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SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549
 FORM 10-Q x
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the quarterly period ended March 31, 2004o
    
    Transition Report Under Section 13 or 15(d) of the Exchange ActFor the transition period from  to
 Commission File No. 000-32915 EVERGREENBANCORP, INC.  WASHINGTON
    
    91-2097262(State or Other Jurisdiction of
Incorporation or Organization)
    
    (I.R.S. Employer
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 May 10, 2004: 1,192,326 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, 2004 and December 31, 2003.Unaudited Consolidated Statements of Income and Comprehensive Income- For the three
months ended March 31, 2004 and 2003.Unaudited Consolidated Statements of Shareholders Equity  For the three months
ended March 31, 2004 and 2003.Unaudited Consolidated Statements of Cash Flows  For the three months ended March
31, 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.
    
    Changes in 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. 
    March 31,
    
    December 31,2004
    
    2003AssetsCash and cash equivalentsCash and due from banks
    
    $
    6,617
    
    
    $
    9,701Federal funds sold
    
    
    9,746
    
    
    
    924Total cash and cash equivalents
    
    
    16,363
    
    
    
    10,625Securities available for sale
    
    
    36,130
    
    
    
    39,818LoansLoans
    
    
    138,480
    
    
    
    138,468Allowance for loan losses
    
    
    (1,664
    )
    
    
    (1,636
    )Net loans
    
    
    136,816
    
    
    
    136,832Premises and equipment
    
    
    2,352
    
    
    
    2,469Other real estate owned
    
    
    2,527
    
    
    
    2,659Accrued interest and other assets
    
    
    1,963
    
    
    
    2,153Total assets
    
    $
    196,151
    
    
    $
    194,556LiabilitiesDepositsNoninterest bearing
    
    $
    46,156
    
    
    $
    47,132Interest bearing
    
    
    109,927
    
    
    
    105,551Total deposits
    
    
    156,083
    
    
    
    152,683Federal funds purchased
    
    
    2,761
    
    
    
    3,097Advances from Federal Home Loan Bank
    
    
    13,565
    
    
    
    15,381Accrued expenses and other liabilities
    
    
    1,809
    
    
    
    1,812Junior subordinated debt
    
    
    5,000
    
    
    
    5,000Total liabilities
    
    
    179,218
    
    
    
    177,973Stockholders equityPreferred stock:No par value; 100,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock and surplus:No par value; 15,000,000 shares authorized;
1,192,326 shares issued at March 31, 2004;
1,190,366 shares at December 31, 2003
    
    
    15,882
    
    
    
    15,854Retained earnings
    
    
    968
    
    
    
    778Accumulated other comprehensive income (loss)
    
    
    83
    
    
    
    (49
    )Total stockholders equity
    
    
    16,933
    
    
    
    16,583Total liabilities and stockholders equity
    
    $
    196,151
    
    
    $
    194,556
 See accompanying notes to unaudited consolidated financial statements. - 3 -




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EVERGREENBANCORP, INC. 
    2004
    
    2003Interest incomeLoans, including fees
    
    $
    2,436
    
    
    $
    2,347Federal funds sold and other
    
    
    4
    
    
    
    37Securities available for sale
    
    
    285
    
    
    
    226Total interest income
    
    
    2,725
    
    
    
    2,610Interest expenseDeposits
    
    
    323
    
    
    
    385Federal funds purchased
    
    
    3
    
    
    
    8Advances from Federal Home Loan Bank
    
    
    147
    
    
    
    133Junior subordinated debt
    
    
    59
    
    
    
    61Total interest expense
    
    
    532
    
    
    
    587Net interest income
    
    
    2,193
    
    
    
    2,023Provision for loan losses
    
    
    60
    
    
    
    3Net interest income after provision for loan
losses
    
    
    2,133
    
    
    
    2,020Noninterest incomeService charges on deposit accounts
    
    
    229
    
    
    
    203Net merchant credit card processing
    
    
    45
    
    
    
    42Gain on sale of available-for-sale securities
    
    
    15
    
    
    
