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...................June 30, 2000
[ ] 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 91-1613658
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2707 Colby Ave. Suite 600, Everett, Washington 98201
----------------------------------------------------
(Address of principal executive offices and Zip code)
(425) 258-3645
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(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: As of August 4, 2000
--------------- --------------------
Common stock, no par value 7,999,137
<PAGE>
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
June 30,and March 31, 2000 . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations for the three months
ended June 30, 2000 and 1999 . . . . . . . . . . . . . . . . 2
Consolidated Statements of Comprehensive Income for the
three months ended June 30, 2000 and 1999. . . . . . . . . . 3
Consolidated Statements of Changes in Equity for the
three months ended June 30, 2000 and 1999 . . . . . . . . . 3
Consolidated Statements of Cash Flows for the three
months ended June 30, 2000 and 1999. . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . 5
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
General. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Comparison of Financial Condition at June 30 and March 31,
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Comparison of Operating Results for the three months ended
June 30, 2000 and 1999 . . . . . . . . . . . . . . . . . . . 10
Liquidity and Capital Resources. . . . . . . . . . . . . . . 13
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk
Asset and Liability Management and Market Risk . . . . . . . 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.. . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities . . . . . . . . . . . . . . . 15
Item 3. Defaults upon Senior Securities . . . . . . . . . . 15
Item 4. Submission of Matters to Vote of Stockholders . . . 15
Item 5. Other Information . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . 15
i
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SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 16
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
ii
<PAGE>
EverTrust Financial Group, Inc.
Consolidated Statements of Financial Condition
June 30, and March 31, 2000
(Dollar amounts in thousands, except share amounts)
June 30, March 31,
2000 2000
---- ----
(Unaudited)
ASSETS
Cash and cash equivalents, including interest
bearing deposits of $1,375 and $1,790 $ 9,679 $ 7,652
Securities available for sale, amortized cost of
$89,683 and $97,710 87,998 95,988
Securities held to maturity, fair value of $11,542
and $12,136 11,459 12,066
Federal Home Loan Bank stock 4,433 4,288
Loan receivable, net 447,240 416,116
Loans held for sale - -
Accrued interest receivable 4,085 3,653
Premises and equipment 8,077 8,138
Prepaid expenses and other assets 7,200 7,311
-------- --------
Total Assets $580,171 $555,212
======== ========
LIABILITIES AND EQUITY
Liabilities:
Deposit accounts $380,332 $382,986
Federal Home Loan Bank advances and other
borrowings 66,933 34,423
Accounts payable and other liabilities 3,901 4,274
-------- --------
Total Liabilities 451,166 421,683
-------- --------
Equity:
Common stock - no par value, 49,000,000 shares
authorized, 7,991,137 shares and 8,536,937
shares outstanding at June 30, and March 31, 2000 78,544 83,978
Employee Stock Ownership Plan debt (1,584) (1,584)
Retained earnings 53,157 52,271
Accumulated other comprehensive income (1,112) (1,136)
-------- --------
Total Equity 129,005 133,529
-------- --------
Total Liabilities and Equity $580,171 $555,212
======== ========
1
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EverTrust Financial Group, Inc.
