##### 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 March 31, 2005 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 þ 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 þ 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 May 10, 2005: 1,496,989 shares
No Preferred Stock was issued or outstanding.




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PART IFINANCIAL INFORMATIONItem 1. Unaudited Consolidated Financial Statements.Unaudited Consolidated Balance Sheets  March 31, 2005 and December 31, 2004.Unaudited Consolidated Statements of Income  For the three months ended March 31,
2005 and 2004.Unaudited Consolidated Statements of Stockholders Equity  For the three months
ended March 31, 2005 and 2004.Unaudited Consolidated Statements of Comprehensive Income  For the three months
ended March 31, 2005 and 2004.Unaudited Consolidated Statements of Cash Flows  For the three months ended March
31, 2005 and 2004.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 Disclosure About Market Risk.Item 4. Controls and Procedures.PART IIOTHER 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.EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 10.3EXHIBIT 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. 
    March 31,
    
    
    December 31,2005
    
    
    2004AssetsCash and due from banks
    
    $
    8,367
    
    
    $
    9,407Federal funds sold
    
    
    7,496
    
    
    
    2,736Interest-bearing deposits in financial institutions
    
    
    
    
    
    
    2Cash and cash equivalents
    
    
    15,863
    
    
    
    12,145Securities available-for-sale
    
    
    34,602
    
    
    
    35,170Loans
    
    
    156,495
    
    
    
    159,656Allowance for loan losses
    
    
    (1,848
    )
    
    
    (1,887
    )Net loans
    
    
    154,647
    
    
    
    157,769Premises and equipment
    
    
    2,445
    
    
    
    2,576Accrued interest and other assets
    
    
    2,152
    
    
    
    1,970Total assets
    
    $
    209,709
    
    
    $
    209,630LiabilitiesDepositsNoninterest-bearing
    
    $
    48,412
    
    
    $
    54,193Interest-bearing
    
    
    126,419
    
    
    
    119,608Total deposits
    
    
    174,831
    
    
    
    173,801Federal Home Loan Bank advances
    
    
    10,351
    
    
    
    11,067Accrued expenses and other liabilities
    
    
    2,030
    
    
    
    2,277Junior subordinated debt
    
    
    5,000
    
    
    
    5,000Total liabilities
    
    
    192,212
    
    
    
    192,145Stockholders equityPreferred stock; no par value; 100,000 shares authorized; none
issued
    
    
    
    
    
    
    Common stock and surplus; no par value; 15,000,000 shares
authorized; 1,496,071 shares issued at March 31, 2005; 1,494,321
shares at issued at December 31, 2004
    
    
    15,948
    
    
    
    15,927Retained earnings
    
    
    1,864
    
    
    
    1,678Accumulated other comprehensive loss
    
    
    (315
    )
    
    
    (120
    )Total stockholders equity
    
    
    17,497
    
    
    
    17,485Total liabilities and stockholders equity
    
    $
    209,709
    
    
    $
    209,630
 See accompanying notes to unaudited consolidated financial statements. - 3 -




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EVERGREENBANCORP, INC. 
    March 31,
    
    
    March 31,2005
    
    
    2004Interest incomeLoans, including fees
    
    $
    2,878
    
    
    $
    2,436Taxable securities
    
    
    251
    
    
    
    263Tax exempt securities
    
    
    26
    
    
    
    22Federal funds sold and other
    
    
    24
    
    
    
    4Total interest income
    
    
    3,179
    
    
    
    2,725Interest expenseDeposits
    
    
    519
    
    
    
    323Federal funds purchased
    
    
    4
    
    
    
    3Federal Home Loan Bank advances
    
    
    119
    
    
    
    147Junior subordinated debt
    
    
    76
    
    
    
    59Total interest expense
    
    
    718
    
    
    
    532Net interest income
    
    
    2,461
    
    
    
    2,193Provision for loan losses
    
    
    81
    
    
    
    60Net interest income after provision for loan losses
    
    
    2,380
    
    
    
    2,133Noninterest incomeService charges on deposit accounts
    
    
    322
    
    
    
    317Merchant credit card processing
    
    
    39
    
    
    
    45Gain on sales of securities available-for-sale
    
    
    
    
    
