FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended. . . . . . . . . . . December 31, 2001
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-26993
EVERTRUST FINANCIAL GROUP, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-1613658
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2707 Colby Ave. Suite 600, Everett, Washington 98201
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(Address of principal executive offices and zip code)
(425) 258-3645
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(Registrant's telephone number, including area code)
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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: As of February 1, 2002
--------------- ----------------------
Common stock, no par value 5,298,669
---------
EVERTRUST FINANCIAL GROUP, INC.
Table of Contents
Page
PART 1 - 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
December 31, 2001 and March 31, 2001 1
Consolidated Statements of Operations for the three and
nine months ended December 31, 2001 and 2000 2
Consolidated Statements of Comprehensive Income for the
nine months ended December 31, 2001 and 2000 3
Consolidated Statements of Changes in Equity for the nine
months ended December 31, 2001 and 2000 3
Consolidated Statements of Cash Flows for the nine months
ended December 31, 2001 and 2000 4
Notes to Consolidated Financial Statements 5
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
General 9
Comparison of Financial Condition at December 31 and
March 31, 2001 9
Comparison of Operating Results for the three months
ended December 31, 2001 and 2000 12
Comparison of Operating Results for the nine months ended
December 31, 2001 and 2000 14
Liquidity and Capital Resources 16
Capital Requirements 16
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk
Asset and Liability Management and Market Risk 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to Vote of Stockholders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
i
Part 1 Financial Information
- ------------------------------
Item 1 Financial Statements
EverTrust Financial Group, Inc.
Consolidated Statements of Financial Condition
December 31, 2001 and March 31, 2001
(Dollar amounts in thousands)
December 31, March 31,
2001 2001
---- ----
ASSETS (Unaudited)
Cash and cash equivalents, including interest
bearing deposits of $6,012 and $14,993 $ 11,927 $ 22,383
Securities available for sale, amortized cost
of $45,853 and $62,701 46,582 63,299
Securities held to maturity, fair value of
$5,908 and $8,613 5,686 8,362
Federal Home Loan Bank stock, at cost 5,146 4,652
Loans receivable, net of allowances of $8,508
and $7,439 556,588 483,117
Loans held for sale, fair value of $787 and $800 779 794
Accrued interest receivable 3,515 3,847
Premises and equipment, net 9,888 9,542
Prepaid expenses and other assets 6,886 6,407
------------------------
Total Assets $ 646,997 $ 602,403
========================
LIABILITIES AND EQUITY
LIABILITIES:
Deposit accounts $ 434,742 $ 397,643
Federal Home Loan Bank advances and other
borrowings 113,902 80,344
Accounts payable and other liabilities 4,076 4,270
------------------------
Total Liabilities 552,720 482,257
------------------------
COMMITMENTS AND CONTINGENCIES
EQUITY:
Common stock - no par value, 49,000,000 shares
authorized, 5,322,269 shares and 7,258,243
shares outstanding at December 31, 2001 and
March 31, 2001, respectively 39,961 68,940
Employee Stock Ownership Plan (ESOP) debt (792) (1,188)
Retained earnings 57,011 55,033
Shares held in trust for stock-related
compensation plans (2,385) (3,034)
Accumulated other comprehensive income 482 395
------------------------
Total Equity 94,277 120,146
------------------------
Total Liabilities and Equity $ 646,997 $ 602,403
========================
1
EverTrust Financial Group, Inc.
Consolidated Statements of Operations
For the Three and Nine Months Ended December 31, 2001 and 2000
(Dollar amounts in thousands, except per share amounts)
Three Months Ended December 31, Nine Months Ended December 31,
2001 2000 2001 2000
---- ---- ---- ----
(Unaudited) (Unaudited)
<s> <c> <c> <c> <c>
INTEREST INCOME:
Loans receivable $ 10,907 $ 10,251 $ 32,356 $ 29,631
Investment securities:
Taxable interest income 714 1,302 2,486 4,078
Tax-exempt interest income 87 95 268 287
Dividend income 116 161 372 496
------------------------ -------------------------
Total investment security income 917 1,558 3,126 4,861
------------------------ -------------------------
Total interest income 11,824 11,809 35,482 34,492
INTEREST EXPENSE:
Deposit accounts 3,834 4,978 12,699 14,336
Federal Home Loan Bank advances and
other borrowings 1,343 1,003 3,675 2,858
------------------------ -------------------------
Total interest expense 5,177 5,981 16,374 17,194
------------------------ -------------------------
Net interest income 6,647 5,828 19,108 17,298
PROVISION FOR LOAN LOSSES 625 120 1,250 795
------------------------ -------------------------
Net interest income after provision for
loan losses 6,022 5,708 17,858 16,503
NONINTEREST INCOME:
Loan service fees 348 219 762 557
Gain (loss) on available for sale securities - (199) 24 19
Gain on sale of loans 131 231 360 283
Other, net 435 337 1,181 1,086
------------------------ -------------------------
Total noninterest income 914 588 2,327 1,945
------------------------ -------------------------
NONINTEREST EXPENSES:
Salaries and employee benefits 2,752 2,350 8,203 7,127
Occupancy and equipment 746 636 2,180 1,963
Information processing costs 300 246 787 687
Other, net 1,200 1,099 3,195 3,104
------------------------ -------------------------
Total noninterest expenses 4,998 4,330 14,365 12,881
------------------------ -------------------------
Earnings before federal income taxes 1,938 1,966 5,820 5,567
FEDERAL INCOME TAXES 654 593 1,823 1,661
------------------------ -------------------------
NET INCOME $ 1,284 $ 1,373 $ 3,997 $ 3,906
======================== =========================
Net income per common share - basic $ 0.25 $ 0.19 $ 0.66 $ 0.50
Net income per common share - diluted $ 0.25 $ 0.19 $ 0.65 $ 0.50
Weighted average shares outstanding - basic 5,073,771 7,415,660 6,022,999 7,775,359
Weighted average shares outstanding - diluted 5,229,360 7,422,047 6,187,628 7,781,747
Dividend declared per common share $ 0.11 $ 0.09 $ 0.315 $ 0.245
2
EverTrust Financial Group, Inc.
