##### Table of Contents



UNITED STATES
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, 2007
 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 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification Number)
 1111 Third Avenue, Suite 2100
Seattle, Washington 98101
 (206) 628-4250
  þ o
  o o þ
  o þ




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##### 



PART IFINANCIAL INFORMATIONItem 1.
    
    Unaudited Consolidated Financial Statements
    
    
    3Unaudited Consolidated Balance Sheets  September 30, 2007 and December 31, 2006
    
    
    3Unaudited Consolidated Statements of Income  For the three months and nine months
ended September 30, 2007 and 2006
    
    
    4Unaudited Consolidated Statements of Stockholders Equity  For the nine months ended
September 30, 2007 and 2006
    
    
    5Unaudited Consolidated Statements of Cash Flows  For the nine months ended September
30, 2007 and 2006
    
    
    6Notes to Unaudited Consolidated Financial Information
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    26PART IIOTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    26Item 1A.
    
    Risk Factors
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3.
    
    Defaults Upon Senior Securities
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    26Item 5.
    
    Other Information
    
    
    26Item 6.
    
    Exhibits
    
    
    27EXHIBIT 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 31,2007
    
    
    2006AssetsCash and due from banks
    
    $
    8,276
    
    
    $
    9,160Federal funds sold
    
    
    1,932
    
    
    
    1,983Interest-bearing deposits in financial institutions
    
    
    8,213
    
    
    
    760Total cash and cash equivalents
    
    
    18,421
    
    
    
    11,903Securities available-for-sale
    
    
    26,388
    
    
    
    29,531Loans
    
    
    354,438
    
    
    
    292,449Allowance for loan losses
    
    
    (3,710
    )
    
    
    (2,784
    )Net loans
    
    
    350,728
    
    
    
    289,665Premises and equipment
    
    
    3,082
    
    
    
    3,078Cash surrender value of bank owned life insurance
    
    
    5,487
    
    
    
    5,316Accrued interest and other assets
    
    
    5,859
    
    
    
    4,027Total assets
    
    $
    409,965
    
    
    $
    343,520LiabilitiesDepositsNoninterest-bearing
    
    $
    56,040
    
    
    $
    55,373Interest-bearing
    
    
    264,458
    
    
    
    201,062Total deposits
    
    
    320,498
    
    
    
    256,435Federal Home Loan Bank advances
    
    
    46,010
    
    
    
    46,805Junior subordinated debt
    
    
    12,372
    
    
    
    12,217Accrued expenses and other liabilities
    
    
    5,407
    
    
    
    4,244Total liabilities
    
    
    384,287
    
    
    
    319,701Commitments and ContingenciesStockholders equityPreferred stock; no par value; 100,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock and surplus; no par value; 15,000,000 shares
authorized; 2,378,388 shares issued at September 30, 2007 (includes
19,500 unvested restricted stock); 2,353,262 shares issued at
December 31, 2006
    
    
    21,277
    
    
    
    21,129Retained earnings
    
    
    5,163
    
    
    
    3,453Accumulated other comprehensive loss
    
    
    (762
    )
    
    
    (763
    )Total stockholders equity
    
    
    25,678
    
    
    
    23,819Total liabilities and stockholders equity
    
    $
    409,965
    
    
    $
    343,520
 See accompanying notes to unaudited consolidated financial statements.
 -3-




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest incomeLoans, including fees
    
    $
    7,622
    
    
    $
    5,170
    
    
    $
    20,878
    
    
    $
    13,570Taxable securities
    
    
    276
    
    
    
    302
    
    
    
    848
    
    
    
    868Tax exempt securities
    
    
    31
    
    
    
    35
    
    
    
    94
    
    
    
    103Federal funds sold and other
    
    
    104
    
    
    
    33
    
    
    
    211
    
    
    
    86Total interest income
    
    
    8,033
    
    
    
    5,540
    
    
    
    22,031
    
    
    
    14,627Interest expenseDeposits
    
    
    3,033
    
    
    
    1,636
    
    
    
