Evertrust Financial (EVRT) 10-Q 2003 Q2 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..............................June 30, 2003
[   ]	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 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

   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 August 1, 2003                 4,841,029

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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 EverTrustFinancial Group, Inc. filed as a part of the report are as follows:
		Consolidated Statements of Financial Condition as of June 30, 2003 and March 31, 2003	1
		Consolidated Statements of Operations for the three months ended June 30, 2003 and 2002	2
		Consolidated Statements of Comprehensive Income for the three months ended June 30, 2003 and 2002	3
		Consolidated Statements of Changes in Equity for the twelve months ended March 31, 2003 and three months ended June 30, 2003	4
		Consolidated Statements of Cash Flows for the three months ended June 30, 2003 and 2002	5
		Notes to Consolidated Financial Statements	6
ITEM 2	-	Management's Discussion and Analysis of Financial Condition and Results of Operations
		General	12
		Selected Financial Ratios	12
		Comparison of Financial Condition at June 30, and March 31, 2003	13
		Comparison of Operating Results for the three months ended June 30, 2003 and 2002	15
		Liquidity and Capital Resources	18
		Capital Requirements	18
ITEM 3	-	Quantitative and Qualitative Disclosures About Market Risk and Asset and Liability Management and Market Risk	19
ITEM 4	-	Controls and Procedures	19
PART II	-	OTHER INFORMATION
		Item 1. Legal Proceedings	19
		Item 2. Changes in Securities	19
		Item 3. Defaults upon Senior Securities	20
		Item 4. Submission of Matters to a Vote of Stockholders	20
		Item 5. Other Information	20
		Item 6. Exhibits and Reports on Form 8-K	20
SIGNATURES			21

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Part 1 - Financial Information
Item 1 - Financial Statements

EverTrust Financial Group, Inc.
Consolidated Statements of Financial Condition
June 30, 2003 and March 31, 2003
(Dollar amounts in thousands)

	June 30,	March 31,
	2003	2003
ASSETS	(Unaudited)
Cash and cash equivalents, including interest bearing deposits
of $42,602 and $27,415	$ 52,608	$ 37,259
Securities available for sale, amortized cost of $45,057 and $33,807	45,519	34,167
Securities held to maturity, fair value of $3,797 and $3,999	3,602	3,800
Federal Home Loan Bank stock, at cost	6,417	6,334
Loans receivable, net of allowances of $9,086 and $8,979	586,855	600,200
Loans held for sale, fair value of $1,472 and $4,813	1,465	4,755
Accrued interest receivable	3,229	3,280
Premises and equipment, net	8,771	9,074
Prepaid expenses and other assets	5,071	7,294
Total Assets	$713,483	$706,163
LIABILITIES AND EQUITY
LIABILITIES:
Deposit accounts	$519,710	$508,269
Federal Home Loan Bank advances and other borrowings	96,321	100,984
Accounts payable and other liabilities	4,004	5,215
Total Liabilities	620,035	614,468
COMMITMENTS AND CONTINGENCIES
EQUITY:
Common stock - no par value, 49,000,000 shares authorized,
4,840,279 shares and 4,834,779 shares outstanding at
June 30, 2003 and March 31, 2003, respectively	30,698	30,613
Employee Stock Ownership Plan (ESOP) debt	(396)	(396)
Retained earnings	63,926	62,542
Shares held in trust for stock-related
compensation plans	(1,085)	(1,301)
Accumulated other comprehensive income	305	237
Total Equity	93,448	91,695
Total Liabilities and Equity	$713,483	$706,163

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EverTrust Financial Group, Inc.
Consolidated Statements of Operations
For the Three Months Ended June 30, 2003 and 2002
(Dollar amounts in thousands, except per share amounts)

