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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

[X]          Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2002 or

[  ]           Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required)

Commission file number 000-32915


EVERGREENBANCORP, INC.

(Exact Name of Registrant as specified in its Charter)




|                                                                             |  |                                                     
|---------------------------------------------------------------------------- |  | ----------------------------------------------------
|WASHINGTON
  (State or Other Jurisdiction of 
Incorporation or Organization) |  | 91-2097262
  (I.R.S. Employer
Identification Number)

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

Registrants 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 check mark 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 [X]   NO [  ]

Indicate by check mark 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 registrants 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. [  ]

Indicate by check mark whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Act. YES [  ] NO [X]

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 28, 2002
(the last business day of the most recent second fiscal quarter), was
$15,902,089.

The number of shares outstanding of the registrants no par value common stock
as of February 28, 2003 was 1,076,625 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Designated portions of the Proxy
Statement for the 2003 Annual Meeting of Shareholders (Part III, Items 10  13).





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EVERGREENBANCORP, INC.
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS


TABLE OF CONTENTS



|               |                                                                                               |  |  |  |  |  |  | 
|-------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I        
|               | ITEM 1. Business                                                                             
|               | ITEM 2. Properties                                                                           
|               | ITEM 3. Legal Proceedings                                                                    
|               | ITEM 4. Submission of Matters to a Vote of Security Holders                                  
|PART II       
|               | ITEM 5. Market for the Registrants Common Equity and Related Stockholder Matters            
|               | ITEM 6. Selected Consolidated Financial Data                                                 
|               | ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|               | ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.                         
|               | ITEM 8. Financial Statements and Supplemental Data                                           
|               | ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III      
|               | ITEM 10. Directors and Executive Officers of EvergreenBancorp, Inc.                          
|               | ITEM 11. Executive Compensation                                                              
|               | ITEM 12. Security Ownership of Certain Beneficial Owners and Management                      
|               | ITEM 13. Certain Relationships and Related Transactions                                      
|               | ITEM 14. Controls and Procedures                                                             
|               | ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES    
|CERTIFICATIONS
|EXHIBIT 21    
|EXHIBIT 23.1  
|EXHIBIT 23.2  
|EXHIBIT 99.1  
|EXHIBIT 99.2  



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|               |  |                                                                                       |        
|-------------- |  | ------------------------------------------------------------------------------------- | -------
|               |  |                                                                                       | Page No
|               |  |                                                                                       |        
|PART I         |  |                                                                                       | 2      
|Item 1.        |  | Business                                                                              | 3      
|Item 2.        |  | Properties                                                                            | 8      
|Item 3.        |  | Legal Proceedings                                                                     | 9      
|Item 4.        |  | Submission of Matters to a Vote of Security Holders                                   | 9      
|PART II        |  |                                                                                       | 9      
|Item 5.        |  | Market for Registrants Common Equity and Related Stockholder Matters                 | 9      
|Item 6.        |  | Selected Consolidated Financial Data                                                  | 10     
|Item 7.        |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations | 11     
|Item 7A        |  | Quantitative and Qualitative Disclosures About Market Risk                            | 24     
|Item 8.        |  | Financial Statements and Supplementary Data                                           | 24     
|Item 9.        |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  | 45     
|PART III       |  |                                                                                       | 46     
|Item 10.       |  | Directors and Executive Officers of the Registrant                                    | 46     
|Item 11.       |  | Executive Compensation                                                                | 46     
|Item 12.       |  | Security Ownership of Certain Beneficial Owners and Management                        | 46     
|Item 13.       |  | Certain Relationships and Related Transactions                                        | 46     
|Item 14.       |  | Controls and Procedures                                                               | 46     
|Item 15.       |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       | 47     
|SIGNATURES     |  |                                                                                       | 51     
|CERTIFICATIONS |  |                                                                                       | 51     




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. EvergreenBancorp, Inc. (the
Company) intends such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995 and is including this statement 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 Company, are generally identifiable by use of the words
believe, expect, intend, anticipate, estimate, project, or similar
expressions. The Companys 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 Companys expectation include, but
are not limited to, fluctuation in interest rates and loan and deposit pricing,
which could reduce the Companys net interest margins, asset valuations and
expense expectations; a deterioration in the economy or business conditions,
either nationally or in the Companys 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 Companys provision for loan losses
and related expenses; higher than anticipated costs related to the Companys
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 Companys banking or other subsidiaries; and possible changes
in tax rates, tax laws, or tax law interpretation.

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ITEM 1. Business

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. Bancorp, Bank and Trust are
collectively referred to herein as the Company. The terms we, us, and
our refer to Bancorp, Bank or Trust where applicable.

Bancorp remains committed to community banking and intends the Bank to remain
community-focused. In 2002,the Bank continued to conduct its banking business
in substantially the same manner as prior to the reorganization, with the same
name, board of directors, management structure and personnel.

The Companys net income for 2002 was $1.34 million, or $1.25 per basic share
($1.24 per diluted share), and its consolidated equity at December 31, 2002 was
$15.96 million, with 1,075,461 common shares outstanding and a book value of
$14.84 per share. At December 31, 2002, the Company had total consolidated
assets of approximately $170 million, loans of approximately $122 million, and
deposits of approximately $132 million. For more information regarding the
Companys financial results, see Managements Discussion and Analysis of
Financial Condition and Results of Operations and Financial Statements and
Supplementary Data of this 10-K report.

EvergreenBank

EvergreenBank is a Washington commercial bank organized in 1971 under the name
Teachers State Bank with its main office in Seattle. In February of 1993, the
Bank opened a branch in Lynnwood, approximately 32 miles north of the Seattle
office and, in July 2001, opened a second branch in Bellevue, approximately 20
miles to the east of Seattle.

Over the years, the Bank 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 unions share
drafts for the Federal Reserve System. To reflect the Banks growing interest
in consumer and commercial markets, and to clarify for potential customers that
the Banks 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 Banks 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.

Market

The Banks primary market area consists of King, Pierce, and Snohomish counties
in Western Washington. The Bank began its operations from its main office
location in Seattle and in 1993 expanded its market north by opening its first
branch in Lynnwood, and most recently opened a second branch in 2001 in
Bellevue.

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 sweep accounts, electronic funds transfers,
electronic tax payment, and safe deposit boxes. The Bank also offers 24-hour
telephone banking, as well as on-line banking and bill paying services.

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Competition

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, 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 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.

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.

Employees

On December 31, 2002, the Bank employed 52 full-time employees and 4 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 for five years 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.

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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.

Significant Changes in Laws and Regulations

Sarbanes-Oxley Act of 2002. On July 30, 2002, the President signed into law
the Sarbanes-Oxley Act of 2002 (the Act) to address corporate and accounting
fraud. The Act establishes a new accounting oversight board that will 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; and (iii) accelerates the time frame for reporting of
insider transactions.

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 companys 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 are in the process of complying with, and establishing procedures for,
compliance with the Act and related rules and regulations issued by the SEC.
At the present time, and subject to the final rules and regulations the SEC may
adopt, we anticipate that we will incur additional expense as a result of the
Act, but we do not expect that such compliance will have a material impact on
our business.

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 and provide additional information with the
Federal Reserve. 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
would own or control more than 5 percent 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 percent 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 Companys ability to
obtain funds from the Bank for its cash needs, including funds for payment of
dividends, interest and operational expenses.

Tying Arrangements. The Bank is 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

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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.

Lending Limits. Washington state banking law generally limits the amount of
funds that a bank may lend to a single borrower to 20 percent of the banks
capital and surplus.

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.

Regulation of Management. Federal law sets forth circumstances under which
officers or directors of a bank may be removed by the institutions federal
supervisory agency. Federal law also 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

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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 banks assets, the out-of-state bank may open
additional branches within the state.

Deposit Insurance

The Banks 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 Bancorps 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 banks
ability to pay dividends.

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 institutions 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 institutions total capital. The
guidelines require that at least 50 percent of an institutions total capital
consist of Tier 1 capital.

Risk-based Capital Ratios. The adequacy of an institutions capital is gauged
primarily with reference to the institutions risk-weighted assets. The
guidelines assign risk weightings to an institutions assets in an effort to
quantify the relative risk of each asset and to determine the minimum capital
required to support that risk. An institutions 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
percent and a minimum total risk-based ratio of 8 percent.

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 percent; 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 percent to 2 percent.

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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.

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.

Anti-terrorism Legislation

USA PATRIOT Act of 2001. On October 26, 2001, President Bush signed the
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism (USA PATRIOT Act) of 2001. 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.

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 implements national
monetary policy for such purposes as curbing inflation and combating recession.
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.




ITEM 2. Properties

The Bank conducts business from three leased office locations: the main office
at 301 Eastlake Avenue East, northeast of downtown Seattle; the Lynnwood office
located at 2502 196th Street Southwest, Lynnwood, approximately 32 miles north
of the Banks Seattle office; and the Bellevue office located at 110 110th
Avenue Northeast, Bellevue, approximately 20 miles to the east of
Seattle. The leased premises in

8



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##### Table of Contents



Seattle includes portions of the first two floors of a
five-story building, completed in 1973, that in 1983 underwent significant
remodeling and expansion.

The Company leases premises and parking facilities for the Seattle and Lynnwood
offices from PEMCO Mutual Insurance Company, under leases expiring from March
31, 2003 to May 31, 2011. The Company leases the Bellevue office premises from
another party and that lease expires May 31, 2011. See Note 15 to the
Consolidated Financial Statements at page 41. Rent for all offices for the
fiscal year 2002 was $542,000.

Items of furniture, fixtures, and equipment are purchased as needed by the
Bank, or are leased under a master lease with rentals and terms agreed upon at
the time of leasing. The Bank is responsible for maintenance, repairs,
operating expenses, and insurance. Under the master lease, the Bank may cancel
individual equipment leases on thirty days notice after the initial, six-month
period. Upon termination, the Bank realizes any gain and is obligated for any
loss on disposition of the rental property over depreciated value under an
agreed upon formula.




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.




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 2002.




PART II




ITEM 5. Market for the Registrants Common Equity and Related Stockholder Matters

Bancorps Common Stock

Bancorps common stock is not traded on a national securities exchange or the
Nasdaq Stock Market. It is quoted on the OTC Bulletin Board under the symbol
EVGG. The Nasdaq Stock Market has submitted proposals to the Securities and
Exchange Commission regarding the formation of a new market called BBX
(Bulletin Board Exchange) that will replace the OTC Bulletin Board. It is
anticipated that the BBX will launch in the fourth quarter of 2003. Companies
wishing to transfer to the BBX will be required to file a listing application
and meet the required listing standards of the exchange. Bancorp may apply to
the BBX at such time as the BBX begins accepting applications.

The stock was held by approximately 893 shareholders of record as of December
31, 2002. The following table sets out the high and low bid quotations as
reported by Bloomberg Financial Services, Inc., for each quarterly period
during 2001-2002, and the cash dividends paid. (The numbers set forth below
have been adjusted to reflect the three-for-two stock split declared in July
2001 and the 15 percent stock dividend in July 2002.)

|               |  |          |       |      |  |     |       |          |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 
|-------------- |  | -------- | ----- | ---- |  | --- | ----- | -------- |  | ---- | ----- | ---- |  |  | ----- |  |  |  | ----- |  |  |  | ----- | 
|               |  | 2002     |       | 2001
|               |  |          |       |     
|               |  | Cash     |       |      |  |     |       |          |  |      |       | Cash |  |  |       |  |  |  |       | 
|               |  | Dividend |       | High |  | Low |       | Dividend |  | High |       | Low 
|               |  |          |       |      |  |     |       |          |  |      |       |     
|First Quarter  |  |          | 0.157 |      |  |     | 14.78 |          |  |      | 14.54 |      |  |  | 0.145 |  |  |  | 13.26 |  |  |  | 12.61 | 
|Second Quarter |  |          |       |      |  |     | 14.87 |          |  |      | 14.70 |      |  |  |       |  |  |  | 13.39 |  |  |  | 12.61 | 
|Third Quarter  |  |          |       |      |  |     | 15.80 |          |  |      | 14.87 |      |  |  |       |  |  |  | 16.52 |  |  |  | 13.04 | 
|Fourth Quarter |  |          |       |      |  |     | 16.50 |          |  |      | 15.35 |      |  |  |       |  |  |  | 14.78 |  |  |  | 14.35 | 

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 Companys consolidated net income consists
largely of the net income of the Bank, Bancorps ability to pay dividends
depends upon its receipt of dividends from the Bank. The Banks ability to pay
dividends is regulated by banking statutes.

9



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##### Table of Contents



See Supervision and Regulation  Dividends.
The declaration of dividends by Bancorp is discretionary and depends on
Bancorps earnings and financial condition, regulatory limitations, tax
considerations and other factors. While the Board of Directors expects to
continue to declare dividends annually, there can be no assurance that
dividends will be paid in the future.




ITEM 6. Selected Consolidated Financial Data

Selected Consolidated Financial Data

|                                                            |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|----------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|(in thousands, except per share data):                      |  | 2002 |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                                            |  |      |         |      |  |      |         |      |  |     
|INCOME
STATEMENT DATA                                       |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net interest income                                         |  | $    | 8,337   |      |  | $    | 7,714   |      |  | $    | 7,169   |   |  | $ | 6,329   |   |  | $ | 5,676   |  
|Provision for loan losses                                   |  |      | 330     |      |  |      | 479     |      |  |      | 455     |   |  |   | 300     |   |  |   | 205     |  
|Noninterest income                                          |  |      | 2,387   |      |  |      | 2,938   |      |  |      | 2,212   |   |  |   | 2,024   |   |  |   | 1,818   |  
|Noninterest expense                                         |  |      | 8,371   |      |  |      | 8,344   |      |  |      | 7,192   |   |  |   | 6,515   |   |  |   | 5,906   |  
|Net income                                                  |  |      | 1,343   |      |  |      | 1,240   |      |  |      | 1,210   |   |  |   | 1,075   |   |  |   | 966     |  
|                                                            |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|PER
SHARE DATA(1)                                           |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Earnings per common share                                   |  | $    | 1.25    |      |  | $    | 1.12    |      |  | $    | 1.05    |   |  | $ | .89     |   |  | $ | .80     |  
|Diluted earnings per common share                           |  |      | 1.24    |      |  |      | 1.12    |      |  |      | 1.05    |   |  |   | .89     |   |  |   | .80     |  
|Dividends declared per common share                         |  |      | 0.157   |      |  |      | 0.145   |      |  |      | 0.133   |   |  |   | 0.128   |   |  |   | 0.122   |  
|                                                            |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|BALANCE
SHEET DATA                                          |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Total loans                                                 |  | $    | 121,509 |      |  | $    | 122,219 |      |  | $    | 113,058 |   |  | $ | 90,637  |   |  | $ | 77,210  |  
|Allowance for loan losses                                   |  |      | 1,690   |      |  |      | 1,498   |      |  |      | 1,323   |   |  |   | 1,055   |   |  |   | 907     |  
|Total assets                                                |  |      | 169,926 |      |  |      | 156,365 |      |  |      | 151,752 |   |  |   | 162,092 |   |  |   | 169,685 |  
|Total deposits                                              |  |      | 132,174 |      |  |      | 130,344 |      |  |      | 125,425 |   |  |   | 108,866 |   |  |   | 106,584 |  
|Total long-term debt                                        |  |      | 16,783  |      |  |      | 4,005   |      |  |      | 2,000   |   |  |   |        |   |  |   |        |  
|Stockholders equity                                        |  |      | 15,960  |      |  |      | 14,738  |      |  |      | 14,577  |   |  |   | 14,152  |   |  |   | 13,533  |  
|                                                            |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|SELECTED
FINANCIAL RATIOS                                   |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Return on average assets                                    |  |      | 0.82    | %    |  |      | 0.83    | %    |  |      | 0.81    | % |  |   | 0.70    | % |  |   | 0.64    | %
|Return on average equity                                    |  |      | 8.84    |      |  |      | 8.50    |      |  |      | 8.67    |   |  |   | 7.83    |   |  |   | 7.47    |  
|Dividend payout ratio                                       |  |      | 12.51   |      |  |      | 13.39   |      |  |      | 13.31   |   |  |   | 14.33   |   |  |   | 15.11   |  
|Average equity to average assets                            |  |      | 9.31    |      |  |      | 9.70    |      |  |      | 9.29    |   |  |   | 8.86    |   |  |   | 8.54    |  
|Net interest margin (tax equivalent)                        |  |      | 5.48    |      |  |      | 5.52    |      |  |      | 5.36    |   |  |   | 4.58    |   |  |   | 4.25    |  
|Allowance for loan losses to total loans
at the end of year |  |      | 1.39    |      |  |      | 1.23    |      |  |      | 1.17    |   |  |   | 1.16    |   |  |   | 1.17    |  
|Nonperforming loans to total loans
at the end of year(2)    |  |      | .66     |      |  |      | 0.95    |      |  |      | 0.49    |   |  |   | 1.28    |   |  |   | 1.05    |  
|Net loans charged off to average total loans                |  |      | .11     |      |  |      | 0.26    |      |  |      | 0.18    |   |  |   | 0.19    |   |  |   | 0.13    |  
|                                                            |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  



|(1) |  | All per share amounts have been adjusted to reflect the three-for-two
stock split in July 2001 and the July 2002 15 percent stock dividend.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Nonperforming loans include nonaccrual, impaired and other loans 90 days
or more past due.                                                 

10



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##### Table of Contents






ITEM 7. Managements
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s
wholly owned banking subsidiary is EvergreenBank (the Bank), a state
chartered bank in business since 1971. In May 2002, Bancorp formed
EvergreenBancorp Capital Trust I (the Trust) to raise capital through a trust
preferred securities offering. Throughout this report, Bancorp, Bank and Trust
are collectively referred to as the Company.

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 the three-for-two stock split
in July 2001 and the 15 percent stock dividend in July 2002. 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 managements discussion
and analysis contains certain forward-looking statements that involve risks and
uncertainties. The Companys 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 Companys 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 Companys filings with the Securities and Exchange Commission.

OVERVIEW

The Companys principal business is personal and business banking. Services
offered include commercial, real estate and consumer lending; savings, checking
and certificate of deposit accounts; financial planning and investment
services, and merchant credit card processing services. The Companys
subsidiary is EvergreenBank, a Washington state chartered bank. The Bank
conducts business from three locations: the main office northeast of downtown

Seattle, the Lynnwood office north of Seattle, and the Bellevue office east of
Seattle.

The profitability of the Companys operations depends primarily on the net
interest income from its banking operations and investment activities, the
provision for losses on loans, noninterest income, and noninterest 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 Companys loan portfolio. Noninterest
income includes service charges on deposit accounts and merchant credit card
processing, and noninterest expense includes operating costs such as salaries
and employee benefits, merchant credit card processing, occupancy and
equipment, and other noninterest 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
Companys asset/liability management procedures in dealing with such changes.

The provision for loan losses is dependent on managements 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.

During 2002 the general level of interest rates continued to decline and the
national and regional economy failed to emerge from a period of reduced
economic activity and lower levels of employment. Falling long term interest
rates triggered a faster pace of loan refinancing activity. While the Company
recorded a record dollar volume in loan originations, the continued weakness in
the economy and the record level of refinancing kept the loan portfolio total
at virtually the same level as 2001. Despite these challenges, the Company
maintained steady growth in profitability with improvement in net interest
income and a healthy net interest margin. Overall financial results for 2002
were helped by the Companys focus on controlling operating expenses and
emphasizing asset quality, as operating expenses increased by only .3 percent
and the provision for loan losses declined. The quality of 2002 earnings from
ongoing operations improved as the Company recorded fewer nonrecurring gains on
sales of investments and other assets than in 2001.

RESULTS OF OPERATIONS 2002 COMPARED TO 2001

The Companys 2002 net income was $1,343,000, representing an 8.3 percent
increase over $1,240,000 in 2001. Net income per basic share was $1.25 compared
to $1.12 in 2001. Return on average assets was 0.82 percent for 2002 and 0.83
percent for 2001. Return on average common equity was 8.84 percent and 8.50
percent, respectively. The net interest margin was 5.48 percent compared to
5.52 percent in 2001. Loans decreased .6 percent with loan refinancing and
payoffs offsetting loan originations. Deposits increased 1.4 percent from prior
year-end totals.

11



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##### Table of Contents



2002s results of operations reflect continued growth in profitability
resulting primarily from improvement in net interest income and a lower
provision for loan losses. Operating expenses increased only .3 percent and the
Company recorded fewer nonrecurring gains on sales of investments and other
assets than in 2001. Net merchant processing revenue and the corresponding
expense declined due to reduced processing volumes.

The table of selected consolidated
financial data, which appears on page 10,
summarizes the Companys financial performance for each of the past five years.

2001 COMPARED TO 2000

The Companys 2001 net income was $1,240,000, representing a 2.5 percent
increase over $1,210,000 in 2000. Net income per basic share was $1.12 compared
to $1.05 in 2000. Return on average assets was 0.83 percent for 2001 and 0.81
percent for 2000. Return on average common equity was 8.50 percent and 8.67
percent, respectively.

2001s results of operations reflected improvement in the mix of earning assets
with average loan balances as a percentage of average assets increasing to 78.1
percent from 67.9 percent in 2000. The net interest margin increased to 5.52
percent compared to 5.36 percent in 2000. Loans and deposits increased 8.1
percent and 3.9 percent, respectively, from the prior year, with loan growth
slowing appreciably in the second half of the year. Contributing to improved
earnings was a 32.8 percent increase in noninterest income, as a result of
increased revenue from merchant credit card processing, higher service charges
on deposits and net gains on sales of investments and other assets. Additional
operating cost associated with the new Bellevue office location and increased
merchant credit card processing expense also affected 2001 financial results.