Consolidated Statements of Comprehensive Income (In thousands)
For the Nine Months Ended December 31, 2001 and 2000
2001 2000
---- ----
(Unaudited)
Net Income $ 3,997 $ 3,906
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 $53 and $587 103 1,140
Less adjustment of gains included in net
income, net of income tax of $(8) and $(6) (16) (13)
----------------------
Other comprehensive income 87 1,127
----------------------
Comprehensive Income $ 4,804 $ 5,033
======================
EverTrust Financial Group, Inc.
Consolidated Statements of Changes in Equity
For the Nine Months Ended December 31, 2001 and 2000
(Dollar amounts in thousands, Unaudited)
Shares held
in trust
for stock Accumulated
Common Stock related Other
-------------------- Debt compen- Compre
Number of related Retained sation hensive
Shares Amount to ESOP Earnings plans Income Total
-------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c> <c>
Balance at March 31, 2000 8,536,937 $ 83,978 $ (1,584) $ 52,271 $ - $ (1,136) $ 133,529
Common stock repurchased (1,213,144) (13,620) (13,620)
Repayment of ESOP debt 396 396
ESOP Activity- Change in
value of shares commit-
ted to be released 33 33
Restricted stock issued
to MRP compensation plan 359,450 4,335 (4,335) -
Amortization of compen-
sation related to
Management Recognition
Plan (MRP) 1,084 1,084
Net income 3,906 3,906
Dividends paid (1,918) (1,918)
Other comprehensive income,
net of income taxes 1,127 1,127
--------------------------------------------------------------------------------
Balance at December 31,
2000 7,683,243 $ 74,726 $ (1,188) $ 54,259 $(3,251) $ (9) $ 124,537
================================================================================
Common stock repurchased (425,000) (5,786) (5,786)
Amortization of compensa-
tion related to Management
Recognition Plan (MRP) 217 217
Net income 1,451 1,451
Dividends paid (677) (677)
Other comprehensive in-
come, net of income taxes 404 404
--------------------------------------------------------------------------------
Balance at March 31, 2001 7,258,243 $ 68,940 $ (1,188) $ 55,033 $(3,034) $ 395 $ 120,146
================================================================================
Common stock repurchased (1,935,974) (29,130) (29,130)
Repayment of ESOP debt 396 396
ESOP Activity- Change in
value of shares commit-
ted to be released 151 151
Amortization of compensa-
tion related to Management
Recognition Plan (MRP) 649 649
Net income 3,997 3,997
Dividends paid (2,019) (2,019)
Other comprehensive income,
net of income taxes 87 87
--------------------------------------------------------------------------------
Balance at December 31,
2001 5,322,269 $ 39,961 $ (792) $ 57,011 $(2,385) $ 482 $ 94,277
================================================================================
3
EverTrust Financial Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (In thousands)
For the Nine Months Ended December 31, 2001 and 2000
2001 2000
---------- ----------
(Unaudited)
OPERATING ACTIVITIES:
Net income $ 3,997 $ 3,906
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization of premises
and equipment 1,101 799
Dividends on Federal Home Loan Bank stock and
accretion of investment security discounts (640) (345)
(Gain) loss on sale of premises and equip-
ment, securities, and real estate owned 26 (19)
Amortization of investment security premiums 722 136
Loss on limited partnership 81 81
Provision for losses on loans 1,250 795
Amortization of deferred loan fees and costs (1,379) (962)
Loan fees deferred 1,611 1,139
Proceeds from sale of loans 19,218 20,318
Loans originated for sale (19,233) (20,346)
Deferred taxes 112 (91)
Amortization of compensation related to MRP 649 1,084
Cash provided (used) by changes in operating
assets and liabilities:
Accrued interest receivable 332 (544)
Prepaid expenses and other assets (404) 451
Accounts payable and other liabilities (194) 29
---------- ----------
Net cash provided by operating activities 7,251 6,431
---------- ----------
INVESTING ACTIVITIES:
Proceeds from maturities of securities available
for sale 21,932 27,377
Proceeds from maturities of securities held to
maturity 2,725 1,566
Proceeds from sale of securities available for sale 7,899 2,174
Purchases of securities available for sale (13,608) (8,245)
Purchases of Federal Home Loan Bank stock - (75)
Loan principal payments 120,070 96,376
Loans originated or acquired (195,583) (134,091)
Investment in limited partnership 276
Net additions to premises and equipment (1,473) (2,037)
---------- ----------
Net cash used by investing activities (57,762) (16,955)
---------- ----------
FINANCING ACTIVITIES:
Net increase in deposit accounts 37,099 10,246
Repurchase shares of common stock (28,979) (13,587)
Dividends paid on common stock (2,019) (1,918)
Repayment of loan to ESOP 396 396
Proceeds from other borrowings 3,850 17,445
Repayment of other borrowings (4,202) (6,980)
Proceeds from Federal Home Loan Bank advances 85,904 147,307
Repayments of Federal Home Loan Bank advances (51,994) (121,525)
---------- ----------
Net cash provided by financing activities 40,056 31,384
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (10,456) 20,860
CASH AND CASH EQUIVALENTS:
Beginning of period 22,383 7,652
---------- ----------
End of period $ 11,927 $ 28,512
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest on deposits $ 12,866 $ 14,222
Federal income taxes $ 1,690 $ 2,020
Interest on borrowings $ 3,509 $ 2,448
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND ACTIVITIES:
Real estate acquired through foreclosure $ 907 $ 85
4
EverTrust Financial Group, Inc.
Notes to Consolidated Financial Statements
Nine Months Ended December 31, 2001
(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, 2001 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 and nine months ended
December 31, 2001 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 25, 2001.
Note 2 - Recent Events
- ----------------------
In March 2001, EverTrust Bank formed EverTrust Asset Management, a Washington
chartered trust company (ETAM), which began operations on June 1, 2001. ETAM
is located in downtown Seattle and exercises personal trust powers, with the
primary emphasis on investment management. A team of highly qualified
individuals and firms experienced in trust operations, trust related legal
counsel and regulatory compliance was assembled to provide services on behalf
of ETAM.
Effective July 1, 2001 the Company integrated its item processing subsidiary,
I-Pro, Inc., into the operations of its principal subsidiary, EverTrust Bank.
Although I-Pro no longer operates as a separate corporation, I-Pro continues
to provide check processing and statement rendering services for EverTrust
Bank and supports the work of EverTrust Asset Management and other Company
operating units as needed.
