EVERGREENBANCORP INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-Q

[X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2002

[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act

For the transition period from _______________ to _______________

Commission File No. 000-32915

EVERGREENBANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)

WASHINGTON 91-2097262

(State or Other Jurisdiction of
Incorporation or Organization) (I.R.S. Employer
Identification Number)

301 Eastlake Avenue East
Seattle, Washington 98109-5407
(Address of Principal Executive Offices) (Zip Code)

(206) 628-4250
(Registrant’s Telephone Number, Including Area Code)

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

Yes [X] No [ ]

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

Common Stock, no par value, outstanding as of September 30, 2002: 1,075,461 shares
No Preferred stock were issued or outstanding.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements.
		Consolidated statements of condition
		Consolidated statements of income
		Consolidated Statements of Stockholders’ Equity
		Consolidated statements of cash flows
		NOTES TO CONSOLIDATED INTERIM FINANCIAL INFORMATION
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS.
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
	ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
	ITEM 5. OTHER INFORMATION.
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
		(a) Exhibits
		(b) Reports on Form 8-K
SIGNATURES
EXHIBIT 11
EXHIBIT 99.1
EXHIBIT 99.2

PART I

FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

The following consolidated financial statements are presented for the registrant, EvergreenBancorp, Inc.

1.
Balance Sheets - September 30, 2002 and December 31, 2001.

2.
Statements of Income - For the three-month and nine-month periods ended September 30, 2002 and 2001.

3.
Statements of Changes in Shareholders' Equity - For the nine-month periods ended September 30, 2002 and 2001.

4.
Statements of Cash Flows - For the nine-month periods ended September 30, 2002 and 2001.

5.
Notes to Consolidated Interim Financial Information.

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk.

Item 4.
Controls and Procedures

PART II

OTHER INFORMATION

Item 1.
Legal Proceedings.

Item 2.
Changes in Securities and Use of Proceeds.

Item 3.
Defaults Upon Senior Securities.

Item 4.
Submission of Matters to a Vote of Security Holders.

Item 5.
Other Information.

Item 6.
Exhibits and Reports on Form 8-K.

(a) Exhibits

(b) Reports on Form 8-K

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

EvergreenBancorp, Inc.

Consolidated statements of condition
September 30, 2002 and December 31, 2001
(in thousands)
(Unaudited)


			September 30,			December 31,
			2002			2001

ASSETS
Cash and cash equivalents:
	Cash and due from banks		$	9,485		$	9,319
	Interest- bearing deposits in financial institutions			801			1,547
Federal funds sold				13,755			6,300

		Total Cash and cash equivalents		24,041			17,166

Investment securities:
	Available for sale			22,357			15,214

		Total investment securities		22,357			15,214

Loans				122,784			122,219
	Less allowance for loan losses			(1,679	)		(1,498	)

	Net loans			121,105			120,721

Premises and equipment				2,126			1,925
Accrued income and other assets				1,717			1,339

TOTAL ASSETS			$	171,346		$	156,365

LIABILITIES
Deposits:
	Noninterest bearing		$	36,067		$	38,233
	Interest bearing			96,651			92,111

		Total Deposits		132,718			130,344

Federal funds purchased and securities sold under agreements to repurchase				3,958			5,597
Advances from Federal Home Loan Bank				12,427			4,005
Guaranteed preferred beneficial interests in subordinated debt				5,000
Accrued expenses and other liabilities				1,658			1,681

TOTAL LIABILITIES			$	155,761		$	141,627

STOCKHOLDERS’ EQUITY
Preferred stock: No par value; 100,000 shares authorized; issued and outstanding — none				0			0
Common stock and surplus: No par value; 15,000,000 shares authorized;1,075,461 and 934,817 shares issued and outstanding				11,490			11,485
Retained earnings				4,016			3,198
Accumulated other comprehensive income(loss)				79			55

TOTAL STOCKHOLDERS’ EQUITY				15,585			14,738

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$	171,346		$	156,365

See accompanying notes to consolidated financial statements

EvergreenBancorp, Inc.

Consolidated statements of income

Three-month and nine-month periods ended September 30, 2002 and 2001
(in thousands, except per share data)
(unaudited)


			Three months ended September 30,				Nine months ended September 30,

			2002		2001		2002		2001

INTEREST AND DIVIDEND INCOME
Loans, including fees			$	2,506	$	2,688	$	7,543	$	8,160
Federal funds sold and other				58		145		167		411
Investment securities:
	Held to maturity			0		0		0		66
	Available for sale			239		111		533		329

		TOTAL INTEREST AND DIVIDEND INCOME		2,803		2,944		8,243		8,966

INTEREST EXPENSE
Deposits				492		888		1,623		2,893
Federal funds purchased and securities sold under agreements to repurchase				13		45		46		213
Advances from Federal Home Loan Bank				134		60		273		147
Interest expense on guaranteed preferred beneficial interests in subordinated debt				68		0		98		0

		TOTAL INTEREST EXPENSE		707		993		2,040		3,253

		NET INTEREST INCOME		2,096		1,951		6,203		5,713
Provision for loan losses				102		124		290		432

		NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		1,994		1,827		5,913		5,281

NONINTEREST INCOME
Service charges on deposit accounts				193		167		529		544
Merchant credit card processing				245		353		762		964
Gain on sales of loans and available-for-sale securities				10		76		10		118
Other noninterest income				148		157		460		619

		TOTAL NONINTEREST INCOME		596		753		1,761		2,245

NONINTEREST EXPENSE
Salaries and employee benefits				977		997		2,890		2,891
Merchant credit card processing				209		307		650		820
Occupancy and equipment				301		299		892		784
Other noninterest expense				576		570		1,768		1,663

		TOTAL NONINTEREST EXPENSE		2,063		2,173		6,200		6,158

INCOME BEFORE INCOME TAX EXPENSE				527		407		1,474		1,368
INCOME TAX EXPENSE				177		128		488		429

NET INCOME			$	350	$	279	$	986	$	939

Basic earnings per share of common stock*			$	0.32	$	0.26	$	0.92	$	0.84
Weighted average number of common stock shares outstanding-basic*				1,075,461		1,074,237		1,075,198		1,117,974
Diluted earnings per share of common stock*			$	0.30	$	0.24	$	0.86	$	0.80
Weighted average number of common stock shares outstanding and assumed conversions-diluted*				1,154,609		1,145,566		1,147,292		1,175,585

Retroactively adjusted for the shares issued pursuant to the 2001 three-for-two stock split and 2002 15% stock dividend

See accompanying notes to consolidated financial statements.

EvergreenBancorp, Inc

Consolidated Statements of Stockholders’ Equity
For the nine-month periods ended September 30, 2002 and 2001
(in thousands, except shares and per share data)
(unaudited)


																				Accumulated
																				Other			Total
					Common Stock			Common stock			Common stock						Retained			Comprehensive			Stockholders'
					Shares			and surplus			Par Value			Surplus			Earnings			Income			Equity

Balance at January 1, 2001						663,462					$	6,634		$	5,838		$	2,124			($19	)	$	14,577

Comprehensive income:
	Net income																	939						939
	Other comprehensive income, net of tax:
		Change in unrealized gain(loss) on securities available for sale, net of deferred income tax of $62																			122
		Reclassification adjustments included in net income, net of deferred income tax benefit of $(40)																			(76	)		46

	Total comprehensive income																						$	985
Cumulative effect of reclassifying certain securities from held to maturity to available for sale as of June 1, 2001, net of deferred income tax of $16																					31			31
Change in par value of common stock from $10 to $1												(5,971	)		5,971
Cash dividends paid ($0.145 per share)*																		(166	)					(166	)
Repurchase of common stock						(40,700	)					(40	)		(957	)								(997	)
Three-for-two stock split						311,355

Balance at September 30, 2001						934,117			0			623			10,852		$	2,897		$	58		$	14,430


Balance at January 1, 2002						934,817		$	11,485		$	0		$	0		$	3,198		$	55		$	14,738

Comprehensive income:
			Net income															986						986
			Other comprehensive income, net of tax:
				Change in unrealized gain (loss) on securities available for sale, net of deferred income tax of $15																	31
			Reclassification adjustments included in net income, net of deferred income tax benefit of $(3)																		(7	)		24

			Total comprehensive income																					1,010
			Exercise of stock options			600			9															9
			Cash dividend paid ($0.157 per share)															(168	)					(168	)
			Stock dividend (15 percent)			140,044			(4	)														(4	)

Balance at September 30, 2002						1,075,461			11,490			0			0			4,016			79			15,585

Retroactively adjusted for the shares issued pursuant to the 2001 three-for-two split and 2002 15% stock dividend.

See accompanying notes to consolidated financial statements.

EvergreenBancorp, Inc.

Consolidated statements of cash flows
Nine-month periods ended September 30, 2002 and 2001
(in thousands)
(unaudited)


		Nine Months ended September 30,

		2002			2001

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income		$	986		$	939
Adjustments to reconcile net income to net cash provided (used) by operating activities:
	Depreciation and amortization		359			262
	Provision for loan losses		290			432
	Net amortization of premium (accretion of discount) on investment securities		32			17
	(Gain)/loss from sale of available-for-sale securities		(10	)		(118	)
	Loss on disposal of premises and equipment		44
	Federal Home Loan Bank stock dividend		(55	)		(59	)
	Other changes, net		(412	)		(103	)

	Net Cash provided(used) by operating activities		1,234			1,370

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of held-to-maturity securities			0			30
Proceeds from sales and maturities of available-for-sale securities			6,419			12,079
Purchases of available-for-sale securities			(13,495	)		(12,046	)
Net (increase) decrease in loans			(674	)		(4,983	)
Purchases of premises and equipment			(603	)		(1,150	)

	Net Cash provided (used) by investing activities		(8,353	)		(6,070	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in noninterest bearing deposits			(2,166	)		(8,780	)
Net increase (decrease) in interest bearing deposits			4,540			7,987
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase			(1,639	)		(318	)
Advances from Federal Home Loan Bank			8,700			2,005
Repayment of advances from Federal Home Loan Bank			(278	)
Proceeds from issuance of guaranteed preferred beneficial interests in subordinated debt			5,000
Repurchase of common stock from dissenting shareholders						(997	)
Exercise of stock options			9
Dividends paid			(168	)		(166	)
Cash paid in lieu of fractional shares			(4	)