NET INTEREST INCOME

The Companys 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 13 and 14.

2002 COMPARED TO 2001

Net interest income for 2002 was $8,337,000 compared to $7,714,000 in 2001. The
8.1 percent improvement was principally due to growth in interest-earning
assets and a change in the mix of deposits. The net interest margin (which is
net interest income on a tax-equivalent basis divided by average earning
assets) declined slightly to 5.48 percent in 2002, compared to 5.52 percent in
2001 as yields on earning assets decreased slightly more than the rates paid on
funding liabilities. The net interest margin was also affected by the issuance
of the trust preferred securities which had an average rate of 5.43 percent
during 2002. Proceeds from the trust preferred offering were invested primarily
in loans and the Company further leveraged this new capital source by
purchasing mortgage-related securities with funding provided primarily by
Federal Home Loan Bank borrowings.

Total interest income was $11,049,000 in 2002, compared to $11,749,000 in 2001.
The decrease of 6.0 percent resulted from lower average rates on loans,
partially offset by higher average loan and investment balances.

Total interest expense was $2,712,000 in 2002, compared to $4,035,000 in 2001,
a decrease of 32.8 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.

2001 COMPARED TO 2000

Net interest income for 2001 was $7,714,000, compared to $7,169,000 in 2000.
The 7.6 percent improvement was principally due to 15.2 percent growth in the
average loan portfolio. Improvements in the mix of earning assets also
contributed to the increase in interest income. For these reasons, the net
interest margin also improved to 5.52 percent in 2001, compared to 5.36 percent
in 2000.

Total interest income was $11,749,000 in 2001, compared to $11,872,000 in 2000.
The decrease of 1.0 percent resulted from lower investment balances and lower
average rates on loans, offset by higher average loan balances.

Total interest expense was $4,035,000 in 2001, compared to $4,703,000 in 2000,
a decrease of 14.2 percent. The primary factors affecting interest expense were
lower average rates on all categories of interest-bearing deposits, a 37.0
percent increase in average balances of time deposits, and a decrease in the
average balances of federal funds purchased and securities sold under
agreements to repurchase.

12



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##### Table of Contents



ANALYSIS OF AVERAGE BALANCES, NET INTEREST INCOME, AND NET INTEREST MARGIN

|                                                                           |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |       |  
|-------------------------------------------------------------------------- | ------------------------ | ---- | ------- | ------ | -------- | -------------- | ------ | ----- | ------- |  | -------- | ---- | ---- | - | ------- | ------ | ----- | - | --------- | ----- | ------------- |  | ---- | ---- | - |  | --- | ---- | - |  | ------ | ----- | -
|                                                                           |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|YEARS ENDED DECEMBER 31 (in thousands):                                    |                          | 2002 |         | 2001   |          | 2002 OVER 2001
|                                                                           |                          |      |         |        |          |               
|                                                                           |                          |      | AVERAGE |        |          |                |        |       | YIELD   |  | AVERAGE  |      |      |   |         |        | YIELD |   | CHANGE IN |       | INCOME DUE TO
|                                                                           |                          |      | BALANCE |        | INTEREST |                | RATE   |       | BALANCE |  | INTEREST |      | RATE |   | VOLUME  |        | RATE 
|                                                                           |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |      
|ASSETS                                                                     |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|Loans:                                                                     |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|                                                                           | Commercial and financial |      | $       | 57,833 |          |                | $      | 4,489 |         |  |          | 7.76 | %    |   | $       | 54,132 |       |   | $         | 4,980 |               |  |      | 9.20 | % |  | $   | 382  |   |  |        | ($873 | )
|                                                                           | Real estate              |      |         | 47,350 |          |                |        | 3,958 |         |  |          | 8.36 |      |   |         | 41,758 |       |   |           | 3,643 |               |  |      | 8.73 |   |  | $   | 461  |   |  |        | ($146 | )
|                                                                           | Consumer and other       |      |         | 16,549 |          |                |        | 1,627 |         |  |          | 9.83 |      |   |         | 21,524 |       |   |           | 2,092 |               |  |      | 9.72 |   |  |     | (489 | ) |  |        | 24    |  
|                                                                           |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|Total loans                                                                |                          |      | 121,732 |        |          |                | 10,074 |       |         |  | 8.28     |      |      |   | 117,414 |        |       |   | 10,715    |       |               |  | 9.13 |      |   |  | 354 |      |   |  | (995   | )    
|Federal funds sold                                                         |                          |      | 12,297  |        |          |                | 200    |       |         |  | 1.63     |      |      |   | 12,060  |        |       |   | 435       |       |               |  | 3.61 |      |   |  | 9   |      |   |  | (244   | )    
|Interest-bearing deposits
in financial institutions                        |                          |      | 1,479   |        |          |                | 8      |       |         |  | 0.54     |      |      |   | 1,275   |        |       |   | 37        |       |               |  | 2.91 |      |   |  | 7   |      |   |  | (36    | )    
|Investment securities                                                      |                          |      | 18,765  |        |          |                | 890    |       |         |  | 4.74     |      |      |   | 11,649  |        |       |   | 702       |       |               |  | 6.03 |      |   |  | 289 |      |   |  | (101   | )    
|                                                                           |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|Total earning assets                                                       |                          |      | 154,273 |        |          |                | 11,172 |       |         |  | 7.24     |      |      |   | 142,398 |        |       |   | 11,889    |       |               |  | 8.35 |      |   |  | 659 |      |   |  | (1,376 | )    
|                                                                           |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|Cash and due from banks                                                    |                          |      | 7,124   |        |          |                |        |       |         |  |          |      |      |   | 6,513   |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|Premises and equipment                                                     |                          |      | 2,012   |        |          |                |        |       |         |  |          |      |      |   | 1,452   |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|Other real estate owned                                                    |                          |      | 0       |        |          |                |        |       |         |  |          |      |      |   | 0       |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|Accrued interest and other assets                                          |                          |      | 1,499   |        |          |                |        |       |         |  |          |      |      |   | 1,509   |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|Allowance for loan losses                                                  |                          |      | (1,665  | )      |          |                |        |       |         |  |          |      |      |   | (1,486  | )      |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|                                                                           |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |       |  
|Total assets                                                               |                          | $    | 163,243 |        |          |                |        |       |         |  |          |      |      |   | 150,386 |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|                                                                           |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |       |  
|LIABILITIES                                                                |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|Interest-bearing deposits:                                                 |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|                                                                           | Demand deposits          |      |         | 9,094  |          |                |        | 23    |         |  |          | 0.25 | %    |   |         | 10,225 |       |   |           | 54    |               |  |      | 0.53 | % |  |     | (5   | ) |  |        | (26   | )
|                                                                           | Savings deposits         |      |         | 45,875 |          |                |        | 814   |         |  |          | 1.77 |      |   |         | 35,114 |       |   |           | 1,057 |               |  |      | 3.01 |   |  |     | 715  |   |  |        | (958  | )
|                                                                           | Time deposits            |      |         | 39,270 |          |                |        | 1,240 |         |  |          | 3.16 |      |   |         | 46,705 |       |   |           | 2,482 |               |  |      | 5.31 |   |  |     | (350 | ) |  |        | (892  | )
|                                                                           |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|Total interest-bearing deposits                                            |                          |      | 94,239  |        |          |                | 2,077  |       |         |  | 2.20     |      |      |   | 92,044  |        |       |   | 3,593     |       |               |  | 3.90 |      |   |  | 360 |      |   |  | (1,876 | )    
|Federal funds purchased and
securities sold under agreements
to repurchase |                          |      | 4,721   |        |          |                | 56     |       |         |  | 1.19     |      |      |   | 6,527   |        |       |   | 235       |       |               |  | 3.60 |      |   |  | (52 | )    |   |  | (127   | )    
|Federal Home Loan Bank advances                                            |                          |      | 8,555   |        |          |                | 413    |       |         |  | 4.83     |      |      |   | 3,459   |        |       |   | 207       |       |               |  | 5.98 |      |   |  | 237 |      |   |  | (31    | )    
|Junior subordinated debt (trust
preferred securities)                      |                          |      | 3,059   |        |          |                | 166    |       |         |  | 5.43     |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  | 166 |      |   |  | 0      |      
|                                                                           |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|Total interest-bearing liabilities                                         |                          |      | 110,574 |        |          |                | 2,712  |       |         |  | 2.46     |      |      |   | 102,030 |        |       |   | 4,035     |       |               |  | 3.95 |      |   |  | 711 |      |   |  | (2,034 | )    
|Noninterest-bearing deposits                                               |                          |      | 35,464  |        |          |                |        |       |         |  |          |      |      |   | 31,938  |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|Accrued interest and other
liabilities                                     |                          |      | 2,013   |        |          |                |        |       |         |  |          |      |      |   | 1,830   |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|                                                                           |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |       |  
|Total liabilities                                                          |                          |      | 148,051 |        |          |                |        |       |         |  |          |      |      |   | 135,798 |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|Stockholders equity                                                       |                          |      | 15,192  |        |          |                |        |       |         |  |          |      |      |   | 14,588  |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|                                                                           |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |       |  
|Total liabilities and
stockholders equity                                 |                          | $    | 163,243 |        |          |                |        |       |         |  |          |      |      | $ | 150,386 |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |      
|                                                                           |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |       |  
|Interest revenue as a percentage
of average earning assets                 |                          |      |         |        |          |                |        |       |         |  | 7.24     | %    |      |   |         |        |       |   |           |       |               |  | 8.35 | %    |   |  |     |      |   |  |        |      
|Interest expense as a percentage
of average earning assets                 |                          |      |         |        |          |                |        |       |         |  | 1.76     | %    |      |   |         |        |       |   |           |       |               |  | 2.83 | %    |   |  |     |      |   |  |        |      
|                                                                           |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |       |  
|Net interest income on a
taxable-equivalent basis
and net interest margin  |                          |      |         |        |          | $              | 8,460  |       |         |  | 5.48     | %    |      |   |         |        |       | $ | 7,854     |       |               |  | 5.52 | %    |   |  |     |      |   |  |        |      
|                                                                           |                          |      |         |        |          |                |        |       |         |  |          |      |      |   |         |        |       |   |           |       |               |  |      |      |   |  |     |      |   |  |        |       |  

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.

13



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##### Table of Contents



ANALYSIS OF AVERAGE BALANCES, NET INTEREST INCOME, AND NET INTEREST MARGIN

|                                                                           |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |      |  
|-------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | -------- | ---- | ---- | -------------- | ------- | ----- | -------- | ------- | ---- | - | ------ | ------- | ------- | ----- | - | --------- | ----- | ------------- |  | ---- | ----- | - |  | ----- | --- |  |  | ---- | ---- | -
|                                                                           |                                            |         | 2001    |          | 2000 |      | 2001 OVER 2000
|                                                                           |                                            |         |         |          |      |      |               
|                                                                           |                                            |         | AVERAGE |          |      |      |                |         | YIELD |          | AVERAGE |      |   |        |         |         | YIELD |   | CHANGE IN |       | INCOME DUE TO
|YEARS ENDED DECEMBER 31 (in thousands):                                    |                                            | BALANCE |         | INTEREST |      | RATE |                | BALANCE |       | INTEREST |         | RATE |   | VOLUME |         | RATE   
|                                                                           |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |        
|ASSETS                                                                     |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |     
|Loans:                                                                     |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |     
|                                                                           | Commercial and financial                   |         | $       | 54,132   |      |      | $              | 4,980   |       |          |         | 9.20 | % |        | $       | 46,506  |       |   | $         | 4,881 |               |  |      | 10.50 | % |  | $     | 401 |  |  | $    | (302 | )
|                                                                           | Real estate                                |         |         | 41,758   |      |      |                | 3,643   |       |          |         | 8.73 |   |        |         | 34,327  |       |   |           | 2,993 |               |  |      | 8.72  |   |  |       | 646 |  |  |      | 4    |  
|                                                                           | Consumer and other                         |         |         | 21,524   |      |      |                | 2,092   |       |          |         | 9.72 |   |        |         | 21,088  |       |   |           | 1,976 |               |  |      | 9.37  |   |  |       | 41  |  |  |      | 75   |  
|                                                                           |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |      |  
|Total loans                                                                |                                            |         | 117,414 |          |      |      | 10,715         |         |       |          | 9.13    |      |   |        | 101,921 |         |       |   | 9,850     |       |               |  | 9.66 |       |   |  | 1,088 |     |  |  | (223 | )   
|Federal funds sold                                                         |                                            |         | 12,060  |          |      |      | 435            |         |       |          | 3.61    |      |   |        | 10,495  |         |       |   | 687       |       |               |  | 6.55 |       |   |  | 126   |     |  |  | (378 | )   
|Interest-bearing deposits
in financial institutions                        |                                            |         | 1,275   |          |      |      | 37             |         |       |          | 2.91    |      |   |        | 2,026   |         |       |   | 89        |       |               |  | 4.39 |       |   |  | (22   | )   |  |  | (30  | )   
|Investment securities                                                      |                                            |         | 11,649  |          |      |      | 702            |         |       |          | 6.03    |      |   |        | 24,610  |         |       |   | 1,525     |       |               |  | 6.20 |       |   |  | (782  | )   |  |  | (41  | )   
|                                                                           |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |      |  
|Total earning assets                                                       |                                            |         | 142,398 |          |      |      | 11,889         |         |       |          | 8.35    |      |   |        | 139,052 |         |       |   | 12,151    |       |               |  | 8.74 |       |   |  | 410   |     |  |  | (672 | )   
|                                                                           |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |      |  
|Cash and due from banks                                                    |                                            |         | 6,513   |          |      |      |                |         |       |          |         |      |   |        | 9,820   |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |     
|Premises and equipment                                                     |                                            |         | 1,452   |          |      |      |                |         |       |          |         |      |   |        | 820     |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |     
|Other real estate owned                                                    |                                            |         | 0       |          |      |      |                |         |       |          |         |      |   |        | 5       |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |     
|Accrued interest and other assets                                          |                                            |         | 1,509   |          |      |      |                |         |       |          |         |      |   |        | 1,595   |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |     
|Allowance for loan losses                                                  |                                            |         | (1,486  | )        |      |      |                |         |       |          |         |      |   |        | (1,200  | )       |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |     
|                                                                           |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |      |  
|Total assets                                                               |                                            |         | 150,386 |          |      |      |                |         |       |          |         |      |   |        | 150,092 |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |     
|                                                                           |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |      |  
|LIABILITIES                                                                |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |     
|Interest-bearing deposits:                                                 |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |     
|                                                                           | Demand deposits                            |         |         | 10,225   |      |      |                | 54      |       |          |         | 0.53 |   |        |         | 9,615   |       |   |           | 92    |               |  |      | 0.96  |   |  |       | 7   |  |  |      | (45  | )
|                                                                           | Savings deposits                           |         |         | 35,114   |      |      |                | 1,057   |       |          |         | 3.01 |   |        |         | 34,239  |       |   |           | 1,319 |               |  |      | 3.85  |   |  |       | 34  |  |  |      | (296 | )
|                                                                           | Time deposits                              |         |         | 46,705   |      |      |                | 2,482   |       |          |         | 5.31 |   |        |         | 34,093  |       |   |           | 1,974 |               |  |      | 5.79  |   |  |       | 653 |  |  |      | (145 | )
|                                                                           |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |      |  
|Total interest-bearing deposits                                            |                                            |         | 92,044  |          |      |      | 3,593          |         |       |          | 3.90    |      |   |        | 77,947  |         |       |   | 3,385     |       |               |  | 4.34 |       |   |  | 694   |     |  |  | (486 | )   
|Federal funds purchased and
securities sold under agreements
to repurchase |                                            |         | 6,527   |          |      |      | 235            |         |       |          | 3.60    |      |   |        | 15,866  |         |       |   | 903       |       |               |  | 5.69 |       |   |  | (412  | )   |  |  | (256 | )   
|Federal Home Loan Bank advances                                            |                                            |         | 3,459   |          |      |      | 207            |         |       |          | 5.98    | %    |   |        | 6,308   |         |       |   | 415       |       |               |  | 6.57 | %     |   |  | (173  | )   |  |  | (35  | )   
|                                                                           |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |      |  
|Total interest-bearing liabilities                                         |                                            |         | 102,030 |          |      |      | 4,035          |         |       |          | 3.95    | %    |   |        | 100,121 |         |       |   | 4,703     |       |               |  | 4.70 | %     |   |  | 109   |     |  |  | (777 | )   
|Noninterest-bearing deposits                                               |                                            |         | 31,938  |          |      |      |                |         |       |          |         |      |   |        | 34,509  |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |     
|Accrued interest and other
liabilities                                     |                                            |         | 1,830   |          |      |      |                |         |       |          |         |      |   |        | 1,508   |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |     
|                                                                           |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |      |  
|Total liabilities                                                          |                                            |         | 135,798 |          |      |      |                |         |       |          |         |      |   |        | 136,138 |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |     
|Stockholders equity                                                       |                                            |         | 14,588  |          |      |      |                |         |       |          |         |      |   |        | 13,954  |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |     
|                                                                           |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |      |  
|                                                                           | Total liabilities and
stockholders equity |         | $       | 150,386  |      |      |                |         |       |          |         |      |   |        | $       | 150,092 |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |      |  
|                                                                           |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |      |  
|Interest revenue as a percentage
of average earning assets                 |                                            |         |         |          |      |      |                |         |       |          | 8.35    | %    |   |        |         |         |       |   |           |       |               |  | 8.74 | %     |   |  |       |     |  |  |      |     
|Interest expense as a percentage
of average earning assets                 |                                            |         |         |          |      |      |                |         |       |          | 2.83    | %    |   |        |         |         |       |   |           |       |               |  | 3.38 | %     |   |  |       |     |  |  |      |     
|                                                                           |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |      |  
|Net interest income on a
taxable-equivalent basis
and net interest margin  |                                            |         |         |          |      | $    | 7,854          |         |       |          | 5.52    | %    |   |        |         |         |       | $ | 7,448     |       |               |  | 5.36 | %     |   |  |       |     |  |  |      |     
|                                                                           |                                            |         |         |          |      |      |                |         |       |          |         |      |   |        |         |         |       |   |           |       |               |  |      |       |   |  |       |     |  |  |      |      |  

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.

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##### Table of Contents



PROVISION AND ALLOWANCE FOR LOAN LOSSES

The provision for loan losses was $330,000 for 2002 compared to $479,000 and
$455,000 for 2001 and 2000, respectively. At December 31, 2002, the allowance
for loan losses was $1,690,000, or 1.39 percent of total loans, compared with
$1,498,000, or 1.23 percent at December 31, 2001. Nonperforming loans
(nonaccrual loans and loans over 90 days past due) to total loans at the end of
2002 were .66 percent as compared to .95 percent at December 31, 2001. The
continuing slowdown in the economy, including high regional unemployment rates
and a softening real estate market, is a key factor in the 2002 increase in the
allowance for loan losses to total loans percentage.

The allowance for loan losses is maintained at a level considered adequate to
absorb probable incurred losses. Management evaluates the adequacy of the
allowance on a monthly 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, loan commitments outstanding and other factors.

The Company considers the allowance for loan losses of $1,690,000 at December
31, 2002 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 loss.

An analysis of the changes in the allowance for loan losses, including
provisions, recoveries, and loans charged-off is presented in Note 5 to the
consolidated financial statements.

NONINTEREST INCOME

Noninterest income in 2002, 2001, and 2000 totaled $2,387,000, $2,938,000, and
$2,212,000, respectively.

The decrease of 18.8 percent in 2002 was primarily due to lower revenue from
merchant credit card processing fees, and less recorded gains on sales of
securities and loans. Nonrecurring items from 2001 included revenue of
$143,000 resulting from the repurchase of the Companys interest in a company
that provides ATM electronic services.

The increase of 32.8 percent in 2001 compared to 2000 was principally due to
growth in merchant credit card processing revenue, increased service charges on
deposits and gains on sales of investments, offset by lower gross income from
check clearing operations. The Company withdrew from check clearing operations
in 2000.

NONINTEREST EXPENSE

The Companys total noninterest expense for 2002, 2001, and 2000 was
$8,371,000, $8,344,000, and $7,192,000, respectively.

Noninterest expense increased $27,000 or .3 percent in 2002. The relatively
small change in this category was primarily due to the effect of reducing
staffing levels to 52 full time equivalent employees in 2002 compared to 55
full time equivalent employees one year ago, offset by increased employee wages
and benefit costs. Lower merchant processing expense resulting from reduced
credit card processing activity also affected 2002 results. Noninterest expense
for 2001 included certain nonrecurring costs associated with opening the
Bellevue office in July 2001.

The increase of 16.0 percent in
2001 compared to 2000 was principally due to an
increase in merchant credit card processing expense and the increased cost of
opening the Bellevue office location. Merchant credit card processing expense
for 2002, 2001, and 2000 was $850,000, $1,131,000, and $625,000, respectively.

REVIEW OF FINANCIAL CONDITION

Total assets increased 8.7 percent in 2002 to $169,926,000, investments
increased 55.7 percent to $23,694,000, loans declined 0.6 percent to
$121,509,000, and deposits increased 1.4 percent to $132,174,000.

