##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2006
 o
    
    Transition Report Under Section 13 or 15(d) of the Exchange Act
 For the transition period from  to
 Commission File No. 000-32915
 EVERGREENBANCORP, INC.
  WASHINGTON
    
    91-2097262(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)
 301 Eastlake Avenue East
Seattle, Washington 98109
 (206) 628-4250
  þ o
  o o þ
  o þ




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##### 



PART IFINANCIAL INFORMATIONItem 1.
    
    Unaudited Consolidated Financial Statements.Unaudited Consolidated Balance Sheets  June 30, 2006 and December 31, 2005.Unaudited Consolidated Statements of Income  For the three months and six months
ended June 30, 2006 and 2005.Unaudited Consolidated Statements of Stockholders Equity  For the six months ended
June 30, 2006 and 2005.Unaudited Consolidated Statements of Comprehensive Income  For the three months and
six months ended June 30, 2006.Unaudited Consolidated Statements of Cash Flows  For the six months ended June 30,
2006 and 2005.Notes to Unaudited Consolidated Financial Information.Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.Item 4.
    
    Controls and Procedures.PART IIOTHER INFORMATIONItem 1.
    
    Legal Proceedings.Item 1A.
    
    Risk Factors.Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.Item 3.
    
    Defaults Upon Senior Securities.Item 4.
    
    Submission of Matters to a Vote of Security Holders.Item 5.
    
    Other Information.Item 6.
    
    Exhibits.EXHIBIT 10.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  
    June 30,
    
    
    December 31,2006
    
    
    2005AssetsCash and due from banks
    
    $
    6,907
    
    
    $
    12,379Federal funds sold
    
    
    467
    
    
    
    2,112Interest-bearing deposits in financial institutions
    
    
    2,919
    
    
    
    2,811Total cash and cash equivalents
    
    
    10,293
    
    
    
    17,302Securities available for sale
    
    
    33,152
    
    
    
    33,550Loans
    
    
    234,089
    
    
    
    189,188Allowance for loan losses
    
    
    (2,410
    )
    
    
    (2,056
    )Net loans
    
    
    231,679
    
    
    
    187,132Premises and equipment
    
    
    2,789
    
    
    
    3,179Cash surrender value of bank owned life insurance
    
    
    5,202
    
    
    
    5,090Accrued interest and other assets
    
    
    2,840
    
    
    
    2,939Total assets
    
    $
    285,955
    
    
    $
    249,192LiabilitiesDepositsNoninterest-bearing
    
    $
    55,724
    
    
    $
    64,635Interest-bearing
    
    
    170,942
    
    
    
    135,255Total deposits
    
    
    226,666
    
    
    
    199,890Federal Home Loan Bank advances
    
    
    33,637
    
    
    
    23,849Junior subordinated debt
    
    
    5,000
    
    
    
    5,000Accrued expenses and other liabilities
    
    
    2,355
    
    
    
    2,717Total liabilities
    
    $
    267,658
    
    
    $
    231,456Stockholders equityPreferred stock; no par value; 100,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock and surplus; No par value; 15,000,000 shares
authorized; 2,011,002 shares issued at June 30, 2006; 2,000,467
shares at
December 31, 2005
    
    
    16,196
    
    
    
    16,005Retained earnings
    
    
    2,656
    
    
    
    2,187Accumulated other comprehensive loss
    
    
    (555
    )
    
    
    (456
    )Total stockholders equity
    
    
    18,297
    
    
    
    17,736Total liabilities and stockholders equity
    
    $
    285,955
    
    
    $
    249,192
 See accompanying notes to unaudited consolidated financial statements.
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##### Table of Contents



Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Interest incomeLoans, including fees
    
    $
    4,479
    
    
    $
    2,926
    
    
    $
    8,400
    
    
    $
    5,804Taxable securities
    
    
    291
    
    
    
    257
    
    
    
    566
    
    
    
    507Tax exempt securities
    
    
    34
    
    
    
