Evertrust Financial (EVRT) 10-Q 2002 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM 10-Q
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly period ended..............................September 30, 2002
[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ____________________ to ___________________
Commission File Number: 0-26993
EVERTRUST FINANCIAL GROUP, INC.(Exact name of registrant as specified in its charter)

Washington(State or other jurisdiction of  incorporation or organization)	91-1613658(I.R.S. Employer I.D. Number)
2707 Colby Avenue, Suite 600, Everett, Washington 98201(Address of principal executive offices and zip code)
(425) 258-3645(Registrant's telephone number, including area code)
NA(Former name, former address and former fiscal year, if changed since last report)

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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.

(1)   Yes   X         No 

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Title of class:Common stock, no par value      As of November 1, 2002                 4,993,192  

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EVERTRUST FINANCIAL GROUP, INC.
Table of Contents

			Page
PART I	-	FINANCIAL INFORMATION
ITEM 1	-	Financial Statements. The Consolidated Financial Statements of EverTrust Financial Group, Inc. filed as a part of the report are as follows:
		Consolidated Statements of Financial Condition as of September 30, 2002and March 31, 2002	1
		Consolidated Statements of Operations for the three and six months endedSeptember 30, 2002 and 2001	2
		Consolidated Statements of Comprehensive Income for the six monthsended September 30, 2002 and 2001	3
		Consolidated Statements of Changes in Equity for the twelve months ended March 31, 2002 and six months ended September 30, 2002	4
		Consolidated Statements of Cash Flows for the six monthsended September 30, 2002 and 2001	5
		Notes to Consolidated Financial Statements	6
ITEM 2	-	Management's Discussion and Analysis of Financial Condition and Results of Operations
		General	10
		Comparison of Financial Condition at September 30, and March 31, 2002	12
		Comparison of Operating Results for the Three Months Ended September 30, 2002 and 2001	14
		Comparison of Operating Results for the Six Months Ended September 30, 2002 and 2001	16
		Liquidity and Capital Resources	19
ITEM 3	-	Quantitative and Qualitative Disclosures About Market Risk
		Asset and Liability Management and Market Risk	19
ITEM 4	-	Controls and Procedures	20
PART II	-	OTHER INFORMATION
		Item 1. Legal Proceedings	21
		Item 2. Changes in Securities	21
		Item 3. Defaults upon Senior Securities	21
		Item 4. Submission of Matters to a Vote of Stockholders	21
		Item 5. Other Information	21
		Item 6. Exhibits and Reports on Form 8-K	21
SIGNATURES			22
CERTIFICATIONS - Pursuant to Section 302 of the Sarbanes-Oxley Act			23

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Part 1 - Financial Information
Item 1 - Financial Statement

EverTrust Financial Group, Inc.
Consolidated Statements of Financial Condition
September 30, 2002 and March 31, 2002
(Dollar amounts in thousands)

	September 30,	March 31,
	2002	2002
ASSETS	(Unaudited)
Cash and cash equivalents, including interest bearing deposits
of $38,296 and $8,975	$ 49,278	$ 19,166
Securities available for sale, amortized cost of $40,020 and $49,336	40,570	49,903
Securities held to maturity, fair value of $4,405 and $5,126	4,167	4,955
Federal Home Loan Bank stock, at cost	6,126	5,946
Loans receivable, net of allowances of $8,857 and $8,754	555,649	574,646
Loans held for sale, fair value of $11,105 and $634	10,905	625
Accrued interest receivable	3,437	3,638
Premises and equipment, net	9,785	10,196
Other real estate owned	-	524
Prepaid expenses and other assets	6,229	6,210
Total Assets	$ 686,146	$ 675,809
LIABILITIES AND EQUITY
LIABILITIES:
Deposit accounts	$ 480,584	$ 449,611
Federal Home Loan Bank advances and other borrowings	108,861	129,338
Accounts payable and other liabilities	4,354	4,036
Total Liabilities	593,799	582,985
COMMITMENTS AND CONTINGENCIES
EQUITY:
Common stock - no par value, 49,000,000 shares authorized,
4,996,592 shares and 5,170,569 shares outstanding at
September 30, 2002 and March 31, 2002, respectively	34,212	37,390
Employee Stock Ownership Plan (ESOP) debt	(792)	(792)
Retained earnings	60,298	58,019
Shares held in trust for stock-related
compensation plans	(1,734)	(2,167)
Accumulated other comprehensive income	363	374
Total Equity	92,347	92,824
Total Liabilities and Equity	$ 686,146	$ 675,809

