##### 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 September 30, 2005
 o
    
    Transition Report Under Section 13 or 15(d) of the Exchange Act
 For the transition period from  to
  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
 (206) 628-4250
  þ o
  o þ
  o þ




---



PART IFINANCIAL INFORMATIONItem 1.
    
    Unaudited Consolidated Financial Statements.Unaudited Consolidated Balance Sheets -- September 30, 2005 and December 31, 2004.Unaudited Consolidated Statements of Income - For the three months and nine months ended September 30, 2005 and 2004.Unaudited Consolidated Statements of Stockholders' Equity - For the nine months ended September 30, 2005 and 2004.Unaudited Consolidated Statements of Comprehensive Income - For the three months and nine months ended September 30, 2005 and 2004.Unaudited Consolidated Statements of Cash Flows - For the nine months ended September 30, 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 Disclosures 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 and Reports on Form 8-K.EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  -2-




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 
 September 30,
    
    
    December 31,2005
    
    
    2004AssetsCash and due from banks
    
    $
    12,151
    
    
    $
    9,407Federal funds sold
    
    
    9,926
    
    
    
    2,736Interest-bearing deposits in financial institutions
    
    
    3
    
    
    
    2Total cash and cash equivalents
    
    
    22,080
    
    
    
    12,145Securities available for sale
    
    
    34,923
    
    
    
    35,170Loans
    
    
    165,091
    
    
    
    159,656Allowance for loan losses
    
    
    (1,931
    )
    
    
    (1,887
    )Net loans
    
    
    163,160
    
    
    
    157,769Premises and equipment
    
    
    3,243
    
    
    
    2,576Cash surrender value of bank owned life insurance
    
    
    5,035
    
    
    
    Accrued interest and other assets
    
    
    2,952
    
    
    
    1,970Total assets
    
    $
    231,393
    
    
    $
    209,630LiabilitiesDepositsNoninterest-bearing
    
    $
    56,893
    
    
    $
    54,193Interest-bearing
    
    
    136,283
    
    
    
    119,608Total deposits
    
    
    193,176
    
    
    
    173,801Federal Home Loan Bank advances
    
    
    13,065
    
    
    
    11,067Junior subordinated debt
    
    
    5,000
    
    
    
    5,000Accrued expenses and other liabilities
    
    
    2,449
    
    
    
    2,277Total liabilities
    
    $
    213,690
    
    
    $
    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; 2,000,659 shares issued at September 30, 2005; 1,992,428
shares at
December 31, 2004
    
    
    16,008
    
    
    
    15,927Retained earnings
    
    
    2,055
    
    
    
    1,678Accumulated other comprehensive loss
    
    
    (360
    )
    
    
    (120
    )Total stockholders equity
    
    
    17,703
    
    
    
    17,485Total liabilities and stockholders equity
    
    $
    231,393
    
    
    $
    209,630
 See accompanying notes to unaudited consolidated financial statements.
 -3-




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##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Interest incomeLoans, including fees
    
    $
    3,164
    
    
    $
    2,572
    
    
    $
    8,967
    
    
    $
    7,435Taxable securities
    
    
    265
    
    
    
    234
    
    
    
    772
    
    
    
    733Tax exempt securities
    
    
    35
    
    
    
    24
    
    
    
    91
    
    
    
    68Federal funds sold and other
    
    
    49
    
    
    
    12
    
    
    
    149
    
    
    
    33Total interest income
    
    
    3,513
    
    
    
    2,842
    
    
    
    9,979
    
    
    
    8,269Interest expenseDeposits
    
    
    676
    
    
    
    361
    
    
    
    1,786
    
    
    
    1,023Federal funds purchased
    
    
    4
    
    
    
    3
    
    
    
    8
    
    
    
    9Federal Home Loan Bank advances
    
    
    135
    
    
    
    129
    
    
    
    369
    
    
    
    410Junior subordinated debt
    
    
    90
    
    
    
    62
    
    
    
    249
    
    
    
    188Total interest expense
    
    
    905
    
    
    
    555
    
    
    
    2,412
    
    
    
    1,630Net interest income
    
    
    2,608
    
    
    
