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, 1999
[ ] 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
(Registrants telephone number)
<PAGE>
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
issuers classes of common equity, as of the last practicable
date: 758,832
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: Managements Discussion and Analysis or
Plan of Operation 10
Part II. Other Information
Item 1: Legal Proceedings 14
Item 2: Changes in Securities 14
Item 3: Default Upon Senior Securities 14
Item 4: Other Information 14
Item 5: Exhibits and Reports on Form 8-K
SIGNATURES 15
<PAGE>
COLONIAL TRUST COMPANY
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet
(Unaudited)
ASSETS June 30, 1999 March 31, 1999
Cash and cash equivalent $122,884 $175,256
Receivables 529,868 518,395
Note receivable 326,200 419,084
Property, furniture and
equipment, net 837,430 811,696
Excess of cost over fair
value acquired, net 138,200 141,250
Other assets 114,238 106,007
Restricted cash 341,444 337,551
$2,410,272 $2,509,239
LIABILITIES AND STOCKHOLDERS EQUITY
Accounts payable and
accrued liabilities $135,040 $280,464
Income tax payable 43,924 107,953
Deferred income taxes 20,295 20,295
Total liabilities 199,259 408,712
Stockholders equity:
Common stock, no par value;
25,000,000 shares authorized,
758,832 issued and outstanding,
at June 30, 1999 and
761,337 issued
and outstanding at
March 31, 1999 555,177 555,177
Additional paid-in capital 505,347 505,347
Retained earnings 1,150,489 1,040,003
Total stockholders equity 2,211,013 2,100,527
$2,410,272 $2,509,239
<PAGE>
See accompanying notes to condensed financial statements.
COLONIAL TRUST COMPANY
Condensed Statements of Earnings (Unaudited)
Three-month period
ended June 30,
Revenues: 1999 1998
Bond servicing income $544,988 $452,062
IRA servicing fees-corporate 172,008 104,437
IRA servicing fees-personal trust 50,924 28,405
Trust fee income 111,970 86,892
Interest income 16,898 11,719
Total revenue 896,788 683,515
General and administrative
expenses 698,815 525,982
Earnings before income taxes 197,973 157,533
Income taxes 80,971 63,797
Net earnings $117,002 $93,736
Basic net earnings per
common share $.15 $.12
Diluted net earnings
per common share $.15 $.1
Weighted average
shares outstanding
- basic 760,287 772,323
Weighted average
shares outstanding
- diluted 782,897 785,961
<PAGE>
See accompanying notes to condensed financial statements.
COLONIAL TRUST COMPANY
Condensed Statements of Cash Flows (Unaudited)
Three-month period
ended June 30,
1999 1998
Cash flows from operating activities:
Net earnings $117,002 $93,736
Adjustments to reconcile net
earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization 29,158 20,811
Increase in receivables (11,473) (10,844)
Increase in other assets (8,231) (18,507)
Decrease in accounts payable
and accrued liabilities (145,424) (8,910)
Increase (decrease) in income
tax payable (64,029) 11,297
Net cash provided by (used in)
operating activities (82,997) 87,583
Cash flows from investing activities:
Purchase of property,
furniture and equipment (51,850) (18,082)
Additions to note receivable (7,116) (4,966)
Payments received
on note receivable 100,00 0
Increase in restricted cash (3,893) (2,404)
Net cash provided by (used in)
investing activities 37,141 (25,452)
Cash flows from financing activities:
Purchase and retirement of
<PAGE>
common stock (6,516) (5,281)
Net cash used in
financing activities (6,516) (5,281)
Increase (decrease) in cash
and cash equivalents (52,372) 56,850
Cash and cash equivalents
at beginning of period 175,256 28,475
Cash and cash equivalents
At end of period 122,884 85,325
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 Companys Annual Report on Form 10-KSB
for the year ended March 31, 1999.
(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 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 bondholders.
The Company also serves as trustee of
<PAGE>
self-directed individual retirement accounts for
certain bondholders or employees of religious
organizations.
The Personal Trust segment provides investment
management, administration and custodial
services for customers with various securities
held in trust or in investment agency accounts.
(b) Revenue Recognition
Under the trust indentures with organizations
issuing bonds, Colonial, for its services,
principally earns revenues based on three
fee structures. The first fee structure allows
Colonial to invest trust funds held for
disbursement and retain the gains and
earnings therefrom. The second fee structure
requires the issuing institution to pay a
percentage of the bond proceeds to the
Company for set-up and printing costs
during the first year. Additionally, an
annual maintenance fee is required each
succeeding year. The third fee structure
entitles Colonial to interest earnings up to
2.5% of daily trust funds held in bond program
fund accounts in lieu of a set-up fee. Annual
maintenance fees and bond printing costs
are charged as a percentage of the related
bond issuance. Colonial also receives fees
for services provided as custodian for self-directed
individual retirement accounts.
