##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q  x
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2004  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 98109-5407
(Address of Principal Executive Offices) (Zip Code) (206) 628-4250
(Registrants Telephone Number, Including Area Code) Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x            No o Indicate by check mark whether the registrant is an accelerated filer as
defined in Rule 12b-2 of the Act. Yes o            No x Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date: Common Stock, no par value, outstanding as of November 1, 2004: 1,194,214 shares
No Preferred Stock was issued or outstanding.




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PART I
FINANCIAL INFORMATIONItem 1. Unaudited Consolidated Financial Statements.Unaudited Consolidated Balance Sheets  September 30, 2004 and December 31, 2003.Unaudited Consolidated Statements of Income - For the three months and nine months
ended September 30, 2004 and 2003.Unaudited Consolidated Statements of Stockholders Equity - For the nine months ended
September 30, 2004 and 2003.Unaudited Consolidated Statements of Comprehensive Income - For the three months and
nine months ended September 30, 2004 and 2003.Unaudited Consolidated Statements of Cash Flows - For the nine months ended September
30, 2004 and 2003.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 II
OTHER INFORMATIONItem 1. Legal Proceedings.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 and Reports on Form 8-K.EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  - 2 -




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PART I  FINANCIAL INFORMATION 
 ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS EVERGREENBANCORP, INC. 
  
 September 30,
    
    December 31,2004
    
    2003AssetsCash and cash equivalentsCash and due from banks
    
    $
    11,639
    
    
    $
    9,701Interest-bearing deposits in financial institutions
and federal funds sold
    
    
    3,666
    
    
    
    924Total cash and cash equivalents
    
    
    15,305
    
    
    
    10,625Securities available for sale
    
    
    35,531
    
    
    
    39,818LoansLoans
    
    
    146,308
    
    
    
    138,468Allowance for loan losses
    
    
    (1,847
    )
    
    
    (1,636
    )Net loans
    
    
    144,461
    
    
    
    136,832Premises and equipment
    
    
    2,337
    
    
    
    2,469Other real estate owned
    
    
    
    
    
    
    2,659Accrued interest and other assets
    
    
    2,341
    
    
    
    2,153Total assets
    
    $
    199,975
    
    
    $
    194,556LiabilitiesDepositsNoninterest bearing
    
    $
    47,967
    
    
    $
    47,132Interest bearing
    
    
    113,701
    
    
    
    105,551Total deposits
    
    
    161,668
    
    
    
    152,683Federal funds purchased
    
    
    1,443
    
    
    
    3,097Advances from Federal Home Loan Bank
    
    
    12,283
    
    
    
    15,381Accrued expenses and other liabilities
    
    
    2,422
    
    
    
    1,812Junior subordinated debt
    
    
    5,000
    
    
    
    5,000Total liabilities
    
    
    182,816
    
    
    
    177,973Stockholders equityPreferred stock:No par value; 100,000 shares authorized; none issuedCommon stock and surplus:No par value; 15,000,000 shares authorized;
1,193,488 shares issued at September 30, 2004;
1,190,366 shares at December 31, 2003
    
    
    15,898
    
    
    
    15,854Retained earnings
    
    
    1,358
    
    
    
    778Accumulated other comprehensive income (loss)
    
    
    (97
    )
    
    
    (49
    )Total stockholders equity
    
    
    17,159
    
    
    
    16,583Total liabilities and stockholders equity
    
    $
    199,975
    
    
    $
    194,556
 See accompanying notes to unaudited consolidated financial statements. - 3 -




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EVERGREENBANCORP, INC. 
  
 Three months ended September 30,
    
    Nine months ended September 30,2004
    
    2003
    
    2004
    
    2003Interest incomeLoans, including fees
    
    $
    2,572
    
    
    $
    2,300
    
    
    $
    7,435
    
    
    $
    6,893Federal funds sold and other
    
    
    12
    
    
    
    22
    
    
    
    33
    
    
    
    82Securities available for sale
    
    
    258
    
    
    
    252
    
    
    
    801
    
    
    
    742Total interest income
    
    
    2,842
    
    
    
    2,574
    
    
    
    8,269
    
    
    
    7,717Interest expenseDeposits
    
    
    361
    
    
    
    309
    
    
    
    1,023
    
    
    
    1,033Federal funds purchased
    
    
    3
    
    
    
    4
    
    
    
    9
    
    
    
    17Advances from Federal Home Loan Bank
    
    
    129
    
    
    
    152
    
    
    
    410
    
    
    
    433Junior subordinated debt
    
    
    62
    
    
    
    58
    
    
    
    188
    
    
    
    180Total interest expense
    
    
    555
    
    
    
    523
    
    
    
    1,630
    
    
    
    1,663Net interest income
    
    
    2,287
    
    
    
    2,051
    
    
    
    6,639
    
    
    
    6,054Provision for loan losses
    
    
    50
    
    
    
    36
    
    
    
    190
    
    
    
    74Net interest income after
Provision for loan losses
    
    
    2,237
    
    
    
    2,015
    
    
    
    6,449
    
    
    
    5,980Noninterest incomeService charges on deposit accounts
    
    
    233
    
    
    
    198
    
    
    
    693
    
    
    
    612Net merchant credit card processing
    
    
    36
    
    
    
    38
    
    
    
    116
    
    
    
    116Gain on sales of available-for-sale securities
    
    
    
    
    
    
    4
    
    
    
    15
    
    
    
    66Other noninterest income
    
    
    138
    
    
    
    172
    
    
    
    454
    
    
    
    511Total noninterest income
    

    
    407
    
    
    
    412
    
    
    
    1,278
    
    
    
    1,305Noninterest expenseSalaries and employee benefits
    
    
    1,084
    
    
    
    1,019
    
    
    
    3,172
    
    
    