    Other noninterest income
    
    
    160
    
    
    
    167Total noninterest income
    
    
    449
    
    
    
    412Noninterest expenseSalaries and employee benefits
    
    
    1,052
    
    
    
    1,018Occupancy and equipment
    
    
    331
    
    
    
    300Other real estate owned expense
    
    
    132
    
    
    
    Other noninterest expense
    
    
    642
    
    
    
    671Total noninterest expense
    
    
    2,157
    
    
    
    1,989Income before income tax expense
    
    
    425
    
    
    
    443Income tax expense
    
    
    139
    
    
    
    145Net income
    
    $
    286
    
    
    $
    298Basic earnings per share of common stock
    
    $
    0.24
    
    
    $
    0.25Diluted earnings per share of common stock
    
    $
    0.24
    
    
    $
    0.25Total comprehensive income
    
    $
    418
    
    
    $
    326
 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
    
    
    
    
    
    
    
    
    
    
    298
    
    
    
    
    
    
    
    298Other comprehensive income,
net of tax:Change in unrealized gain
(loss) on securities
available for sale, net
of deferred income tax
expense of $10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    28Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    326Cash dividends ($.20 per share)
    
    
    
    
    
    
    
    
    
    
    (215
    )
    
    
    
    
    
    
    (215
    )Exercise of stock options
    
    
    1,164
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    15Balance at March 31, 2003
    
    
    1,076,625
    
    
    $
    13,612
    
    
    $
    2,349
    
    
    $
    125
    
    
    $
    16,086
 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
    
    
    
    
    
    
    
    
    
    
    286
    
    
    
    
    
    
    
    286Other comprehensive income,
net of tax:Change in unrealized gain
(loss) on securities
available for sale, net
of deferred income tax
expense of $70
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132
    
    
    
    132Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    418Cash dividends ($.08 per share)
    
    
    
    
    
    
    
    
    
    
    (96
    )
    
    
    
    
    
    
    (96
    )Exercise of stock options
    
    
    1,960
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    28Balance at March 31, 2004
    
    
    1,192,326
    
    
    $
    15,882
    
    
    $
    968
    
    
    $
    83
    
    
    $
    16,933
 - 5 -




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EVERGREENBANCORP, INC. 
    March 31,
    
    March 31,2004
    
    2003Cash flows from operating activitiesNet income
    
    $
    286
    
    
    $
    298Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation
    
    
    117
    
    
    
    140Provision for loan losses
    
    
    60
    
    
    
    3Net amortization of premium on securities
    
    
    14
    
    
    
    32Gain from sale of available-for-sale securities
    
    
    (15
    )
    
    
    Write down of other real estate owned
    
    
    132
    
    
    
    Federal Home Loan Bank stock dividends
    
    
    (14
    )
    
    
    (22
    )Dividends reinvested
    
    
    (81
    )
    
    
    (45
    )Other changes, net
    
    
    122
    
    
    
    (170
    )Net cash provided by operating activities
    
    
    621
    
    
    
    236Cash flows from investing activitiesProceeds from sales and maturities of
securities available for sale
    
    
    2,515
    
    
    
    510Purchases of securities available for sale
    
    
    
    
    
    
    (11,000
    )Proceeds from calls and prepayments of securities available for sale
    
    
    1,471
    
    
    
    3,192Net decrease (increase) in loans
    
    
    (44
    )
    
    
    6,735Purchases of premises and equipment
    
    
    
    
    
    
    (100
    )Net cash provided by (used in) investing activities
    
    
    3,942
    
    
    
    (663
    )Cash flows from financing activitiesNet increase in deposits
    
    
    3,400
    
    
    
    639Net increase (decrease) in federal funds purchased
    
    
    (336
    )
    
    
    1,093Repayment of advances from Federal Home Loan Bank
    
    
    (1,816
    )
    
    
    (215
    )Proceeds from exercise of stock options
    
    
    23
    
    
    
    15Dividends paid
    
    
    (96
    )
    
