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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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(No Fee Required) |
Commission file number 000-32915
EvergreenBancorp, Inc.
(Exact name of Registrant as specified in its Charter)
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Washington
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91-2097262 |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(I.R.S. Employer
Identification Number) |
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301 Eastlake Avenue East,
Seattle, Washington
(Address of Principal Executive Offices) |
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98109
(ZIP Code) |
Registrants telephone number, including area code:
(206) 628-4250
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, no par value per share
Indicate by a checkmark 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 twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has
been subject to such requirements for the past
90 days. Yes þ No o
Indicate by a checkmark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. þ
Indicate by a checkmark whether the registrant is an accelerated
filer as defined in Rule 12b-2 of the
Act. Yes o No þ
The aggregate market value of the voting common equity held by
non-affiliates, based on the closing price as quoted on the OTC
Bulletin Board at June 30, 2004 (the last business day
of the most recent second fiscal quarter), was $20,930,586.
The number of shares outstanding of the registrants no par
value common stock as of March 17, 2005 was
1,496,071 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Designated portions of the Proxy Statement for the 2005 Annual
Meeting of Shareholders (Part III, Items 10-14).
EVERGREENBANCORP, INC.
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
2
PART I
Forward-Looking Information Statement
This report contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. Such forward-looking statements are
intended to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995 and this statement is included for
purposes of these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe
future plans, strategies, and expectations of the registrant and
its wholly owned bank subsidiary (collectively referred to as
the Company), are generally identifiable by use of
the words believe, expect,
intend, anticipate,
estimate, project, or similar
expressions. The Companys ability to predict results or
the actual effect of future plans or strategies is inherently
uncertain. Important factors which could cause actual events to
differ from the Companys expectation include, but are not
limited to, fluctuation in interest rates and loan and deposit
pricing, which could reduce the Companys net interest
margins, asset valuations and expense expectations; a
deterioration in the economy or business conditions, either
nationally or in the Companys market areas, that could
increase credit-related losses and expenses; a national or local
disaster, including acts of terrorism; increases in defaults by
borrowers and other loan delinquencies resulting in increases in
the Companys provision for loan losses and related
expenses; higher than anticipated costs related to the
Companys new banking centers, or slower than expected
earning assets growth which could extend anticipated breakeven
periods at these locations; significant increases in
competition; legislative or regulatory changes applicable to
bank holding companies or the Companys banking or other
subsidiaries; and possible changes in tax rates, tax laws, or
tax law interpretation.
EvergreenBancorp, Inc.
EvergreenBancorp, Inc. (Bancorp) is a bank holding
company organized under the laws of the State of Washington.
Bancorp was formed in 2001 pursuant to the reorganization of
EvergreenBank (the Bank), whereby the Bank became a
wholly owned subsidiary of Bancorp. This tax-free reorganization
resulted in a share-for-share exchange of stock whereby
stockholders of the Bank became stockholders of Bancorp. The
bank holding company structure provides flexibility for
financing and growth, as well as for acquiring or establishing
other banking operations or businesses related to banking. In
May 2002, Bancorp formed EvergreenBancorp Capital Trust I
(the Trust) to raise capital through a trust
preferred securities offering. Prior to 2003, the Trust was
consolidated in the Companys financial statements. Under
new accounting guidance, the Trust is no longer consolidated
with the Company. Bancorp and Bank are collectively referred to
herein as the Company. The terms we,
us, and our refer to Bancorp, Bank or
Trust where applicable.
The Company remains committed to community banking and intends
to remain community-focused. In 2004, the Bank conducted
its banking business in substantially the same manner as prior
to the reorganization, with the same name, management structure,
and personnel. The Company continues to look for possible
acquisition opportunities that can offer both compatibility of
business operations and enhanced shareholder value. The
Boards philosophies and overall structure remain
unchanged. One long-time member retired from the Board of
Directors in the third quarter of 2004.
The Companys consolidated net income for 2004 was
$1,282,000, or $0.86 per basic share ($0.84 per
diluted share), and its consolidated equity at December 31,
2004 was $17,485,000, with 1,494,321 common shares outstanding
and a book value of $11.70 per share. At December 31,
2004, the Company had total consolidated assets of approximately
$209,630,000, loans of approximately $159,656,000, and deposits
of approximately $173,801,000. For more information regarding
the Companys financial results, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations and Financial
Statements and Supplementary Data of this 10-K report.
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EvergreenBank
EvergreenBank is a Washington commercial bank organized in 1971
under the name Teachers State Bank with its main office at 301
Eastlake Avenue East in Seattle (Eastlake office).
The Bank has since opened four offices in Lynnwood, Bellevue,
Federal Way and the South Lake Union area of Seattle in 1993,
2001, 2003 and 2004, respectively. A fifth office is scheduled
to open in downtown Seattle in the second quarter of 2005. All
offices are located within a 25 mile radius of Seattle.
Over the years, the Bank has changed its business focus. In the
late seventies, regulatory changes that allowed credit unions to
issue drafts against their members share accounts created
an opportunity for the Bank. In 1977, the Bank began marketing a
share draft system that could process credit unions share
drafts for the Federal Reserve System. To reflect the
Banks growing interest in consumer and commercial markets,
and to clarify for potential customers that the Banks
products and services were not limited to teachers,
in 1980, its name was changed to EvergreenBank.
In early 2000, because of narrowing profit margins and increased
competition in the check clearing business, the Bank withdrew
from that business and management began to restructure the
Banks balance sheet and focus primarily on its business in
consumer and commercial lending and deposits. The Bank now
focuses on a general commercial banking business, offering
commercial banking services to small and medium-sized
businesses, professionals, and retail customers in its market
area.
The Banks primary market area consists of King, Pierce,
and Snohomish counties in Western Washington. The Bank began its
operations from its Eastlake office location in Seattle and has
since expanded its market with the addition of four branches
within a 25-mile radius of Seattle.
Deposit accounts include certificates of deposit, individual
retirement accounts and other time deposits, checking and other
demand deposit accounts, interest-bearing checking accounts,
savings accounts, and money market accounts. Loans include
commercial, real estate construction and development,
installment and consumer loans, and residential real estate.
Other products and services include merchant credit card
processing, financial planning and investment services, cash
management services, electronic funds transfers, electronic tax
payment, and safe deposit boxes. The Bank also offers 24-hour
telephone banking, an ATM network, as well as Internet banking
and bill paying services.
Commercial banking in the state of Washington is highly
competitive with respect to providing banking services,
including making loans and attracting deposits. The Bank
competes with other banks, as well as with savings and loan
associations, savings banks, credit unions, mortgage companies,
investment banks, insurance companies, securities brokerages,
and other financial institutions. Banking in Washington is
dominated by several large banking institutions, including
U.S. Bank, Wells Fargo Bank, Key Bank, Bank of America, and
Washington Mutual Bank, which together account for a majority of
the total commercial and savings bank deposits in Washington.
These competitors have significantly greater financial resources
and offer a greater number of branch locations (with statewide
branch networks), higher lending limits, and a variety of
services not offered by the Bank. In addition, the Bank has
experienced competition for both deposits and loans from
non-bank financial service providers, such as
brokerage firms, captive automobile financing and equipment
leasing companies.
The adoption of the Gramm-Leach-Bliley Act of 1999 (the
Financial Services Modernization Act) in November 1999 has
led to further intensification of competition in the banking
industry. The Financial Services Modernization Act has
eliminated many of the barriers to affiliation among providers
of various types of financial services and has permitted
business combinations among financial providers such as banks,
insurance companies, securities or brokerage firms, and other
financial service providers. This has led to increased
competition in both the market for providing financial services
and in the market for acquisitions in which Bancorp also
participates.
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In general, the financial services industry has experienced
widespread consolidation in recent years. The Company
anticipates that consolidation among financial institutions in
its market area will continue. Other financial institutions,
many with substantially greater resources, compete in the
acquisition market against the Company. Some of these
institutions, among other items, have greater access to capital
markets, larger cash reserves and a more liquid currency than
the Company. Additionally, the rapid adoption of financial
services through the Internet has reduced the barrier to entry
by financial services providers physically located outside our
market area. Although the Company has been able to compete
effectively in the financial services business in its markets to
date, there can be no assurance that it will be able to continue
to do so in the future.
On December 31, 2004, the Bank employed 54 full-time
employees and 3 part-time employees. Employees are not
represented by any collective bargaining agreement. Management
considers its relations with employees to be good.
EvergreenBancorp Capital Trust I
On May 23, 2002, Bancorp completed an issuance of
$5 million in trust preferred securities through a newly
formed special purpose business trust, EvergreenBancorp Capital
Trust I. The securities were sold in a private placement
pursuant to an exemption from registration under the Securities
Act of 1933, as amended.
Under the terms of the transaction, the trust preferred
securities have a maturity of 30 years and the holders are
entitled to receive cumulative cash distributions on a quarterly
basis at a variable annual rate, reset quarterly, equal to the
three month LIBOR plus 3.50 percent. In general, the
securities will not be redeemable until 2007 except in the event
of certain special redemption events. Most of the proceeds from
the sale of the securities were contributed to the Bank as
Tier 1 capital to support lending and other operations.
SUPERVISION AND REGULATION
General
We are extensively regulated under federal and state law. These
laws and regulations are primarily intended to protect
depositors, not shareholders. The discussion below describes and
summarizes certain statutes and regulations. These descriptions
and summaries are qualified in their entirety by reference to
the particular statute or regulation. Changes in applicable laws
or regulations may have a material effect on our business and
prospects. Our operations may also be affected by changes in the
policies of banking and other government regulators. We cannot
accurately predict the nature or extent of the possible future
effects on our business and earnings of changes in fiscal or
monetary policies, or new federal or state laws and regulations.
Federal Bank Holding Company Regulation
General. The Company is a bank holding company as defined
in the Bank Holding Company Act of 1956, as amended, and is
therefore subject to regulation, supervision and examination by
the Federal Reserve. In general, the Bank Holding Company Act
limits the business of bank holding companies to owning or
controlling banks and engaging in other activities closely
related to banking. The Company must also file reports with the
Federal Reserve and must provide it with such additional
information as it may require. Under the Financial Services
Modernization Act of 1999, a bank holding company may apply to
the Federal Reserve to become a financial holding company, and
thereby engage (directly or through a subsidiary) in certain
expanded activities deemed financial in nature, such as
securities brokerage and insurance underwriting.
Holding Company Bank Ownership. The Bank Holding Company
Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before (1) acquiring,
directly or indirectly, ownership or control of any voting
shares of another bank or bank holding company if, after such
acquisition, it
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would own or control more than 5% of such shares,
(2) acquiring all or substantially all of the assets of
another bank or bank holding company, or (3) merging or
consolidating with another bank holding company.
Holding Company Control of Nonbanks. With some
exceptions, the Bank Holding Company Act also prohibits a bank
holding company from acquiring or retaining direct or indirect
ownership or control of more than 5% of the voting shares of any
company which is not a bank or bank holding company, or from
engaging directly or indirectly in activities other than those
of banking, managing or controlling banks or providing services
for its subsidiaries. The principal exceptions to these
prohibitions involve certain non-bank activities which, by
statute or by Federal Reserve regulation or order, have been
identified as activities closely related to the business of
banking or of managing or controlling banks.
Transactions with Affiliates. Subsidiary banks of a bank
holding company are subject to restrictions imposed by the
Federal Reserve Act on extensions of credit to the holding
company or its subsidiaries, on investments in their securities,
and on the use of their securities as collateral for loans to
any borrower. These regulations and restrictions may limit the
Companys ability to obtain funds from the Bank for its
cash needs, including funds for payment of dividends, interest
and operational expenses.
Tying Arrangements. We are prohibited from engaging in
certain tie-in arrangements in connection with any extension of
credit, sale or lease of property or furnishing of services. For
example, with certain exceptions, neither the Company nor its
subsidiaries may condition an extension of credit to a customer
on either (1) a requirement that the customer obtain
additional services provided by us or (2) an agreement by
the customer to refrain from obtaining other services from a
competitor.
Support of Subsidiary Banks. Under Federal Reserve
policy, the Company is expected to act as a source of financial
and managerial strength to the Bank. This means that the Company
is required to commit, as necessary, resources to support the
Bank. Any capital loans a bank holding company makes to its
subsidiary banks are subordinate to deposits and to certain
other indebtedness of those subsidiary banks.
State Law Restrictions. As a Washington corporation, the
Company is subject to certain limitations and restrictions under
applicable Washington corporate law. For example, state law
restrictions in Washington include limitations and restrictions
relating to indemnification of directors, distributions to
shareholders, transactions involving directors, officers or
interested shareholders, maintenance of books, records, and
minutes, and observance of certain corporate formalities.
Federal and State Regulation of EvergreenBank
General. The Bank is a Washington chartered commercial
bank with deposits insured by the FDIC. As a result, the Bank is
subject to supervision and regulation by the Washington
Department of Financial Institutions, Division of Banks and the
FDIC. These agencies have the authority to prohibit banks from
engaging in what they believe constitute unsafe or unsound
banking practices.
Community Reinvestment. The Community Reinvestment Act
requires that, in connection with examinations of financial
institutions within their jurisdiction, the Federal Reserve or
the FDIC evaluate the record of the financial institution in
meeting the credit needs of its local communities, including low
and moderate income neighborhoods, consistent with the safe and
sound operation of the institution. These factors are also
considered in evaluating mergers, acquisitions and applications
to open a branch or facility.
Insider Credit Transactions. Banks are also subject to
certain restrictions imposed by the Federal Reserve Act on
extensions of credit to executive officers, directors, principal
shareholders or any related interests of such persons.
Extensions of credit (1) must be made on substantially the
same terms, including interest rates and collateral as, and
follow credit underwriting procedures that are not less
stringent than, those prevailing at the time for comparable
transactions with persons not covered above and who are not
employees, and (2) must not involve more than the normal
risk of repayment or present other unfavorable features. Banks
are also subject to certain lending limits and restrictions on
overdrafts to insiders. A violation of these restrictions may
result in the assessment of substantial civil monetary
penalties, the imposition of a cease and desist order, and other
regulatory sanctions.
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Regulation of Management. Federal law (1) sets forth
circumstances under which officers or directors of a bank may be
removed by the institutions federal supervisory agency;
(2) places restraints on lending by a bank to its executive
officers, directors, principal shareholders and their related
interests; and (3) prohibits management personnel of a bank from
serving as a director or in a management position of another
financial institution whose assets exceed a specified amount or
which has an office within a specified geographic area.
Safety and Soundness Standards. Federal law imposes upon
banks certain non-capital safety and soundness standards. These
standards cover, among other things, internal controls,
information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth,
compensation and benefits. Additional standards apply to asset
quality, earnings and stock valuation. An institution that fails
to meet these standards must develop a plan acceptable to its
regulators, specifying the steps that the institution will take
to meet the standards. Failure to submit or implement such a
plan may subject the institution to regulatory sanctions.
Interstate Banking And Branching
The Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (Interstate Act) permits nationwide
interstate banking and branching under certain circumstances.
This legislation generally authorizes interstate branching and
relaxes federal law restrictions on interstate banking.
Currently, bank holding companies may purchase banks in any
state, and states may not prohibit these purchases.
Additionally, banks are permitted to merge with banks in other
states, as long as the home state of neither merging bank has
opted out under the legislation. The Interstate Act requires
regulators to consult with community organizations before
permitting an interstate institution to close a branch in a
low-income area.
FDIC regulations prohibit banks from using their interstate
branches primarily for deposit production. The FDIC has
implemented a loan-to-deposit ratio screen to ensure compliance
with this prohibition.
Washington enacted opting in legislation in
accordance with the Interstate Act, allowing banks to engage in
interstate merger transactions, subject to certain
aging requirements. Washington restricts an
out-of-state bank from opening de novo branches. However, once
an out-of-state bank has acquired a bank within the state,
either through merger or acquisition of all or substantially all
of the banks assets, the out-of-state bank may open
additional branches within the state.
Deposit Insurance
The Banks deposits are currently insured to a maximum of
$100,000 per depositor through the Bank Insurance Fund
administered by the FDIC. The Bank is required to pay deposit
insurance premiums, which are assessed semiannually and paid
quarterly. The premium amount is based upon a risk
classification system established by the FDIC. Banks with higher
levels of capital and a low degree of supervisory concern are
assessed lower premiums than banks with lower levels of capital
or a higher degree of supervisory concern.
The FDIC is also empowered to make special assessments on
insured depository institutions in amounts determined by the
FDIC to be necessary to give it adequate assessment income to
repay amounts borrowed from the U.S. Treasury and other
sources or for any other purpose the FDIC deems necessary.
Dividends
The principal source of Bancorps cash reserves is
dividends received from the Bank. The payment of dividends is
subject to government regulation, in that regulatory authorities
may prohibit banks and bank holding companies from paying
dividends in a manner that would constitute an unsafe or unsound
banking practice. In addition, a bank may not pay cash dividends
if doing so would reduce the amount of its capital below that
necessary to meet minimum applicable regulatory capital
requirements. State laws also limit a banks ability to pay
dividends.
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Capital Adequacy
Regulatory Capital Guidelines. Federal bank regulatory
agencies use capital adequacy guidelines in the examination and
regulation of bank holding companies and banks. The guidelines
are risk-based, meaning that they are designed to
make capital requirements more sensitive to differences in risk
profiles among banks and bank holding companies.
Tier 1 and Tier 2 Capital. Under the
guidelines, an institutions capital is divided into two
broad categories, Tier 1 capital and Tier 2 capital.
Tier 1 capital generally consists of common
stockholders equity, surplus and undivided profits.
Tier 2 capital generally consists of the allowance for loan
losses, hybrid capital instruments, and subordinated debt. The
sum of Tier 1 capital and Tier 2 capital represents an
institutions total capital. The guidelines require that at
least 50% of an institutions total capital consist of
Tier 1 capital.
Risk-based Capital Ratios. The adequacy of an
institutions capital is gauged primarily with reference to
the institutions risk-weighted assets. The guidelines
assign risk weightings to an institutions assets in an
effort to quantify the relative risk of each asset and to
determine the minimum capital required to support that risk. An
institutions risk-weighted assets are then compared with
its Tier 1 capital and total capital to arrive at a
Tier 1 risk-based ratio and a total risk-based ratio,
respectively. The guidelines provide that an institution must
have a minimum Tier 1 risk-based ratio of 4% and a minimum
total risk-based ratio of 8%.
Leverage Ratio. The guidelines also employ a leverage
ratio, which is Tier 1 capital as a percentage of total
assets, less intangibles. The principal objective of the
leverage ratio is to constrain the maximum degree to which a
bank holding company may leverage its equity capital base. The
minimum leverage ratio is 3%; however, for all but the most
highly rated bank holding companies and for bank holding
companies seeking to expand, regulators expect an additional
cushion of at least 1% to 2%.
Prompt Corrective Action. Under the guidelines, an
institution is assigned to one of five capital categories
depending on its total risk-based capital ratio, Tier 1
risk-based capital ratio, and leverage ratio, together with
certain subjective factors. The categories range from well
capitalized to critically undercapitalized.
Institutions that are undercapitalized or lower are
subject to certain mandatory supervisory corrective actions.
Corporate Governance and Accounting Legislation
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of
2002 (the Act) addresses corporate and accounting
fraud. The Act establishes a new accounting oversight board to
enforce auditing standards and restricts the scope of services
that accounting firms may provide to their public company audit
clients. Among other things, the Act also (i) requires
chief executive officers and chief financial officers to certify
to the accuracy of periodic reports filed with the Securities
and Exchange Commission (the SEC); (ii) imposes
new disclosure requirements regarding internal controls,
off-balance-sheet transactions, and pro forma (non-GAAP)
disclosures; (iii) accelerates the time frame for reporting
of insider transactions and periodic disclosures by public
companies; and (iv) requires companies to disclose whether
or not they have adopted a code of ethics for senior financial
officers and whether the audit committee includes at least one
audit committee financial expert.
The Act also requires the SEC, based on certain enumerated
factors, to regularly and systematically review corporate
filings. To deter wrongdoing, the Act: (i) subjects bonuses
issued to top executives to disgorgement if a restatement of a
companys financial statements was due to corporate
misconduct; (ii) prohibits an officer or director from
misleading or coercing an auditor; (iii) prohibits insider
trades during pension fund blackout periods;
(iv) imposes new criminal penalties for fraud and other
wrongful acts; and (v) extends the period during which
certain securities fraud lawsuits can be brought against a
company or its officers.
As a publicly reporting company, we are subject to the
requirements of the Act and related rules and regulations issued
by the SEC. We anticipate that we will incur additional expense,
including ongoing compliance with Section 404, as a result
of the Act, but we do not expect that such compliance will have
a material impact on our business.