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EverTrust Financial Group, Inc.
Consolidated Statements of Operations
For the Three and Six Months Ended September 30, 2002 and 2001
(Dollar amounts in thousands, except per share amounts)

	Three Months Ended September 30,		Six Months Ended September 30,
	2002	2001	2002	2001
	(Unaudited)		(Unaudited)
INTEREST INCOME:
Loans receivable	$ 10,658	$ 10,882	$ 21,467	$ 21,449
Investment securities:
Taxable interest income	730	858	1,465	1,823
Tax-exempt interest income	53	63	112	130
Dividend income	100	119	199	256
Total investment security income	883	1,040	1,776	2,209
Total interest income	11,541	11,872	23,243	23,658
INTEREST EXPENSE:
Deposit accounts	3,474	4,313	6,910	8,864
Federal Home Loan Bank advances
and other borrowings	1,481	1,226	2,996	2,332
Total interest expense	4,955	5,539	9,906	11,196
Net interest income	6,586	6,333	13,337	12,462
PROVISION FOR LOAN LOSSES	-	375	190	625
Net interest income after provision for
loan losses	6,586	5,958	13,147	11,837
NONINTEREST INCOME:
Loan service fees	605	215	1,096	414
Gain on sale of securities	49	1	49	24
Gain on sale of loans	161	139	298	229
Other, net	603	373	1,099	746
Total noninterest income	1,418	728	2,542	1,413
NONINTEREST EXPENSES:
Salaries and employee benefits	3,123	2,828	6,144	5,450
Occupancy and equipment	783	721	1,587	1,433
Information processing costs	363	267	720	487
Other, net	1,218	966	2,447	1,997
Total noninterest expenses	5,487	4,782	10,898	9,367
Earnings before federal income taxes	2,517	1,904	4,791	3,883
FEDERAL INCOME TAXES	713	572	1,356	1,169
NET INCOME	$ 1,804	$ 1,332	$ 3,435	$ 2,714
Net income per common share - basic	$ 0.38	$ 0.21	$ 0.72	$ 0.42
Net income per common share - diluted	$ 0.36	$ 0.21	$ 0.68	$ 0.41
Weighted average shares outstanding - basic	4,722,660	6,283,363	4,762,305	6,500,207
Weighted average shares outstanding - diluted	5,035,388	6,482,488	5,060,915	6,668,645
Dividends paid per share	$ 0.115	$ 0.105	$ 0.230	$ 0.205

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EverTrust Financial Group, Inc.
Consolidated Statements of Comprehensive Income
For the Six Months Ended September 30, 2002 and 2001
(Dollar amounts in thousands)

	2002	2001
	(Unaudited)
NET INCOME	$ 3,435	$ 2,714
OTHER COMPREHENSIVE INCOME, net of income taxes:
Gross unrealized gain (loss) on securities:
Unrealized holding gain (loss) during the period,
net of deferred income tax expense (benefit)
of $(14) and $69	(28)	134
Less adjustment of gains included in net income,
net of income tax of $9 and $(8)	17	(16)
Other comprehensive income	(11)	118
COMPREHENSIVE INCOME	$ 3,424	$ 2,832

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EverTrust Financial Group, Inc.
Consolidated Statements of Changes in Equity
For the Twelve Months Ended March 31, 2002 and Six Months Ended September 30, 2002
(Dollar amounts in thousands, Unaudited)

					Shares held
					in trust for	Accumulated
	Common Stock				stock-related	other
			Debt related	Retained	compensation	comprehensive
	Shares	Amount	to ESOP	Earnings	plans	Income	Total
BALANCE, April 1, 2001	7,258,243	$ 68,940	$ (1,188)	$ 55,033	$ (3,034)	$ (395)	$ 120,146
Common stock repurchased	(2,087,674)	(31,701)					(31,701)
Repayment of ESOP debt			396				396
ESOP activity- Change in value of
shares committed to be released		151					151
Amortization of compensation related to
Management Recognition Plan (MRP)					867		867
Net income				5,579			5,579
Dividends paid				(2,593)			(2,593)
Other comprehensive income,
net of income taxes						(21)	(21)
BALANCE, March 31, 2002	5,170,569	$ 37,390	$  (792)	$ 58,019	$ (2,167)	$  374	$  92,824
Common stock repurchased	(173,977)	(3,178)					(3,178)
Amortization of compensation related to
Management Recognition Plan (MRP)					433		433
Net income				3,435			3,435
Dividends paid				(1,156)			(1,156)
Other comprehensive income, net of
income taxes						(11)	(11)
BALANCE, September 30, 2002	4,996,592	$ 34,212	$ (792)	$ 60,298	$ (1,734)	$ 363	$ 92,347