    29
    
    
    
    69
    
    
    
    55Federal funds sold and other
    
    
    30
    
    
    
    75
    
    
    
    53
    
    
    
    100Total interest income
    
    
    4,834
    
    
    
    3,287
    
    
    
    9,088
    
    
    
    6,466Interest expenseDeposits
    
    
    1,294
    
    
    
    591
    
    
    
    2,221
    
    
    
    1,110Federal funds purchased
    
    
    15
    
    
    
    
    
    
    
    36
    
    
    
    4Federal Home Loan Bank advances
    
    
    437
    
    
    
    115
    
    
    
    842
    
    
    
    234Junior subordinated debt
    
    
    107
    
    
    
    83
    
    
    
    208
    
    
    
    159Total interest expense
    
    
    1,853
    
    
    
    789
    
    
    
    3,307
    
    
    
    1,507Net interest income
    
    
    2,981
    
    
    
    2,498
    
    
    
    5,781
    
    
    
    4,959Provision for loan losses
    
    
    180
    
    
    
    66
    
    
    
    348
    
    
    
    147Net interest income after provision for loan losses
    
    
    2,801
    
    
    
    2,432
    
    
    
    5,433
    
    
    
    4,812Noninterest incomeService charges on deposit accounts
    
    
    300
    
    
    
    284
    
    
    
    555
    
    
    
    532Merchant credit card processing
    
    
    37
    
    
    
    39
    
    
    
    71
    
    
    
    78Other commissions and fees
    
    
    62
    
    
    
    37
    
    
    
    95
    
    
    
    63Net earnings on bank owned life insurance
    
    
    56
    
    
    
    
    
    
    
    112
    
    
    
    Other noninterest income
    
    
    35
    
    
    
    82
    
    
    
    67
    
    
    
    198Total noninterest income
    
    
    490
    
    
    
    442
    
    
    
    900
    
    
    
    871Noninterest expenseSalaries and employee benefits
    
    
    1,351
    
    
    
    1,204
    
    
    
    2,707
    
    
    
    2,338Occupancy and equipment
    
    
    445
    
    
    
    421
    
    
    
    881
    
    
    
    810Data processing
    
    
    208
    
    
    
    196
    
    
    
    411
    
    
    
    385Professional fees
    
    
    92
    
    
    
    117
    
    
    
    143
    
    
    
    228Marketing
    
    
    115
    
    
    
    108
    
    
    
    190
    
    
    
    203State revenue and sales tax expense
    
    
    79
    
    
    
    67
    
    
    
    155
    
    
    
    167Other noninterest expense
    
    
    457
    
    
    
    425
    
    
    
    854
    
    
    
    770Total noninterest expense
    
    
    2,747
    
    
    
    2,538
    
    
    
    5,341
    
    
    
    4,901Income before income taxes
    
    
    544
    
    
    
    336
    
    
    
    992
    
    
    
    782Income tax expense
    
    
    153
    
    
    
    122
    
    
    
    283
    
    
    
    269Net income
    
    $
    391
    
    
    $
    214
    
    
    $
    709
    
    
    $
    513Basic earnings per share
    
    $
    0.20
    
    
    $
    0.11
    
    
    $
    0.35
    
    
    $
    0.26Diluted earnings per share
    
    $
    0.19
    
    
    $
    0.10
    
    
    $
    0.35
    
    
    $
    0.25
 See accompanying notes to unaudited consolidated financial statements.
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AccumulatedCommon
    
    
    
    
    
    
    otherCommon
    
    
    stock
    
    
    
    
    
    
    comprehen-
    
    
    Totalstock
    
    
    and
    
    
    Retained
    
    
    sive
    
    
    stock-holdersshares
    
    
    surplus
    
    
    earnings
    
    
    income
    
    
    equityBalance at January 1, 2005
    
    
    1,992,428
    
    
    $
    15,927
    
    
    $
    1,678
    
    
    $
    (120
    )
    
    $
    17,485Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    513
    
    
    