    7,799
    
    
    
    3,857Federal funds purchased
    
    
    17
    
    
    
    15
    
    
    
    81
    
    
    
    50Federal Home Loan Bank advances
    
    
    470
    
    
    
    516
    
    
    
    1,588
    
    
    
    1,357Junior subordinated debt
    
    
    215
    
    
    
    115
    
    
    
    763
    
    
    
    323Total interest expense
    
    
    3,735
    
    
    
    2,282
    
    
    
    10,231
    
    
    
    5,587Net interest income
    
    
    4,298
    
    
    
    3,258
    
    
    
    11,800
    
    
    
    9,040Provision for loan losses
    
    
    525
    
    
    
    230
    
    
    
    1,021
    
    
    
    578Net interest income after provision for loan losses
    
    
    3,773
    
    
    
    3,028
    
    
    
    10,779
    
    
    
    8,462Noninterest incomeService charges on deposit accounts
    
    
    363
    
    
    
    292
    
    
    
    1,061
    
    
    
    847Merchant credit card processing
    
    
    45
    
    
    
    42
    
    
    
    137
    
    
    
    112Other commissions and fees
    
    
    16
    
    
    
    23
    
    
    
    47
    
    
    
    119Net earnings on bank owned life insurance
    
    
    56
    
    
    
    57
    
    
    
    171
    
    
    
    169Other noninterest income
    
    
    35
    
    
    
    29
    
    
    
    95
    
    
    
    96Total noninterest income
    
    
    515
    
    
    
    443
    
    
    
    1,511
    
    
    
    1,343Noninterest expenseSalaries and employee benefits
    
    
    1,517
    
    
    
    1,325
    
    
    
    4,370
    
    
    
    4,011Occupancy and equipment
    
    
    501
    
    
    
    418
    
    
    
    1,464
    
    
    
    1,299Data processing
    
    
    232
    
    
    
    208
    
    
    
    710
    
    
    
    619Professional fees
    
    
    70
    
    
    
    82
    
    
    
    262
    
    
    
    225Marketing
    
    
    140
    
    
    
    159
    
    
    
    366
    
    
    
    349State revenue and sales tax expense
    
    
    150
    
    
    
    98
    
    
    
    396
    
    
    
    254Other noninterest expense
    
    
    493
    
    
    
    429
    
    
    
    1,470
    
    
    
    1,304Total noninterest expense
    
    
    3,103
    
    
    
    2,719
    
    
    
    9,038
    
    
    
    8,061Income before income taxes
    
    
    1,185
    
    
    
    752
    
    
    
    3,252
    
    
    
    1,744Income tax expense
    
    
    383
    
    
    
    235
    
    
    
    1,047
    
    
    
    518Net income
    
    $
    802
    
    
    $
    517
    
    
    $
    2,205
    
    
    $
    1,226Total comprehensive income
    
    $
    872
    
    
    $
    645
    
    
    $
    2,206
    
    
    $
    1,255Basic earnings per share
    
    $
    0.34
    
    
    $
    0.26
    
    
    $
    0.94
    
    
    $
    0.61Diluted earnings per share
    
    $
    0.33
    
    
    $
    0.25
    
    
    $
    0.92
    
    
    $
    0.60
 See accompanying notes to unaudited consolidated financial statements.
 -4-




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##### Table of Contents



AccumulatedCommon
    
    
    
    
    
    
    otherCommon
    
    
    stock
    
    
    
    
    
    
    comprehen-
    
    
    Totalstock
    
    
    and
    
    
    Retained
    
    
    sive
    
    
    stock-holdersshares
    
    
    surplus
    
    
    earnings
    
    
    income
    
    
    equityBalance at January 1, 2006
    
    
    2,000,467
    
    
    $
    16,005
    
    
    $
    2,136
    
    
    $
    (456
    )
    
    $
    17,685Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    1,226
    
    
    
    
    
    
    
    1,226Change in net unrealized gain
(loss) on securities
available-for- sale, net of
reclassification and tax
effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    29Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,255Cash dividends ($.18 per share)
    