    
    15Other commissions and fees
    
    
    26
    
    
    
    39Other noninterest income
    
    
    41
    
    
    
    33Total noninterest income
    
    
    428
    
    
    
    449Noninterest expenseSalaries and employee benefits
    
    
    1,134
    
    
    
    1,052Occupancy and equipment
    
    
    390
    
    
    
    331Data processing
    
    
    189
    
    
    
    178Marketing
    
    
    94
    
    
    
    58Loss on other real estate owned
    
    
    
    
    
    
    132Other noninterest expense
    
    
    555
    
    
    
    406Total noninterest expense
    
    
    2,362
    
    
    
    2,157Income before income taxes
    
    
    446
    
    
    
    425Income tax expense
    
    
    147
    
    
    
    139Net income
    
    $
    299
    
    
    $
    286Basic earnings per share
    
    $
    0.20
    
    
    $
    0.19Diluted earnings per share
    
    $
    0.20
    
    
    $
    0.19
 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/(loss)
    
    
    equityBalance at January 1, 2004
    
    
    1,190,366
    
    
    $
    15,854
    
    
    $
    778
    
    
    $
    (49
    )
    
    $
    16,583Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    286
    
    
    
    
    
    
    
    286Change in net unrealized gain
(loss) on securities available
for sale, net of reclassification
and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132
    
    
    
    132Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    418Cash dividends ($.064 per share)
    
    
    
    
    
    
    
    
    
    
    (96
    )
    
    
    
    
    
    
    (96
    )Exercise of stock options
    
    
    1,960
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    23Tax benefit from stock related
compensation
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5Balance at March 31, 2004
    
    
    1,192,326
    
    
    $
    15,882
    
    
    $
    968
    
    
    $
    83
    
    
    $
    16,933
 AccumulatedCommon
    
    
    
    
    
    
    otherCommon
    
    
    stock
    
    
    
    
    
    
    comprehen-
    
    
    Total stock-stock
    
    
    and
    
    
    Retained
    
    
    sive
    
    
    holdersshares
    
    
    surplus
    
    
    earnings
    
    
    income/(loss)
    
    
    equityBalance at January 1, 2005
    
    
    1,494,321
    
    
    $
    15,927
    
    
    $
    1,678
    
    
    $
    (120
    )
    
    $
    17,485Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    299
    
    
    
    
    
    
    
    299Change in net unrealized gain
(loss) on securities available for
sale, net of reclassification and
tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (195
    )
    
    
    (195
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104Cash dividends ($.075 per share)
    
    
    
    
    
    
    
    
    
    
    (113
    )
    
    
    
    
    
    
    (113
    )Exercise of stock options
    
    
    1,750
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    16Tax benefit from stock related
compensation
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5Balance at March 31, 2005
    
    
    1,496,071
    
    
    $
    15,948
    
    
    $
    1,864
    
    
    $
    (315
    )
    
    $
    17,497
 See accompanying notes to
unaudited consolidated financial statements - 5 -




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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: March 31,
    
    
    March 31,2005
    
    
    2004Net income
    
    $
    299
    
    
    $
    286Other comprehensive income:Change in unrealized gain (loss) on securities
available for sale
    
    
    (295
    )
    
    
    202Reclassification adjustment for gains included
in net income
    
    
    
    
    
    
    (15
    )Net unrealized gains (losses)
    
    
    (295
    )
    
    
    187Tax effect
    
    
    100
    
    
    
    (55
    )Total other comprehensive income (loss)
    
    
    (195
    )
    
    
    132Total comprehensive income
    
    $
    104
    
    
    $
    418
 See accompanying notes to
unaudited consolidated financial statements - 6 -




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EVERGREENBANCORP, INC. 
    March 31,
    
    
    March 31,2005
    
    
    2004Cash flows from operating activitiesNet income
    
    $
    299
    
    
    $
    286Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    182
    
    
    
    117Provision for loan losses
    
    
    81
    
    
    
    60Gain from sales of securities
    
    
    
    
    
    
    (15
    )Write-down of other real estate owned
    
    
    
    
    
    
    132Amortization of premiums and discounts on securities
    
    
    15
    
    
    
    14Federal Home Loan Bank stock dividends
    
    
    (6
    )
    