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Anti-terrorism Legislation
USA Patriot Act of 2001. The Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (USA Patriot Act) is
intended to combat terrorism. Among other things, the USA
Patriot Act (1) prohibits banks from providing
correspondent accounts directly to foreign shell banks;
(2) imposes due diligence requirements on banks opening or
holding accounts for foreign financial institutions or wealthy
foreign individuals (3) requires financial institutions to
establish an anti-money-laundering compliance program, and
(4) eliminates civil liability for persons who file
suspicious activity reports. The Act also increases governmental
powers to investigate terrorism, including expanded government
access to account records. The Department of the Treasury is
empowered to administer and make rules to implement the Act.
While we believe the USA Patriot Act may, to some degree, affect
our recordkeeping and reporting expenses, we do not believe that
the Act will have a material adverse effect on our business and
operations.
Financial Services Modernization
Gramm-Leach-Bliley Act of 1999. The Financial Services
Modernization Act of 1999, also known as the Gramm-Leach-Bliley
Act, brought about significant changes to the laws affecting
banks and bank holding companies. Generally, the Act
(i) repealed the historical restrictions on preventing
banks from affiliating with securities firms, (ii) provided
a uniform framework for the activities of banks, savings
institutions and their holding companies, (iii) broadened
the activities that may be conducted by national banks and
banking subsidiaries of bank holding companies,
(iv) provided an enhanced framework for protecting the
privacy of consumer information and (v) addressed a variety
of other legal and regulatory issues affecting both day-to-day
operations and long-term activities of financial institutions.
Bank holding companies that qualify and elect to become
financial holding companies can engage in a wider variety of
financial activities than permitted under previous law,
particularly with respect to insurance and securities
underwriting activities. In addition, in a change from previous
law, bank holding companies will be in a position to be owned,
controlled or acquired by any company engaged in financially
related activities, so long as the company meets certain
regulatory requirements. The act also permits national banks
(and, in states with wildcard statutes, certain state banks),
either directly or through operating subsidiaries, to engage in
certain non-banking financial activities.
We do not believe that the act will negatively affect our
operations in the short term. However, to the extent the
legislation permits banks, securities firms and insurance
companies to affiliate, the financial services industry may
experience further consolidation. This consolidation could
result in a growing number of larger financial institutions that
offer a wider variety of financial services than we currently
offer, and these companies may be able to aggressively compete
in the markets we currently serve.
Effects Of Government Monetary Policy
Our earnings and growth are affected not only by general
economic conditions, but also by the fiscal and monetary
policies of the federal government, particularly the Federal
Reserve. The Federal Reserve can and does implement national
monetary policy for such purposes as curbing inflation and
combating recession, and its open market operations in
U.S. government securities, control of the discount rate
applicable to borrowings from the Federal Reserve, and
establishment of reserve requirements against certain deposits,
influence the growth of bank loans, investments and deposits,
and also affect interest rates charged on loans or paid on
deposits. The nature and impact of future changes in monetary
policies and their impact on us cannot be predicted with
certainty.
The Bank conducts business from five leased office locations:
the Eastlake office at 301 Eastlake Avenue East, northeast of
downtown Seattle; the Lynnwood office located at 2502 196th
Street Southwest, Lynnwood; the Bellevue office located at 110
110th Avenue Northeast, Bellevue; the Federal Way office located
at 1300 South 320th Street, Federal Way; and the South Lake
Union office at 307 Westlake Avenue North, northwest
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of downtown Seattle. A new office located at 1111 Third Avenue,
Seattle is scheduled to open in May of 2005. The leased premises
are used for current operations and are deemed suitable for
present needs and limited future expansion.
The Company leases premises and parking facilities for the
Eastlake and Lynnwood offices from PEMCO Mutual Insurance
Company, under leases expiring from March 31, 2005 to
May 31, 2007. The Company leases the Federal Way, South
Lake Union, Bellevue and downtown Seattle premises from other
parties and those leases expire June 30, 2008,
August 31, 2009, and May 31, 2011 and April 30,
2015, respectively. See Note 14 Leases to the
Consolidated Financial Statements at page 50.
Items of furniture, fixtures, and equipment are purchased as
needed by the Bank. The Bank is responsible for maintenance,
repairs, operating expenses, and insurance.
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Item 3. |
Legal Proceedings |
Bancorp and the Bank from time to time may be parties to various
legal actions arising in the normal course of business.
Management believes that there is no proceeding threatened or
pending against Bancorp or the Bank which, if determined
adversely, would have a material adverse effect on the
consolidated financial condition or results of operations of the
Company.
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Item 4. |
Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of security holders in the
fourth quarter of 2004.
PART II
Item 5. Market for
Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Bancorps common stock is traded on the OTC
Bulletin Board under the symbol EVGG. As of
March 17, 2005, there were 657 holders of record of
Bancorps common stock, and an estimated 304 holders of its
stock in street name by brokerage firms.
The table below shows, for the periods indicated, the reported
high and low closing sale prices and cash dividends paid
(adjusted to reflect the 10 percent stock dividend in
November 2003 and the five-for-four stock split in November
2004).
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
Cash | |
|
|
|
Cash | |
|
|
|
|
Dividend | |
|
High | |
|
Low | |
|
Dividend | |
|
High | |
|
Low | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
First Quarter
|
|
|
0.064 |
|
|
|
14.75 |
|
|
|
13.57 |
|
|
|
0.146 |
|
|
|
11.96 |
|
|
|
11.21 |
|
Second Quarter
|
|
|
0.064 |
|
|
|
14.44 |
|
|
|
13.89 |
|
|
|
|
|
|
|
11.82 |
|
|
|
11.74 |
|
Third Quarter
|
|
|
0.064 |
|
|
|
14.75 |
|
|
|
13.93 |
|
|
|
|
|
|
|
12.91 |
|
|
|
11.93 |
|
Fourth Quarter
|
|
|
0.064 |
|
|
|
18.00 |
|
|
|
14.63 |
|
|
|
0.102 |
|
|
|
16.00 |
|
|
|
12.69 |
|
Holders of common stock are entitled to receive such dividends
as may be declared by the Board of Directors from time to time
and paid out of funds legally available. Because the
Companys consolidated net income consists largely of the
net income of the Bank, Bancorps ability to pay dividends
depends upon its receipt of dividends from the Bank. The
Banks ability to pay dividends is regulated by banking
statutes. See Supervision and Regulation
Dividends in Part I. The declaration of dividends by
Bancorp is discretionary and depends on Bancorps earnings
and financial condition, regulatory limitations, tax
considerations and other factors. Beginning in January 2004, the
Board of Directors has approved the declaration of dividends on a
10
quarterly, rather than an annual, basis. While the Board of
Directors expects to continue to declare dividends, there can be
no assurance that dividends will be paid in the future.
Investor information, including Bancorp filings with the
Securities and Exchange Commission and press releases, are
available on Bancorps website at www.evergreenbancorp.com,
or by written request to EvergreenBancorp, Inc., 301 Eastlake
Avenue East, Seattle, Washington 98109, Attention: Investor
Relations.
Inquiries regarding stock transfers should be directed to
Computershare Trust Company, Inc., 350 Indiana Street
Suite 800, Golden, Colorado 80401, (800) 962-4284.
No shares of common stock were repurchased by Bancorp during the
fourth quarter of 2004.
Equity Compensation Plan Information
We currently maintain one compensation plan that provides for
the issuance of the Companys common stock to officers and
other employees, directors and consultants. The Companys
Amended 2000 Stock Option Plan was approved by shareholders. The
following table sets forth information regarding outstanding
options and shares reserved for future issuance under the plan
as of December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Remaining | |
|
|
Number of Shares to be | |
|
Weighted-Average | |
|
Available for Future Issuance | |
|
|
Issued upon Exercise of | |
|
Exercise Price of | |
|
under Equity Compensation | |
|
|
Outstanding Options, | |
|
Outstanding Options, | |
|
Plans (Excluding Shares | |
|
|
Warrants and Rights | |
|
Warrants and Rights | |
|
Reflected in Column(a)) | |
Plan Category |
|
(a) | |
|
(b) | |
|
(c) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by shareholders(1)
|
|
|
143,580 |
|
|
$ |
10.86 |
|
|
|
85,482 |
|
Equity compensation plans not approved by shareholders
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
143,580 |
|
|
$ |
10.86 |
|
|
|
85,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Amounts have been adjusted to reflect all applicable stock
splits and dividends paid on the Companys common stock. |
11
|
|
Item 6. |
Selected Consolidated Financial Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
INCOME STATEMENT DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$ |
9,102 |
|
|
$ |
8,200 |
|
|
$ |
8,337 |
|
|
$ |
7,714 |
|
|
$ |
7,169 |
|
Provision for loan losses
|
|
|
321 |
|
|
|
233 |
|
|
|
330 |
|
|
|
479 |
|
|
|
455 |
|
Noninterest income
|
|
|
1,709 |
|
|
|
1,755 |
|
|
|
1,537 |
|
|
|
1,807 |
|
|
|
1,587 |
|
Noninterest expense
|
|
|
8,602 |
|
|
|
8,196 |
|
|
|
7,521 |
|
|
|
7,213 |
|
|
|
6,567 |
|
Net income
|
|
|
1,282 |
|
|
|
1,036 |
|
|
|
1,343 |
|
|
|
1,240 |
|
|
|
1,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
$ |
0.86 |
|
|
$ |
0.70 |
|
|
$ |
0.91 |
|
|
$ |
0.82 |
|
|
$ |
0.76 |
|
Diluted earnings per common share
|
|
|
0.84 |
|
|
|
0.69 |
|
|
|
0.90 |
|
|
|
0.82 |
|
|
|
0.76 |
|
Dividends declared per common share
|
|
|
0.256 |
|
|
|
0.247 |
|
|
|
0.114 |
|
|
|
0.106 |
|
|
|
0.097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$ |
159,656 |
|
|
$ |
138,468 |
|
|
$ |
121,509 |
|
|
$ |
122,219 |
|
|
$ |
113,058 |
|
Allowance for loan losses
|
|
|
1,887 |
|
|
|
1,636 |
|
|
|
1,690 |
|
|
|
1,498 |
|
|
|
1,323 |
|
Real estate owned
|
|
|
|
|
|
|
2,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
209,630 |
|
|
|
194,556 |
|
|
|
169,926 |
|
|
|
156,365 |
|
|
|
151,752 |
|
Total deposits
|
|
|
173,801 |
|
|
|
152,683 |
|
|
|
132,174 |
|
|
|
130,344 |
|
|
|
125,425 |
|
Total long-term debt
|
|
|
16,067 |
|
|
|
20,381 |
|
|
|
16,783 |
|
|
|
4,005 |
|
|
|
2,000 |
|
Stockholders equity
|
|
|
17,485 |
|
|
|
16,583 |
|
|
|
15,960 |
|
|
|
14,738 |
|
|
|
14,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SELECTED FINANCIAL RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
0.66 |
% |
|
|
0.60 |
% |
|
|
0.82 |
% |
|
|
0.83 |
% |
|
|
0.81 |
% |
Return on average equity
|
|
|
7.58 |
|
|
|
6.42 |
|
|
|
8.84 |
|
|
|
8.50 |
|
|
|
8.67 |
|
Dividend payout ratio
|
|
|
29.80 |
|
|
|
35.33 |
|
|
|
12.51 |
|
|
|
13.39 |
|
|
|
13.31 |
|
Average equity to average assets
|
|
|
8.71 |
|
|
|
9.29 |
|
|
|
9.31 |
|
|
|
9.70 |
|
|
|
9.29 |
|
Net interest margin (tax equivalent)
|
|
|
5.01 |
|
|
|
5.02 |
|
|
|
5.48 |
|
|
|
5.52 |
|
|
|
5.36 |
|
Allowance for loan losses to total loans at the end of year
|
|
|
1.18 |
|
|
|
1.18 |
|
|
|
1.39 |
|
|
|
1.23 |
|
|
|
1.17 |
|
Nonperforming loans to total loans at the end of year(2)
|
|
|
0.14 |
|
|
|
0.46 |
|
|
|
0.66 |
|
|
|
0.95 |
|
|
|
0.49 |
|
Net loans charged off to average total loans
|
|
|
0.05 |
|
|
|
0.24 |
|
|
|
0.11 |
|
|
|
0.26 |
|
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
All per share amounts have been adjusted to reflect all
applicable stock splits and dividends paid on the Companys
common stock. |
|
(2) |
Nonperforming loans include nonaccrual loans, and other loans
90 days or more past due. |
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
General
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). The
Banks 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, ATM network,
Internet banking, cash management services, and merchant credit
card processing services. The Bank currently conducts business
from five locations: the Eastlake office northeast of downtown
Seattle, the Lynnwood office north of Seattle, the Bellevue
office east of Seattle, the Federal Way office south of Seattle,
and the South Lake Union office, north
12
of downtown Seattle which opened in November of 2004. A new
office located in downtown Seattle will open in May of 2005.
Generally speaking, new branches have a negative impact on
earnings in the short term until they reach a level of assets to
support the initial overhead expenses incurred.
The Banks results of operations primarily depend on net
interest income, which is the difference between interest income
on loans and investments and interest expense on deposits and
borrowed funds. The Banks operating results are also
affected by loan fees, service charges on deposit accounts, net
merchant credit card processing fees, gains from sales of loans
and investments, and other noninterest income. Operating
expenses of the Bank include employee compensation and benefits,
occupancy and equipment costs, federal deposit insurance
premiums and other administrative expenses.
The Banks results of operations are further affected by
economic and competitive conditions, particularly changes in
market interest rates. Results are also affected by monetary and
fiscal policies of federal agencies, and actions of regulatory
authorities.
The following discussion should be read along with the
accompanying financial statements and notes. All share and
per-share information in this annual report has been restated to
give retroactive effect to all applicable stock splits and
dividends paid on the Companys stock. In the following
discussion, unless otherwise noted, references to increases or
decreases in balances for a particular period or date refer to
the comparison with corresponding amounts for the period or date
one year earlier.
Forward-Looking Statements
In addition to historical information, the following
managements discussion and analysis contains certain
forward-looking statements that involve risks and uncertainties.
The Companys actual results could differ significantly
from those anticipated in these forward-looking statements as a
result of certain factors discussed elsewhere in this report,
including changes in interest rates, economic conditions,
competition, requirements of regulators, and the demand for
financial products and services in the Companys market
area. These risks and uncertainties should be considered in
evaluating forward-looking statements, and undue reliance should
not be placed on such statements.
Further information concerning the Company and its business,
including additional factors that could materially affect its
financial results, is included in the Companys filings
with the Securities and Exchange Commission. Reports and
additional information, including Company press releases, can be
found on the Bancorps website at www.evergreenbancorp.com.
Critical Accounting Policies
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make judgments, 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. Management has identified certain policies as being
particularly sensitive in terms of judgments and the extent to
which estimates are used. The policies relate to the
determination of the allowance for loan losses, other real
estate owned and the fair value of financial instruments, as
described in further detail below and in the accompanying
consolidated financial statements and footnotes thereto
contained in this Form 10-K. Management believes that the
judgments, estimates and assumptions used in the preparation of
the financial statements are appropriate given the factual
circumstances at the time. However, given the sensitivity of the
financial statements to these critical accounting policies,
estimates and assumptions, material differences in the results
of operations or financial condition could result.
Recently issued accounting standards. FAS 123,
Revised, requires all public companies to record compensation
cost for stock options provided to employees in return for
employee service. The cost is measured at the fair value of the
options when granted, and this cost is expensed over the
employee service period, which is normally the vesting period of
the options. This will apply to awards granted or modified after
the first quarter or year beginning after June 15, 2005.
Compensation cost will also be recorded for prior option
13
grants that vest after the date of adoption. The effect on
results of operations will depend on the level of future option
grants and the calculation of the fair value of the options
granted at such future date, as well as the vesting periods
provided, and so cannot currently be predicted. Existing options
that will vest after adoption date are expected to result in
additional compensation expense of approximately $34,000 during
the balance of 2005, $58,000 in 2006, $33,000 in 2007, $18,000
in 2008, and $11,000 in 2009. There will be no significant
effect on financial position as total equity will not change.
Allowance for Loan Losses. The allowance for loan losses
is a valuation allowance for probable incurred credit losses.
Loan losses are charged against the allowance when management
believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.
Management estimates the allowance balance required using past
loan loss experience, the nature and volume of the portfolio,
information about specific borrower situations and estimated
collateral values, economic conditions, and other factors.
Allocations of the allowance may be made for specific loans, but
the entire allowance is available for any loan that, in
managements judgment, should be charged off.
The allowance consists of specific and general components. The
specific component relates to loans that are individually
classified as impaired or loans otherwise classified as
substandard or doubtful. The general component covers
non-classified loans and is based on historical loss experience
adjusted for current factors.
A loan is impaired when full payment under the loan terms is not
expected. Commercial and commercial real estate loans are
individually evaluated for impairment. If a loan is impaired, a
portion of the allowance is allocated so that the loan is
reported, net, at the present value of estimated future cash
flows using the loans existing rate or at the fair value
of collateral if repayment is expected solely from the
collateral. Large groups of smaller balance homogeneous loans,
such as consumer and residential real estate loans, are
collectively evaluated for impairment, and accordingly, they are
not separately identified for impairment disclosures.
Management recognizes a certain level of imprecision exists in
the manner in which the allowance for loan losses is calculated,
owing to intangible factors.
Finally, management regularly monitors the performance of the
loan portfolio with regard to levels of criticized and
classified loans, as well as assessing regional economic factors
which may impact the loan portfolio. This provides additional
information for managements regular evaluation of the
allowance.
Other Real Estate Owned. Other real estate owned is
comprised of a property recorded at the lower of cost or market
based upon the appraised value.
Temporary Decline in Fair Value of Securities. In March
2004, the Emerging Issues Task Force reached a consensus on
Issue No. 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments
(EITF 03-1). EITF 03-1 provides guidance for
determining when an investment is considered impaired, specifies
criteria for determining whether the impairment is
other-than-temporary and describes how to measure and recognize
an impairment loss. Certain disclosure requirements of
EITF 03-1 were adopted in 2003. In September 2004 the
Financial Accounting Standards Board deferred the effective date
of the guidance on how to evaluate and recognize an impairment
loss that is other-than-temporary, and the matter is currently
pending the completion of a final FASB staff position paper on
the subject. The impact of applying this pending guidance on the
Companys financial condition or results of operations
cannot be determined until the final guidance is released. The
Company continues to follow the requirements of
SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities, and Staff Accounting
Bulletin No. 59, Accounting for Noncurrent
Marketable Equity Securities.
At December 31, 2004, the Companys investment
securities have an aggregate depreciation of 1.0 percent
from the Companys amortized cost basis. Most of this
depreciation is centered in an investment in an adjustable rate
mortgage fund, with underlying securities that reprice as rates
increase. The depreciation in the value of this investment is
due predominately to recent changes in market values resulting
from increasing short-term interest rates. Based on past
performance, management believes the fund can reasonably be
expected to reprice and recover value as the recent trend of
increasing short-term interest rates moderates, and in stable or
declining interest rate environments. No credit issues have been
identified that cause management to believe the declines in the
funds market value are other than temporary.
14
Under current accounting rules, declines in the fair value of
securities below their cost that are other-than-temporary are
reflected as realized losses. In determining whether an
unrealized loss is considered other-than-temporary, management
considers: (1) the length of time and extent that fair
value has been less than cost; (2) the financial condition
and near term prospects of the issuer; and (3) the
Companys ability and intent to hold the security for a
period sufficient to allow for any anticipated recovery in fair
value. In managements view, the decline in market value of
the securities that were below amortized cost at
December 31, 2004 does not represent an
other-than-temporary impairment, and thus no loss was recognized
on the income statement. Additional information regarding these
securities can be found in Note 3, Securities
to the Notes to Consolidated Financial Statements.
Overview
The profitability of the Companys operations depends
primarily on the net interest income from its banking operations
and investment activities, the provision for losses on loans,
noninterest income, noninterest expense, and income tax expense.
Net interest income is the difference between the income the
Company receives on its loan and investment portfolios and its
cost of funds, which consists of interest paid on deposits and
borrowings. The provision for loan losses reflects the cost of
credit risk in the Companys loan portfolio. Noninterest
income includes service charges on deposit accounts, net
merchant credit card processing fees, gains from sales of loans
and investment securities, and investment services commissions.
Noninterest expense includes operating costs such as salaries
and employee benefits, occupancy and equipment, technology,
marketing, and other administrative expense.
Net interest income is dependent on the amounts and yields on
interest-earning assets as compared to the amounts and rates on
interest-bearing liabilities. Net interest income is sensitive
to changes in market rates of interest and the Companys
asset/liability management procedures in dealing with such
changes.
The provision for loan losses is dependent on managements
assessment of the collectibility of the loan portfolio under
current economic conditions. Other expenses are influenced by
the growth of operations, with additional employees necessary to
staff and operate new banking offices and marketing expenses
necessary to promote them. Growth in the number of account
relationships directly affects expenses such as technology
costs, supplies, postage and miscellaneous expenses.