	Net cash provided (used) by financing activities		13,994			(269	)

Net increase (decrease) in cash and cash equivalents			6,875			(4,969	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			17,166			22,415

CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	24,041		$	17,446

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest Paid		$	2,168		$	$3,152
Income Taxes Paid			515		$	592
Total change in unrealized gains (losses) on available-for-sale securities			46			184

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED INTERIM FINANCIAL INFORMATION

EVERGREENBANCORP, INC.
Quarterly period ended September 30, 2002
(UNAUDITED)

Basis of presentation: The accompanying unaudited condensed consolidated financial statements include the accounts of EvergreenBancorp, Inc. (“Bancorp”) and its wholly owned subsidiaries (collectively referred to as the “Company”). As of September 30, 2002, Bancorp’s subsidiaries were EvergreenBank (the “Bank”) and EvergreenBancorp Capital Trust I (the “Trust”). The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For additional information, refer to the financial statements and footnotes for the year ended December 31, 2001, filed by Bancorp with the United States Securities and Exchange Commission.

Organization: Bancorp was formed February 9, 2001 and is a Washington corporation chartered as a bank holding company. Bancorp owns all of the issued and outstanding shares of the Bank and all of the common securities issued by the Trust.

The Bank is a Washington state chartered financial institution that engages in general commercial and consumer banking operations. The Bank offers a broad spectrum of personal and business banking services, including commercial, consumer and real estate lending. The Bank’s offices are centered in the Puget Sound region in the Seattle, Lynnwood and Bellevue communities. Deposits in the Bank are insured by the Federal Deposit Insurance Corporation.

The Trust is a Delaware business trust organized pursuant to a Declaration of Trust dated as of May 22, 2002. An Amended and Restated Declaration of Trust was executed May 23, 2002.

Holding company formation: The Bank became a wholly owned subsidiary of Bancorp on June 20, 2001 in accordance with the Plan and Agreement of Reorganization and Merger dated February 14, 2001 (the “Plan”), and provided that each share of the Bank’s common stock be exchanged for an equal number of shares of the common stock of Bancorp. The Plan also provided that the reorganization be treated similarly to a “pooling of interest” for accounting and financial reporting purposes. Accordingly, the capital accounts of the Bank as of June 20, 2001 were carried forward, without change, as the capital accounts of Bancorp.

Accounting: The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America. The following is a description of the more significant of these policies.

NOTES TO CONSOLIDATED INTERIM FINANCIAL INFORMATION — CONTINUED

EVERGREENBANCORP, INC.

Quarterly period ended September 30, 2002
(UNAUDITED)

Principles of consolidation and use of estimates: The accompanying condensed consolidated financial statements include the combined accounts of Bancorp, the Bank, and the Trust for all periods reported. All significant intercompany balances and transactions have been eliminated.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and with the general practices in the banking industry. The preparation of financial statements in conformity with these principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including contingent amounts, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates particularly susceptible to possible changes in the near term relate to the determination of the allowance for losses on loans, the carrying values of securities, and deferred tax assets. An estimate of possible changes or range of possible changes cannot be made relative to these items.

Reclassifications: Certain items in prior periods’ financial statements have been reclassified to conform with the current period’s presentation. These reclassifications did not change previously reported stockholders’ equity or net income.

Investments: Investments include $12,502,000 in mortgage backed securities at September 30, 2002. This investment by the Bank in mortgage backed securities qualifies as collateral for advances from Federal Home Loan Bank.

Guaranteed preferred beneficial interests in subordinated debt (trust preferred securities): On May 23, 2002, Bancorp purchased 155 Floating Rate Common Securities (liquidation amount $1,000 per common security) (the “Common Security”) issued by the Trust. Also, on May 23, 2002, the Trust issued 5,000 Floating Rate Capital Securities (liquidation amount $1,000 per capital security) (the “Capital Securities”). The capital securities were sold in a private placement pursuant to exemption from registration under of the Securities Act of 1933. The proceeds of the issuance of the common and capital securities, net of issuing expenses, were used by the Trust to purchase $5,155,000 in principal amount of Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Debentures”) issued by Bancorp. Bancorp invested $4,800,000 of the proceeds in the Bank. Distributions on the common and capital securities issued by the Trust are payable quarterly at a variable interest rate, reset quarterly, equal to the three-month London interbank offered rate plus 3.5 percent. The Company recognizes the distributions payable on the capital securities and the debentures as interest expense for financial reporting purposes. The debentures mature in 2032 and are redeemable at Bancorp’s option beginning in 2007. Issuing expenses are being amortized over the thirty year period. The capital securities are guaranteed on a subordinated basis by Bancorp with respect to distributions and amounts payable upon liquidation, redemption, or repayment. The capital securities qualify as Tier I capital for regulatory purposes.