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##### Table of Contents



ANALYSIS OF SECURITIES

The components of the investment portfolio were as follows at December 31:

|                                                                   |  |          |        |          |  |          |        |  |  |   |        | 
|------------------------------------------------------------------ |  | -------- | ------ | -------- |  | -------- | ------ |  |  | - | ------ | 
|                                                                   |  | 2002     |        | 2001     |  | 2000    
|                                                                   |  | Carrying |        | Carrying |  | Carrying
|(in thousands)                                                     |  | Value    |        | Value    |  | Value   
|                                                                   |  |          |        |          |  |         
|U.S. Treasury and agencies                                         |  | $        | 3,032  |          |  | $        | 2,044  |  |  | $ | 8,002  | 
|Municipal bonds                                                    |  |          | 2,123  |          |  |          | 1,810  |  |  |   | 5,933  | 
|AMF Adjustable Rate Mortgage Fund                                  |  |          | 5,397  |          |  |          | 10,137 |  |  |   | 0      | 
|Mortgage-backed securities and
collateralized mortgage
obligations |  |          | 11,843 |          |  |          | 0      |  |  |   | 0      | 
|Equity securities                                                  |  |          | 1,299  |          |  |          | 1,223  |  |  |   | 1,143  | 
|                                                                   |  |          |        |          |  |          |        |  |  |   |        | 
|TOTAL                                                              |  | $        | 23,694 |          |  | $        | 15,214 |  |  | $ | 15,078 | 
|                                                                   |  |          |        |          |  |          |        |  |  |   |        | 

The securities portfolio increased $8,480,000 from December 31, 2001 to
December 31, 2002 primarily as a result of a growth strategy involving the
purchase of mortgage-backed securities and collateralized mortgage obligations
using funding provided by Federal Home Loan Bank borrowings.

The following table sets forth the maturities of securities at December 31,
2002. Taxable equivalent values are used in calculating yields assuming a tax
rate of 34 percent.

|                                    |  |                |       |          |  |              |       |               |  |         |       |          |  |         |       |   |  |   |        |  
|----------------------------------- |  | -------------- | ----- | -------- |  | ------------ | ----- | ------------- |  | ------- | ----- | -------- |  | ------- | ----- | - |  | - | ------ | -
|                                    |  |                |       |          |  | After 1 Year |       | After 5 Years |  |         |       |          |  | Total &
|                                    |  |                |       |          |  | But Within   |       | But Within    |  | After   |       | Weighted
|(in thousands)                      |  | Within 1 Year/ |       | 5 Years/ |  | 10 Years/    |       | 10 Years/     |  | Average
|(carrying value)                    |  | Yield          |       | Yield    |  | Yield        |       | Yield         |  | Yield  
|                                    |  |                |       |          |  |              |       |               |  |        
|U.S. Treasury and agencies          |  | $              | 506   |          |  | $            | 2,526 |               |  | $       |       |          |  | $       |       |   |  | $ | 3,032  |  
|                                    |  |                | 4.40  | %        |  |              | 3.52  | %             |  |         |       |          |  |         |       |   |  |   | 3.67   | %
|Municipal bonds                     |  |                | 720   |          |  |              | 429   |               |  |         | 974   |          |  |         |       |   |  |   | 2,123  |  
|                                    |  |                | 6.37  | %        |  |              | 3.55  | %             |  |         | 5.31  | %        |  |         |       |   |  |   | 5.30   | %
|AMF Adjustable Rate
Mortgage Fund*  |  |                | 5,397 |          |  |              |       |               |  |         |       |          |  |         |       |   |  |   | 5,397  |  
|                                    |  |                | 2.52  | %        |  |              |       |               |  |         |       |          |  |         |       |   |  |   | 2.52   | %
|Mortgage-backed securities and      |  |                |       |          |  |              |       |               |  |         |       |          |  |         |       |   |  |   |        |  
|collateralized mortgage
obligations |  |                |       |          |  |              |       |               |  |         | 2,238 |          |  |         | 9,605 |   |  |   | 11,843 |  
|                                    |  |                |       |          |  |              |       |               |  |         | 3.76  | %        |  |         | 4.61  | % |  |   | 4.45   | %
|Equity Securities*                  |  |                | 1,299 |          |  |              |       |               |  |         |       |          |  |         |       |   |  |   | 1,299  |  
|                                    |  |                | 6.08  | %        |  |              |       |               |  |         |       |          |  |         |       |   |  |   | 6.08   | %
|TOTAL                               |  | $              | 7,922 |          |  | $            | 2,955 |               |  | $       | 3,212 |          |  | $       | 9,605 |   |  | $ | 23,694 |  
|                                    |  |                | 3.57  | %        |  |              | 3.52  | %             |  |         | 4.23  | %        |  |         | 4.61  | % |  |   | 4.07   | %



|* |  | Securities without a stated maturity.
|- |  | -------------------------------------

LOANS

The major classifications of loans net of unearned income in the portfolio at
December 31 were:

|                   |                        |      |         |        |  |   |         |        | 
|------------------ | ---------------------- | ---- | ------- | ------ |  | - | ------- | ------ | 
|(in thousands)     |                        | 2002 |         | 2001  
|                   |                        |      |         |       
|Commercial         |                        | $    | 47,603  |        |  | $ | 53,791  |       
|Real estate:       |                        |      |         |        |  |   |         |       
|                   | Commercial             |      |         | 42,497 |  |   |         | 28,349 | 
|                   | Construction           |      |         | 5,574  |  |   |         | 7,002  | 
|                   | Residential 1-4 family |      |         | 10,821 |  |   |         | 13,942 | 
|Consumer and other |                        |      | 15,014  |        |  |   | 19,135  |       
|                   |                        |      |         |        |  |   |         |       
|Total              |                        | $    | 121,509 |        |  | $ | 122,219 |       
|                   |                        |      |         |        |  |   |         |       

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The following table shows the amounts maturing or repricing as of December
31, 2002 (in thousands):

|                   |                        |        |        |       |     |         |        |        |  |   |       |       |  |   |         |        | 
|------------------ | ---------------------- | ------ | ------ | ----- | --- | ------- | ------ | ------ |  | - | ----- | ----- |  | - | ------- | ------ | 
|                   |                        |        | Within |       | 1-5 |         | After  |        |  |   |      
|(in thousands)     |                        | 1 Year |        | Years |     | 5 Years |        | Total 
|                   |                        |        |        |       |     |         |        |       
|Commercial         |                        | $      | 26,923 |       |     | $       | 18,798 |        |  | $ | 1,882 |       |  | $ | 47,603  |       
|Real estate:       |                        |        |        |       |     |         |        |        |  |   |       |       |  |   |         |       
|                   | Commercial             |        |        | 7,998 |     |         |        | 30,804 |  |   |       | 3,695 |  |   |         | 42,497 | 
|                   | Construction           |        |        | 5,417 |     |         |        | 157    |  |   |       | 0     |  |   |         | 5,574  | 
|                   | Residential 1-4 family |        |        | 4,110 |     |         |        | 6,481  |  |   |       | 230   |  |   |         | 10,821 | 
|Consumer and other |                        |        | 9,519  |       |     |         | 5,024  |        |  |   | 471   |       |  |   | 15,014  |       
|                   |                        |        |        |       |     |         |        |        |  |   |       |       |  |   |         |       
|Total              |                        | $      | 53,967 |       |     | $       | 61,264 |        |  | $ | 6,278 |       |  | $ | 121,509 |       
|                   |                        |        |        |       |     |         |        |        |  |   |       |       |  |   |         |       

Loans maturing by fixed or variable rate after one year (in thousands):

|               |  |       |        |         |  |   |        | 
|-------------- |  | ----- | ------ | ------- |  | - | ------ | 
|               |  | 1-5   |        | After  
|(in thousands) |  | Years |        | 5 Years
|               |  |       |        |        
|Fixed rates    |  | $     | 47,852 |         |  | $ | 6,262  | 
|Variable rates |  |       | 12,231 |         |  |   | 12,962 | 
|               |  |       |        |         |  |   |        | 
|Total          |  | $     | 60,083 |         |  | $ | 19,224 | 
|               |  |       |        |         |  |   |        | 

ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

The following table sets forth activity in the allowance for loan losses and
details the charge-offs, recoveries and net loan losses by loan category for
the last two years.

|                                                      |                        |      |                          |      |  |   |       |   | 
|----------------------------------------------------- | ---------------------- | ---- | ------------------------ | ---- |  | - | ----- | - | 
|                                                      |                        |      | Year ending December 31,
|                                                      |                        |      |                         
|(in thousands)                                        |                        | 2002 |                          | 2001
|                                                      |                        |      |                          |     
|Beginning Balance                                     |                        | $    | 1,498                    |      |  | $ | 1,323 |  
|CHARGE-OFFS:                                          |                        |      |                          |      |  |   |       |  
|Commercial                                            |                        |      | 108                      |      |  |   | 185   |  
|Real estate:                                          |                        |      |                          |      |  |   |       |  
|                                                      | Commercial             |      |                          | 20   |  |   |       |   | 
|                                                      | Construction           |      |                          |      |  |   |       |   | 
|                                                      | Residential 1-4 family |      |                          |      |  |   |       |   | 
|Consumer and other                                    |                        |      | 63                       |      |  |   | 176   |  
|                                                      |                        |      |                          |      |  |   |       |  
|Total charge-offs                                     |                        |      | 191                      |      |  |   | 361   |  
|RECOVERIES:                                           |                        |      |                          |      |  |   |       |  
|Commercial                                            |                        |      | 22                       |      |  |   | 57    |  
|Real estate:                                          |                        |      |                          |      |  |   |       |  
|                                                      | Commercial             |      |                          |      |  |   |       |   | 
|                                                      | Construction           |      |                          | 1    |  |   |       |   | 
|                                                      | Residential 1-4 family |      |                          |      |  |   |       |   | 
|Consumer and other                                    |                        |      | 30                       |      |  |   |       |  
|                                                      |                        |      |                          |      |  |   |       |  
|Total Recoveries                                      |                        |      | 53                       |      |  |   | 57    |  
|NET CHARGE-OFFS                                       |                        |      | 138                      |      |  |   | 304   |  
|Provision                                             |                        |      | 330                      |      |  |   | 479   |  
|                                                      |                        |      |                          |      |  |   |       |  
|Ending balance                                        |                        | $    | 1,690                    |      |  | $ | 1,498 |  
|                                                      |                        |      |                          |      |  |   |       |  
|Ratio of net charge-offs to average loans
outstanding |                        |      | 0.11                     | %    |  |   | 0.26  | %

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ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

In the following table, the allowance for loan losses at December 31, 2002, and
2001 has been allocated among major loan categories.

|                   |                        |        |       |                |               |        |               |                |               |   |       |     |               |  |     |    | 
|------------------ | ---------------------- | ------ | ----- | -------------- | ------------- | ------ | ------------- | -------------- | ------------- | - | ----- | --- | ------------- |  | --- | -- | 
|                   |                        |        |       |                |               |        | % of loans in |                |               |   |       |     | % of loans in
|                   |                        |        | 2002  |                | each category |        | 2001          |                | each category
|(in thousands)     |                        | Amount |       | to Total Loans |               | Amount |               | to Total Loans
|                   |                        |        |       |                |               |        |               |               
|Commercial         |                        | $      | 1,024 |                |               |        | 39            | %              |               | $ | 908   |     |               |  | 44  | % 
|Real estate:       |                        |        |       |                |               |        |               |                |               |   |       |     |               |  |     |   
|                   | Commercial             |        |       | 423            |               |        |               | 35             |               |   |       | 261 |               |  |     | 23 | 
|                   | Construction           |        |       | 59             |               |        |               | 5              |               |   |       | 65  |               |  |     | 6  | 
|                   | Residential 1-4
family |        |       | 28             |               |        |               | 9              |               |   |       | 12  |               |  |     | 11 | 
|Consumer and other |                        |        | 156   |                |               |        | 12            |                |               |   | 252   |     |               |  | 16  |   
|                   |                        |        |       |                |               |        |               |                |               |   |       |     |               |  |     |   
|Total              |                        | $      | 1,690 |                |               |        | 100           | %              |               | $ | 1,498 |     |               |  | 100 | % 
|                   |                        |        |       |                |               |        |               |                |               |   |       |     |               |  |     |   
|                   |                        |        | 1.39  | %              |               |        |               |                |               |   | 1.23  | %   |               |  |     |   

The above analysis 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.

NONPERFORMING LOANS

Loans considered to be nonperforming include accruing loans past due ninety
days or more, non-accrual loans, and impaired loans. Interest accrual is
discontinued on loans 90 days or more past due when the collateral is
inadequate to cover principal and interest. If management believes that
collection is doubtful after considering relevant conditions, accrual of
interest is discontinued immediately.

Impairment of a loan occurs when, based on current information and events, it
is probable that all amounts due according to the contractual terms of the loan
agreement are not expected to be collected. Impaired loans are carried at the
present value of expected future cash flows or the fair value of the related
collateral, if the loan is considered to be collateral dependent.
Nonperforming loans are loans 90 days or more delinquent as to principal and
interest payments unless the loan is well secured.

The following table summarizes the Banks past due, impaired and nonaccrual
loans for the years ended December 31:

|                                                  |  |      |     |      |  |   |     | 
|------------------------------------------------- |  | ---- | --- | ---- |  | - | --- | 
|(in thousands)                                    |  | 2002 |     | 2001
|                                                  |  |      |     |     
|Loans accounted for on a nonaccrual basis:        |  |      |     |      |  |   |     | 
|Commercial                                        |  | $    | 309 |      |  | $ | 463 | 
|Real Estate                                       |  |      | 462 |      |  |   | 90  | 
|Consumer                                          |  |      | 1   |      |  |   | 0   | 
|Accruing loans which are past due 90 days or more |  |      |     |      |  |   |     | 
|Commercial                                        |  |      | 15  |      |  |   | 444 | 
|Real Estate                                       |  |      | 0   |      |  |   | 111 | 
|Consumer                                          |  |      | 12  |      |  |   | 47  | 

There are certain amounts of interest that have not been accrued and certain
amounts that have been collected on the above loans and included in income,
which are included in the table below:

|                                                                                                                    |  |      |    |      |  |   |    | 
|------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | ---- |  | - | -- | 
|(in thousands)                                                                                                      |  | 2002 |    | 2001
|                                                                                                                    |  |      |    |     
|Total interest income which would have been recorded during
the period under original terms of loans on non-accrual |  | $    | 68 |      |  | $ | 22 | 
|Interest income included in net income for the period                                                               |  | $    | 4  |      |  | $ | 0  | 

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There were no commitments for additional funds related to the loans noted
above.

DEPOSITS

The average daily amount of deposits and rates paid on interest bearing
deposits is summarized for the periods indicated in the following table:

|                           |                                        |        |         |        |      |        |      |      |  |        |         |        |  |  |      |      |  |   |         |        |  |  |      |      | 
|-------------------------- | -------------------------------------- | ------ | ------- | ------ | ---- | ------ | ---- | ---- |  | ------ | ------- | ------ |  |  | ---- | ---- |  | - | ------- | ------ |  |  | ---- | ---- | 
|                           |                                        |        | 2002    |        | 2001 |        | 2000
|                           |                                        |        |         |        |      |        |     
|(in thousands)             |                                        | AMOUNT |         | RATE   |      | AMOUNT |      | RATE |  | AMOUNT |         | RATE  
|                           |                                        |        |         |        |      |        |      |      |  |        |         |       
|DEPOSITS                   |                                        |        |         |        |      |        |      |      |  |        |         |        |  |  |      |      |  |   |         |        |  |  |      |     
|Noninterest
bearing demand |                                        | $      | 35,464  |        |      |        | 0.00 | %    |  | $      | 31,938  |        |  |  | 0.00 | %    |  | $ | 34,509  |        |  |  | 0.00 | %   
|Interest bearing demand    |                                        |        | 9,094   |        |      |        | 0.25 |      |  |        | 10,225  |        |  |  | 0.53 |      |  |   | 9,615   |        |  |  | 0.96 |     
|Savings deposits           |                                        |        | 45,875  |        |      |        | 1.77 |      |  |        | 35,114  |        |  |  | 3.01 |      |  |   | 34,239  |        |  |  | 3.85 |     
|Time deposits:             |                                        |        |         |        |      |        |      |      |  |        |         |        |  |  |      |      |  |   |         |        |  |  |      |     
|                           | Certificate of deposit, under $100,000 |        |         | 22,278 |      |        |      | 3.30 |  |        |         | 24,304 |  |  |      | 5.57 |  |   |         | 20,774 |  |  |      | 5.84 | 
|                           | Certificate of deposit, over $100,000  |        |         | 14,166 |      |        |      | 3.21 |  |        |         | 18,244 |  |  |      | 5.20 |  |   |         | 10,859 |  |  |      | 5.58 | 
|                           | Public Funds                           |        |         | 2,826  |      |        |      | 1.77 |  |        |         | 4,157  |  |  |      | 4.26 |  |   |         | 2,460  |  |  |      | 6.34 | 
|                           |                                        |        |         |        |      |        |      |      |  |        |         |        |  |  |      |      |  |   |         |        |  |  |      |     
|Total time deposits        |                                        |        | 39,270  |        |      |        | 3.16 | %    |  |        | 46,705  |        |  |  | 5.31 | %    |  |   | 34,093  |        |  |  | 5.79 | %   
|                           |                                        |        |         |        |      |        |      |      |  |        |         |        |  |  |      |      |  |   |         |        |  |  |      |     
|TOTAL                      |                                        | $      | 129,703 |        |      |        |      |      |  | $      | 123,982 |        |  |  |      |      |  | $ | 112,456 |        |  |  |      |     
|                           |                                        |        |         |        |      |        |      |      |  |        |         |        |  |  |      |      |  |   |         |        |  |  |      |     

Maturities of time certificates of deposits of $100,000 or more outstanding as
of December 31, 2002 are summarized as follows:

|                                |  |        |        | 
|------------------------------- |  | ------ | ------ | 
|(in thousands)                  |  | AMOUNT
|                                |  |       
|3 months or less                |  | $      | 4,127  | 
|Over 3 months through 6 months  |  |        | 1,693  | 
|Over 6 months through 12 months |  |        | 4,860  | 
|Over 12 months                  |  |        | 1,460  | 
|                                |  |        |        | 
|TOTAL                           |  | $      | 12,140 | 
|                                |  |        |        | 

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BORROWINGS

The following tables set forth certain information with respect to federal
funds sold and securities sold under agreements to repurchase, and FHLB
advances for the periods indicated:

|                                               |  |                   |       |                   |  |                   |        |   |  |   |        |  
|---------------------------------------------- |  | ----------------- | ----- | ----------------- |  | ----------------- | ------ | - |  | - | ------ | -
|Federal funds purchased and                    |  |                   |       |                   |  |                   |        |   |  |   |        |  
|securities sold under                          |  |                   |       |                   |  |                   |        |   |  |   |        |  
|agreements to repurchase                       |  |                   |       |                   |  |                   |        |   |  |   |        |  
|($ in thousands)                               |  | December 31, 2002 |       | December 31, 2001 |  | December 31, 2000
|                                               |  |                   |       |                   |  |                  
|Balance at end of year                         |  | $                 | 3,353 |                   |  | $                 | 5,597  |   |  | $ | 17,721 |  
|Weighted average interest
rate at end of year  |  |                   | 0.80  | %                 |  |                   | 1.20   | % |  |   | 6.00   | %
|Maximum amount outstanding (1)                 |  |                   | 7,921 |                   |  |                   | 13,022 |   |  |   | 19,570 |  
|Average amount outstanding                     |  |                   | 4,721 |                   |  |                   | 6,527  |   |  |   | 15,866 |  
|Weighted average interest
rate during the year |  |                   | 1.19  | %                 |  |                   | 3.60   | % |  |   | 5.69   | %



|(1) |  | Based on amount outstanding at month end during each year.
|--- |  | ----------------------------------------------------------



| |  | Securities sold under repurchase agreements of $709,000 was outstanding as of
12/31/2000. Average amount outstanding was $4,673,000 with a weighted
average interest rate of 5.46 percent for the year 2000.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               |  |                   |        |                   |  |                   |       |   |  |   |        |  
|---------------------------------------------- |  | ----------------- | ------ | ----------------- |  | ----------------- | ----- | - |  | - | ------ | -
|FHLB Advances                                  |  |                   |        |                   |  |                   |       |   |  |   |        |  
|($ in thousands)                               |  | December 31, 2002 |        | December 31, 2001 |  | December 31, 2000
|                                               |  |                   |        |                   |  |                  
|Balance at end of year                         |  | $                 | 11,783 |                   |  | $                 | 4,005 |   |  | $ | 2,000  |  
|Weighted average interest
rate at end of year  |  |                   | 4.26   | %                 |  |                   | 5.92  | % |  |   | 6.46   | %
|Maximum amount outstanding (1)                 |  |                   | 12,499 |                   |  |                   | 4,005 |   |  |   | 12,000 |  
|Average amount outstanding                     |  |                   | 8,555  |                   |  |                   | 3,459 |   |  |   | 6,308  |  
|Weighted average interest
rate during the year |  |                   | 4.85   | %                 |  |                   | 5.98  | % |  |   | 6.57   | %



|(1) |  | Based on amount outstanding at month end during each year.
|--- |  | ----------------------------------------------------------

The increase in Federal Home Loan Bank borrowings in 2002 provided the primary
source of funding for additional purchases of mortgage-related securities.

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 and a wholly
owned financing subsidiary of Bancorp. In May 2002, the Trust issued $5
million in aggregate liquidation amount of trust preferred securities in a
private placement offering. Simultaneously with the issuance of the trust
preferred securities by the Trust, Bancorp issued an equivalent amount of
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 percent (5.31
percent at December 31, 2002), provided that this rate cannot exceed 12.0
percent through June 30, 2007. The junior subordinated debentures will mature
in 2032, at which time the preferred securities must be redeemed. Bancorp has provided

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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 related to the offering totaling
$209,000 were capitalized and are being amortized over the estimated life of
the junior subordinated debentures.