    
    
    
    
    
    
    
    
    
    (361
    )
    
    
    
    
    
    
    (361
    )Exercise of stock options
    
    
    10,535
    
    
    
    118
    
    
    
    
    
    
    
    
    
    
    
    118Stock options earned
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    
    
    
    
    95Balance at September 30, 2006
    
    
    2,011,002
    
    
    $
    16,218
    
    
    $
    3,001
    
    
    $
    (427
    )
    
    $
    18,792
 AccumulatedCommon
    
    
    
    
    
    
    otherCommon
    
    
    stock
    
    
    
    
    
    
    comprehen-
    
    
    Totalstock
    
    
    and
    
    
    Retained
    
    
    sive
    
    
    stock-holdersshares
    
    
    surplus
    
    
    earnings
    
    
    income (loss)
    
    
    equityBalance at January 1, 2007
    
    
    2,353,262
    
    
    $
    21,129
    
    
    $
    3,453
    
    
    $
    (763
    )
    
    $
    23,819Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    2,205
    
    
    
    
    
    
    
    2,205Change in net unrealized gain
(loss) on securities
available-for- sale, net of
reclassification and tax
effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    5Change in post-retirement
benefit obligation, net of tax
effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,206Cash dividends ($.21 per share)
    
    
    
    
    
    
    
    
    
    
    (495
    )
    
    
    
    
    
    
    (495
    )Exercise of stock options
    
    
    5,626
    
    
    
    69
    
    
    
    
    
    
    
    
    
    
    
    69Restricted stock grants
    
    
    19,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock options earned
    
    
    
    
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    79Balance at September 30, 2007
    
    
    2,378,388
    
    
    $
    21,277
    
    
    $
    5,163
    
    
    $
    (762
    )
    
    $
    25,678
 See accompanying notes to unaudited consolidated financial statements.
 -5-




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##### Table of Contents



September 30,
    
    
    September 30,2007
    
    
    2006Cash flows from operating activitiesNet income
    
    $
    2,205
    
    
    $
    1,226Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    719
    
    
    
    636Provision for loan losses
    
    
    1,021
    
    
    
    578Amortization of premiums and discounts on securities
    
    
    28
    
    
    
    33Net earnings on bank owned life insurance
    
    
    (171
    )
    
    
    (169
    )Stock option compensation expense
    
    
    79
    
    
    
    95Other changes, net
    
    
    (676
    )
    
    
    (155
    )Net cash provided by operating activities
    
    
    3,205
    
    
    
    2,244Cash flows from investing activitiesProceeds from maturities and principal payments on
securities available-for-sale
    
    
    3,123
    
    
    
    1,672Net increase in loans
    
    
    (62,084
    )
    
    
    (64,094
    )Purchases of securities available-for-sale
    
    
    
    
    
    
    (133
    )Purchases of premises and equipment
    
    
    (723
    )
    
    
    (177
    )Net cash provided by (used in) investing activities
    
    
    (59,684
    )
    
    
    (62,732
    )Cash flows from financing activitiesNet increase in deposits
    
    
    64,063
    
    
    
    35,144Proceeds from Federal Home Loan Bank advances
    
    
    216,937
    
    
    
    26,900Repayments of Federal Home Loan Bank advances
    
    
    (217,732
    )
    
    
    (4,028
    )Proceeds from the issuance of junior subordinated debt
    
    
    5,155
    
    
    
    Repayment on redemption of junior subordinated debt
    
    
    (5,000
    )
    
    
    Proceeds from the exercise of stock options
    
    
    69
    
    
    
    118Dividends paid
    
    
    (495
    )
    
    
    (361
    )Net cash provided by financing activities
    
    
    62,997
    
    
    
    57,773Net increase (decrease) in cash and cash equivalents
    
    
    6,518
    
    
    
    (2,715
    )Cash and cash equivalents at beginning of year
    
    
    11,903
    
    
    