In July 2000, the shareholders of the Company approved the 2000 Management
Recognition Plan (MRP). The purpose of the Plan is to promote the long-term
interests of the Company and its shareholders by providing restricted stock as
a means for attracting and retaining directors and certain employees. The
Company granted restricted stock awards for 359,450 to its directors and
certain employees in August 2000 with one fifth vesting each October 1
beginning in 2000. As of October 1, 2001, 143,782 shares have vested under the
MRP plan.
Note 3 - Stock Repurchases
- --------------------------
In October 2001, the Company announced a fifth repurchase plan of up to
542,977 shares, or 10%, of the Company's outstanding common stock. The
Company repurchased 107,500 shares during the quarter ended December 31, 2001,
leaving a balance of 435,477 to be repurchased under the current plan. The
Company has now repurchased a total of 3.7 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 155,589, and 6,387, for the three months ended
December 31, 2001 and 2000, respectively, and 164,629, and 6,388, for the nine
months ended December 31, 2001 and 2000, respectively.
5
Note 5 - Lines of Business
- --------------------------
EverTrust manages the business activities of EverTrust Bank's retail division
(including ETAM), commercial 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:
Three Months Ended December 31, 2001
------------------------------------------------
The The Bank's
Bank's commercial
retail banking Elimin-
division group (1) Other (2) ations Total
-------- --------- -------- ------- -------
Condensed income statement:
Net interest income after
provision for loan losses $ 5,548 $ 367 $ 107 $ - $ 6,022
Noninterest income 827 84 1,717 (1,714) 914
Noninterest expense 4,002 289 722 (15) 4,998
-------- -------- -------- -------- --------
Income before income taxes 2,373 162 1,102 (1,699) 1,938
Income taxes 733 56 (136) 1 654
-------- -------- -------- -------- --------
Net income $ 1,640 $ 106 $ 1,238 $ (1,700) $ 1,284
======== ======== ======== ======== ========
Total assets $593,385 $ 46,178 $ 98,664 $(91,230) $646,997
======== ======== ======== ======== ========
(1) Formerly Commercial Bank of Everett
(2) I-Pro, Inc. is now part of the Bank's retail division
Three Months Ended December 31, 2000
------------------------------------------------
The The Bank's
Bank's commercial
retail banking Elimin-
division group (1) Other (2) ations Total
-------- --------- -------- ------- -------
Condensed income statement:
Net interest income after
provision for loan losses $ 4,783 $ 318 $ 607 $ - $ 5,708
Noninterest income 623 81 1,510 (1,626) 588
Noninterest expense 3,387 321 811 (189) 4,330
-------- -------- -------- --------- --------
Income before income taxes 2,019 78 1,306 (1,437) 1,966
Income taxes 609 27 (43) - 593
-------- -------- -------- --------- --------
Net income $ 1,410 $ 51 $ 1,349 $ (1,437) $ 1,373
======== ======== ======== ========= ========
Total assets $542,710 $ 29,148 $129,321 $(108,437) $592,742
======== ======== ======== ========= ========
(1) Formerly Commercial Bank of Everett
(2) I-Pro, Inc. is now part of the Bank's retail division
6
Nine Months Ended December 31, 2001
------------------------------------------------
The The Bank's
Bank's commercial
retail banking Elimin-
division group (1) Other (2) ations Total
-------- --------- -------- -------- -------
Condensed income statement:
Net interest income after
provision for loan losses $ 15,817 $ 1,149 $ 892 $ - $ 17,858
Noninterest income 2,078 240 4,738 (4,729) 2,327
Noninterest expense 11,493 831 2,082 (41) 14,365
-------- -------- -------- ---------- --------
Income before income taxes 6,402 558 3,548 (4,688) 5,820
Income taxes 1,950 191 (319) 1 1,823
-------- -------- -------- ---------- --------
Net income $ 4,452 $ 367 $ 3,867 $ (4,689) $ 3,997
======== ======== ======== ========== ========
Total assets $593,385 $ 46,178 $ 98,664 $ (91,230) $646,997
======== ======== ======== ========== ========
(1) Formerly Commercial Bank of Everett
(2) I-Pro, Inc. is now part of the Bank's retail division
Nine Months Ended December 31, 2000
------------------------------------------------
The The Bank's
Bank's commercial
retail banking Elimin-
division group (1) Other (2) ations Total
-------- --------- -------- -------- -------
Condensed income statement:
Net interest income after
provision for loan losses $ 13,743 $ 920 $ 1,840 $ - $ 16,503
Noninterest income 2,000 174 4,742 (4,971) 1,945
Noninterest expense 9,362 1,001 3,027 (509) 12,881
-------- -------- -------- ---------- --------
Income before income taxes 6,587 93 3,555 (4,462) 5,567
Income taxes 1,934 33 (306) - 1,661
-------- -------- -------- ---------- --------
Net income $ 4,653 $ 60 $ 3,861 $ (4,462) $ 3,906
======== ======== ======== ========== ========
Total assets $542,710 $ 29,148 $129,321 $(108,437) $592,742
======== ======== ======== ========== ========
(1) Formerly Commercial Bank of Everett
(2) I-Pro, Inc. results reclassed to the Bank's retail division
7
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):
December 31, 2001 March 31, 2001
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- --------- -----
AVAILABLE FOR SALE
Investment securities:
U.S. Government Agency
obligations $ 5,414 $ 5,576 $ 4,985 $ 5,124
Corporate obligations 12,37 12,634 20,672 20,801
Municipal obligations 3,937 3,985 5,236 5,260
Equity securities 4,421 4,196 6,650 6,407
Mortgage-backed
securities 19,707 20,190 24,963 25,507
-------- --------- -------- --------
Total available
for sale $ 45,853 $ 46,582 $ 62,701 $ 63,299
======== ========= ======== ========
HELD TO MATURITY
Investment securities:
U.S. Government Agency
obligations $ 1,004 $ 1,099 $ 2,507 $ 2,611
Corporate obligations 997 1,015 992 1,024
Municipal obligations 2,947 3,017 3,634 3,709
Certificates of deposit - - - -
Mortgage-backed
securities 739 777 1,229 1,269
-------- -------- -------- --------
Total held to
maturity $ 5,686 $ 5,908 $ 8,362 $ 8,613
======== ======== ======== ========
Total $ 51,539 $ 52,490 $ 71,062 $ 71,911
======== ======== ======== ========
At December 31, 2001 equity securities were comprised of, at cost, $2.4
million ($2.2 million fair value) in common stock of publicly traded
companies, approximately $161,000 (of approximately $157,000 fair value) in
trust preferred securities and $1.8 million ($1.8 million fair value) in money
market mutual funds.