			Three Months Ended June 30,
			2003	2002
			(Unaudited)
INTEREST INCOME:
	Loans receivable		$ 10,505	$ 10,810
	Investment securities:
		Taxable interest income	442	736
		Tax-exempt interest income	43	59
		Dividend income	86	99
		Total investment security income	571	894
		Total interest income	11,076	11,704
INTEREST EXPENSE:
	Deposit accounts		3,097	3,436
	Federal Home Loan Bank advances   and other borrowings		1,284	1,516
		Total interest expense	4,381	4,952
		Net interest income	6,695	6,752
PROVISION FOR LOAN LOSSES			175	190
		Net interest income after provision for   loan losses	6,520	6,562
NONINTEREST INCOME:
	Loan service fees		695	491
	Gain on sale of securities		2	-
	Gain on sale of loans		301	137
	Other, net		646	496
		Total noninterest income	1,644	1,124
NONINTEREST EXPENSES:
	Salaries and employee benefits		3,152	3,021
	Occupancy and equipment		710	804
	Information processing costs		376	357
	Other, net		967	1,230
		Total noninterest expenses	5,205	5,412
		Earnings before federal income taxes	2,959	2,274
FEDERAL INCOME TAXES			994	643
NET INCOME			$ 1,965	$ 1,631
Net income per common share - basic			$ 0.42	$ 0.34
Net income per common share - diluted			$ 0.39	$ 0.32
Weighted average shares outstanding - basic			4,660,447	4,748,686
Weighted average shares outstanding - diluted			4,999,107	5,031,177
Dividends paid per share			$ 0.120	$ 0.115

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EverTrust Financial Group, Inc.
Consolidated Statements of Comprehensive Income (In thousands)
For the Three Months Ended June 30, 2003 and 2002

 

			2002	2001
NET INCOME			$ 1,965	$ 1,631
OTHER COMPREHENSIVE INCOME, net of income taxes:
	Gross unrealized gain on securities:
		Unrealized holding gain during the period,   net of deferred income tax expense   of $36 and $66	69	131
		Less adjustment of gains (loss) included in net income,   net of income tax of $(-) and $(-)	(1)	-
		Other comprehensive income	68	131
COMPREHENSIVE INCOME			$ 2,033	$ 1,762

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EverTrust Financial Group, Inc.
Consolidated Statements of Changes in Equity
For the Twelve Months Ended March 31, 2003 and Three Months Ended June 30, 2003
(Dollar amounts in thousands, Unaudited)

	Common Stock		Debt related	Retained	Shares held in trust for stock-related compensation	Accumulated other comprehensive
	Shares	Amount	to ESOP	earnings	plans	income (loss)	Total
BALANCE, April 1, 2002	5,170,569	$ 37,390	$ (792)	$ 58,019	$ (2,167)	$ 374	$ 92,824
Common stock repurchased	(375,493)	(7,664)					(7,664)
Common stock options exercised	39,703	479					479
Tax benefit from stock options exercised		143					143
Repayment of ESOP debt			396				396
ESOP activity - Change in value of
shares committed to be released		265					265
Amortization of compensation related to
Management Recognition Plan (MRP)					866		866
Net income				6,841			6,841
Dividends paid				(2,318)			(2,318)
Other comprehensive income, net
of income taxes						(137)	(137)
BALANCE, March 31, 2003	4,834,779	$ 30,613	$ (396)	$ 62,542	$ (1,301)	$ 237	$ 91,695
Common stock options exercised	5,500	85					85
Amortization of compensation related to
Management Recognition Plan (MRP)					216		216
Net income				1,965			1,965
Dividends paid				(581)			(581)
Other comprehensive income, net
of income taxes						68	68
BALANCE, June 30, 2003	4,840,279	$ 30,698	$ (396)	$ 63,926	$ (1,085)	$ 305	$ 93,448

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EverTrust Financial Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (In thousands)
For the Three Months Ended June 30, 2003 and 2002