    
    (14
    )Dividends reinvested
    
    
    (108
    )
    
    
    (81
    )Other changes, net
    
    
    (324
    )
    
    
    122Net cash provided by operating activities
    
    
    139
    
    
    

    621Cash flows from investing activitiesProceeds from sales, maturities and principal payments on securities
available for sale
    
    
    372
    
    
    
    2,515Net (increase) decrease in loans
    
    
    3,041
    
    
    
    (44
    )Purchases of premises and equipment
    
    
    (51
    )
    
    
    Proceeds from calls and prepayments of securities
available-for-sale
    
    
    
    
    
    
    1,471Net cash provided by investing activities
    
    
    3,362
    
    
    
    3,942Cash flows from financing activitiesNet increase in deposits
    
    
    1,030
    
    
    
    3,400Net increase (decrease) in federal funds purchased
    
    
    
    
    
    
    (336
    )Repayment of Federal Home Loan Bank advances
    
    
    (716
    )
    
    
    (1,816
    )Proceeds from exercise of stock options
    
    
    16
    
    
    
    23Dividends paid
    
    
    (113
    )
    
    
    (96
    )Net cash provided by financing activities
    
    
    217
    
    
    
    1,175Net increase in cash and cash equivalents
    
    
    3,718
    
    
    
    5,738Cash and cash equivalents at beginning of year
    
    
    12,145
    
    
    
    10,625Cash and cash equivalents at end of year
    
    $
    15,863
    
    
    $
    16,363
 See accompanying notes to unaudited consolidated financial statements - 7 -




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EVERGREENBANCORP, INC. 
 NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL INFORMATION
 Note 1: Summary of Significant Accounting Policies Organization.EvergreenBancorp, Inc. (Bancorp) was formed February 9, 2001 and is a
Washington corporation chartered as a bank holding company. Bancorp holds all of the issued and
outstanding shares of EvergreenBank (the Bank). EvergreenBancorp Capital Trust I (the Trust)
had previously been consolidated with the Company and is now reported separately. The consolidated
entities are collectively referred to as the Company. The Bank is a Washington state chartered
financial institution established in 1971 that engages in general commercial and consumer banking
operations. Deposits in the Bank are insured by the Federal Deposit Insurance Corporation (the
FDIC). The Bank offers a broad spectrum of personal and business banking services, including
commercial, consumer, and real estate lending. The Banks offices are centered in the Puget Sound
region in the Seattle, Lynnwood, Bellevue, and Federal Way communities. Operating Segments. While the Companys management monitors the revenue streams of the
various products and services, operations are managed and financial performance is evaluated on a
Company-wide basis. Accordingly, all of the Companys banking operations are considered by
management to be aggregated in one reportable segment. Holding Company Information.The Bank became a wholly owned subsidiary of the Bancorp on June
20, 2001 in accordance with the Plan and Agreement of Reorganization and Merger dated February 14,
2001,which provided that each share of the Banks common stock be exchanged for an equal number of
shares of the common stock of the Bancorp. This was treated as an internal reorganization;
accordingly, the capital accounts of the Bank as of June 20, 2001 were carried forward, without
change, as the capital accounts of the Bancorp. Principles of consolidation.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 U.S. generally accepted accounting principles requires management to make
judgments, estimates and assumptions that affect the reported amounts of assets and liabilities,
including contingent amounts, at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those
estimates. Management has identified certain policies as being particularly sensitive in terms of
judgments and the extent to which estimates are used. 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 the
Companys Annual Report on Form 10-K for the year ended December 31, 2004. 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.FAS 123R requires all public companies to record
compensation costs for stock options provided to employees in return for employee service. The
cost is measured at the fair value of the options when granted, and this cost is expensed over the
employee service period, which is normally the vesting period of the options. This will apply to
awards granted or modified after the first fiscal year beginning after June 15, 2005. Compensation
cost will also be recorded for prior - 8 -