In connection with providing investment
management, administration and custodial
services, Colonial earns revenue based
on two fee structures. The first fee structure
is established as a percentage of the fiduciary
assets which Colonial holds as trustee or agent.
Fees are assessed on a quarterly basis to
individual accounts according to the
quarters 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.
<PAGE>
(b) Computation of Basic and Diluted Net
Earnings Per Common Share
Basic EPS is computed based on
weighted average shares outstanding
and excludes any potential dilution
from stock options, warrants and other
common stock equivalents. Diluted EPS
reflects potential dilution from the
exercise or conversion of securities into
common stock or from other contracts to
issue common stock.
2. Note Receivable
On December 1, 1990, the Company entered
into a Master Note and Letter Agreement with
Church Loans and Investment Trust, Inc., its
former parent corporation. The Master Note,
in the maximum amount of $1,000,000, is due
on demand, bears interest payable monthly
at 1% less than the prime rate and is unsecured.
Amounts advanced from time to time may be
prepaid and re-borrowed.
3. Earnings Per Share
A reconciliation from basic earnings
per share to diluted earnings per share for the
periods ended June 30, 1999, and June 30, 1998
follows:
<PAGE>
Three-month period
ended June 30,
1999 1998
Net earnings $117,002 $93,736
Basic EPS
weighted average
shares outstanding 760,287 772,323
Basic EPS $.15 $.12
Basic EPS
weighted average
shares outstanding 760,287 772,323
Effect of dilutive
securities:
stock options 22,610 13,638
Diluted EPS
weighted average
shares outstanding 782,897 785,961
Diluted EPS $.15 $.12
On September 24, 1998, the Companys shareholders
approved a one-for-ten reverse common stock
split. Weighted average shares outstanding and basic
and diluted earnings per share for all periods presented
have been adjusted to reflect this reverse common stock
split.
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, 1999 and June 30, 1998. The
Company has two distinct business segments consisting
of Corporate Trust services and Personal Trust services.
In computing operating profit by business segment,
portions of administrative expenses and other items
not considered direct operating expenses were
considered to be in the Corporate and Other category.
<PAGE>
Corporate Personal Other Total
Trust Trust
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 $896,788
$716,996 $162,894 $16,898 $896,788
General and
Administrative
Expenses $339,504 $145,449 $213,862 $698,815
June 30, 1998
Bond Servicing
Income $452,062 - - $452,062
IRA Servicing
Fees 104,437 $28,405 - 132,842
Trust Fee
Income - 86,892 - 86,892
Interest Income - - $11,719 11,719
$556,499 $115,297 $11,719 $683,515
General and
Administrative
Expenses $227,676 $105,466 $192,840 $525,982
<PAGE
Item 2. Managements Discussion and Analysis
or Plan of Operation
Results of Operations Three-month Periods
Ended June 30, 1999 and June 30, 1998
The Company had net earnings of $117,002, or
$.15 diluted earnings per share, for the period ended
June 30, 1999, compared to net earnings of $93,736,
or $.12 diluted earnings per share, for the period ended
June 30, 1998, an increase in net earnings of 25%. The
Company had total revenue of $896,788 for the period
ended June 30, 1999, compared to total revenue of
$683,515 for the prior year, an increase of 31%.
The Corporate Trust segments income increased to
$776,996 for the period ended June 30, 1999, compared
to $556,449 for the period ended June 30, 1998, an
increase of 29%. The Personal Trust segments income
increase to $162,894 in the period ended June 30, 1999,
compared to $115,294 in the period ended June 30, 1998,
an increase of 41%.
The Corporate Trust segments bond servicing income
increased to $544,988 for the period
ended June 30, 1999, compared to $452,062 for the
period ended June 30, 1998 an increase of 21%.
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, 1999,
the Company was serving as trustee and paying
agent on 451 bond offerings totaling approximately
$404,000,000 in original principal amount; at June 30,
1998, the Company was serving as trustee and paying
agent on 424 bond offerings totaling approximately
$329,000,000 in original principal amount.
Revenue from the Corporate Trust segments IRA
Account servicing activities increased to $172,008 for
the period ended June 30, 1999, compared to $104,437
for the period ended June 30, 1998, an increase of 65%.