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EverTrust Financial Group, Inc and Subsidiaries
Consolidated Statements of Cash Flows (In thousands)
For the Six Months Ended September 30, 2002 and 2001

	2002	2001
OPERATING ACTIVITIES:
Net income	$ 3,435	$ 2,714
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization of premises
and equipment	900	695
Dividends on Federal Home Loan Bank stock and
accretion of investment security discounts	(330)	(235)
Gain on sale of premises and equipment	(7)	(29)
Amortization of investment security premiums	27	372
Loss on limited partnership	54	54
Provision for losses on loans	190	625
Amortization of deferred loan fees and costs	(1,064)	(1,083)
Loan fees deferred	770	977
Proceeds from sale of loans	24,088	12,739
Loans originated for sale	(34,368)	(10,726)
Deferred taxes	(37)	61
Amortization of compensation related to MRP	433	433
Cash provided (used) by changes in operating
assets and liabilities:
Accrued interest receivable	201	179
Prepaid expenses and other assets	(30)	(105)
Accounts payable and other liabilities	318	8,400
Net cash provided (used) by operating activities	(5,420)	15,071
INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale	2,030	15,876
Proceeds from maturities of securities held to maturity	791	699
Proceeds from sale of securities available for sale	20,079	2,935
Purchases of securities available for sale	(12,673)	(7,035)
Loan principal payments	137,738	76,661
Loans originated or acquired	(118,637)	(126,216)
Proceeds from sales of reaquired assets and OREO	524	-
Net additions to premises and equipment	(482)	(904)
Net cash provided (used) by investing activities	29,370	(37,984)
FINANCING ACTIVITIES:
Net increase in deposit accounts	30,973	15,268
Repurchase shares of common stock	(3,178)	(27,443)
Dividends paid on common stock	(1,156)	(1,424)
Proceeds from other borrowings	-	2,850
Repayment of other borrowings	(12,050)	(2,861)
Proceeds from Federal Home Loan Bank advances	25,850	60,450
Repayments of Federal Home Loan Bank advances	(34,277)	(36,177)
Net cash provided by financing activities	6,162	10,663
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS	30,112	(12,250)
CASH AND CASH EQUIVALENTS:
Beginning of quarter	19,166	22,383
End of quarter	$ 49,278	$ 10,133
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest on deposits	$ 6,958	$ 8,969
Federal income taxes	$ 1,320	$ 1,140
Interest on borrowings	$ 3,017	$ 2,256

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EverTrust Financial Group, Inc.
Notes to Consolidated Financial Statements
Six Months Ended September 30, 2002
(Unaudited)

Note 1 - Basis of Presentation

The unaudited consolidated financial statements of EverTrust Financial Group, Inc. (EverTrust or the Company) and its subsidiaries reflect all adjustments which are, in the opinion of management, necessary to present fairly the statements of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. The consolidated financial statements include EverTrust's wholly owned subsidiaries, EverTrust Bank (EverTrust Bank or Bank) and Mutual Bancshares Capital Inc. (MB Cap). All significant intercompany accounts and transactions have been eliminated in consolidation.

The balance sheet data as of March 31, 2002 was derived from audited financial statements, but does not include all disclosures which have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) rules pertaining to the presentation of interim financial statements. The results of operations for the six months ended September 30, 2002 are not necessarily indicative of the results which may be expected for the entire year. It is suggested that these consolidated financial statements and notes are read in conjunction with the consolidated financial statements and notes included in EverTrust's Form 10-K filed with the SEC on June 19, 2002.

Note 2 - Recent Events

In May 2002, EverTrust Bank opened a new business and private banking office located in downtown Seattle. This new office is intended to expand the Bank's King County presence, especially when coupled with the existing business and private banking office located in Bellevue and the money management resources available through EverTrust Asset Management (ETAM).

Note 3 - Stock Repurchases

In October 2001, the Company announced a seventh repurchase plan of up to 542,977 shares, or 10%, of the Company's outstanding common stock. The Company repurchased 31,800 shares during the quarter ended September 30, 2002, leaving a balance of 109,800 shares to be repurchased under the current plan. The Company has now repurchased a total of 4.0 million shares since its initial plan was approved in January 2000.