	2003	2002
OPERATING ACTIVITIES:
Net income	$ 1,965	$ 1,631
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization of premises and equipment	407	449
Dividends on Federal Home Loan Bank stock and
accretion of investment security discounts	(253)	(176)
Gain on sale of premises and equipment	-	(7)
Amortization of investment security premiums	80	10
Loss on limited partnership	-	27
Provision for losses on loans	175	190
Amortization of deferred loan fees and costs	(659)	(522)
Loan fees deferred	509	335
Proceeds from sale of loans	14,343	19,433
Loans originated for sale	(11,053)	(18,898)
Deferred taxes	-	109
Amortization of compensation related to MRP	216	216
Changes in operating assets and liabilities:
Accrued interest receivable	51	(82)
Prepaid expenses and other assets	2,355	296
Accounts payable and other liabilities	(1,211)	(80)
Net cash provided by operating activities	6,925	2,931
INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale	3,298	3,270
Proceeds from maturities of securities held to maturity	197	165
Proceeds from sale of securities available for sale	1,613	585
Purchases of securities available for sale	(16,070)	(2,750)
Loan principal payments	109,242	56,088
Loans originated or acquired	(95,922)	(51,555)
Proceeds from sales of reaquired assets and OREO	-	417
Investment in limited partnership	(112)	-
Net additions to premises and equipment	(104)	(358)
Net cash used by investing activities	2,142	5,782
FINANCING ACTIVITIES:
Net increase in deposit accounts	11,441	5,181
Proceeds from stock options exercised	85	-
Repurchase shares of common stock	-	(2,597)
Dividends paid on common stock	(581)	(582)
Repayment of other borrowings	-	(650)
Proceeds from Federal Home Loan Bank advances	9,400	15,850
Repayments of Federal Home Loan Bank advances	(14,063)	(19,563)
Net cash provided (used) by financing activities	6,282	(2,361)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS	15,349	6,352
CASH AND CASH EQUIVALENTS:
Beginning of period	37,259	19,166
End of period	$ 52,608	$ 25,518
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest on deposits	$ 3,103	$ 4,954
Federal income taxes	$    100	$    150
Interest on borrowings	$ 1,317	$ 1,521

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EverTrust Financial Group, Inc.
Notes to Consolidated Financial Statements
Three Months Ended June 30, 2003
(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, 2003 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 three months ended June 30, 2003 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 17, 2003.

Note 2 - Recent Events

In January 2003, the Company announced that it had reached a tentative agreement to shift the day-to-day operations of MB Cap to a local venture capital firm. As a result of the agreement, the sole activity of MB Cap will be to hold its limited partnership investment. The limited partnership will be managed by the former employees of MB Cap along with an additional venture capitalist. The agreement has been approved by the limited partners and is subject to approval by regulatory authorities.

The investment in the Fund is recorded at fair value using the equity method, based on percentage of ownership held in the Fund. Such amounts were $1.3 million at June 30, 2003 compared to $1.2 million at March 31, 2003.

Note 3 - Stock Repurchases

In January 2003, the Company announced an eighth repurchase plan of up to 490,000 shares, or 10%, of the Company's outstanding common stock. The Company did not repurchase any shares during the quarter ended June 30, 2003, leaving a balance of 398,750 shares to be repurchased under the current plan. The Company has now repurchased a total of 4.2 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 338,660 and 282,491 for the three months ended June 30, 2003 and 2002, respectively. The increase in diluted shares for the three months ended June 30, 2003 compared to June 30, 2002, is primarily the result of the increase in EverTrust's average stock price from $18.35 for the three months ended June 30, 2002, to $24.40, for the three months ended June 30, 2003.

The Company applies Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations in accounting for it's stock options. Accordingly, no compensation cost has been recognized for

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the Plan since the exercise price of all options has been equal to the fair value of the Company's stock at the grant date. Had compensation costs for the Company's compensation plan been determined consistent with Statement of Financial Accounting Standards (SFAS) No. 123,Accounting for Stock-Based Compensation, the Company's net income attributable to common stock would have been reduced by $75,000 for the three months ended June 30, 2003 and $79,000 for the three months ended June 30, 2002. Net income per share for both basic and diluted would have decreased by $.01 for the three months ended June 30, 2003 and June 30, 2002.

Had compensation cost for the options been determined based on the fair value at the option grant dates, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands):

	For the Three Months Ended
	June 30, 2003	June 30, 2003
Net income as reported	$ 1,965	$ 1,631
Stock based employee compensation expense	(75)	(79)
Pro forma net income	1,890	1,552
Basic earnings per share:
As reported	0.42	0.34
Pro forma	0.41	0.33
Diluted earnings per share:
As reported	0.39	0.32
Pro forma	0.38	0.31

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Note 5 - Lines of Business

Beginning April 1, 2003, the Company began managing the activities of EverTrust Bank under the following lines of business: Business and private banking (including ETAM), the real estate lending group, and the retail banking division. Prior to April 1, 2003 the Company reported EverTrust Bank under two lines of business, the Bank's retail operations and the Bank's business banking group. Results for the three months ended June 30, 2002 remain in the previous format as an accurate restatement is not possible.