The historically low level of interest rates at the outset of
2004 began to increase mid-year as national and regional
economic conditions improved, and as the Federal Reserve Bank
increased the federal funds target rate from 1.00 percent
in May of 2004 to 2.25 percent by year-end. In 2004
historically low rates continued to prompt borrowers to
refinance loans. The Company benefited from refinancing through
additional loan fees, however the first half of the year loan
totals increased only slightly as loan originations were offset
by loan refinancing and payoffs. The net interest margin
compressed in the first half of the year and expanded in the
second half as rates began to increase. In the second half of
the year, loan demand increased substantially and by year-end
loan totals had reached new record levels, up 15.3 percent
over the prior year-end. Credit quality remains favorable
despite an increase in impaired loans. The ratio of
nonperforming loans to total loans declined year-over-year, and
ended at a low level. Overall financial results for 2004
included an 11.0 percent improvement in net interest income
due to growth in loans, partially offset by growth in operating
expenses. Operating costs in 2004 included $132,000 recorded in
the first quarter of 2004 to write down Bank-owned real estate
to its sales value.
Capital activities in 2004 included quarterly cash dividends
paid in February, May, August and November, and a five-for-four
stock split effective in November. Capital ratios remain
relatively strong with the equity-to-assets ratio at
8.34 percent at December 31, 2004.
Results of Operations 2004 Compared to 2003
The Companys 2004 net income was $1,282,000 compared
$1,036,000 in 2003, an increase of 23.7 percent. Basic and
diluted earnings per share for 2004 were $0.86 and $0.84,
respectively, compared to $0.70 and $0.69 for 2003. Return on
average assets was 0.66 percent for 2004 and
0.60 percent for 2003. Returns on average common equity
were 7.58 percent and 6.42 percent, respectively. The
net interest margin
15
(net interest income on a taxable-equivalent basis divided by
average earning assets) was 5.01 percent compared to 5.02
in 2003.
The results of operations in 2004 reflected higher net interest
income due to growth in loans. 2004 operating results included
additional expense of $132,000 recorded in the first quarter of
2004 to write down Bank-owned real estate to the value realized
upon its sale in May 2004.
For the year, noninterest income including gains on sales of
loans and investments decreased 2.6 percent. Operating
expenses rose 5.0 percent and included additional
professional services expense and costs associated with opening
the new South Lake Union branch.
The table of selected consolidated financial data, which appears
on page 12, summarizes the Companys financial
performance for each of the past five years. Additional analysis
of financial components is contained in the discussion that
follows.
Results of Operations 2003 Compared to 2002
The Companys 2003 net income was $1,036,000 compared
to $1,343,000 in 2002. Net income per basic share was $0.70
compared to $.91 in 2002. Return on average assets was
0.60 percent for 2003 and 0.82 percent for 2002.
Return on average common equity was 6.42 percent and
8.84 percent, respectively. The net interest margin (net
interest income on a taxable-equivalent basis divided by average
earning assets) was 5.02 percent compared to
5.48 percent in 2002.
The results of operations in 2003 reflected lower net interest
income due to compression in the net interest margin. The lower
margin was largely due to a change in the mix of
interest-earning assets from loans to securities. A lower total
provision for loan losses offset the decline in net interest
income so that net interest income after the provision for loan
losses was approximately equivalent to the prior year. The
provision for loan losses declined because of improvements in
overall credit quality and favorable loan loss experience.
For the year, noninterest income increased 14.2 percent due
to higher fees and increased investment services commissions.
Operating expenses rose 9.0 percent and included additional
professional services expense and costs associated with opening
the new Federal Way branch.
The table of selected consolidated financial data, which appears
on page 12, summarizes the Companys financial
performance for each of the past five years.
Net Interest Income
The Companys principal source of earnings is net interest
income, which is the difference between interest income,
including loan-related fee income, and interest expense. The
individual components of net interest income and net interest
margin are presented on pages 18 and 19.
2004 Compared to 2003
Net interest income for 2004 was $9,102,000 compared to
$8,200,000 in 2003. The 11.0 percent increase was
principally due to growth in the average balance of the loan
portfolio, and partially due to a change in the mix of earning
assets from federal funds sold and securities to higher yielding
loans. The net interest margin was stable year over year,
declining slightly to 5.01 percent in 2004, compared to
5.02 percent in 2003, reflecting the larger decline in
asset yield than the decline in cost of funds.
Total interest income was $11,363,000 in 2004, compared to
$10,408,000 in 2003. This increase of 9.2 percent was
primarily attributable to a 17.8 percent increase in
average loan balances, a change in the mix of earning assets
from federal funds sold and securities to higher yielding loans,
partially offset by lower rates on new and refinanced loans.
Total interest expense was $2,261,000 in 2004 compared to
$2,208,000 in 2003, an increase of 2.4 percent. This
increase was largely due to growth in average time deposits
outstanding, largely offset by the repricing of existing time
deposits to lower interest rates, and by growth in non-interest
bearing deposits.
16
2003 Compared to 2002
Net interest income for 2003 was $8,200,000 compared to
$8,337,000 in 2002. The 1.6 percent decrease was
principally due to a change in the percentage mix of
interest-earning assets from loans to securities and a change in
the mix of funding from deposits to borrowings, largely offset
by overall growth in interest-earning assets. For the same
reasons, the net interest margin declined to 5.02 percent
in 2003, compared to 5.48 percent in 2002.
Total interest income was $10,408,000 in 2003, compared to
$11,049,000 in 2002. The decrease of 5.8 percent resulted
from lower average yields on loans and investment securities,
partially offset by a higher average balance of investment
securities.
Total interest expense was $2,208,000 in 2003, compared to
$2,712,000 in 2002, a decrease of 18.6 percent due
primarily to lower interest rates and a change in the mix of
deposits from higher cost certificates of deposit to lower cost
money market and savings accounts, offset by a higher percentage
of funding from borrowings.
17
Analysis of Average Balances, Net Interest Income, and Net
Interest Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
|
|
|
|
2004 Over 2003 |
|
|
|
|
|
|
|
|
|
|
|
Change in Income |
|
|
2004 |
|
2003 |
|
Due to |
|
|
|
|
|
|
|
|
|
Average |
|
|
|
Yield/ |
|
Average |
|
|
|
Yield/ |
|
|
|
|
Balance |
|
Interest |
|
Rate |
|
Balance |
|
Interest |
|
Rate |
|
Volume |
|
Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and financial
|
|
$ |
62,706 |
|
|
$ |
4,504 |
|
|
|
7.18 |
% |
|
$ |
53,822 |
|
|
$ |
3,839 |
|
|
|
7.13 |
% |
|
$ |
648 |
|
|
$ |
16 |
|
|
Real estate
|
|
|
66,352 |
|
|
|
4,456 |
|
|
|
6.72 |
|
|
|
52,809 |
|
|
|
4,037 |
|
|
|
7.64 |
|
|
|
810 |
|
|
|
(392 |
) |
|
Consumer and other
|
|
|
13,170 |
|
|
|
1,283 |
|
|
|
9.74 |
|
|
|
14,129 |
|
|
|
1,410 |
|
|
|
9.98 |
|
|
|
(92 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
142,228 |
|
|
|
10,243 |
|
|
|
7.20 |
|
|
|
120,760 |
|
|
|
9,286 |
|
|
|
7.69 |
|
|
|
1,367 |
|
|
|
(409 |
) |
Federal funds sold
|
|
|
3,564 |
|
|
|
44 |
|
|
|
1.24 |
|
|
|
8,425 |
|
|
|
90 |
|
|
|
1.07 |
|
|
|
(63 |
) |
|
|
18 |
|
Interest-bearing deposits in financial institutions
|
|
|
962 |
|
|
|
4 |
|
|
|
0.42 |
|
|
|
1,328 |
|
|
|
12 |
|
|
|
0.90 |
|
|
|
(3 |
) |
|
|
(5 |
) |
Investment securities
|
|
|
35,575 |
|
|
|
1,130 |
|
|
|
3.18 |
|
|
|
33,828 |
|
|
|
1,078 |
|
|
|
3.19 |
|
|
|
59 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
182,329 |
|
|
|
11,422 |
|
|
|
6.26 |
|
|
|
164,341 |
|
|
|
10,466 |
|
|
|
6.37 |
|
|
|
1,360 |
|
|
|
(404 |
) |
Cash and due from banks
|
|
|
7,500 |
|
|
|
|
|
|
|
|
|
|
|
6,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
3,402 |
|
|
|
|
|
|
|
|
|
|
|
2,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
|
330 |
|
|
|
|
|
|
|
|
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest and other assets
|
|
|
2,220 |
|
|
|
|
|
|
|
|
|
|
|
1,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(1,677 |
) |
|
|
|
|
|
|
|
|
|
|
(1,657 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
194,104 |
|
|
|
|
|
|
|
|
|
|
$ |
173,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$ |
11,133 |
|
|
|
12 |
|
|
|
0.11 |
|
|
$ |
10,208 |
|
|
|
20 |
|
|
|
0.19 |
|
|
|
2 |
|
|
|
(10 |
) |
|
Savings deposits
|
|
|
49,384 |
|
|
|
469 |
|
|
|
0.95 |
|
|
|
48,677 |
|
|
|
513 |
|
|
|
1.05 |
|
|
|
7 |
|
|
|
(51 |
) |
|
Time deposits
|
|
|
48,953 |
|
|
|
972 |
|
|
|
1.99 |
|
|
|
36,868 |
|
|
|
829 |
|
|
|
2.25 |
|
|
|
224 |
|
|
|
(82 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
109,470 |
|
|
|
1,453 |
|
|
|
1.33 |
|
|
|
95,753 |
|
|
|
1,362 |
|
|
|
1.42 |
|
|
|
234 |
|
|
|
(143 |
) |
Federal funds purchased
|
|
|
1,715 |
|
|
|
14 |
|
|
|
0.83 |
|
|
|
3,054 |
|
|
|
20 |
|
|
|
.65 |
|
|
|
(14 |
) |
|
|
8 |
|
Federal Home Loan Bank advances
|
|
|
12,663 |
|
|
|
541 |
|
|
|
4.27 |
|
|
|
14,313 |
|
|
|
586 |
|
|
|
4.09 |
|
|
|
(71 |
) |
|
|
26 |
|
Junior subordinated debt
|
|
|
5,000 |
|
|
|
253 |
|
|
|
5.06 |
|
|
|
5,000 |
|
|
|
240 |
|
|
|
4.80 |
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
128,848 |
|
|
|
2,261 |
|
|
|
1.75 |
|
|
|
118,120 |
|
|
|
2,208 |
|
|
|
1.87 |
|
|
|
150 |
|
|
|
(92 |
) |
Noninterest-bearing deposits
|
|
|
46,323 |
|
|
|
|
|
|
|
|
|
|
|
37,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities
|
|
|
2,024 |
|
|
|
|
|
|
|
|
|
|
|
1,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$ |
177,195 |
|
|
|
|
|
|
|
|
|
|
|
157,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
16,909 |
|
|
|
|
|
|
|
|
|
|
|
16,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
194,104 |
|
|
|
|
|
|
|
|
|
|
$ |
173,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest revenue as a percentage of average earning assets
|
|
|
|
|
|
|
|
|
|
|
6.26 |
% |
|
|
|
|
|
|
|
|
|
|
6.37 |
% |
|
|
|
|
|
|
|
|
Interest expense as a percentage of average earning assets
|
|
|
|
|
|
|
|
|
|
|
1.24 |
% |
|
|
|
|
|
|
|
|
|
|
1.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income on a taxable-equivalent basis and net
interest margin
|
|
|
|
|
|
$ |
9,156 |
|
|
|
5.02 |
% |
|
|
|
|
|
$ |
8,258 |
|
|
|
5.02 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in income and expense which are not due solely to rate
or volume have been allocated proportionately. Average loan
balances include nonaccrual loans. Taxable-equivalent
adjustments relate to tax-exempt investment securities.
18
Analysis of Average Balances, Net Interest Income, and Net
Interest Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
|
|
2003 Over 2002 | |
|
|
|
|
| |
|
|
2003 | |
|
2002 | |
|
Change in Income | |
|
|
| |
|
| |
|
Due to | |
|
|
Average | |
|
|
|
Yield/ | |
|
Average | |
|
|
|
Yield/ | |
|
| |
|
|
Balance | |
|
Interest | |
|
Rate | |
|
Balance | |
|
Interest | |
|
Rate | |
|
Volume | |
|
Rate | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and financial
|
|
$ |
53,822 |
|
|
$ |
3,839 |
|
|
|
7.13 |
% |
|
$ |
57,833 |
|
|
$ |
4,489 |
|
|
|
7.76 |
% |
|
$ |
(300 |
) |
|
$ |
(350 |
) |
|
Real estate
|
|
|
52,809 |
|
|
|
4,037 |
|
|
|
7.64 |
|
|
|
47,350 |
|
|
|
3,958 |
|
|
|
8.36 |
|
|
|
305 |
|
|
|
(226 |
) |
|
Consumer and other
|
|
|
14,129 |
|
|
|
1,410 |
|
|
|
9.98 |
|
|
|
16,549 |
|
|
|
1,627 |
|
|
|
9.83 |
|
|
|
(242 |
) |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
120,760 |
|
|
|
9,286 |
|
|
|
7.69 |
|
|
|
121,732 |
|
|
|
10,074 |
|
|
|
8.28 |
|
|
|
(237 |
) |
|
|
(551 |
) |
Federal funds sold
|
|
|
8,425 |
|
|
|
90 |
|
|
|
1.07 |
|
|
|
12,297 |
|
|
|
200 |
|
|
|
1.63 |
|
|
|
(52 |
) |
|
|
(58 |
) |
Interest-bearing deposits in financial institutions
|
|
|
1,328 |
|
|
|
12 |
|
|
|
0.90 |
|
|
|
1,479 |
|
|
|
8 |
|
|
|
.54 |
|
|
|
(1 |
) |
|
|
5 |
|
Investment securities
|
|
|
33,828 |
|
|
|
1,078 |
|
|
|
3.19 |
|
|
|
18,765 |
|
|
|
890 |
|
|
|
4.74 |
|
|
|
318 |
|
|
|
(130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
164,341 |
|
|
|
10,466 |
|
|
|
6.37 |
|
|
|
154,273 |
|
|
|
11,172 |
|
|
|
7.24 |
|
|
|
28 |
|
|
|
(734 |
) |
Cash and due from banks
|
|
|
6,953 |
|
|
|
|
|
|
|
|
|
|
|
7,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
2,377 |
|
|
|
|
|
|
|
|
|
|
|
2,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest and other assets
|
|
|
1,641 |
|
|
|
|
|
|
|
|
|
|
|
1,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(1,657 |
) |
|
|
|
|
|
|
|
|
|
|
(1,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
173,799 |
|
|
|
|
|
|
|
|
|
|
$ |
163,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$ |
10,208 |
|
|
|
20 |
|
|
|
0.19 |
|
|
$ |
9,094 |
|
|
|
23 |
|
|
|
0.25 |
|
|
|
4 |
|
|
|
(7 |
) |
|
Savings deposits
|
|
|
48,677 |
|
|
|
513 |
|
|
|
1.05 |
|
|
|
45,875 |
|
|
|
814 |
|
|
|
1.77 |
|
|
|
53 |
|
|
|
(354 |
) |
|
Time deposits
|
|
|
36,868 |
|
|
|
829 |
|
|
|
2.25 |
|
|
|
39,270 |
|
|
|
1,240 |
|
|
|
3.16 |
|
|
|
(72 |
) |
|
|
(339 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
95,753 |
|
|
|
1,362 |
|
|
|
1.42 |
|
|
|
94,239 |
|
|
|
2,077 |
|
|
|
2.20 |
|
|
|
(15 |
) |
|
|
(700 |
) |
Federal funds purchased
|
|
|
3,054 |
|
|
|
20 |
|
|
|
.65 |
|
|
|
4,721 |
|
|
|
56 |
|
|
|
1.19 |
|
|
|
(16 |
) |
|
|
(20 |
) |
Federal Home Loan Bank advances
|
|
|
14,313 |
|
|
|
586 |
|
|
|
4.09 |
|
|
|
8,555 |
|
|
|
413 |
|
|
|
4.83 |
|
|
|
223 |
|
|
|
(50 |
) |
Junior subordinated debt
|
|
|
5,000 |
|
|
|
240 |
|
|
|
4.80 |
|
|
|
3,059 |
|
|
|
166 |
|
|
|
5.43 |
|
|
|
92 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
118,120 |
|
|
|
2,208 |
|
|
|
1.87 |
|
|
|
110,574 |
|
|
|
2,712 |
|
|
|
2.46 |
|
|
|
284 |
|
|
|
(788 |
) |
Noninterest-bearing deposits
|
|
|
37,940 |
|
|
|
|
|
|
|
|
|
|
|
35,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities
|
|
|
1,593 |
|
|
|
|
|
|
|
|
|
|
|
2,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
157,653 |
|
|
|
|
|
|
|
|
|
|
|
148,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
16,146 |
|
|
|
|
|
|
|
|
|
|
|
15,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
173,799 |
|
|
|
|
|
|
|
|
|
|
$ |
163,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest revenue as a percentage of average earning assets
|
|
|
|
|
|
|
|
|
|
|
6.37 |
% |
|
|
|
|
|
|
|
|
|
|
7.24 |
% |
|
|
|
|
|
|
|
|
Interest expense as a percentage of average earning assets
|
|
|
|
|
|
|
|
|
|
|
1.34 |
% |
|
|
|
|
|
|
|
|
|
|
1.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income on a taxable-equivalent basis and net
interest margin
|
|
|
|
|
|
$ |
8,258 |
|
|
|
5.02 |
% |
|
|
|
|
|
$ |
8,460 |
|
|
|
5.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in income and expense which are not due solely to rate
or volume have been allocated proportionately. Average loan
balances include nonaccrual loans. Taxable-equivalent
adjustments relate to tax-exempt investment securities.
19
Provision and Allowance for Loan Losses
The provision for loan losses was $321,000 in 2004 compared to
$233,000 and $330,000 for 2003 and 2002, respectively. At
December 31, 2004, the allowance for loan losses was
$1,887,000, or 1.18 percent of total loans, compared with
$1,636,000, or 1.18 percent at December 31, 2003. At
December 31, 2003, the allowance for loan losses was
$1,636,000, or 1.18 percent of total loans, compared with
$1,690,000, or 1.39 percent at December 31, 2002.
Nonperforming loans (nonaccrual loans and loans over
90 days past due) to total loans at the end of 2004 were
0.14 percent compared to 0.46 percent at
December 31, 2003, and 0.66 percent at
December 31, 2002.
The increase in the provision for loan losses in 2004 resulted
largely from changes in portfolio composition, offset by
improved net loan loss experience.
The decrease in the provision for loan losses for 2003 compared
to 2002 resulted from improvements in overall credit quality and
favorable loan loss experience. The allowance for loan losses to
total loans percentage was lower at the end of 2003 primarily
because most loan growth occurred late in the year, reflecting
the higher credit quality of the new loans. In addition, a
fourth quarter foreclosure action on one loan resulted in a
lower level of nonperforming loans in the allowance calculation.
A portion of the loan was charged off to the allowance for loan
losses to record the acquired property in the other real
estate owned category at the lower of cost or realizable
value.
Management evaluates the adequacy of the allowance on a
quarterly basis after consideration of a number of factors,
including the volume and composition of the loan portfolio,
potential impairment of individual loans, concentrations of
credit, past loss experience, current delinquencies, information
about specific borrowers, current economic conditions, and other
factors.
The Company considers the allowance for loan losses adequate to
cover probable incurred losses, however, no assurance can be
given that actual losses will not exceed estimated amounts. In
addition, changes in factors such as regional economic
conditions and the financial strength of individual borrowers
may require changes in the level of the allowance, and in turn
cause fluctuations in reported earnings and provisions for loan
losses.
An analysis of the changes in the allowance for loan losses,
including provisions, recoveries, and loans charged off is
presented in Note 5, Allowance for Loan Losses
to the Consolidated Financial Statements.
Noninterest Income
Noninterest income in 2004, 2003 and 2002 totaled $1,709,000,
$1,755,000, and $1,537,000, respectively.
The decrease of 2.6 percent in 2004 was primarily due to
lower recorded gains on sales of securities available-for-sale
and lower commissions and fees, offset by higher revenue from
service charges on deposit accounts.
The increase of 14.2 percent in 2003 compared to 2002 was
primarily due to higher revenue from service charges on deposit
accounts, increased investment services commissions, and higher
recorded gains on sales of available-for-sale securities.
Noninterest Expense
The Companys total noninterest expense for 2004, 2003, and
2002 was $8,602,000, $8,196,000, and $7,521,000, respectively.
Noninterest expense increased $406,000 or 5.0 percent in
2004. The change in this category was primarily due to an
increase of $223,000 in salaries and employee benefits.
Noninterest expense for 2004 included the first quarter
write-down of $132,000 in the value of other real estate owned,
additional professional services expense, and certain costs
associated with opening a new branch in the South Lake Union
area of Seattle in November 2004.
