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, 1998
[ ] 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:
7,698,099
Transitional Small Business Disclosure Format (check one):
Yes_____ No X
<PAGE>
COLONIAL TRUST COMPANY
INDEX
Page
Part I. Financial Information:
Item 1: Financial Statements 4
Condensed Balance Sheets 4
Condensed Statements of Earnings 5
Condensed Statements of Cash Flows 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis or
Plan of Operation 11
Part II. Other Information
Item 1: Legal Proceedings 14
Item 2: Changes in Securities 14
Item 3: Default Upon Senior Securities 14
Item 4: Submission of Matters to a Vote of
Security Holders 14
Item 5: Other Information 14
Item 6: Exhibits and Reports on Form 8-K 14
SIGNATURES
3
<PAGE>
COLONIAL TRUST COMPANY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
June 30, 1998 and March 31, 1998
June 30, 1998 March 31, 1998
ASSETS
_____________ ______________
Cash and cash equivalents $ 85,325 28,475
Receivables 401,602 390,758
Note receivable 394,455 389,489
Property, furniture and equipment, net 712,795 712,482
Excess of cost over fair value acquired, net 150,378 153,420
Other assets 123,956 105,449
Restricted cash 170,610 168,206
_____________________
$ 2,039,121 1,948,279
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 123,465 132,375
Income tax payable 58,902 47,605
Deferred income taxes 11,830 11,830
___________ __________
Total liabilities 194,197 191,810
Stockholders' equity:
Common stock, no par value;
25,000,000 shares authorized,
7,711,648 and 7,729,288 issued and
outstanding, at June 30,1998 and
March 31, 1998, respectively 554,942 554,942
Additional paid-in capital 505,347 505,347
Retained earnings 784,635 696,180
___________ ___________
Total stockholders' equity 1,844,924 1,756,469
___________ ___________
$ 2,039,121 1,948,279
=========== ===========
See accompanying notes to condensed financial statements.
<PAGE>
COLONIAL TRUST COMPANY
Condensed Statements of Earnings
Three-month periods
ended June 30,
1998 1997
Revenues:
Bond servicing income $ 452,062 365,469
IRA servicing fees-corporate 104,437 112,401
IRA servicing fees-personal trust 28,405 20,160
Trust fee income 86,892 59,207
Interest income 11,719 9,571
__________ __________
Total revenue 683,515 566,808
__________ __________
General and administrative expenses 525,982 507,341
Earnings before income taxes 157,533 59,467
Income taxes 63,797 24,084
_________ _________
Net earnings $ 93,736 35,383
========= =========
Basic net earnings per
common share $.01 --
========= =========
Diluted net earnings per
common share $.01 --
========= =========
Weighted average shares outstanding - basic 7,723,232 7,777,401
========= =========
Weighted average shares outstanding - diluted 7,859,614 7,777,401
========= =========
<PAGE>
COLONIAL TRUST COMPANY
Condensed Statements of Cash Flows
Three-month periods
ended June 30,
1998 1997
__________ __________
Cash flows from operating activities:
Net earnings $ 93,736 35,383
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 20,811 21,024
Increase in receivables (10,844) (90,504)
(Increase) decrease in other assets (18,507) 83,537
Increase (decrease) in accounts payable,
accrued liabilities (8,910) 1,254
Increase (decrease) in income taxes 11,297 (14,023)
________________
Cash provided by operating activities 87,583 36,671
_________ ________
Cash flows from investing activities:
Purchase of property, furniture and equipment (18,082) (18,694)
Additions to note receivable (4,966) (6,888)
Increase in restricted cash (2,404) 0
_________ ________
Net cash used in investing activities (25,452) (25,582)
_________ ________
Cash flows from financing activities:
Purchase of common stock (5,281) 0
________ ________
Net cash used in financing activities (5,281) 0
_________ ________
Increase (decrease) in cash and
cash equivalents 56,850 (11,089)
Cash and cash equivalents at beginning of period 28,475 132,426
_________ ________
Cash and cash equivalents at end of period $ 85,325 143,515
========= =========
See accompanying notes to condensed financial statements.
<PAGE>
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 1998 Annual Report on Form 10-KSB.
(a) Nature of Business
The Company was incorporated on August 15, 1989 in the State
of Arizona for the purpose of engaging in the business of
acting as a fiduciary. The Company is domiciled in the State
of Arizona and is regulated by the Arizona State Banking
Department. Its 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 39 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 the bonds, and, as paying agent, pays the semi-annual
principal and interest payments to the bondholders.
The Company also serves as trustee of self-directed individual
retirement accounts for certain bondholders or employees of
religious organizations.
On November 1, 1995, the Company purchased all of the issued
and outstanding capital stock of Camelback Trust Company
("Camelback"). Camelback serves as trustee or agent,
providing investment management, administration, and custodial
services for customers with various securities held in trust
or for investment agency accounts.
<PAGE>
COLONIAL TRUST COMPANY
Notes to Condensed Financial Statements
Effective on August 1, 1996, Camelback was merged with and
into the Company, the Company continued as the surviving
corporation, and the separate existence of Camelback
terminated effective as of such date. Camelback now operates
as the Company's "Personal Trust Division".