    3,049Occupancy and equipment
    
    
    362
    
    
    
    326
    
    
    
    1,032
    
    
    
    944Other real estate owned expense
    
    
    
    
    
    
    
    
    
    
    132
    
    
    
    Other noninterest expense
    
    
    749
    
    
    
    730
    
    
    
    2,096
    
    
    
    2,162Total noninterest expense
    
    
    2,195
    
    
    
    2,075
    
    
    
    6,432
    
    
    
    6,155Income before income tax expense
    
    
    449
    
    
    
    352
    
    
    
    1,295
    
    
    
    1,130Income tax expense
    
    
    148
    
    
    
    118
    
    
    
    428
    
    
    
    375Net income
    
    $
    301
    
    
    $
    234
    
    
    $
    867
    
    
    $
    755Basic earnings per share of common stock
    
    $
    0.25
    
    
    $
    0.20
    
    
    $
    0.73
    
    
    $
    0.64Diluted earnings per share of common stock
    
    $
    0.25
    
    
    $
    0.20
    
    
    $
    0.72
    
    
    $
    0.63
 See accompanying notes to unaudited consolidated financial statements. - 4 -




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EVERGREENBANCORP, INC. 
   AccumulatedCommon
    
    
    
    
    
    otherCommon
    
    stock
    
    
    
    
    
    comprehen-
    
    Total stock-stock
    
    and
    
    Retained
    
    sive
    
    holdersshares
    
    surplus
    
    earnings
    
    income
    
    equityBalance at January 1, 2003
    
    
    1,075,461
    
    
    $
    13,597
    
    
    $
    2,266
    
    
    $
    97
    
    
    $
    15,960Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    755
    
    
    
    
    
    
    
    755Other comprehensive income,
net of tax:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in unrealized gain
(loss) on securities
available for sale, net
of deferred income tax
benefit of $102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (198
    )
    
    
    (198
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    557Cash
dividends ($.31 per share)
    
    
    
    
    
    
    
    
    
    
    (367
    )
    
    
    
    
    
    
    (367
    )Exercise of stock options
    
    
    3,370
    
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    43Balance at September 30, 2003
    
    
    1,078,831
    
    
    $
    13,640
    
    
    $
    2,654
    
    
    $
    (101
    )
    
    $
    16,193
 AccumulatedCommon
    
    
    
    
    
    otherCommon
    
    stock
    
    
    
    
    
    comprehen-
    
    Total stock-stock
    
    and
    
    Retained
    
    sive
    
    holdersshares
    
    surplus
    
    earnings
    
    income
    
    equityBalance at January 1, 2004
    
    
    1,190,366
    
    
    $
    15,854
    
    
    $
    778
    
    
    $
    (49
    )
    
    $
    16,583Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    867
    
    
    
    
    
    
    
    867Other comprehensive income,
net of tax:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in unrealized gain
(loss) on securities
available for sale, net
of deferred income tax
benefit of $25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48
    )
    
    
    (48
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    819Cash dividends ($.24 per share)
    
    
    
    
    
    
    
    
    
    
    (287
    )
    
    
    
    
    
    
    (287
    )Exercise of stock options
    
    
    3,122
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    44Balance at September 30, 2004
    
    
    1,193,488
    
    
    $
    15,898
    
    
    $
    1,358
    
    
    $
    (97
    )
    
    $
    17,159
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EVERGREENBANCORP, INC. 
  
 The Companys only component of other comprehensive earnings is the unrealized
gain (loss) on securities available for sale. Comprehensive income components
and related tax effects are as follows: Three months ended September 30,
    
    Nine months ended September 30,2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    301
    
    
    $
    234
    
    
    $
    867
    
    
    $
    755Unrealized holding gain (loss) arising
during the period on securities
available for sale
    
    
    349
    
    
    
    (404
    )
    
    
    (58
    )
    
    
    (234
    )Less reclassification for gains
recognized during the period
    
    
    
    
    
    
    4
    
    
    
    15
    
    
    
    66Income tax benefit (expense)
    
    
    (119
    )
    
    
    139
    
    
    
    25
    
    
    
    102Net unrealized gain (loss) on securities
    
    
    230
    
    
    
    (269
    )
    
    
    (48
    )
    
    
    (198
    )Total comprehensive income (loss)
    
    $
    531
    
    
    $
    (35
    )
    
    $
    819
    
    
    $
    557
 - 6 -




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EVERGREENBANCORP, INC. 
  
 September 30,
    
    September 30,2004
    
    2003Cash flows from operating activitiesNet income
    
    $
    867
    
    
    $
    755Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation
    
    
    485
    
    
    
    435Provision for loan losses
    
    
    190
    
    
    
    74Net amortization of premium on securities
    
    
    61
    
    
    
    128Gain from sale of available-for-sale securities
    
    
    (15
    )
    
    
    (66
    )Write-down of other real estate owned
    
    
    132
    
    
    
    Federal Home Loan Bank stock dividends
    
    
    (39
    )
    
    
    (57
    )Dividends reinvested
    
    
    (252
    )
    
    
    (201
    )Other changes, net
    
    
    454
    
    
    
    (176
    )Net cash provided by operating activities
    
    
    1,883
    
    
    
    892Cash flows from investing activitiesProceeds from maturities of securities available for sale
    
    
    1,500
    
    
    
    3,535Proceeds from sale of securities available for sale
    
    
    2,525
    
    
    
    5,747Purchases of securities available for sale
    
    
    (1,526
    )
    
    
    (29,504
    )Proceeds from prepayments of securities available for sale
    
    
    1,960
    
    
    
    6,153Proceeds from sale of other real estate owned
    
    
    2,527
    
    
    
    Net (increase) decrease in loans
    
    
    (7,819
    )
    