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option grants that vest after the date of adoption. The effect
on results of operations will depend on the
level of future option grants and the calculation of the fair value of the options granted at
such future date, as well as the vesting periods provided, and so cannot currently be predicted.
Existing options that will vest after adoption date are expected to result in additional
compensation expense of approximately $59,000 in 2006, $34,000 in 2007, $19,000 in 2008, and
$12,000 in 2009. There will be no significant effect on the
Companys financial position as total equity will not change;
the effect on results of operations is not expected to be material
upon and after adoption. Stock-Based Compensation.Employee compensation expense under stock options is reported using
the intrinsic value method. No stock-based compensation cost is reflected in net income, as all
options granted had an exercise price equal to or greater than the market price of the underlying
common stock at date of grant. The following table illustrates the effect on net income and
earnings per share if expense was measured using the fair value recognition provisions of Statement
of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation.
Certain adjustments were made to the pro forma calculations in prior years to be consistent with
the current year presentation. Earnings and dividends per share are restated for all stock splits
and dividends through the date of issue of the financial statements. Three months
    
    
    Three monthsended
    
    
    endedMarch 31,
    
    
    March 31,(in thousands, except per share data)
    
    2005
    
    
    2004Net income as reported
    
    $
    299
    
    
    $
    286Deduct: Stock-based compensation
expense determined under fair value
based method
    
    
    9
    
    
    
    12Pro forma net income
    
    $
    290
    
    
    $
    274Basic earnings per share as reported
    
    $
    0.20
    
    
    $
    0.19Pro forma basic earnings per share
    
    $
    0.19
    
    
    $
    0.18Diluted earnings per share as reported
    
    $
    0.20
    
    
    $
    0.19Pro forma diluted earnings per share
    
    $
    0.19
    
    
    $
    0.18
 The weighted average fair value of individual options granted during the first quarter 2005
was $3.41. There were no options granted in the first quarter of 2004. The pro forma effects are
computed using option pricing models, using the following weighted-average assumptions as of grant
date. 2005Risk-free interest rate
    
    
    3.73
    %Expected option life
    
    7.5 yearsExpected stock price volatility
    
    
    16
    %Dividend yield
    
    
    1.8
    %
 Note 2: Stock split On November 30, 2004, the Company effected a five-for-four stock split. All references to number
of shares issued and outstanding (basic and diluted) and earnings per share, for the periods
presented have been restated as if the stock dividend had actually occurred on January 1, 2004. - 9 -




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Note 3: Stock options During the first quarter of 2005, 2,000 stock options were granted and there were 1,750 options
exercised. The total stock options outstanding were 143,830 at March 31, 2005 with exercise prices
ranging between
$9.12 and $16.50 and expiration dates between October 23, 2010 and January 20, 2015. All options
are granted at market value as of date of grant. Note 4: Securities available for sale Investment securities available for sale include $6,908,000 in mortgage-backed securities at March
31, 2005. 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 $14,894,000 at March 31,
2005. Note 5: 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 2004 five-for-four stock split. 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. (in thousands, except share and per share data): Three months ended March 31,2005
    
    
    2004Income (numerator):Net income
    
    $
    299
    
    
    $
    286Income (denominator):Weighted average number of common
stock shares outstanding  basic
    
    
    1,495,993
    
    
    
    1,489,873Dilutive effect of outstanding employee
and director stock options
    
    
    33,660
    
    
    
    25,390Weighted average number of common
stock shares outstanding and
assumed conversion  diluted
    
    
    1,529,653
    
    
    
    1,515,263Basic earnings per share of common stock
    
    $
    0.20
    
    
    $
    0.19Diluted earnings per share of common stock
    
    $
    0.20
    
    
    $
    0.19
 Note 6: Retirement Benefits The Company participates in a defined contribution retirement plan. The 401(k) plan permits all
salaried employees to contribute up to a maximum of 15% of gross salary per month. For the first
6%, the Company contributes two dollars for each dollar the employee contributes. Partial vesting
of Company contributions to the plan begins at 20% after two years of employment, and such
contributions are 100% vested with five years of employment. The Companys contributions to the
plan for the quarters ended March 31, 2005 and 2004 were $74,000 and $72,000, respectively. The Company also participates in multiple-employer defined benefit postretirement health care plans
that provide medical and dental coverage to directors and surviving spouses and to employees who
retire after - 10 -




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age 62 and 15 years of full-time service and their dependents. The medical and dental
plans are noncontributory and nonfunded. Components of net periodic benefit cost Three Months EndedMarch 31,(in thousands)
    