    
    
    
    
    513Change in net unrealized gain
(loss) on securities available
for sale, net of
reclassification and tax
effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (187
    )
    
    
    (187
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    326Cash dividends ($.113 per share)
    
    
    
    
    
    
    
    
    
    
    (224
    )
    
    
    
    
    
    
    (224
    )Exercise of stock options and
related tax benefit
    
    
    4,781
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    46Balance at June 30, 2005
    
    
    1,997,209
    
    
    $
    15,973
    
    
    $
    1,967
    
    
    $
    (307
    )
    
    $
    17,633
 AccumulatedCommon
    
    
    
    
    
    
    otherCommon
    
    
    stock
    
    
    
    
    
    
    comprehen-
    
    
    Totalstock
    
    
    and
    
    
    Retained
    
    
    sive
    
    
    stock-holdersshares
    
    
    surplus
    
    
    earnings
    
    
    income (loss)
    
    
    equityBalance at January 1, 2006
    
    
    2,000,467
    
    
    $
    16,005
    
    
    $
    2,187
    
    
    $
    (456
    )
    
    $
    17,736Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    709
    
    
    
    
    
    
    
    709Change in net unrealized gain
(loss) on securities available
for sale, net of
reclassification and tax
effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (99
    )
    
    
    (99
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    610Cash dividends ($.12 per share)
    
    
    
    
    
    
    
    
    
    
    (240
    )
    
    
    
    
    
    
    (240
    )Exercise of stock options and
related tax benefit
    
    
    10,535
    
    
    
    118
    
    
    
    
    
    
    
    
    
    
    
    118Stock options earned
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    
    
    
    
    73Balance at June 30, 2006
    
    
    2,011,002
    
    
    $
    16,196
    
    
    $
    2,656
    
    
    $
    (555
    )
    
    $
    18,297
 See accompanying notes to unaudited consolidated financial statements.
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Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    391
    
    
    $
    214
    
    
    $
    709
    
    
    $
    513Other comprehensive income (loss):Change in unrealized gain (loss) on securities
available for sale
    
    
    (89
    )
    
    
    12
    
    
    
    (150
    )
    
    
    (283
    )Reclassification adjustment for gains included
in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gains (losses)
    
    
    (89
    )
    
    
    12
    
    
    
    (150
    )
    
    
    (283
    )Tax effect
    
    
    30
    
    
    
    (4
    )
    
    
    51
    
    
    
    96Total other comprehensive income (loss)
    
    
    (59
    )
    
    
    8
    
    
    
    (99
    )
    
    
    (187
    )Total comprehensive income (loss)
    
    $
    332
    
    
    $
    222
    
    
    $
    610
    
    
    $
    326
 See accompanying notes to unaudited consolidated financial statements
 - 6 -




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June 30,
    
    
    June 30,2006
    
    
    2005Cash flows from operating activitiesNet income
    
    $
    709
    
    
    $
    513Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    432
    
    
    
    366Provision for loan losses
    
    
    348
    
    
    
    147Amortization of premiums and discounts on securities
    
    
    20
    
    
    
    30Federal Home Loan Bank stock dividends
    
    
    
    
    
    
    (6
    )Dividends reinvested
    
    
    
    
    
    
    (190
    )Net earnings on bank owned life insurance
    
    
    (112
    )
    
    
    Stock option compensation expense
    
    
    73
    
    
    
    Other changes, net
    
    
    (212
    )
    
    
    (681
    )Net cash provided by operating activities
    
    
    1,258
    
    
    
    179Cash flows from investing activitiesProceeds from maturities, and principal payments on
securities available for sale
    
    
    361
    
    
    
    715Net (increase) decrease in loans
    
    
    (44,895
    )
    
    
    5,351Purchases of securities available for sale
    
    
    (133
    )
    
    
    (1,124
    )Purchases of premises and equipment
    
    
    (42
    )
    
    
    (818
    )Net cash provided by (used in) investing activities
    
    
    (44,709
    )
    