20
Noninterest expense increased $675,000 or 9.0 percent in
2003 compared to 2002. The change in this category was primarily
due to increases in employee wages and benefits, occupancy and
equipment, and professional services expense. Noninterest
expense for 2003 included certain costs, including marketing,
associated with opening a new branch in Federal Way in September
2003.
Review of Financial Condition
Total assets increased 7.7 percent in 2004 to $209,630,000,
securities decreased 11.7 percent to $35,170,000, loans
increased 15.3 percent to $159,656,000, and deposits
increased 13.8 percent to $173,801,000.
Analysis of Securities
The components of the investment portfolio were as follows at
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
Carrying | |
|
Carrying | |
|
Carrying | |
|
|
Value | |
|
Value | |
|
Value | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
U.S. agencies
|
|
$ |
8,004 |
|
|
$ |
8,481 |
|
|
$ |
3,032 |
|
State and political subdivisions
|
|
|
3,555 |
|
|
|
3,567 |
|
|
|
2,123 |
|
AMF Adjustable Rate Mortgage Fund
|
|
|
14,832 |
|
|
|
16,586 |
|
|
|
5,397 |
|
Mortgage-backed securities and collateralized mortgage
obligations
|
|
|
7,367 |
|
|
|
9,812 |
|
|
|
11,843 |
|
Federal Home Loan Bank stock
|
|
|
1,412 |
|
|
|
1,372 |
|
|
|
1,299 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
35,170 |
|
|
$ |
39,818 |
|
|
$ |
23,694 |
|
|
|
|
|
|
|
|
|
|
|
The securities portfolio decreased $4,648,000 from
December 31, 2003 to December 31, 2004. The decrease
resulted primarily from $6,390,000 in proceeds from sales,
maturities and principal payments on securities, offset by
purchases of securities totaling $1,523,000.
The securities portfolio increased $16,279,000 from
December 31, 2002 to December 31, 2003. The increase
was funded primarily with deposit growth and proceeds from FHLB
borrowings.
The following table sets forth the maturities of securities at
December 31, 2004. Taxable equivalent values are used in
calculating yields assuming a tax rate of 34 percent.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 Year | |
|
After 5 Years | |
|
|
|
Total and | |
|
|
Within | |
|
but Within | |
|
but Within | |
|
After | |
|
Weighted | |
|
|
1 Year/ | |
|
5 Years/ | |
|
10 Years/ | |
|
10 Years/ | |
|
Average | |
|
|
Yield | |
|
Yield | |
|
Yield | |
|
Yield | |
|
Yield | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, carrying value) | |
U.S. agencies
|
|
$ |
498 |
|
|
$ |
5,005 |
|
|
$ |
2,501 |
|
|
$ |
|
|
|
$ |
8,004 |
|
|
|
|
1.95 |
% |
|
|
2.89 |
% |
|
|
1.00 |
% |
|
|
|
|
|
|
2.24 |
% |
State and political subdivisions
|
|
|
136 |
|
|
|
1,927 |
|
|
|
1,492 |
|
|
|
|
|
|
|
3,555 |
|
|
|
|
2.85 |
% |
|
|
3.89 |
% |
|
|
4.74 |
% |
|
|
|
|
|
|
4.21 |
% |
AMF Adjustable Rate Mortgage Fund*
|
|
|
14,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,832 |
|
|
|
|
2.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.74 |
% |
Mortgage-backed securities and collateralized mortgage
obligations
|
|
|
|
|
|
|
455 |
|
|
|
|
|
|
|
6,912 |
|
|
|
7,367 |
|
|
|
|
|
|
|
|
5.58 |
% |
|
|
|
|
|
|
3.21 |
% |
|
|
3.36 |
% |
Federal Home Loan Bank stock*
|
|
|
1,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
16,878 |
|
|
$ |
7,387 |
|
|
$ |
3,993 |
|
|
$ |
6,912 |
|
|
$ |
35,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Securities without a stated maturity. |
21
Loans
At December 31, 2004, loans totaled $159,656,000, an
increase of $21,188,000 or 15.3 percent over
December 31, 2003. At December 31, 2004, the Bank had
$76,813,000 in loans secured by real estate, compared to
$71,845,000 at December 31, 2003. 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.
The following tables set out the composition of the types of
loans, the allocation of the allowance for loan losses, and the
analysis of the allowance for loan losses as of
December 31, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Commercial
|
|
$ |
55,563 |
|
|
$ |
53,770 |
|
|
$ |
47,603 |
|
|
$ |
53,791 |
|
|
$ |
46,265 |
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
67,165 |
|
|
|
48,963 |
|
|
|
42,497 |
|
|
|
28,349 |
|
|
|
39,605 |
|
|
Construction
|
|
|
11,538 |
|
|
|
10,911 |
|
|
|
5,574 |
|
|
|
7,002 |
|
|
|
5,187 |
|
|
Residential 1-4 family
|
|
|
11,508 |
|
|
|
11,971 |
|
|
|
10,821 |
|
|
|
13,942 |
|
|
|
21,726 |
|
Consumer and other
|
|
|
13,882 |
|
|
|
12,853 |
|
|
|
15,014 |
|
|
|
19,135 |
|
|
|
275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
159,656 |
|
|
$ |
138,468 |
|
|
$ |
121,509 |
|
|
$ |
122,219 |
|
|
$ |
113,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the amounts maturing or repricing as
of December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within | |
|
|
|
After | |
|
|
|
|
1 Year | |
|
1-5 Years | |
|
5 Years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Commercial
|
|
$ |
35,817 |
|
|
$ |
17,610 |
|
|
$ |
2,136 |
|
|
$ |
55,563 |
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
20,998 |
|
|
|
41,421 |
|
|
|
4,746 |
|
|
|
67,165 |
|
|
Construction
|
|
|
11,401 |
|
|
|
137 |
|
|
|
|
|
|
|
11,538 |
|
|
Residential 1-4 family
|
|
|
7,310 |
|
|
|
4,094 |
|
|
|
104 |
|
|
|
11,508 |
|
Consumer and other
|
|
|
9,540 |
|
|
|
4,255 |
|
|
|
87 |
|
|
|
13,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
85,066 |
|
|
$ |
67,517 |
|
|
$ |
7,073 |
|
|
$ |
159,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans maturing by fixed or variable rates after one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
After | |
|
|
1-5 Years | |
|
5 Years | |
|
|
| |
|
| |
|
|
(In thousands) | |
Fixed rates
|
|
$ |
26,537 |
|
|
$ |
7,142 |
|
Variable rates
|
|
|
17,586 |
|
|
|
43,355 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
44,123 |
|
|
$ |
50,497 |
|
|
|
|
|
|
|
|
22
|
|
|
Allocation of the Allowance for Loan Losses |
In the following table, the allowance for loan losses at
December 31, 2004, 2003, 2002, 2001 and 2000 has been
allocated among major loan categories based on a number of
factors including quality, volume, current economic outlook and
other business considerations.
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Loans | |
|
|
|
% of Loans | |
|
|
|
% of Loans | |
|
|
|
% of Loans | |
|
|
|
% of Loans | |
|
|
|
|
in Each | |
|
|
|
in Each | |
|
|
|
in Each | |
|
|
|
in Each | |
|
|
|
in Each | |
|
|
2004 | |
|
Category | |
|
2003 | |
|
Category | |
|
2002 | |
|
Category | |
|
2001 | |
|
Category | |
|
2000 | |
|
Category | |
|
|
Allocated | |
|
to Total | |
|
Allocated | |
|
to Total | |
|
Allocated | |
|
to Total | |
|
Allocated | |
|
to Total | |
|
Allocated | |
|
to Total | |
|
|
Amount | |
|
Loans | |
|
Amount | |
|
Loans | |
|
Amount | |
|
Loans | |
|
Amount | |
|
Loans | |
|
Amount | |
|
Loans | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Commercial
|
|
$ |
1,000 |
|
|
|
35 |
|
|
$ |
885 |
|
|
|
39 |
|
|
$ |
1,024 |
|
|
|
39 |
|
|
$ |
908 |
|
|
|
44 |
|
|
$ |
545 |
|
|
|
41 |
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
568 |
|
|
|
42 |
|
|
|
436 |
|
|
|
35 |
|
|
|
423 |
|
|
|
35 |
|
|
|
261 |
|
|
|
23 |
|
|
|
50 |
|
|
|
5 |
|
|
Construction
|
|
|
117 |
|
|
|
7 |
|
|
|
110 |
|
|
|
8 |
|
|
|
59 |
|
|
|
5 |
|
|
|
65 |
|
|
|
6 |
|
|
|
148 |
|
|
|
14 |
|
|
Res 1-4
|
|
|
11 |
|
|
|
7 |
|
|
|
9 |
|
|
|
9 |
|
|
|
28 |
|
|
|
9 |
|
|
|
12 |
|
|
|
11 |
|
|
|
236 |
|
|
|
21 |
|
Consumer/other
|
|
|
191 |
|
|
|
9 |
|
|
|
196 |
|
|
|
9 |
|
|
|
156 |
|
|
|
12 |
|
|
|
252 |
|
|
|
16 |
|
|
|
344 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,887 |
|
|
|
100 |
|
|
$ |
1,636 |
|
|
|
100 |
|
|
$ |
1,690 |
|
|
|
100 |
|
|
$ |
1,498 |
|
|
|
100 |
|
|
$ |
1,323 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of loan portfolio
|
|
|
1.18 |
% |
|
|
|
|
|
|
1.18 |
% |
|
|
|
|
|
|
1.39 |
% |
|
|
|
|
|
|
1.23 |
% |
|
|
|
|
|
|
1.17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This allocation of the allowance for loan losses should not be
interpreted as an indication that charge-offs will occur in
these amounts or proportions, or that the allocation indicates
future charge-off trends. Furthermore, the portion allocated to
each category is not the total amount available for future
losses that might occur within each category.
23
|
|
|
Analysis of the Allowance for Loan Losses |
The following table summarizes transactions in the allowance for
loan losses and details the charge-offs, recoveries, and net
loan losses by loan category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Beginning balance
|
|
$ |
1,636 |
|
|
$ |
1,690 |
|
|
$ |
1,498 |
|
|
$ |
1,323 |
|
|
$ |
1,055 |
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
24 |
|
|
|
81 |
|
|
|
108 |
|
|
|
185 |
|
|
|
147 |
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family
|
|
|
|
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
|
90 |
|
Consumer and other
|
|
|
146 |
|
|
|
67 |
|
|
|
63 |
|
|
|
176 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
170 |
|
|
|
332 |
|
|
|
191 |
|
|
|
361 |
|
|
|
262 |
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
87 |
|
|
|
17 |
|
|
|
22 |
|
|
|
57 |
|
|
|
70 |
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
13 |
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
100 |
|
|
|
45 |
|
|
|
53 |
|
|
|
57 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs/(recoveries)
|
|
|
70 |
|
|
|
287 |
|
|
|
138 |
|
|
|
304 |
|
|
|
187 |
|
Provision
|
|
|
321 |
|
|
|
233 |
|
|
|
330 |
|
|
|
479 |
|
|
|
455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$ |
1,887 |
|
|
$ |
1,636 |
|
|
$ |
1,690 |
|
|
$ |
1,498 |
|
|
$ |
1,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs to average loans outstanding
|
|
|
0.12 |
% |
|
|
0.24 |
% |
|
|
0.11 |
% |
|
|
0.26 |
% |
|
|
0.18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
Nonperforming Loans and Assets |
The following table sets forth the amounts and categories of
non-performing loans and assets for the years ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Nonaccruing loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$ |
182 |
|
|
$ |
112 |
|
|
$ |
309 |
|
|
$ |
463 |
|
|
$ |
165 |
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
462 |
|
|
|
90 |
|
|
|
|
|
Consumer
|
|
|
31 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(1)
|
|
|
213 |
|
|
|
112 |
|
|
|
772 |
|
|
|
553 |
|
|
|
277 |
|
Accruing loans delinquent 90 days or more:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
5 |
|
|
|
464 |
|
|
|
15 |
|
|
|
444 |
|
|
|
222 |
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111 |
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
67 |
|
|
|
12 |
|
|
|
47 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5 |
|
|
|
531 |
|
|
|
27 |
|
|
|
602 |
|
|
|
278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
|
218 |
|
|
|
643 |
|
|
|
799 |
|
|
|
1155 |
|
|
|
555 |
|
Other real estate owned
|
|
|
|
|
|
|
2,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$ |
218 |
|
|
$ |
3,302 |
|
|
$ |
799 |
|
|
$ |
1,155 |
|
|
$ |
555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans as a percentage of loans
|
|
|
0.14 |
% |
|
|
0.46 |
% |
|
|
0.66 |
% |
|
|
0.95 |
% |
|
|
0.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets as a percentage of assets
|
|
|
0.10 |
% |
|
|
1.70 |
% |
|
|
0.47 |
% |
|
|
0.74 |
% |
|
|
0.37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
If interest on these nonaccruing loans had been recognized, such
income would have been $9,000, $9,000, $68,000, $22,000, and
$28,000 for 2004, 2003, 2002, 2001 and 2000. |
The decrease in other real estate owned at December 31,
2004 resulted from the sale of foreclosed property in May 2004.
At December 31, 2003, other real estate owned consisted of
one residential real estate property acquired through
foreclosure in December 2003. Upon foreclosure, the Bank charged
off a portion of the non-performing loan secured by the
foreclosed property and transferred the remaining balance to
other real estate owned. The property was recorded at the lower
of cost or realizable value, based on a third party appraisal
less estimated selling costs.
There were no commitments for additional funds related to the
loans noted above. At December 31, 2004, there were no
potential problem loans that are not now disclosed where known
information causes management to have serious doubts as to the
ability of the borrower to comply with present loan repayment
terms.
Nonperforming loans include nonaccrual loans and accruing loans
delinquent 90 days or more. Loans are generally placed on
nonaccrual status when the loan is 90 days or more past due
as to principal and interest, unless the loan is well-secured
and in the process of collection. If management believes that
collection is doubtful after considering relevant conditions,
accrual of interest is discontinued immediately.
25
Deposits
The average daily amount of deposits and rates paid on interest
bearing deposits is summarized for the periods indicated in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
Amount | |
|
Rate | |
|
Amount | |
|
Rate | |
|
Amount | |
|
Rate | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
DEPOSITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing demand
|
|
$ |
46,323 |
|
|
|
0.00 |
% |
|
$ |
37,940 |
|
|
|
0.00 |
% |
|
$ |
35,464 |
|
|
|
0.00 |
% |
Interest bearing demand
|
|
|
11,133 |
|
|
|
0.11 |
|
|
|
10,208 |
|
|
|
0.19 |
|
|
|
9,094 |
|
|
|
0.25 |
|
Savings deposits
|
|
|
49,384 |
|
|
|
0.95 |
|
|
|
48,677 |
|
|
|
1.05 |
|
|
|
45,875 |
|
|
|
1.77 |
|
Time deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit, under $100,000
|
|
|
22,369 |
|
|
|
2.08 |
|
|
|
19,839 |
|
|
|
2.53 |
|
|
|
22,278 |
|
|
|
3.30 |
|
|
Certificates of deposit, over $100,000
|
|
|
13,184 |
|
|
|
2.14 |
|
|
|
14,640 |
|
|
|
2.03 |
|
|
|
14,166 |
|
|
|
3.21 |
|
|
Public funds
|
|
|
13,400 |
|
|
|
1.66 |
|
|
|
2,389 |
|
|
|
1.28 |
|
|
|
2,826 |
|
|
|
1.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total time deposits
|
|
|
48,953 |
|
|
|
1.98 |
% |
|
|
36,868 |
|
|
|
2.25 |
% |
|
|
39,270 |
|
|
|
3.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
155,793 |
|
|
|
|
|
|
$ |
133,693 |
|
|
|
|
|
|
$ |
129,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of time certificates of deposits of $100,000 or more
outstanding as of December 31, 2004 are summarized as
follows:
|
|
|
|
|
|
|
Amount | |
|
|
| |
|
|
(In thousands) | |
3 months or less
|
|
$ |
20,091 |
|
Over 3 months through 6 months
|
|
|
3,060 |
|
Over 6 months through 12 months
|
|
|
2,005 |
|
Over 12 months
|
|
|
5,243 |
|
|
|
|
|
Total
|
|
$ |
30,399 |
|
|
|
|
|
Borrowings
The following tables set forth certain information with respect
to federal funds purchased and FHLB advances for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
December 31, |
|
|
2004 |
|
2003 |
|
2002 |
Federal Funds Purchased |
|
|
|
|
|
|
|
|
(In thousands) |
Balance at end of year
|
|
$ |
|
|
|
$ |
3,097 |
|
|
$ |
3,353 |
|
Weighted average interest rate at end of year
|
|
|
|
|
|
|
0.50 |
% |
|
|
0.80 |
% |
Maximum amount outstanding(1)
|
|
|
3,212 |
|
|
|
4,666 |
|
|
|
7,921 |
|
Average amount outstanding
|
|
|
1,715 |
|
|
|
3,054 |
|
|
|
4,721 |
|
Weighted average interest rate during the year
|
|
|
0.83 |
% |
|
|
0.65 |
% |
|
|
1.19 |
% |
|
|
(1) |
Based on amount outstanding at month end during each year. |
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
2002 | |
FHLB Advances |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Balance at end of year
|
|
$ |
11,067 |
|
|
$ |
15,381 |
|
|
$ |
11,783 |
|
Weighted average interest rate at end of year
|
|
|
4.50 |
% |
|
|
3.81 |
% |
|
|
4.26 |
% |
Maximum amount outstanding(1)
|
|
|
17,537 |
|
|
|
19,339 |
|
|
|
12,499 |
|
Average amount outstanding
|
|
|
12,663 |
|
|
|
14,313 |
|
|
|
8,555 |
|
Weighted average interest rate during the year
|
|
|
4.27 |
% |
|
|
4.09 |
% |
|
|
4.85 |
% |
|
|
(1) |
Based on amount outstanding at month end during each year. |
Junior Subordinated Debt (Trust Preferred Securities)
In May 2002, Bancorp formed EvergreenBancorp Capital
Trust I (the Trust) a statutory trust formed
under the laws of the State of Delaware. In May 2002, the Trust
issued $5 million in trust preferred securities in a
private placement offering. Simultaneously with the issuance of
the trust preferred securities by the Trust, Bancorp issued
junior subordinated debentures to the Trust. The junior
subordinated debentures are the sole assets of the Trust. The
junior subordinated debentures and the trust preferred
securities pay distributions and dividends, respectively, on a
quarterly basis, which are included in interest expense. The
interest rate payable on the debentures and the trust preferred
securities resets quarterly and is equal to the three-month
LIBOR plus 3.50% (5.51% at December 31, 2004), provided
that this rate cannot exceed 12.0% through June 30, 2007.
The junior subordinated debentures will mature in 2032, at which
time the preferred securities must be redeemed. Bancorp has
provided a full, irrevocable, and unconditional guarantee on a
subordinated basis of the obligations of the Trust under the
preferred securities as set forth in such guarantee agreement.
Debt issuance costs totaling $209,000 were capitalized related
to the offering and are being amortized over the estimated life
of the junior subordinated debentures.
Prior to 2003, the Trust was consolidated in the Companys
financial statements, with the trust preferred securities issued
by the Trust reported in liabilities as guaranteed
preferred beneficial interests and the subordinated
debentures eliminated in consolidation. Under new accounting
guidance, FASB Interpretation No. 46, as revised in
December 2003, the Trust is no longer consolidated with the
Company. Accordingly, the Company does not report the securities
issued by the Trust as liabilities, and instead reports as
liabilities the subordinated debentures issued by the Company
and held by the Trust, as these are no longer eliminated in
consolidation. The effect of no longer consolidating the Trust
does not change the amounts reported as the Companys
assets, liabilities, equity, or interest expense. Accordingly,
the amounts previously reported as guaranteed preferred
beneficial interests in liabilities have been recaptioned
junior subordinated debt and continue to be
presented in liabilities on the balance sheet.
Bancorp invested $4,800,000 of the proceeds from the trust
preferred offering in the Bank, which used the funds to support
its lending and other operations. The proceeds are considered
Tier 1 capital under regulatory guidelines.
Contractual Obligations and Commitments
In the normal course of business, to meet the financing needs of
its customers, the Company is a party to financial instruments
with off-balance-sheet risk. These financial instruments include
commitments to extend credit, lines of credit and standby
letters of credit. Such off-balance-sheet items are recognized
in the financial statements when they are funded or related fees
are received. The Company uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance sheet instruments. The off-balance-sheet items do not
represent unusual elements of credit risk in excess of the
amounts recognized in the balance sheets.
At December 31, 2004, the Company had commitments to extend
credit and contingent liabilities under lines of credit, standby
letters of credit and similar arrangements totaling $46,686,000.