    
    1,219Purchases of premises and equipment
    
    
    (353
    )
    
    
    (731
    )Net cash used in investing activities
    
    
    (1,186
    )
    
    
    (13,581
    )Cash flows from financing activitiesNet increase in deposits
    
    
    8,985
    
    
    
    12,708Net decrease (increase) in federal funds purchased
    
    
    (1,654
    )
    
    
    56Proceeds from Federal Home Loan Bank advances
    
    
    
    
    
    
    3,860Repayments of advances from Federal Home Loan Bank
    
    
    (3,098
    )
    
    
    (1,146
    )Proceeds from exercise of stock options
    
    
    37
    
    
    
    43Dividends paid
    
    
    (287
    )
    
    
    (367
    )Net cash provided by financing activities
    
    
    3,983
    
    
    
    15,154Net increase in cash and cash equivalents
    
    
    4,680
    
    
    
    2,465Cash and cash equivalents at beginning of year
    
    
    10,625
    
    
    
    22,620Cash and cash equivalents at end of period
    
    $
    15,305
    
    
    $
    25,085
 See accompanying notes to unaudited consolidated financial statements. - 7 -




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EVERGREENBANCORP, INC. 
 NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL INFORMATION
 Note 1: Basis of presentation and accounting policies The accompanying unaudited condensed consolidated financial statements include
the accounts of EvergreenBancorp, Inc. (Bancorp) and its wholly owned
subsidiary, EvergreenBank (the Bank) (collectively referred to as the
Company). In May 2002, Bancorp formed EvergreenBancorp Capital Trust I (the
Trust) to raise capital through a trust preferred securities offering. Prior
to 2003, the Trust was consolidated in the Companys financial statements.
Under new accounting guidance, the Trust is no longer consolidated with the
Company. The financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
nine month periods ended September 30, 2004 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2004. For
additional information, refer to the financial statements and footnotes for the
year ended December 31, 2003, filed by the Company with the United States
Securities and Exchange Commission. Organization:Bancorp was formed February 9, 2001 and is a Washington
corporation chartered as a bank holding company. Bancorp owns all of the
issued and outstanding shares of the Bank and all of the common securities
issued by the Trust. The Bank is a Washington state chartered financial institution that engages in
general commercial and consumer banking operations. The Bank offers a broad
spectrum of personal and business banking services, including commercial,
consumer and real estate lending. The Banks offices are centered in the Puget
Sound region in the Seattle, Lynnwood, Bellevue and Federal Way communities.
Deposits in the Bank are insured by the Federal Deposit Insurance Corporation. The Trust is a Delaware business trust organized pursuant to a Declaration of
Trust dated as of May 22, 2002. An Amended and Restated Declaration of Trust
was executed May 23, 2002. Holding company information:The Bank became a wholly owned subsidiary of
Bancorp on June 20, 2001 in accordance with the Plan and Agreement of
Reorganization and Merger dated February 14, 2001 (the Plan), and provided
that each share of the Banks common stock be exchanged for an equal number of
shares of the common stock of Bancorp. The Plan also provided that the
reorganization be treated similarly to a pooling of interest for accounting
and financial reporting purposes. Accordingly, the capital accounts of the
Bank as of June 20, 2001 were carried forward, without change, as the capital
accounts of Bancorp. Principles of consolidation:The accompanying condensed consolidated financial
statements include the combined accounts of Bancorp and the Bank for all
periods reported. All significant intercompany balances and transactions have
been eliminated. Critical accounting policies and use of estimates:The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make judgments,
estimates and assumptions that affect the reported amounts of assets and
liabilities, including contingent amounts, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Management has identified certain policies as being particularly sensitive in
terms of judgments and the extent to which estimates are used. These policies
relate to the determination of the allowance for loan losses on loans, other
real estate owned, and the fair value of financial instruments and are
described in greater detail in subsequent sections of Managements Discussion
and Analysis and in the consolidated financial statements and footnotes thereto included in - 8 -




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the Companys Annual Report on Form 10-K for the year ended
December 31, 2003. Management believes that the judgments, estimates and
assumptions used in the preparation of the financial statements are appropriate
given the factual circumstances at the time. However, given the sensitivity of
the financial statements to these critical accounting policies, estimates and
assumptions, material differences in the results of operations or financial
condition could result. Newly issued accounting pronouncements In January 2003, the Emerging Issues Task Force (EITF) began a project to
provide additional guidance on when a market value decline on debt and
marketable equity securities should be considered other-than-temporary.
Currently, declines in market value that are considered to be
other-than-temporary require that a loss be recognized through the income
statement. The EITF issued additional guidance in March 2004, establishing
criteria for recognition and measurement under this pronouncement to be
effective for reporting periods beginning after June 15, 2004. This guidance
is not expected to have a material impact on the Companys operating results or
financial condition. Stock 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 FASB
Statement No. 123, Accounting for Stock-Based CompensationEarnings and
dividends per share are restated for all stock splits and dividends through the
date of issue of the financial statements. Three months ended September 30,(in thousands, except per share data)
    
    2004
    
    2003Net income as reported
    
    $
    301
    
    
    $
    234Deduct: Stock-based compensation expense
determined under fair value based method
    
    
    14
    
    
    
    14Pro forma net income
    
    $
    287
    
    
    $
    220Basic earnings per share as reported
    
    $
    0.25
    
    
    $
    0.20Pro forma basic earnings per share
    
    
    0.24
    
    
    
    0.19Diluted earnings per share as reported
    
    
    0.25
    
    
    
    0.20Pro forma diluted earnings per share
    
    
    0.24
    
    
    
    0.18
 Nine months ended September 30,(in thousands, except per share data)
    
    2004
    
    2003Net income as reported
    
    $
    867
    
    
    $
    755Deduct: Stock-based compensation expense
determined under fair value based method
    