    
    4,124Cash flows from financing activitiesNet increase in deposits
    
    
    26,776
    
    
    
    7,947Proceeds from Federal Home Loan Bank advances
    
    
    12,900
    
    
    
    Repayments of Federal Home Loan Bank advances
    
    
    (3,112
    )
    
    
    (1,886
    )Proceeds from the exercise of stock options
    
    
    118
    
    
    
    38Dividends paid
    
    
    (240
    )
    
    
    (224
    )Net cash provided by financing activities
    
    
    36,442
    
    
    
    5,875Net increase (decrease) in cash and cash equivalents
    
    
    (7,009
    )
    
    
    10,178Cash and cash equivalents at beginning of year
    
    
    17,302
    
    
    
    12,145Cash and cash equivalents at end of period
    
    $
    10,293
    
    
    $
    22,323
 See accompanying notes to unaudited consolidated financial statements.
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EVERGREENBANCORP, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL INFORMATION
 Note 1: Summary of Significant Accounting Policies
 Organization.
   Operating Segments
 Principles of consolidation.
 Critical accounting policies and use of estimates.
 Income taxes.
 - 8 -




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Note 2: Stock split
  Note 3: Stock options
 Stock option and equity compensation plan.
   Six Months Ended
    
    
    Twelve Months EndedJune 30, 2006
    
    
    December 31, 2005Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at the beginning
of the period
    
    
    228,250
    
    
    $
    9.32
    
    
    
    191,440
    
    
    $
    8.15Granted
    
    
    35,500
    
    
    
    14.25
    
    
    
    45,334
    
    
    
    13.72Exercised
    
    
    (10,535
    )
    
    
    8.33
    
    
    
    (8,524
    )
    
    
    6.29Forfeited
    
    
    (11,861
    )
    
    
    10.24
    
    
    
    
    
    
    
    Outstanding at the end of
the period
    
    
    241,354
    
    
    $
    10.04
    
    
    
    228,250
    
    
    $
    9.32
 - 9 -




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Outstanding
    
    
    
    
    
    
    ExercisableWeighted-
    
    
    
    
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    Weighted-
    
    
    AverageYear of
    
    
    
    
    
    
    Remaining
    
    
    
    
    
    
    Average
    
    
    RemainingExercise Price
    
    Grant
    
    
    Number
    
    
    Contractual Life
    
    
    Number
    
    
    Exercise Price
    
    
    Contractual Life$14.25
    
    
    2006
    
    
    
    35,500
    
    
    8.37 years
    
    
    
    
    
    $
    14.25
    
    
    
    13.72
    
    
    2005
    
    
    
    42,660
    
    
    6.32 years
    
    
    8,277
    
    
    
    13.72
    
    
    4.85 years10.65
    
    
    2004
    
    
    
    27,774
    
    
    6.22 years
    
    
    9,456
    
    
    
    10.65
    
    
    3.86 years8.90
    
    
    2003
    
    
    
    28,778
    
    
    5.55 years
    
    
    20,360
    
    
    
    8.90
    
    
    5.06 years8.02
    
    
    2002
    
    
    
    29,296
    
    
    4.84 years
    
    
    24,664
    
    
    
    8.02
    
    
    4.67 years7.01
    
    
    2001
    
    
    
    42,664
    
    
    4.13 years
    
    
    42,664
    
    
    
    7.01
    
    
    4.13 years6.84
    
    
    2000
    
    
    
    34,682
    
    
    3.78 years
    
    
    34,682
    
    
    
    6.84
    
    
    3.78 yearsOutstanding at end of period
    
    
    
    
    
    
    241,354
    
    
    5.59 years
    
    
    140,103
    
    
    $
    8.06
    
    
    4.30 years
  Stock based compensation.
 .
 - 10 -




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##### Table of Contents



Three Months
    
    
    Six MonthsEnded
    
    
    Ended(in thousands, except per share data)
    