Since many lines of
27
credit do not fully disburse, or expire without being drawn
upon, the total amount does not necessarily reflect future cash
requirements.
For additional information regarding off-balance-sheet items,
refer to Note 16, Commitments and Contingencies
to the Consolidated Financial Statements.
The following table summarizes the Companys significant
contractual obligations and commitments at December 31,
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within | |
|
|
|
|
|
After | |
|
|
|
|
1 Year | |
|
1-3 Years | |
|
3-5 Years | |
|
5 Years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Federal Home Loan Bank advances
|
|
$ |
3,654 |
|
|
$ |
5,227 |
|
|
$ |
2,186 |
|
|
$ |
|
|
|
$ |
11,067 |
|
Junior subordinated debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
5,000 |
|
Operating leases
|
|
|
550 |
|
|
|
843 |
|
|
|
312 |
|
|
|
172 |
|
|
|
1,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
4,204 |
|
|
$ |
6,070 |
|
|
$ |
2,498 |
|
|
$ |
5,172 |
|
|
$ |
17,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In January 2005, the Bank entered into a new 10 year lease
agreement for additional office space in Seattle, Washington.
This lease commences on May 1, 2005 and ends on
April 30, 2015. The future operating lease commitments for
the new office are $126,000 for 2005, $397,000 after one year to
three years, $428,000 for three to five years, and $1,287,000
for after five years, totaling $2,238,000.
Purchase obligations are primarily contracts with vendors to
provide services, such as information processing. For additional
discussion of FHLB advances and junior subordinated debt, see
Note 8 Federal Funds Purchased, Advances from Federal
Home Loan Bank (FHLB) and Junior Subordinated
Debt to the Consolidated Financial Statements.
Asset/ Liability Management
The principal objectives of asset/liability management are to
manage changes in net interest income and earnings due to
changes in interest rates, maintain adequate liquidity, and
manage capital adequacy. Asset/liability management encompasses
structuring the mix of assets, deposits and borrowings to limit
exposure to interest rate risk and enhance long-term
profitability.
The following discussion and analysis addresses managing
liquidity, interest rate risk, and capital resources. These
elements provide the framework for the Companys
asset/liability management policy. The asset/liability committee
consists of the senior management of the Bank and meets at least
quarterly to implement policy guidelines.
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 liability 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
also provided by the available-for-sale securities portfolio.
Liquidity is further enhanced by deposit growth, federal funds
purchased, borrowings, and planned maturities and sales of
investments and loans.
The Consolidated Statements of Cash Flows on page 36
provides information on the sources and uses of cash for the
years ended December 31, 2004, 2003, and 2002. As shown in
these statements, the Companys largest cash flows relate
to both investing and financing activities.
Over the past year, the primary investing and financing
activities that have required the greatest use of cash include
lending and the repayment of Federal Home Loan Bank
advances. The primary sources of cash flows have been growth in
deposits and sales, maturities and principal paydowns on
securities available for sale.
28
In 2003, the primary investing activities that required the
greatest use of cash included lending and purchases of new
securities. Purchases of securities in 2003 were predominately
in an adjustable rate mortgage-backed securities fund to
maintain overall liquidity and control interest rate risk. The
primary sources of cash flows have been growth in deposits and
an increase in FHLB borrowings.
In 2002, under a planned growth strategy, the Company added
certain mortgage-related securities to the investment portfolio,
funded largely by FHLB advances. The strategy was designed to
provide a steady positive monthly cash flow from the investment
portfolio for reinvestment into loans and to meet other
liquidity needs.
The Bank has a credit line through the Federal Home
Loan Bank for properly collateralized borrowings up to 20%
of the Banks total assets. In addition, the Bank has
approved credit lines with correspondent banks for overnight
funds credit facilities aggregating in $13,500,000.
Interest Rate Risk
The Companys profitability depends largely upon its net
interest income, which is the difference between interest earned
on assets, primarily loans and investments, and the interest
expense incurred on its liabilities, largely deposits and
borrowings. Interest rate risk is the variation in bank
performance introduced by changes in interest rates over time.
The Companys objective in managing interest rate risk is
to minimize the impact on net income due to significant changes
in interest rates.
The Company monitors interest rate risk by monthly reports that
highlight the level, trend and composition of net interest
income and net interest margin, by quarterly reports matching
rate-sensitive assets to rate-sensitive liabilities, and by
reports of interest rate sensitivity through net interest income
analysis.
Net interest income analysis is the primary tool used by
management to assess the direction and magnitude of changes in
net interest income resulting from changes in interest rates.
This method of analysis assesses overall interest rate
sensitivity by modeling the impact on net interest income from
sudden and sustained increases and decreases in market interest
rates. The following table presents a summary of the potential
changes in net interest income over a one year time horizon
resulting from immediate and sustained changes in market
interest rates.
Net Interest Income Analysis (in thousands; rate changes
in basis points (bp) = 1/100 of 1%):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 | |
|
|
|
December 31, 2003 | |
|
|
| |
|
|
|
| |
|
|
Dollar | |
|
Percent | |
|
|
|
Dollar | |
|
Percent | |
Immediate Rate Change |
|
Change | |
|
Change | |
|
Immediate Rate Change |
|
Change | |
|
Change | |
|
|
| |
|
| |
|
|
|
| |
|
| |
+100bp
|
|
$ |
309 |
|
|
|
3.05 |
% |
|
+100bp |
|
$ |
190 |
|
|
|
2.23 |
% |
+50bp
|
|
|
155 |
|
|
|
1.53 |
|
|
+50bp |
|
|
95 |
|
|
|
1.12 |
|
-50bp
|
|
|
(167 |
) |
|
|
(1.65 |
) |
|
-50bp |
|
|
(184 |
) |
|
|
(2.16 |
) |
-100bp
|
|
|
(334 |
) |
|
|
(3.30 |
) |
|
-100bp |
|
|
(367 |
) |
|
|
(4.31 |
) |
The tables above reflect the effect of interest rate changes on
the Companys net interest income. At December 31,
2004, the table to the left indicates that the effect of an
immediate 100 basis point increase in interest rates would
increase the Companys net interest income by
3.05 percent or approximately $309,000. An immediate
100 basis point decrease in rates indicates a potential
reduction of net interest income by 3.30 percent or
approximately $334,000. For comparison purposes, the table to
the right presents the rate risk profile as of December 31,
2003.
While net interest income or rate shock analysis is
a useful tool to assess interest rate risk, the methodology has
inherent limitations. For example, certain assets and
liabilities may have similar maturities or periods to repricing,
but may react in different degrees to changes in market interest
rates. Prepayment and early withdrawal levels could vary
significantly from assumptions made in calculating the tables.
In addition, the ability of borrowers to service their debt may
decrease in the event of significant interest rate increases.
Finally, actual results may vary as management may not adjust
rates equally as general levels of interest rates rise or fall.
29
The Company does not use interest rate risk management products,
such as interest rate swaps, hedges, or derivatives.
Capital Resources
Stockholders equity on December 31, 2004, was
$17,485,000 compared to $16,583,000 at December 31, 2003,
an increase of $902,000 or 5.4 percent. Current earnings
were $1,282,000 and dividends paid were $382,000. The change in
unrealized losses on securities available-for-sale, net of
deferred taxes, also reduced the total stockholders equity
by $71,000 during 2004.
At December 31, 2004, the Company had total
risk-based capital of $24,305,000 which exceeded the
well-capitalized threshold of $17,282,000, as
defined by federal banking regulators. See Note 18
Regulatory Capital Requirements to the Consolidated
Financial Statements for additional information on risk-based
capital and other regulated capital ratios.
Capital management activities in 2004 included the payment of
four quarterly cash dividends and a five-for-four stock split in
November.
Management has issued no material commitments for major capital
expenditures and knows of no trends or uncertainties, favorable
or unfavorable, other than increased competition that would
materially impact capital resources. Adequate reserves are
maintained to provide for loan losses. The principal source of
capital is undivided profits.
|
|
Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
The discussion relating to quantitative and qualitative
disclosures about market risk is included in Item 7 above,
specifically in the sections titled Interest Rate
Risk and Net Interest Income Analysis.
|
|
Item 8. |
Financial Statements and Supplementary Data |
The following audited consolidated financial statements and
related documents are set forth below on the pages indicated:
|
|
|
|
|
|
|
Page | |
|
|
| |
Report of Independent Registered Public Accounting Firm
|
|
|
31 |
|
Consolidated Balance Sheets
|
|
|
32 |
|
Consolidated Statements of Income
|
|
|
33 |
|
Consolidated Statements of Stockholders Equity
|
|
|
34 |
|
Consolidated Statements of Comprehensive Income
|
|
|
35 |
|
Consolidated Statements of Cash Flows
|
|
|
36 |
|
Notes to Consolidated Financial Statements
|
|
|
37 |
|
30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of EvergreenBancorp, Inc.
We have audited the accompanying consolidated balance sheets of
EvergreenBancorp, Inc. as of December 31, 2004 and 2003,
and the related consolidated statements of income,
stockholders equity, comprehensive income, and cash flows
for each of the three years in the period ended
December 31, 2004. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of EvergreenBancorp, Inc. at December 31, 2004 and
2003, and the results of its operations and its cash flows for
each of the three years in the period ended December 31,
2004, in conformity with U.S. generally accepted accounting
principles.
|
|
|
![-s- Crowe Chizek and Company LLC](v05481v0548101.gif) |
|
Crowe Chizek and Company LLC |
Oak Brook, Illinois
March 9, 2005
31
EVERGREENBANCORP, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands, except | |
|
|
share and per share data) | |
Assets
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$ |
9,407 |
|
|
$ |
9,701 |
|
Federal funds sold
|
|
|
2,736 |
|
|
|
180 |
|
Interest-bearing deposits in financial institutions
|
|
|
2 |
|
|
|
744 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
12,145 |
|
|
|
10,625 |
|
Securities available-for-sale
|
|
|
35,170 |
|
|
|
39,818 |
|
Loans
|
|
|
159,656 |
|
|
|
138,468 |
|
Allowance for loan losses
|
|
|
(1,887 |
) |
|
|
(1,636 |
) |
|
|
|
|
|
|
|
|
Net loans
|
|
|
157,769 |
|
|
|
136,832 |
|
Premises and equipment
|
|
|
2,576 |
|
|
|
2,469 |
|
Other real estate owned
|
|
|
|
|
|
|
2,659 |
|
Accrued interest and other assets
|
|
|
1,970 |
|
|
|
2,153 |
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
209,630 |
|
|
$ |
194,556 |
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$ |
54,193 |
|
|
$ |
47,132 |
|
|
Interest-bearing
|
|
|
119,608 |
|
|
|
105,551 |
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
173,801 |
|
|
|
152,683 |
|
Federal funds purchased
|
|
|
|
|
|
|
3,097 |
|
Federal Home Loan Bank advances
|
|
|
11,067 |
|
|
|
15,381 |
|
Accrued expenses and other liabilities
|
|
|
2,277 |
|
|
|
1,812 |
|
Junior subordinated debt
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
192,145 |
|
|
|
177,973 |
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred stock; no par value; 100,000 shares authorized;
none issued
|
|
|
|
|
|
|
|
|
Common stock and surplus; no par value; 15,000,000 shares
authorized; 1,494,321 shares issued at 2004;
1,190,366 shares issued at 2003
|
|
|
15,927 |
|
|
|
15,854 |
|
Retained earnings
|
|
|
1,678 |
|
|
|
778 |
|
Accumulated other comprehensive loss
|
|
|
(120 |
) |
|
|
(49 |
) |
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
17,485 |
|
|
|
16,583 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
209,630 |
|
|
$ |
194,556 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
32
EVERGREENBANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except | |
|
|
per share data) | |
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$ |
10,243 |
|
|
$ |
9,286 |
|
|
$ |
10,074 |
|
|
Taxable securities
|
|
|
976 |
|
|
|
955 |
|
|
|
705 |
|
|
Tax exempt securities
|
|
|
94 |
|
|
|
77 |
|
|
|
70 |
|
|
Federal funds sold and other
|
|
|
50 |
|
|
|
90 |
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
11,363 |
|
|
|
10,408 |
|
|
|
11,049 |
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,453 |
|
|
|
1,362 |
|
|
|
2,077 |
|
|
Federal funds purchased
|
|
|
14 |
|
|
|
20 |
|
|
|
56 |
|
|
Federal Home Loan Bank advances
|
|
|
541 |
|
|
|
586 |
|
|
|
413 |
|
|
Junior subordinated debt
|
|
|
253 |
|
|
|
240 |
|
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
2,261 |
|
|
|
2,208 |
|
|
|
2,712 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
9,102 |
|
|
|
8,200 |
|
|
|
8,337 |
|
Provision for loan losses
|
|
|
321 |
|
|
|
233 |
|
|
|
330 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
8,781 |
|
|
|
7,967 |
|
|
|
8,007 |
|
Noninterest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
1,305 |
|
|
|
1,176 |
|
|
|
1,072 |
|
|
Merchant credit card processing
|
|
|
145 |
|
|
|
166 |
|
|
|
155 |
|
|
Gain from sales of loans
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
Gain on sales of securities available-for-sale
|
|
|
15 |
|
|
|
56 |
|
|
|
10 |
|
|
Other commissions and fees
|
|
|
136 |
|
|
|
180 |
|
|
|
153 |
|
|
Other noninterest income
|
|
|
108 |
|
|
|
167 |
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
1,709 |
|
|
|
1,755 |
|
|
|
1,537 |
|
Noninterest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
4,259 |
|
|
|
4,036 |
|
|
|
3,879 |
|
|
Occupancy and equipment
|
|
|
1,391 |
|
|
|
1,318 |
|
|
|
1,196 |
|
|
Data processing
|
|
|
727 |
|
|
|
728 |
|
|
|
670 |
|
|
Marketing
|
|
|
393 |
|
|
|
362 |
|
|
|
216 |
|
|
Loss on other real estate owned
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
Other noninterest expense
|
|
|
1,700 |
|
|
|
1,752 |
|
|
|
1,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
8,602 |
|
|
|
8,196 |
|
|
|
7,521 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,888 |
|
|
|
1,526 |
|
|
|
2,023 |
|
Income tax expense
|
|
|
606 |
|
|
|
490 |
|
|
|
680 |
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
1,282 |
|
|
$ |
1,036 |
|
|
$ |
1,343 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$ |
0.86 |
|
|
$ |
0.70 |
|
|
$ |
0.91 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$ |
0.84 |
|
|
$ |
0.69 |
|
|
$ |
0.90 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
33
EVERGREENBANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended December 31, 2004, 2003, and 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Common | |
|
|
|
Other | |
|
|
|
|
Common | |
|
Stock | |
|
|
|
Comprehensive | |
|
Total | |
|
|
Stock | |
|
and | |
|
Retained | |
|
Income | |
|
Stockholders | |
|
|
Shares | |
|
Surplus | |
|
Earnings | |
|
(Loss) | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Balance at January 1, 2002
|
|
|
934,817 |
|
|
$ |
11,485 |
|
|
$ |
3,198 |
|
|
$ |
55 |
|
|
$ |
14,738 |
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,343 |
|
|
|
|
|
|
|
1,343 |
|
Change in net unrealized gain (loss) on securities available for
sale, net of reclassification and tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,385 |
|
Cash dividend ($.127 per share)
|
|
|
|
|
|
|
|
|
|
|
(168 |
) |
|
|
|
|
|
|
(168 |
) |
Stock dividend (15%)
|
|
|
140,223 |
|
|
|
2,107 |
|
|
|
(2,107 |
) |
|
|
|
|
|
|
|
|
Repurchase of fractional shares
|
|
|
(269 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
Exercise of stock options and related tax benefit
|
|
|
690 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
1,075,461 |
|
|
|
13,597 |
|
|
|
2,266 |
|
|
|
97 |
|
|
|
15,960 |
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,036 |
|
|
|
|
|
|
|
1,036 |
|
Change in net unrealized gain (loss) on securities available for
sale, net of reclassification and tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(146 |
) |
|
|
(146 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
890 |
|
Cash dividends ($.248 per share)
|
|
|
|
|
|
|
|
|
|
|
(366 |
) |
|
|
|
|
|
|
(366 |
) |
Stock dividend (10%)
|
|
|
107,944 |
|
|
|
2,158 |
|
|
|
(2,158 |
) |
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
6,961 |
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
88 |
|
Tax benefit from stock related compensation
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
1,190,366 |
|
|
|
15,854 |
|
|
|
778 |
|
|
|
(49 |
) |
|
|
16,583 |
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,282 |
|
|
|
|
|
|
|
1,282 |
|
Change in net unrealized gain (loss) on securities available for
sale, net of reclassification and tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71 |
) |
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,211 |
|
Cash dividends ($.256 per share)
|
|
|
|
|
|
|
|
|
|
|
(382 |
) |
|
|
|
|
|
|
(382 |
) |
Stock split (five-for-four)
|
|
|
298,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of fractional shares
|
|
|
(296 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
Exercise of stock options
|
|
|
5,606 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
69 |
|
Tax benefit from stock related compensation
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
1,494,321 |
|
|
$ |
15,927 |
|
|
$ |
1,678 |
|
|
$ |
(120 |
) |
|
$ |
17,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
34
EVERGREENBANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2004, 2003 and 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net income
|
|
$ |
1,282 |
|
|
$ |
1,036 |
|
|
$ |
1,343 |
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on securities available for sale
|
|
|
(91 |
) |
|
|
(166 |
) |
|
|
74 |
|
Reclassification adjustment for gains included in net income
|
|
|
(15 |
) |
|
|
(56 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses)
|
|
$ |
(106 |
) |
|
$ |
(222 |
) |
|
$ |
64 |
|
Tax effect
|
|
|
35 |
|
|
|
76 |
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
$ |
(71 |
) |
|
$ |
(146 |
) |
|
$ |
42 |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$ |
1,211 |
|
|
$ |
890 |
|
|
$ |
1,385 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
35
EVERGREENBANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
1,282 |
|
|
$ |
1,036 |
|
|
$ |
1,343 |
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
663 |
|
|
|
597 |
|
|
|
492 |
|
|
Provision for loan losses
|
|
|
321 |
|
|
|
233 |
|
|
|
330 |
|
|
Gain from sales of securities
|
|
|
(15 |
) |
|
|
(56 |
) |
|
|
(10 |
) |
|
Gain on sales of loans
|
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
Write-down of other real estate owned
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
Amortization of premiums and discounts on securities
|
|
|
79 |
|
|
|
159 |
|
|
|
65 |
|
|
Federal Home Loan Bank stock dividends
|
|
|
(40 |
) |
|
|
(74 |
) |
|
|
(76 |
) |
|
Dividends reinvested
|
|
|
(349 |
) |
|
|
(290 |
) |
|
|
(251 |
) |
|
Other changes, net
|
|
|
694 |
|
|
|
(291 |
) |
|
|
(326 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
2,767 |
|
|
|
1,304 |
|
|
|
1,567 |
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales, maturities and principal payments on
securities available for sale
|
|
|
6,390 |
|
|
|
9,524 |
|
|
|
7,047 |
|
Purchases of securities available for sale
|
|
|
(1,523 |
) |
|
|
(32,767 |
) |
|
|
(16,115 |
) |
Net (increase) decrease in loans
|
|
|
(21,258 |
) |
|
|
(20,199 |
) |
|
|
572 |
|
Proceeds from sales of loans
|
|
|
|
|
|
|
304 |
|
|
|
|
|
Proceeds from sale of other real estate owned
|
|
|
2,527 |
|
|
|
|
|
|
|
|
|
Purchases of premises and equipment
|
|
|
(770 |
) |
|
|
(892 |
) |
|
|
(741 |
) |
Proceeds from prepayments of securities available-for-sale
|
|
|
|
|
|
|
7,158 |
|
|
|
923 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(14,634 |
) |
|
|
(36,872 |
) |
|
|
(8,314 |
) |
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
21,118 |
|
|
|
20,509 |
|
|
|
1,830 |
|
Net decrease in federal funds purchased
|
|
|
(3,097 |
) |
|
|
(256 |
) |
|
|
(2,244 |
) |
Proceeds from Federal Home Loan Bank advances
|
|
|
|
|
|
|
5,460 |
|
|
|
8,700 |
|
Repayment of Federal Home Loan Bank advances
|
|
|
(4,314 |
) |
|
|
(1,862 |
) |
|
|
(922 |
) |
Proceeds from issuance of junior subordinated debt
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
Repurchase of common stock
|
|
|
(7 |
) |
|
|
|
|
|
|
(4 |
) |
Proceeds from exercise of stock options
|
|
|
69 |
|
|
|
88 |
|
|
|
9 |
|
Dividends paid
|
|
|
(382 |
) |
|
|
(366 |
) |
|
|
(168 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
13,387 |
|
|
|
23,573 |
|
|
|
12,201 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,520 |
|
|
|
(11,995 |
) |
|
|
5,454 |
|
Cash and cash equivalents at beginning of year
|
|
|
10,625 |
|
|
|
22,620 |
|
|
|
17,166 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
12,145 |
|
|
$ |
10,625 |
|
|
$ |
22,620 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
2,203 |
|
|
$ |
2,221 |
|
|
$ |
2,906 |
|
Income taxes paid
|
|
|
326 |
|
|
|
760 |
|
|
|
766 |
|
Supplemental disclosures of noncash investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of loan to other real estate owned
|
|
|
|
|
|
|
2,659 |
|
|
|
|
|
See accompanying notes to consolidated financial statements.