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.

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
Companys 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 and
securities sold under agreements to repurchase, borrowings, and planned
maturities and sales of investments and loans.

In 2002, under a planned growth strategy, the Company added certain
mortgage-related securities to the investment portfolio, funded largely by
Federal Home Loan Bank 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 liquidity position was also
affected by an increase in the proportion of loans that mature within one year,
offset by an increased level of short-term deposits.

In 2001, the Company restructured the investment portfolio to bolster liquidity
and reduce interest rate risk. Specifically, the Company reduced levels of
intermediate term (two to five years) securities and increased short term (one
year or less) liquidity investments. By shortening the duration of interest
earning assets, the Company expects to improve the stability of net interest
income as interest rates change. With a higher proportion of available-for-sale
investments in short term maturities, more liquidity is available for
additional lending and other business purposes.

INTEREST RATE RISK

The Companys profitability depends largely upon its net interest income, which
is the difference between interest earned on assets, such as loans and
investments, and the interest expense incurred on its liabilities, such as
deposits and borrowings. Interest rate risk is the variation in bank
performance introduced by changes in interest rates over time. The Companys
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,
quarterly reports matching rate-sensitive assets to rate-sensitive liabilities,
and by reports of interest rate sensitivity through net interest income
analysis.

The following tables present a gap analysis based on maturities and repricing
characteristics of various assets and liabilities at December 31, 2002 and
2001.

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ASSET/LIABILITY MATURITY/REPRICING SCHEDULE

DECEMBER 31, 2002 (in thousands):

|                                                                           |                         |   |          |        |            |   |            |       |       |   |        |       |  |   |         |        | 
|-------------------------------------------------------------------------- | ----------------------- | - | -------- | ------ | ---------- | - | ---------- | ----- | ----- | - | ------ | ----- |  | - | ------- | ------ | 
|                                                                           |                         |   |          |        |            |   | AFTER ONE  |       |       |   |        |       |  |   |        
|                                                                           |                         |   | WITHIN   |        | BUT WITHIN |   | AFTER      |       |       |   |       
|                                                                           |                         |   | ONE YEAR |        | FIVE YEARS |   | FIVE YEARS |       | TOTAL
|                                                                           |                         |   |          |        |            |   |            |       |      
|Interest-bearing deposits
in financial institutions                        |                         | $ | 6,141    |        |            |   |            |       |       |   |        |       |  | $ | 6,141   |       
|Federal funds sold                                                         |                         |   | 7,000    |        |            |   |            |       |       |   |        |       |  |   | 7,000   |       
|SECURITIES                                                                 |                         |   |          |        |            |   |            |       |       |   |        |       |  |   |         |       
|                                                                           | Available for sale      |   |          | 12,391 |            |   | $          | 7,158 |       |   | $      | 4,145 |  |   |         | 23,694 | 
|LOANS                                                                      |                         |   | 53,967   |        |            |   | 61,264     |       |       |   | 6,278  |       |  |   | 121,509 |       
|                                                                           |                         |   |          |        |            |   |            |       |       |   |        |       |  |   |         |       
|Total earning assets                                                       |                         | $ | 79,499   |        |            | $ | 68,422     |       |       | $ | 10,423 |       |  | $ | 158,344 |       
|DEPOSITS                                                                   |                         |   |          |        |            |   |            |       |       |   |        |       |  |   |         |       
|                                                                           | Interest-bearing demand |   | $        | 9,112  |            |   |            |       |       |   |        |       |  |   | $       | 9,112  | 
|                                                                           | Savings                 |   |          | 48,731 |            |   |            |       |       |   |        |       |  |   |         | 48,731 | 
|                                                                           | Time deposits           |   |          | 28,024 |            |   | $          | 7,557 |       |   |        |       |  |   |         | 35,581 | 
|Federal funds purchased and securities
sold under agreements to repurchase |                         |   | 3,353    |        |            |   |            |       |       |   |        |       |  |   | 3,353   |       
|Trust preferred securities                                                 |                         |   | 5,000    |        |            |   |            |       |       |   |        |       |  |   | 5,000   |       
|Long term borrowings                                                       |                         |   | 1,000    |        |            |   | 4,004      |       |       |   | 6,779  |       |  |   | 11,783  |       
|                                                                           |                         |   |          |        |            |   |            |       |       |   |        |       |  |   |         |       
|Total interest-bearing liabilities                                         |                         | $ | 95,220   |        |            | $ | 11,561     |       |       | $ | 6,779  |       |  | $ | 113,560 |       
|                                                                           |                         |   |          |        |            |   |            |       |       |   |        |       |  |   |         |       
|NET INTEREST RATE SENSITIVITY GAP                                          |                         |   | ($15,721 | )      |            | $ | 56,861     |       |       | $ | 3,644  |       |  | $ | 44,784  |       

ASSET/LIABILITY MATURITY REPRICING SCHEDULE

DECEMBER 31, 2001(in thousands):

|                                                                           |                         |   |          |        |            |   |            |       |       |   |       |     |  |   |         |        | 
|-------------------------------------------------------------------------- | ----------------------- | - | -------- | ------ | ---------- | - | ---------- | ----- | ----- | - | ----- | --- |  | - | ------- | ------ | 
|                                                                           |                         |   |          |        |            |   | AFTER ONE  |       |       |   |       |     |  |   |        
|                                                                           |                         |   | WITHIN   |        | BUT WITHIN |   | AFTER      |       |       |   |      
|                                                                           |                         |   | ONE YEAR |        | FIVE YEARS |   | FIVE YEARS |       | TOTAL
|                                                                           |                         |   |          |        |            |   |            |       |      
|Interest-bearing deposits
in financial institutions                        |                         | $ | 1,547    |        |            |   |            |       |       |   |       |     |  | $ | 1,547   |       
|Federal funds sold                                                         |                         |   | 6,300    |        |            |   |            |       |       |   |       |     |  |   | 6,300   |       
|SECURITIES                                                                 |                         |   |          |        |            |   |            |       |       |   |       |     |  |   |         |       
|                                                                           | Available for sale      |   |          | 12,606 |            |   | $          | 2,479 |       |   | $     | 129 |  |   |         | 15,214 | 
|LOANS                                                                      |                         |   | 60,261   |        |            |   | 57,661     |       |       |   | 4,297 |     |  |   | 122,219 |       
|                                                                           |                         |   |          |        |            |   |            |       |       |   |       |     |  |   |         |       
|Total earning assets                                                       |                         | $ | 80,714   |        |            | $ | 60,140     |       |       | $ | 4,426 |     |  | $ | 145,280 |       
|DEPOSITS                                                                   |                         |   |          |        |            |   |            |       |       |   |       |     |  |   |         |       
|                                                                           | Interest-bearing demand |   | $        | 9,924  |            |   |            |       |       |   |       |     |  |   | $       | 9,924  | 
|                                                                           | Savings                 |   |          | 36,946 |            |   |            |       |       |   |       |     |  |   |         | 36,946 | 
|                                                                           | Time deposits           |   |          | 43,044 |            |   | $          | 2,197 |       |   |       |     |  |   |         | 45,241 | 
|Federal funds purchased and securities
sold under agreements to repurchase |                         |   | 5,597    |        |            |   |            |       |       |   |       |     |  |   | 5,597   |       
|Long term borrowings                                                       |                         |   |          |        |            |   | 4,005      |       |       |   |       |     |  |   | 4,005   |       
|                                                                           |                         |   |          |        |            |   |            |       |       |   |       |     |  |   |         |       
|Total interest-bearing liabilities                                         |                         | $ | 95,511   |        |            | $ | 6,202      |       |       |   |       |     |  | $ | 101,713 |       
|                                                                           |                         |   |          |        |            |   |            |       |       |   |       |     |  |   |         |       
|NET INTEREST RATE SENSITIVITY GAP                                          |                         | $ | (14,797  | )      |            | $ | 53,938     |       |       | $ | 4,426 |     |  | $ | 43,567  |       
|                                                                           |                         |   |          |        |            |   |            |       |       |   |       |     |  |   |         |       

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This analysis provides a general measure of interest rate risk but does not
address complexities such as prepayment risk and customers responses to
interest rate changes. The table shows that the Companys interest rate
sensitivity gap is negative within one year. This means that for interest rate
changes that affect assets and liabilities equally, falling rates would tend to
increase the Companys net interest margin and rising rates would decrease the
margin. Actual results may vary as management may not adjust rates equally as
general levels of interest rates rise or fall. In addition, interest rates for
the Companys assets and liabilities can change rapidly as a result of market
conditions and customer patterns.

Management also considers overall interest rate sensitivity through net
interest income analysis. This method of analysis assesses the risk of change
in net interest income in the event of sudden and sustained increases and
decreases in market interest rates. The following table presents potential
changes in net interest income over a one year time horizon resulting from
immediate and sustained changes in market interest rates.

2002 NET INTEREST INCOME ANALYSIS

DECEMBER 31, 2002 (in thousands); rate
changes in basis points (bp) = 1/100 of 1%.

|                      |  |               |      |                |  |  |      |  
|--------------------- |  | ------------- | ---- | -------------- |  |  | ---- | -
|IMMEDIATE RATE CHANGE |  | DOLLAR CHANGE |      | PERCENT CHANGE
|                      |  |               |      |               
|+100bp                |  | $             | 314  |                |  |  | 3.9  | %
|+50bp                 |  |               | 157  |                |  |  | 1.9  |  
|- 50bp                |  |               | (230 | )              |  |  | (2.9 | )
|-100bp                |  |               | (459 | )              |  |  | (5.8 | )

The table above indicates that, at December 31, 2002, the effect of an
immediate 100 basis point increase in interest rates would increase the
Companys net interest income by 3.9 percent or approximately $314,000. An
immediate 100 basis point decrease in rates indicates a potential reduction of
net interest income by 5.8 percent or approximately $459,000.

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.

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, 2002, was $15,960,000 compared with
$14,738,000 at December 31, 2001, an increase of $1,222,000 or 8.3 percent.
Current earnings were $1,343,000 and dividends paid were $168,000. Additional
unrealized gains on available-for-sale securities of $42,000 also increased
total December 31, 2002, stockholders equity.

On June 20, 2002, Bancorps Board of Directors approved a 15 percent stock
dividend payable on July 15, 2002 to shareholders of record as of July 8, 2002.
The stock dividend also affected stock options previously granted and shares
available for grant under the 2000 Stock Option Plan.

On May 23, 2002, Bancorp completed the issuance of $5 million in trust
preferred securities through the Trust. The securities qualify as Tier 1
capital for regulatory purposes and are classified in the financial statements
as long-term debt. $4.8 million of the proceeds of the issuance were invested
by Bancorp in the Bank to provide additional capital to support growth in
lending and other operations.

Effective June 2001, pursuant to the reorganization, an equal number of Bancorp
shares were issued in exchange for Bank shares. Two shareholders exercised
their right to dissent to the reorganization and were paid $24.50 for each
share for a total price of $997,000 for 40,700 shares (6.13 percent of the
total common shares outstanding).

On May 17, 2001, Bancorps Board of Directors approved a three-for-two stock
split payable July 31, 2001 to shareholders of record July 1, 2001.

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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 2002 Net Interest Income Analysis.




ITEM 8. Financial Statements and Supplemental Data

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of EvergreenBancorp, Inc.

We have audited the accompanying consolidated balance sheet of
EvergreenBancorp, Inc. as of December 31, 2002, and the related consolidated
statements of income, stockholders equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.

In our opinion, the 2002 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
EvergreenBancorp, Inc. at December 31, 2002, and the results of its operations
and its cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.

| |                              
| | -----------------------------
| | Crowe, Chizek and Company LLP

Oak Brook, Illinois
January 31, 2003

INDEPENDENT AUDITORS REPORT

To the Board of Directors and
Stockholders of EvergreenBancorp, Inc.:

We have audited the accompanying consolidated balance sheet of
EvergreenBancorp, Inc. as of December 31, 2001, and the related
consolidated statements of income, stockholders equity, and
cash flows for each of the years in the two-year period ended
December 31, 2001. These financial statements are the
responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements based on our
audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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, 2001, and the
results of its operations and its cash flows for each of the years in
the two-year period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of
America.

John L. OBrien & Company,
PLLC
Seattle, Washington
January 25, 2002

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CONSOLIDATED BALANCE SHEETS

|                                                                           |                                                                                                            |      |         |         |   |   |         |         |  
|-------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ---- | ------- | ------- | - | - | ------- | ------- | -
|DECEMBER 31 (in thousands except share and per share data):                |                                                                                                            | 2002 |         | 2001   
|                                                                           |                                                                                                            |      |         |        
|ASSETS                                                                     |                                                                                                            |      |         |         |   |   |         |        
|CASH AND CASH EQUIVALENTS:                                                 |                                                                                                            |      |         |         |   |   |         |        
|                                                                           | Cash and due from banks                                                                                    |      | $       | 9,479   |   |   | $       | 9,319   |  
|                                                                           | Interest-bearing deposits in financial institutions                                                        |      |         | 6,141   |   |   |         | 1,547   |  
|                                                                           | Federal funds sold                                                                                         |      |         | 7,000   |   |   |         | 6,300   |  
|                                                                           |                                                                                                            |      |         |         |   |   |         |        
|TOTAL CASH AND CASH EQUIVALENTS                                            |                                                                                                            |      | 22,620  |         |   |   | 17,166  |        
|SECURITIES                                                                 |                                                                                                            |      |         |         |   |   |         |        
|                                                                           | Available for sale                                                                                         |      |         | 23,694  |   |   |         | 15,214  |  
|LOANS                                                                      |                                                                                                            |      |         |         |   |   |         |        
|                                                                           | Loans                                                                                                      |      |         | 121,509 |   |   |         | 122,219 |  
|                                                                           | Allowance for loan losses                                                                                  |      |         | (1,690  | ) |   |         | (1,498  | )
|                                                                           |                                                                                                            |      |         |         |   |   |         |        
|NET LOANS                                                                  |                                                                                                            |      | 119,819 |         |   |   | 120,721 |        
|Premises and equipment                                                     |                                                                                                            |      | 2,174   |         |   |   | 1,925   |        
|Accrued interest and other assets                                          |                                                                                                            |      | 1,619   |         |   |   | 1,339   |        
|                                                                           |                                                                                                            |      |         |         |   |   |         |        
|TOTAL ASSETS                                                               |                                                                                                            | $    | 169,926 |         |   | $ | 156,365 |        
|                                                                           |                                                                                                            |      |         |         |   |   |         |        
|LIABILITIES                                                                |                                                                                                            |      |         |         |   |   |         |        
|DEPOSITS                                                                   |                                                                                                            |      |         |         |   |   |         |        
|                                                                           | Non-interest-bearing                                                                                       |      | $       | 38,750  |   |   | $       | 38,233  |  
|                                                                           | Interest-bearing                                                                                           |      |         | 93,424  |   |   |         | 92,111  |  
|                                                                           |                                                                                                            |      |         |         |   |   |         |        
|TOTAL DEPOSITS                                                             |                                                                                                            |      | 132,174 |         |   |   | 130,344 |        
|Federal funds purchased and securities sold
under agreements to repurchase |                                                                                                            |      | 3,353   |         |   |   | 5,597   |        
|Advances from Federal Home Loan Bank                                       |                                                                                                            |      | 11,783  |         |   |   | 4,005   |        
|Accrued expenses and other liabilities                                     |                                                                                                            |      | 1,656   |         |   |   | 1,681   |        
|Junior subordinated debt (trust preferred securities)                      |                                                                                                            |      | 5,000   |         |   |   |        |        
|                                                                           |                                                                                                            |      |         |         |   |   |         |        
|TOTAL LIABILITIES                                                          |                                                                                                            |      | 153,966 |         |   |   | 141,627 |        
|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;
1,075,461 shares issued at 2002;
934,817 shares issued at 2001 |      |         | 13,597  |   |   |         | 11,485  |  
|Retained earnings                                                          |                                                                                                            |      | 2,266   |         |   |   | 3,198   |        
|Accumulated other comprehensive income                                     |                                                                                                            |      | 97      |         |   |   | 55      |        
|                                                                           |                                                                                                            |      |         |         |   |   |         |        
|TOTAL STOCKHOLDERS EQUITY                                                 |                                                                                                            |      | 15,960  |         |   |   | 14,738  |        
|                                                                           |                                                                                                            |      |         |         |   |   |         |        
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                 |                                                                                                            | $    | 169,926 |         |   | $ | 156,365 |        
|                                                                           |                                                                                                            |      |         |         |   |   |         |         |  

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENT OF INCOME

YEARS ENDED DECEMBER 31 (in thousands, except per share data):

|                                                                           |                                |   |        |     |      |   |        |     |  |   |        |       | 
|-------------------------------------------------------------------------- | ------------------------------ | - | ------ | --- | ---- | - | ------ | --- |  | - | ------ | ----- | 
|                                                                           |                                |   | 2002   |     | 2001 |   | 2000  
|                                                                           |                                |   |        |     |      |   |       
|INTEREST INCOME                                                            |                                |   |        |     |      |   |        |     |  |   |        |      
|Loans, including fees                                                      |                                | $ | 10,074 |     |      | $ | 10,716 |     |  | $ | 9,850  |      
|Federal funds sold and other                                               |                                |   | 200    |     |      |   | 472    |     |  |   | 687    |      
|Securities                                                                 |                                |   |        |     |      |   |        |     |  |   |        |      
|                                                                           | Taxable                        |   |        | 705 |      |   |        | 396 |  |   |        | 1,092 | 
|                                                                           | Exempt from federal income tax |   |        | 70  |      |   |        | 165 |  |   |        | 243   | 
|                                                                           |                                |   |        |     |      |   |        |     |  |   |        |      
|TOTAL INTEREST INCOME                                                      |                                |   | 11,049 |     |      |   | 11,749 |     |  |   | 11,872 |      
|INTEREST EXPENSE                                                           |                                |   |        |     |      |   |        |     |  |   |        |      
|Deposits                                                                   |                                |   | 2,077  |     |      |   | 3,593  |     |  |   | 3,385  |      
|Federal funds purchased and securities
sold under agreements to repurchase |                                |   | 56     |     |      |   | 235    |     |  |   | 903    |      
|Advances from Federal Home Loan Bank                                       |                                |   | 413    |     |      |   | 207    |     |  |   | 415    |      
|Junior subordinated debt                                                   |                                |   | 166    |     |      |   |       |     |  |   |       |      
|                                                                           |                                |   |        |     |      |   |        |     |  |   |        |      
|TOTAL INTEREST EXPENSE                                                     |                                |   | 2,712  |     |      |   | 4,035  |     |  |   | 4,703  |      
|                                                                           |                                |   |        |     |      |   |        |     |  |   |        |      
|Net interest income                                                        |                                |   | 8,337  |     |      |   | 7,714  |     |  |   | 7,169  |      
|Provision for loan losses                                                  |                                |   | 330    |     |      |   | 479    |     |  |   | 455    |      
|                                                                           |                                |   |        |     |      |   |        |     |  |   |        |      
|NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES                        |                                |   | 8,007  |     |      |   | 7,235  |     |  |   | 6,714  |      
|NONINTEREST INCOME                                                         |                                |   |        |     |      |   |        |     |  |   |        |      
|Service charges on deposit accounts                                        |                                |   | 741    |     |      |   | 727    |     |  |   | 658    |      
|Merchant credit card processing                                            |                                |   | 1,005  |     |      |   | 1,320  |     |  |   | 714    |      
|Gain from sales of loans                                                   |                                |   |       |     |      |   | 9      |     |  |   | 45     |      
|Gain (loss) on sales of available-for-sale securities                      |                                |   | 10     |     |      |   | 118    |     |  |   | (19    | )    
|Other noninterest income                                                   |                                |   | 631    |     |      |   | 764    |     |  |   | 814    |      
|                                                                           |                                |   |        |     |      |   |        |     |  |   |        |      
|Total noninterest income                                                   |                                |   | 2,387  |     |      |   | 2,938  |     |  |   | 2,212  |      
|NONINTEREST EXPENSE                                                        |                                |   |        |     |      |   |        |     |  |   |        |      
|Salaries and employee benefits                                             |                                |   | 3,879  |     |      |   | 3,882  |     |  |   | 3,856  |      
|Merchant credit card processing                                            |                                |   | 850    |     |      |   | 1,131  |     |  |   | 625    |      
|Occupancy and equipment                                                    |                                |   | 1,196  |     |      |   | 1,055  |     |  |   | 877    |      
|Other noninterest expense                                                  |                                |   | 2,446  |     |      |   | 2,276  |     |  |   | 1,834  |      
|                                                                           |                                |   |        |     |      |   |        |     |  |   |        |      
|Total noninterest expense                                                  |                                |   | 8,371  |     |      |   | 8,344  |     |  |   | 7,192  |      
|                                                                           |                                |   |        |     |      |   |        |     |  |   |        |      
|INCOME BEFORE INCOME TAX EXPENSE                                           |                                |   | 2,023  |     |      |   | 1,829  |     |  |   | 1,734  |      
|Income tax expense                                                         |                                |   | 680    |     |      |   | 589    |     |  |   | 524    |      
|                                                                           |                                |   |        |     |      |   |        |     |  |   |        |      
|NET INCOME                                                                 |                                | $ | 1,343  |     |      | $ | 1,240  |     |  | $ | 1,210  |      
|                                                                           |                                |   |        |     |      |   |        |     |  |   |        |      
|Basic earnings per share of common stock                                   |                                | $ | 1.25   |     |      | $ | 1.12   |     |  | $ | 1.05   |      
|                                                                           |                                |   |        |     |      |   |        |     |  |   |        |      
|Diluted earnings per share of common stock                                 |                                | $ | 1.24   |     |      | $ | 1.12   |     |  | $ | 1.05   |      
|                                                                           |                                |   |        |     |      |   |        |     |  |   |        |      