    June 30, 2005
    
    
    June 30, 2005Net income as reported
    
    $
    214
    
    
    $
    513Deduct: Stock-based compensation
expense determined under fair value
based method
    
    
    14
    
    
    
    28$
    200
    
    
    $

    485Pro forma net incomeBasic earnings per share as reported
    
    $
    0.11
    
    
    $
    0.26Pro forma basic earnings per share
    
    
    0.10
    
    
    
    0.24Diluted earnings per share as reported
    
    
    0.10
    
    
    
    0.25Pro forma diluted earnings per share
    
    
    0.10
    
    
    
    0.23
  Three months endedJune 30,2006
    
    2005Risk-free interest rate
    
    
    4.96
    %
    
    
    3.87
    %Expected option life
    
    7.5 years
    
    7.5 yearsExpected stock price volatility
    
    
    24
    %
    
    
    22
    %Dividend yield
    
    
    1.7
    %
    
    
    1.6
    %
 Six months endedJune 30,2006
    
    2005Risk-free interest rate
    
    
    4.96
    %
    
    
    3.86
    %Expected option life
    
    7.5 years
    
    7.5 yearsExpected stock price volatility
    
    
    24
    %
    
    
    21
    %Dividend yield
    
    
    1.7
    %
    
    
    1.6
    %
   - 11 -




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Note 4: Securities available for sale
   (in thousands)
    
    Less than 12 Months
    
    
    12 Months or More
    
    
    TotalDescription of Securities
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossUS agencies
    
    $
    
    
    
    $
    
    
    
    $
    7,400
    
    
    $
    (107
    )
    
    $
    7,400
    
    
    $
    (107
    )State and political subdivisions
    
    
    1,055
    
    
    
    (15
    )
    
    
    3,367
    
    
    
    (63
    )
    
    
    4,422
    
    
    
    (78
    )Mortgage-backed securities
    
    
    663
    
    
    
    (7
    )
    
    
    4,354
    
    
    
    (205
    )
    
    
    5,017
    
    
    
    (212
    )AMF Ultra Short Mortgage Fund
    
    
    
    
    
    
    
    
    
    
    14,762
    
    
    
    (444
    )
    
    
    14,762
    
    
    
    (444
    )Total temporarily impaired
    
    $
    1,718
    
    
    $
    (22
    )
    
    $
    29,883
    
    
    $
    (819
    )
    
    $
    31,601
    
    
    $
    (841
    )
     - 12 -




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##### Table of Contents



(in thousands)
    
    Less than 12 Months
    
    
    12 Months or More
    
    
    TotalDescription of Securities
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossUS agencies
    
    $
    496
    
    
    $
    (4
    )
    
    $
    6,898
    
    
    $
    (112
    )
    
    $
    7,394
    
    
    $
    (116
    )State and political subdivisions
    
    
    3,278
    
    
    
    (41
    )
    
    
    694
    
    
    
    (11
    )
    
    
    3,972
    
    
    
    (52
    )Mortgage-backed securities
    
    
    436
    
    
    
    (3
    )
    
    
    4,755
    
    
    
    (141
    )
    
    
    5,191
    
    
    
    (144
    )AMF Ultra Short Mortgage Fund
    
    
    188
    
    
    
    (2
    )
    
    
    14,635
    
    
    
    (381
    )
    
    
    14,823
    
    
    
    (383
    )Total temporarily impaired
    
    $
    4,398
    
    
    $
    (50
    )
    
    $
    26,982
    
    
    $
    (645
    )
    
    $
    31,380
    
    
    $
    (695
    )
 Note 5: Earnings per share
   Three months ended June 30,2006
    
    
    2005Income (numerator):Net income
    
    $
    391,485
    
    
    $
    214,297Income (denominator):Weighted average number of common stock shares outstanding  basic
    
    
    2,005,981
    
    
    
    1,996,739Dilutive effect of outstanding employee and director stock options
    
    
    25,279
    
    
    