    2,287
    
    
    
    7,567
    
    
    
    6,639Provision for loan losses
    
    
    144
    
    
    
    50
    
    
    
    291
    
    
    
    190Net interest income after
Provision for loan losses
    
    
    2,464
    
    
    
    2,237
    
    
    
    7,276
    
    
    
    6,449Noninterest incomeService charges on deposit accounts
    
    
    233
    
    
    
    233
    
    
    
    765
    
    
    
    693Merchant credit card processing
    
    
    37
    
    
    
    36
    
    
    
    115
    
    
    
    116Gain on sales of securities available-for-sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Other commissions and fees
    
    
    32
    
    
    
    20
    
    
    
    94
    
    
    
    97Net earnings on bank owned life insurance
    
    
    35
    
    
    
    
    
    
    
    35
    
    
    
    Other noninterest income
    
    
    73
    
    
    
    118
    
    
    
    271
    
    
    
    357Total noninterest income
    
    
    410
    
    
    
    407
    
    
    
    1,280
    
    
    
    1,278Noninterest expenseSalaries and employee benefits
    
    
    1,278
    
    
    
    1,084
    
    
    
    3,616
    
    
    
    3,172Occupancy and equipment
    
    
    449
    
    
    
    362
    
    
    
    1,260
    
    
    
    1,032Data processing
    
    
    182
    
    
    
    164
    
    
    
    566
    
    
    
    522Marketing
    
    
    152
    
    
    
    62
    
    
    
    355
    
    
    
    183Loss on other real estate owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132Other noninterest expense
    
    
    537
    
    
    
    523
    
    
    
    1,702
    
    
    
    1,391Total noninterest expense
    
    
    2,598
    
    
    
    2,195
    
    
    
    7,499
    
    
    
    6,432Income before income tax expense
    
    
    276
    
    
    
    449
    
    
    
    1,057
    
    
    
    1,295Income tax expense
    
    
    75
    
    
    
    148
    
    
    
    343
    
    
    
    428Net income
    
    $
    201
    
    
    $
    301
    
    
    $
    714
    
    
    $
    867Basic earnings per share of common stock
    
    $
    0.10
    
    
    $
    0.15
    
    
    $
    0.36
    
    
    $
    0.44Diluted earnings per share of common stock
    
    $
    0.10
    
    
    $
    0.15
    
    
    $
    0.35
    
    
    $
    0.43
 See accompanying notes to unaudited consolidated financial statements.
 -4-




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##### Table of Contents



AccumulatedCommon
    
    
    
    
    
    
    otherCommon
    
    
    stock
    
    
    
    
    
    
    comprehen-
    
    
    Totalstock
    
    
    and
    
    
    Retained
    
    
    sive
    
    
    stockholders'shares
    
    
    surplus
    
    
    earnings
    
    
    income (loss)
    
    
    equityBalance at January 1, 2004
    
    
    1,983,943
    
    
    $
    15,854
    
    
    $
    778
    
    
    $
    (49
    )
    
    $
    16,583Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    867
    
    
    
    
    
    
    
    867Change in net unrealized gain
(loss) on securities available
for sale, net of deferred
income tax benefit of $25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48
    )
    
    
    (48
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    819Cash dividends ($.143 per share)
    
    
    
    
    
    
    
    
    
    
    (287
    )
    
    
    
    
    
    
    (287
    )Exercise of stock options
    
    
    5,204
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    44Balance at September 30, 2004
    
    
    1,989,147
    
    
    $
    15,898
    
    
    $
    1,358
    
    
    $
    (97
    )
    
    $
    17,159
 AccumulatedCommon
    
    
    
    
    
    
    otherCommon
    
    
    stock
    
    
    
    
    
    
    comprehen-
    
    
    Totalstock
    
    
    and
    
    
    Retained
    
    
    sive
    
    
    stockholders'shares
    
    
    surplus
    
    
    earnings
    
    
    income (loss)
    
    
    equityBalance at January 1, 2005
    
    
    1,992,428
    
    
    $
    15,927
    
    
    $
    1,678
    
    
    $
    (120
    )
    
    $
    17,485Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    714
    
    
    
    
    