Revenue from the Personal Trust segments IRA
Account servicing activities increased to $50,924 for
the period ended June 30, 1999, compared to $28,405
for the period ended June 30, 1998, an increase of 79%.
The increase in IRA revenue was primarily due to the
increase in the number of IRA accounts serviced by the
<PAGE>
Company.
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 IRA accounts with an aggregate value of
approximately $40,000,000. At June 30, 1998, the Corporate
Trust segment was servicing 6,766 IRA Accounts with an
aggregate value of approximately $122,000,000, and the Personal
Trust segment was servicing 156 accounts with an
aggregate value of approximately $30,000,000.
The Personal Trust segments trust income increased to
$111,970 for the period ended June 30, 1999, compared to
$86,892 for the prior period, an increase of 29%. 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, 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. At June 30, 1998, the
Personal Trust segment was serving as Trustee or agent
for 200 trust, investment accounts, or other accounts with
a fair market value of approximately $52,000,000.
Interest income increased to $ 16,898 for the period ended
June 30, 1999, compared to $11,719 in the prior period,
an increase of 44%. The increase was primarily
attributable to a larger balance held for investment.
The Corporate Trust segments general and administrative
expenses increased in the aggregate to $339,504 for the
period ended June 30, 1999, compared to $227,676 for
the prior period, and increased to 47% of segment
revenues for the period ended June 30, 1999, from
41% of segment revenues in the prior period.
The Personal Trust segments general and administrative
expenses increased in the aggregate to $145,449 for the
period ending June 30, 1999, compared to $105,466 for
the prior period, and decreased to 89% of segment revenues
for the period ended June 30, 1999, compared to 91% of
segment revenues in the prior period. The increase in the
Corporate Trust segments general and administrative expenses
was due primarily to an increase in personnel as well as
additional expenses involved in administering the Companys
increased bond servicing business. The increase in the
<PAGE>
Personal Trust segments general and administrative
expenses was due primarily to an increase in personnel
as well as additional expenses involved in administering
the Companys increased trust servicing business. The
Companys effective income tax rate was 40.9% for the
three month period ended June 30, 1998.
The Companys effective income tax rate was 40.9%
for the three-month period ended June 30, 1999, and
40.5% for the three-month period ended June 30, 1998.
Year 2000
The Company recognizes the potential business
impacts related to the Year 2000 computer system
issue and has implemented a plan to assess and
improve the Companys state of readiness with
respect to such issues. The Year 2000 issue is one
where computer systems may recognize the designation
00 as 1900 when it means 2000, resulting in system
failure or miscalculations.
Commencing in 1997, the Company initiated a
comprehensive review of its core information
technology systems, which the Company is
dependent upon for the conduct of day to day
business operations, in order to determine the
adequacy of those systems in light of future business
requirements. Year 2000 readiness was one of a
variety of factors to be considered in the review
of core systems.
In recognition of the Year 2000 issue, in September
1997, the Company began a comprehensive review
of all information technology and non-information
technology systems used by the Company, computer
hardware and software products supplied to
broker-dealers by the Company, and computer hardware
and software products and components and other
equipment supplied to the Company by third parties.
Such review includes testing and analysis of Company
systems and inquiries of third parties supplying
<PAGE>
information technology and non-information
technology systems, computer hardware and
software products and components, and other
equipment to the Company.
The Company has divided its Year 2000 review
into two phases. The first addresses the Companys
core information technology systems. The second
phase addresses non-core information technology systems,
non-information technology systems, and products,
components and equipment supplied to the
Company from third parties. In addition, the Company
has implemented required Year 2000 upgrades and
replacements during the second phase. The Company
substantially completed the first phase of its review in
June 1998. The Company completed the second phase
in June 1999.
In the first phase of its Year 2000 review, the
Company tested all software products currently
provided to broker-dealers, and determined that
such products were Year 2000 compliant. The
Company also made inquiries of all third
parties supplying the Company with computer
hardware and software products and received
assurances that such products and components
are Year 2000 compliant. With respect to core
information technology, the Company made
inquiries of third parties supplying computer
hardware and software operating systems to the
Company, and received assurances that such
hardware and software systems were Year 2000
compliant.
The Company has not developed a worst case
scenario with respect to Year 2000 issues, but
instead has focused its resources on identifying
material, remediable problems and reducing
uncertainties generally through the Year 2000
review described above.