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

YEARS ENDED DECEMBER 31, 2002, 2001, and 2000 (in thousands, except share and per share data):

|                                                                                                                                                        |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |     |        |       |       |       | 
|------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | -------------------------- | ---------------------------------------------------------------------------------------------------- | - | ------ | - | ------- | - | --------- | - | ------- | - | -------- | - | -------- | - | ------ | - | -------- | ----- | ------ | - | ------- | - | ------- | --- | ------ | ----- | ----- | ----- | 
|                                                                                                                                                        |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   | ACCUMU- |     |        |       |      
|                                                                                                                                                        |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   | LATED   |     |        |       |      
|                                                                                                                                                        |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   | OTHER   |     |        |       |      
|                                                                                                                                                        |                                         |                            |                                                                                                      |   |        |   |         |   | COMMON    |   |         |   |          |   |          |   |        |   |          |       |        |   | COMPRE- |   | TOTAL  
|                                                                                                                                                        |                                         |                            |                                                                                                      |   | COMMON |   | STOCK   |   | COMMON    |   |         |   |          |   |          |   |        |   | HENSIVE  |       | STOCK-
|                                                                                                                                                        |                                         |                            |                                                                                                      |   | STOCK  |   | AND     |   | STOCK     |   |         |   |          |   | RETAINED |   | INCOME |   | HOLDERS'
|                                                                                                                                                        |                                         |                            |                                                                                                      |   | SHARES |   | SURPLUS |   | PAR VALUE |   | SURPLUS |   | EARNINGS |   | (LOSS)   |   | EQUITY
|                                                                                                                                                        |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |       
|BALANCE AT JANUARY 1, 2000                                                                                                                              |                                         |                            | 697,264                                                                                              |   |        | $ |        |   |           | $ | 6,972   |   |          | $ | 6,278    |   |        | $ | 1,075    |       |        | $ | (173    | ) |         | $   | 14,152 |      
|Comprehensive income                                                                                                                                    |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |     |        |      
|                                                                                                                                                        | Net income                              |                            |                                                                                                      |  |        |   |         |  |           |   |         |  |          |   |          |  |        |   |          | 1,210 |        |   |         |  |         |     |        | 1,210 |      
|                                                                                                                                                        | Other comprehensive income,
net of tax: |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |     |        |       |      
|                                                                                                                                                        |                                         |                            | Change in unrealized gain
(loss) on securities
available-for-sale, net
of deferred income tax of
$73 |   |        |  |         |   |           |  |         |   |          |  |          |   |        |  |          |       |        |  |         |   |         | 141 |        |       |       |      | 
|                                                                                                                                                        |                                         |                            | Reclassification
adjustments included in
net income, net of
deferred income tax of $6                |   |        |  |         |   |           |  |         |   |          |  |          |   |        |  |          |       |        |  |         |   |         | 13  |        |       |       | 154   | 
|                                                                                                                                                        |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |     |        |      
|                                                                                                                                                        |                                         |                            | Total comprehensive income                                                                           |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |     |        |       |       | 1,364 | 
|Cash dividend ($.133 per share)                                                                                                                         |                                         |                            |                                                                                                     |   |        |   |        |   |           |   |        |   |          |   |         |   |        |   | (161     | )     |        |   |        |   |         |     | (161   | )    
|Repurchase and retirement of
common stock                                                                                                               |                                         |                            | (33,802                                                                                              | ) |        |   |        |   |           |   | (338    | ) |          |   | (440     | ) |        |   |         |       |        |   |        |   |         |     | (778   | )    
|                                                                                                                                                        |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |     |        |      
|BALANCE AT DECEMBER 31, 2000                                                                                                                            |                                         |                            | 663,462                                                                                              |   |        |   |        |   |           |   | 6,634   |   |          |   | 5,838    |   |        |   | 2,124    |       |        |   | (19     | ) |         |     | 14,577 |      
|Comprehensive income                                                                                                                                    |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |     |        |      
|                                                                                                                                                        | Net income                              |                            |                                                                                                      |  |        |   |         |  |           |   |         |  |          |   |          |  |        |   |          | 1,240 |        |   |         |  |         |     |        | 1,240 |      
|                                                                                                                                                        | Other comprehensive income,
net of tax: |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |     |        |       |      
|                                                                                                                                                        |                                         |                            | Change in unrealized gain
(loss) on securities
available-for-sale, net
of deferred income tax of
$63 |   |        |  |         |   |           |  |         |   |          |  |          |   |        |  |          |       |        |  |         |   |         | 122 |        |       |       |      | 
|                                                                                                                                                        |                                         |                            | Reclassification
adjustments included in
net income, net of
deferred income tax
benefit of $(40)     |   |        |  |         |   |           |  |         |   |          |  |          |   |        |  |          |       |        |  |         |   |         | (79 | )      |       |       | 43    | 
|                                                                                                                                                        |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |     |        |      
|                                                                                                                                                        |                                         | Total comprehensive income |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |     |        |       | 1,283 |      
|Cumulative effect of
reclassifying certain
securities from held to
maturity to available-for-sale
as of June 1, 2001, net of
deferred income tax of $16 |                                         |                            |                                                                                                     |   |        |   |        |   |           |   |        |   |          |   |         |   |        |   |         |       |        |   | 31      |   |         |     | 31     |      
|Cash dividend ($.145 per share)                                                                                                                         |                                         |                            |                                                                                                     |   |        |   |        |   |           |   |        |   |          |   |         |   |        |   | (166     | )     |        |   |        |   |         |     | (166   | )    
|Change in par value of common
stock from $10 to$1                                                                                                       |                                         |                            |                                                                                                     |   |        |   |        |   |           |   | (5,971  | ) |          |   | 5,971    |   |        |   |         |       |        |   |        |   |         |     |       |      
|Change in par value from $1 to
no par value                                                                                                             |                                         |                            |                                                                                                     |   |        |   | 11,475  |   |           |   | (623    | ) |          |   | (10,852  | ) |        |   |         |       |        |   |        |   |         |     |       |      
|Repurchase of common stock                                                                                                                              |                                         |                            | (40,700                                                                                              | ) |        |   |        |   |           |   | (40     | ) |          |   | (957     | ) |        |   |         |       |        |   |        |   |         |     | (997   | )    
|Three-for-two stock split                                                                                                                               |                                         |                            | 311,355                                                                                              |   |        |   |        |   |           |   |        |   |          |   |         |   |        |   |         |       |        |   |        |   |         |     |       |      
|Exercise of stock options                                                                                                                               |                                         |                            | 700                                                                                                  |   |        |   | 10      |   |           |   |        |   |          |   |         |   |        |   |         |       |        |   |        |   |         |     | 10     |      
|                                                                                                                                                        |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |     |        |      

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|                                |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |    |        |       |       |    | 
|------------------------------- | --------------------------------------- | -------------------------- | ---------------------------------------------------------------------------------------------------- | - | ------ | - | ------- | - | --------- | - | ------- | - | -------- | - | -------- | - | ------ | - | -------- | ----- | ------ | - | ------- | - | ------- | -- | ------ | ----- | ----- | -- | 
|                                |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   | ACCUMU- |    |        |       |      
|                                |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   | LATED   |    |        |       |      
|                                |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   | OTHER   |    |        |       |      
|                                |                                         |                            |                                                                                                      |   |        |   |         |   | COMMON    |   |         |   |          |   |          |   |        |   |          |       |        |   | COMPRE- |   | TOTAL  
|                                |                                         |                            |                                                                                                      |   | COMMON |   | STOCK   |   | COMMON    |   |         |   |          |   |          |   |        |   | HENSIVE  |       | STOCK-
|                                |                                         |                            |                                                                                                      |   | STOCK  |   | AND     |   | STOCK     |   |         |   |          |   | RETAINED |   | INCOME |   | HOLDERS
|                                |                                         |                            |                                                                                                      |   | SHARES |   | SURPLUS |   | PAR VALUE |   | SURPLUS |   | EARNINGS |   | (LOSS)   |   | EQUITY
|                                |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |       
|BALANCE AT DECEMBER 31, 2001    |                                         |                            | 934,817                                                                                              |   |        |   | 11,485  |   |           |   |        |   |          |   |         |   |        |   | 3,198    |       |        |   | 55      |   |         |    | 14,738 |      
|Comprehensive income            |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |    |        |      
|                                | Net income                              |                            |                                                                                                      |  |        |   |         |  |           |   |         |  |          |   |          |  |        |   |          | 1,343 |        |   |         |  |         |    |        | 1,343 |      
|                                | Other comprehensive income,
net of tax: |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |    |        |       |      
|                                |                                         |                            | Change in unrealized gain
(loss) on securities
available for sale, net
of deferred income tax of
$25 |   |        |  |         |   |           |  |         |   |          |  |          |   |        |  |          |       |        |  |         |   |         | 49 |        |       |       |   | 
|                                |                                         |                            | Reclassification
adjustments included in
net income, net of
deferred income tax
benefit of $(3)      |   |        |  |         |   |           |  |         |   |          |  |          |   |        |  |          |       |        |  |         |   |         | (7 | )      |       |       | 42 | 
|                                |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |    |        |      
|                                |                                         | Total comprehensive income |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |    |        |       | 1,385 |   
|Cash dividend ($.157 per share) |                                         |                            |                                                                                                     |   |        |   |        |   |           |   |        |   |          |   |         |   |        |   | (168     | )     |        |   |        |   |         |    | (168   | )    
|Stock dividend (15%)            |                                         |                            | 140,223                                                                                              |   |        |   | 2,107   |   |           |   |        |   |          |   |         |   |        |   | (2,107   | )     |        |   |        |   |         |    |       |      
|Repurchase of fractional shares |                                         |                            | (269                                                                                                 | ) |        |   | (4      | ) |           |   |        |   |          |   |         |   |        |   |         |       |        |   |        |   |         |    | (4     | )    
|Exercise of stock options       |                                         |                            | 690                                                                                                  |   |        |   | 9       |   |           |   |        |   |          |   |         |   |        |   |         |       |        |   |        |   |         |    | 9      |      
|                                |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |    |        |      
|BALANCE AT DECEMBER 31, 2002    |                                         |                            | 1,075,461                                                                                            |   |        | $ | 13,597  |   |           | $ |        |   |          | $ |         |   |        | $ | 2,266    |       |        | $ | 97      |   |         | $  | 15,960 |      
|                                |                                         |                            |                                                                                                      |   |        |   |         |   |           |   |         |   |          |   |          |   |        |   |          |       |        |   |         |   |         |    |        |      

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                           |                                           |      |         |      |   |      |         |      |   |   |         |     |  
|------------------------------------------------------------------------------------------ | ----------------------------------------- | ---- | ------- | ---- | - | ---- | ------- | ---- | - | - | ------- | --- | -
|YEARS ENDED DECEMBER 31 (in thousands):                                                    |                                           | 2002 |         | 2001 |   | 2000
|                                                                                           |                                           |      |         |      |   |     
|CASH FLOWS FROM OPERATING ACTIVITIES                                                       |                                           |      |         |      |   |      |         |      |   |   |         |    
|Net income                                                                                 |                                           | $    | 1,343   |      |   | $    | 1,240   |      |   | $ | 1,210   |    
|Adjustments to reconcile net income to
net cash provided by operating activities:          |                                           |      |         |      |   |      |         |      |   |   |         |    
|                                                                                           | Depreciation                              |      |         | 492  |   |      |         | 369  |   |   |         | 324 |  
|                                                                                           | Provision for loan losses                 |      |         | 330  |   |      |         | 479  |   |   |         | 455 |  
|                                                                                           | (Gain) loss from sales of securities      |      |         | (10  | ) |      |         | (118 | ) |   |         | 19  |  
|                                                                                           | Gain on sales of loans                    |      |         |     |   |      |         | (9   | ) |   |         | (45 | )
|                                                                                           | Debt issuance costs                       |      |         | (209 | ) |      |         |     |   |   |         |    |  
|                                                                                           | Gain on sale of other assets              |      |         |     |   |      |         | (158 | ) |   |         |    |  
|                                                                                           | Net amortization of premium on securities |      |         | 65   |   |      |         | 23   |   |   |         | 36  |  
|                                                                                           | Federal Home Loan Bank stock dividends    |      |         | (76  | ) |      |         | (80  | ) |   |         | (71 | )
|                                                                                           | Dividends reinvested                      |      |         | (251 | ) |      |         | (127 | ) |   |         |    |  
|                                                                                           | Other changes, net                        |      |         | (117 | ) |      |         | 46   |   |   |         | 416 |  
|                                                                                           |                                           |      |         |      |   |      |         |      |   |   |         |    
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                                  |                                           |      | 1,567   |      |   |      | 1,665   |      |   |   | 2,344   |    
|CASH FLOWS FROM INVESTING ACTIVITIES                                                       |                                           |      |         |      |   |      |         |      |   |   |         |    
|Proceeds from sales and maturities of
securities available-for-sale                        |                                           |      | 7,047   |      |   |      | 12,239  |      |   |   | 14,556  |    
|Proceeds from maturities of securities held to maturity                                    |                                           |      |        |      |   |      | 30      |      |   |   | 155     |    
|Purchases of securities available-for-sale                                                 |                                           |      | (16,115 | )    |   |      | (12,020 | )    |   |   |        |    
|Net (increase) decrease in loans                                                           |                                           |      | 572     |      |   |      | (9,594  | )    |   |   | (23,707 | )  
|Proceeds from sales of loans                                                               |                                           |      |        |      |   |      | 138     |      |   |   | 1,144   |    
|Proceeds from sales of other assets                                                        |                                           |      |        |      |   |      | 158     |      |   |   |         |    
|Purchases of premises and equipment                                                        |                                           |      | (741    | )    |   |      | (1,247  | )    |   |   | (629    | )  
|Proceeds from prepayments of securities available-for-sale                                 |                                           |      | 923     |      |   |      |        |      |   |   |        |    
|                                                                                           |                                           |      |         |      |   |      |         |      |   |   |         |    
|NET CASH USED IN INVESTING ACTIVITIES                                                      |                                           |      | (8,314  | )    |   |      | (10,296 | )    |   |   | (8,481  | )  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                       |                                           |      |         |      |   |      |         |      |   |   |         |    
|Net increase in deposits                                                                   |                                           |      | 1,830   |      |   |      | 4,919   |      |   |   | 16,559  |    
|Net decrease in federal funds purchased and securities
sold under agreements to repurchase |                                           |      | (2,244  | )    |   |      | (2,389  | )    |   |   | (29,627 | )  
|Advances from Federal Home Loan Bank                                                       |                                           |      | 8,700   |      |   |      | 2,005   |      |   |   | 12,000  |    
|Proceeds from issuance of trust preferred securities, net                                  |                                           |      | 5,000   |      |   |      |        |      |   |   |        |    
|Repayment of advances from Federal Home Loan Bank                                          |                                           |      | (922    | )    |   |      |        |      |   |   | (10,000 | )  
|Repurchase of common stock                                                                 |                                           |      | (4      | )    |   |      | (997    | )    |   |   | (778    | )  
|Proceeds from exercise of stock options                                                    |                                           |      | 9       |      |   |      | 10      |      |   |   |        |    
|Dividends paid                                                                             |                                           |      | (168    | )    |   |      | (166    | )    |   |   | (161    | )  
|                                                                                           |                                           |      |         |      |   |      |         |      |   |   |         |    
|NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                        |                                           |      | 12,201  |      |   |      | 3,382   |      |   |   | (12,007 | )  
|                                                                                           |                                           |      |         |      |   |      |         |      |   |   |         |    
|NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS                                       |                                           |      | 5,454   |      |   |      | (5,249  | )    |   |   | (18,144 | )  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                             |                                           |      | 17,166  |      |   |      | 22,415  |      |   |   | 40,559  |    
|                                                                                           |                                           |      |         |      |   |      |         |      |   |   |         |    
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                                   |                                           | $    | 22,620  |      |   | $    | 17,166  |      |   | $ | 22,415  |    
|                                                                                           |                                           |      |         |      |   |      |         |      |   |   |         |    
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                          |                                           |      |         |      |   |      |         |      |   |   |         |    
|Interest paid                                                                              |                                           | $    | 2,906   |      |   | $    | 3,985   |      |   | $ | 4,618   |    
|Income taxes paid                                                                          |                                           |      | 766     |      |   |      | 757     |      |   |   | 564     |    

See accompanying notes to consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION: EvergreenBancorp, Inc. (the Bancorp) was formed February 9,
2001 and is a Washington corporation chartered as a bank holding company. The
Bancorp holds all of the issued and outstanding shares of EvergreenBank (the
Bank) and EvergreenBancorp Capital Trust I (Capital Trust). The consolidated
entities are collectively referred to as the Company. The Bank is a
Washington state chartered financial institution est. 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 Banks offices are
centered in the Puget Sound region in the Seattle, Lynnwood, and Bellevue
communities.

While the Bancorps management monitors the revenue streams of the various
products and services, operations are managed and financial performance is
evaluated on a Bancorp-wide basis. Accordingly, all of the Bancorps 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 Banks 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, the Bank,
and Capital Trust. Significant intercompany balances and transactions have been
eliminated.

The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America and
with the general practices in the banking industry. The preparation of
financial statements in conformity with these principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, including contingent amounts, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

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 are classified as held to maturity when the Company has
the ability and management has the positive intent to hold those securities to
maturity. Accordingly they are stated at cost, adjusted for amortization of
premiums and accretion of discounts, which are recognized in interest income
using the interest method. 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.

LOANS: Loans are reported at the principal amount outstanding, net of unearned
income. Unearned income, which includes deferred fees net of deferred direct
incremental loan origination costs, is amortized to interest income generally
over the contractual life of the loan using an interest method or the
straight-line method if not materially different. Loans are classified
according to the purpose of the loan and the use of loan proceeds. Interest on
loans is calculated using the simple interest method on the daily balance of
the principal amount outstanding.

Interest accrual is discontinued on loans 90 days or more past due when the
collateral is inadequate to cover principal and interest. If management
believes that collection is doubtful after considering relevant conditions, the
accrual of interest is discontinued immediately. Accrued interest on
nonaccruing loans is charged against interest income when a loan is transferred
to the nonaccruing classification.

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Impairment of a loan occurs when, based on current information and events, it
is probable that all amounts due according to the contractual terms of the loan
agreement are not expected to be collected. Impaired loans are carried at the
present value of expected future cash flows or the fair value of the related
collateral if the loan is considered to be collateral dependent.

Other real estate owned, acquired through partial or total satisfaction of
loans, is carried at the lower of cost or fair market value. At the date of
acquisition, losses are charged to the allowance for loan losses. Costs after
acquisition are expensed as incurred.

ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. 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 managements judgment, should be
charged-off. Loan losses are charged against the allowance when management
believes the uncollectibility of a loan balance is confirmed.

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 or the terms of the related leases. The Company leases the premises upon
which it conducts business. Furniture and equipment are leased as needed by the
Company under a master lease. Maintenance, repairs, taxes, and insurance are
charged to noninterest expense.

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.

COMPREHENSIVE INCOME: Comprehensive income includes both net income and other
comprehensive income elements, including the change in unrealized gains and
losses on securities available-for-sale, net of income tax.

REPURCHASE AGREEMENTS: The liability to repurchase securities sold under
agreements to repurchase represents amounts advanced by various customers.
Securities are pledged to cover these liabilities, which are not covered by
federal deposit insurance.

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 VALUE OF FINANCIAL INSTRUMENTS: Fair values of financial instruments are
estimated using relevant market information and other assumptions as more fully
disclosed in a separate note. 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.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: The Company has adopted
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Statement was adopted to reclassify
certain securities from held-to-maturity to available-for-sale, as permitted.
The Company does not currently participate in derivative or hedging activities.

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.Certain adjustments were made to the pro forma
calculations in prior years to be consistent with the current year

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presentation. Earnings and
dividends per share are restated for all stock splits and dividends through the
date of issue of the financial statements.

|                                                                                  |  |      |       |      |  |      |       |  |  |   |       | 
|--------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|(In thousands, except per share data)                                             |  | 2002 |       | 2001 |  | 2000
|                                                                                  |  |      |       |      |  |     
|Net income as reported                                                            |  | $    | 1,343 |      |  | $    | 1,240 |  |  | $ | 1,210 | 
|Deduct: Stock-based compensation expense
determined under fair value based method |  |      | 38    |      |  |      | 28    |  |  |   | 3     | 
|                                                                                  |  |      |       |      |  |      |       |  |  |   |       | 
|Pro forma net income                                                              |  | $    | 1,305 |      |  | $    | 1,212 |  |  | $ | 1,207 | 
|                                                                                  |  |      |       |      |  |      |       |  |  |   |       | 
|Basic earnings per share as reported                                              |  | $    | 1.25  |      |  | $    | 1.12  |  |  | $ | 1.05  | 
|Pro forma basic earnings per share                                                |  |      | 1.21  |      |  |      | 1.09  |  |  |   | 1.05  | 
|Diluted earnings per share as reported                                            |  | $    | 1.24  |      |  | $    | 1.12  |  |  | $ | 1.05  | 
|Pro forma diluted earnings per share                                              |  |      | 1.20  |      |  |      | 1.09  |  |  |   | 1.05  | 

The pro forma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date.

|                                |  |            |  |            |  |            |  |  |  |  |  | 
|------------------------------- |  | ---------- |  | ---------- |  | ---------- |  |  |  |  |  | 
|                                |  | 2002       |  | 2001       |  | 2000      
|                                |  |            |  |            |  |           
|Fair value                      |  | $3.68      |  | $3.79      |  | $3.94     
|Risk-free interest rate         |  | 4.64%      |  | 5.21%      |  | 5.70%     
|Expected option life            |  | 7.50 years |  | 7.38 years |  | 7.50 years
|Expected stock price volatility |  | 13%        |  | 22%        |  | 21%       
|Dividend yield                  |  | 1.1%       |  | 1.7%       |  | 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.