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):
December 31, 2001 March 31, 2001
---------------------- -------------------
Nonamortizing:
Due within 1 year $ 31,500 $ 35,002
After 1 year through 2 years 16,050 10,000
After 2 years through 3 years 14,950 5,650
After 3 years through 5 years 26,350 11,650
After 5 years through 10 years 22,050 13,000
After 10 years 2,300 4,300
Amortizing:
After 10 years 702 742
----------- ----------
$ 113,902 $ 80,344
=========== ===========
8
Note 8 - Recently Issued Accounting Standards
- ---------------------------------------------
In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (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 standard is effective
for fiscal years beginning after December 15, 2001. The Company will adopt
SFAS No. 144 as of April 1, 2002 and does not expect any material impact to
its consolidated results of operations, or financial position or cash flow.
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 flow.
In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. 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. The Statement also establishes a
new method of testing goodwill for impairment. The Company does not currently
have any goodwill.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. In June 2000, the FASB issued SFAS No.
138, which amends certain provisions of SFAS 133 to clarify areas causing
difficulties in implementation. The Company adopted SFAS 133 and the
corresponding amendments under SFAS 138 on April 1, 2001. The adoption of
SFAS 133, as amended by SFAS 138, did not have a material impact on
EverTrust's consolidated results of operations, financial position or cash
flow.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General. EverTrust, a Washington corporation, is primarily engaged in the
business of planning, directing and coordinating the business of its wholly
owned subsidiaries, EverTrust Bank and MB Cap. EverTrust Bank conducts
business through its 12 full service offices located throughout Snohomish
County, Washington, and one branch office in Bellevue, King County,
Washington. EverTrust Bank considers the communities in Snohomish County,
Washington, as its primary market area for making loans and attracting
deposits. EverTrust Bank also makes loans in King and Pierce Counties and, to
a much lesser extent, other counties in Western Washington. EverTrust's
principal business is attracting deposits from the general public and using
those funds to originate multi-family, commercial mortgage and construction
loans, as well as commercial business loans, single family mortgages and
consumer loans.
MB Cap is a start-up venture capital company located in Bothell, Washington,
which was organized to provide equity to regionally- based high-technology
companies and companies that make medical instruments at the beginning or
early stages of development. Given the risks inherent in venture capital
investing, there can be no assurance that MB Cap will be successful. MB Cap
has committed to a total investment of $2.3 million. As of December 31, 2001,
MB Cap has invested $1.7 million. The book value of the investments at
December 31, 2001 was $1.4 million compared to $1.1 million at March 31, 2001.
In December 2000, the Company established the EverTrust Financial Center in
downtown Bellevue, King County, Washington. From this location, EverTrust
Bank serves East King County as well as Seattle and offers an expanded line of
financial products and services including enhanced jumbo home loan programs,
commercial real estate loans, private banking, and business banking services.
EverTrust Bank's commercial mortgage banking group provides portfolio and
secondary market products from commercial loan organization offices located in
Tacoma, Bellevue, Seattle and Everett.
9
In March 2001, EverTrust Bank formed ETAM (EverTrust Asset Management), a
Washington chartered trust company, which was capitalized on May 1, 2001.
ETAM is located in downtown Seattle and exercises personal trust powers, with
the primary emphasis on investment management. A team of highly qualified
individuals and firms experienced in trust operations, trust related legal
counsel and regulatory compliance was assembled by EverTrust Bank in
connection with the organization of ETAM.
Comparison of Financial Condition at December 31, and March 31, 2001
- --------------------------------------------------------------------
Total assets increased $44.6 million from $602.4 million at March 31, 2001 to
$647.0 million at December 31, 2001. The majority of the increase was the
result of growth in the loan portfolio partially offset by decreases in the
investment portfolio and cash and cash equivalents. Asset growth was funded
primarily by increased deposits and Federal Home Loan Bank advances.
Cash and cash equivalents decreased $10.5 million from $22.4 million at March
31, 2001 to $11.9 million at December 31, 2001. The change was primarily a
result of decreased balances of overnight interest-bearing deposits used to
fund growth in the loan portfolio and stock repurchases.
The investment portfolio (including FHLB stock) decreased $18.9 million, or
24.8%, from $76.3 million at March 31, 2001 to $57.4 million at December 31,
2001. The decrease was in connection with sales and maturities, the proceeds
of which were used to fund growth in the loan portfolio.
Loans receivable increased $73.5 million, or 15.2%, from $483.1 million at
March 31, 2001 to $556.6 million at December 31, 2001. The increase was
primarily a result of growth in: the commercial real estate loan portfolio of
$47.0 million, from $167.1 million at March 31, 2001 to $214.1 million at
December 31, 2001, the one to four family construction and land development
portfolio of $10.3 million, from $29.3 million at March 31, 2001 to $39.6
million at December 31, 2001, and the multifamily residential portfolio of
$25.0 million, from $128.9 million at March 31, 2001 to $153.9 million at
December 31, 2001. These increases were partially offset by decreases in the
multifamily construction portfolio of $16.5 million, from $44.1 million at
March 31, 2001 to $27.6 million at December 31, 2001. Loans committed but
undisbursed were $60.1 million at December 31, 2001 compared to $63.9 million
at March 31, 2001.