(b) Revenue Recognition
The Company is compensated for its services as trustee and
paying agent in one of three ways. The first fee structure
allows the Company 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 bond
printing costs during the first year. Additionally, an annual
maintenance fee is required each year. The third fee
structure entitles the Company 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
issue. The Company's policy is to allow the non-profit issuer
to choose between the three fee structures. The Company
believes that the third fee structure is currently utilized by
a majority of the Company's competitors.
The Company also receives fees for services provided as
custodian for self-directed individual retirement accounts.
For its services as trustee, the Company receives an annual
base fee of $40 and a transaction fee of $5 per transaction
for each transaction in excess of 12 per year. The Company
also retains, as a portion of its fee, earnings up to 2% of
the daily uninvested balance in each IRA account.
The Company's Personal Trust Division generates revenues based
on two fee structures. The first structure represents a
percentage of the fiduciary assets which are held as trustee
or agent. Fees are assessed on a quarterly basis to individual
accounts according to the fair market value of the supporting
fiduciary assets in such account at the end of each quarter.
<PAGE>
COLONIAL TRUST COMPANY
Notes to Condensed Financial Statements
Under the second fee structure, the Company charges an annual
fee which is set up to cover the maintenance of fiduciary
assets which the Company holds in both trust and self-directed
IRA accounts.
(c) Computation of Basic and Diluted Net Earnings Per Common Share
Basic earnings per share is computed based on weighted average
shares outstanding and excludes any potential dilution from
stock options, warrants and other common stock equivalents.
Diluted EPS reflects potential dilution from the exercise or
conversion of securities into common stock or from other
contracts to issue common stock.
(d) Reclassifications
Certain reclassifications have been made to prior year
balances to conform to the current year presentation.
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 reborrowed.
3. Lease Commitments
The Company leases certain office equipment under various non-terminable
lease arrangements. The Company was party to an office lease for
commercial office space formerly occupied by Camelback as its executive
office. This office lease terminated on February 14, 1998. During the
three-month period ended June 30, 1998, the Company no longer leased
office space. During the period ended June 30, 1997, the Company leased
office space and certain equipment under various non-cancelable
operating lease arrangements.
<PAGE>
4. Earnings Per Share
A reconciliation from basic earnings per share to diluted earnings per
share for the periods ended June 30, 1998 and June 30, 1997 follows:
Three-month periods
ended June 30,
1998 1997
___ ___
Net earnings $93,736 $35,383
========= =========
Basic EPS - weighted average
shares outstanding 7,723,232 7,777,401
========= =========
Basic EPS $.01 --
========= =========
Basic EPS - weighted average
shares outstanding 7,723,232 7,777,401
Effect of dilutive decurities:
stock options 136,382 --
_________ _________
Diluted EPS - weighted average
shares outstanding 7,859,614 7,777,401
========= =========
Diluted EPS $.01 --
========= =========
<PAGE>
COLONIAL TRUST COMPANY
Notes to Condensed Financial Statements
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995:
This Form 10-QSB may contain one or more forward-looking statements within
the meaning of Section 21 E 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 involvement in each of its current
businesses; the continued employment of key management, including John
Johnson, the Company's Chief Executive Officer, Marv Hoeflinger, the
Company's Vice President of Business Development, Bud Olson, the Company's
Vice President of Business Development - Personal Trust business, and
Christopher J. Olson, the Company's Vice President and senior officer
responsible for the Company's Personal Trust Business; the success of
Messrs. Johnson, Hoeflinger and Bud Olson in their business development
efforts on behalf of the Company; the Company's success in being repaid
on the bonds it purchases or the loans it makes under the Bond Repurchase
Program; the continuation of the Company's investment advisory agreement
with Hackett Investment Advisors ("HIA"), pursuant to which HIA provides
investment advisory services for the majority of the trust and investment
agency accounts of the Company, and the success of HIA in managing such
accounts; increased competition for the Company's services; competitive
pressures on prices for the Company's services; 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.
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations - Three-month Period Ended June 30, 1998
The Company reported an increase in net earnings for the three-month period
ended June 30, 1998 compared to the comparable prior period. The Company had
net earnings of $93,736, or $.01 per share, for the three-month period ended
June 30, 1998, compared to net earnings of $35,383, or less than a penny per
share, for the three-month period ended June 30, 1997; an increase of 165%.
The Company had total revenue of $683,515 for the three-month period ended June
30, 1998, compared to total revenue of $566,808 for the three-month period
ended June 30, 1997; an increase of 21%.
The Company's bond servicing income increased to $452,062 for the three-month
period ended June 30, 1998, compared to $365,469 for the three-month period
ended June 30, 1997; an increase of 24%. The increase was primarily
<PAGE>
attributable to a one-time collection of outstanding fees related to a
settlement of a bankruptcy estate and to an increase in the number of bond
issues for which the Company serves as Trustee and Paying Agent. As of June
30, 1998, the Company was serving as trustee for the benefit of bondholders on
424 bond offerings totaling approximately $329,000,000 in original principal
amount; as of June 30, 1997, the Company was serving as trustee for the benefit
of bondholders on 372 bond offerings totaling approximately $288,000,000 in
original principal amount. The increase in the number of bond offerings for
which the Company serves as Trustee and Paying Agent reflects increased
marketing and business development efforts of the Company, including, but not
limited to, the efforts of Marv Hoeflinger, the Company's Vice President of
Business Development, who joined the Company in February 1996.