    2005
    
    
    2004Service cost
    
    $
    22
    
    
    $
    23Interest cost
    
    
    23
    
    
    
    22Amortization of transition obligation
    
    
    10
    
    
    
    10Recognized actuarial (gain) loss
    
    
    0
    
    
    
    0Net periodic benefit cost
    
    $
    55
    
    
    $
    55
 
 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, data processing 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 and real estate values. Results are also affected by
monetary and fiscal policies of federal agencies, and actions of regulatory and taxing authorities. The following discussion contains a review of the consolidated operating results and financial
condition of the Company for the first quarter of 2005. 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 2004 and to
the previous year ended December 31, 2004. 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, 2004. RESULTS OF OPERATIONS Net Income Three months ended March 31, 2005 and 2004 For the first quarter of 2005, the Company reported net income of $299,000 compared to $286,000 for
the first quarter of 2004, an increase of 4.55 percent. The main reason for the increase in
profits was higher net interest income due to growth in loans, substantially offset by growth in
operating expenses. Basic and diluted earnings per common share were $0.20 for the first quarter of 2005, compared to
$0.19 for the same period one year ago. For the first quarter of 2005, return on average common equity and return on average assets was
6.84 percent and 0.58 percent respectively, compared to 6.79 percent and 0.60 percent respectively
for the same period one year ago. Additional analysis of financial components is contained in the discussion that follows. Unless
otherwise stated, comparisons are between the first quarter 2005 and 2004. - 11 -




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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. Net interest income before the provision for loan losses was $2,461,000 for the first quarter of
2005, compared to $2,193,000 for the same period in 2004, an increase of 12.22 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 5.15 percent for the first three months of 2005 compared to 5.04 percent for
the same period one year ago. The weighted average yield on interest earning assets was 6.65
percent for the first three months of 2005, an increase of 6.07 percent, compared to 6.26 percent
in the first quarter of 2004. Interest expense as a percentage of average earning assets was 1.49
percent for the first three months of 2005, an increase of 22.13 percent compared to 1.22 percent
in the first quarter of 2004. Interest income for the three months ended March 31, 2005 was $3,179,000 compared to $2,725,000 for
the three months ended March 31, 2004, an increase of $454,000 or 16.66 percent. This was
primarily attributable to an 18.14 percent growth in average loan balances, and partially due to
higher yields on loans. Interest expense for the three months ended March 31, 2005 was $717,000 compared to $532,000 for
the three months ended March 31, 2004, an increase of $185,000 or 34.77 percent. The increase was
primarily due to an increase in the average rate paid on interest-bearing liabilities, and an
increase in the average balance of interest-bearing liabilities of $8,819,000. Noninterest Income/Expense Noninterest income in the first quarter of 2005 was $429,000 compared to $449,000 in the same
quarter of 2004, a decrease of $20,000 or 4.45 percent. The decrease was primarily attributable to
a reduction of $15,000 in gains on sales of securities. Noninterest expense was $2,362,000 in the first quarter of 2005, compared to $2,157,000 in the same
quarter of 2004, an increase of $206,000, or 9.50 percent. The increase was primarily due to an
increase in salaries and benefits expense and occupancy and equipment costs, both largely resulting
from branch network expansions. Other noninterest expense increased due to higher state and local
taxes, and increased accounting and audit expense. 2004 noninterest expense included a write-down
of $132,000 in the value of other real estate owned, which offset these other expenses. Income tax expense The Company recognized income tax expense of $147,000 during the first quarter of 2005, up from
$139,000 in the same quarter of 2004, an increase of 5.76 percent or $8,000. The effective income
tax rate has remained consistent, approximately 33 percent, for each period reported. Provision and Allowance for Loan Losses The provision for loan losses for the three months ended March 31, 2005 was $81,000 compared to
$60,000 for the same period of 2004. This increase in the provision resulted largely from
increased net loan loss experience. - 12 -