    
    
    714Change in net unrealized gain
(loss) on securities available
for sale, net of deferred
income tax benefit of $124
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (240
    )
    
    
    (240
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    474Cash dividends ($.169 per share)
    
    
    
    
    
    
    
    
    
    
    (337
    )
    
    
    
    
    
    
    (337
    )Exercise of stock options and
related tax benefit
    
    
    8,231
    
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    81Balance at September 30, 2005
    
    
    2,000,659
    
    
    $
    16,008
    
    
    $
    2,055
    
    
    $
    (360
    )
    
    $
    17,703
 See accompanying notes to unaudited consolidated financial statements.
 -5-




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##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    201
    
    
    $
    301
    
    
    $
    714
    
    
    $
    867Other comprehensive income (loss):Change in unrealized gain (loss) on
securities available for sale
    
    
    (80
    )
    
    
    349
    
    
    
    (364
    )
    
    
    (58
    )Reclassification adjustment for gains included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )Net unrealized gains (losses)
    
    
    (80
    )
    
    
    349
    
    
    
    (364
    )
    
    
    (73
    )Tax effect
    
    
    27
    
    
    
    (119
    )
    
    
    124
    
    
    
    25Total other comprehensive income (loss)
    
    
    ( 53
    )
    
    
    230
    
    
    
    (240
    )
    
    
    (48
    )Total comprehensive income
    
    $
    148
    
    
    $
    531
    
    
    $
    474
    
    
    $
    819
 See accompanying notes to unaudited consolidated financial statements.
 -6-




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##### Table of Contents



September 30,
    
    
    September 30,2005
    
    
    2004Cash flows from operating activitiesNet income
    
    $
    714
    
    
    $
    867Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation
    
    
    579
    
    
    
    485Provision for loan losses
    
    
    291
    
    
    
    190Gain from sale of available-for-sale securities
    
    
    
    
    
    
    (15
    )Write-down of other real estate owned
    
    
    
    
    
    
    132Amortization of premiums and discounts on securities
    
    
    45
    
    
    
    61Federal Home Loan Bank stock dividends
    
    
    (6
    )
    
    
    (39
    )Dividends reinvested
    
    
    (190
    )
    
    
    (252
    )Net earnings on bank owned life insurance
    
    
    (35
    )
    
    
    Other changes, net
    
    
    (672
    )
    
    
    454Net cash provided by operating activities
    
    
    726
    
    
    
    1,883Cash flows from investing activitiesProceeds from sales, maturities and principal payments on
securities available for sale
    
    
    1,158
    
    
    
    5,985Net (increase) decrease in loans
    
    
    (5,682
    )
    
    
    (7,819
    )Purchase of bank owned life insurance
    
    
    (5,000
    )
    
    
    Purchases of securities available for sale
    
    
    (1,124
    )
    
    
    (1,526
    )Proceeds from sale of other real estate owned
    
    
    
    
    
    
    2,527Purchases of premises and equipment
    
    
    (1,246
    )
    
    
    (353
    )Net cash provided by (used in) investing activities
    
    
    (11,894
    )
    
    
    (1,186
    )Cash flows from financing activitiesNet increase in deposits
    
    
    19,375
    
    
    
    8,985Net decrease (increase) in federal funds purchased
    
    
    
    
    
    
    (1,654
    )Proceeds (repayments) from Federal Home Loan Bank advances
    
    
    1,998
    
    
    
    (3,098
    )Proceeds from exercise of stock options
    
    
    67
    
    
    
    37Dividends paid
    
    
    (337
    )
    
    
    (287
    )Net cash provided by financing activities
    
    
    21,103
    
    
    
    3,983Net increase in cash and cash equivalents
    
    
    9,935
    
    
    
    4,680Cash and cash equivalents at beginning of year
    
    $
    12,145
    
    
    $
    10,625Cash and cash equivalents at end of period
    
    $
    22,080
    
    
    $
    15,305
 See accompanying notes to unaudited consolidated financial statements.
 -7-