The operating results of the holding company and MB Cap have been included in Other for both periods. 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 June 30, 2003
	The Bank's	The Bank's
	business	real estate	The Bank's
	and private	lending	retail
	banking group	group	division	Other	Eliminations	Total
Condensed income statement:
Net interest income after
provision for loan losses	$     677	$    3,946	$   1,835	$       62	$            -	$  6,520
Other income	401	480	776	2,371	(2,384)	1,644
Other expense	1,072	942	2,528	676	(13)	5,205
Income before income taxes	6	3,484	83	1,757	(2,371)	2,959
Income taxes	2	1,172	28	(208)	-	994
Net income	$         4	$    2,312	$         55	$  1,965	$ (2,371)	$   1,965
Total assets	$62,196	$449,353	$194,436	$97,240	$(89,742)	$713,483

	Three Months Ended June 30, 2002
		The Bank's
	The Bank's	business and
	retail	private banking
	division	group (1)	Other	Eliminations	Total
Condensed income statement:
Net interest income after
provision for loan losses	$ 5,990	$   495	$      77	$           -	$  6,562
Other income	1,035	86	2,071	(2,068)	1,124
Other expense	4,009	648	768	(13)	5,412
Income before income taxes	3,016	(67)	1,380	(2,055)	2,274
Income taxes	856	(19)	(194)	-	643
Net income	$   2,160	$    (48)	$ 1,574	$ (2,055)	$   1,631
Total assets	$612,701	$55,409	$96,084	$(88,848)	$675,346

_____________
(1) Formerly Commercial Bank of Everett

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Note 6 - Additional Information Regarding Investment Securities

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

			June 30, 2003		March 31, 2003
			Amortized	Fair	Amortized	Fair
			Cost	Value	Cost	Value
Available for sale:
Investment securities:
	U.S. Government Agency obligations		$22,523	$22,782	$15,246	$15,479
	Corporate obligations		-	-	500	501
	Municipal obligations		2,346	2,378	2,346	2,382
	Equity securities		830	714	1,642	1,270
	Certificates of deposit		-	-	-	-
	Mortgage-backed securities		19,358	19,645	14,073	14,535
		Total available for sale	$45,057	$45,519	$33,807	$34,167
Held to Maturity:
Investment securities:
	U.S. Government Agency obligations		$ 1,002	$ 1,101	$ 1,002	$ 1,111
	Corporate obligations		-	-	-	-
	Municipal obligations		2,207	2,272	2,402	2,465
	Certificates of deposit		-	-	-	-
	Mortgage-backed securities		393	424	396	423
		Total held to maturity	$ 3,602	$ 3,797	$ 3,800	$3,999
	Total		$48,659	$49,316	$37,607	$38,166

U.S. Government Agency obligations increased $7.3 million at cost from $16.2 million at March 31, 2003 to $23.5 million at June 30, 2003. Mortgage-backed securities increased $5.3 million at cost from $14.4 million at March 31, 2003 to $19.8 million at June 30, 2003. The increase in both investments reflects the Company's desire to enhance the investment portfolio with shorter term, lower risk securities. The Company will continue to look to invest excess cash over the next several months in high quality investments.

At June 30, 2003 equity securities were comprised of, at cost, $620,000 ($504,000 fair value) in common stock of publicly traded companies and $210,000 ($210,000 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):

	June 30, 2003	March 31, 2003
Nonamortizing:
Due within 1 year	$ 19,900	$ 19,400
After 1 year through 2 years	18,800	18,750
After 2 years through 3 years	16,950	17,900
After 3 years through 5 years	24,900	26,700
After 5 years through 10 years	13,050	15,300
After 10 years	2,100	2,300
Amortizing:
After 10 years	621	634
	$96,321	$100,984

At June 30, 2003, the Bank had $47.0 million available in unsecured lines of credit with commercial banks compared to $47.0 million at March 31, 2003. At June 30, 2003 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 May 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 150,"Accounting for Certain Financial Instruments with characteristics of both Liabilities and Equity."The statement establishes standards for classifying and measuring certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity as liabilities. SFAS 150 is effective for instruments entered into or modified after May 31, 2003. The adoption of SFAS No. 150 did not materially impact the Company's consolidated results of operations, financial position, or cash flows.