Consolidated Statements of Operations
For the Three Months Ended June 30, 2000 and 1999
(Dollar amounts in thousands, except per share amounts)
2000 1999
---- ----
(Unaudited)
INTEREST INCOME:
Loans receivable $ 9,174 $ 7,489
Investment securities:
Taxable interest income 1,425 1,066
Tax-exempt interest income 97 102
Dividend income 168 130
------- -------
Total investment security income 1,690 1,298
------- -------
Total interest income 10,864 8,787
INTEREST EXPENSE:
Deposit accounts 4,542 4,321
Federal Home Loan Bank advances and other borrowings 687 293
------- -------
Total interest expense 5,229 4,614
------- -------
Net interest income 5,635 4,173
PROVISION FOR LOAN LOSSES 300 275
------- -------
Net interest income after provision for
loan losses 5,335 3,898
OTHER INCOME:
Loan service fees 176 180
Gain (loss) on sale of securities 61 170
Gain (loss) on sale of loans 17 (481)
Other, net 384 239
------- -------
Total other income 638 108
------- -------
OTHER EXPENSES:
Salaries and employee benefits 1,914 1,638
Occupancy and equipment 688 648
Information processing costs 202 169
Other, net 1,017 702
------- -------
Total other expenses 3,821 3,157
------- -------
Earnings before federal income taxes 2,152 849
FEDERAL INCOME TAXES 654 208
------- -------
NET INCOME $ 1,498 $ 641
======= =======
Net income per common share - basic (1) $0.18 n/a
Net income per common share - diluted (1) $0.18 n/a
Weighted average shares outstanding-basic(1) 8,256,022 -
Weighted average shares outstanding-diluted(1) 8,256,022 -
Dividend paid per share (1) $0.075 n/a
(1) The Company converted from a mutual to public company on September 30,
1999.
2
<PAGE>
EverTrust Financial Group, Inc.
Consolidated Statements of Comprehensive Income
For the Three Months Ended June 30, 2000 and 1999
(In thousands, Unaudited)
2000 1999
---- ----
Net Income $1,498 $ 641
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
$34 and $(69) 64 (134)
Less adjustment of gains included in net income
(loss), net of income tax of $(21) and $(58) (40) (112)
------ -----
Other comprehensive income (loss) 24 (246)
------ -----
Comprehensive Income $1,522 $ 395
====== =====
EverTrust Financial Group, Inc.
Consolidated Statements of Changes in Equity
For the Three Months Ended June 30, 2000 and 1999
(Dollar amounts in thousands, Unaudited)
Accum-
Common Stock (1) Debt Other
Number Related Compre-
of to Retained hensive
Shares Amount ESOP Earnings Income Total
------ ------ ---- -------- ------ -----
Balance at March 31,
1999 n/a $ $ $52,147 $ 116 $ 52,263
Net income 641 641
Other comprehensive
income, net of
income taxes (246) (246)
--------- ------- ------- ------- ------- --------
Balance at June 30,
1999 n/a $ $ $52,788 $ (130) $ 52,658
========= ======= ======= ======= ======= ========
Balance at March 31,
2000 8,536,937 $83,978 $(1,584) $52,271 $(1,136) $133,529
Common stock
repurchased (545,800) (5,434) (5,434)
Net income 1,498 1,498
Dividends paid (612) (612)
Other comprehensive
income, net of
income taxes 24 24
--------- ------- ------- ------- ------- --------
Balance at June 30,
2000 7,991,137 $78,544 $(1,584) $53,157 $(1,112) $129,005
========= ======= ======= ======= ======= ========
(1) Stock offering completed on September 30, 1999.
3
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EverTrust Financial Group, Inc.