    
    38
    
    
    
    37Pro forma net income
    
    $
    829
    
    
    $
    718Basic earnings per share as reported
    
    $
    0.73
    
    
    $
    0.64Pro forma basic earnings per share
    
    
    0.70
    
    
    
    0.61Diluted earnings per share as reported
    
    
    0.72
    
    
    
    0.63Pro forma diluted earnings per share
    
    
    0.68
    
    
    
    0.60
 The weighted average fair value of options granted during the third quarter of
2004 and 2003 was $3.24 and $3.03, respectively. The pro forma effects are
computed using option pricing models based on the following weighted average
assumptions at the grant date. Risk free interest rate
    
    
    3.65
    %
    
    
    3.00
    %Expected option life
    
    
    7.50
    years
    
    
    7.50
    yearsExpected option price volatility
    
    
    13
    %
    
    
    12
    %Dividend yield
    
    
    1.8
    %
    
    
    1.1
    %
 - 9 -




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Comprehensive income Accounting principles generally require that recognized revenue, expenses,
gains and losses be included in net income. Certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale
securities are reported as separate components of the equity section of the
balance sheet. Such items, along with net income, are components of
comprehensive income. The Companys only component of other comprehensive
earnings is unrealized gains and losses on available-for-sale securities. Note 2: Stock dividend On November 26, 2003, the Company effected a 10% stock dividend. All
references to number of shares issued and outstanding (basic and diluted) and
earnings per share, for all periods presented have been restated as if the
stock dividend had actually occurred on January 1, 2003. Note 3: Stock options During the third quarter of 2004, 19,000 stock options were granted and there
were 608 options exercised. During the second quarter of 2004, there were no
stock options granted and there were 554 stock options exercised. During the
first quarter of 2004, there were no stock options granted and there were 1,960
stock options exercised. The total stock options outstanding were 117,078 at
September 30, 2004 with exercise prices ranging between $11.40 and $17.75 and
expiration dates between October 23, 2010 and July 15, 2014. All options are
granted at market value as of date of grant. Note 4: Securities available for sale Investment securities available for sale include $7,794,000 in mortgage-backed
securities at September 30, 2004. This investment by the Bank in
mortgage-backed securities qualifies as collateral for advances from Federal
Home Loan Bank of Seattle. Investment securities available for sale also
include the AMF Adjustable Rate Mortgage Fund with a fair market value of
$14,748,000 at September 30, 2004. Note 5: Junior subordinated debt 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 trust preferred securities in a private placement offering. Simultaneously
with the issuance of the trust preferred securities by the Trust, Bancorp
issued junior subordinated debentures to the Trust. The junior subordinated
debentures are the sole assets of the Trust. The junior subordinated debentures
and the trust preferred securities pay distributions and dividends,
respectively, on a quarterly basis, which are included in interest expense. The
interest rate payable on the debentures and the trust preferred securities
resets quarterly and is equal to the three-month LIBOR plus 3.50% (5.51% at
September 30, 2004), provided that this rate cannot exceed 12.0% through June
30, 2007. The junior subordinated debentures will mature in 2032, at which time
the preferred securities must be redeemed. Bancorp has provided a full,
irrevocable, and unconditional guarantee on a subordinated basis of the
obligations of the Trust under the preferred securities as set forth in such
guarantee agreement. Debt issuance costs totaling $209,000 were capitalized
related to the offering and are being amortized over the estimated life of the
junior subordinated debentures. Prior to 2003, the Trust was consolidated in the Companys financial
statements, with the trust preferred securities issued by the Trust reported in
liabilities as guaranteed preferred beneficial interests and the subordinated
debentures eliminated in consolidation. Under new accounting guidance, FASB
Interpretation No. 46, as revised in December 2003, the Trust is no longer
consolidated with the Company. Accordingly, the Company does not report the
securities issued by the Trust as liabilities, and instead reports as
liabilities the subordinated debentures issued by the Company and held by the
Trust, as these are no longer eliminated in consolidation. The effect of no
longer consolidating the Trust does not change the amounts reported as the
Companys assets, liabilities, equity, or interest expense. Accordingly, the
amounts previously - 10 -




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##### Table of Contents



reported as guaranteed preferred beneficial interests in liabilities have been recaptioned junior subordinated debt and continue to be
presented in liabilities on the balance sheet. Note 6: Earnings per share 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
2003 10% 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. A reconciliation of the numerator and denominator used in the calculation of
basic and diluted earnings per share of common stock is as follows. Three months ended September 30,(in thousands, except share and per share data):
    
    2004
    
    2003Income (numerator):Net income
    
    $
    301
    
    
    $
    234Income (denominator):Weighted average number of common stock shares outstanding -
basic
    
    
    1,193,410
    
    
    
    1,185,373Dilutive effect of outstanding employee and director stock options
    
    
    19,369
    
    
    
    12,300Weighted average number of common stock shares outstanding and
assumed conversion  diluted
    
    
    1,212,420
    
    
    
    1,197,673Basic earnings per share of common stock
    
    $
    0.25
    
    
    $
    0.20Diluted earnings per share of common stock
    
    $
    0.25
    
    
    $
    0.20
 Nine months ended September 30,(in thousands, except share and per share data):
    
    2004
    
    2003Income (numerator):Net income
    
    $
    867
    
    
    $
    755Income (denominator):Weighted average number of common stock shares outstanding -
basic
    
    
    1,192,710
    
    
    
    1,184,668Dilutive effect of outstanding employee and director stock options
    
    
    19,135
    
    
    
    9,842Weighted average number of common stock shares outstanding and
assumed conversion  diluted
    
    
    1,211,845
    
    
    