    
    (215
    )Net cash provided by financing activities
    
    
    1,175
    
    
    
    1,317Net increase in cash
and cash equivalents
    
    
    5,738
    
    
    
    890Cash and cash equivalents at beginning of year
    
    
    10,625
    
    
    
    22,620Cash and cash equivalents at end of period
    
    $
    16,363
    
    
    $
    23,510
 See accompanying notes to unaudited consolidated financial statements - 6 -




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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 month
period ended March 31, 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 - 7 -




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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, 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. 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 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. 2004
    
    2003Net income as reported
    
    $
    286
    
    
    $
    298Deduct: Stock-based compensation expense
determined under fair value based method
    
    
    12
    
    
    
    11Pro forma net income
    
    $
    274
    
    
    $
    287Basic earnings per share as reported
    
    $
    0.24
    
    
    $
    0.25Pro forma basic earnings per share
    
    $
    0.23
    
    
    $
    0.24Diluted earnings per share as reported
    
    $
    0.24
    
    
    $
    0.25Pro forma diluted earnings per share
    
    $
    0.23
    
    
    $
    0.24
 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. - 8 -




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Note 3: Stock options During the first quarter of 2004, no stock options were granted and there were
1,960 options exercised. The total stock options outstanding were 104,102 at
March 31, 2004 with exercise prices ranging between $11.40 and $14.82 and
expiration dates between October 23, 2010 and March 25, 2013. All options are
granted at market value as of date of grant. Note 4: Securities available for sale Investment securities available for sale include $9,447,000 in mortgage-backed
securities at March 31, 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 $14,667,000 at March
31, 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 the 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, the 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% (4.61% at March 31, 2004), provided that this rate cannot exceed
12.0% through June 30, 2007. The junior subordinated debentures will mature in
2032, at which time the preferred securities must be redeemed. Bancorp has
provided a full, irrevocable, and unconditional guarantee on a subordinated
basis of the obligations of the Trust under the preferred securities as set
forth in such guarantee agreement. Debt issuance costs totaling $209,000 were
capitalized related to the offering and are being amortized over the estimated
life of the junior subordinated debentures. Prior to 2003, the Trust was consolidated in the 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 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. - 9 -




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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 March 31,(in thousands, except share and per share data):
    
    2004
    
    2003Income
(numerator):Net income
    
    $
    286
    
    
    $
    298Income (denominator):Weighted average number of common
stock shares outstanding  basic
    
    
    1,191,898
    
    
    
    1,183,985Dilutive effect of outstanding employee
and director stock options
    
    
    20,312
    
    
    
    10,372Weighted average number of common
stock shares outstanding and
assumed conversion  diluted
    
    
    1,212,210
    
    
    
    1,194,357Basic earnings per share of common stock
    
    $
    0.24
    
    
    $
    0.25Diluted earnings per share of common stock
    
    $
    0.24
    
    
    $
    0.25
 
 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 first quarter 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 period 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. - 10 -