NOTES TO CONSOLIDATED INTERIM FINANCIAL INFORMATION — CONTINUED

EVERGREENBANCORP, INC.

Quarterly period ended September 30, 2002
(UNAUDITED)

Parent company only financial information: The following table illustrates the condensed balance sheet at September 30, 2002 and December 31, 2001, and the related condensed statements of income for each of the three-month and nine-month periods ended September 30, 2002 and 2001, and the condensed statements of cash flows for the nine-month periods ended September 30, 2002 and 2001 for EvergreenBancorp, Inc., without including the accounts of its subsidiaries, the Bank and the Trust.

Condensed balance sheets (in thousands):


			SEPTEMBER 30,		DECEMBER 31,
			2002		2001

Assets:
	Due from EvergreenBank		$	133	$	83
	Dividend receivable from EvergreenBank			120
	Investment in EvergreenBank			20,091		14,655
	Investment in EvergreenBancorp Capital Trust I			155
	Accrued interest and other assets			241

Total assets			$	20,740	$	14,738

Liabilities and stockholders’ equity:
	Guaranteed preferred beneficial interests in subordinated debt		$	5,155
	Stockholders’ equity:
		Preferred stock Common stock and surplus		11,490	$	11,485
		Retained earnings		4,016		3,198
		Accumulated other comprehensive income		79		55

Total liabilities and stockholders’ equity			$	20,740	$	14,738

Condensed statements of income (in thousands):


		THREE MONTHS					NINE MONTHS
		ENDED SEPTEMBER 30,					ENDED SEPTEMBER 30,

		2002			2001		2002			2001

Income:
	Dividend from EvergreenBank	$	120		$	75	$	443		$	75
	Interest income from investment in EvergreenBancorp Capital Trust I		3					3
Expenses:
	Interest expense on guaranteed preferred beneficial interests in subordinated debt		(71	)				(101	)
	Other noninterest expenses		(3	)				(5	)

Income before equity in undistributed income of subsidiaries			49			75		340			75
Equity in undistributed income of subsidiaries			272			248		612			248

Income before income tax benefit			321			323		952			323
Income tax benefit			29					34

Net income		$	350		$	323	$	986		$	323

NOTES TO CONSOLIDATED INTERIM FINANCIAL INFORMATION — CONTINUED

EVERGREENBANCORP, INC.

Quarterly period ended September 30, 2002
(UNAUDITED)

Condensed statements of cash flows (in thousands):


			NINE MONTHS ENDED
			SEPTEMBER 30,

			2002			2001

Cash flows from operating activities:
	Net income		$	986		$	323
	Adjustments to reconcile net income to net cash provided by operating activities:
		Equity in undistributed income of subsidiaries		(612	)		(248	)
		Dividend receivable from EvergreenBank		(120	)
		Increase in accrued interest and other assets		(241	)

Net cash provided by operating activities				13			75

Cash flows from investing activities:
	Investment in EvergreenBank			(4,800	)
	Investment in EvergreenBancorp Capital Trust I			(155	)

Net cash provided (used) by investing activities				(4,955	)

Cash flows from financing activities:
	Proceeds from issuance of guaranteed preferred beneficial interests in subordinated debt			5,155
	Exercise of stock option			9
	Dividends paid			(168	)
	Cash paid in lieu of fractional share			(4	)

Net cash provided (used) by financing activities				4,992

Net increase in cash				50

Cash on deposit with EvergreenBank at beginning of period				83			0

Cash on deposit with EvergreenBank at end of period			$	133		$	75

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

EvergreenBancorp, Inc. (“Bancorp”) is a Washington chartered bank holding company formed in 2001 and headquartered in Seattle, Washington. Bancorp has as its primary business activity ownership of EvergreenBank (the “Bank”) and a financing entity, EvergreenBancorp Capital Trust I (“Trust”). The Bank’s principal business is personal and business banking. Services offered include commercial, real estate and consumer lending; savings, checking and certificate of deposit accounts; financial planning and investment services, and merchant credit card processing services. The Bank conducts business from three locations: the main office northeast of downtown Seattle, the Lynnwood office north of Seattle, and a new branch which opened in July 2001 in the city of Bellevue.

The following discussion contains a review of the consolidated operating results and financial condition of Bancorp and its wholly-owned subsidiaries (collectively referred to as the “Company”) for the third quarter of 2002. This discussion should be read in conjunction with the unaudited consolidated financial statements and accompanying notes contained elsewhere in this report. When warranted, comparisons are made to the same period in 2001 and to the previous year ended December 31, 2001. For additional information, refer to the consolidated financial statements and footnotes of EvergreenBancorp, Inc. for the year ended December 31, 2001.

RESULTS OF OPERATIONS

Net Income

Three months ended September 30, 2002 and 2001

For the third quarter of 2002, the Company reported net income of $350,000 compared to $279,000 for the third quarter of 2001, an increase of 25.5 percent. The increase in third quarter earnings was primarily due to growth in net interest income. Earnings for the third quarter last year included nonrecurring items which included additional expenses associated with opening the Bellevue office in July 2001, largely offset by recorded gains on sales of investments. Basic earnings per common share were $0.32 for the third quarter of 2002 compared to $0.26 for the third quarter of 2001. On a fully diluted basis earnings per share were $0.30 for the third quarter of 2002 compared to $0.24 for the third quarter of 2001.