Consolidated Statements of Cash Flows
For the Three Months Ended June 30, 2000 and 1999
(In thousands, Unaudited)
2000 1999
---- ----
Operating Activities:
Net income $ 1,498 $ 641
Adjustment to reconcile earnings to net cash provided
by operating activities:
Depreciation and amortization of premises and
equipment 262 215
Stock dividends and accretion of investment
security discounts (112) (93)
Loss(gain) on sale of premises and equipment,
securities available for sale and
real estate owned (61) (141)
Amortization of investment security premiums 49 78
Book loss on limited partnerships 27 29
Provision for losses on loans and real estate
owned and mark to market loss on saleable loans 300 722
Amortization of deferred loan fees and costs (201) (414)
Loan fees deferred 374 420
Proceeds from the sale of loans 814 8,996
Loans originated for sale (814) (3,696)
Cash provided (used) by changes in operating assets
and liabilities:
Accrued interest receivable (432) (184)
Prepaid expenses and other assets (142) (212)
Accounts payable and other liabilities (373) (1,291)
Deferred taxes 213 (537)
-------- --------
Net cash provided (used) by operating activities 1,402 4,533
-------- --------
Investing Activities:
Proceeds from maturities of securities available
for sale 12,308 3,504
Proceeds from maturities of securities held
to maturity 614 225
Proceeds from sale of securities available for sale 704 4,195
Purchase of securities available for sale (4,938) (8,011)
Purchase of Federal Home Loan Bank stock (75) -
Loan principal repayments 18,162 25,606
Loans originated or acquired (49,759) (39,880)
Net additions to premises and equipment (201) (43)
-------- --------
Net cash used by investing activities (23,185) (14,404)
-------- --------
Financing Activities:
Net increase in deposit accounts (2,654) 12,855
Proceeds from Federal Home Loan Bank advances 54,462 -
Repayment of Federal Home Loan Bank advances (36,017) (13)
Proceeds from other borrowings 15,945 -
Repayment of other borrowings (1,880) -
Repurchase shares of common stock (5,434) -
Dividends paid on common stock (612) -
-------- --------
Net cash provided by financing activities 23,810 12,842
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 2,027 2,971
Cash and Cash Equivalent:
Beginning of the year 7,652 13,230
-------- --------
End of quarter $ 9,679 $ 16,201
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest on deposits $ 4,534 $ 4,309
Federal income taxes 451 -
Interest on borrowings 453 305
4
<PAGE>
EverTrust Financial Group, Inc.
Notes to Consolidated Financial Statements
Three Months Ended June 30, 2000
(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
statement 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, Everett Mutual Bank (EMB), Commercial Bank of Everett (CBE),
I-Pro, Inc. (I-Pro), 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, 2000 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 result of operations for the three months ended June 30, 2000
and 1999 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 be read in conjunction with the consolidated financial
statements and notes included in EverTrust's Form 10-K dated June 6, 2000.
Note 2 Stock Repurchases
--------------------------
On March 20, 2000, the Board of Directors approved a 5% repurchase
(approximately 426,847 shares) of the Company's outstanding common stock. On
May 22, 2000, the Board of Directors amended the March 20, 2000 stock
repurchase plan, increasing the number of shares authorized for repurchase to
10% (approximately 853,694 shares). At June 30, 2000, the Company had
repurchased 545,800 shares of its common stock.
Note 3 Earnings per share
---------------------------
EverTrust's basic earnings per common share are computed by dividing net
income by the weighted-average number of common shares outstanding during the
period. EverTrust's diluted earnings per common share are computed by
dividing net income by the diluted weighted-average number of shares
outstanding during the period. For the quarter ended June 30, 2000, the
weighted-average shares outstanding was 8,256,022 for both basic and diluted.
Earnings per share are not meaningful for the quarter ended June 30, 1999 as
the Company's public offering was not completed until September 30, 1999.
Note 4 Lines of Business
--------------------------
EverTrust manages the business activities of EMB, CBE, I-Pro and MB Cap. The
operating results of EverTrust, MB Cap and I-Pro have been included in Other
as their results are not significant when taken on an individual basis.