    44,548Weighted average number of common stock shares outstanding and
assumed conversion  diluted
    
    
    2,031,260
    
    
    
    2,041,287Basic earnings per share
    
    $
    0.20
    
    
    $
    0.11Diluted earnings per share
    
    $
    0.19
    
    
    $
    0.10
 Six months ended June 30,2006
    
    
    2005Income (numerator):Net income
    
    $
    709,113
    
    
    $
    513,484Income (denominator):Weighted average number of common stock shares outstanding  basic
    
    
    2,007,153
    
    
    
    1,996,741Dilutive effect of outstanding employee and director stock options
    
    
    21,994
    
    
    
    43,499Weighted average number of common stock shares outstanding and
assumed conversion  diluted
    
    
    2,029,147
    
    
    
    2,040,240Basic earnings per share of common stock
    
    $
    0.35
    
    
    $
    0.26Diluted earnings per share of common stock
    
    $
    0.35
    
    
    $
    0.25
  - 13 -




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##### Table of Contents



Note 6: Retirement Benefits
   Components of net periodic benefit cost
 Three months
    
    
    Six monthsended June 30,
    
    
    ended June 30,(in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    41
    
    
    $
    22
    
    
    $
    82
    
    
    $
    44Interest cost
    
    
    28
    
    
    
    23
    
    
    
    56
    
    
    
    46Amortization of transition obligation
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    20Amortization of prior service cost
    
    
    (1
    )
    
    
    
    
    
    
    (2
    )
    
    
    Recognized net actuarial (gain) loss
    
    
    8
    
    
    
    
    
    
    
    16
    
    
    
    Net periodic benefit cost
    
    $
    76
    
    
    $
    55
    
    
    $
    152
    
    
    $
    110
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    - 14 -




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##### Table of Contents



RESULTS OF OPERATIONS
 Net Income
 Three months and six months ended June 30, 2006 and 2005
     Net Interest Income and Net Interest Margin
     - 15 -




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##### Table of Contents



Three Months Ended
    
    
    Year to DateJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net Interest MarginInterest income (GAAP)
    
    $
    4,834
    
    
    $
    3,287
    
    
    $
    9,088
    
    
    $
    6,466Taxable-equivalent
adjustment:Loans
    
    
    3
    
    
    
    3
    
    
    
    6
    
    
    
    6Investments
    
    
    17
    
    
    
    15
    
    
    
    35
    
    
    
    28Interest income  FTE
    
    
    4,854
    
    
    
    3,305
    
    
    
    9,129
    
    
    
    6,500Interest expense (GAAP)
    
    
    1,853
    
    
    
    789
    
    
    
    3,307
    
    
    
    1,507Net interest income  FTE
    
    $
    3,001
    
    
    $
    2,516
    
    
    $
    5,822
    
    
    $
    4,993Net interest income -
(GAAP)
    
    $
    2,981
    
    
    $
    2,498
    
    
    $
    5,781
    
    
    $
    4,959Average interest earning
assets
    
    $
    258,915
    
    
    $
    199,501
    
    
    $
    246,339
    
    
    $
    197,234Net interest margin
(GAAP)
    
    
    4.62
    %
    
    
    5.02
    %
    
    
    4.73
    %
    
    
    5.03
    %Net interest margin  FTE
    
    
    4.65
    %
    
    
    5.06
    %
    
    
    4.77
    %
    
    
    5.10
    %
     Noninterest Income/Expense
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Income tax expense
  Provision and Allowance for Loan Losses
     FINANCIAL CONDITION
 Loans
  - 17 -




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##### Table of Contents



Types of Loans
 June 30,
    
    
    December 31,(in thousands)
    
    2006
    
    
    2005Commercial
    
    $
    69,515
    
    
    $
    61,921Real estate:Commercial
    
    
    93,899
    
    
    
    76,902Construction
    
    
    20,562
    
    
    
    6,953Residential 1-4 family*
    
    
    34,861
    
    
    