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 Bancorp to the stockholders.

NEWLY ISSUED BUT NOT EFFECTIVE ACCOUNTING STANDARDS: New accounting standards
on asset retirement obligations, restructuring activities and exit costs,
operating leases, and early extinguishment of debt were issued in 2002.
Management determined that when the new accounting standards are adopted in
2003, they will not have a material impact on the Companys financial condition
or results of operations.

RECLASSIFICATIONS: Certain items in prior years financial statements have been
reclassified to conform with the current years presentation. These
reclassifications did not change previously reported stockholders equity or
net income.

NOTE 2: RESTRICTIONS ON CASH AND DUE FROM BANKS

Federal Reserve Board regulations require that the Bank maintain certain
minimum reserve balances with the Federal Reserve Bank. The amounts of such
balances at December 31, 2002 and 2001 were approximately $589,000 and
$922,000, respectively.

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NOTE 3: SECURITIES

The fair value of securities available-for-sale and the related unrealized
gains and losses recognized in accumulated other comprehensive income were as
follows (in thousands):

|                                                                   |  |       |        |            |  |            |     |  |  |   |    |  
|------------------------------------------------------------------ |  | ----- | ------ | ---------- |  | ---------- | --- |  |  | - | -- | -
|                                                                   |  | FAIR  |        | UNREALIZED |  | UNREALIZED
|                                                                   |  | VALUE |        | GAINS      |  | LOSSES    
|                                                                   |  |       |        |            |  |           
|DECEMBER 31, 2002                                                  |  |       |        |            |  |            |     |  |  |   |    |  
|U.S. agencies                                                      |  | $     | 3,032  |            |  | $          | 32  |  |  | $ |   |  
|States and political subdivisions                                  |  |       | 2,123  |            |  |            | 30  |  |  |   | (2 | )
|Mortgage-backed securities and
collateralized mortgage
obligations |  |       | 11,843 |            |  |            | 77  |  |  |   |   |  
|AMF Adjustable Rate Mortgage Fund                                  |  |       | 5,397  |            |  |            | 10  |  |  |   |   |  
|Federal Home Loan Bank stock                                       |  |       | 1,299  |            |  |            |    |  |  |   |   |  
|                                                                   |  |       |        |            |  |            |     |  |  |   |    |  
|Total securities available-for-sale                                |  | $     | 23,694 |            |  | $          | 149 |  |  | $ | (2 | )
|                                                                   |  |       |        |            |  |            |     |  |  |   |    |  
|DECEMBER 31, 2001                                                  |  |       |        |            |  |            |     |  |  |   |    |  
|U.S. Treasury and agencies                                         |  | $     | 2,044  |            |  | $          | 32  |  |  | $ |   |  
|States and political subdivisions                                  |  |       | 1,810  |            |  |            | 42  |  |  |   |   |  
|AMF Adjustable Rate Mortgage Fund                                  |  |       | 10,137 |            |  |            | 10  |  |  |   |   |  
|Federal Home Loan Bank stock                                       |  |       | 1,223  |            |  |            |    |  |  |   |   |  
|                                                                   |  |       |        |            |  |            |     |  |  |   |    |  
|Total securities available-for-sale                                |  | $     | 15,214 |            |  | $          | 84  |  |  | $ |   |  
|                                                                   |  |       |        |            |  |            |     |  |  |   |    |  

The scheduled maturities of securities available-for-sale at December 31, 2002,
were as follows (in thousands):

|                                                                   |       |   |        |       | 
|------------------------------------------------------------------ | ----- | - | ------ | ----- | 
|                                                                   |       |   | Fair  
|                                                                   |       |   | Value 
|                                                                   |       |   |       
|Due in one year or less                                            |       | $ | 1,226  |      
|Due after one year through five years                              |       |   | 2,955  |      
|Due after five years through 10 years                              |       |   | 974    |      
|                                                                   |       |   |        |      
|                                                                   | Total |   |        | 5,155 | 
|AMF Adjustable Rate Mortgage Fund                                  |       |   | 5,397  |      
|Mortgage-backed securities and collateralized mortgage
obligations |       |   | 11,843 |      
|Federal Home Loan Bank Stock                                       |       |   | 1,299  |      
|                                                                   |       |   |        |      
|Total                                                              |       | $ | 23,694 |      
|                                                                   |       |   |        |      

Sales of securities available-for-sale were as follows (in thousands):

|             |  |      |       |      |  |      |       |  |  |   |       |  
|------------ |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | -
|             |  | 2002 |       | 2001 |  | 2000
|             |  |      |       |      |  |     
|Proceeds     |  | $    | 5,000 |      |  | $    | 5,699 |  |  | $ | 6,981 |  
|Gross gains  |  |      | 10    |      |  |      | 118   |  |  |   |      |  
|Gross losses |  |      |      |      |  |      |      |  |  |   | (19   | )

Securities with an estimated carrying value of $1,028,000 and $1,026,000 at
December 31, 2002 and 2001, respectively, were pledged to secure public
deposits and for other purposes required or permitted by law. The Company is
required to maintain a minimum investment in the stock of the Federal Home Loan
Bank of Seattle (FHLB) based on certain percentages of outstanding mortgage
loans or advances from FHLB. At December 31, 2002, the minimum required
investment was $713,000, which the Company exceeded. Dividend income from the
Federal Home Loan Bank stock was $76,000, $81,000, and $71,000 for 2002, 2001,
and 2000, respectively.

Securities previously classified as held to maturity were reclassified on
June 1, 2001 to the available for sale category as part of the balance sheet
restructuring resulting from withdrawing from check clearing activities. The
reclassification increased the carrying amount of securities by $46,000.
Accumulated other comprehensive income was also increased by $31,000, and the
deferred income tax liability was increased by $16,000.

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NOTE 4: LOANS

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 borrowers 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):

|                           |  |      |         |      |  |   |         | 
|-------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                           |  | 2002 |         | 2001
|                           |  |      |         |     
|Commercial and financial   |  | $    | 47,603  |      |  | $ | 53,791  | 
|Real estate mortgage       |  |      | 53,318  |      |  |   | 42,291  | 
|Real estate construction   |  |      | 5,574   |      |  |   | 7,002   | 
|Consumer                   |  |      | 14,842  |      |  |   | 18,911  | 
|Other including overdrafts |  |      | 172     |      |  |   | 224     | 
|                           |  |      |         |      |  |   |         | 
|Total                      |  | $    | 121,509 |      |  | $ | 122,219 | 
|                           |  |      |         |      |  |   |         | 

Loans at December 31, 2002, by maturity or repricing date were as follows (in
thousands):

|                                                             |  |       |        |      |  |          |        |  |  |   |         | 
|------------------------------------------------------------ |  | ----- | ------ | ---- |  | -------- | ------ |  |  | - | ------- | 
|                                                             |  |       |        |      |  | VARIABLE |        |  |  |  
|                                                             |  | FIXED |        |      |  |          |        | 
|                                                             |  | RATE  |        | RATE |  | TOTAL   
|                                                             |  |       |        |      |  |         
|Due in one year or less                                      |  | $     | 8,886  |      |  | $        | 32,544 |  |  | $ | 41,430  | 
|Due after one year through five years                        |  |       | 47,852 |      |  |          | 12,231 |  |  |   | 60,083  | 
|Due after five years                                         |  |       | 6,262  |      |  |          | 12,962 |  |  |   | 19,224  | 
|                                                             |  |       |        |      |  |          |        |  |  |   |         | 
|TOTAL                                                        |  | $     | 63,000 |      |  | $        | 57,737 |  |  |   | 120,737 | 
|                                                             |  |       |        |      |  |          |        |  |  |   |         | 
|Loans on which the accrual of
interest has been discontinued |  |       |        |      |  |          |        |  |  |   | 772     | 
|                                                             |  |       |        |      |  |          |        |  |  |   |         | 
|TOTAL                                                        |  |       |        |      |  |          |        |  |  | $ | 121,509 | 
|                                                             |  |       |        |      |  |          |        |  |  |   |         | 

Unamortized deferred loan fees net of unamortized origination costs were
$479,000 and $351,000 at December 31, 2002 and 2001, respectively.

The aggregate amount of loans serviced for others, including loan
participations and the sold portion of U.S. Government guaranteed loans, was
$9,435,000 at December 31, 2002 and $7,251,000 at December 31, 2001.

At December 31, 2002 and 2001, loans aggregating $16,253,000 and $21,626,000,
respectively, were reported as available as collateral for the advances from
the Federal Home Loan Bank of Seattle, as described in Note 8.

Loans to principal officers, directors, and their affiliates in 2002 were as
follows.

|                  |  |   |       |  
|----------------- |  | - | ----- | -
|Beginning balance |  | $ | 1,423 |  
|Repayments        |  |   | (285  | )
|                  |  |   |       |  
|Ending balance    |  | $ | 1,138 |  
|                  |  |   |       |  

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NOTE 5: ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses were as follows (in thousands):

|                                     |  |      |       |      |  |      |       |   |  |   |       |  
|------------------------------------ |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                     |  | 2002 |       | 2001 |  | 2000
|                                     |  |      |       |      |  |     
|Balance at January 1                 |  | $    | 1,498 |      |  | $    | 1,323 |   |  | $ | 1,055 |  
|Recoveries credited to the allowance |  |      | 53    |      |  |      | 57    |   |  |   | 75    |  
|Provision for loan losses            |  |      | 330   |      |  |      | 479   |   |  |   | 455   |  
|Loans charged off                    |  |      | (191  | )    |  |      | (361  | ) |  |   | (262  | )
|                                     |  |      |       |      |  |      |       |   |  |   |       |  
|Balance at December 31               |  | $    | 1,690 |      |  | $    | 1,498 |   |  | $ | 1,323 |  
|                                     |  |      |       |      |  |      |       |   |  |   |       |  

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:

|                                                                    |       |   |      |     |      |   |     |     | 
|------------------------------------------------------------------- | ----- | - | ---- | --- | ---- | - | --- | --- | 
|                                                                    |       |   | 2002 |     | 2001
|                                                                    |       |   |      |     |     
|Impaired loans for which no allowance for
loan losses was allocated |       | $ | 185  |     |      | $ | 74  |    
|Impaired loans with an allocation of the
allowance for loan losses  |       |   | 587  |     |      |   | 479 |    
|                                                                    |       |   |      |     |      |   |     |    
|                                                                    | Total |   | $    | 772 |      |   | $   | 553 | 
|                                                                    |       |   |      |     |      |   |     |    
|Amount of the allowance for loan losses allocated                   |       | $ | 45   |     |      | $ | 74  |    
|                                                                    |       |   |      |     |      |   |     |    

|                                             |  |      |     |      |  |      |     |  |  |   |     | 
|-------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  | - | --- | 
|                                             |  | 2002 |     | 2001 |  | 2000
|                                             |  |      |     |      |  |     
|Average of impaired loans during the year    |  | $    | 816 |      |  | $    | 354 |  |  | $ | 770 | 
|Interest income recognized during impairment |  |      | 4   |      |  |      |    |  |  |   |    | 
|Cash-basis interest income recognized        |  |      | 4   |      |  |      |    |  |  |   |    | 

Nonperforming loans at December 31 were as follows (in thousands):

|                                                                                       |  |      |     |      |  |   |     | 
|-------------------------------------------------------------------------------------- |  | ---- | --- | ---- |  | - | --- | 
|                                                                                       |  | 2002 |     | 2001
|                                                                                       |  |      |     |     
|Loans past due 90 days
or more and still accruing                                      |  | $    | 27  |      |  | $ | 602 | 
|Loans accounted for on a nonaccrual basis                                              |  |      | 772 |      |  |   | 553 | 
|If interest on these nonaccrual loans had been
recognized, such income would have been |  |      | 68  |      |  |   | 22  | 

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):

|                                          |  |      |        |      |  |   |        |  
|----------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                          |  | 2002 |        | 2001
|                                          |  |      |        |     
|Equipment and furniture                   |  | $    | 2,839  |      |  | $ | 2,726  |  
|Leasehold improvements                    |  |      | 1,714  |      |  |   | 1,245  |  
|Accumulated depreciation and amortization |  |      | (2,379 | )    |  |   | (2,046 | )
|                                          |  |      |        |      |  |   |        |  
|TOTAL                                     |  | $    | 2,174  |      |  | $ | 1,925  |  
|                                          |  |      |        |      |  |   |        |  

Depreciation expense amounted to $492,000, $369,000, and $324,000 for 2002,
2001, and 2000, respectively.

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NOTE 7: DEPOSITS

The average rate paid on deposits was 2.20% for 2002 and 3.90% for 2001. Time
certificates of deposit in denominations of $100,000 or more aggregated
$12,140,000 and $21,993,000 at December 31, 2002 and 2001, respectively.
Interest expense on time deposits of $100,000 or more in 2002, 2001, and 2000
was $505,000, $1,132,000, and $785,000, respectively.

The scheduled maturities of certificates of deposits at December 31, 2002, were
as follows (in thousands):

|      |  |   |        | 
|----- |  | - | ------ | 
|2003  |  | $ | 28,024 | 
|2004  |  |   | 5,873  | 
|2005  |  |   | 1,438  | 
|2006  |  |   | 246    | 
|      |  |   |        | 
|Total |  | $ | 35,581 | 
|      |  |   |        | 

NOTE 8: FEDERAL FUNDS PURCHASED, SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE, ADVANCES FROM FEDERAL HOME LOAN BANK FHLB, AND JUNIOR SUBORDINATE DEBT

The daily average amount outstanding for federal funds purchased and securities
sold under agreements to repurchase was $4,721,000 for 2002 and $6,527,000 for
2001. The weighted average interest rate was 1.19% during 2002 and 3.60%
during 2001. The weighted average interest rate at December 31 was .80% for
2002 and 1.20% for 2001. The maximum amount outstanding at the end of any month
was $7,951,000 during 2002 and $13,022,000 during 2001. The securities
underlying the agreements were held by a safekeeping agent for the Company.

Advances from the FHLB are summarized as follows:

|                           |      |       |  |              |      |        |   |       |        |          |  |      |      |   |   |       |       | 
|-------------------------- | ---- | ----- |  | ------------ | ---- | ------ | - | ----- | ------ | -------- |  | ---- | ---- | - | - | ----- | ----- | 
|                           |      |       |  | DECEMBER 31,
|                           |      |       |  |             
|                           |      |       |  | 2002         |      | 2001  
|                           |      |       |  |              |      |       
|                           |      |       |  | WEIGHTED     |      |        |   |       |        | WEIGHTED |  |      |      |  
|                           |      |       |  | AVERAGE      |      |        |   |       |        | AVERAGE  |  |      |      |  
|                           |      |       |  | RATE         |      | AMOUNT |   | RATE  |        | AMOUNT  
|                           |      |       |  |              |      |        |   |       |        |         
|Advances from the FHLB due |      |       |  |              |      |        |   |       |        |          |  |      |      |   |   |      
|                           | 2003 |       |  | 2.70         | %    |        | $ | 1,000 |        |          |  |     | %    |   | $ |      |      
|                           | 2004 |       |  | 3.40         |      |        |   | 500   |        |          |  |     |      |   |   |      |      
|                           | 2005 |       |  | 4.16         |      |        |   | 3,504 |        |          |  | 6.40 |      |   |   | 2,000 |      
|                           | 2006 |       |  | 5.18         |      |        |   | 2,505 |        |          |  | 5.37 |      |   |   | 2,005 |      
|                           | 2007 |       |  | 4.17         |      |        |   | 3,274 |        |          |  |     |      |   |   |      |      
|                           | 2009 |       |  | 4.57         |      |        |   | 1,000 |        |          |  |     |      |   |   |      |      
|                           |      |       |  |              |      |        |   |       |        |          |  |      |      |   |   |      
|                           |      | Total |  |              | 4.26 | %      |   | $     | 11,783 |          |  |      | 5.92 | % |   | $     | 4,005 | 
|                           |      |       |  |              |      |        |   |       |        |          |  |      |      |   |   |      

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, 2002, approximately $3,400,000 of the
advances have adjustable rates.

In May 2002 the Bancorp formed EvergreenBancorp Capital Trust 1 (Capital
Trust) a statutory trust formed under the laws of the State of Delaware and a
wholly owned financing subsidiary of the Bancorp. In May 2002, Capital Trust
issued $5 million in aggregate liquidation amount of trust preferred securities
in a private placement offering. Simultaneously with the issuance of the trust
preferred securities by Capital Trust, the Bancorp issued an equivalent amount
of 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% (5.31% at
December 31, 2002), 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.

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NOTE 9: STOCKHOLDERS EQUITY

Effective June 20, 2001, the Bank became a wholly owned subsidiary of the
Bancorp. The reorganization resulted in a share-for-share exchange of stock
whereby stockholders of the Bank became stockholders of the Bancorp. The
capital accounts of the Bank were carried forward, without change, as the
capital accounts of the Bancorp.

On February 20, 2001, prior to the reorganization, the Bank amended and
restated its articles of incorporation to change the par value of its common
and preferred stock from $10 to $1 per share. This amendment was recognized in
the financial statements by transferring $5,971,000 from common stock par value
to surplus.

The articles of incorporation of the Bancorp were amended and restated
effective July 31, 2001, to increase the amount of authorized common stock to
15,000,000 shares and to change both common and preferred stock to no par
value. These amendments were recognized in the financial statements by
combining the amounts of common stock and surplus and reclassifying the total
in a single category, common stock and surplus.

Two stockholders, owning 40,700 shares of Bank common stock, exercised their
right to dissent to reorganization. These dissenting stockholders received
$24.50 for each share of Bank stock held. The Bank recognized the settlement
prior to June 20, 2001 by recording a liability to the dissenting stockholders,
and payment was made following completion of the reorganization.

On May 17, 2001,the Bancorps Board of Directors approved a three-for-two
stock split payable July 31, 2001 to stockholders of record as of July 1, 2001.
The three-for-two stock split also affected stock options previously granted
and shares available for grant under the 2000 Stock Option Plan.

On June 20, 2002, the Bancorps 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 2000 Stock Option Plan.

NOTE 10: INCOME TAXES

Income tax expense for the years ended December 31 consisted of the following
(in thousands):

|                  |  |      |     |      |  |      |     |   |  |   |      |  
|----------------- |  | ---- | --- | ---- |  | ---- | --- | - |  | - | ---- | -
|                  |  | 2002 |     | 2001 |  | 2000
|                  |  |      |     |      |  |     
|Currently payable |  | $    | 708 |      |  | $    | 620 |   |  | $ | 661  |  
|Deferred          |  |      | (28 | )    |  |      | (31 | ) |  |   | (137 | )
|                  |  |      |     |      |  |      |     |   |  |   |      |  
|TOTAL             |  | $    | 680 |      |  | $    | 589 |   |  | $ | 524  |  
|                  |  |      |     |      |  |      |     |   |  |   |      |  

A reconciliation between the statutory federal income tax rates (maximum of
34%) and the effective income tax rate was as follows (in thousands):

|                                                            |  |      |     |      |  |      |     |   |  |   |     |  
|----------------------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  | - | --- | -
|                                                            |  | 2002 |     | 2001 |  | 2000
|                                                            |  |      |     |      |  |     
|Federal income tax at statutory rates                       |  | $    | 688 |      |  | $    | 622 |   |  | $ | 590 |  
|Decrease in taxes resulting from
tax-exempt interest income |  |      | (28 | )    |  |      | (53 | ) |  |   | (86 | )
|Nondeductible expenses and other                            |  |      | 20  |      |  |      | 20  |   |  |   | 20  |  
|                                                            |  |      |     |      |  |      |     |   |  |   |     |  
|TOTAL                                                       |  | $    | 680 |      |  | $    | 589 |   |  | $ | 524 |  
|                                                            |  |      |     |      |  |      |     |   |  |   |     |  

The components of the deferred income tax asset included in other assets were
as follows (in thousands):

|                   |                                          |  |      |     |      |  |     |     | 
|------------------ | ---------------------------------------- |  | ---- | --- | ---- |  | --- | --- | 
|                   |                                          |  | 2002 |     | 2001
|                   |                                          |  |      |     |     
|DEFERRED TAX ASSET |                                          |  |      |     |      |  |     |    
|                   | Provision for loan losses                |  | $    | 480 |      |  | $   | 415 | 
|                   | Postretirement health care benefits      |  |      | 304 |      |  |     | 257 | 
|                   | Unamortized loan fees, net of loan costs |  |      | 75  |      |  |     | 119 | 
|                   | Accrued vacation pay                     |  |      | 75  |      |  |     | 73  | 
|                   | Deferred compensation                    |  |      |    |      |  |     | 7   | 
|                   |                                          |  |      |     |      |  |     |     | 
|                   |                                          |  | 934  |     |      |  | 871 |    
|                   |                                          |  |      |     |      |  |     |    

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|                              |                                                  |   |      |      |      |   |      |      |  
|----------------------------- | ------------------------------------------------ | - | ---- | ---- | ---- | - | ---- | ---- | -
|                              |                                                  |   | 2002 |      | 2001
|                              |                                                  |   |      |      |     
|DEFERRED TAX LIABILITY        |                                                  |   |      |      |      |   |      |     
|                              | Federal Home Loan Bank stock dividends           |   | $    | (217 | )    |   | $    | (191 | )
|                              | Depreciation                                     |   |      | (128 | )    |   |      | (119 | )
|                              | Unrealized gain on securities available-for-sale |   |      | (50  | )    |   |      | (28  | )
|                              |                                                  |   |      |      |      |   |      |     
|                              |                                                  |   | (395 | )    |      |   | (338 | )   
|                              |                                                  |   |      |      |      |   |      |     
|Net deferred income tax asset |                                                  | $ | 539  |      |      | $ | 533  |     
|                              |                                                  |   |      |      |      |   |      |      |  

NOTE 11: STOCK OPTION PLAN

In April of 2000, the stockholders of the Bank approved the 2000 Stock Option
Plan that was subsequently adopted by the Bancorp as a result of the holding
company formation. Options available under the Plan were adjusted for both the
2001 three-for-two stock split and the 2002 15% stock dividend, and prior
period amounts also have been retroactively adjusted.