Return on average common equity and return on average assets for the third quarter of 2002 was 9.04 percent and 0.81 percent respectively, compared to 7.22 percent and 0.73 percent for the third quarter of 2001.

Nine months ended September 2002 and 2001

For the nine months of 2002 net income was $986,000, compared with $939,000 for the first nine months of 2001, an increase of 5.01 percent. Basic earnings per common share were $0.92 for the first nine months of 2002 and $0.84 for the same period of 2001.

On a fully diluted basis earnings per share were $0.86 for the first nine months of 2002 and $0.80 for the same period of 2001. The results from the first quarter of 2001 included two nonrecurring items which impacted the results: additional revenue of $143,000 resulting from the repurchase of the Bank’s share in an ATM electronic services provider, offset by expenses of $50,000 associated with the formation of EvergreenBancorp, Inc. The results from the third quarter of 2001 included nonrecurring items which included $76,000 of gains on sales of investments occurring through completion of the Bank’s balance sheet restructure as well as additional expenses associated with opening the new Bellevue office in July 2001.

Return on average assets was 0.81 percent for the first nine months of 2002 and 0.84 percent for the same period of 2001. Return on average common equity was 8.72 percent for the first nine months of 2002 and 8.53 percent for the same period of 2001.

Net Interest Income and Net interest Margin

The Company’s principal source of earnings is net interest income, which is the difference between interest income on loans and investments and interest expense on deposits and borrowed funds.

Net interest income was $2,096,000 for the third quarter of 2002, compared to $1,951,000 for the same quarter a year ago, an increase of 7.43 percent. The increase in third quarter net interest income was primarily due to growth in loans and investments funded by growth in deposits and borrowings.

Net interest income was $6,203,000 for the first nine months of 2002, compared with $5,713,000 for the first nine months of 2001, an increase of 8.58 percent.

The net interest margin, the ratio of taxable-equivalent net interest income to average earning assets, was 5.35% for the third quarter of 2002 compared to 5.36% for the same quarter one year ago. The weighted average yield on interest earning assets was 7.15% for the third quarter of 2002, a decrease of 0.94%, compared to 8.09% in 2001. The interest expense as a percentage of average earning assets was 1.80% for the third quarter of 2002, a decrease of 0.93% compared to 2.73% in 2001.

For the first nine months of 2002, the net interest margin, was 5.46% compared to 5.48% for the same period one year ago. The weighted average yield on interest earning assets was 7.25% for the nine months of 2002, a decrease of 1.32%, compared to 8.57% in 2001. The interest expense as a percentage of average earning assets was 1.79% for the nine months of 2002, a decrease of 1.30% compared to 3.09% in 2001.

Interest income for the three months ended September 30, 2002 was $2,803,000 compared to $2,944,000 for the three months ended September 30, 2001, a decrease of $141,000 or 4.79 percent. This decrease was largely the result of falling interest rates offset by growth in loan volume. Average loans outstanding for the three months ended September 30, 2002 were $4,943,000 higher than for the three

months ended September 30, 2001. Interest income for the nine months ended September 30, 2002 was $8,243,000 compared with $8,966,000 for the nine months ended September 30, 2001, a decrease of 8.06 percent.

Interest expense for the three months ended September 30, 2002 was $707,000 compared to $993,000 for the three months ended September 30, 2001, a decrease of $286,000 or 28.80 percent. Interest expense for the nine months ended September 30, 2002 was $2,040,000 compared with $3,253,000 for the same period a year ago, a decrease of $1,213,000 or 37.29 percent. The decrease for both the third quarter and the year to date has been due primarily to falling interest rates and a higher percentage mix of lower cost deposits.

Noninterest Income/Expense

Noninterest income in the third quarter of 2002 was $596,000 compared to $753,000 in the same quarter of 2001, a reduction of $157,000 or 20.85 percent. Noninterest income for the nine months ended September 30, 2002 was $1,761,000 compared with $2,245,000 for the same period of 2001, a decrease of $484,000 or 21.60 percent. The decrease was primarily due to lower revenue from merchant processing fees, and less recorded gains on sales of available-for-sale securities. Nonrecurring items from the first quarter of 2001 included additional revenue of $143,000 resulting from the repurchase of the Bank’s share in a company that provides ATM electronic services.

Noninterest expense was $2,063,000 in the third quarter of 2002, compared to $2,173,000 in the same quarter of 2001, a reduction of $110,000 or 5.06 percent. Contributing to the decline in noninterest expense was lower salaries and benefits as the Company reduced staffing levels to 53 full time equivalent employees in the third quarter of 2002 from 60 full time equivalent employees one year ago. Lower merchant processing expense resulting from reduced credit card processing activity also affected 2002 results. Noninterest expense for the third quarter of 2001 included certain nonrecurring costs associated with opening the Bellevue office in July 2001. Noninterest expense was $6,200,000 for the nine months of 2002, compared with $6,158,000 for the same period of 2001, an increase of $42,000 or 0.68 percent. The year to date comparisons were affected by the same items described above.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level considered adequate by management to absorb estimated losses over the life of the portfolio.