A substantial portion of the Company's revenues are derived from the
origination of loans in the Puget Sound region of Washington state. The
customer's ability to honor their commitments to repay such loans is dependant
upon the region's economy. The following table provides additional detail on
EverTrust's loans (in thousands):
December 31, 2001 March 31, 2001
----------------- --------------
Real estate:
One to four family residential $ 61,602 $ 64,419
One to four family construction
and land development 39,635 29,337
Income property:
Commercial construction 21,429 13,511
Commercial real estate 214,105 167,064
Multifamily construction 27,582 44,054
Multifamily residential 153,873 128,841
Consumer:
Home equity and second mortgages 20,000 20,743
Credit cards 637 343
Other installment loans 3,715 4,591
Business loans 26,629 21,532
------------ ------------
569,207 494,435
Less:
Deferred loan fees and other (4,111) (3,879)
Reserve for loan losses (8,508) (7,439)
------------- ------------
(12,619) (11,318)
Loans receivable, net $ 556,588 $ 483,117
============= ============
10
At December 31, 2001, EverTrust had approximately $14,000 in loans accounted
for on a non-accrual basis compared to $1.3 million at March 31, 2001.
Nonperforming loans at December 31, 2001 consist of five installment loans
that are unsecured. The following table provides a roll-forward of
EverTrust's allowance for loan losses by quarter beginning with the quarter
ended December 31, 2000 (in thousands):
Quarters Ended
-------------------------------------------------
12/31/01 9/30/01 6/30/01 3/30/01 12/31/00
-------- ------- ------- ------- --------
Allowance at beginning
of period $ 8,037 $ 7,712 $ 7,439 $ 7,271 $ 7,159
Provision for loan
losses 625 375 250 210 120
Charge-offs (156) (55) - (59) (8)
Recoveries 2 5 23 17 -
-------- ------- ------- ------- ------
Balance at end of
period $ 8,508 $ 8,037 $ 7,712 $ 7,439 $ 7,271
======== ======= ======= ======= =======
Net charge-offs as a percent of average outstanding loans were 0.03% for the
three months ended and 0.04% for the nine months ended December 31, 2001
compared to none for the three and nine months ended December 31, 2000.
Non-accrual and 90 days or more past due loans as a percent of total loans,
net, were 0.01% at December 31, 2001 compared to 0.27% at March 31, 2001 and
none at December 31, 2000. Loan delinquency ratios at December 31, 2001 are
considered an anomaly and below industry norms.
Other real estate owned (OREO) acquired by foreclosure and included in prepaid
expenses and other assets was $674,000 at December 31, 2001 versus $85,000 at
March 31, 2001. OREO properties include four residential building lots with a
book value of approximately $107,000 and two single-family residences with
book values totaling approximately $567,000.
Total deposits of EverTrust increased by approximately $37.1 million from
$397.6 million at March 31, 2001 to $434.7 million at December 31, 2001. The
change is primarily the result of an increase in time deposit accounts of
$20.2 million from $213.4 million at March 31, 2001 to $233.6 million at
December 31, 2001, and an increase in checking accounts of approximately $7.7
million from $37.9 million at March 31, 2001 to $45.6 million at December 31,
2001. Management generally attributes the deposit growth to successful
marketing efforts.
The following table sets forth the balances of deposits in the various types
of accounts offered by EverTrust at the dates indicated (dollars in
thousands):
At December 31,2001 At March 31, 2001
------------------- -----------------
Amount % Amount %
---------------- ---------------
Noninterest-bearing accounts $ 12,542 2.9% $ 8,462 2.1%
Savings accounts 10,851 2.5% 10,867 2.7%
Checking accounts 45,615 10.5% 37,942 9.5%
Money market accounts 132,165 30.4% 127,010 31.9%
Time deposits by
original term:
One to 11 months 59,782 13.8% 36,041 9.1%
12 to 23 months 81,844 18.8% 83,641 21.0%
24 to 35 months 20,012 4.6% 23,601 5.9%
36 to 59 months 17,726 4.1% 17,500 4.4%
Time deposits maturing after
59 months 54,204 12.5% 52,579 13.2%
--------- ------ --------- ------
233,569 53.7% 213,362 53.7%
--------- ------ --------- ------
Total $ 434,742 100.0% $ 397,643 100.0%
========= ====== ========= ======
11
Federal Home Loan Bank advances and other borrowings increased $33.6 million
from $80.3 million at March 31, 2001 to $113.9 million at December 31, 2001.
The increased borrowings were used primarily to fund growth in the loan
portfolio.
Total equity decreased $25.8 million at December 31, 2001 to $94.3 million
compared to $120.1 million at March 31, 2001. Earnings of $4.0 million for
the nine months ended December 31, 2001 were more than offset by the
repurchase of shares of the Company's common stock for $29.1 million and
dividends paid to shareholders of $2.0 million.
Book value at December 31, 2001 was $17.71 per common share as compared to
$16.55 per share at March 31, 2001.
Comparison of Operating Results for the Three Months Ended December 31, 2001
- ----------------------------------------------------------------------------
and 2000
- --------
General. Net income decreased approximately $89,000 from $1.4 million for the
three months ended December 31, 2000 to $1.3 million for the three months
ended December 31, 2001. The decrease in income is primarily a result of an
increase of $668,000 in noninterest expense associated primarily with the
opening of ETAM in Seattle, the new commercial mortgage banking group office
in Tacoma, and the new contact center in Everett, Washington. Increased
expenses for the three months ended December 31, 2001 compared to the three
months ended December 31, 2000, were partially offset by an increase in
noninterest income from the new operations. In addition, net interest income
after provision for loan losses increased $314,000 to $6.0 million for the
three months ended December 31, 2001 from $5.7 million for the three months
ended December 31, 2000.
Net Interest Income. Net interest income increased $819,000, or 14.1% from
$5.8 million for the three months ended December 31, 2000 to $6.6 million for
the three months ended December 31, 2001. The change is primarily a result of
higher average balances of interest-earning assets and a lower cost of
interest-bearing liabilities.
Interest income increased $15,000 to $11.8 million for the three months ended
December 31, 2001 from the same period in 2000. The average balance of
interest-earning assets increased from $561.8 million for the three months
ended December 31, 2000 to $615.0 million for the three months ended December
31, 2001 resulting in an increase of $1.4 million in income. The yield on
interest-earning assets decreased from 8.41% for the three months ended
December 31, 2000 to 7.69% for the same period in 2001 resulting in a decrease
in income of $1.2 million. Increased balances were a result of increased loan
volumes, which were funded by the proceeds received from sales and maturities
of securities, a decrease in cash equivalents and increased borrowings. The
decrease in the yield on interest-earning assets is due primarily to the
reduction in market interest rates which lowered yields on adjustable rate
mortgages and short term and maturing investments. In addition, a low
interest rate environment has resulted in the refinancing of higher rate
loans, resulting in an overall lower loan yield.