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##### Table of Contents



EVERGREENBANCORP, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL INFORMATION
 Note 1: Summary of Significant Accounting Policies
 Organization.
  Operating Segments
 Principles of consolidation.
 Critical accounting policies and use of estimates.
 Newly issued accounting pronouncements.
 Stock-Based Compensation. Accounting for Stock-Based Compensation.
 -8-




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##### Table of Contents



Three months ended September 30,(in thousands, except per share data)
    
    2005
    
    
    2004Net income as reported
    
    $
    201
    
    
    $
    301Deduct: Stock-based compensation expense
determined under fair value based method
    
    
    17
    
    
    
    14Pro forma net income
    
    $
    184
    
    
    $
    287Basic earnings per share as reported
    
    $
    0.10
    
    
    $
    0.15Pro forma basic earnings per share
    
    
    0.09
    
    
    
    0.14Diluted earnings per share as reported
    
    
    0.10
    
    
    
    0.15Pro forma diluted earnings per share
    
    
    0.09
    
    
    
    0.14
 Nine months ended September 30,(in thousands, except per share data)
    
    2005
    
    
    2004Net income as reported
    
    $
    714
    
    
    $
    867Deduct: Stock-based compensation expense
determined under fair value based method
    
    
    62
    
    
    
    38Pro forma net income
    
    $
    652
    
    
    $
    829Basic earnings per share as reported
    
    $
    0.36
    
    
    $
    0.44Pro forma basic earnings per share
    
    
    0.33
    
    
    
    0.42Diluted earnings per share as reported
    
    
    0.35
    
    
    
    0.43Pro forma diluted earnings per share
    
    
    0.32
    
    
    
    0.41
  Three months ended
    
    
    Three months endedSeptember 30, 2005
    
    
    September 30, 2004Risk-free interest rate
    
    
    4.08
    %
    
    
    3.65
    %Expected option life
    
    7.5 years
    
    7.5 yearsExpected stock price volatility
    
    
    22
    %
    
    
    13
    %Dividend yield
    
    
    1.6
    %
    
    
    1.8
    %
 Note 2: Stock split
  Note 3: Stock options
  Note 4: Securities available for sale
  -9-




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##### Table of Contents



Less than 12 Months
    
    
    12 Months or More
    
    
    
    
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossU.S. agencies
    
    $
    5,443
    
    
    $
    (69
    )
    
    $
    2,470
    
    
    $
    (30
    )
    
    $
    7,913
    
    
    $
    (99
    )State and political subdivisions
    
    
    3,400
    
    
    
    (20
    )
    
    
    149
    
    
    
    (2
    )
    
    
    3,549
    
    
    
    (22
    )Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    5,304
    
    
    
    (88
    )
    
    
    5,304
    
    
    
    (88
    )AMF Adjustable Rate Mortgage Fund
    
    
    286
    
    
    
    (3
    )
    
    
    14,568
    
    
    
    (350
    )
    
    
    14,854
    
    
    
    (353
    )Total temporarily impaired
    
    $
    9,129
    
    
    $
    (92
    )
    
    $
    22,491
    
    
    $
    (470
    )
    
    $
    31,620
    
    
    $
    (562
    )
    Less than 12 Months
    
    
    12 Months or More
    
    
    
    
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossU.S. agencies
    
    $
    3,495
    
    
    $
    (25
    )
    
    $
    988
    
    
    $
    (12
    )
    
    $
    4,483
    
    
    $
    (37
    )State and political subdivisions
    
    
    891
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    891
    
    
    
    (4
    )Mortgage-backed securities
    
    
    6,210
    
    
    
    (36
    )
    
    
    31
    
    
    
    
    
    
    
    6,241
    
    
    
    (36
    )AMF Adjustable Rate Mortgage Fund
    
    
    283
    
    
    
    (1
    )
    
    
    14,549
    
    
    
    (184
    )
    
    
    14,832
    
    
    
    (185
    )Total temporarily impaired
    
    $
    10,879
    
    
    $
    (66
    )
    
    $
    15,568
    
    
    $
    (196
    )
    
    $
    26,447
    
    
    $
    (262
    )
  Note 5: Earnings per share
  -10-




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##### Table of Contents



Three months ended September 30,(in thousands, except share and per share data):
    