36
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Note 1: |
Summary of Significant Accounting Policies |
Organization. EvergreenBancorp, Inc.
(Bancorp) was formed February 9, 2001 and is a
Washington corporation chartered as a bank holding company.
Bancorp holds all of the issued and outstanding shares of
EvergreenBank (the Bank). As further discussed in
Note 8, EvergreenBancorp Capital Trust I (the
Trust) had previously been consolidated with the Company
and is now reported separately. The consolidated entities are
collectively referred to as the Company. The Bank is
a Washington state chartered financial institution established
in 1971 that engages in general commercial and consumer banking
operations. Deposits in the Bank are insured by the Federal
Deposit Insurance Corporation (the FDIC).
The Bank offers a broad spectrum of personal and business
banking services, including commercial, consumer, and real
estate lending. The Banks offices are centered in the
Puget Sound region in the Seattle, Lynnwood, Bellevue, and
Federal Way communities.
Operating Segments. While the Companys management
monitors the revenue streams of the various products and
services, operations are managed and financial performance is
evaluated on a Company-wide basis. Accordingly, all of the
Companys banking operations are considered by management
to be aggregated in one reportable segment.
Holding Company Information. The Bank became a wholly
owned subsidiary of the Bancorp on June 20, 2001 in
accordance with the Plan and Agreement of Reorganization and
Merger dated February 14, 2001, which provided that
each share of the Banks common stock be exchanged for an
equal number of shares of the common stock of the Bancorp. This
was treated as an internal reorganization; accordingly, the
capital accounts of the Bank as of June 20, 2001 were
carried forward, without change, as the capital accounts of the
Bancorp.
Principles of Consolidation and Use of Estimates. The
accompanying consolidated financial statements include the
combined accounts of the Bancorp and the Bank. Significant
intercompany balances and transactions have been eliminated.
The accompanying financial statements have been prepared in
conformity with U.S. generally accepted accounting
principles 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.
Cash and Cash Equivalents. Cash and cash equivalents
include cash on hand, cash items, clearings and exchanges,
amounts due from correspondent banks, interest-bearing deposits
in other financial institutions, and federal funds sold. Federal
funds sold generally mature within one to four days from the
transaction date.
Securities. Securities classified as available-for-sale
are reported at fair value, with the net unrealized gains or
losses, net of tax, reported in other comprehensive income
(loss), a separate component of stockholders equity.
Realized gains or losses on securities sold are based on the net
proceeds and adjusted book values of the securities sold, using
the specific identification method. Other securities, such as
FHLB stock, are carried at cost.
Interest income includes amortization of purchase premium or
discount. Premiums and discounts on securities are amortized on
the level-yield method without anticipating prepayments. Gains
and losses on sales are recorded on the trade date and
determined using the specific identification method.
Declines in the fair value of securities below their cost that
are other than temporary are reflected as realized losses. In
estimating other-than-temporary losses, management considers:
(1) the length of time and extent that fair value has been
less than cost, (2) the financial condition and near term
prospects of the issuer,
37
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
and (3) the Companys ability and intent to hold the
security for a period sufficient to allow for any anticipated
recovery in fair value.
Loans. Loans that management has the intent and ability
to hold for the foreseeable future or until maturity or payoff
are reported at the principal balance outstanding, net of
unearned interest, deferred loan fees and costs, and allowance
for loan losses. Interest income is accrued on the unpaid
principal balance. Loan origination fees, net of certain direct
origination costs, are deferred and recognized in interest
income using the level-yield method without anticipating
prepayments.
Interest income on mortgage and commercial loans is discontinued
at the time the loan is 90 days delinquent unless the loan
is well-secured and in the process of collection. Consumer and
credit card loans are typically charged off no later than
120 days past due. Past due status is based on the
contractual terms of the loan. Loans are placed on nonaccrual or
charged-off at an earlier date if collection of principal or
interest is considered doubtful.
All interest accrued but not received for loans placed on
nonaccrual is reversed against interest income. Interest
received on such loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual.
Loans are returned to accrual status when all principal and
interest amounts contractually due are brought current and
future payments are reasonably assured.
Allowance for Loan Losses. The allowance for loan losses
is a valuation allowance for probable incurred credit losses.
Loan losses are charged against the allowance when management
believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.
Management estimates the allowance balance required using past
loan loss experience, the nature and volume of the portfolio,
information about specific borrower situations and estimated
collateral values, economic conditions, and other factors.
Allocations of the allowance may be made for specific loans, but
the entire allowance is available for any loan that, in
managements judgment, should be charged off.
The allowance consists of specific and general components. The
specific component relates to loans that are individually
classified as impaired or loans otherwise classified as
substandard or doubtful. The general component covers
non-classified loans and is based on historical loss experience
adjusted for current factors.
A loan is impaired when full payment under the loan terms is not
expected. Commercial and commercial real estate loans are
individually evaluated for impairment. If a loan is impaired, a
portion of the allowance is allocated so that the loan is
reported, net, at the present value of estimated future cash
flows using the loans existing rate or at the fair value
of collateral if repayment is expected solely from the
collateral. Large groups of smaller balance homogeneous loans,
such as consumer and residential real estate loans, are
collectively evaluated for impairment, and accordingly, they are
not separately identified for impairment disclosures.
Premises and Equipment. Premises and equipment include
leasehold improvements and are stated at cost, less accumulated
depreciation and amortization on the straight-line method over
the shorter of the estimated useful lives of the assets ranging
from 5 to 10 years or the terms of the related leases. The
Company leases the premises upon which it conducts business.
Furniture, fixtures and equipment are depreciated using the
straight-line (or accelerated) method with useful lives ranging
from 5 to 7 years. Maintenance, repairs, taxes, and
insurance are charged to noninterest expense.
Foreclosed Assets. Assets acquired through or instead of
loan foreclosure are initially recorded at fair value when
acquired, establishing a new cost basis. If fair value declines
subsequent to foreclosure, a valuation allowance is recorded
through expense. Costs after acquisition are expensed.
Income Taxes. Income tax expense is the total of the
current year income tax due or refundable and the change in
deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax amounts for the
temporary differences between carrying amounts and tax bases of
assets and liabilities, computed using enacted tax rates.
38
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Comprehensive Income. Comprehensive income consists of
net income and other comprehensive income. Other comprehensive
income includes the reclassification and tax effects of the
change in unrealized gains and losses on available for sale
securities, which are recognized as a separate component of
equity.
Postretirement Health Care Benefits. The liability for
postretirement benefits is reported by recognizing the expense
for such benefits over the period services are rendered by
employees.
Fair Values of Financial Instruments. Fair values of
financial instruments are estimated using relevant market
information and other assumptions as more fully disclosed in
Note 17. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit
risk, prepayments, and other factors, especially in the absence
of broad markets for particular items. Changes in assumptions or
in market conditions could significantly affect the estimates.
Loan Commitments and Related Financial Instruments.
Financial instruments include off-balance-sheet credit
instruments, such as commitments to make loans and commercial
letters of credit, issued to meet customer financing needs. The
face amount for these items represents the exposure to loss,
before considering customer collateral or ability to repay. Such
financial instruments are recorded when they are funded.
Instruments, such as standby letters of credit, that are
considered financial guarantees in accordance with FASB
Interpretation No. 45 are recorded at fair value.
Loss Contingencies. Loss contingencies, including claims
and legal actions arising in the ordinary course of business,
are recorded as liabilities when the likelihood of loss is
probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such
matters that will have a material effect on the financial
statements.
Stock-Based Compensation. Employee compensation expense
under stock options is reported using the intrinsic value
method. No stock-based compensation cost is reflected in net
income, as all options granted had an exercise price equal to or
greater than the market price of the underlying common stock at
date of grant. The following table illustrates the effect on net
income and earnings per share if expense was measured using the
fair value recognition provisions of Statement of Financial
Accounting Standard Statement No. 123, Accounting for
Stock-Based Compensation. Earnings and dividends per share
are restated for all stock splits and dividends through the date
of issue of the financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except | |
|
|
per share data) | |
Net income as reported
|
|
$ |
1,282 |
|
|
$ |
1,036 |
|
|
$ |
1,343 |
|
Deduct: Stock-based compensation expense determined under fair
value based method
|
|
|
52 |
|
|
|
49 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$ |
1,230 |
|
|
$ |
987 |
|
|
$ |
1,305 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share as reported
|
|
$ |
0.86 |
|
|
$ |
0.70 |
|
|
$ |
0.91 |
|
Pro forma basic earnings per share
|
|
|
0.82 |
|
|
|
0.66 |
|
|
|
0.88 |
|
Diluted earnings per share as reported
|
|
|
0.84 |
|
|
|
0.69 |
|
|
|
0.90 |
|
Pro forma diluted earnings per share
|
|
|
0.81 |
|
|
|
0.66 |
|
|
|
0.87 |
|
39
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The weighted average fair value of individual options granted
was $2.59, $2.42, and $2.94 in 2004, 2003, and 2002. The pro
forma effects are computed using option pricing models, using
the following weighted-average assumptions as of grant date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Risk-free interest rate
|
|
|
3.65% |
|
|
|
3.00% |
|
|
|
4.64% |
|
Expected option life
|
|
|
7.50 years |
|
|
|
7.50 years |
|
|
|
7.50 years |
|
Expected stock price volatility
|
|
|
13% |
|
|
|
12% |
|
|
|
13% |
|
Dividend yield
|
|
|
1.8% |
|
|
|
1.1% |
|
|
|
1.1% |
|
Earnings Per Share. Basic earnings per common share is
net income divided by the weighted average number of common
shares outstanding during the period. Diluted earnings per
common share includes the dilutive effect of additional
potential common shares issuable under stock options. Earnings
and dividends per share are restated for all stock splits and
dividends through the date of issue of the financial statements.
|
|
|
Effect of Newly Issued but Not Yet Effective Accounting
Standards: |
FAS 123R requires all public companies to record
compensation costs for stock options provided to employees in
return for employee service. The cost is measured at the fair
value of the options when granted, and this cost is expensed
over the employee service period, which is normally the vesting
period of the options. This will apply to awards granted or
modified after the first quarter or year beginning after
June 15, 2005. Compensation cost will also be recorded for
prior option grants that vest after the date of adoption. The
effect on results of operations will depend on the level of
future option grants and the calculation of the fair value of
the options granted at such future date, as well as the vesting
periods provided, and so cannot currently be predicted. Existing
options that will vest after adoption date are expected to
result in additional compensation expense of approximately
$34,000 during the balance of 2005, $58,000 in 2006, $33,000 in
2007, $18,000 in 2008, and $11,000 in 2009. There will be no
significant effect on financial position as total equity will
not change.
SOP 03-3 requires that a valuation allowance for loans acquired
in a transfer, including in a business combination, reflect only
losses incurred after acquisition and should not be recorded at
acquisition. It applies to any loan acquired in a transfer that
showed evidence of credit quality deterioration since it was
made.
Dividend Restriction. Banking regulations require the
maintenance of certain capital levels and may limit the amount
of dividends that may be paid by the Bank to the Bancorp or by
the Bancorp to the stockholders.
Reclassifications. Certain items in prior years
financial statements have been reclassified to conform with the
current years presentation. These reclassifications did
not change previously reported stockholders equity or net
income.
|
|
Note 2: |
Restrictions on Cash and Due from Banks |
Cash on hand or on deposit with the Federal Reserve Bank of
$1,423,000 and $996,000 was required to meet regulatory reserve
and clearing requirements at year end 2004 and 2003. These
balances do not earn interest.
40
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The fair value of securities available-for-sale and the related
gross unrealized gains and losses recognized in accumulated
other comprehensive income were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
|
Gross | |
|
|
Fair | |
|
Unrealized | |
|
Unrealized | |
|
|
Value | |
|
Gains | |
|
Losses | |
|
|
| |
|
| |
|
| |
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agencies
|
|
$ |
8,004 |
|
|
$ |
21 |
|
|
$ |
(37 |
) |
States and political subdivisions
|
|
|
3,555 |
|
|
|
38 |
|
|
|
(4 |
) |
Mortgage-backed securities and collateralized mortgage
obligations
|
|
|
7,367 |
|
|
|
21 |
|
|
|
(36 |
) |
AMF Adjustable Rate Mortgage Fund
|
|
|
14,832 |
|
|
|
|
|
|
|
(185 |
) |
Federal Home Loan Bank stock
|
|
|
1,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale
|
|
$ |
35,170 |
|
|
$ |
80 |
|
|
$ |
(262 |
) |
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agencies
|
|
$ |
8,481 |
|
|
$ |
30 |
|
|
$ |
(49 |
) |
States and political subdivisions
|
|
|
3,567 |
|
|
|
49 |
|
|
|
(4 |
) |
Mortgage-backed securities and collateralized mortgage
obligations
|
|
|
9,812 |
|
|
|
38 |
|
|
|
(49 |
) |
AMF Adjustable Rate Mortgage Fund
|
|
|
16,586 |
|
|
|
|
|
|
|
(91 |
) |
Federal Home Loan Bank stock
|
|
|
1,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale
|
|
$ |
39,818 |
|
|
$ |
117 |
|
|
$ |
(193 |
) |
|
|
|
|
|
|
|
|
|
|
The scheduled maturities of securities available-for-sale at
December 31, 2004 were as follows. Securities not due at a
single maturity date are shown separately. (in thousands):
|
|
|
|
|
|
|
|
Fair | |
|
|
Value | |
|
|
| |
Due in one year or less
|
|
$ |
634 |
|
Due after one year through five years
|
|
|
6,932 |
|
Due after five years through ten years
|
|
|
3,993 |
|
|
|
|
|
|
Total
|
|
|
11,559 |
|
AMF Adjustable Rate Mortgage Fund
|
|
|
14,832 |
|
Mortgage-backed securities and collateralized mortgage
obligations
|
|
|
7,367 |
|
Federal Home Loan Bank stock
|
|
|
1,412 |
|
|
|
|
|
|
Total
|
|
$ |
35,170 |
|
|
|
|
|
Sales of securities available-for-sale were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Proceeds
|
|
$ |
2,525 |
|
|
$ |
5,433 |
|
|
$ |
5,000 |
|
Gross gains
|
|
|
25 |
|
|
|
56 |
|
|
|
10 |
|
Gross losses
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
Securities with an estimated carrying value of $9,880,000 and
$1,511,000 at December 31, 2004 and 2003, respectively,
were pledged to secure public deposits and for other purposes
required or permitted by law.
41
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The Company is required to maintain a minimum investment in the
stock of the FHLB of Seattle based on certain percentages of
outstanding mortgage loans or advances from FHLB. At
December 31, 2004, the minimum required investment was
$666,100, which the Company exceeded. Dividend income from the
FHLB stock was $40,000, $74,000, and $76,000 for 2004, 2003, and
2002, respectively.
Securities with unrealized losses at year-end 2004, aggregated
by investment category and length of time that individual
securities have been in a continuous unrealized loss position,
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months | |
|
12 Months or More | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
Description of Securities |
|
Value | |
|
Loss | |
|
Value | |
|
Loss | |
|
Value | |
|
Loss | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
U.S. agencies
|
|
$ |
3,495 |
|
|
$ |
(25 |
) |
|
$ |
988 |
|
|
$ |
(12 |
) |
|
$ |
4,483 |
|
|
$ |
(37 |
) |
State and political subdivisions
|
|
|
891 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
891 |
|
|
|
(4 |
) |
Mortgage-backed securities
|
|
|
6,210 |
|
|
|
(36 |
) |
|
|
31 |
|
|
|
|
|
|
|
6,240 |
|
|
|
(36 |
) |
AMF Adjustable Rate Mortgage Fund
|
|
|
283 |
|
|
|
(1 |
) |
|
|
14,549 |
|
|
|
(184 |
) |
|
|
14,832 |
|
|
|
(185 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$ |
10,879 |
|
|
$ |
(66 |
) |
|
$ |
15,568 |
|
|
$ |
(196 |
) |
|
$ |
26,446 |
|
|
$ |
(262 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004, securities with unrealized losses
have an aggregate depreciation of 1.0 percent from the
Companys amortized cost basis. The unrealized losses are
predominately the result of changing market values due to
increasing short-term (less than two years) market interest
rates, are expected to regain the lost value with stable or
declining interest rates in keeping with the pattern of past
economic cycles, and, accordingly, are considered as temporary.
No credit issues have been identified that cause management to
believe the declines in market value are other than temporary.
The Company has the ability to hold these securities until
maturity or for the foreseeable future.
At December 31, 2003, there were no securities that had
carried unrealized losses for more than one year. The unrealized
losses at December 31, 2003 were considered temporary due
to fluctuations in interest rates for similar type issues.
The Company originates loans primarily in King, Snohomish, and
Pierce Counties. Although the Company has a diversified loan
portfolio, local economic conditions may affect the
borrowers ability to meet stated repayment terms.
Collateral may, depending on the loan, include accounts
receivable, inventory, equipment, and real estate. Loans are
originated at both fixed and variable rates.
Loans at December 31 consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Commercial
|
|
$ |
55,563 |
|
|
$ |
53,770 |
|
Real estate mortgage
|
|
|
78,673 |
|
|
|
60,934 |
|
Real estate construction
|
|
|
11,538 |
|
|
|
10,911 |
|
Consumer
|
|
|
13,685 |
|
|
|
12,778 |
|
Other including overdrafts
|
|
|
197 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
159,656 |
|
|
$ |
138,468 |
|
|
|
|
|
|
|
|
42
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Loans at December 31, 2004, by maturity or repricing date
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed | |
|
Variable | |
|
|
|
|
Rate | |
|
Rate | |
|
Total | |
|
|
| |
|
| |
|
| |
Due in one year or less
|
|
$ |
12,212 |
|
|
$ |
72,641 |
|
|
$ |
84,853 |
|
Due after one year through five years
|
|
|
26,537 |
|
|
|
40,980 |
|
|
|
67,517 |
|
Due after five years
|
|
|
7,073 |
|
|
|
0 |
|
|
|
7,073 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
45,822 |
|
|
$ |
113,621 |
|
|
$ |
159,443 |
|
|
|
|
|
|
|
|
|
|
|
Loans on which the accrual of interest has been discontinued
|
|
|
|
|
|
|
|
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$ |
159,656 |
|
|
|
|
|
|
|
|
|
|
|
Unamortized deferred loan fees net of unamortized origination
costs were $695,000 and $637,000 at December 31, 2004 and
2003, respectively.
The aggregate amount of loans serviced for others, including
loan participations and the sold portion of U.S. government
guaranteed loans, was $9,388,000 at December 31, 2004 and
$7,454,000 at December 31, 2003.
At December 31, 2004 and 2003, loans aggregating
$22,258,000 and $19,026,000, respectively, were reported as
available as collateral for the advances from the FHLB of
Seattle, as described in Note 8.
Loans to principal officers, directors, and their affiliates in
2004 were as follows.
|
|
|
|
|
Beginning balance
|
|
$ |
1,825 |
|
Repayments
|
|
|
(1,716 |
) |
Additions
|
|
|
939 |
|
|
|
|
|
Ending balance
|
|
$ |
1,048 |
|
|
|
|
|
|
|
Note 5: |
Allowance for Loan Losses |
Changes in the allowance for loan losses were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Balance at January 1
|
|
$ |
1,636 |
|
|
$ |
1,690 |
|
|
$ |
1,498 |
|
Recoveries credited to the allowance
|
|
|
100 |
|
|
|
45 |
|
|
|
53 |
|
Provision for loan losses
|
|
|
321 |
|
|
|
233 |
|
|
|
330 |
|
Loans charged off
|
|
|
(170 |
) |
|
|
(332 |
) |
|
|
(191 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$ |
1,887 |
|
|
$ |
1,636 |
|
|
$ |
1,690 |
|
|
|
|
|
|
|
|
|
|
|
A portion of the allowance for loan losses is allocated to
impaired loans. Information with respect to impaired loans and
the related allowance for loan losses is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Impaired loans for which no allowance for loan losses was
allocated
|
|
$ |
65 |
|
|
$ |
58 |
|
Impaired loans with an allocation of the allowance for loan
losses
|
|
|
483 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
548 |
|
|
$ |
112 |
|
|
|
|
|
|
|
|
Amount of the allowance for loan losses allocated
|
|
$ |
298 |
|
|
$ |
11 |
|
|
|
|
|
|
|
|
43
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Average of impaired loans during the year
|
|
$ |
155 |
|
|
$ |
832 |
|
|
$ |
816 |
|
Interest income recognized during impairment
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Cash-basis interest income recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans at December 31 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Loans past due 90 days or more and still accruing
|
|
$ |
5 |
|
|
$ |
531 |
|
Loans accounted for on a nonaccrual basis
|
|
|
213 |
|
|
|
112 |
|
If interest on these nonaccrual loans had been recognized, such
income would have been
|
|
|
9 |
|
|
|
9 |
|
Nonperforming loans and impaired loans are defined differently.