Note 4 - Earnings per share

Earnings per share (EPS) is computed using the weighted average number of common and diluted shares outstanding during the period. Basic EPS is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that occurs if securities or other contracts to issue common stock were exercised or converted into common stock. The only reconciling items after the calculation of basic EPS are the inclusion of stock options and restricted stock awards, which increase the shares outstanding in diluted EPS by 312,728 and 139,809, for the three months ended September 30, 2002 and 2001, respectively, and 298,610, and 168,438, for the six months ended September 30, 2002 and 2001, respectively.The large increase in diluted shares for both the three months and six months ended September 30, 2002 compared to September 30, 2001, is primarily the result of the increase in EverTrust's average stock price from $15.08 to $18.98, for the three months ended September 30, 2002, and from $14.49 to $18.67, for the six months ended September 30, 2002 .

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Note 5 - Lines of Business

EverTrust manages the business activities of EverTrust Bank's retail division (including ETAM), business banking group, and MB Cap. The operating results of EverTrust and MB Cap have been included in Other as their results are not significant when taken on an individual basis.

Financial highlights by lines of business are as follows (in thousands):

	Three Months Ended September 30, 2002
		The Bank's
	The Bank's	business and
	retail	private banking
	division	group	Other	Eliminations	Total
Condensed income statement:
Net interest income after
provision for loan losses	$     5,957	$      564	$       68	$         (3)	$     6,586
Noninterest income	1,274	158	2,217	(2,231)	1,418
Noninterest expense	4,066	683	755	(17)	5,487
Income before federal income taxes	3,165	39	1,530	(2,217)	2,517
Income taxes	898	12	(197)	-	713
Net Income	$     2,267	$        27	$   1,727	$   (2,217)	$     1,804
Total assets	$ 618,065	$ 60,672	$ 96,925	$ (89,516)	$ 686,146

	Three Months Ended September 30, 2001
		The Bank's
	The Bank's	business and
	retail	private banking
	division	group	Other	Eliminations	Total
Condensed income statement:
Net interest income after
provision for loan losses	$    5,170	$     452	$     336	$            -	$     5,958
Noninterest income	554	80	1,542	(1,448)	728
Noninterest expense	3,743	258	702	79	4,782
Income before federal income taxes	1,981	274	1,176	(1,527)	1,904
Income taxes	595	95	(118)	-	572
Net Income	$     1,386	$      179	$    1,294	$   (1,527)	$     1,332
Total assets	$ 568,623	$ 43,363	$ 107,638	$ (94,894)	$ 624,730

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	Six Months Ended September 30, 2002
		The Bank's
	The Bank's	commercial
	retail	banking
	division	group	Other	Eliminations	Total
Condensed income statement:
Net interest income after
provision for loan losses	$   11,947	$   1,059	$    145	$        (4)	$   13,147
Noninterest income	2,309	244	4,288	(4,299)	2,542
Noninterest expense	8,075	1,331	1,523	(31)	10,898
Income before federal income taxes	6,181	(28)	2,910	(4,272)	4,791
Income taxes	1,754	(7)	(391)	-	1,356
Net Income	$     4,427	$     (21)	$   3,301	$   (4,272)	$     3,435
Total assets	$ 618,065	$ 60,672	$ 96,925	$ (89,516)	$ 686,146

	Six Months Ended September 30, 2001
		The Bank's
	The Bank's	commercial
	retail	banking
	division	group	Other	Eliminations	Total
Condensed income statement:
Net interest income after
provision for loan losses	$   10,269	$     782	$       786	$            - -	$  11,837
Noninterest income	1,251	156	3,021	(3,015)	1,413
Noninterest expense	7,491	542	1,360	(26)	9,367
Income before federal income taxes	4,029	396	2,447	(2,989)	3,883
Income taxes	1,217	135	(183)	-	1,169
Net Income	$     2,812	$     261	$     2,630	$   (2,989)	$     2,714
Total assets	$ 568,623	$ 43,363	$ 107,638	$ (94,894)	$ 624,730

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Note 6 - Additional Information Regarding Investment Securities

The following table sets forth the composition of EverTrust's investment portfolio at the dates indicated (in thousands):

		September 30, 2002		March 31, 2002
		Carrying	Fair	Carrying	Fair
		Value	Value	Value	Value
Available for sale:
Investment securities:
	U.S. Government Agency obligations	$   5,980	$   6,231	$   4,426	$   4,515
	Corporate obligations	4,854	4,935	9,363	9,537
	Municipal obligations	3,281	3,326	3,896	3,929
	Equity securities	3,152	2,440	3,304	3,154
	Mortgage-backed securities	22,753	23,638	28,347	28,768
	Total available for sale	$ 40,020	$ 40,570	$ 49,336	$ 49,903
Held to Maturity:
Investment securities:
	U.S. Government Agency obligations	$   1,003	$   1,125	$   1,003	$   1,080
	Corporate obligations	-	-	498	508
	Municipal obligations	2,647	2,730	2,848	2,902
	Mortgage-backed securities	517	550	606	636
	Total held to maturity	$   4,167	$   4,405	$   4,955	$   5,126
	Total	$ 44,187	$ 44,975	$ 54,291	$ 55,029