    17,302Cash and cash equivalents at end of period
    
    $
    18,421
    
    
    $
    14,587
 See accompanying notes to unaudited consolidated financial statements.
 -6-




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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. Fair Value Measurements
 -7-




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##### Table of Contents



The Fair Value Option for Financial Assets and
Financial Liabilities
   Accounting for Certain
Hybrid Financial Instruments
 Accounting for
Servicing of Financial Assets
 -8-




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##### Table of Contents



Accounting for Uncertainty
in Income Taxes
  Note 2: Stock-based compensation
 Stock option and equity compensation plan.
  Stock options.
  -9-




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##### Table of Contents



Three months ended
    
    Three months endedSeptember 30, 2007
    
    September 30, 2006Risk-free interest rate
    
    
    
    
    
    
    4.74
    %Expected option life
    
    
    
    
    
    7.5 yearsExpected stock price volatility
    
    
    
    
    
    
    25
    %Dividend yield
    
    
    
    
    
    
    1.6
    %
  Nine months ended
    
    Nine months endedSeptember 30, 2007
    
    September 30, 2006Risk-free interest rate
    
    
    4.47
    %
    
    
    4.94
    %Expected option life
    
    6.5 years
    
    7.5 yearsExpected stock price volatility
    
    
    20
    %
    
    
    24
    %Dividend yield
    
    
    1.8
    %
    
    
    1.7
    %
    Weighted-
    
    
    Weighted Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    ValueOutstanding at the beginning
of the year
    
    
    207,434
    
    
    $
    10.37Granted
    
    
    6,000
    
    
    
    15.25Exercised
    
    
    (5,626
    )
    
    
    11.11Forfeited
    
    
    (364
    )
    
    
    8.89Outstanding at the end of
the period
    
    
    207,444
    
    
    $
    10.49
    
    
    5.36 years
    
    $
    956,317Exercisable at the end of
the period
    
    
    140,488
    
    
    $
    8.85
    
    
    4.48 years
    
    $
    878,050
 Stock Awards.
 -10-




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##### Table of Contents



Weighted-AverageGrant-Date FairNonvested Shares
    
    Shares
    
    
    ValueNonvested at January 1, 2007
    
    
    
    
    
    $
    Granted
    
    
    19,500
    
    
    
    14.75Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Nonvested at September 30, 2007
    
    
    19,500
    
    
    $
    14.75
  Note 3: Securities
  -11-




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##### Table of Contents



September 30, 2007
 Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss(in thousands)Description
of SecuritiesUS agencies
    
    $
    
    
    
    $
    
    
    
    $
    500
    
    
    $
    (1
    )
    
    $
    500
    
    
    $
    (1
    )State and political subdivisions
    
    
    
    
    
    
    
    
    
    
    3,475
    
    
    
    (31
    )
    
    
    3,475
    
    
    
    (31
    )Mortgage-backed securities
    
    
    107
    
    
    
    (1
    )
    
    
    3,279
    
    
    
    (104
    )
    
    
    3,386
    
    
    
    (105
    )AMF Ultra Short Mortgage Fund
    
    
    
    
    
    
    
    
    
    
    14,716
    
    
    
    (490
    )
    
    
    14,716
    
    
    
    (490
    )Total temporarily impaired
    
    $
    107
    
    
    $
    (1
    )
    
    $
    21,970
    
    
    $
    (626
    )
    
    $
    22,077
    
    
    $
    (627
    )
 December 31, 2006
 Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss(in thousands)Description
of SecuritiesUS agencies
    
    $
    
    
    
    $
    
    
    
    $
    3,477
    
    
    $
    (27
    )
    
    $
    3,477
    
    
    $
    (27
    )State and political subdivisions
    
    
    135
    
    
    
    (1
    )
    
    
    3,663
    
    
    
    (44
    )
    
    
    3,798
    
    
    
    (45
    )Mortgage-backed securities
    
    
    315
    
    
    
    (1
    )
    
    
    4,021
    
    
    
    (133
    )
    
    
    4,336
    
    
    
    (134
    )AMF Ultra Short Mortgage Fund
    
    
    