The Plan provides for the granting of non-qualified and incentive stock options
for up to 113,850 common shares to certain employees and directors.
Non-qualified stock options granted to employees vest over a 5-year period and
expire 10 years from the date of the grant. Non-qualified stock options granted
to directors vest over a 3-year period and expire 3 years from the date of the
grant. At December 31, 2002, options for 34,079 shares were available for
future grants under the Plan.

Stock option transactions were as follows:

|                                         |  |        |        |       |  |           |       |       |  |        |        |           |  |   |       |  |  |           |        |  |  |   |       | 
|---------------------------------------- |  | ------ | ------ | ----- |  | --------- | ----- | ----- |  | ------ | ------ | --------- |  | - | ----- |  |  | --------- | ------ |  |  | - | ----- | 
|                                         |  | 2002   |        | 2001  |  | 2000     
|                                         |  |        |        |       |  |          
|                                         |  |        |        |       |  | WEIGHTED- |       |       |  |        |        | WEIGHTED- |  |   |       |  |  | WEIGHTED-
|                                         |  |        |        |       |  | AVERAGE   |       |       |  |        |        | AVERAGE   |  |   |       |  |  | AVERAGE  
|                                         |  |        |        |       |  | EXERCISE  |       |       |  |        |        | EXERCISE  |  |   |       |  |  | EXERCISE 
|                                         |  | SHARES |        | PRICE |  | SHARES    |       | PRICE |  | SHARES |        | PRICE    
|                                         |  |        |        |       |  |           |       |       |  |        |        |          
|Outstanding at the
beginning of the
year |  |        | 65,349 |       |  | $         | 12.70 |       |  |        | 37,691 |           |  | $ | 12.54 |  |  |           |       |  |  |   |       | 
|Granted                                  |  |        | 20,700 |       |  |           | 14.70 |       |  |        | 33,638 |           |  |   | 12.88 |  |  |           | 37,691 |  |  | $ | 12.54 | 
|Exercised                                |  |        | (690   | )     |  |           | 12.54 |       |  |        | (805   | )         |  |   | 12.54 |  |  |           |       |  |  |   |      | 
|Forfeited                                |  |        | (7,083 | )     |  |           | 12.71 |       |  |        | (5,175 | )         |  |   | 12.73 |  |  |           |       |  |  |   |      | 
|                                         |  |        |        |       |  |           |       |       |  |        |        |           |  |   |       |  |  |           |        |  |  |   |       | 
|Outstanding at the
end of the year       |  |        | 78,276 |       |  | $         | 13.33 |       |  |        | 65,349 |           |  | $ | 12.70 |  |  |           | 37,691 |  |  | $ | 12.54 | 
|                                         |  |        |        |       |  |           |       |       |  |        |        |           |  |   |       |  |  |           |        |  |  |   |       | 

Additional information concerning outstanding stock options was as follows:

|      |  |                |       |               |  |                  |        |         |  |            |  | 
|----- |  | -------------- | ----- | ------------- |  | ---------------- | ------ | ------- |  | ---------- |  | 
|      |  |                |       |               |  |                  |        |         |  | WEIGHTED- 
|      |  | WEIGHTED-      |       |               |  |                  |        | AVERAGE
|      |  | AVERAGE        |       | NUMBER OF     |  | REMAINING       
|YEARS |  | EXERCISE PRICE |       | OPTION SHARES |  | CONTRACTUAL LIFE
|      |  |                |       |               |  |                 
|2002  |  | $              | 14.70 |               |  |                  | 20,700 |         |  | 9.30 years
|2001  |  | $              | 12.87 |               |  |                  | 27,596 |         |  | 8.07 years
|2000  |  | $              | 12.54 |               |  |                  | 29,980 |         |  | 6.41 years

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Options outstanding at year-end 2002 were as follows.

|                        |  |             |        |             |  |             |      |       |  |  |        |          |  |   |       | 
|----------------------- |  | ----------- | ------ | ----------- |  | ----------- | ---- | ----- |  |  | ------ | -------- |  | - | ----- | 
|                        |  | OUTSTANDING |        | EXERCISABLE
|                        |  |             |        |            
|                        |  |             |        |             |  | WEIGHTED    |      |       |  |  |        |          |  |  
|                        |  |             |        |             |  | AVERAGE     |      |       |  |  |        | WEIGHTED
|                        |  |             |        |             |  | REMAINING   |      |       |  |  |        | AVERAGE 
|RANGE OF                |  |             |        |             |  | CONTRACTUAL |      |       |  |  |        | EXERCISE
|EXERCISE PRICES         |  | NUMBER      |        | LIFE        |  | NUMBER      |      | PRICE
|                        |  |             |        |             |  |             |      |      
|$12.54-$12.93           |  | $           | 57,576 |             |  |             | 7.22 | years |  |  | 19,522 |          |  | $ | 12.63 | 
|$14.70                  |  |             | 20,700 |             |  |             | 9.30 | years |  |  |       |          |  |   |      | 
|                        |  |             |        |             |  |             |      |       |  |  |        |          |  |   |       | 
|Outstanding at year-end |  | $           | 78,276 |             |  |             | 7.76 | years |  |  | 19,522 |          |  | $ | 12.63 | 
|                        |  |             |        |             |  |             |      |       |  |  |        |          |  |   |       | 

NOTE 12: EARNINGS PER SHARE OF COMMON STOCK

Basic earnings per share of common stock is computed on the basis of the
weighted average number of common stock shares outstanding adjusted for the
2001 three-for-two stock split and the 2002 15% stock dividend. 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 adjusted for the 2001 three-for-two
stock split and the 2002 15% stock dividend.

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):

|                                           |                                                                                              |   |      |           |      |   |      |           |  |   |      |           | 
|------------------------------------------ | -------------------------------------------------------------------------------------------- | - | ---- | --------- | ---- | - | ---- | --------- |  | - | ---- | --------- | 
|                                           |                                                                                              |   | 2002 |           | 2001 |   | 2000
|                                           |                                                                                              |   |      |           |      |   |     
|INCOME (NUMERATOR):                        |                                                                                              |   |      |           |      |   |      |           |  |   |      |          
|                                           | Net Income                                                                                   |   | $    | 1,343     |      |   | $    | 1,240     |  |   | $    | 1,210     | 
|                                           |                                                                                              |   |      |           |      |   |      |           |  |   |      |           | 
|SHARES (DENOMINATOR):                      |                                                                                              |   |      |           |      |   |      |           |  |   |      |          
|                                           | Weighted average number of common stock
shares outstanding - basic                           |   |      | 1,075,403 |      |   |      | 1,106,950 |  |   |      | 1,150,526 | 
|                                           | Dilutive effect of outstanding employee and
director stock options                           |   |      | 9,370     |      |   |      | 2,178     |  |   |      |          | 
|                                           |                                                                                              |   |      |           |      |   |      |           |  |   |      |           | 
|                                           | Weighted average number of common
stock shares outstanding and assumed
conversions - diluted |   |      | 1,084,773 |      |   |      | 1,109,128 |  |   |      | 1,150,526 | 
|                                           |                                                                                              |   |      |           |      |   |      |           |  |   |      |           | 
|Basic earnings per share of common stock   |                                                                                              | $ | 1.25 |           |      | $ | 1.12 |           |  | $ | 1.05 |          
|                                           |                                                                                              |   |      |           |      |   |      |           |  |   |      |           | 
|Diluted earnings per share of common stock |                                                                                              | $ | 1.24 |           |      | $ | 1.12 |           |  | $ | 1.05 |          
|                                           |                                                                                              |   |      |           |      |   |      |           |  |   |      |           | 

NOTE 13: RETIREMENT PLAN

The Company participates in a multi-employer defined contribution retirement
plan. The 401(k) plan permits all salaried employees to contribute up to a
maximum of 15 percent 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 Companys contributions to the plan for 2002, 2001, and 2000
were $255,000, $270,000, and $281,000, respectively.

NOTE 14: POSTRETIREMENT HEALTH CARE BENEFITS

The Company participates in multi-employer defined benefit postretirement
health care plans that provide medical and dental coverage to directors and
surviving spouses and to employees who retire after 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 employees active service period. Net
periodic postretirement benefit cost under SFAS No. 106 was $167,000 in 2002,
$125,000 in 2001, and $76,000 in 2000.

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Net periodic postretirement benefit cost for 2002, 2001, and 2000 included the
following components (in thousands):

|                                      |  |      |     |      |  |      |     |   |  |   |     |  
|------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  | - | --- | -
|                                      |  | 2002 |     | 2001 |  | 2000
|                                      |  |      |     |      |  |     
|Service cost                          |  | $    | 59  |      |  | $    | 40  |   |  | $ | 27  |  
|Interest cost                         |  |      | 71  |      |  |      | 58  |   |  |   | 40  |  
|Amortization of transition obligation |  |      | 41  |      |  |      | 41  |   |  |   | 41  |  
|Recognized actuarial (gain) loss      |  |      | (4  | )    |  |      | (14 | ) |  |   | (32 | )
|                                      |  |      |     |      |  |      |     |   |  |   |     |  
|Net periodic benefit cost             |  | $    | 167 |      |  | $    | 125 |   |  | $ | 76  |  
|                                      |  |      |     |      |  |      |     |   |  |   |     |  

A reconciliation of the benefit obligation at the beginning and end of the year
and the effects attributable to each cost component for 2002, 2001, and 2000
are as follows (in thousands):

|                                        |  |      |       |      |  |      |     |   |  |   |     |  
|--------------------------------------- |  | ---- | ----- | ---- |  | ---- | --- | - |  | - | --- | -
|                                        |  | 2002 |       | 2001 |  | 2000
|                                        |  |      |       |      |  |     
|Benefit obligation at beginning of year |  | $    | 914   |      |  | $    | 606 |   |  | $ | 543 |  
|Service cost                            |  |      | 59    |      |  |      | 40  |   |  |   | 27  |  
|Interest cost                           |  |      | 71    |      |  |      | 58  |   |  |   | 40  |  
|Actuarial loss                          |  |      | 186   |      |  |      | 224 |   |  |   | 6   |  
|Benefits paid                           |  |      | (26   | )    |  |      | (14 | ) |  |   | (10 | )
|                                        |  |      |       |      |  |      |     |   |  |   |     |  
|Benefit obligation at end of year       |  | $    | 1,204 |      |  | $    | 914 |   |  | $ | 606 |  
|                                        |  |      |       |      |  |      |     |   |  |   |     |  

The fair value of plan assets at the beginning and end of the year and the
changes during 2002, 2001, and 2000 are as follows (in thousands):

|                                               |  |      |     |      |  |      |     |   |  |   |     |  
|---------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  | - | --- | -
|                                               |  | 2002 |     | 2001 |  | 2000
|                                               |  |      |     |      |  |     
|Fair value of plan assets at beginning of year |  | $    | 0   |      |  | $    | 0   |   |  | $ | 0   |  
|Employer contribution                          |  |      | 26  |      |  |      | 14  |   |  |   | 10  |  
|Benefits paid                                  |  |      | (26 | )    |  |      | (14 | ) |  |   | (10 | )
|                                               |  |      |     |      |  |      |     |   |  |   |     |  
|Fair value of plan assets at end of year       |  | $    | 0   |      |  | $    | 0   |   |  | $ | 0   |  
|                                               |  |      |     |      |  |      |     |   |  |   |     |  

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, 2002, 2001, and 2000, as follows (in thousands):

|                                   |  |      |        |      |  |      |      |   |  |   |      |  
|---------------------------------- |  | ---- | ------ | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                   |  | 2002 |        | 2001 |  | 2000
|                                   |  |      |        |      |  |     
|Funded status                      |  | $    | (1,204 | )    |  | $    | (914 | ) |  | $ | (606 | )
|Unrecognized transition obligation |  |      | 407    |      |  |      | 448  |   |  |   | 489  |  
|Unrecognized actuarial gain        |  |      | (97    | )    |  |      | (290 | ) |  |   | (530 | )
|                                   |  |      |        |      |  |      |      |   |  |   |      |  
|Accrued benefit cost               |  | $    | (894   | )    |  | $    | (756 | ) |  | $ | (647 | )
|                                   |  |      |        |      |  |      |      |   |  |   |      |  

The weighted-average discount rate used in the accounting for the plan was 6.5%
for 2002, 7.0% for 2001, and 7.25% for 2000.

The assumed rate of increase for 2003 in per capita cost of covered benefits is
9.5% for medical benefits and 8.5% 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 |  | $             | 30  |               |  | $ | (23  | )
|                                                        |  |               |     |               |  |   |      |  
|Effect on benefit obligation                            |  | $             | 231 |               |  | $ | (182 | )
|                                                        |  |               |     |               |  |   |      |  

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NOTE 15: LEASES

The Company leases premises and parking facilities for the Seattle and Lynnwood
offices from PEMCO Mutual Insurance Company under leases expiring from March
31, 2003 to May 31, 2011. The Company leases the Bellevue office premises from
another party. The lease expires May 31, 2011. Furniture and equipment is
leased from PEMCO Corporation. Total rental expense, including amounts paid
under month-to-month cancelable leases, amounted to $598,000, $587,000, and
$401,000 for 2002, 2001, and 2000, respectively.

The future minimum rental commitments as of December 31, 2002, for all
noncancelable leases are as follows:

|           |  |   |           | 
|---------- |  | - | --------- | 
|2003       |  | $ | 462,000   | 
|2004       |  |   | 465,000   | 
|2005       |  |   | 479,000   | 
|2006       |  |   | 493,000   | 
|2007       |  |   | 208,000   | 
|Thereafter |  |   | 403,000   | 
|           |  |   |           | 
|Total      |  | $ | 2,510,000 | 
|           |  |   |           | 

NOTE 16: 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, PEMCO Technology Services, Inc., Public
Employees Insurance Agency, Inc., and School Employees Credit Union of
Washington. Such shared functions include human resources, employee benefits,
marketing, and purchasing. Total costs associated with these shared services
were $280,000 for the year ended December 31, 2002. The Company has sold U.S.
government securities to these companies under agreements to repurchase.

In addition, data processing expense for services provided by PEMCO
Corporation, PEMCO Mutual Insurance Company, and PEMCO Technology Services,
Inc. for 2002, 2001, and 2000 was $356,000, $327,000, and $315,000,
respectively.

At December 31, 2002, approximately 6.6% of the Companys 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 17: 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.

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The Companys significant commitments and contingent liabilities at December 31
were as follows (in thousands):

|                                                   |  |      |        |      |  |   |        | 
|-------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                                   |  | 2002 |        | 2001
|                                                   |  |      |        |     
|Lines of credit                                    |  | $    | 30,871 |      |  | $ | 34,052 | 
|Standby letters of credit and similar arrangements |  |      | 150    |      |  |   | 278    | 

NOTE 18: FAIR VALUES OF FINANCIAL INSTRUMENTS

The estimated fair values of the Companys financial instruments at December 31
were as follows (in thousands):

|                                                                           |  |       |         |       |  |       |         |       |  |   |         |  |  |   |         | 
|-------------------------------------------------------------------------- |  | ----- | ------- | ----- |  | ----- | ------- | ----- |  | - | ------- |  |  | - | ------- | 
|                                                                           |  | 2002  |         | 2001 
|                                                                           |  |       |         |      
|                                                                           |  | BOOK  |         | FAIR  |  | BOOK  |         | FAIR 
|                                                                           |  | VALUE |         | VALUE |  | VALUE |         | VALUE
|                                                                           |  |       |         |       |  |       |         |      
|FINANCIAL ASSETS                                                           |  |       |         |       |  |       |         |       |  |   |         |  |  |   |         | 
|Cash and cash equivalents                                                  |  | $     | 22,620  |       |  | $     | 22,620  |       |  | $ | 17,166  |  |  | $ | 17,166  | 
|Securities available for sale                                              |  |       | 23,694  |       |  |       | 23,694  |       |  |   | 15,214  |  |  |   | 15,214  | 
|Net loans                                                                  |  |       | 119,819 |       |  |       | 120,196 |       |  |   | 120,721 |  |  |   | 122,092 | 
|Accrued interest receivable                                                |  |       | 663     |       |  |       | 663     |       |  |   | 584     |  |  |   | 584     | 
|FINANCIAL LIABILITIES                                                      |  |       |         |       |  |       |         |       |  |   |         |  |  |   |         | 
|Deposits                                                                   |  | $     | 132,174 |       |  | $     | 132,568 |       |  | $ | 130,344 |  |  | $ | 132,134 | 
|Federal funds purchased and securities
sold under agreements to repurchase |  |       | 3,353   |       |  |       | 3,353   |       |  |   | 5,597   |  |  |   | 5,597   | 
|Advances from Federal Home Loan Bank                                       |  |       | 11,783  |       |  |       | 11,861  |       |  |   | 4,005   |  |  |   | 4,168   | 
|Junior subordinated debt                                                   |  |       | 5,000   |       |  |       | 5,000   |       |  |   |        |  |  |   |        | 
|Accrued interest payable                                                   |  |       | 155     |       |  |       | 155     |       |  |   | 349     |  |  |   | 349     | 

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, Federal Home Loan Bank 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 19: REGULATORY CAPITAL REQUIREMENTS

The Company and the Bank are 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 Companys 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 entitys assets, liabilities, and certain
off-balance-sheet items as calculated 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.

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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 Companys category.

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 UNDER THE
|                                         |              |  |        |        |                   |  |                   |       |       |  | MINIMUM FOR CAPITAL |        | PROMPT CORRECTIVE
|                                         |              |  | ACTUAL |        | ADEQUACY PURPOSES |  | ACTION PROVISIONS
|                                         |              |  |        |        |                   |  |                  
|                                         |              |  | Amount |        | Ratio             |  | Amount            |       | Ratio |  | Amount              |        | Ratio            
|                                         |              |  |        |        |                   |  |                   |       |       |  |                     |        |                  
|DECEMBER 31, 2002                        |              |  |        |        |                   |  |                   |       |       |  |                     |        |                   |  |  |      |   |  |                       |        |  |  |  |      
|Total capital (to risk-weighted assets)  |              |  |        |        |                   |  |                   |       |       |  |                     |        |                   |  |  |      |   |  |                       |        |  |  |  |      
|                                         | Consolidated |  | $      | 22,499 |                   |  |                   | 17.20 | %     |  | $                   | 10,467 |                   |  |  | 8.00 | % |  | $                     | 13,084 |  |  |  | 10.00 | %
|                                         | Bank         |  |        | 22,071 |                   |  |                   | 16.87 |       |  |                     | 10,467 |                   |  |  | 8.00 |   |  |                       | 13,084 |  |  |  | 10.00 |  
|Tier 1 capital (to risk-weighted assets) |              |  |        |        |                   |  |                   |       |       |  |                     |        |                   |  |  |      |   |  |                       |        |  |  |  |      
|                                         | Consolidated |  |        | 20,863 |                   |  |                   | 15.95 |       |  |                     | 5,234  |                   |  |  | 4.00 |   |  |                       | 7,850  |  |  |  | 6.00  |  
|                                         | Bank         |  |        | 20,438 |                   |  |                   | 15.62 |       |  |                     | 5,234  |                   |  |  | 4.00 |   |  |                       | 7,850  |  |  |  | 6.00  |  
|Tier 1 capital (to average assets)(1)    |              |  |        |        |                   |  |                   |       |       |  |                     |        |                   |  |  |      |   |  |                       |        |  |  |  |      
|                                         | Consolidated |  |        | 20,863 |                   |  |                   | 12.78 |       |  |                     | 6,530  |                   |  |  | 4.00 |   |  |                       | 8,162  |  |  |  | 5.00  |  
|                                         | Bank         |  |        | 20,438 |                   |  |                   | 12.53 |       |  |                     | 6,527  |                   |  |  | 4.00 |   |  |                       | 8,158  |  |  |  | 5.00  |  
|DECEMBER 31, 2001                        |              |  |        |        |                   |  |                   |       |       |  |                     |        |                   |  |  |      |   |  |                       |        |  |  |  |      
|Total capital (to risk-weighted assets)  |              |  |        |        |                   |  |                   |       |       |  |                     |        |                   |  |  |      |   |  |                       |        |  |  |  |      
|                                         | Consolidated |  | $      | 16,181 |                   |  |                   | 12.78 | %     |  | $                   | 10,132 |                   |  |  | 8.00 | % |  | $                     | 12,665 |  |  |  | 10.00 | %
|                                         | Bank         |  |        | 16,099 |                   |  |                   | 12.71 |       |  |                     | 10,131 |                   |  |  | 8.00 |   |  |                       | 12,663 |  |  |  | 10.00 |  
|Tier 1 capital (to risk-weighted assets) |              |  |        |        |                   |  |                   |       |       |  |                     |        |                   |  |  |      |   |  |                       |        |  |  |  |      
|                                         | Consolidated |  |        | 14,683 |                   |  |                   | 11.59 |       |  |                     | 5,066  |                   |  |  | 8.00 |   |  |                       | 7,599  |  |  |  | 6.00  |  
|                                         | Bank         |  |        | 14,601 |                   |  |                   | 11.53 |       |  |                     | 5,065  |                   |  |  | 4.00 |   |  |                       | 7,598  |  |  |  | 6.00  |  
|Tier 1 capital (to average assets)(1)    |              |  |        |        |                   |  |                   |       |       |  |                     |        |                   |  |  |      |   |  |                       |        |  |  |  |      
|                                         | Consolidated |  |        | 14,683 |                   |  |                   | 9.73  |       |  |                     | 6,135  |                   |  |  | 4.00 |   |  |                       | 7,669  |  |  |  | 5.00  |  
|                                         | Bank         |  |        | 14,601 |                   |  |                   | 9.68  |       |  |                     | 6,032  |                   |  |  | 4.00 |   |  |                       | 7,540  |  |  |  | 5.00  |  



|(1) |  | Also referred to as the leverage ratio
|--- |  | --------------------------------------