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##### Table of Contents



At March 31, 2005, the allowance for loan losses was $1,848,000 compared to $1,887,000 at December
31, 2004. The ratio of the allowance to total loans outstanding was 1.18 percent at March 31, 2005
and at December 31, 2004. Management evaluates the adequacy of the allowance for loan losses on a quarterly basis after
consideration of a number of factors, including the volume and composition of the loan portfolio,
potential impairment of individual loans, concentrations of credit, past loss experience, current
delinquencies, information about specific borrowers, current economic conditions, and other
factors. Although management believes the allowance for loan losses was at a level adequate to
absorb probable incurred losses on existing loans at March 31, 2005, 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 March 31, 2005, loans totaled $156,495,000 compared to $159,656,000 at December 31, 2004, a
decrease of $3,161,000 or 1.98 percent. At March 31, 2005, the Bank had $74,800,000 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 March 31, 2005 and December
31, 2004: Types of Loans March 31,
    
    
    December 31,(in thousands)
    
    2005
    
    
    2004Commercial
    
    $
    51,511
    
    
    $
    55,563Real estate:Commercial
    
    
    72,644
    
    
    
    67,165Construction
    
    
    7,312
    
    
    
    11,538Residential 1-4 family
    
    
    10,958
    
    
    
    11,508Consumer and other
    
    
    14,070
    
    
    
    13,882Total
    
    $
    156,495
    
    
    $
    159,656
 - 13 -




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##### Table of Contents



Allocation of the Allowance for Loan Losses In the following table, the allowance for loan losses at March 31, 2005 and December 31, 2004 has
been allocated among major loan categories based on a number of factors including quality, volume,
current economic outlook and other business considerations. March 31,
    
    
    % of loans in
    
    
    December 31,
    
    
    % of loans in2005
    
    
    each category
    
    
    2004
    
    
    each category(in thousands)
    
    Amount
    
    
    to Total Loans
    
    
    Amount
    
    
    to Total LoansCommercial
    
    $
    877
    
    
    
    33
    %
    
    $
    1,000
    
    
    
    35
    %Real estate:Commercial
    
    
    667
    
    
    
    46
    
    
    
    568
    
    
    
    42Construction
    
    
    74
    
    
    
    5
    
    
    
    117
    
    
    
    7Residential 1-4 family
    
    
    22
    
    
    
    7
    
    
    
    11
    
    
    
    7Consumer and other
    
    
    208
    
    
    
    9
    
    
    
    191
    
    
    
    9Total
    
    $
    1,848
    
    
    
    100
    %
    
    $
    1,887
    
    
    
    100
    %% of Loan portfolio
    
    
    1.18
    %
    
    
    
    
    
    
    1.18
    %
 This 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. 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. Three months ended
    
    
    Three months ended(in thousands)
    
    March 31, 2005
    
    
    March 31, 2004Beginning Balance
    
    $
    1,887
    
    
    $
    1,636Chargeoffs:Commercial
    
    
    115
    
    
    
    0Real estate:Commercial
    
    
    0
    
    
    
    0Construction
    
    
    0
    
    
    
    0Residential 1-4 family
    
    
    0
    
    
    
    0Consumer and other
    
    
    8
    
    
    
    35Total chargeoffs
    
    
    123
    
    
    
    35Recoveries:Commercial
    
    
    2
    
    
    
    2Real estate:Commercial
    
    
    0
    
    
    
    0Construction
    
    
    0
    
    
    
    0Residential 1-4 family
    
    
    0
    
    
    
    0Consumer and other
    
    
    1
    
    
    
    1Total Recoveries
    
    
    3
    
    
    
    3Net chargeoffs/(recoveries)
    
    
    120
    
    
    
    32Provision
    
    
    81
    
    
    