    2005
    
    2004Income (numerator):Net income
    
    $
    201
    
    
    $
    301Shares (denominator):Weighted
average number of common stock shares outstanding - basic
    
    
    1,999,487
    
    
    
    1,989,017Dilutive effect of outstanding employee and director stock options
    
    
    56,687
    
    
    
    32,281Weighted average number of common stock shares outstanding and
assumed conversion  diluted
    
    
    2,056,174
    
    
    
    2,021,298Basic earnings per share of common stock
    
    $
    0.10
    
    
    $
    0.15Diluted earnings per share of common stock
    
    $
    0.10
    
    
    $
    0.15
 Nine months ended September 30,(in thousands, except share and per share data):
    
    2005
    
    2004Income (numerator):Net income
    
    $
    714
    
    
    $
    867Shares (denominator):Weighted
average number of common stock shares outstanding - basic
    
    
    1,998,206
    
    
    
    1,987,851Dilutive effect of outstanding employee and director stock options
    
    
    44,854
    
    
    
    31,892Weighted average number of common stock shares outstanding and
assumed conversion  diluted
    
    
    2,043,060
    
    
    
    2,019,743Basic earnings per share of common stock
    
    $
    0.36
    
    
    $
    0.44Diluted earnings per share of common stock
    
    $
    0.35
    
    
    $
    0.43
 Note 6: Retirement Benefits
   -11-




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##### Table of Contents



Components of net periodic benefit cost
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    22
    
    
    $
    23
    
    
    $
    66
    
    
    $
    69Interest cost
    
    
    23
    
    
    
    22
    
    
    
    69
    
    
    
    66Amortization of transition obligation
    
    
    10
    
    
    
    10
    
    
    
    30
    
    
    
    30Recognized actuarial (gain) loss
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Net periodic benefit cost
    
    $
    55
    
    
    $
    55
    
    
    $
    165
    
    
    $
    165
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    RESULTS OF OPERATIONS
 Net Income
 Three months and nine months ended September 30, 2005 and 2004
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Net Interest Income and Net Interest Margin
        Noninterest Income/Expense
   -13-




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##### Table of Contents



Income tax expense
  Provision and Allowance for Loan Losses
     FINANCIAL CONDITION
 Loans
    Types of Loans
 September 30,
    
    
    December 31,(in thousands)
    
    2005
    
    
    2004Commercial
    
    $
    52,086
    
    
    $
    55,563Real estate:Commercial
    
    
    78,216
    
    
    
    67,165Construction
    
    
    10,117
    
    
    
    11,538Residential 1-4 family
    
    
    9,625
    
    
    
    11,508Consumer and other
    
    
    15,047
    
    
    
    13,882Total
    
    $
    165,091
    
    
    $
    159,656
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Allocation of the Allowance for Loan Losses
  September 30,
    
    
    % of loans in
    
    
    December 31,
    
    
    % of loans in2005
    
    
    each category
    
    
    2004
    
    
    each category(in thousands)
    
    Amount
    
    
    to total loans
    
    
    amount
    
    
    to Total LoansCommercial
    
    $
    899
    
    
    
    32
    %
    
    $
    1,000
    
    
    
    35
    %Real estate:Commercial
    
    
    708
    
    
    
    47
    
    
    
    568
    
    
    
    42Construction
    
    
    107
    
    
    
    6
    
    
    
    117
    
    
    
    7Residential 1-4 family
    
    
    12
    
    
    
    6
    
    
    
    11
    
    
    
    7Consumer and other
    
    
    205
    
    
    
    9
    
    
    
    191
    
    
    
    9Total
    
    $
    1,931
    
    
    
    100
    %
    
    $
    1,887
    
    
    
    100
    %% of Loan portfolio
    
    
    1.17
    %
    
    
    
    
    
    
    1.18
    %
  Analysis of Allowance for Loan Losses
  Nine months ended
    
    
    Nine months ended(in thousands)
    
    September 30, 2005
    
    
    September 30, 2004Beginning Balance
    
    $
    1,887
    
    
    $
    1,636ChargeoffsCommercial
    
    
    252
    
    
    
    Real estate:Commercial
    
    
    1
    
    
    