    1,194,510Basic earnings per share of common stock
    
    $
    0.73
    
    
    $
    0.64Diluted earnings per share of common stock
    
    $
    0.72
    
    
    $
    0.63
 Note 7: Subsequent stock split On November 3, 2004, the Company declared a 5-for-4 stock split on its common
stock effective November 30, 2004 for stockholders of record as of November 15,
2004. The following table shows the impact on earnings per share giving
retroactive effect to the split: - 11 -




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##### Table of Contents



Three months ended September 30,
    
    Nine months ended September 30,2004
    
    2003
    
    2004
    
    2003Basic earnings per share of common stock
    
    $
    0.20
    
    
    $
    0.16
    
    
    $
    0.58
    
    
    $
    0.51Diluted earnings per share of common stock
    
    $
    0.20
    
    
    $
    0.16
    
    
    $
    0.57
    
    
    $
    0.51
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS The Banks results of operations primarily depend on net interest income, which
is the difference between interest income on loans and investments and interest
expense on deposits and borrowed funds. The Banks operating results are also
affected by loan fees, service charges on deposit accounts, net merchant credit
card processing fees, gains from sales of loans and investments and other
noninterest income. Operating expenses of the Bank include employee
compensation and benefits, occupancy and equipment costs, federal deposit
insurance premiums and other administrative expenses. The Banks results of operations are further affected by economic and
competitive conditions, particularly changes in market interest rates. Results
are also affected by monetary and fiscal policies of federal agencies, and
actions of regulatory authorities. The following discussion contains a review of the consolidated operating
results and financial condition of the Company for the three and nine month
periods of 2004. This discussion should be read in conjunction with the
unaudited consolidated financial statements and accompanying notes contained
elsewhere in this report. When warranted, comparisons are made to the same
periods in 2003 and to the previous year ended December 31, 2003. For
additional information, refer to the audited consolidated financial statements
and footnotes included in the Companys Annual Report on Form 10-K for the year
ended December 31, 2003. RESULTS OF OPERATIONS Net Income Three months and nine months ended September 30, 2004 and 2003 For the third quarter of 2004, the Company reported net income of $301,000
compared to $234,000 for the third quarter of 2003, an increase of 28.6
percent. The main reason for the increase in profits was higher net interest
income due to growth in loans. Basic and diluted earnings per common share were $0.25 and $0.25 for the third
quarter of 2004, respectively, compared to $0.20 and $0.20 for the same period
one year ago. For the third quarter of 2004, return on average common equity and return on
average assets was 7.08 percent and .62 percent respectively, compared to 5.92
percent and .53 percent, respectively, for the same period one year ago. For the first nine months of 2004, net income was $867,000, compared with
$755,000 for the first nine months of 2003, an increase of 14.84 percent.
Basic and diluted earnings per common share were $0.73 and $0.72 for the first
nine months of 2004 respectively, and $0.64 and $0.63 for the same period in
2003. Return on average assets was .59 percent for 2004 and .60 percent for
2003. Return on average common equity was 6.86 percent for the first nine
months of 2004 and 6.47 percent for the same period of 2003. Additional
analysis of financial components is contained in the discussion that follows.
Unless otherwise stated, comparisons are between the third quarter 2004 and
2003. Net Interest Income and Net Interest Margin The Companys principal source of earnings is net interest income, which is the
difference between interest income on loans and investments and interest
expense on deposits and borrowed funds. Several factors can contribute to
changes in net interest income, such as changes in average balances or in the
rates on earning assets and rates paid for interest bearing liabilities, the
level of noninterest bearing deposits, and the level of nonaccrual loans. - 12 -




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##### Table of Contents



Net interest income before the provision for loan losses was $2,287,000 for the
third quarter of 2004, compared to $2,051,000 for the same period in 2003, an
increase of 11.51 percent. Net interest income was $6,639,000 for the first
nine months of 2004, compared with $6,054,000 for the first nine months of 2003, an
increase of 9.66 percent. The increase was primarily attributable to growth in
the average balance of the loan portfolio. The net interest margin, which is the ratio of taxable-equivalent net interest
income to average earning assets, was 4.96 percent for the first nine months of
2004 compared to 5.12 percent for the same period one year ago. The weighted
average yield on interest earning assets was 6.17 percent for the first nine
months of 2004, compared to 6.57 percent during the first nine months of 2003.
Interest expense as a percentage of average earning assets was 1.21 percent for
the first nine months of 2004, compared to 1.38 percent during the same period
in 2003. Interest income for the three months ended September 30, 2004 was $2,842,000
compared to $2,574,000 for the three months ended September 30, 2003, an
increase of $268,000 or 10.41 percent. This increase was primarily
attributable to an increase in the average loan balance of $20,617,000, offset
by a decrease in the average yield on earning assets. Interest income for the nine months ended September 30, 2004 was $8,269,000
compared to $7,717,000 for the nine months ended September 30, 2003, an
increase of 7.15 percent. The increase is due primarily to a 17.4 percent growth
in average loan balances, offset by lower yields on loans. Interest expense for the three months ended September 30, 2004 was $555,000
compared to $523,000 for the three months ended September 30, 2003, an increase
of $32,000 or 6.12 percent. This was largely due to an increase of $7,847,000
in the average balance of interest bearing liabilities. Interest expense for the nine months ended September 30, 2004 was $1,630,000
compared with $1,663,000 for the same period a year ago, a reduction of $33,000
or 1.98 percent. The lower expense year to date is attributable to lower rates
paid on interest-bearing deposits, offset by growth in the average balance of
interest-bearing deposits. Noninterest Income/Expense Noninterest income in the third quarter of 2004 was $407,000 compared to
$412,000 in the same quarter of 2003, a decrease of $5,000 or 1.21 percent.
Noninterest income for the nine months ended September 30, 2004 was $1,278,000
compared with $1,305,000 for the same period of 2003, a reduction of $27,000 or
2.07 percent. The decrease was primarily attributable to a net reduction of
$51,000 in the gain on sales of securities and loans. Noninterest expense was $2,195,000 in the third quarter of 2004, compared to
$2,075,000 in the same quarter of 2003, an increase of $120,000, or 5.78
percent. The increase was primarily due to growth in salaries and employee
benefits and additional sales/use tax expense. Noninterest expense for the nine
months ended September 30, 2004 was $6,432,000 compared with $6,155,000 for the
same period of 2003, an increase of $277,000 or 4.50 percent. The year-to-date
increase was largely due to the write-down of $132,000 in the value of other
real estate owned which occurred in the first quarter 2004, the year-to-date
increase of $123,000 in salaries and benefits, and increased advertising and
promotional costs. Income tax expense The Company recognized income tax expense of $148,000 during the third quarter
of 2004, up from $117,000 in the same quarter of 2003. Income tax expense for
the nine months ended September 30, 2004 was $428,000, compared to $375,000 for
the same period of 2003, an increase of 14.13 percent or $53,000. The increase
reflects a $165,000, or 14.60 percent rise in pre-tax income to $1,295,000 for
the nine months ended September 30, 2004. The effective income tax rate has
remained consistent, approximately 33 percent, for each period reported. Provision and Allowance for Loan Losses Included in the results of operations for the quarters ending September 30,
2004 and 2003 is a non-cash expense of $50,000 and $36,000, respectively,
related to the provision for loan losses. The provision for loan losses for
the nine months ended September 30, 2004 was $190,000 compared to $74,000 for
the same period of 2003. This increase in the provision resulted largely from
growth in the loan portfolio, partially offset by improved net loan loss
experience and improved loan quality. - 13 -