Management periodically evaluates the adequacy of the allowance based upon a number of factors, including the volume and composition of the loan portfolio, potential impairment of individual loans and concentrations of credit, estimated value of underlying collateral, past loss experience, current economic conditions, loan commitments outstanding and other factors.

The following table sets forth the changes in the Company’s allowance for loan losses at the dates indicated.


	Three months ended September 30

	2002			2001

Balance at beginning of period	$	1,698,000		$	1,487,000
Provision for possible credit losses		102,000			124,000
Charge-offs		(127,000	)		(155,000	)
Recoveries		6,000			8,000
Net Recoveries (Charge-offs)		(121,000	)		(147,000	)

Balance at end of period	$	1,679,000		$	1,464,000


	Nine months ended September 30

	2002			2001

Balance at beginning of period	$	1,498,000		$	1,323,000
Provision for possible credit losses		290,000			432,000
Charge-offs		(150,000	)		(301,000	)
Recoveries		41,000			10,000
Net Recoveries (Charge-offs)		(109,000	)		(291,000	)

Balance at end of period	$	1,679,000		$	1,464,000

At September 30, 2002, the allowance for loan losses stood at $1,679,000 compared to $1,498,000 at December 31, 2001, and $1,464,000 at September 30, 2001. The ratio of the allowance to total loans outstanding was 1.37 percent, 1.23 percent and 1.24 percent respectively at September 30, 2002, December 31, 2001, and September 30, 2001.

Along with other financial institutions, management shares a concern for the outlook of the economy during the remainder of 2002. A slowdown in economic activity beginning in 2001 severely impacted several major industries as well as the economy as a whole. Despite indications of emerging strength, it is not certain that this strength is sustainable. These events could still adversely affect cash flows for both commercial and individual borrowers, as a result of which, the Company could experience increases in problem assets, delinquencies and losses on loans.

Non-performing Assets and Foreclosed Real Estate

Non-performing assets totaled $1,177,000 at September 30, 2002. This represented 0.96 percent of total loans and foreclosed real estate compared to $1,155,000 or 0.95 percent at December 31, 2001, and $1,168,000 or 0.99 percent at September 30, 2001. The larger proportion of non-accrual loans reflects two delinquent loans totaling $550,000 classified as non-accrual.

Analysis of Non-Performing

September 30,

Assets (in thousands)

2002

December 31, 2001

2001

Accruing Loans past due 90 days or more

166

602

964

Non-accrual loans

1,011

553

204

Foreclosed real estate

Total

1,177

1,155

1,168

Income Taxes

Accrued income taxes applicable to income for the three-month period ended September 30, 2002 were $177,000 compared to $128,000 for the same period in 2001. Pretax income for the three months ended September 30, 2002 totaling $527,000 was up $119,000 from $408,000 for the three months ended September 30, 2001. The effective tax rates for these periods were 33.59 percent and 31.45 percent respectively.

FINANCIAL CONDITION

Loans and Investments

At September 30, 2002, loans totaled $122,784,000, an increase of $565,000 or 0.46 percent over December 31, 2001 and an increase of $5,029,000 or 4.27 percent over the level reported at September 30, 2001. At September 30, 2002, the Bank had $92,739,000 in loans secured by real estate. The collectibility of a substantial portion of the loan portfolio is susceptible to changes in economic and market conditions in the region. The Bank generally requires collateral on all real estate exposures and typically maintains loan-to-value ratios of no greater than 80 percent.

Types of Loans

The major classifications of loans net of unearned income in the Bank’s portfolio at September 30, 2002 and December 31, 2001 were:


		2002		2001

		(in thousands)
Commercial		$	50,763	$	53,791
Real Estate:
	Commercial		39,872		28,349
	Construction		5,659		7,002
	Residential 1-4 family		11,094		13,942
Consumer and other			15,396		19,135

Total		$	122,784	$	122,219

At September 30, 2002, investments totaled $22,357,000, an increase of $7,143,000 or 46.95 percent over $15,214,000 at December 31, 2001 and an increase of $7,097,000 or 46.50 percent over $15,260,000 at September 30, 2001. The investment increase was mostly due to the purchase of mortgage backed securities. In the third quarter of 2002, the Company added $5,086,000 of mortgage-backed securities to the investment portfolio to improve portfolio earnings and bolster liquidity.

Deposits

At September 30, 2002, total deposits were $132,718,000, compared to $130,344,000 at December 31, 2001 and $124,631,000 at September 30, 2001. This represents a 1.82 percent increase from December 31, 2001 and a 6.49 percent increase from September 30, 2001. Non-interest bearing deposits totaled $36,067,000 at September 30, 2002 compared to $38,233,000 at December 31, 2001 and $29,145,000 at September 30, 2001. Interest bearing deposits totaled $96,651,000, an increase of $1,165,000 or 1.2 percent from September 30, 2001 and an increase of $4,540,000 or 4.93 percent from the level reported at December 31, 2001.