    Construction
    
    
    
    
    
    
    Residential 1-4 family
    
    
    
    
    
    
    Consumer and other
    
    
    23
    
    
    
    74Total chargeoffs
    
    $
    276
    
    
    $
    74RecoveriesCommercial
    
    $
    17
    
    
    $
    85Real estate:Commercial
     
    
    
    
    
    
    Construction
     
    
    
    
    
    
    Residential 1-4 family
    
    
    
    
    
    
    Consumer and other
    
    
    12
    
    
    
    10Total Recoveries
    
    $
    29
    
    
    $
    95Net chargeoffs/(recoveries)
    
    $
    247
    
    
    $
    (21
    )Provision
    
    
    291
    
    
    
    190Ending balance
    
    $
    1,931
    
    
    $
    1,847
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Investments
  Bank Owned Life Insurance
  Deposits
  Borrowings
  Stockholders Equity and Capital Resources
   -16-




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Minimum to BeWell CapitalizedMinimum for
    
    
    Under the PromptCapital Adequacy
    
    
    Corrective ActionActual
    
    
    Purposes
    
    
    ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioSeptember 30, 2005Total capital (to risk-weighted
assets)
Consolidated
    
    $
    24,761
    
    
    
    12.95
    %
    
    $
    15,297
    
    
    
    8.00
    %
    
    
    19,121
    
    
    
    10.00
    %Bank
    
    
    24,418
    
    
    
    12.78
    
    
    
    15,288
    
    
    
    8.00
    
    
    
    19,110
    
    
    
    10.00Tier 1 capital (to risk-weighted
assets)
Consolidated
    
    
    22,830
    
    
    
    11.94
    
    
    
    7,649
    
    
    
    4.00
    
    
    
    11,473
    
    
    
    6.00Bank
    
    
    22,487
    
    
    
    11.77
    
    
    
    7,644
    
    
    
    4.00
    
    
    
    11,466
    
    
    
    6.00Tier 1 capital (to average assets)
Consolidated
    
    
    22,830
    
    
    
    10.47
    
    
    
    8,723
    
    
    
    4.00
    
    
    
    10,904
    
    
    
    5.00Bank
    
    
    22,487
    
    
    
    10.31
    
    
    
    8,723
    
    
    
    4.00
    
    
    
    10,904
    
    
    
    5.00December 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
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Within
    
    
    
    
    
    
    
    
    
    
    After(in thousands)
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years
    
    
    TotalFederal Home Loan
Bank advances
    
    $
    2,880
    
    
    $
    3,185
    
    
    $
    3,000
    
    
    $
    4,000
    
    
    $
    13,065Junior subordinated debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    5,000Time Deposits
    
    
    53,693
    
    
    
    7,367
    
    
    
    1,200
    
    
    
    
    
    
    
    62,260Operating leases
    
    
    653
    
    
    
    928
    
    
    
    704
    
    
    
    1,201
    
    
    
    3,486Purchase obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    57,226
    
    
    $
    11,480
    
    
    $
    4,904
    
    
    $
    10,201
    
    
    $
    83,811
  Liquidity
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Net interest income analysis as of September 30, 2005
  ANNUALIZED DOLLAR CHANGEIMMEDIATE RATE CHANGE
    
    IN NET INTEREST INCOME
    
    PERCENT CHANGE(IN THOUSANDS)+200bp
    
    
    747
    
    
    
    6.87+100bp
    
    
    396
    
    
    
    3.64+ 50bp
    
    
    198
    
    
    
    1.82- 50bp
    
    
    (183
    )
    
    
    (1.68
    )-100bp
    
    
    (365
    )
    
    
    (3.35
    )-200bp
    
    
    (1,025
    )
    
    
    (9.42
    )
  -18-




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ITEM 4. CONTROLS AND PROCEDURES
   Forward-Looking Information Statement
  -19-




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PART II  OTHER INFORMATION
 
 ITEM 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
 (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 2002Exhibit 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
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/s/ William G. Filer IIWilliam G. Filer IIExecutive Vice President and Chief Financial Officer(Authorized Officer and Principal Financial Officer)
 -21-