5
<PAGE>
Financial highlights by lines of business are as follows:
Three Months Ended June 30, 2000
--------------------------------
(In thousands)
Elimin-
EMB CBE Other ations Totals
--- --- ----- ------ ------
Condensed income statement:
Net interest income after
provision for loan loss $ 4,447 $296 $ 592 $ - $ 5,335
Other income 582 47 1,661 (1,652) 638
Other expense 2,789 351 839 (158) 3,821
------- ---- ------ ------- --------
Income before income taxes 2,240 (8) 1,414 (1,494) 2,152
Income taxes 681 (2) (25) - 654
------- ---- ------ ------- --------
Net income (loss) $ 1,559 $ (6) $1,439 $(1,494) $ 1,498
======= ==== ====== ======= ========
June 30, 2000
-------------
(In thousands)
Elimin-
EMB CBE Other ations Totals
--- --- ----- ------ ------
Total Assets $527,159 $26,983 $134,456 $(108,427) $580,171
======== ======= ======== ========= ========
Three Months Ended June 30, 1999
--------------------------------
(In thousands)
Elimin-
EMB CBE Other ations Totals
--- --- ----- ------ ------
Condensed income statement:
Net interest income after
provision for loan loss $ 3,644 $ 181 $ 73 $ - $3,898
Other income 103 32 862 (889) 108
Other expense 2,481 236 531 (91) 3,157
------- ----- ------- ------ ------
Income before income taxes 1,266 (23) 404 (798) 849
Income taxes 351 (8) (135) - 208
------- ----- ------- ------ ------
Net income (loss) $ 915 $ (15) $ 539 $ (798) $ 641
======= ===== ======= ====== ======
June 30, 1999
-------------
(In thousands)
Elimin-
EMB CBE Other ations Totals
--- --- ----- ------ ------
Total Assets $436,405 $20,899 $57,397 $(50,666) $464,035
======== ======= ======= ======== ========
6
<PAGE>
Note 5 - Additional Information Regarding Investment Securities
---------------------------------------------------------------
The following table sets forth additional detail on EverTrust's investment
securities (in thousands):
June 30, 2000 March 31, 2000
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Available for sale:
U.S. Government Agency
obligations $12,398 $12,326 $12,198 $12,119
Corporate obligations 36,742 36,119 41,359 40,650
Municipal obligations 5,495 5,398 5,661 5,537
Equity securities 7,676 7,111 12,223 11,821
Certificate of deposits 187 187 185 185
Mortgage-backed securities 27,185 26,857 26,084 25,676
-------- -------- -------- --------
Total available for sale 89,683 87,998 97,710 95,988
-------- -------- -------- --------
Held to maturity:
U.S. Government Agency obligations 2,513 2,535 2,514 2,538
Corporate obligations 988 1,003 1,486 1,505
Municipal obligations 5,984 6,002 5,996 6,003
Certificate of deposits 488 488 481 481
Mortgage-backed securities 1,486 1,514 1,589 1,609
-------- -------- -------- --------
Total held to maturity 11,459 11,542 12,066 12,136
-------- -------- -------- --------
Total investment securities $101,142 $ 99,540 $109,776 $108,124
======== ======== ======== ========
At June 30, 2000 equity securities were comprised of, at cost, $3.0 million
($2.6 million fair value) in common stock of publicly traded companies, $2.0
million ($1.7 million fair value) in trust preferred securities and $2.7
million ($2.7 million fair value) in money market mutual funds.
Note 6 - 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, 2000 March 31, 2000
------------- --------------
Due within 1 year $48,801 $20,028
Due after 1 year but within 3 years 5,000 4,000
Due after 3 years 13,132 10,395
------- -------
$66,933 $34,423
======= =======
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, EMB, CBE, I-Pro and MB Cap. EMB conducts business through
its 11 full service offices located throughout Snohomish County, Washington,
and a loan office in Bellevue (King County), Washington. EMB considers the
communities in Snohomish County, Washington, as its primary market area for
making loans and attracting deposits. EMB also makes loans in King and Pierce
Counties and, to a much lesser extent, other counties in Western Washington.
EMB's principal business is attracting deposits from the general public and
using those funds to originate multi-family, commercial real estate and
7
<PAGE>
construction loans as well as residential mortgage loans. CBE offers business
loans and deposit services to individuals and local businesses through its
office located in Everett, Washington. I-Pro is located in Kent, Washington,
and provides backroom banking services for EMB and CBE. 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.
Comparison of Financial Condition at June 30, and March 31, 2000
----------------------------------------------------------------
Total assets increased $25.0 million from $555.2 million at March 31, 2000 to
$580.2 million at June 30, 2000. The majority of the increase was the result
of growth in the loan portfolio partially offset by decreases in the
investment portfolio.