    60Ending balance
    
    $
    1,848
    
    
    $
    1,664
 - 14 -




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##### Table of Contents



Investments At March 31, 2005, investments totaled $34,602,000, a decrease of $568,000 or 1.62 percent from
$35,170,000 at December 31, 2004. The decrease in investments was primarily due to maturities and
principal payments on securities available-for-sale, as well as
decrease in fair value. Deposits At March 31, 2005, total deposits were $174,831,000, compared to $173,801,000 at December 31, 2004.
This represents a 0.59 percent increase from December 31, 2004. Non-interest bearing deposits
totaled $48,412,000 at March 31, 2005 compared to $54,193,000 at December 31, 2004, a decrease of
$5,781,000 or 10.67 percent. Interest bearing deposits totaled $126,419,000 at March 31, 2005,
compared to $119,608,000 at December 31, 2004, an increase of $6,811,000 or 5.69 percent. Borrowings At March 31, 2005, the Banks Federal Home Loan Bank borrowings were $10,351,000 compared to
$11,067,000 at December 31, 2004. This represents a 6.47 percent decrease from December 31, 2004
and is due to regular repayment of maturing and amortizing advances. Due to increased liquidity,
these advances were not replaced. Stockholders Equity and Capital Resources Stockholders equity totaled $17,497,000 at March 31, 2005, an increase of $12,000 or 0.07 percent
from December 31, 2004. Current earnings were $299,000 and dividends paid were $113,000 for the
three months ended March 31, 2005. The change in unrealized losses on securities
available-for-sale, net of deferred taxes, also reduced total stockholders equity by $195,000. Book value per share was $11.70 at March 31, 2005 and December 31, 2004. Book value per share is
calculated by dividing total equity by total shares outstanding. The following tables display the capital ratios at March 31, 2005 and December 31, 2004 for the
Company and the Bank. As the tables illustrate, the capital ratios exceed those required to be
considered well-capitalized. Minimum to BeWell CapitalizedMinimum
    
    
    
    
    
    
    Under thefor
    
    
    
    
    
    
    PromptCapital
    
    
    
    
    
    
    CorrectiveAdequacy
    
    
    
    
    
    
    ActionActual
    
    
    
    
    
    
    Purposes
    
    
    
    
    
    
    ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioMarch 31, 2005Total Capital
(to risk-weighted assets)Consolidated
    
    $
    24,508
    
    
    
    14.42
    %
    
    $
    13,599
    
    
    
    8.00
    
    
    $
    16,999
    
    
    
    10.00
    %Bank
    
    
    24,054
    
    
    
    14.15
    
    
    
    13,596
    
    
    
    8.00
    
    
    
    16,996
    
    
    
    10.00Tier 1 Capital
(to risk-weighted assets)Consolidated
    
    
    22,660
    
    
    
    13.33
    
    
    
    6,799
    
    
    
    4.00
    
    
    
    10,199
    
    
    
    6.00Bank
    
    
    22,206
    
    
    
    13.07
    
    
    
    6,798
    
    
    
    4.00
    
    
    
    10,197
    
    
    
    6.00Tier 1 Capital
(to average assets)Consolidated
    
    
    22,660
    
    
    
    11.09
    
    
    
    8,175
    
    
    
    4.00
    
    
    
    10,219
    
    
    
    5.00Bank
    
    
    22,206
    
    
    
    10.87
    
    
    
    8,175
    
    
    
    4.00
    
    
    
    10,219
    
    
    
    5.00
 - 15 -




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##### Table of Contents



Minimum to BeWell CapitalizedMinimum
    
    
    
    
    
    
    Under thefor
    
    
    
    
    
    
    PromptCapital
    
    
    
    
    
    
    CorrectiveAdequacy
    
    
    
    
    
    
    ActionActual
    
    
    
    
    
    
    Purposes
    
    
    
    
    
    
    ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioDecember 31, 2004Total Capital
(to risk-weighted assets)Consolidated
    
    $
    24,305
    
    
    
    14.03
    %
    
    $
    13,826
    
    
    
    8.00
    %
    
    $
    17,282
    
    
    
    10.00
    %Bank
    
    
    23,651
    
    
    
    13.71
    
    
    
    13,805
    
    
    
    8.00
    
    
    
    17,256
    
    
    
    10.00Tier 1 Capital
(to risk-weighted assets)Consolidated
    
    
    22,419
    
    
    
    12.94
    
    
    
    6,913
    
    
    
    4.00
    
    
    
    10,369
    
    
    
    6.00Bank
    
    
    21,764
    
    
    
    12.61
    
    
    
    6,902
    
    
    
    4.00
    
    
    
    10,354
    
    
    
    6.00Tier 1 Capital
(to average assets)Consolidated
    
    
    22,419
    
    
    
    11.07
    
    
    
    8,083
    
    
    
    4.00
    
    
    