    28,195Consumer and other
    
    
    15,252
    
    
    
    15,217Total
    
    $
    234,089
    
    
    $
    189,188
 
 *
    
    Residential 1-4 family includes loans purchased from a mortgage broker of $5,753,000 in
the first quarter of 2006 and $13,882,000 in the fourth quarter of 2005. Allocation of the Allowance for Loan Losses
  June 30,
    
    
    % of loans in
    
    
    December 31,
    
    
    % of loans in2006
    
    
    each category
    
    
    2005
    
    
    each category(in thousands)
    
    Amount
    
    
    to Total Loans
    
    
    Amount
    
    
    to Total LoansCommercial
    
    $
    1,112
    
    
    
    30
    %
    
    $
    987
    
    
    
    33
    %Real estate:Commercial
    
    
    757
    
    
    
    40
    
    
    
    651
    
    
    
    40Construction
    
    
    170
    
    
    
    9
    
    
    
    72
    
    
    
    4Residential 1-4 family
    
    
    127
    
    
    
    15
    
    
    
    106
    
    
    
    15Consumer and other
    
    
    244
    
    
    
    6
    
    
    
    240
    
    
    
    8Total
    
    $
    2,410
    
    
    
    100
    %
    
    $
    2,056
    
    
    
    100
    %% of Loan portfolio
    
    
    1.03
    %
    
    
    
    
    
    
    1.09
    %
  Analysis of Allowance for Loan Losses
  - 18 -




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##### Table of Contents



Six months
    
    
    Six monthsended
    
    
    ended(in thousands)
    
    June 30, 2006
    
    
    June 30, 2005Beginning Balance
    
    $
    2,056
    
    
    $
    1,887ChargeoffsCommercial
    
    
    
    
    
    
    138Real estate:Commercial
    
    
    
    
    
    
    1Construction
    
    
    
    
    
    
    Residential 1-4 family
    
    
    
    
    
    
    Consumer and other
    
    
    5
    
    
    
    11Total charge-offs
    
    
    5
    
    
    
    150RecoveriesCommercial
    
    
    5
    
    
    
    5Real estate:Commercial
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    Residential 1-4 family
    
    
    
    
    
    
    Consumer and other
    
    
    6
    
    
    
    9Total Recoveries
    
    
    11
    
    
    
    14Net chargeoffs/(recoveries)
    
    
    (6
    )
    
    
    136Provision
    
    
    348
    
    
    
    147Ending balance
    
    $
    2,410
    
    
    $
    1,898
 Investments
   Deposits
  Borrowings and Junior Subordinated Debt
   - 19 -




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##### Table of Contents



Stockholders Equity and Capital Resources
    Minimum to BeWell CapitalizedMinimum for
    
    
    Under the PromptCapital Adequacy
    
    
    Corrective ActionActual
    
    
    Purposes
    
    
    ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioJune 30, 2006Total capital (to risk-weighted assets)Consolidated
    
    $
    25,969
    
    
    
    10.79
    %
    
    $
    19,257
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    25,737
    
    
    
    10.94
    
    
    
    18,827
    
    
    
    8.00
    
    
    $
    23,534
    
    
    
    10.00
    %Tier 1 capital (to risk-weighted assets)Consolidated
    
    
    23,559
    
    
    
    9.79
    
    
    
    9,628
    
    
    
    4.00
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    23,327
    
    
    
    9.91
    
    
    
    9,414
    
    
    
    4.00
    
    
    
    14,120
    
    
    
    6.00Tier 1 capital (to average assets)(1)Consolidated
    
    
    23,559
    
    
    
    8.61
    
    
    
    10,941
    
    
    
    4.00
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    23,327
    
    
    
    8.53
    
    
    
    10,941
    
    
    
    4.00
    
    
    
    13,677
    
    
    
    5.00December 31, 2005Total capital (to risk-weighted assets)Consolidated
    
    $
    24,997
    
    
    