The investment portfolio (including FHLB stock) decreased $8.4 million, or
7.5%, from $112.3 million at March 31, 2000 to $103.9 million at June 30,
2000. The decrease was due to maturities which in turn were used to fund
growth in the loan portfolio.
Loans receivable increased $31.1 million, or 7.5%, from $416.1 million at
March 31, 2000 to $447.2 million at June 30, 2000. The increase was due
primarily to growth in the multifamily construction loan portfolio of $14.8
million, from $32.3 million at March 31, 2000 to $47.1 million at June 30,
2000; the business loan portfolio of $10.8 million, from $16.5 million at
March 31, 2000 to $27.3 million at June 30, 2000; and the commercial real
estate loan portfolio of $7.1 million, from $128.9 million at March 31, 2000
to $136.0 million at June 30, 2000.
The following table is provided to disclose additional detail on EverTrust's
loans (in thousands):
June 30, March 31,
2000 2000
---- ----
Real Estate:
1-4 family residential $68,432 $ 70,042
1-4 family construction and land development 38,954 37,266
Income property:
Commercial construction 24,485 23,871
Commercial real estate 136,041 128,892
Multifamily construction 47,069 32,304
Multifamily residential 137,060 136,727
Consumer:
Residential mortgages 5,452 5,211
Home equity and second mortgages 19,026 18,090
Credit cards 1,692 1,375
Automobiles 1,156 1,038
Other installment loans 5,179 4,243
Business loans 27,262 16,494
-------- --------
Gross loans 511,808 475,553
Less:
Undisbursed loan proceeds (54,117) (49,460)
Deferred loan fees and other (3,666) (3,493)
Reserve for loan losses (6,785) (6,484)
-------- --------
Total 447,240 416,116
Loans receivable held for sale - -
-------- --------
Loans receivable, net $447,240 $416,116
======== ========
8
<PAGE>
At June 30, 2000, EverTrust had $493,000 in loans accounted for on a
non-accrual basis ($485,000 in one to four family mortgage loans and $8,000 in
consumer loans) compared to $406,000 at March 31, 2000. The following table
provides a roll-forward of EverTrust's allowance for loan loss for the three
months ended June 30, 2000 and 1999 (in thousands):
2000 1999
---- ----
Allowance at beginning of period $6,484 $5,672
Provision for loan losses 300 275
Charge-offs 3 -
Recoveries 4 18
------ ------
Balance at end of period $6,785 $5,965
====== ======
Total deposits of EverTrust decreased by $2.7 million from $383.0 million at
March 31, 2000 to $380.3 million at June 30, 2000. The change is the result
of decreases in money market accounts of $9.6 million from $129.5 million at
March 31, 2000 to $119.9 million at June 30, 2000 partially offset by
increases in certificate of deposits of $7.7 million from $198.3 million at
March 31, 2000 to $206.0 million at June 30, 2000.
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 June 30, 2000 At March 31, 2000
Percent of Percent of
Amount Total Amount Total
Non-interest bearing accounts $ 8,573 2.3 % $ 7,902 2.1 %
Savings accounts 10,457 2.8 10,523 2.7
Demand deposit accounts 35,356 9.3 36,712 9.6
Money market deposit accounts 119,930 31.5 129,522 33.8
Fixed rate certificates which
mature:
Within 1 year 135,791 35.7 132,410 34.6
After 1 year, but within 2 years 22,592 5.9 24,102 6.3
After 2 years, but within 5 years 39,924 10.5 39,787 10.4
Certificates maturing thereafter 7,709 2.0 2,028 0.5
-------- ----- -------- -----
Total $380,332 100.0 % $382,986 100.0 %
======== ===== ======== =====
Federal Home Loan Bank advances and other borrowings increased $32.5 million
from $34.4 million at March 31, 2000 to $66.9 million at June 30, 2000. The
increased borrowings were used primarily to fund growth in the loan portfolio.