    
    
    
    
    
    
    
    14,793
    
    
    
    (413
    )
    
    
    14,793
    
    
    
    (413
    )Total temporarily impaired
    
    $
    450
    
    
    $
    (2
    )
    
    $
    25,954
    
    
    $
    (617
    )
    
    $
    26,404
    
    
    $
    (619
    )
   Note 4: Earnings per share
  -12-




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##### Table of Contents



Three months ended September 30,2007
    
    
    2006Income (numerator):Net income
    
    $
    802
    
    
    $
    517Income (denominator):Weighted average number of common stock shares
outstanding  basic
    
    
    2,358,394
    
    
    
    2,011,002Dilutive effect of outstanding employee and
director stock options and unvested restricted
stock
    
    
    38,817
    
    
    
    41,711Weighted average number of common stock shares
outstanding and assumed conversion  diluted
    
    
    2,397,211
    
    
    
    2,052,713Basic earnings per share
    
    $
    0.34
    
    
    $
    0.26Diluted earnings per share
    
    $
    0.33
    
    
    $
    0.25
 Nine months ended September 30,2007
    
    
    2006Income (numerator):Net income
    
    $
    2,205
    
    
    $
    1,226Income (denominator):Weighted average number of common stock shares
outstanding  basic
    
    
    2,356,095
    
    
    
    2,007,153Dilutive effect of outstanding employee and
director stock options and unvested restricted
stock
    
    
    38,581
    
    
    
    33,454Weighted average number of common stock shares
outstanding and assumed conversion  diluted
    
    
    2,394,676
    
    
    
    2,040,607Basic earnings per share of common stock
    
    $
    0.94
    
    
    $
    0.61Diluted earnings per share of common stock
    
    $
    0.92
    
    
    $
    0.60
  Note 5: Retirement Benefits
   -13-




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##### Table of Contents



Components of net periodic benefit cost
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    33
    
    
    $
    41
    
    
    $
    99
    
    
    $
    123Interest cost
    
    
    25
    
    
    
    28
    
    
    
    75
    
    
    
    84Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    (5
    )
    
    
    (1
    )
    
    
    (15
    )
    
    
    (4
    )Recognized net actuarial (gain) loss
    
    
    3
    
    
    
    8
    
    
    
    9
    
    
    
    24Net periodic benefit cost
    
    $
    56
    
    
    $
    76
    
    
    $
    168
    
    
    $
    227
 Note 6: Junior Subordinated Debt
   
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Forward-Looking Statements
  RESULTS OF OPERATIONS
 Overview
    -15-




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Net Income
 Three months and nine months ended September 30, 2007 and 2006
       Net Interest Income and Net Interest Margin
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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands, except ratio data)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net Interest MarginInterest income (GAAP)
    
    $
    8,033
    
    
    $
    5,540
    
    
    $
    22,031
    
    
    $
    14,627Taxable-equivalent adjustment:Loans
    
    
    3
    
    
    
    3
    
    
    
    9
    
    
    
    9Investments
    
    
    17
    
    
    
    17
    
    
    
    48
    
    
    
    53Interest income  FTE
    
    
    8,053
    
    
    
    5,560
    
    
    
    22,088
    
    
    
    14,689Interest expense (GAAP)
    
    
    3,735
    
    
    
    2,282
    
    
    
    10,231
    
    
    
    5,587Net interest income  FTE
    
    $
    4,318
    
    
    $
    3,278
    
    
    $
    11,857
    
    
    $
    9,102Net interest income  (GAAP)
    
    $
    4,298
    
    
    $
    3,258
    
    
    $
    11,800
    
    
    $
    9,040Average interest earning assets
    
    $
    380,117
    
    
    $
    280,791
    
    
    $
    357,081
    
    
    $
    257,933Net interest margin (GAAP)
    