Some loans may be included in both categories, whereas other
loans may only be included in one category.
|
|
Note 6: |
Premises and Equipment |
Premises and equipment at December 31 consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Equipment and furniture
|
|
$ |
3,948 |
|
|
$ |
3,405 |
|
Leasehold improvements
|
|
|
2,267 |
|
|
|
2,040 |
|
Accumulated depreciation and amortization
|
|
|
(3,639 |
) |
|
|
(2,976 |
) |
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,576 |
|
|
$ |
2,469 |
|
|
|
|
|
|
|
|
Depreciation expense amounted to $663,000, $597,000, and
$492,000 for 2004, 2003, and 2002, respectively.
As further discussed in Note 14 below, the Bank is opening
a new downtown Seattle office in 2005 and the estimated cost of
equipment and furniture and leasehold improvements is $703,000.
The average rate paid on deposits was 1.32% for 2004 and 1.42%
for 2003. Time certificates of deposit in denominations of
$100,000 or more aggregated $30,399,000 and $21,894,000,
including $15,800,000 and $9,800,000 of public funds from the
State of Washington at December 31, 2004 and 2003,
respectively. Interest expense on time deposits of $100,000 or
more in 2004, 2003, and 2002 was $503,000, $298,000, and
$505,000, respectively.
The scheduled maturities of certificates of deposits at
December 31, 2004 were as follows (in thousands):
|
|
|
|
|
|
2005
|
|
$ |
41,772 |
|
2006
|
|
|
10,061 |
|
2007
|
|
|
1,922 |
|
2008
|
|
|
117 |
|
|
|
|
|
|
Total
|
|
$ |
53,872 |
|
|
|
|
|
44
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
Note 8: |
Federal Funds Purchased, Advances from FHLB and Junior
Subordinated Debt |
The daily average amount outstanding for federal funds purchased
was $1,715,000 for 2004 and $3,054,000 for 2003. The weighted
average interest rate was 0.83% during 2004 and 0.65% during
2003. The weighted average interest rate at December 31,
2003 was 0.50%. There were no outstanding balances in federal
funds purchased on December 31, 2004. The maximum amount
outstanding at the end of any month was $3,212,000 during 2004
and $4,666,000 during 2003.
Advances from the FHLB are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Average Rate | |
|
Amount | |
|
Average Rate | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
| |
Advances from the FHLB due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
$ |
|
|
|
|
1.57 |
% |
|
$ |
3,450 |
|
|
2005
|
|
|
4.78 |
% |
|
|
3,654 |
|
|
|
4.68 |
|
|
|
4,054 |
|
|
2006
|
|
|
4.84 |
|
|
|
2,880 |
|
|
|
4.84 |
|
|
|
2,880 |
|
|
2007
|
|
|
4.17 |
|
|
|
2,347 |
|
|
|
4.17 |
|
|
|
2,811 |
|
|
2008
|
|
|
3.37 |
|
|
|
1,186 |
|
|
|
3.37 |
|
|
|
1,186 |
|
|
2009
|
|
|
4.57 |
|
|
|
1,000 |
|
|
|
4.57 |
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4.50 |
% |
|
$ |
11,067 |
|
|
|
3.81 |
% |
|
$ |
15,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These advances were collateralized in aggregate, as provided for
in the Advance Security and Deposit Agreement with the FHLB, by
FHLB stock owned, deposits with the FHLB, qualifying first
mortgage loans, and certain U.S. government agency
securities. At December 31, 2004, none of the advances have
adjustable rates. Although the Company does not anticipate
replacement of FHLB advances, if repayments were to occur prior
to the contractual maturities, prepayment fees could be assessed.
In May 2002, Bancorp formed EvergreenBancorp Capital
Trust I (the Trust) a statutory trust formed
under the laws of the State of Delaware. In May 2002, Capital
Trust issued $5 million in trust preferred securities in a
private placement offering. Simultaneously with the issuance of
the trust preferred securities by Capital Trust, the Bancorp
issued junior subordinated debentures to Capital Trust. The
junior subordinated debentures are the sole assets of Capital
Trust. The junior subordinated debentures and the trust
preferred securities pay distributions and dividends,
respectively, on a quarterly basis, which are included in
interest expense. The interest rate payable on the debentures
and the trust preferred securities resets quarterly and is equal
to the three-month LIBOR plus 3.50% (5.51% at December 31,
2004), provided that this rate cannot exceed 12.0% through
June 30, 2007. The junior subordinated debentures will
mature in 2032, at which time the preferred securities must be
redeemed. The Bancorp has provided a full, irrevocable, and
unconditional guarantee on a subordinated basis of the
obligations of Capital Trust under the preferred securities as
set forth in such guarantee agreement. Debt issuance costs
totaling $209,000 were capitalized related to the offering and
are being amortized over the estimated life of the junior
subordinated debentures.
Prior to 2003, the Trust was consolidated in the Companys
financial statements, with the trust preferred securities issued
by the Trust reported in liabilities as guaranteed
preferred beneficial interests and the subordinated
debentures eliminated in consolidation. Under new accounting
guidance, FASB Interpretation No. 46, as revised in
December 2003, the Trust is no longer consolidated with the
Company. Accordingly, the Company does not report the securities
issued by the Trust as liabilities, and instead reports as
liabilities the subordinated debentures issued by the Company
and held by the Trust, as these are no longer eliminated in
consolidation. The effect of no longer consolidating the Trust
does not change the amounts reported as the Companys
assets, liabilities, equity, or interest expense. Accordingly,
the amounts previously reported as
45
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
guaranteed preferred beneficial interests in
liabilities have been recaptioned junior subordinated
debt and continue to be presented in liabilities on the
balance sheet.
|
|
Note 9: |
Stockholders Equity |
On June 20, 2002, the Bancorps Board of Directors
approved a 15% stock dividend payable on July 15, 2002 to
stockholders of record as of July 8, 2002. The stock
dividend also affected stock options previously granted and
shares available for grant under the Amended 2000 Plan.
On November 4, 2003, the Bancorps Board of Directors
approved a 10% stock dividend payable on November 26, 2003
to stockholders of record as of November 14, 2003. The
stock dividend also affected stock options previously granted
and shares available for grant under the Amended 2000 Plan.
On October 21, 2004, the Bancorps Board of
Directors approved a five-for-four stock split payable
November 30, 2004 to stockholders of record as of
November 15, 2004. The five-for-four stock split also
affected stock options previously granted and shares available
for grant under the Amended 2000 Plan.
Income tax expense for the years ended December 31
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Currently payable
|
|
$ |
816 |
|
|
$ |
572 |
|
|
$ |
708 |
|
Deferred
|
|
|
(210 |
) |
|
|
(82 |
) |
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
606 |
|
|
$ |
490 |
|
|
$ |
680 |
|
|
|
|
|
|
|
|
|
|
|
A reconciliation between the statutory federal income tax rates
(maximum of 34%) and the effective income tax rate was as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Federal income tax at statutory rates
|
|
$ |
642 |
|
|
$ |
519 |
|
|
$ |
688 |
|
Decrease in taxes resulting from tax-exempt interest income
|
|
|
(30 |
) |
|
|
(31 |
) |
|
|
(28 |
) |
Nondeductible expenses and other
|
|
|
(6 |
) |
|
|
2 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
606 |
|
|
$ |
490 |
|
|
$ |
680 |
|
|
|
|
|
|
|
|
|
|
|
46
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The components of the deferred income tax asset included in
other assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
DEFERRED TAX ASSET
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
$ |
559 |
|
|
$ |
472 |
|
|
Postretirement health care benefits
|
|
|
414 |
|
|
|
315 |
|
|
Unamortized loan fees, net of loan costs
|
|
|
236 |
|
|
|
217 |
|
|
Accrued vacation pay
|
|
|
89 |
|
|
|
80 |
|
|
Unrealized losses on securities available-for-sale, net
|
|
|
62 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
1,360 |
|
|
|
1,109 |
|
|
|
|
|
|
|
|
DEFERRED TAX LIABILITY
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank stock dividends
|
|
$ |
(258 |
) |
|
$ |
(242 |
) |
|
Depreciation
|
|
|
(144 |
) |
|
|
(171 |
) |
|
Other
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(417 |
) |
|
|
(413 |
) |
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$ |
943 |
|
|
$ |
696 |
|
|
|
|
|
|
|
|
|
|
Note 11: |
Stock Option Plan |
In April of 2000, the shareholders of the Bank adopted the 2000
Stock Option Plan that was subsequently adopted by Bancorp as a
result of the holding company formation. In April of 2003, the
shareholders of Bancorp approved an amendment to the 2000 Stock
Option Plan to increase the number of shares available under the
plan by 66,000 (Amended 2000 Plan). The Amended 2000
Plan currently provides for the grant of options to purchase up
to 247,293 shares of common stock. Options available under
the plan have been adjusted for all applicable stock dividends
and stock splits paid by the Company. As of December 31,
2004, approximately 85,482 shares of common stock were
available for future grant under the Amended 2000 Plan.
The Amended 2000 Plan provides for the granting of non-qualified
and incentive stock options to certain employees and directors.
Non-qualified stock options granted to employees vest over a
five-year period and expire after ten years from the date of
grant. Nonqualified stock options granted to directors vest over
a three-year period and expire after three years, three months
from the date of grant.
Stock option transactions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
Shares | |
|
Price | |
|
Shares | |
|
Price | |
|
Shares | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at the beginning of the year
|
|
|
132,578 |
|
|
$ |
10.16 |
|
|
|
107,630 |
|
|
$ |
9.70 |
|
|
|
89,855 |
|
|
$ |
9.24 |
|
Granted
|
|
|
23,750 |
|
|
|
14.20 |
|
|
|
41,938 |
|
|
|
11.86 |
|
|
|
28,463 |
|
|
|
10.69 |
|
Exercised
|
|
|
(6,674 |
) |
|
|
10.35 |
|
|
|
(9,533 |
) |
|
|
9.18 |
|
|
|
(949 |
) |
|
|
9.12 |
|
Forfeited
|
|
|
(6,074 |
) |
|
|
11.04 |
|
|
|
(7,457 |
) |
|
|
11.07 |
|
|
|
(9,739 |
) |
|
|
9.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year
|
|
|
143,580 |
|
|
$ |
10.86 |
|
|
|
132,578 |
|
|
$ |
10.16 |
|
|
|
107,630 |
|
|
$ |
9.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Outstanding and exercisable stock options at year-end 2004 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding | |
|
Exercisable | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
|
|
|
Average | |
|
|
|
Average | |
|
|
Year of | |
|
|
|
Remaining | |
|
|
|
Exercise | |
Exercise Price |
|
Grant | |
|
Number | |
|
Contractual Life | |
|
Number | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
$14.20
|
|
|
2004 |
|
|
|
23,750 |
|
|
|
9.01 years |
|
|
|
|
|
|
$ |
14.20 |
|
11.86
|
|
|
2003 |
|
|
|
34,382 |
|
|
|
6.62 years |
|
|
|
8,248 |
|
|
|
11.86 |
|
10.69
|
|
|
2002 |
|
|
|
25,149 |
|
|
|
7.30 years |
|
|
|
10,439 |
|
|
|
10.69 |
|
9.34
|
|
|
2001 |
|
|
|
31,998 |
|
|
|
6.28 years |
|
|
|
21,337 |
|
|
|
9.34 |
|
9.12
|
|
|
2000 |
|
|
|
28,301 |
|
|
|
5.81 years |
|
|
|
22,643 |
|
|
|
9.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
|
|
|
|
143,580 |
|
|
|
6.91 years |
|
|
|
62,667 |
|
|
$ |
11.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12: |
Earnings Per Share of Common Stock |
Basic earnings per share of common stock are computed on the
basis of the weighted average number of common stock shares
outstanding. Diluted earnings per share of common stock is
computed on the basis of the weighted average number of common
shares outstanding plus the effect of the assumed conversion of
outstanding stock options. All computations of basic and diluted
earnings per share are adjusted for all applicable stock splits
and dividends paid on the Companys common stock.
A reconciliation of the numerator and denominator used in the
calculation of basic and diluted earnings per share of common
stock is as follows (in thousands, except share and per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
INCOME (NUMERATOR):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$ |
1,282 |
|
|
$ |
1,036 |
|
|
$ |
1,343 |
|
|
|
|
|
|
|
|
|
|
|
SHARES (DENOMINATOR):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common stock shares
outstanding basic
|
|
|
1,491,734 |
|
|
|
1,482,441 |
|
|
|
1,478,679 |
|
|
Dilutive effect of outstanding employee and director stock
options
|
|
|
25,877 |
|
|
|
16,147 |
|
|
|
12,884 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common stock shares outstanding and
assumed conversions diluted
|
|
|
1,517,611 |
|
|
|
1,498,588 |
|
|
|
1,491,563 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of common stock
|
|
$ |
0.86 |
|
|
$ |
0.70 |
|
|
$ |
0.91 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock
|
|
$ |
0.84 |
|
|
$ |
0.69 |
|
|
$ |
0.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13: |
Retirement Benefits |
The Company participates in a defined contribution retirement
plan. The 401(k) plan permits all salaried employees to
contribute up to a maximum of 15% of gross salary per month. For
the first 6%, the Company contributes two dollars for each
dollar the employee contributes. Partial vesting of Company
contributions to the plan begins at 20% after two years of
employment, and such contributions are 100% vested with five
years of employment. The Companys contributions to the
plan for 2004, 2003, and 2002 were $275,000, $266,000, and
$255,000, respectively.
The Company also participates in multiple-employer defined
benefit postretirement health care plans that provide medical
and dental coverage to directors and surviving spouses and to
employees who retire after
48
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
age 62 and 15 years of full-time service and their
dependents. The medical and dental plans are noncontributory and
nonfunded.
The Company has adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 106,
Employers Accounting for Postretirement Benefits Other
Than Pensions. SFAS No. 106 requires that
employers recognize the cost of providing postretirement
benefits over an employees active service period. Net
periodic postretirement benefit cost under
SFAS No. 106 was $218,000 in 2004, $178,000 in 2003,
and $167,000 in 2002.
The Company uses a September 30 measurement date for its
plans. Net periodic postretirement benefit cost for 2004, 2003,
and 2002 included the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Service cost
|
|
$ |
90 |
|
|
$ |
68 |
|
|
$ |
59 |
|
Interest cost
|
|
|
87 |
|
|
|
73 |
|
|
|
71 |
|
Amortization of transition obligation
|
|
|
41 |
|
|
|
41 |
|
|
|
41 |
|
Recognized actuarial (gain) loss
|
|
|
|
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$ |
218 |
|
|
$ |
178 |
|
|
$ |
167 |
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the benefit obligation at the beginning and
end of the year and the effects attributable to each cost
component for 2004, 2003, and 2002 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Benefit obligation at beginning of year
|
|
$ |
1,337 |
|
|
$ |
1,204 |
|
|
$ |
914 |
|
Service cost
|
|
|
90 |
|
|
|
68 |
|
|
|
59 |
|
Interest cost
|
|
|
87 |
|
|
|
73 |
|
|
|
71 |
|
Actuarial loss
|
|
|
128 |
|
|
|
24 |
|
|
|
186 |
|
Benefits paid
|
|
|
(37 |
) |
|
|
(32 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$ |
1,605 |
|
|
$ |
1,337 |
|
|
$ |
1,204 |
|
|
|
|
|
|
|
|
|
|
|
The fair value of plan assets at the beginning and end of the
year and the changes during 2004, 2003, and 2002 are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Fair value of plan assets at beginning of year
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Employer contribution
|
|
|
37 |
|
|
|
32 |
|
|
|
26 |
|
Benefits paid
|
|
|
(37 |
) |
|
|
(32 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
The funded status (the excess of the benefit obligation over the
fair value of plan assets at the end of the year) of the plan is
reconciled to the accrued benefit cost at December 31,
2004, 2003, and 2002, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Funded status
|
|
$ |
(1,605 |
) |
|
$ |
(1,337 |
) |
|
$ |
(1,204 |
) |
Unrecognized transition obligation
|
|
|
326 |
|
|
|
367 |
|
|
|
407 |
|
Unrecognized actuarial gain
|
|
|
60 |
|
|
|
(69 |
) |
|
|
(97 |
) |
|
|
|
|
|
|
|
|
|
|
Accrued benefit cost
|
|
$ |
(1,219 |
) |
|
$ |
(1,039 |
) |
|
$ |
(894 |
) |
|
|
|
|
|
|
|
|
|
|
49
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The weighted-average discount rate used in the accounting for
the plan was 5.75% for 2004, 6.00% for 2003, and 6.50% for 2002.
The weighted average discount rate used in determining the net
periodic benefit cost was 6.00% in 2004, 6.50% in 2003, and
7.00% in 2002.
The assumed rate of increase for 2005 in per capita cost of
covered benefits is 12.0% for medical benefits and 7.5% for
dental benefits. The rate for medical benefits was assumed to
decrease gradually to 5.0% in 2012 and remain at that level
thereafter.
Assumed health-care-cost trend rates have a significant effect
on the amounts reported for the health care plans. A
one-percentage-point change in assumed health-care-cost trend
rates would have the following effects (in thousands):
|
|
|
|
|
|
|
|
|
|
|
1-Percentage- | |
|
1-Percentage- | |
|
|
Point | |
|
Point | |
|
|
Increase | |
|
Decrease | |
|
|
| |
|
| |
Effect on total of service and interest cost components
|
|
$ |
42 |
|
|
$ |
(31 |
) |
|
|
|
|
|
|
|
Effect on benefit obligation
|
|
$ |
303 |
|
|
$ |
(239 |
) |
|
|
|
|
|
|
|
The Company does not expect to make contributions in excess of
benefits payments in 2005. The following benefits payments,
which reflect expected future service, are expected:
|
|
|
|
|
2005
|
|
$ |
55 |
|
2006
|
|
|
54 |
|
2007
|
|
|
57 |
|
2008
|
|
|
65 |
|
2009
|
|
|
76 |
|
2010-2014
|
|
|
435 |
|
The Company leases premises and parking facilities for the
Eastlake and Lynnwood offices from PEMCO Mutual Insurance
Company under leases expiring from March 31, 2005 to
May 31, 2007. The Company leases the Federal Way, South
Lake Union, Bellevue premises from other parties. These leases
expire from June 30, 2008, August 31, 2009 and
May 31, 2011 respectively. Total rental expense, including
amounts paid under month-to-month cancelable leases, amounted to
$575,000, $556,000, and $598,000 for 2004, 2003, and 2002,
respectively.
The future minimum rental commitments as of December 31,
2004 for all noncancelable leases are as follows (in thousands):
|
|
|
|
|
|
2005
|
|
$ |
550 |
|
2006
|
|
|
554 |
|
2007
|
|
|
289 |
|
2008
|
|
|
174 |
|
2009
|
|
|
138 |
|
Thereafter
|
|
|
172 |
|
|
|
|
|
|
Total
|
|
$ |
1,877 |
|
|
|
|
|
In January 2005, the Bank entered into a new 10 year lease
agreement for an additional office space located at 1111
3rd Avenue
in Seattle, Washington. This lease commences on May 1, 2005
and ends on
50
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
April 30, 2015. The future minimum rental commitments for
the new office space are as follows (in thousands):
|
|
|
|
|
|
2005
|
|
$ |
126 |
|
2006
|
|
|
195 |
|
2007
|
|
|
202 |
|
2008
|
|
|
210 |
|
2009
|
|
|
218 |
|
Thereafter
|
|
|
1,287 |
|
|
|
|
|
|
Total
|
|
$ |
2,238 |
|
|
|
|
|
|
|
Note 15: |
Agreements with Related Parties |
The Company shares common services and support activities with
other companies located at PEMCO Financial Center. Those
companies include PEMCO Insurance Company, PEMCO Mutual
Insurance Company, PEMCO Life Insurance Company, PEMCO
Foundation, Inc., PEMCO Corporation, PCCS, Inc., PEMCO
Technology Services, Inc., Public Employees Insurance Agency,
Inc., and School Employees Credit Union of Washington. Such
shared functions include human resources, employee benefits,
legal services, and purchasing. Total costs associated with
these shared services amounted to $256,000, $325,000 and
$280,000 for 2004, 2003, and 2002, respectively.
In addition, data processing expense for services provided by
PEMCO Corporation, PEMCO Mutual Insurance Company, and PEMCO
Technology Services, Inc. for 2004, 2003, and 2002 was $346,000,
$424,000, and $356,000, respectively.