    12.55
    %
    
    $
    15,939
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    24,626
    
    
    
    12.39
    
    
    
    15,898
    
    
    
    8.00
    
    
    $
    19,873
    
    
    
    10.00
    %Tier 1 capital (to risk-weighted assets)Consolidated
    
    
    22,941
    
    
    
    11.51
    
    
    
    7,953
    
    
    
    4.00
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    22,570
    
    
    
    11.36
    
    
    
    7,949
    
    
    
    4.00
    
    
    
    11,924
    
    
    
    6.00Tier 1 capital (to average assets)(1)Consolidated
    
    
    22,941
    
    
    
    10.25
    
    
    
    8,952
    
    
    
    4.00
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    22,570
    
    
    
    10.10
    
    
    
    8,935
    
    
    
    4.00
    
    
    
    11,169
    
    
    
    5.00
 
 (1)
    
    Also referred to as the leverage ratio Contractual Obligations and Commitments
  - 20 -




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##### Table of Contents



Within
    
    
    
    
    
    
    
    
    
    
    After(in thousands)
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years
    
    
    TotalFederal Home Loan Bank
advances
    
    $
    12,002
    
    
    $
    4,635
    
    
    $
    6,000
    
    
    $
    11,000
    
    
    $
    33,637Junior subordinated debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    5,000Time Deposits
    
    
    73,368
    
    
    
    18,678
    
    
    
    4,255
    
    
    
    
    
    
    
    96,301Operating leases
    
    
    618
    
    
    
    776
    
    
    
    687
    
    
    
    947
    
    
    
    3,028Total
    
    $
    85,988
    
    
    $
    24,089
    
    
    $
    10,942
    
    
    $
    16,947
    
    
    $
    137,966
 Liquidity
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  - 21 -




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##### Table of Contents



Net interest income analysis as of June 30, 2006:
  ANNUALIZED DOLLAR CHANGEIMMEDIATE RATE CHANGE
    
    IN NET INTEREST INCOME
    
    PERCENT CHANGE+200bp
    
    
    2,126
    
    
    
    18.21+100bp
    
    
    1,086
    
    
    
    9.31+ 50bp
    
    
    543
    
    
    
    4.66- 50bp
    
    
    (527
    )
    
    
    (4.51
    )-100bp
    
    
    (1,053
    )
    
    
    (9.02
    )-200bp
    
    
    (2,078
    )
    
    
    (17.81
    )
    
 ITEM 4. CONTROLS AND PROCEDURES
    Forward-Looking Information Statement
  - 22 -




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  - 23 -




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##### Table of Contents



Proposal No. 1:
 Director
    
    For
    
    Against
    
    WithheldRobert J. Grossman
    
    
    1,393,323
    
    
    
    0
    
    
    
    13,841Gerald O. Hatler
    
    
    1,394,681
    
    
    
    0
    
    
    
    12,483Stan W. McNaughton
    
    
    1,394,401
    
    
    
    0
    
    
    
    12,763
 Proposal No. 2:
 For
    
    Against
    
    Abstain
    
    Non-Votes1,402,141
    
    2,843
    
    2,180
    
    0
 Proposal No. 3:
 For
    
    Against
    
    Abstain
    
    Non-Votes945,940
    
    71,263
    
    12,830
    
    377,131
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 (a) Exhibits
 Exhibit 10.1  Interim Chief Financial Officer agreement between EvergreenBancorp, Inc. and Bette J. Floray (effective
August 3, 2006)
 Exhibit 31.1  Certification of Chief Executive Officer Pursuant to Rule 13a- 15(e) /15d-15(e)
 Exhibit 31.2  Certification of Chief Financial Officer Pursuant to Rule 13a- 15(e) /15d-15(e)
 Exhibit 32.1  Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 Exhibit 32.2  Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 - 24 -




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##### Table of Contents



/s/ Bette J. Floray

Bette J. FlorayInterim Chief Financial Officer(Authorized Officer and Principal Financial Officer)
 - 25 -