Borrowings

At September 30, 2002, Federal Home Loan Bank borrowings were $12,427,000, compared to $4,005,000 at December 31, 2001 and $4,005,000 at September 30, 2001. This represents a 210.29 percent increase from December 31, 2001 and September 30, 2001. The increase in borrowings provided the primary source of funding for the additional purchases of mortgage backed securities. In the third quarter of 2002, the Company increased Federal Home Loan Bank borrowings by $1,850,000 and invested most of the proceeds in investment securities.

During the second quarter of 2002, the Trust issued 30 year Floating Rate Capital Securities to a third party investor for an aggregate of $5 million in a private placement exempt from registration under the Securities Act of 1933. The proceeds of this issuance were utilized by the Trust to purchase debentures in Bancorp having terms similar to the capital securities. Distributions on the capital securities and interest on the debentures are payable quarterly at a variable interest rate equal to the three month London Interbank offered rate plus 3.5%. Issue costs with respect to this transaction totaled approximately $200,000 and are being amortized over a 30 year period. The full amount of the capital securities is anticipated to constitute Tier 1 capital for regulatory capital purposes. Bancorp invested most of the proceeds from this transaction in the Bank to support additional growth in loans and investments. Additional information can be found in the Notes to Consolidated Interim Financial Information in Part I, Item 1.

Stockholders’ Equity and Capital Resources

Stockholders’ equity totaled $15,585,000 at September 30, 2002, an increase of $847,000 or 5.75 percent over December 31, 2001 and an increase of $1,155,000 or 8.00 percent over September 30, 2001. The increase in capital over last year is principally due to retained earnings substantially offset by cash dividends and by the repurchase of common stock held by shareholders dissenting to the holding company formation in June 2001.

Cash dividends paid year-to-date at September 30, 2002 totaled $168,000 (15.7 cents per share) and for the year ended December 31, 2001 and the nine months ended September 30, 2001 totaled $166,000 (14.5 cents per share). Book value per share was $14.49 at September 30, 2002 compared to $13.71 at December 31, 2001 and $13.43 at September 30, 2001. Book value per share is calculated by dividing total equity by total shares outstanding, giving retroactive effect to the July 2001 three-for-two stock split and the July 2002 15% stock dividend.

The following table displays the capital ratios at September 30, 2002 and December 31, 2001 for EvergreenBancorp and Bank. The capital ratios for September 30, 2002 reflect the additional $5 million regulatory Tier 1 capital resulting from the issuance of the capital securities described in the Borrowings section above. As the table illustrates, the capital ratios exceed those required to be considered well-capitalized.


											Minimum to Be
											Well
											Capitalized
											Under the
						Minimum					Prompt
						for Capital					Corrective
						Adequacy					Action
	Actual					Purposes					Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio

September 30, 2002
Total Capital (to risk-weighted assets)
EvergreenBancorp	$	22,162		16.73	%	$	10,597		8.00	%	$	13,246		10.00	%
EvergreenBank		21,666		16.38	%		10,581		8.00	%		13,227		10.00	%
Tier 1 Capital (to risk-weighted assets)
EvergreenBancorp		20,506		15.48	%		5,299		4.00	%		7,948		6.00	%
EvergreenBank		20,012		15.13	%		5,291		4.00	%		7,936		6.00	%
Tier 1 Capital (to average assets)
EvergreenBancorp		20,506		12.74	%		6,440		4.00	%		8,050		5.00	%
EvergreenBank		20,012		12.55	%		6,377		4.00	%		7,971		5.00	%
December 31, 2001
Total Capital (to risk-weighted assets)
EvergreenBancorp		16,181		12.78	%		10,132		8.00	%		12,665		10.00	%
EvergreenBank		16,099		12.71	%		10,131		8.00	%		12,663		10.00	%
Tier 1 Capital (to risk-weighted assets)
EvergreenBancorp		14,683		11.59	%		5,066		4.00	%		7,599		6.00	%
EvergreenBank		14,601		11.53	%		5,065		4.00	%		7,598		6.00	%
Tier 1 Capital (to average assets)
EvergreenBancorp		14,683		9.57	%		6,135		4.00	%		7,669		5.00	%
EvergreenBank		14,601		9.68	%		6,032		4.00	%		7,540		5.00	%

Liquidity

Liquidity is defined as the ability to provide sufficient cash to fund operations and meet obligations and commitments on a timely basis. Through asset and liquidity management, the Company controls its liquidity position to ensure that sufficient funds are available to meet the needs of depositors, borrowers, and creditors.

In addition to cash and cash equivalents, asset liquidity is provided by the available-for-sale securities portfolio. More than 38 percent of the investment balances within this portfolio mature within one year. Liquidity is further enhanced by deposit growth, federal funds purchased and securities sold under agreements to repurchase, borrowings, and planned cash flows, maturities and sales of investments and loans.