NOTE 20: CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

The following are a condensed balance sheet at December 31, 2002 and 2001, and
the related condensed statements of income and cash flows for the year ended
December 31, 2002 and the period June 21, 2001 to December 31, 2001 for
EvergreenBancorp, Inc.:

CONDENSED BALANCE SHEET (in thousands):

|                                      |                                            |   |        |        |      |   |        |        | 
|------------------------------------- | ------------------------------------------ | - | ------ | ------ | ---- | - | ------ | ------ | 
|                                      |                                            |   | 2002   |        | 2001
|                                      |                                            |   |        |        |     
|ASSETS:                               |                                            |   |        |        |      |   |        |       
|Due from EvergreenBank                |                                            | $ | 163    |        |      | $ | 83     |       
|Investment in subsidiaries            |                                            |   | 20,689 |        |      |   | 14,655 |       
|Other assets                          |                                            |   | 276    |        |      |   |       |       
|                                      |                                            |   |        |        |      |   |        |       
|                                      | TOTAL ASSETS                               |   | $      | 21,128 |      |   | $      | 14,738 | 
|                                      |                                            |   |        |        |      |   |        |       
|LIABILITIES AND STOCKHOLDERS EQUITY: |                                            |   |        |        |      |   |        |       
|Stockholders equity                  |                                            | $ | 15,960 |        |      | $ | 14,738 |       
|Junior subordinated debentures        |                                            |   | 5,155  |        |      |   |       |       
|Other liabilities                     |                                            |   | 13     |        |      |   |       |       
|                                      |                                            |   |        |        |      |   |        |       
|                                      | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |   | $      | 21,128 |      |   | $      | 14,738 | 
|                                      |                                            |   |        |        |      |   |        |       

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CONDENSED STATEMENT OF INCOME (in thousands):

|                                                                            |                             |   |       |     |      |   |     |    | 
|--------------------------------------------------------------------------- | --------------------------- | - | ----- | --- | ---- | - | --- | -- | 
|                                                                            |                             |   | 2002  |     | 2001
|                                                                            |                             |   |       |     |     
|INCOME:                                                                     |                             |   |       |     |      |   |     |   
|                                                                            | Dividend from EvergreenBank |   | $     | 443 |      |   | $   | 75 | 
|EXPENSE:                                                                    |                             |   |       |     |      |   |     |   
|                                                                            | Interest expense            |   |       | 166 |      |   |     |   | 
|                                                                            | Other expense               |   |       | 42  |      |   |     | 3  | 
|                                                                            |                             |   |       |     |      |   |     |    | 
|Income before income taxes and equity in
undistributed income of subsidiary |                             |   | 235   |     |      |   | 72  |   
|Income tax benefit                                                          |                             |   | 72    |     |      |   | 1   |   
|Equity in undistributed income of subsidiary                                |                             |   | 1,036 |     |      |   | 551 |   
|                                                                            |                             |   |       |     |      |   |     |    | 
|NET INCOME                                                                  |                             | $ | 1,343 |     |      | $ | 624 |   
|                                                                            |                             |   |       |     |      |   |     |    | 

CONDENSED STATEMENT OF CASH FLOWS (in thousands):

|                                                          |                                                                                  |   |                                  |        |      |     |      |      |   |   | 
|--------------------------------------------------------- | -------------------------------------------------------------------------------- | - | -------------------------------- | ------ | ---- | --- | ---- | ---- | - | - | 
|                                                          |                                                                                  |   |                                  |        | 2002 |     | 2001
|                                                          |                                                                                  |   |                                  |        |      |     |     
|CASH FLOWS FROM OPERATING ACTIVITIES:                     |                                                                                  |   |                                  |        |      |     |      |     
|                                                          | Net income                                                                       |   | $                                | 1,343  |      |     | $    | 624  |  
|                                                          | Adjustments to reconcile net income to net cash provided by operating activities |   |                                  |        |      |     |      |      |  
|                                                          | Equity in undistributed income of subsidiary                                     |   |                                  | (1,036 | )    |     |      | (551 | )
|                                                          |                                                                                  |   | Amortized of debt issuance costs |        |      | 5   |      |      |   |  | 
|                                                          |                                                                                  |   | Increase in other assets         |        |      | (73 | )    |      |   |  | 
|                                                          |                                                                                  |   | Increase in other liabilities    |        |      | 13  |      |      |   |  | 
|                                                          |                                                                                  |   |                                  |        |      |     |      |      |  
|NET CASH PROVIDED BY OPERATING ACTIVITIES                 |                                                                                  |   | 252                              |        |      |     | 73   |     
|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                                                             |   |                                  | (168   | )    |     |      |     |  
|                                                          | Repurchase of fractional shares                                                  |   |                                  | (4     | )    |     |      |     |  
|                                                          | Debt issuance costs                                                              |   |                                  | (209   | )    |     |      |     |  
|                                                          | Proceeds from issuance of subordinated debentures                                |   |                                  | 5,155  |      |     |      |     |  
|                                                          | Proceeds from exercise of stock options                                          |   |                                  | 9      |      |     |      | 10   |  
|                                                          |                                                                                  |   |                                  |        |      |     |      |      |  
|NET CASH PROVIDED BY FINANCING ACTIVITIES                 |                                                                                  |   | 4,783                            |        |      |     | 10   |     
|                                                          |                                                                                  |   |                                  |        |      |     |      |      |  
|NET INCREASE IN CASH                                      |                                                                                  |   | 80                               |        |      |     | 83   |     
|CASH ON DEPOSIT WITH EVERGREENBANK AT BEGINNING OF PERIOD |                                                                                  |   | 83                               |        |      |     |     |     
|                                                          |                                                                                  |   |                                  |        |      |     |      |      |  
|CASH ON DEPOSIT WITH EVERGREENBANK AT END OF YEAR         |                                                                                  | $ | 163                              |        |      | $   | 83   |     
|                                                          |                                                                                  |   |                                  |        |      |     |      |      |  

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NOTE 21: SELECTED QUARTERLY DATA (UNAUDITED)

(In thousands, except per share data):

|                           |  |               |       |         |  |              |       |             |  |   |       |  |  |   |       | 
|-------------------------- |  | ------------- | ----- | ------- |  | ------------ | ----- | ----------- |  | - | ----- |  |  | - | ----- | 
|                           |  | QUARTER ENDED
|                           |  |              
|                           |  | MARCH 31      |       | JUNE 30 |  | SEPTEMBER 30 |       | DECEMBER 31
|                           |  |               |       |         |  |              |       |            
|2002                       |  |               |       |         |  |              |       |             |  |   |       |  |  |   |       | 
|Interest income            |  | $             | 2,711 |         |  | $            | 2,729 |             |  | $ | 2,803 |  |  | $ | 2,806 | 
|Net interest income        |  |               | 2,043 |         |  |              | 2,064 |             |  |   | 2,096 |  |  |   | 2,134 | 
|Net income                 |  |               | 301   |         |  |              | 335   |             |  |   | 350   |  |  |   | 357   | 
|Basic earnings per share   |  |               | 0.28  |         |  |              | 0.31  |             |  |   | 0.32  |  |  |   | 0.34  | 
|Diluted earnings per share |  |               | 0.28  |         |  |              | 0.31  |             |  |   | 0.32  |  |  |   | 0.33  | 
|2001                       |  |               |       |         |  |              |       |             |  |   |       |  |  |   |       | 
|Interest income            |  | $             | 2,987 |         |  | $            | 3,035 |             |  | $ | 2,944 |  |  | $ | 2,783 | 
|Net interest income        |  |               | 1,861 |         |  |              | 1,901 |             |  |   | 1,951 |  |  |   | 2,001 | 
|Net income                 |  |               | 338   |         |  |              | 322   |             |  |   | 279   |  |  |   | 301   | 
|Basic earnings per share   |  |               | 0.30  |         |  |              | 0.29  |             |  |   | 0.26  |  |  |   | 0.27  | 
|Diluted earnings per share |  |               | 0.30  |         |  |              | 0.29  |             |  |   | 0.26  |  |  |   | 0.27  | 

The following audited consolidated
financial statements and related documents are set forth below on the
pages indicated:

| |  |                                                 |     
| |  | ----------------------------------------------- | ----
| |  |                                                 | Page
| |  | Independent Auditors Report                     | 24  
| |  | Consolidated Balance Sheets                     | 25  
| |  | Consolidated Statements of Income               | 26  
| |  | Consolidated Statements of Stockholders Equity | 27  
| |  | Consolidated Statements of Cash Flows           | 29  
| |  | Notes to Consolidated Financial Statements      | 33  




ITEM 9. Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure

On November 13, 2002, Bancorps Board of Directors approved the Audit
Committees recommendation of Crowe, Chizek and Company LLP to serve as the
Companys independent public accountants, replacing John L. OBrien & Company,
PLLC (OBrien) effective November 14, 2002, as the Companys independent
public accountants.

OBrien performed audits of the consolidated financial statements for the two
years ended December 31, 2001 and 2000. Their reports did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope, or accounting principles.

During the two years ended December 31, 2001 and 2000 and from December 31,
2001 through November 14, 2002, the effective date of dismissal, there have
been no disagreements between the Company and OBrien on any matter of
accounting principles or practice, financial statement disclosure, or auditing
scope of procedure, which disagreements would have caused OBrien to make
reference to the subject matter of such disagreements in connection with its
report.

During the two years ended December 31, 2001 and 2000, and from December 31,
2001 through November 14, 2002, the effective date its services
terminated, OBrien did not advise the Company of any of the following
matters: (1) that the internal controls necessary for the Company to
develop reliable financial statements did not exist; (2) that information
had come to OBriens attention that had led it to no longer be able to
rely on managements representations, or that had made it unwilling to be
associated with the financial statements prepared by management; (3) that
there was a need to expand significantly the scope of the audit of the
Company, or that information had come to OBriens attention that if
further investigated: (i) may materially impact the fairness or
reliability of either a previously-issued audit report

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or underlying financial statements or
the financial statements issued or to be issued covering the fiscal periods
subsequent to the date of the most recent financial statements covered by an
audit report (including information that may prevent it from rendering an
unqualified audit report on those financial statements) or (ii) may cause it to
be unwilling to rely on managements representation or be associated with the
Companys financial statements and that, due to its termination, OBrien did
not so expand the scope of its audit or conduct such further investigation; or
(4) that information had come to OBriens attention that it had concluded
materially impacted the fairness or reliability of either: (i) a previously
issued audit report or the underlying financial statements or (ii) the
financial statements issued or to be issued covering the fiscal period
subsequent to the date of the most recent financial statements covered by an
audit report (including information that, unless resolved to the accountants
satisfaction, would prevent it from rendering an unqualified audit report on
those financial statements), and that, due to OBriens termination, or for any
other reason, the issue has not been resolved to OBriens satisfaction prior
to its termination.

Bancorp filed a Current Report on Form 8-K with the SEC dated November 14,
2002, announcing that Bancorps Board of Directors had approved the Audit
Committees recommendation of Crowe, Chizek and Company LLP to serve as
Bancorps independent public accountants, replacing John L. OBrien & Company,
PLLC effective November 14, 2002. Attached to the report was a copy of a
letter OBrien has furnished to the SEC dated November 14, 2002 stating that it
agrees with the above statements.

During the two years ended December 31, 2001 and 2000 and from December 31,
2001 through the engagement of Crowe Chizek as the Companys independent
accountant, neither the Company nor anyone on its behalf had consulted Crowe
Chizek with respect to any accounting or auditing issues involving the Company.
In particular, there was no discussion with the Company regarding the
application of accounting principles to a specified transaction, the type of
audit opinion that might be rendered on the financial statements, or any
related item.




PART III




ITEM 10. Directors and Executive Officers of EvergreenBancorp, Inc.

Information regarding directors and executive officers is included in Bancorps
Proxy Statement for its 2003 Annual Meeting of Shareholders (the Proxy
Statement) under the heading Election of Directors  Information with Respect
to Nominees and Directors Whose Terms Continue, Executive
Management, 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.




ITEM 11. Executive Compensation

Information concerning compensation of executive officers and directors is
included in Bancorps 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 Bancorps Proxy Statement under the headings
Security Ownership  Directors and Executive Officers and Beneficial Owners
and is incorporated herein by reference.

For information concerning Equity Compensation Plan Information, see the
section entitled Equity Compensation Plan Information in Bancorps Proxy
Statement that is incorporated herein by reference.




ITEM 13. Certain Relationships and Related Transactions

Information regarding certain relationships and related transactions is
included in Bancorps Proxy Statement under the heading entitled Transactions
with Management and is incorporated herein by reference.




ITEM 14. Controls and Procedures

Within the 90 days prior to the date of this report, the Companys Chief
Executive Officer and Chief Financial Officer carried out an evaluation, with
the participation of other members of management as they deemed appropriate, of
the effectiveness of the design and

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operation of the Companys disclosure
controls and procedures as contemplated by Exchange Act Rule 13a-14. Based
upon, and as of the date of that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Companys 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 included in the periodic reports the Company is
required to file and submit to the SEC under the Exchange Act.

There were no significant changes to the Companys 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 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(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)  REPORTS ON FORM 8-K

The following Forms 8-K were filed during the fourth quarter 2002:

Bancorp filed a Current Report on Form 8-K with the SEC dated October 31, 2002,
announcing its earnings for the third quarter 2002. A copy of the October 30,
2002 press release issued by Bancorp was attached to that form as Exhibit No.
99.

Bancorp filed a Current Report on Form 8-K with the SEC dated November 14,
2002, announcing that Bancorps Board of Directors had approved the Audit
Committees recommendation of Crowe, Chizek and Company LLP to serve as the
Companys independent public accountants, replacing John L. OBrien & Company,
PLLC effective November 14, 2002.

(c)  EXHIBITS

|            |  |             |      |  |  |                                                                                                                              
|----------- |  | ----------- | ---- |  |  | -----------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description
|            |  |            
|            |  |             | 3.1  |  |  | Restated Articles of Incorporation of Registrant dated July
25, 2001.1                                                       
|            |  |             |      |  |  |                                                                                                                              
|            |  |             | 3.2  |  |  | Bylaws of
Registration dated February 14, 20011                                                                              
|            |  |             |      |  |  |                                                                                                                              
|            |  |             | 10.1 |  |  | 2000 Stock Option Plan dated February 17, 2000 and adopted by
Registrant effective June 20, 2001.2                           
|            |  |             |      |  |  |                                                                                                                              
|            |  |             | 10.2 |  |  | Incentive Stock
Option Letter Agreement2                                                                                     
|            |  |             |      |  |  |                                                                                                                              
|            |  |             | 10.3 |  |  | Nonqualified Stock
Option Letter Agreement2                                                                                  
|            |  |             |      |  |  |                                                                                                                              
|            |  |             | 10.4 |  |  | Directors
Nonqualified Stock Option Letter Agreement2                                                                        
|            |  |             |      |  |  |                                                                                                                              
|            |  |             | 10.5 |  |  | PEMCO Deferred Compensation Plan dated as of December 17,
1998 and adopted by Registrant effective June 20, 2001.1           
|            |  |             |      |  |  |                                                                                                                              
|            |  |             | 10.6 |  |  | PEMCO Directors Deferred Compensation Plan dated as of
December 17, 1998 and adopted by Registrant effective June
20, 2001.1

---

1 Incorporated by reference to Exhibits 3.1, 3.2, 10.2 and 10.3, respectively,
of Registrants Annual Report on Form 10-K for the year ended December 31,
2001.

2 Incorporated by reference to Exhibits 99.1, 99.2, 99.3 and 99.4,
respectively, of Registrants Registration Statement on Form S-8 (Reg. No.
333-67956) filed August 20, 2001

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| |  |  |      |  |  |                                                                                                                        
| |  |  | ---- |  |  | -----------------------------------------------------------------------------------------------------------------------
| |  |  | 21   |  |  | Subsidiaries of the Registrant                                                                                         
| |  |  |      |  |  |                                                                                                                        
| |  |  | 23.1 |  |  | Independent
Auditors Consent - Crowe, Chizek and Company LLP                                                          
| |  |  |      |  |  |                                                                                                                        
| |  |  | 23.2 |  |  | Independent
Auditors Consent - John L. OBrien & Company,
PLLC                                                        
| |  |  |      |  |  |                                                                                                                        
| |  |  | 99.1 |  |  | Certification of the Chief Executive Officer of Registrant as
required by Section 906 of the Sarbanes-Oxley Act of 2002
| |  |  |      |  |  |                                                                                                                        
| |  |  | 99.2 |  |  | Certification of the Chief Financial Officer of Registrant as
required by Section 906 of the Sarbanes-Oxley Act of 2002

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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 23 day of March,
2003.

|                                                                                   
|-----------------------------------------------------------------------------------
|EVERGREENBANCORP, INC                                                              
|                                                                                   
|BY:      /s/ Gerald O. HatlerGerald 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 23 day of March, 2003.

|                                             |  |                                                                              
|-------------------------------------------- |  | -----------------------------------------------------------------------------
|Executive Officers                           |  |                                                                              
|                                             |  |                                                                              
|/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)
|                                             |  |                                                                              
|Remaining Directors                          |  |                                                                              
|                                             |  |                                                                              
|/s/ Richard W. Baldwin                       |  | /s/ J. Thomas Handy                                                          
|                                             |  |                                                                              
|Richard W. Baldwin                           |  | J. Thomas Handy                                                              
|                                             |  |                                                                              
|/s/ C. Don Filer                             |  | /s/ Robert W. Howisey                                                        
|                                             |  |                                                                              
|C. Don Filer                                 |  | Robert W. Howisey                                                            
|                                             |  |                                                                              
|/s/ Carole J. Grisham                        |  | /s/ Stan W. McNaughton                                                       
|                                             |  |                                                                              
|Carole J. Grisham                            |  | Stan W. McNaughton                                                           
|                                             |  |                                                                              
|/s/ Robert J. Grossman

Robert J. Grossman   |  |                                                                              




CERTIFICATIONS

I, Gerald O. Hatler, certify that:

|   |  |                                                                                                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | I have reviewed this annual report on Form 10-K of EvergreenBancorp, Inc.                                                                                                                                                                                                                                               
|   |  |                                                                                                                                                                                                                                                                                                                         
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|   |  |                                                                                                                                                                                                                                                                                                                         
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   

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|   |  |                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                                                                            
|   |  |                                                                                                                                                                                                                                                                                                                                                                                      
|   |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;                                                                                      
|   |  |                                                                                                                                                                                                                                                                                                                                                                                      
|   |  | b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                                                                                                        
|   |  |                                                                                                                                                                                                                                                                                                                                                                                      
|   |  | c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                                                                                                              
|   |  |                                                                                                                                                                                                                                                                                                                                                                                      
|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):                                                                                                                                        
|   |  |                                                                                                                                                                                                                                                                                                                                                                                      
|   |  | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and                                                                                    
|   |  |                                                                                                                                                                                                                                                                                                                                                                                      
|   |  | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                                                                                                            
|   |  |                                                                                                                                                                                                                                                                                                                                                                                      
|6. |  | The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

|                      | 
|--------------------- | 
|Dated: March 23, 2003

| | /s/ Gerald O. Hatler   
| | -----------------------
| |                        
| | Gerald O. Hatler       
| | Chief Executive Officer

I, William G. Filer II, certify that:

|   |  |                                                                                                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | I have reviewed this annual report on Form 10-K of EvergreenBancorp, Inc.                                                                                                                                                                                                                                               
|   |  |                                                                                                                                                                                                                                                                                                                         
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|   |  |                                                                                                                                                                                                                                                                                                                         
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|   |  |                                                                                                                                                                                                                                                                                                                         
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                               
|   |  |                                                                                                                                                                                                                                                                                                                         
|   |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is being prepared;                         

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|   |  |                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                                                                                                        
|   |  |                                                                                                                                                                                                                                                                                                                                                                                      
|   |  | c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                                                                                                              
|   |  |                                                                                                                                                                                                                                                                                                                                                                                      
|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):                                                                                                                                        
|   |  |                                                                                                                                                                                                                                                                                                                                                                                      
|   |  | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and                                                                                    
|   |  |                                                                                                                                                                                                                                                                                                                                                                                      
|   |  | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                                                                                                            
|   |  |                                                                                                                                                                                                                                                                                                                                                                                      
|6. |  | The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

|                      |  |                                                                    
|--------------------- |  | -------------------------------------------------------------------
|Dated: March 23, 2003 |  | /s/ William G. Filer II
William G. Filer II
Chief Financial Officer

51