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##### Table of Contents



At September 30, 2004, the allowance for loan losses was $1,847,000 compared to
$1,636,000 at December 31, 2003. The ratio of the allowance to total loans
outstanding was 1.25 percent at September 30, 2004, and 1.18 percent at
December 31, 2003. Management evaluates the adequacy of the allowance for loan losses 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. Although management believes the
allowance for loan losses was at a level adequate to absorb probable incurred
losses on existing loans at September 30, 2004, there can be no assurance that
such losses will not exceed estimated amounts. While management is encouraged by improvements in the national and regional
economy, local economic conditions could still adversely affect cash flows for
both commercial and individual borrowers, as a result of which the Company
could experience increases in problem assets, delinquencies and losses on
loans. FINANCIAL CONDITION Loans At September 30, 2004, loans totaled $146,308,000 compared to $138,468,000 at
December 31, 2003, an increase of $7,480,000 or 5.66 percent. At September 30, 2004, the Bank had $81,138,000 in loans secured by real
estate. The collectibility of a substantial portion of the loan portfolio is
susceptible to changes in economic and market conditions in the region. The
Bank generally requires collateral on all real estate exposures and typically
maintains loan-to-value ratios of no greater than 80 percent. The following tables set out the composition of the types of loans, the
allocation of the allowance for loan losses and the analysis of the allowance
for loan losses as of September 30, 2004 and December 31, 2003: Types of Loans September 30,
    
    December 31,(in thousands)
    
    2004
    
    2003Commercial
    
    $
    51,514
    
    
    $
    53,770Real estate:Commercial
    
    
    56,805
    
    
    
    48,963Construction
    
    
    12,364
    
    
    
    10,911Residential 1-4 family
    
    
    11,969
    
    
    
    11,971Consumer and other
    
    
    13,656
    
    
    
    12,853Total
    
    $
    146,308
    
    
    $
    138,468
 - 14 -




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##### Table of Contents



Allocation of the Allowance for Loan Losses In the following table, the allowance for loan losses at September 30, 2004 and
December 31, 2003 has been allocated among major loan categories based on a
number of factors including quality, volume, current economic outlook and other
business considerations. September 30,
    
    % of loans in
    
    December 31,
    
    % of loans in2004
    
    each category
    
    2003
    
    each category(in thousands)
    
    amount
    
    to total loans
    
    amount
    
    to total loansCommercial
    
    $
    990
    
    
    
    35
    %
    
    $
    885
    
    
    
    39
    %Real estate:Commercial
    
    
    516
    
    
    
    40
    
    
    
    436
    
    
    
    35Construction
    
    
    127
    
    
    
    8
    
    
    
    110
    
    
    
    8Residential 1-4 family
    
    
    10
    
    
    
    8
    
    
    
    9
    
    
    
    9Consumer and other
    
    
    204
    
    
    
    9
    
    
    
    196
    
    
    
    9Total
    
    $
    1,847
    
    
    
    100
    %
    
    $
    1,636
    
    
    
    100
    %% of Loan portfolio
    
    
    1.26
    %
    
    
    
    
    
    
    1.18
    %
 The analysis of the allowance for loan losses should not be interpreted as an
indication that chargeoffs will occur in these amounts or proportions, or that
the allocation indicates future chargeoff trends. Furthermore, the portion
allocated to each category is not the total amount available for future losses
that might occur within each category. - 15 -




---



##### Table of Contents



Analysis of Allowance for Loan Losses The following table summarizes transactions in the allowance for loan losses
and details the chargeoffs, recoveries and net loan losses by loan category. Nine months ended
    
    Nine months ended(in thousands)
    
    September 30, 2004
    
    September 30, 2003Beginning Balance
    
    $
    1,636
    
    
    $
    1,690ChargeoffsCommercial
    
    
    
    
    
    
    41Real estate:Commercial
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    Residential 1-4 family
    
    
    
    
    
    
    91Consumer and other
    
    
    74
    
    
    
    36Total chargeoffs
    
    $
    74
    
    
    $
    168RecoveriesCommercial
    
    $
    85
    
    
    $
    14Real estate:Commercial
    
    
    
