to $207,939 on June 30,
2000. The increase in the cash and cash equivalents was primarily due
to results of operations for the quarter and from the partial
redemption of the note receivable. The Company's net property and
equipment decreased from $843,095 on March 31, 2000, to $811,956 on
June 30, 2000. The decrease was primarily due to an increase in
depreciation on existing furniture, equipment and computer software.
The Company believes that capital expenditure requirements for the
foreseeable future will be covered by excess cash flow from operations.
Market Risk
In the opinion of management, our market risk factors have not changed
materially from March 31, 2000.
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995.
This Form 10-QSB contains one or more forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and is subject to the safe harbors created thereby.
These forward-looking statements involve risks and uncertainties,
including, but not limited to: the Company's continued employment of
key management; the success of the Company in its business development
efforts; the Company's success with the investment advisory agreements
with Hackett Investment Advisors ("HIA"), Feldman Securities Group LLP
(FSG) and Wright Investors' Services (WIS), pursuant to which HIA, FSG
and WIS provide investment advisory services for the majority of the
trust and investment agency accounts of the Company, and the success of
HIA, FSG and WIS in managing such accounts; increased competition for
the Company's services; competitive pressures on prices for the
Company's services; Year 2000 issues; increased staffing or office
needs not currently anticipated; new rules or regulations not currently
anticipated which adversely affect the Company; and an increase in
interest rates or other economic factors having an adverse impact on
the Company and other risks detailed from time to time in the Company's
Securities and Exchange Commission filings. The Company filed its
fiscal 2000 Form 10-KSB on June 28, 2000. Please refer to this document
for a more detailed discussion of the risks and uncertainties
associated with the Company's future operations.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
None.
Item 2: Changes in Securities
None.
Item 3: Default Upon Senior Securities
None.
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Item 4: Other Information
None.
Item 5: Exhibits and Reports on Form 8-K:
(a) Exhibits: Financial Data Schedule
(b) Reports on Form 8-K: None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
COLONIAL TRUST COMPANY
DATE:August 10, 2000 BY:/s/ John K. Johnson
-------------------- -----------------------------
John K. Johnson
Its: President
DATE:August 10, 2000 BY:/s/ Christopher J. Olson
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Christopher J. Olson
Its: Chief Financial
Officer
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