    10,104
    
    
    
    5.00Bank
    
    
    21,764
    
    
    
    10.77
    
    
    
    8,083
    
    
    
    4.00
    
    
    
    10,104
    
    
    
    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 March 31, 2005, the Company had commitments to extend credit and contingent liabilities under
lines of credit, standby letters of credit and similar arrangements totaling $44,642,000. 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, 2004. The following table summarizes the Companys significant contractual obligations and commitments at
March 31, 2005: AfterWithin(in thousands)
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years
    
    
    TotalFederal Home Loan Bank
advances
    
    $
    3,054
    
    
    $
    5,111
    
    
    $
    2,186
    
    
    $
    0
    
    
    $
    10,351Junior subordinated debt
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    5,000
    
    
    
    5,000Operating leases
    
    
    566
    
    
    
    1,635
    
    
    
    702
    
    
    
    1,113
    
    
    
    4,016Purchase Obligations
    
    
    65
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    65Total
    
    $
    3,685
    
    
    $
    6,746
    
    
    $
    2,888
    
    
    $
    6,113
    
    
    $
    19,432
 Purchase obligations are primarily contracts with vendors to provide services, such as information
processing, and commitments related to the construction of a new office located in downtown
Seattle. For discussion of Federal Home Loan Bank advances and junior subordinated debt, see Note
8, Federal Funds - 16 -




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##### Table of Contents



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, 2004. 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 six 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 March 31, 2005 and 2004. See
the Companys Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2004
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, 2004. 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 March 31, 2005: Rate changes in basis points (bp) = 1/100 of 1%. ANNUALIZED DOLLAR CHANGEIMMEDIATE RATE CHANGE
    
    IN NET INTEREST INCOME
    
    
    PERCENT CHANGE+100bp
    
    
    326
    
    
    
    3.10+ 50bp
    
    
    163
    
    
    
    1.55- 50bp
    
    
    (177)
    
    
    
    (1.68)-100bp
    
    
    (353)
    
    
    
    (3.36)
 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 3.10 percent or
approximately $326,000. An immediate 100 basis point decrease in rates indicates a potential
reduction of net interest income by 3.36 percent or approximately $353,000. 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. - 17 -




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##### Table of Contents



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 March 31,
2005. 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. - 18 -




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##### Table of Contents



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 AND USE OF PROCEEDS None 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES None 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 
 ITEM 5. OTHER INFORMATION The following items occurred
or were effective during the reporting period covered under this
Form 10-Q:  5.1
    Registrants wholly-owned subsidiary, EvergreenBank, entered into a Cost Sharing
Agreement with PEMCO Mutual Insurance Company (PMIC) effective January 1, 2005. This
agreement defines services that are provided to EvergreenBank by PMIC and provides for
PMICs recovery of incurred expenses relating to those services. A copy of the Cost
Sharing Agreement is included as an exhibit to this report.5.2
    The Board of Directors of Registrants wholly-owned subsidiary, EvergreenBank,
adopted resolutions to discontinue the Banks participation in the PEMCO Executive
Deferred Compensation Plan and the PEMCO Directors Deferred Compensation Plan,
effective January 1, 2005. Copies of each plan were included as exhibits to
Registrants Form 10-K for the year ended December 31, 2001. 
 ITEM 6. EXHIBITS (a) Exhibits Exhibit 10.1 Cost Sharing Agreement between EvergreenBank and PEMCO Mutual Insurance Company
(effective January 1, 2005). Exhibit 10.2 Loan documentation for a $5 million credit facility Registrant entered into on
January 12, 2005 with Key Bank National Association as previously reported on Form 8-K, filed
January 18, 2005. Exhibit 10.3 Lease Agreement entered into on January 17, 2005 between Registrant and
EOP-Northwest Properties, L.L.C. for commercial office space located at 1111 Third Avenue,
Seattle, Washington as previously reported on Form 8-K, filed January 20, 2005. - 19 -




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##### Table of Contents



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 
 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: May 11, 2005 EVERGREENBANCORP, INC. /s/ William G. Filer IIWilliam G. Filer II
Senior Vice President and Chief Financial Officer
(Authorized Officer and Principal Financial Officer)
 - 20 -