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RESULTS OF OPERATIONS Net Income Three months ended March 31, 2004 and 2003 For the first quarter of 2004, the Company reported net income of $286,000
compared to $298,000 for the first quarter of 2003, a decrease of 4.03 percent.
The decrease of $12,000 was primarily attributable to a write down of other
real estate owned and an increased provision for loan losses in 2004. These
items were substantially offset by an increase in net interest income of
$170,000. Basic and diluted earnings per common share were $0.24 for the first
quarter of 2004 compared to $0.25 for the same period one year ago. For the first quarter of 2004, return on average common equity and return on
average assets was 6.79 percent and .60 percent respectively, compared to 7.57
percent and 0.71 percent, respectively, for the same period one year ago. 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 $2,193,000 for the
first quarter of 2004, compared to $2,023,000 for the same period in 2003, an
increase of 8.40 percent. The net interest margin, which is the ratio of taxable-equivalent net interest
income to average earning assets, was 5.07 percent for the first three months
of 2004 compared to 5.25 percent for the same period one year ago. The weighted
average yield on interest earning assets was 6.26 percent for the first three
months of 2004, a decrease of 7.4 percent, compared to 6.76 percent in the
first quarter of 2003. Interest expense as a percentage of average earning
assets was 1.22 percent for the first three months of 2004, a decrease of 19.2
percent compared to 1.51 percent in the first quarter of 2003. Interest income for the three months ended March 31, 2004 was $2,725,000
compared to $2,610,000 for the three months ended March 31, 2003, an increase
of $115,000, or 4.41 percent. This increase was primarily attributable to an
increase in the average balance of interest earning assets of $17,208,000
offset by a decrease in the average yield on interest earning assets. Interest expense for the three months ended March 31, 2004 was $532,000
compared to $587,000 for the three months ended March 31, 2003, a decrease of
$55,000 or 9.37 percent. This was primarily due to a decrease in the average
rate paid on interest bearing liabilities, partially offset by an increase in
the average balance of interest bearing liabilities of $14,133,000. Noninterest Income/Expense Noninterest income in the first quarter of 2004 was $449,000 compared to
$412,000 in the same quarter of 2003, an increase of $37,000 or, 8.98 percent.
The increase was primarily attributable to increased service fees on deposit
accounts due to overall growth in the deposit base and gain on the sale of
securities. Noninterest expense was $2,157,000 in the first quarter of 2004, compared to
$1,989,000 in the same quarter of 2003, an increase of $168,000, or 8.45
percent. The increase was largely due to a write down of other real estate
owned of $132,000. The write down was recorded to recognize the anticipated
proceeds from the sale of the real estate that was foreclosed late in the
fourth quarter of 2003. The sale is pending - 11 -




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##### Table of Contents



and expected to close in the second quarter of 2004. Additionally, the company
realized an increase in occupancy and equipment costs associated with the
Federal Way branch that was opened in the third quarter of 2003. Provision and Allowance for Loan Losses The provision for loan losses was $60,000 for the first quarter of 2004
compared to $3,000 for the same quarter of 2003. At March 31, 2004, the allowance for loan losses was $1,664,000 compared to
$1,636,000 at December 31, 2003. The ratio of the allowance to total loans
outstanding was 1.20 percent at March 31, 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 March 31, 2004, there can be no assurance that such
losses will not exceed estimated amounts. While management is encouraged by recent indications of an improving national
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, 2004, loans totaled $138,480,000, nearly equivalent to the
December 31, 2003 total of $138,468,000. At March 31, 2004, the Bank had $74,480,000 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, 2004 and December 31, 2003: Types of Loans March 31,
    
    December 31,2004
    
    2003(in thousands)Commercial
    
    $
    50,928
    
    
    $
    53,770Real estate:Commercial
    
    
    52,645
    
    
    
    48,963Construction
    
    
    12,206
    
    
    
    10,911Residential 1-4 family
    
    
    9,629
    
    
    
    11,971Consumer and other
    
    
    13,072
    
    
    
    12,853Total
    
    $
    138,480
    
    
    $
    138,468
 - 12 -




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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, 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. 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. March 31,
    
    % of loans in
    
    December 31,
    
    % of loans in2004
    
    each category
    
    2003
    
    each category(in thousands)
    
    Amount
    
    to Total Loans
    
    Amount
    
    to Total LoansCommercial
    
    $
    865
    
    
    
    37
    %
    
    $
    885
    
    
    
    39
    %Real estate:Commercial
    
    
    454
    
    
    
    38
    
    
    
    436
    
    
    
    35Construction
    
    
    126
    
    
    
    9
    
    
    
    110
    
    
    
    8Residential 1-4 family
    
    
    9
    
    
    
    7
    
    
    
    9
    
    
    
    9Consumer and other
    
    
    210
    
    
    
    9
    
    
    
    196
    
    
    
    9Total
    
    $
    1,664
    
    
    
    100
    %
    
    $
    1,636
    
    
    
    100
    %% of Loan portfolio
    
    
    1.20
    %
    
    
    
    
    