Corporate obligations at cost decreased $4.5 million from $9.4 million at March 31, 2002 to $4.9 million at September 30, 2002. The primary reason for the decrease in the corporate obligation portfolio was due to the sale of lower credit quality investments in order to enhance the overall quality of the investment portfolio.  Mortgage-backed securities at cost decreased $5.5 million from $28.3 million at March 31, 2002 to $22.8 million at September 30, 2002. The primary reason for the large decrease in mortgage-backed securities was due to the sale of longer term, higher interest rate risk investments. The proceeds from the sales will be used to purchase investment securities or to fund loan growth in the next several months.

At September 30, 2002 equity securities were comprised of, at cost, $2.1 million ($1.3 million fair value) in common stock of publicly traded companies and $1.1 million ($1.1 million fair value) in money market mutual funds.

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Note 7 - Additional Information Regarding Federal Home Loan Bank advances and other borrowings

The following table sets forth maturity detail on EverTrust's Federal Home Loan Bank advances and other borrowings (in thousands):

	September 30, 2002	March 31, 2002
Nonamortizing:
Due within 1 year	$   17,500	$   34,800
After 1 year through 2 years	18,550	19,400
After 2 years through 3 years	20,150	17,750
After 3 years through 5 years	31,200	32,250
After 5 years through 10 years	18,200	21,150
After 10 years	2,600	3,300
Amortizing:
After 10 years	661	688
	$ 108,861	$ 129,338

At September 30, 2002, the Bank had $47.0 million available in unsecured lines of credit with commercial banks compared to $42.0 million at March 31, 2002.  At September 30, 2002, there were no advances on the lines of credit with commercial banks.  In addition, the Bank has a revolving line of credit with the FHLB of up to 35% of total assets, or the Bank's available collateral, whichever is less.

Note 8 - Recently Issued Accounting Standards

In October of 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 147,"Acquisitions of Certain Financial Institutions," allowing financial institutions meeting certain criteria to reclassify unidentifiable intangible asset balances to goodwill and cease amortization. Provisions of the Statement are generally effective as of October 31, 2002. The adoption of SFAS No. 147 did not materially impact the Company's consolidated results of operations, financial position, or cash flows.

In June 2002, the FASB issued SFAS No. 146,"Accounting for Costs Associated with Exit or Disposal Activities". This Statement requires recording costs associated with exit or disposal activities when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management's commitment to an exit plan, which is generally before an actual liability has been incurred. Provisions of this Statement are effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No. 146 is not expected to materially impact the Company's consolidated results of operations, financial position, or cash flows.

In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This Statement eliminates extraordinary accounting treatment for reporting gain or loss on debt extinguishment, and amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The lease provisions of the Statement are effective for transactions after May 15, 2002, with the remaining provisions effective for financial statements issued after that date. The adoption of SFAS No. 145 did not materially impact the Company's consolidated results of operations, financial position, or cash flows.

In October 2001, the FASB issued SFAS No. 144,"Accounting for the Impairment or Disposal of Long-Lived Assets", which supercedes SFAS No. 121,"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 144 retains the fundamental provisions of SFAS No. 121 but sets forth new criteria for asset classification and broadens the scope of qualifying discontinued operations. The new Statement is effective for

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fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 on April 1, 2002. The adoption of SFAS No. 144 did not have a material impact on the Company's consolidated results of operations, financial position, or cash flows.

In August 2001, the FASB issued SFAS No. 143,"Accounting for Asset Retirement Obligations", which takes effect for fiscal years beginning after June 15, 2002. SFAS No. 143 establishes the initial and subsequent accounting for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and/or normal operation of a long-lived asset. The Company will adopt SFAS No. 143 as of April 1, 2003. The adoption of SFAS No. 143 is not expected to materially impact the Company's consolidated results of operations, financial position, or cash flows.

In July 2001, the FASB issued SFAS No. 141, "Accounting for Business Combinations", and SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets", which is effective for the Company on April 1, 2002.  SFAS No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method.  Under SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life but instead is subject to an impairment assessment at least annually.  The Company does not currently have any goodwill.