The consolidated statement of cash flows contained in this report provides information on the sources and uses of cash for the respective year-to-date periods ending September 30, 2002 and 2001. See Bancorp’s Form 10-K for the year ended December 31, 2001 for additional information.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes in information about market risk from that provided in the Company’s Form 10-K for the year ended December 31, 2001.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures: Based upon an evaluation within the 90 days prior to the filing date of this report, Bancorp’s Chief Executive Officer and Chief Financial Officer concluded that Bancorp’s disclosure controls and procedures (as defined in section 13(a) — 14(c) of the Securities Exchange Act of 1934) are effective.

(b) Changes in Internal Controls: In the quarter ended September 30, 2002, there have been no significant changes in Bancorp’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Forward-Looking Information Statement

Statements in this report regarding future events or performance are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”) and are made pursuant to the safe harbors of the PSLRA. Actual results could be quite different from those expressed or implied by the forward-looking statements. Any statements that expressly or implicitly predict future results, performance, or events should be considered forward-looking. Factors that could cause results to differ from forward-looking statements include, among others, risks discussed in the rest of this report as well as the following specific items: general economic conditions, including levels of employment, whether national, regional, or local, that could affect the demand for loans or lead to increased loan losses; competitive factors, including increased competition with community, regional, and national financial institutions that may lead to pricing pressures on rates the Company’s bank subsidiary charges on loans and pays on deposits, loss of customers of greatest value to the Company, or other losses; increasing or decreasing interest rate environments that could lead to decreased net interest margin; changing business conditions in the banking industry; changes in the regulatory environment or new legislation; and changes in technology or required investments in technology. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s analysis only as of the date of the statement. The Company does not intend to publicly revise or update forward-looking statements to reflect events or circumstances that arise after the date of this report.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

There are no material pending legal proceedings to which Bancorp or any subsidiary is a party other than ordinary routine litigation incidental to their respective businesses.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.

None

ITEM 5. OTHER INFORMATION.

On January 17, 2002, the board of directors of the Company declared a dividend of $.18 per share to shareholders of record at the close of business on January 31, 2002 and payable February 8, 2002.

On June 20, 2002, the board of directors of the Company declared a 15% stock dividend to shareholders of record as of July 8, 2002 and payable July 15, 2002.

During the second quarter of 2002, EvergreenBank hired Susan L. Gates as its executive vice president and chief credit officer. She is responsible for EvergreenBank’s commercial lending program, including new business development and credit policy.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

        (a)    Exhibits

           Exhibit 11 — Computation of basic and diluted earnings per share

           Exhibit 99.1 — Certification of Chief Executive Officer

           Exhibit 99.2 — Certification of Chief Financial Officer

(b) Reports on Form 8-K

None

SIGNATURES

Under the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: November 13, 2002.

EVERGREENBANCORP, INC.

/s/ William G. Filer II

William G. Filer II
Senior Vice President and Chief Financial Officer
(Authorized Officer and Principal Financial Officer)

I, Gerald O. Hatler certify that:

1. I have reviewed this quarterly report on Form 10-Q of EvergreenBancorp, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: November 13, 2002

/s/ Gerald O. Hatler

Gerald O. Hatler
President & Chief Executive Officer

I, William G. Filer II, certify that:

1. I have reviewed this quarterly report on Form 10-Q of EvergreenBancorp, Inc.;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Dated: November 13, 2002

/s/ William G. Filer II

William G. Filer II
Senior Vice President & Chief Financial Officer

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents


WASHINGTON		91-2097262

(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)


		PART I
		FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

The following consolidated financial statements are presented for the registrant, EvergreenBancorp, Inc.

1.	Balance Sheets - September 30, 2002 and December 31, 2001.




2.	Statements of Income - For the three-month and nine-month periods ended September 30, 2002 and 2001.




3.	Statements of Changes in Shareholders' Equity - For the nine-month periods ended September 30, 2002 and 2001.




4.	Statements of Cash Flows - For the nine-month periods ended September 30, 2002 and 2001.




5.	Notes to Consolidated Interim Financial Information.




Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.




Item 3.		Quantitative and Qualitative Disclosures About Market Risk.




Item 4.		Controls and Procedures

		PART II
		OTHER INFORMATION

Item 1.		Legal Proceedings.




Item 2.		Changes in Securities and Use of Proceeds.




Item 3.		Defaults Upon Senior Securities.




Item 4.		Submission of Matters to a Vote of Security Holders.




Item 5.		Other Information.




Item 6.		Exhibits and Reports on Form 8-K.




		(a) Exhibits




		(b) Reports on Form 8-K

	(a)		Evaluation of Disclosure Controls and Procedures: Based upon an evaluation within the 90 days prior to the filing date of this report, Bancorp’s Chief Executive Officer and Chief Financial Officer concluded that Bancorp’s disclosure controls and procedures (as defined in section 13(a) — 14(c) of the Securities Exchange Act of 1934) are effective.

	(b)		Changes in Internal Controls: In the quarter ended September 30, 2002, there have been no significant changes in Bancorp’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

	(a)		Exhibits

			Exhibit 11 — Computation of basic and diluted earnings per share

			Exhibit 99.1 — Certification of Chief Executive Officer

			Exhibit 99.2 — Certification of Chief Financial Officer