    
    1.18
    %
 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, 2004
    
    March 31, 2003Beginning Balance
    
    $
    1,636
    
    
    $
    1,690ChargeoffsCommercial
    
    
    0
    
    
    
    27Real estate:Commercial
    
    
    0
    
    
    
    0Construction
    
    
    0
    
    
    
    0Residential 1-4 family
    
    
    0
    
    
    
    91Consumer and other
    
    
    35
    
    
    
    20Total chargeoffs
    
    $
    35
    
    
    $
    138RecoveriesCommercial
    
    $
    2
    
    
    $
    3Real estate:Commercial
    
    
    0
    
    
    
    20Construction
    
    
    0
    
    
    
    0Residential 1-4 family
    
    
    0
    
    
    
    0Consumer and other
    
    
    1
    
    
    
    2Total Recoveries
    
    $
    3
    
    
    $
    25Net chargeoffs/(recoveries)
    
    $
    32
    
    
    $
    113Provision
    
    
    60
    
    
    
    3Ending balance
    
    $
    1,664
    
    
    $
    1,580
 - 13 -




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##### Table of Contents



Investments At March 31, 2004, investments totaled $36,130,000, a decrease of $3,688,000 or
9.3 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 March 31, 2004, other real estate owned totaled $2,527,000, a decrease of
$132,000 from the balance at December 31, 2003. The balance consisted of one
residential property acquired in foreclosure in the fourth quarter of 2003.
The decrease in the balance from December 31, 2003 is due to the write down
that was recognized in the first quarter and is based on a pending sale
expected to close in the second quarter of 2004. Deposits At March 31, 2004, total deposits were $156,083,000, compared to $152,683,000
at December 31, 2003. This represents a 2.23 percent increase from December 31,
2003. Non-interest bearing deposits totaled $46,156,000 at March 31, 2004
compared to $47,132,000 at December 31, 2003, a decrease of $976,000 or 6.9
percent. Interest bearing deposits totaled $109,927,000, an increase of
$4,376,000 or 4.1 percent at December 31, 2003. Borrowings At March 31, 2004, the Banks Federal Home Loan Bank borrowings were
$13,565,000, compared to $15,381,000 at December 31, 2003. This represents an
11.81 percent decrease from December 31, 2003 and is due to the regular
repayment of maturing and amortizing advances. Due to increased liquidity,
these advances were not replaced. Stockholders Equity and Capital Resources Stockholders equity totaled $16,933,000 at March 31, 2004, an increase of
$350,000 or 2.11 percent over December 31, 2003. This increase in stockholders
equity is a result of net income of $286,000, and an increase in accumulated
other comprehensive income of $132,000, which resulted from fluctuations in the
market value of available for sale securities. These items were offset by
dividends of $96,000, or $.08 per share. Book value per share was $14.20 at March 31, 2004 compared to $13.93 at
December 31, 2003. Book value per share is calculated by dividing total equity
by total shares outstanding. The following table displays the capital ratios at March 31, 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
    
    RatioMarch 31, 2004Total Capital 
(to risk-weighted assets)EvergreenBancorp
    
    $
    23,461
    
    
    
    15.38
    %
    
    $
    12,286
    
    
    
    8.00
    %
    
    $
    15,358
    
    
    
    10.00
    %EvergreenBank
    
    
    22,593
    
    
    
    14.71
    %
    
    
    12,290
    
    
    
    8.00
    %
    
    
    15,362
    
    
    
    10.00
    %Tier 1 Capital
 - 14 -




---



##### Table of Contents



Minimum to BeMinimum for
    
    
    
    
    
    Well CapitalizedCapital
    
    
    
    
    
    Under the PromptAdequacy
    
    
    
    
    
    CorrectiveActual
    
    
    
    
    
    Purposes
    
    
    
    
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(to risk-weighted assets)EvergreenBancorp
    
    
    21,797
    
    
    
    14.18
    %
    
    
    6,143
    
    
    
    4.00
    %
    
    
    9,215
    
    
    
    6.00
    %EvergreenBank
    
    
    20,929
    
    
    