Interest expense decreased $804,000 from $6.0 million for the three months
ended December 31, 2000 to $5.2 million for the same period in 2001. The
average balance of interest-bearing liabilities increased 16.8% or $73.3
million from $436.5 million at December 31, 2000 to $509.8 million for the
three months ended December 31, 2001 resulting in an increase of $1.2 million
in expense. This increase was offset by a $1.6 million decrease in expense as
a result of a decrease in the rates on interest-bearing liabilities from 5.48%
for the three months ended December 31, 2000 to 4.06% for the same period in
2001. The reduction is a result of decreases in market interest rates. The
average balance of borrowings comprised 21.1% of interest-bearing liabilities
for the quarter ended December 31, 2001 compared to 13.3% for the same period
in 2000.
12
The following table provides additional comparative data on the Company's
average balance sheet, yield and expense information, interest rate spread and
net interest margin ratios (dollars in thousands):
Three months ended December 31,
-----------------------------------------------------
2001 2000
------------------------- -------------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
------- --------- ------ ------- --------- ------
Interest-earning assets: (Dollars in thousands)
Loans receivable,
net (1) $ 547,983 $ 10,907 7.96% $463,714 $ 10,251 8.84%
Investment securities 56,287 804 5.71% 87,341 1,382 6.33%
Federal Home Loan
Bank stock 4,887 86 7.04% 4,508 74 6.57%
Cash and cash
equivalents 5,837 27 1.85% 6,231 102 6.55%
--------- -------- ----- -------- ------- -----
Total interest-
earning assets 614,994 11,824 7.69% 561,794 11,809 8.41%
-------- ----- ------- -----
Noninterest-earning
assets 13,126 12,502
--------- --------
Total average
assets $ 628,120 $574,296
========= =========
Interest-bearing
liabilities:
Savings accounts $ 10,792 48 1.78% $ 9,720 68 2.80%
NOW accounts 36,156 167 1.85% 36,423 238 2.61%
Money Market
deposit accounts 131,688 833 2.53% 118,564 1,351 4.56%
Certificates of
deposit 223,415 2,786 4.99% 213,752 3,321 6.21%
--------- -------- ----- -------- -------- -----
Total deposits 402,051 3,834 3.81% 378,459 4,978 5.26%
Borrowings 107,723 1,343 4.99% 58,072 1,003 6.91%
--------- -------- ----- -------- -------- -----
Total interest-
bearing
liabilities 509,774 5,177 4.06% 436,531 5,981 5.48%
-------- ----- -------- -----
Noninterest-bearing
liabilities 23,338 12,789
Total average
liabilities 533,112 449,320
Average equity 95,008 124,976
-------- --------
Total liabilities
and equity $628,120 $574,296
======== ========
Net interest income $ 6,647 $ 5,828
======== ========
Interest rate spread 3.63% 2.93%
===== =====
Net interest margin 4.32% 4.15%
===== =====
Ratio of average
interest-earning assets
to average interest-
bearing liabilities 120.64% 128.70%
======== ========
1. Average loans receivable includes non-performing loans. Interest income
does not include interest on loans 90 days or more past due.
Provision for Loan Losses. During the three months ended December 31, 2001,
the provision for loan losses was $625,000, compared to $120,000 for the same
period in 2000. The change is primarily a result of an increase in the loan
portfolio. The allowance for loan losses increased $1.1 million from $7.4
million at March 31, 2001 to $8.5 million at December 31, 2001. The allowance
for loan losses as a percentage of net loans (loans receivable excluding
allowance for losses) was 1.50% at December 31, 2001 compared to 1.51% at
March 31, 2001, and 1.58% at December 31, 2000.
The allowance for losses on loans is maintained at a level sufficient to cover
losses inherent in the loan portfolio but not yet apparent to management. The
risk of loss will vary with the type of loan being made, the creditworthiness
of the borrower, general economic conditions and, in the case of a secured
loan, the quality of the security for the loan. EverTrust's management
reviews the adequacy of the allowance at least quarterly, as computed by a
consistently applied
13
formula-based methodology, supplemented by management's assessment of current
economic conditions, past loss and collection experience, and risk
characteristics of the loan portfolio. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Company's allowance for loan losses. Such agencies may require the
Company to provide additions to the allowance based on judgment different from
management. Although management uses the best information available, future
adjustments to the allowance may be necessary due to economic, operating,
regulatory and other conditions beyond EverTrust's control.
Non-interest Income. Non-interest income increased $326,000 from $588,000 for
the three months ended December 31, 2000 to $914,000 for the same period in
2001. The change is due to increased loan service fees, other fees and a net
gain of $199,000 due to a loss on the sale of securities for the three months
ended December 31, 2000.
The Company's two newest operating units, EverTrust Asset Management and the
commercial mortgage banking group based in Tacoma, Washington, generated
$52,500 and $74,700, respectively, in non-interest revenues during the
quarter.
Non-interest Expense. Non-interest expense increased $668,000 from $4.3
million for the three months ended December 31, 2000 to $5.0 million for the
same period in 2001. The increase is due primarily to additional salary and
employee benefits of $400,000 from $2.4 million for the three months ended
December 31, 2000 to $2.8 million for the three months ended December 31,
2001. Compensation expense increased as the result of increased staffing
levels primarily related to the start up of ETAM, the commercial mortgage
banking group in Tacoma and the contact center in Everett, Washington.
Occupancy and equipment expenses increased $110,000 from $636,000 for the
three months ended December 31, 2000 to $746,000 for the three months ended
December 31, 2001. The increase is primarily due to expenses associated with
the three (ETAM, Tacoma and the contact center) new offices.
Provision for Income Taxes. Federal income taxes increased $61,000 from
$593,000 for the three months ended December 31, 2000 to $654,000 for the
three months ended December 31, 2001. The change is a result of an increase
in the effective tax rate for the quarter caused by an adjustment in the
estimate of future tax benefits.
Comparison of Operating Results for the Nine months Ended December 31, 2001
- ---------------------------------------------------------------------------
and 2000
- --------
General. Net income increased approximately $91,000 from $3.9 million for the
nine months ended December 31, 2000 to $4.0 million for the nine months ended
December 31, 2001. The increase is due primarily to a $1.8 million increase
in net interest income offset by expenses associated with the addition of ETAM
in downtown Seattle and the new office in Tacoma, Washington, and compensation
costs relating to production, personnel and employee benefit plan costs.