    
    
    
    20Construction
    
    
    
    
    
    
    Residential 1-4 family
    
    
    
    
    
    
    Consumer and other
    
    
    10
    
    
    
    6Total Recoveries
    
    $
    95
    
    
    $
    40Net chargeoffs/(recoveries)
    
    $
    (21
    )
    
    $
    128Provision
    
    
    190
    
    
    
    74Ending balance
    
    $
    1,847
    
    
    $
    1,636
 - 16 -




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##### Table of Contents



Investments At September 30, 2004, investments totaled $35,531,000, a decrease of
$4,287,000 or 10.77 percent from $39,818,000 at December 31, 2003. The decrease
in investments was primarily due to sales, maturities and prepayments of
securities. Other Real Estate Owned At September 30, 2004, other real estate owned totaled $0, a decrease of
$2,659,000 from the balance at December 31, 2003. In the first quarter 2004,
the Bank recognized a $132,000 charge related to the property. The residential
property was sold in the second quarter of 2004. Deposits At September 30, 2004, total deposits were $161,668,000, compared to
$152,683,000 at December 31, 2003. This represents a 5.88 percent increase from
December 31, 2003. Non-interest bearing deposits totaled $47,967,000 at
September 30, 2004 compared to $47,132,000 at December 31, 2003, an increase of
$835,000 or 1.77 percent. Interest bearing deposits totaled $113,701,000 at
September 30, 2004, compared to $105,551,000 at December 31, 2003, an increase
of $8,150,000 or 7.72 percent. Borrowings At September 30, 2004, the Banks Federal Home Loan Bank borrowings were
$12,283,000 compared to $15,381,000 at December 31, 2003. This represents a
20.14 percent decline from December 31, 2003 and is due to the repayment of
maturing and amortizing advances. Due to increased liquidity, these advances
were not replaced. Stockholders Equity and Capital Resources Stockholders equity totaled $17,159,000 at September 30, 2004, an increase of
$576,000 or 3.47 percent over December 31, 2003. This increase in stockholders
equity is primarily the result of net income of $867,000, offset by a decrease
in accumulated other comprehensive income of $48,000, which resulted from
fluctuations in the market value of available-for-sale securities. These items
were further offset by quarterly dividends of $287,000, totaling $0.24 per
share. Finally, equity increased by $44,000 in surplus due to the exercise of
3,122 stock options. Book value per share was $14.40 at September 30, 2004 compared to $13.93 at
December 31, 2003. Book value per share is calculated by dividing total equity
by total shares outstanding. - 17 -




---



##### Table of Contents



The following table displays the capital ratios at September 30, 2004 and
December 31, 2003 for Bancorp and the Bank. As the table illustrates, the
capital ratios exceed those required to be considered well-capitalized. Minimum to BeMinimum for
    
    
    
    
    
    Well CapitalizedCapital
    
    
    
    
    
    Under the PromptAdequacy
    
    
    
    
    
    CorrectiveActual
    
    
    
    
    
    Purposes
    
    
    
    
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioSeptember 30, 2004Total Capital
(to risk-weighted assets)EvergreenBancorp
    
    
    23,933
    
    
    
    15.12
    %
    
    
    12,663
    
    
    
    8.00
    %
    
    
    15,829
    
    
    
    10.00
    %EvergreenBank
    
    
    23,280
    
    
    
    14.72
    %
    
    
    12,652
    
    
    
    8.00
    %
    
    
    15,815
    
    
    
    10.00
    %Tier 1 Capital
(to risk-weighted assets)EvergreenBancorp
    
    
    22,086
    
    
    
    13.95
    %
    
    
    6,332
    
    
    
    4.00
    %
    
    
    9,498
    
    
    
    6.00
    %EvergreenBank
    
    
    21,433
    
    
    
    13.55
    %
    
    
    6,326
    
    
    
    4.00
    %
    
    
    9,489
    
    
    
    6.00
    %Tier 1 Capital
(to average assets)EvergreenBancorp
    
    
    22,086
    
    
    
    11.52
    %
    
    
    7,673
    
    
    
    4.00
    %
    
    
    9,591
    
    
    
    5.00
    %EvergreenBank
    
    
    21,433
    
    
    
    11.17
    %
    
    
    7,673
    
    
    
    4.00
    %
    
    
    9,591
    
    
    
    5.00
    %December 31, 2003Total Capital
(to risk-weighted assets)EvergreenBancorp
    
    
    23,178
    
    
    
    15.19
    %
    
    
    12,209
    
    
    
    8.00
    %
    
    
    15,262
    
    
    
    10.00
    %EvergreenBank
    
    
    22,293
    
    
    
    14.63
    %
    
    
    12,194
    
    
    
    8.00
    %
    
    
    15,242
    
    
    
    10.00
    %Tier 1 Capital
(to risk-weighted assets)EvergreenBancorp
    
    
    21,542
    
    
    
    14.11
    %
    
    
    6,105
    
    
    
    4.00
    %
    
    
    9,157
    
    
    
    6.00
    %EvergreenBank
    
    
    20,657
    
    
    
    13.55
    %
    
    
    6,097
    
    
    
    4.00
    %
    
    
    9,145
    
    

    
    6.00
    %Tier 1 Capital
(to average assets)EvergreenBancorp
    
    
    21,542
    
    
    
    11.76
    %
    
    
    7,326
    
    
    
    4.00
    %
    
    
    9,153
    
    
    
    5.00
    %EvergreenBank
    
    
    20,657
    
    
    
    11.30
    %
    
    
    7,314
    
    
    
    4.00
    %
    
    
    9,143
    
    
    