At this time, the Company has not developed Year
2000 contingency plans, other than the review and
remedial actions described above, and does not intend
to do so unless the Company believes such plans are
<PAGE>
merited by the results of its continuing Year 2000 review.
The Company maintains and deploys contingency
plans designed to address various other potential
business interruptions. These plans may be
applicable to address the interruption of support
provided by third parties resulting from their failure
to be Year 2000 ready.
If the Company or the third parties with which
it has relationships were to cease or not successfully
complete its or their Year 2000 remediation efforts,
the Company would encounter disruptions to its
business that could have a material adverse effect
on its business, financial position and results of
operations. The Company could be materially and
adversely impacted by widespread economic or
financial market disruption or by Year 2000 computer
system failures at third parties with which it has
relationships. The Company does not believe
expenditures to be Year 2000 compliant will be
material, and 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 all Year 2000 problems
will not be material to 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 Companys net capital was
$2,211,013 on June 30, 1999. The legislation also
requires that the Companys net capital meet
certain liquidity requirements. Specifically,
$166,666, $333,332 and $500,000 of such
net capital must meet the Arizona Banking
Departments liquidity requirements by July
19, 1997, July 19, 1998, and July 19, 1999,
respectively. At June 30, 1999, $341,444 of
the Companys net capital met the Departments
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. The Company also believes
that it will be able to satisfy its working capital
<PAGE>
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
Companys Master Note with its former parent,
Church Loans and Investments Trust.
The Companys cash and cash equivalents
decreased from $175,256 on March 31, 1999,
to $122,884 on June 30, 1999, while the note
receivable decreased from $419,084 on March 31,
1999, to $326,200 on June 30, 1999. The decrease
in the cash and cash equivalents was primarily
due to payments of income taxes, commissions,
and bonuses, which were accrued at March 31,
1999. The decrease in the note receivable was
due to the receipt of a payment in the amount
of $100,000. The Companys net property and
equipment increased from $811,696 on March
31, 1999, to $837,430 on June 30, 1999. The
increase was primarily due to the purchase of
additional furniture, equipment and computer
software for new employees. The Company
believes that capital expenditure requirements
for the foreseeable future will be covered by excess
cash flow from operations.
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 Companys
continued employment of key management,
including John Johnson, the Companys Chief
Executive Officer; Marvin Hoeflinger, the Companys
Vice President of Business Development; Bud Olson,
the Companys Vice President of Business
Development Personal Trust business; and
Christopher J. Olson, the Companys Vice
President and senior officer responsible for the
<PAGE>
Companys Personal Trust Business; the success
of Messrs. Johnson, Hoeflinger and Bud Olson in
their business development efforts on behalf of
the Company; the Companys success in being
repaid on the bonds it purchases or the loans it
makes under the Bond Repurchase Program;
the continuation of the Companys investment
advisory agreements with Hackett Investment
Advisors (HIA) and Wright Investors Services
(WIS), pursuant to which HIA and WIS provide
investment advisory services for the majority of
the trust and investment agency accounts of the
Company, and the success of HIA and WIS in
managing such accounts; increased competition
for the Companys services; competitive pressures
on prices for the Companys 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 Companys Securities
and Exchange Commission filings. The
Company filed its fiscal 1999 Form 10-KSB
on June 29, 1999, and filed form 10-KSB A-1
on August 5, 1999. Please refer to this document
for a more detailed discussion of the risks
and uncertainties associated with the Companys
future operations.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
None.
Item 2: Changes in Securities
None.
Item 3: Default Upon Senior Securities
<PAGE>
None.
Item 4: Other Information
None.
Item 5: Exhibits and Reports on Form 8-K:
(a) Exhibits: None.
(b) Reports on Form 8-K: None.
<PAGE>
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 13, 1999 BY: /s/ John K. Johnson
John K. Johnson
Its: President
DATE: August 13, 1999 BY: /s/ Christopher J. Olson
Christopher J. Olson
Its: Chief Financial Officer
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 122,884
<SECURITIES> 0
<RECEIVABLES> 856,068
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,434,634
<PP&E> 1,212,280
<DEPRECIATION> (374,850)
<TOTAL-ASSETS> 2,410,272
<CURRENT-LIABILITIES> 199,259
<BONDS> 0
<COMMON> 555,177
0
0
<OTHER-SE> 1,655,836
<TOTAL-LIABILITY-AND-EQUITY> 2,410,272
<SALES> 896,788
<TOTAL-REVENUES> 896,788
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 698,815
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 197,973
<INCOME-TAX> 80,971
<INCOME-CONTINUING> 117,002
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117,002
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