At December 31, 2004, approximately 4.6% of the
Companys deposits are from other companies located at
PEMCO Financial Center.
Two of the members of the Boards of Directors of the Bancorp and
the Bank are also minority directors of one or more of the other
companies located at PEMCO Financial Center, except for the
School Employees Credit Union of Washington.
|
|
Note 16: |
Commitments and Contingencies |
In the normal course of business, there are various commitments
and contingent liabilities (such as guarantees, commitments to
extend credit, letters of credit, and lines of credit) that are
not presented in the financial statements. Such
off-balance-sheet items are recognized in the financial
statements when they are funded or related fees are received.
The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet
instruments. The off-balance-sheet items do not represent
unusual elements of credit risk in excess of the amounts
recognized in the balance sheets.
The distribution of commitments to extend credit approximates
the distribution of loans outstanding as set forth in
Note 4. Commercial and standby letters of credit and
similar arrangements are granted primarily to commercial
borrowers.
The Company is not aware of any claims or lawsuits that would
have a materially adverse effect on the financial position of
the Company.
51
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The Companys significant commitments and contingent
liabilities at December 31 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Lines of credit
|
|
$ |
44,656 |
|
|
$ |
36,607 |
|
Commitments to extend credit
|
|
|
1,935 |
|
|
|
|
|
Standby letters of credit and similar arrangements
|
|
|
95 |
|
|
|
195 |
|
|
|
Note 17: |
Fair Values of Financial Instruments |
The estimated fair values of the Companys financial
instruments at December 31 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
Book | |
|
Fair | |
|
Book | |
|
Fair | |
|
|
Value | |
|
Value | |
|
Value | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
FINANCIAL ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
12,145 |
|
|
$ |
12,145 |
|
|
$ |
10,625 |
|
|
$ |
10,625 |
|
Securities available-for-sale
|
|
|
35,170 |
|
|
|
35,170 |
|
|
|
39,818 |
|
|
|
39,818 |
|
Net loans
|
|
|
157,769 |
|
|
|
157,491 |
|
|
|
136,832 |
|
|
|
136,710 |
|
Accrued interest receivable
|
|
|
684 |
|
|
|
684 |
|
|
|
641 |
|
|
|
641 |
|
FINANCIAL LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$ |
173,801 |
|
|
$ |
173,639 |
|
|
$ |
152,683 |
|
|
$ |
152,663 |
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
|
|
|
|
|
|
|
|
3,097 |
|
|
|
3,097 |
|
Advances from Federal Home Loan Bank
|
|
|
11,067 |
|
|
|
11,194 |
|
|
|
15,381 |
|
|
|
15,785 |
|
Junior subordinated debt
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
5,000 |
|
Accrued interest payable
|
|
|
190 |
|
|
|
190 |
|
|
|
142 |
|
|
|
142 |
|
The methods and assumptions used to estimate fair value are
described as follows.
Carrying amount is the estimated fair value for cash and cash
equivalents, short-term borrowings, FHLB stock, accrued interest
receivable and payable, demand deposits, short-term debt, and
variable rate loans or deposits that reprice frequently and
fully. Security fair values are based on market prices or dealer
quotes and, if no such information is available, on the rate and
term of the security and information about the issuer. For fixed
rate loans or deposits and for variable rate loans or deposits
with infrequent repricing or repricing limits, fair value is
based on discounted cash flows using current market rates
applied to the estimated life and credit risk. Fair values for
impaired loans are estimated using discounted cash flow analysis
or underlying collateral values. The fair value of loans held
for sale is based on market quotes. Fair value of debt is based
on current rates for similar financing. The fair value of
off-balance-sheet items is based on the current fees or cost
that would be charged to enter into or terminate such
arrangements.
|
|
Note 18: |
Regulatory Capital Requirements |
The Company is subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet the minimum capital requirements can initiate
certain mandatory and possible additional discretionary actions
by regulators that, if undertaken, could have a direct material
effect on the Companys financial statements. Under the
capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company must meet specific capital
adequacy guidelines that involve quantitative measures of each
entitys assets, liabilities, and certain off-balance-sheet
items as calculated
52
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
under regulatory accounting practices. Capital amounts and
classifications also are subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require banks and bank holding companies to
maintain the minimum amounts and ratios of total capital to
risk-weighted assets, Tier 1 capital to risk-weighted
assets, and Tier 1 capital to average assets as set forth
in the table below. Under the regulatory framework for prompt
corrective action, the Company must maintain other minimum
risk-based ratios as set forth in the table.
The most recent notification from the Federal Deposit Insurance
Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Company must maintain the
minimum total risk-based, Tier 1 risk-based, and
Tier 1 leverage ratios set forth in the table. There are no
conditions or events since that notification that management
believes have changed the Companys category. The
Companys regulatory capital includes trust preferred
securities, which qualify up to 25 percent of Tier 1
Capital.
The actual capital amounts (in thousands) and ratios of the
Company and the Bank are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum to be | |
|
|
|
|
|
|
|
|
Well Capitalized | |
|
|
|
|
|
|
Minimum for | |
|
under the Prompt | |
|
|
|
|
Capital Adequacy | |
|
Corrective Action | |
|
|
Actual | |
|
Purposes | |
|
Provisions | |
|
|
| |
|
| |
|
| |
|
|
Amount | |
|
Ratio | |
|
Amount | |
|
Ratio | |
|
Amount | |
|
Ratio | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets) Consolidated
|
|
$ |
24,305 |
|
|
|
14.03 |
% |
|
$ |
13,826 |
|
|
|
8.00 |
% |
|
$ |
17,282 |
|
|
|
10.00 |
% |
|
Bank
|
|
|
23,651 |
|
|
|
13.71 |
|
|
|
13,805 |
|
|
|
8.00 |
|
|
|
17,256 |
|
|
|
10.00 |
|
Tier 1 capital (to risk-weighted assets) Consolidated
|
|
|
22,419 |
|
|
|
12.94 |
|
|
|
6,913 |
|
|
|
4.00 |
|
|
|
10,369 |
|
|
|
6.00 |
|
|
Bank
|
|
|
21,764 |
|
|
|
12.61 |
|
|
|
6,902 |
|
|
|
4.00 |
|
|
|
10,354 |
|
|
|
6.00 |
|
Tier 1 capital (to average assets)(1) Consolidated
|
|
|
22,419 |
|
|
|
11.07 |
|
|
|
8,083 |
|
|
|
4.00 |
|
|
|
10,104 |
|
|
|
5.00 |
|
|
Bank
|
|
|
21,764 |
|
|
|
10.77 |
|
|
|
8,083 |
|
|
|
4.00 |
|
|
|
10,104 |
|
|
|
5.00 |
|
December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets) Consolidated
|
|
$ |
23,178 |
|
|
|
15.19 |
% |
|
$ |
12,209 |
|
|
|
8.00 |
% |
|
$ |
15,262 |
|
|
|
10.00 |
% |
|
Bank
|
|
|
22,293 |
|
|
|
14.63 |
|
|
|
12,194 |
|
|
|
8.00 |
|
|
|
15,242 |
|
|
|
10.00 |
|
Tier 1 capital (to risk-weighted assets) Consolidated
|
|
|
21,542 |
|
|
|
14.11 |
|
|
|
6,105 |
|
|
|
4.00 |
|
|
|
9,157 |
|
|
|
6.00 |
|
|
Bank
|
|
|
20,657 |
|
|
|
13.55 |
|
|
|
6,097 |
|
|
|
4.00 |
|
|
|
9,145 |
|
|
|
6.00 |
|
Tier 1 capital (to average assets)(1) Consolidated
|
|
|
21,542 |
|
|
|
11.76 |
|
|
|
7,326 |
|
|
|
4.00 |
|
|
|
9,153 |
|
|
|
5.00 |
|
|
Bank
|
|
|
20,657 |
|
|
|
11.30 |
|
|
|
7,314 |
|
|
|
4.00 |
|
|
|
9,143 |
|
|
|
5.00 |
|
|
|
(1) |
Also referred to as the leverage ratio |
53
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Note 19: Condensed Financial Statements of Bancorp
The following are condensed balance sheets at December 31,
2004 and 2003 and the related condensed statements of income and
cash flows for the years ended December 31, 2004 and 2003.
CONDENSED BALANCE SHEETS (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Assets
|
|
|
|
|
|
|
|
|
Due from EvergreenBank
|
|
$ |
438 |
|
|
$ |
532 |
|
Investment in subsidiaries
|
|
|
21,830 |
|
|
|
20,698 |
|
Other assets
|
|
|
284 |
|
|
|
353 |
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
22,552 |
|
|
$ |
21,583 |
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
$ |
17,485 |
|
|
$ |
16,583 |
|
Junior subordinated debt
|
|
|
5,000 |
|
|
|
5,000 |
|
Other liabilities
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
22,552 |
|
|
$ |
21,583 |
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF INCOME (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Dividend income from EvergreenBank
|
|
$ |
495 |
|
|
$ |
886 |
|
|
$ |
443 |
|
Interest expense
|
|
|
253 |
|
|
|
240 |
|
|
|
166 |
|
Other expense
|
|
|
370 |
|
|
|
3 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and equity in undistributed
income of subsidiary
|
|
|
(128 |
) |
|
|
643 |
|
|
|
235 |
|
Income tax benefit
|
|
|
208 |
|
|
|
83 |
|
|
|
72 |
|
Equity in undistributed income of subsidiary
|
|
|
1,202 |
|
|
|
310 |
|
|
|
1,036 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
1,282 |
|
|
$ |
1,036 |
|
|
$ |
1,343 |
|
|
|
|
|
|
|
|
|
|
|
54
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
1,282 |
|
|
$ |
1,036 |
|
|
$ |
1,343 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed income of subsidiary
|
|
|
(1,202 |
) |
|
|
(310 |
) |
|
|
(1,036 |
) |
|
|
Other changes, net
|
|
|
146 |
|
|
|
(79 |
) |
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
226 |
|
|
|
647 |
|
|
|
252 |
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributed to subsidiary
|
|
|
|
|
|
|
|
|
|
|
(4,800 |
) |
|
|
Investment in EvergreenBancorp Capital Trust I
|
|
|
|
|
|
|
|
|
|
|
(155 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities
|
|
|
|
|
|
|
|
|
|
|
(4,955 |
) |
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of dividends
|
|
|
(382 |
) |
|
|
(366 |
) |
|
|
(168 |
) |
|
Repurchase of fractional shares
|
|
|
(7 |
) |
|
|
|
|
|
|
(4 |
) |
|
Proceeds from issuance of subordinated debt, net
|
|
|
|
|
|
|
|
|
|
|
4,946 |
|
|
Proceeds from exercise of stock options
|
|
|
69 |
|
|
|
88 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(320 |
) |
|
|
(278 |
) |
|
|
4,783 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(94 |
) |
|
|
369 |
|
|
|
80 |
|
Cash on deposit with EvergreenBank at beginning of year
|
|
|
532 |
|
|
|
163 |
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
Cash on deposit with EvergreenBank at end of year
|
|
$ |
438 |
|
|
$ |
532 |
|
|
$ |
163 |
|
|
|
|
|
|
|
|
|
|
|
Note 20: Selected Quarterly Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended | |
|
|
| |
|
|
March 31 | |
|
June 30 | |
|
September 30 | |
|
December 31 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$ |
2,725 |
|
|
$ |
2,702 |
|
|
$ |
2,842 |
|
|
$ |
3,094 |
|
|
Net interest income
|
|
|
2,193 |
|
|
|
2,158 |
|
|
|
2,287 |
|
|
|
2,464 |
|
|
Net income
|
|
|
286 |
|
|
|
280 |
|
|
|
301 |
|
|
|
415 |
|
|
Basic earnings per share
|
|
$ |
0.19 |
|
|
$ |
0.18 |
|
|
$ |
0.20 |
|
|
$ |
0.28 |
|
|
Diluted earnings per share
|
|
|
0.19 |
|
|
|
0.18 |
|
|
|
0.20 |
|
|
|
0.27 |
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$ |
2,610 |
|
|
$ |
2,533 |
|
|
$ |
2,574 |
|
|
$ |
2,691 |
|
|
Net interest income
|
|
|
2,023 |
|
|
|
1,980 |
|
|
|
2,051 |
|
|
|
2,146 |
|
|
Net income
|
|
|
298 |
|
|
|
223 |
|
|
|
234 |
|
|
|
281 |
|
|
Basic earnings per share
|
|
$ |
0.20 |
|
|
$ |
0.15 |
|
|
$ |
0.16 |
|
|
$ |
0.19 |
|
|
Diluted earnings per share
|
|
|
0.20 |
|
|
|
0.15 |
|
|
|
0.16 |
|
|
|
0.18 |
|
55
EVERGREENBANCORP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
None.
|
|
Item 9A. |
Controls and Procedures |
An evaluation was performed under the supervision and with the
participation of the Companys management, including the
Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys
disclosure controls and procedures (as defined in
Rule 13a-15(e) promulgated under the Securities and
Exchange Act of 1934, as amended) as of December 31, 2004.
Based upon, and as of the date of that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that as
of the end of the period covered by this report, the
Companys disclosure controls and procedures are effective,
in all material respects, in timely alerting them to material
information relating to the Company (and its consolidated
subsidiaries) required to be disclosed in the reports the
Company is required to file and submit to the SEC under the
Exchange Act.
There were no significant changes to the Companys internal
controls or in other factors that could significantly affect
these internal controls subsequent to the date the Company
carried out its evaluation of its internal controls. There were
no significant deficiencies or material weaknesses identified in
the evaluation and, therefore, no corrective actions were taken.
|
|
Item 9B. |
Other Information |
On November 18, 2004, Bancorps board of directors
reviewed and approved the executive committees
recommendation, in its capacity as the compensation committee,
retaining the same annual fees for board and committee service
in 2005 as were approved for such service in 2004. Each director
will be paid $9,000. Nonemployee directors serving on the
executive committee will be paid an additional $5,000.
Nonemployee directors serving on the audit committee will be
paid an additional $2,500.
On December 23, 2004, the Bank approved an outsourcing
proposal for human resource and administrative services to be
provided by John Parry & Alexander (JPA). A copy of the
proposal is included as an exhibit to this report. The Company
anticipates that the transition of outsourced human resource
functions to JPA will occur during the course of 2005. Terms
relating to JPAs implementation and maintenance of the
human resource function as well as pricing, limitation of
liability and indemnification provisions, are set forth in the
approved proposal.
PART III
|
|
Item 10. |
Directors and Executive Officers of the Registrant |
Information regarding directors and executive officers is
included in Bancorps Proxy Statement for its 2005 Annual
Meeting of Shareholders (the Proxy Statement) under
the heading Election of Directors Information
with Respect to Nominees and Directors Whose Terms
Continue, Executive Officers, and
Compliance with Section 16(a) Filing
Requirements and is incorporated herein by reference.
References within the Proxy Statement to the Company
refer only to Bancorp.
Bancorps Board of Directors has determined that Carole J.
Grisham, Bancorps Audit Committee Chair, is an audit
committee financial expert as described in
Item 401(h)(2)-(3) of Regulation S-K. Ms. Grisham
is independent of management, as that term is used in
Item 7(d)(3)(iv) of Schedule 14A under the Securities
Exchange Act of 1934.
Bancorp has adopted a code of ethics that applies to its
principal executive officer, principal financial officer,
principal accounting officer or controller, and any persons
performing similar functions. A copy of Bancorps Code of
Ethics for Senior Financial Officers can be found as an exhibit
to Bancorps Annual Report on Form 10-K for the year
ended December 31, 2003.
56
|
|
Item 11. |
Executive Compensation |
Information concerning compensation of executive officers and
directors is included in Bancorps Proxy Statement under
the headings Meetings and Committees of the Board of
Directors Compensation of Directors and
Executive Compensation and is incorporated herein by
reference.
|
|
Item 12. |
Security Ownership of Certain Beneficial Owners and
Management |
Information regarding security ownership of certain beneficial
owners and management is included in Bancorps Proxy
Statement under the headings Security
Ownership Directors and Executive Officers and
Beneficial Owners and is incorporated herein by
reference.
|
|
Item 13. |
Certain Relationships and Related Transactions |
Information regarding certain relationships and related
transactions is included in Bancorps Proxy Statement under
the heading entitled Transactions with Directors,
Executive Officers and Associates and is incorporated
herein by reference. See Note 15 to Consolidated Financial
Statements for further information.
|
|
Item 14. |
Principal Accountant Fees and Services |
Information regarding the fees Bancorp paid to its independent
registered public accounting firm, Crowe Chizek and Company LLC,
during 2004 is included in Bancorps Proxy Statement under
the heading Independent Registered Public Accounting
Firm and the information included therein is incorporated
herein by reference.
PART IV
|
|
Item 15. |
Exhibits and Financial Statement Schedules |
(a)(1) Financial Statements
The financial statements required by Item 8 of this report
are filed as part of this report.
(a)(2) Financial Statement Schedules
All financial statement schedules are omitted because they are
not applicable or not required, or because the required
information is included in the consolidated financial statements
or the notes thereto.
(b) Exhibits
|
|
|
|
|
Exhibit No. |
|
Description |
|
|
|
|
3.1 |
|
|
Restated Articles of Incorporation of Registrant dated
July 25, 2001 (incorporated by reference to
Registrants Form 10-K for the year ended December 31,
2001) |
|
|
3.2 |
|
|
Bylaws of Registrant dated February 14, 2001 (incorporated
by reference to Registrants Form 10-K for the year ended
December 31, 2001) |
|
|
10.1 |
|
|
2000 Stock Option Plan dated February 17, 2000 and adopted
by Registrant effective June 20, 2001 (incorporated by
reference to Registrants Form S-8 Filed
August 20, 2001; Reg. No. 333-67956) |
|
|
10.2 |
|
|
Incentive Stock Option Letter Agreement (incorporated by
reference to Registrants Form S-8 Filed
August 20, 2001; Reg. No. 333-67956) |
|
|
10.3 |
|
|
Nonqualified Stock Option Letter Agreement (incorporated by
reference to Registrants Form S-8 Filed
August 20, 2001; Reg. No. 333-67956) |
|
|
10.4 |
|
|
Directors Nonqualified Stock Option Letter Agreement
(incorporated by reference to Registrants Form S-8
Filed August 20, 2001; Reg. No. 333-67956) |
|
|
10.5 |
|
|
PEMCO Deferred Compensation Plan dated as of December 17,
1998 and adopted by Registrant effective June 20, 2001
(incorporated by reference to Registrants Form 10-K for
the year ended December 31, 2001) |
57
|
|
|
|
|
Exhibit No. | |
|
Description |
| |
|
|
|
|
10.6 |
|
|
PEMCO Directors Deferred Compensation Plan dated as of
December 17, 1998 and adopted by Registrant effective
June 20, 2001 (incorporated by reference to
Registrants Form 10-K for the year ended December 31,
2001) |
|
|
10.7 |
|
|
Human Resource Outsource Proposal dated December 23, 2004. |
|
|
14 |
|
|
Code of Ethics for Senior Financial Officers (incorporated by
reference to Registrants Form 10-K for the year ended
December 31, 2003) |
|
|
21 |
|
|
Subsidiaries of the Registrant |
|
|
23 |
|
|
Independent Auditors Consent Crowe Chizek and
Company LLC |
|
|
31.1 |
|
|
Certification of Chief Executive Officer of Registrant required
by Rule 13a-14(a)/15d-14(a), adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
31.2 |
|
|
Certification of Chief Financial Officer of Registrant required
by Rule 13a-14(a)/15d-14(a), adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
32.1 |
|
|
Certification of Chief Executive Officer of Registrant required
by 18 U.S.C. Section 1350, adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
32.2 |
|
|
Certification of the Chief Financial Officer of Registrant
required by 18 U.S.C. Section 1350, adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 |
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on this 17th day of March, 2005.
|
|
|
|
|
Gerald O. Hatler |
|
President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities indicated and on
the 17th day of March, 2005.
|
|
|
|
|
Signature |
|
Title |
|
|
|
|
/s/ GERALD O. HATLER
Gerald
O. Hatler |
|
President, Chief Executive Officer and Director
(Principal Executive Officer) |
|
/s/ WILLIAM G. FILER II
William
G. Filer II |
|
Sr. Vice President and Chief Financial Officer
(Principal Accounting Officer) |
|
/s/ RICHARD W. BALDWIN
Richard
W. Baldwin |
|
Director |
|
/s/ C. DON FILER
C.
Don Filer |
|
Director |
|
/s/ CAROLE J. GRISHAM
Carole
J. Grisham |
|
Director |
|
/s/ ROBERT J. GROSSMAN
Robert
J. Grossman |
|
Director |
|
/s/ J. THOMAS HANDY
J.
Thomas Handy |
|
Director |
|
/s/ STAN W. MCNAUGHTON
Stan
W. McNaughton |
|
Director |
|
/s/ RUSSEL E. OLSON
Russel
E. Olson |
|
Director |
59