Total equity at June 30, 2000 was $129.0 million compared to $133.5 million at
March 31, 2000. This is a decrease of $4.5 million. Earnings of $1.5 million
for the quarter ended June 30, 2000 were more than offset by the repurchase of
shares of the Company's common stock for $5.4 million and dividends paid of
$612,000.
9
<PAGE>
Comparison of Operating Results for the Three Months Ended June 30, 2000 and
----------------------------------------------------------------------------
1999
----
General. Net income increased $857,000 from $641,000 for the three months
ended June 30, 1999 to $1.5 million for the three months ended June 30, 2000.
The increase is due primarily to higher net interest income of $1.4 million
partially offset by increased other expenses of $664,000.
Net Interest Income. Net interest income increased 33.3% from $4.2 million
for the three months ended June 30, 1999 to $5.6 million for the three months
ended June 30, 2000. The change is due primarily to higher average balances of
interest-earning assets.
Interest income increased $2.1 million from $8.8 million for the three months
ended June 30, 1999 to $10.9 million for the same period in 2000. During this
same time period, the average balance of interest-earning assets increased
from $446.7 million for the three months ended June 30, 1999 to $544.3 million
for the three months ended June 30, 2000 resulting in an increase of $2.0
million in income. The yield on interest-earning assets increased from 7.87%
for the three months ended June 30, 1999 to 7.98% for the same period in 2000
increasing income $108,000. Increased balances were due to increased loan
volumes and security purchases from year to year. These were funded by the
proceeds received from the public offering, loan sales and increased
borrowings. The increase in yields is due primarily to interest rate
increases from period to period and the shift in assets from short-term cash
and cash equivalents to higher yielding investment securities.
Interest expense increased $615,000 from $4.6 million for the three months
ended June 30, 1999 to $5.2 million for the same period in 2000. The average
balance of interest-bearing liabilities increased 5.5% or $21.7 million from
$392.9 million at June 30, 1999 to $414.6 million for the three months ended
June 30, 2000 resulting in an increase of $375,000 in expense. Interest
expense increased an additional $219,000 by an increase in the yield on
interest-bearing liabilities from 4.70% for the three months ended June 30,
1999 to 5.05% for the same period in 2000. The increased yield is due to
interest rate increases combined with a change in the composition of
interest-bearing liabilities. The average balance of borrowings comprised
10.2% of interest-bearing liabilities for the quarter ended June 30, 2000
compared to 4.8% for the same period in 1999.
10
<PAGE>
The following table provides additional comparative data on the Company's net
interest income and margin:
Quarter Ended
Average Balance June 30,
--------------- --------
(in thousands) 2000 1999
---- ----
Interest-earning assets:
Loans receivable, net $ 437,048 $ 355,844
Investment securities 101,229 75,577
Federal Home Loan Bank stock 4,339 3,995
Cash and cash equivalent 1,648 11,235
--------- ---------
Total interest-earning assets 544,264 446,651
Noninterest-earning assets 12,353 9,123
--------- ---------
Total average assets $ 556,617 $ 455,774
========= =========
Interest-bearing liabilities:
Savings accounts $ 10,180 $ 11,822
NOW accounts 35,425 34,261
Money market deposit accounts 124,393 135,438
Certificate of deposits 202,155 192,482
--------- ---------
Total deposits 372,153 374,003
Federal Home Loan Bank advances and
other borrowings 42,431 18,941
--------- ---------
Total interest-bearing liabilities 414,584 392,944
Noninterest-bearing liabilities 11,732 10,926
--------- ---------
Total average liabilities 426,316 403,870
Average equity 130,301 51,904
--------- ---------
Total average liabilities and equity $ 556,617 $ 455,774
========= =========
Interest Rate Yields/Expense (rates are annualized)
Quarter Ended
June 30,
2000 1999
---- ----
Interest Rate Yield:
Loans receivable, net 8.40 % 8.42 %
Investment securities 6.31 5.79
Federal Home Loan Bank stock 6.45 7.23