Net Interest Income. Net interest income increased $1.8 million, or 10.5%,
from $17.3 million for the nine months ended December 31, 2000 to $19.1
million for the nine months ended December 31, 2001. The change is primarily
a result of higher average balances of interest-earning assets and lower
funding costs.
Interest income increased approximately $994,000 from $34.5 million for the
nine months ended December 31, 2000 to $35.5 million for the same period in
2001. The average balance of interest-earning assets increased from $560.3
million for the nine months ended December 31, 2000 to $595.8 million for the
nine months ended December 31, 2001 resulting in an increase of approximately
$2.8 million in income. The yield on interest-earning assets decreased from
8.21% for the nine months ended December 31, 2000 to 7.94% for the same period
in 2001 resulting in a decrease to income of $1.7 million. Increased balances
were due to increased loan volumes, which were funded by the proceeds received
from sales and maturities of securities, a decrease in cash equivalents and
increased borrowings. The decrease in the yield on interest-earning assets is
due primarily to the reduction in market interest rates which lowered yields
on adjustable rate mortgages and short term and maturing investments. In
addition, a low interest rate environment has resulted in the refinancing of
higher rate loans, resulting in an overall lower loan yield.
14
Interest expense decreased $820,000 to $16.4 million for the nine months
ended December 31, 2001 from $17.2 million for the same period in 2000. The
average balance of interest-bearing liabilities increased $46.2 million, or
10.7%, million from $431.7 million at December 31, 2000 to $477.9 million for
the nine months ended December 31, 2001 resulting in an increase of $2.1
million in expense. This increase was offset by a $2.6 million decrease in
expense as a result of a decrease in the rates on interest-bearing liabilities
from 5.31% for the nine months ended December 31, 2000 to 4.57% for the same
period in 2001. The reduction is due to market interest rate decreases. The
average balance of borrowings comprised 18.3% of interest-bearing liabilities
for the nine months ended December 31, 2001 compared to 13.1% for the same
period in 2000.
The following table provides additional comparative data on the Company's
average balance sheet, yield and expense information, interest rate spread and
net interest margin ratios (dollars in thousands):
Three months ended December 31,
-----------------------------------------------------
2001 2000
------------------------- -------------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
------- --------- ------ ------- --------- ------
Interest-earning assets: (Dollars in thousands)
Loans receivable,
net (1) $ 521,134 $ 32,356 8.28% $ 458,016 $ 29,631 8.63%
Investment
securities 63,299 2,717 5.72% 94,608 4,464 6.29%
Federal Home Loan
Bank stock 4,735 251 7.07% 4,422 216 6.51%
Cash and cash
equivalents 6,666 158 3.16% 3,215 181 7.51%
--------- -------- ----- --------- -------- -----
Total interest-
earning assets 595,834 35,482 7.94% 560,261 34,492 8.21%
-------- ----- -------- -----
Noninterest-earning
assets 10,883 11,698
--------- ---------
Total average
assets $ 606,717 $ 571,959
========= =========
Interest-bearing
liabilities:
Savings accounts $ 10,632 186 2.33% $ 10,042 214 2.84%
NOW accounts 35,787 550 2.05% 35,915 700 2.60%
Money Market deposit
accounts 129,904 3,188 3.27% 121,299 4,073 4.48%
Certificates of
deposit 214,043 8,775 5.47% 207,830 9,349 6.00%
--------- -------- ----- --------- -------- -----
Total deposits 390,366 12,699 4.34% 375,086 14,336 5.10%
Borrowings 87,581 3,675 5.59% 56,612 2,858 6.73%
--------- -------- ----- --------- -------- -----
Total interest-
bearing
liabilities 477,947 16,374 4.57% 431,698 17,194 5.31%
-------- ----- -------- -----
Noninterest-bearing
liabilities 16,786 12,301
--------- ---------
Total average
liabilities $ 494,733 $ 443,999
Average equity 111,984 127,960
--------- ---------
Total liabilities
and equity $ 606,717 $ 571,959
========= =========
Net interest income $ 19,108 $ 17,298
======== ========
Interest rate spread 3.37% 2.90%
===== =====
Net interest margin 4.28% 4.12%
===== =====
Ratio of average
interest-earning assets
to average interest-
bearing liabilities 124.67% 129.78%
======== ========
(1) Average loans receivable includes non-performing loans. Interest income
does not include interest on loans 90 days or more past due.
Provision for Loan Losses. During the nine months ended December 31, 2001,
the provision for loan losses was $1.3 million, compared to $795,000 for the
same period in 2000, an increase of approximately $500,000. The increase is
primarily attributable to an increase in the loan portfolio. The allowance for
loan losses increased $1.1 million from $7.4
15
million at March 31, 2001 to $8.5 million at December 31, 2001. The allowance
for loan losses as a percentage of net loans (loans receivable excluding
allowance for losses) was 1.50% at December 31, 2001 compared to 1.51% at
March 31, 2001, and 1.58% at December 31, 2000.
For additional discussion about the allowance for losses on loans, see
"Comparison of Operating Results for the Three Months Ended December 31, 2001
and 2000- Provision for Loan Losses."
Non-interest Income. Non-interest income increased $382,000 to $2.3 million
for the nine months ended December 31, 2001, from $1.9 million for the same
period in 2000. The change is due primarily to increased loan service fees
and gains on the sale of loans during the nine months ended December 31, 2001.
Non-interest Expense. Non-interest expense increased $1.5 million from $12.9
million for the nine months ended December 31, 2000 to $14.4 million for the
same period in 2001. The increase is due primarily to additional salary and
employee benefits. Compensation expense increased as a result of increased
staffing levels primarily due to the start up of ETAM, the commercial mortgage
banking group in Tacoma, and the contact center in Everett, Washington.
Occupancy and equipment expenses increased approximately $217,000 from $2.0
million for the nine months ended December 31, 2000 to $2.2 million for the
nine months ended December 31, 2001. The increase is attributable to expenses
associated with the three (ETAM, Tacoma and the contact center) new offices.