    5.00
    %
 Contractual Obligations and Commitments In the normal course of business, to meet the financing needs of its customers,
the Company is a party to financial instruments with off-balance sheet risk.
These financial instruments include commitments to extend credit, lines of
credit and standby letters of credit. Such off-balance sheet items are
recognized in the financial statements when they are funded or related fees are
received. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. The
off-balance sheet items do not represent unusual elements of credit risk in
excess of the amounts recognized in the balance sheets. At September 30, 2004, the Company had commitments to extend credit and
contingent liabilities under lines of credit, standby letters of credit and
similar arrangements totaling $46,444,000. Since many lines of credit do not
fully disburse, or expire without being drawn upon, the total amount does not
necessarily reflect future cash requirements. For additional information regarding off-balance sheet items, refer to Note 16
Commitments and Contingencies to the Consolidated Financial Statements
contained in the Companys Annual Report on Form 10-K as of December 31, 2003. - 18 -




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##### Table of Contents



The following table summarizes the Companys significant contractual
obligations and commitments at September 30, 2004: Within
    
    
    
    
    
    
    
    
    
    After(in thousands)
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 Years
    
    TotalFederal Home Loan Bank
advances
    
    $
    1,000
    
    
    $
    9,097
    
    
    $
    2,186
    
    
    $
    0
    
    
    $
    12,283Junior subordinated debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    5,000Operating leases
    
    
    557
    
    
    
    1,116
    
    
    
    268
    
    
    
    82
    
    
    
    2,023Total
    
    $
    1,557
    
    
    $
    10,213
    
    
    $
    2,454
    
    
    $
    5,082
    
    
    $
    19,306
 For discussion of Federal Home Loan Bank
advances and junior subordinated debt, see Note 8, Federal Funds Purchased,
Advances from Federal Home Loan Bank (FHLB) and Junior Subordinated Debt to
the Consolidated Financial Statements contained in the Companys Annual Report
on Form 10-K as of December 31, 2003. 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 provided by the
available-for-sale securities portfolio. Approximately 6 percent of the
investment balances within this portfolio mature within one year. Liquidity is
further enhanced by deposit growth, federal funds purchased and securities sold
under agreements to repurchase, borrowings, and planned cash flows, maturities
and sales of investments and loans. The consolidated statement of cash flows contained in this report provides
information on the sources and uses of cash for the respective year-to-date
periods ended September 30, 2004 and 2003. See the Companys Annual Report on
Form 10-K filed with the SEC for the year ended December 31, 2003 for
additional information. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There were no material changes in information about market risk from that
provided in the Companys Annual Report on Form 10-K for the year ended
December 31, 2003. The latest available analysis of the potential impact of
rate on net interest income is indicated in the tables below. Net interest income analysis as of September 30, 2004: Rate changes in basis points (bp) = 1/100 of 1%. ANNUALIZED DOLLAR CHANGEIMMEDIATE RATE CHANGE
    
    IN NET INTEREST INCOME
    
    PERCENT CHANGE+100bp
    
    
    277
    
    
    
    3.05+ 50bp
    
    
    139
    
    
    
    1.53- 50bp
    
    
    (199
    )
    
    
    (2.20
    )-100bp
    
    
    (399
    )
    
    
    (4.39
    )
 - 19 -




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##### Table of Contents



The table above indicates that the estimated effect of an immediate 100 basis
point increase in interest rates would increase the Companys net interest
income by an estimated 3.05 percent or approximately $277,000. An immediate
100 basis point decrease in rates indicates a potential reduction of net
interest income by 4.39 percent or approximately $399,000. 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. 
 ITEM 4. CONTROLS AND PROCEDURES An evaluation was performed under the supervision and with the participation of
the Companys management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures (as defined in Rule 13a-15(e)
promulgated under the Securities and Exchange Act of 1934, as amended) as of
September 30, 2004. 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. 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; challenges the Company may experience in retaining or
replacing key executives or employees in an effective manner; 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 business combinations and the integration of
acquired businesses which may be more difficult or expensive than expected, or
slower than expected earning assets growth which could extend anticipated
breakeven periods relating to such strategic expansion; 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. - 20 -




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PART II  OTHER INFORMATION 
 ITEM 1. 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 conditions or results of operations of the Company. 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES None 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES None 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 
 ITEM 5. OTHER INFORMATION None 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 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 (b) Reports on Form 8-K The followingForm 8-Kwas filed with the SEC during the third quarter
2004: 1. Bancorp filed a Current Report on Form 8-K with the SEC on July 26,
2004, announcing a cash dividend on its common stock. A copy of the July 26,
2004 press release issued by Bancorp was attached to that form as Exhibit 99.1. The following additional Forms 8-K were furnished to the SEC during the
third quarter 2004: 1. Bancorp furnished a Current Report on Form 8-K with the SEC on July 30,
2004, announcing financial results for the second quarter ended June 30, 2004.
A copy of the July 30, 2004 press release issued by Bancorp was attached to
that form as Exhibit 99.1. 2. Bancorp furnished a Current Report on Form 8-K with the SEC on August
20, 2004, furnishing copies of the presidents letter to shareholders regarding
results for the quarter ended June 30, 2004. Copies of the presidents letter
and unaudited consolidated statements of income and balance sheets were
attached to that form as Exhibits 99.1, 99.2 and 99.3, respectively. - 21 -




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3. Bancorp furnished a Current Report on Form 8-K with the SEC on August
23, 2004 furnishing a copy of a press release announcing the opening of a new
branch office of its subsidiary, EvergreenBank. A copy of the press release
issued by Bancorp was attached to that form as Exhibit 99.1. 
 SIGNATURES Under the requirements of the Securities Exchange Act of 1934, the Company has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized. Dated: November 12, 2004 EVERGREENBANCORP, INC. /s/ William G. Filer II    - 22 -