    13.62
    %
    
    
    6,145
    
    
    
    4.00
    %
    
    
    9,217
    
    
    
    6.00
    %Tier 1 Capital 
(to average assets)EvergreenBancorp
    
    
    21,797
    
    
    
    11.36
    %
    
    
    7,678
    
    
    
    4.00
    %
    
    
    9,597
    
    
    
    5.00
    %EvergreenBank
    
    
    20,929
    
    
    
    11.16
    %
    
    
    7,504
    
    
    
    4.00
    %
    
    
    9,380
    
    
    
    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 March 31, 2004, the Company had commitments to extend credit and contingent
liabilities under lines of credit, standby letters of credit and similar
arrangements totaling $40,924,000. 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. The following table summarizes the Companys significant contractual
obligations and commitments at March 31, 2004: Within
    
    
    
    
    
    
    
    
    
    After(in thousands)
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 Years
    
    TotalFederal Home Loan Bank
Advances
    
    $
    1,850
    
    
    $
    9,530
    
    
    $
    1,185
    
    
    $
    1,000
    
    
    $
    13,565Junior subordinated debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    5,000Operating Leases
    
    
    512
    
    
    
    1,043
    
    
    
    298
    
    
    
    260
    
    
    
    2,113Purchase obligations
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90Total
    
    $
    2,452
    
    
    $
    10,573
    
    
    $
    1,483
    
    
    $
    6,260
    
    
    $
    20,768
 - 15 -




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##### Table of Contents



Purchase obligations are primarily contracts with vendors to provide services,
such as information processing. 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. More than forty 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, 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 table below. Net interest income analysis (as of December 31, 2003): Rate changes in basis points (bp) = 1/100 of 1%. ANNUALIZED DOLLAR CHANGEIMMEDIATE RATE CHANGE
    
    IN NET INTEREST INCOME
    
    PERCENT CHANGE+100bp
    
    $
    190
    
    
    
    2.23
    %+ 50bp
    
    
    95
    
    
    
    1.12- 50bp
    
    
    (184
    )
    
    
    (2.16
    )-100bp
    
    
    (367
    )
    
    
    (4.31
    )
 The table above indicates that the effect of an immediate 100 basis point
increase in interest rates would increase the Companys net interest income by
an estimated 2.23 percent or approximately $190,000. An immediate 100 basis
point decrease in rates indicates a potential reduction of net interest income
by 4.31 percent or approximately $367,000. 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. - 16 -




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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, 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. 
 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. - 17 -




---



##### Table of Contents



ITEM 2. CHANGES IN 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 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 first quarter
2004: 1. Bancorp filed a Current Report on Form 8-K with the SEC dated January
21, 2004, announcing a cash dividend on its common stock. A copy of the
January 20, 2004 press release issued by Bancorp was attached to that form as
Exhibit No. 99.1. The following additional Forms 8-K were furnished to the SEC during the
first quarter 2004: 2. Bancorp furnished a Current Report on Form 8-K with the SEC dated
February 13, 2004, announcing financial results for the fourth quarter and year
ended December 31, 2003. A copy of the February 9, 2004 press release issued
by Bancorp was attached to that form as Exhibit 99.1. 3. Bancorp furnished a Current Report on Form 8-K with the SEC dated
February 25, 2004, furnishing copies of updated financial highlights for the
fourth quarter and year ended December 31, 2003. Copies of pages from
Bancorps website were attached to that form as Exhibits 99.1 and 99.2. 4. Bancorp furnished a Current Report on Form 8-K/A with the SEC dated
March 1, 2004, furnishing corrected copies of updated financial highlights for
the fourth quarter and year ended December 31, 2003. Copies of the corrected
pages from Bancorps website were attached to that form as Exhibits 99.1 and
99.2. - 18 -




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##### Table of Contents



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 14, 2004 EVERGREENBANCORP, INC. /s/ William G. Filer IIWilliam G. Filer IISenior Vice President and Chief Financial Officer(Authorized Officer and Principal Financial Officer)
 - 19 -