Cash and cash equivalent 6.07 4.71
----- -----
Total interest rate yield on interest-
earning assets 7.98 7.87
----- -----
Interest Rate Expense:
Savings accounts 2.83 2.41
NOW accounts 2.59 2.58
Money market deposit accounts 4.33 4.20
Certificate of deposits 5.72 5.42
----- -----
Total interest rate expense on deposits 4.88 4.62
Federal Home Loan Bank advances 6.49 6.17
----- -----
Total interest rate expense on interest-
bearing liabilities 5.05 4.70
----- -----
Interest rate spread 2.94 % 3.17 %
===== =====
Net interest margin on interest-earning assets 4.14 % 3.74 %
===== =====
11
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Provision for Loan Losses. During the three months ended June 30, 2000, the
provision for loan losses was $300,000, compared to $275,000 for the same
period in 1999, an increase of $25,000. The increase resulted from continued
loan portfolio growth. The allowance for loan losses increased $301,000 from
$6.5 million at March 31, 2000 to $6.8 million at June 30, 2000. The
allowance for loan losses as a percentage of net loans (loans receivable
excluding allowance for losses) was 1.49% at June 30, 2000 and 1.53% at March
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 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 $530,000 from $108,000 for
the three months ended June 30, 1999 to $638,000 for the same period in 2000.
The change is due primarily to a $448,000 mark-to-market loss on loans held
for sale at June 30, 1999. At June 30, 2000, the Company had no loans held
for sale. Also, commissions earned on the sale of mutual funds and annuities
increased from $11,000 for the three months ended June 30, 1999 to $77,000 for
the same period in 2000.
Non-interest Expense. Non-interest expense increased $664,000 from $3.2
million for the three months ended June 30, 1999 to $3.8 million for the same
period in 2000. Salary and employee benefits increased $276,000 from $1.6
million for the three months ended June 30, 1999 to $1.9 million for the three
months ended June 30, 2000. Compensation expense increased as the result of
increased staffing levels and general salary increases as compared to the
prior year. Also, the Company incurred $100,000 in ESOP expense during the
current period. During the same period last year, there were no ESOP costs as
the plan was not yet in place. This was partially offset by reduced costs of
$25,000 related to the defined benefit plan (this plan was in effect during
the first quarter of fiscal 1999 but was later terminated in the third quarter
of fiscal 1999). Other expenses increased $315,000 from $702,000 for the
three months ended June 30, 1999 to $1.0 million for the three months ended
June 30, 2000. Increased costs of $94,000 for professional services
12
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and $72,000 for printing and postage were the primary reasons for the change.
Professional services costs increased as the result of the change from a
private to public company and consulting costs incurred in connection with the
Company's upcoming computer conversion, which is anticipated to be completed
during the third quarter of the current year. The increase in printing and
postage expenses are due to costs incurred to print and mail the annual report
and the printing of new forms and additional mailings required as a result of
the computer conversion of CBE which was completed during the quarter ended
June 30, 2000.
Provision for Income Taxes. Federal income taxes increased from $208,000 for
the three months ended June 30, 1999 to $654,000 for the three months ended
June 30, 2000. The change is due to 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 commercial
real estate, multifamily and one-to-four family mortgage loans. A secondary,
but increasing activity of the Company is the origination of business loans.
During the three months ended June 30, 2000, the Company funded $49.8 million
in new loans. In addition, during this three month period, funds were used to
purchase $4.9 million in investment securities and to repurchase shares of the
Company's common stock for $5.4 million. These activities were funded by loan
repayments, proceeds from the 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.