Income from IRA Accounts increased to $132,842 for the three-month period ended
June 30, 1998, compared to $132,561 for the three-month period ended June 30,
1997; an increase of .2%. The slight increase was due primarily to an increase
in the number of IRA Accounts serviced by the Company and to an increase in
uncollected IRA maintenance fees. IRA Accounts are serviced by both the
Corporate Trust Division and the Personal Trust Division of the Company. As
of June 30, 1998, the Company served as trustee for approximately 6,922 self-
directed Individual Retirement Accounts with total assets of approximately
$142,000,000; as of June 30, 1997, the Company served as trustee for 6,558
self-directed Individual Retirement Accounts with total assets of approximately
$128,000,000.
Trust fee income increased to $86,892 for the three-month period ended June 30,
1998, compared to $59,207 for the three-month period ended June 30, 1997; an
increase of 47%. The increase was due to an increase in the number of accounts
for which the Company serves as trustee or agent.
Interest income increased to $11,719 for the three-month period ended June 30,
1998, compared to $9,571 for the three-month period ended June 30, 1997; an
increase of 22%. The increase was primarily attributable to changes in
interest rates.
The Company's general and administrative expenses increased to $525,982 for the
three-month period ended June 30, 1998, compared to $507,341 for the three-
month period ended June 30, 1997; an increase of 4%. The increase was due
primarily to the addition of several staff members, as well as additional
expenses involved in administering the Company's increased bond servicing
business and an increase in depreciation expense incurred for costs
capitalized for remodeling of the Company's corporate office. For the three-
month period ended June 30, 1997, the Company incurred an expense of
approximately $54,500 in connection with the termination in June 1997 of its
proposed private placement of Common Stock. Such expenses were for legal,
accounting, and investment banking fees incurred (and previously accrued by the
Company) in connection with such private placement. The Company sold no
securities in the private placement. The Company's general and administrative
expenses decreased as a percentage of the Company's total revenues to 77% for
<PAGE>
the three-month period ended June 30, 1998 compared to 90% for the comparable
prior period. The foregoing decreases reflect the Company's ability to spread
its general and administrative expenses over an expanding revenue base.
The Company's effective income tax rate was 40.5% for both of the three month
periods ended June 30, 1998 and June 30, 1997.
Year 2000
The Company has commenced a study of its computer systems in order to assess
its exposure to Year 2000 issues. The Company expects to make the necessary
modifications or changes to its computer information systems to enable proper
processing of transactions relating to the Year 2000 and beyond. The Company
estimates that expenditures will be minimal to modify its existing systems,
should it choose to do so. The Company will evaluate appropriate courses of
action, including replacement of certain systems whose associated costs would
be recorded as assets and subsequently amortized or modification of its
existing system which costs would be expensed as incurred. However, failure
of the Company to fully address and resolve its Year 2000 issues could have a
material adverse effect on the Company.
Liquidity and Capital Resources
Under legislation effective on July 20, 1996, the Company is required to
maintain net capital of at least $500,000; the Company's net capital was
$1,844,000 on June 30, 1998. The legislation also requires that the Company's
net capital meet certain liquidity requirements. Specifically, $166,666,
$333,332 and $500,000 of such net capital must meet the Department's liquidity
requirements by December 31, 1997, December 31, 1998 and December 31, 1999,
respectively. At June 30, 1998, $170,610 of the Company's net capital met the
Department's liquidity requirements. The Company believes that it will be able
to satisfy the foregoing liquidity requirements from cash on hand and other
assets of the Company. Net cash provided by operating activities was $87,583
for the period ended June 30, 1998. 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 $28,475 on March 31,
1998 to $85,325 on June 30, 1998, while the note receivable increased from
$389,489 on March 31, 1998 to $394,455 on June 30, 1998. The increase in cash
and cash equivalents was due to the results of operations, and the increase in
the note receivable was primarily due to the reinvestment of interest earned
on the note receivable. The Company's gross property and equipment increased
from $1,008,938 on March 31, 1998 to $1,027,020 on December 31, 1998. The
increase was primarily due to the purchase of additional furniture, equipment
and computer software for new employees.
<PAGE>
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
None.
Item 2: Changes in Securities
None.
Item 3: Default Upon Senior Securities
None.
Item 4: Submission of Matters to a Vote of Security Holders
None.
Item 5: Other Information
None.
Item 6: Exhibits and Reports on Form 8-K:
(a) Exhibits: None.
(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 12,1998 BY: John K. Johnson
John K. Johnson
Its: President
DATE: August 12,1998 BY: Christopher J. Olson
Christopher J. Olson
Its: Chief Financial Officer
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<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 85,325
<SECURITIES> 0
<RECEIVABLES> 796,057
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<PP&E> 1,027,020
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0
0
<COMMON> 554,942
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