Other expenses increased $91,000 to $3.2 million for the nine months ended
December 31, 2001 from $3.1 million for the same period in 2000. Additional
advertising expense associated with the ETAM opening was the primary reason
for the increase.
Provision for Income Taxes. Federal income taxes increased $162,000 from $1.7
million for the nine months ended December 31, 2000 to $1.8 million for the
nine months ended December 31, 2001. The change is primarily a result of
increased taxable earnings.
Liquidity and Capital Resources
- -------------------------------
EverTrust's primary source of funds are deposits and proceeds from principal
and interest payments on loans and securities, and Federal Home Loan Bank of
Seattle advances and other borrowings. While maturities and scheduled
amortization of loan and securities are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest
rates, economic conditions and competition.
The primary investing activity of EverTrust is the origination of
multi-family, commercial mortgage and construction loans. To a lesser extent
is the origination of one-to-four family mortgage loans and consumer loans.
In addition, an increasing activity of the Company is the origination of
business loans. During the nine months ended December 31, 2001, the Company
funded $214.8 million in new loans. In addition, during this nine month
period, funds were used to purchase $13.6 million in investment securities and
to repurchase shares of the Company's common stock for $29.1 million. These
activities were funded by loan repayments, a reduction in cash equivalents,
proceeds from the sales and maturities of investment securities and proceeds
from Federal Home Loan Bank advances and other borrowings.
EverTrust must maintain adequate levels of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit
withdrawals, to satisfy financial commitments and to take advantage of
investment opportunities. The source of funds include deposits and principal
and interest payments from loans and investments and Federal Home Loan Bank of
Seattle advances.
The management of EverTrust believes it has adequate resources to fund all
loan commitments by deposits and, if necessary, Federal Home Loan Bank of
Seattle advances and other borrowings and the sale of mortgage loans. It can
also adjust the offering rates of deposit accounts to retain deposits in
changing interest rate environments.
Capital Requirements. EverTrust, as a financial holding company, is regulated
by the Federal Reserve Board (FRB). The FRB's minimum risk-based capital
ratio guidelines for Tier 1 and total capital are 4% and 8%, respectively.
16
The actual regulatory capital ratios calculated for EverTrust along with the
minimum capital amounts and ratios for capital adequacy purposes were as
follows (dollars in thousands):
Minimum for Capital
Actual adequacy purposes
------ -----------------
Amount Ratio Amount Ratio
------ ----- ------ -----
December 31, 2001:
Total capital to risk-weighed
assets $101,001 16.7% $48,384 8.0%
Tier 1 capital to risk-weighted
assets 93,520 15.5% 24,197 4.0%
Tier 1 leverage capital to average
assets 93,520 14.6% 25,675 4.0%
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Asset and Liability Management and Market Risk
- ----------------------------------------------
EverTrust's profitability depends primarily on its net interest income, which
is the difference between the income it receives on its loan and investment
portfolio and its cost of funds, which consists of interest paid on deposits
and borrowings. Net income is further affected by gains and losses on loans
held for sale, which can be affected by changes in interest rates. Net
interest income is also affected by the relative amounts of interest-earning
assets and interest-bearing liabilities. When interest-earning assets equal
or exceed interest-bearing liabilities, any positive interest rate spread will
generate net interest income. EverTrust continues to actively manage the
impact of interest rate changes on net interest income and capital by
emphasizing the origination of adjustable rate and short-term fixed rate
loans, selling 30 year fixed rate mortgages, and purchasing investment
securities that better match the duration of its deposits. EverTrust's
profitability is also affected by the level of non-interest income and
expenses. Non-interest income includes items such as service charges and fees
on deposit accounts, loan service fees and gains on sale of securities and
loans. Non-interest expenses primarily include compensation and benefits,
occupancy and equipment expenses, deposit insurance premiums and data
processing expenses. EverTrust's results of operations are also significantly
affected by general economic and competitive conditions, particularly changes
in market interest rates, government legislation and regulation and monetary
and fiscal policies.
EverTrust does not maintain a trading account for any class of financial
instrument nor does it purchase high-risk derivative instruments. EverTrust
Bank is authorized to engage in limited hedging activities for its saleable
loan pipeline, however, no such hedges were in place at December 31, 2001.
Furthermore, EverTrust has no commodity price risk, and only a limited amount
of foreign currency exchange rate risk as a result of holding Canadian
currency in the normal course of business.
Forward-looking Statements
- --------------------------
Certain matters discussed in this Form 10-Q may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward looking statements relate to, among other things,
expectations of the business environment in which the Company operates,
projections of future performance, perceived opportunities in the market, and
statements regarding the Company's mission and vision. These forward-looking
statements are based upon current management expectations, and may therefore
involve risks and uncertainties. The Company's actual results, performance,
or achievements may differ materially from this suggested, expressed, or
implied by forward looking statements due to a wide range of factors
including, but not limited to, non-bank financial services providers,
regulatory changes, interest rates, national and regional economic conditions
and other risks detailed in the Company's reports filed with the Securities
and Exchange Commission.
17
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings
From time to time the Company or its subsidiaries are engaged in legal
proceedings in the ordinary course of business, none of which are considered
to have a material impact on the Company's financial position or results of
operations.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Shareholders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation of the Registrant (1)
3.2 Bylaws of the Registrant (1)
10.1 401(k) Employee Savings and Profit Sharing Plan and Trust (1)
10.2 Employee Severance Compensation Plan (2)
10.3 Employee Stock Ownership Plan (1)
10.4 Employment Agreement with Michael B. Hansen (2)
10.5 Employment Agreement with Michael R. Deller (2)
10.6 Employment Agreement with Jeffrey R. Mitchell (2)
10.7 2000 Stock Option Plan (3)
10.8 2000 Management Recognition Plan (3)
- -----------------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(333-81125).
(2) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
year ended March 31, 2000.
(3) Filed as an exhibit to the Registrant's Annual Meeting Proxy Statement
dated June 19, 2000.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31, 2001.
18
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EverTrust Financial Group, Inc.
February 4, 2002
/s/Michael B. Hansen
---------------------
Michael B. Hansen
President and Chief Executive Officer
(Principal Executive Officer)
February 4, 2002
/s/Jeffrey R. Mitchell
----------------------
Jeffrey R. Mitchell
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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