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):
13
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Minimum for Capital
Actual adequacy purposes
------ -----------------
Amount Ratio Amount Ratio
------ ----- ------ -----
June 30, 2000:
Total capital to risk-weighed assets $136,032 26.91 % $40,422 8.00 %
Tier 1 capital to risk-weighted assets 129,707 25.66 20,221 4.00
Tier 1 leverage capital to average assets 129,707 23.25 22,318 4.00
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 service charges and fees on accounts
and gains on sale of investments. 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. EMB is
authorized to engage in limited hedging activities for its saleable loan
pipeline, however, no such hedges were in place at June 30, 2000.
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,
14
<PAGE>
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, and other risks detailed in the Company's reports filed
with the Securities and Exchange Commission.
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)
21 Subsidiaries of the Registrant(2)
27 Financial Data Schedule
--------------------------
(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.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
2000.
15
<PAGE>
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.
August 8, 2000 /s/Michael B. Hansen
--------------------------------
Michael B. Hansen
President and Chief Executive Officer
(Principal Executive Officer)
August 8, 2000 /s/Jeffrey R. Mitchell
--------------------------------
Jeffrey R. Mitchell
Chief Financial Officer
(Principal Financial and Accounting Officer)
16
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Exhibit 27 - Financial Data Schedule
Financial Data
As of or for
the three months
Item Number Ended June 30, 2000 Item Description
----------- ------------------- ----------------
9-03 (1) 8,304 Cash and due from Banks
9-03 (2) 1,375 Interest-bearing deposits
9-03 (3) - Federal funds sold-purchased securities
for resale
9-03 (4) - Trading account assets
9-03 (6) 87,998 Investment and mortgage backed securities
held for sale
9-03 (6) 11,459 Investment and mortgage backed securities
held to maturity - carrying value
9-03 (6) 11,542 Investment and mortgage backed securities
held to maturity - market value
9-03 (7) 447,240 Loans
9-03 (7) (2) 6,785 Allowance for losses
9-03 (11) 580,171 Total assets
9-03 (12) 380,332 Deposits
9-03 (13) 45,801 Short-term borrowings
9-03 (15) 3,901 Other liabilities
9-03 (16) 21,132 Long-term debt
9-03 (19) - Preferred stock - mandatory redemption
9-03 (20) - Preferred stock - no mandatory redemption
9-03 (21) 78,544 Common stock
9-03 (22) 50,451 Other stockholders' equity
9-03 (23) 580,171 Total liabilities and stockholders' equity
9-04 (1) 9,174 Interest and fees on loans
9-04 (2) 1,690 Interest and dividends on investments
9-04 (4) - Other interest income
9-04 (5) 10,864 Total interest income
9-04 (6) 4,542 Interest on deposits
9-04 (9) 5,229 Total interest expense
9-04 (10) 5,635 Net interest income
9-04 (11) 300 Provision for loan losses
9-04 (13) (h) 61 Investment securities gains/(losses)
9-04 (14) 3,821 Other expense
9-04 (15) 2,152 Income/loss before income tax
9-04 (17) 2,152 Income/loss before extraordinary items
9-04 (18) - Extraordinary items, loss tax
9-04 (19) - Cumulative change in accounting principles
9-04 (20) 1,498 Net income or loss
9-04 (21) 0.18 Earnings per share - basis
9-04 (21) 0.18 Earnings per share - fully diluted
I.B.5 4.14% Net yield-interest earning assets-actual
III.C.1.(a) 493 Loans on non-accrual
III.C.1.(b) - Accruing loans past due 90 days or more
III.C.2.(c) - Trouble debt restructuring
III.C.2 - Potential problem loans
IV.A.1 6,484 Allowance for loan losses-beginning of
period
IV.A.2 3 Total charge-offs
IV.A.3 4 Total recoveries
IV.A.4 6,785 Allowance for loan losses-end of period
IV.B.1 6,785 Loan loss allowance allocated to domestic
loans
IV.B.2 - Loan loss allowance allocated to foreign
loans
IV.B.3 - Loan loss allowance - unallocated
<PAGE>