    
    4.49
    %
    
    
    4.60
    %
    
    
    4.42
    %
    
    
    4.69
    %Net interest margin  FTE
    
    
    4.51
    %
    
    
    4.63
    %
    
    
    4.44
    %
    
    
    4.72
    %
 Noninterest Income/Expense
   -18-




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Income tax expense
  Provision and Allowance for Loan Losses
       FINANCIAL CONDITION
 Loans
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Types of Loans
 September 30,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006Commercial
    
    $
    87,906
    
    
    $
    85,067Real estate:Commercial
    
    
    146,539
    
    
    
    118,070Construction
    
    
    57,041
    
    
    
    34,813Residential 1-4 family
    
    
    40,442
    
    
    
    36,875Consumer and other
    
    
    22,510
    
    
    
    17,624Total
    
    $
    354,438
    
    
    $
    292,449
 Allocation of the Allowance for Loan Losses
  September 30,
    
    
    % of loans in
    
    
    December 31,
    
    
    % of loans in2007
    
    
    each category
    
    
    2006
    
    
    each category(in thousands)
    
    Amount
    
    
    to Total Loans
    
    
    Amount
    
    
    to Total LoansCommercial
    
    $
    1,307
    
    
    
    25
    %
    
    $
    919
    
    
    
    29
    %Real estate:Commercial
    
    
    1,459
    
    
    
    42
    
    
    
    1,120
    
    
    
    40Construction
    
    
    572
    
    
    
    16
    
    
    
    440
    
    
    
    12Residential 1-4 family
    
    
    42
    
    
    
    11
    
    
    
    36
    
    
    
    13Consumer and other
    
    
    330
    
    
    
    6
    
    
    
    269
    
    
    
    6Total
    
    $
    3,710
    
    
    
    100
    %
    
    $
    2,784
    
    
    
    100
    %% of Loan portfolio
    
    
    1.05
    %
    
    
    
    
    
    
    0.95
    %
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Analysis of Allowance for Loan Losses
  Nine months ended
    
    
    Nine months ended(in thousands)
    
    September 30, 2007
    
    
    September 30, 2006Beginning Balance
    
    $
    2,784
    
    
    $
    2,056ChargeoffsCommercial
    
    
    120
    
    
    
    Real estate:Commercial
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    Residential 1-4 family
    
    
    
    
    
    
    Consumer and other
    
    
    40
    
    
    
    19Total charge-offs
    
    
    160
    
    
    
    19RecoveriesCommercial
    
    
    61
    
    
    
    8Real estate:Commercial
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    Residential 1-4 family
    
    
    
    
    
    
    Consumer and other
    
    
    4
    
    
    
    8Total Recoveries
    
    
    65
    
    
    
    16Net chargeoffs/(recoveries)
    
    
    95
    
    
    
    3Provision
    
    
    1,021
    
    
    
    578Ending balance
    
    $
    3,710
    
    
    $
    2,631
  Investments
   Deposits
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Borrowings and Junior Subordinated Debt
    Stockholders Equity and Capital Resources
  Managements Discussion and Analysis of Financial
Condition and Results of Operations
   -23-




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Minimum to BeWell CapitalizedMinimum for
    
    Under the PromptCapital Adequacy
    
    Corrective ActionActual
    
    Purposes
    
    Provisions(in thousands, except ratio data)
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioSeptember 30, 2007Total capital (to risk-weighted assets)Consolidated
    
    $
    42,199
    
    
    
    11.70
    %
    
    $
    28,845
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    41,786
    
    
    
    11.84
    
    
    
    28,228
    
    
    
    8.00
    
    
    $
    35,285
    
    
    
    10.00
    %Tier 1 capital (to risk-weighted assets)Consolidated
    
    
    34,530
    
    
    
    9.58
    
    
    
    14,422
    
    
    
    4.00
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    38,076
    
    
    
    10.79
    
    
    
    14,114
    
    
    
    4.00
    
    
    
    21,171
    
    
    
    6.00Tier 1 capital (to average assets)(1)Consolidated
    
    
    34,530
    
    
    
    8.56
    
    
    
    16,147
    
    
    
    4.00
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    38,076
    
    
    
    9.60
    
    
    
    15,861
    
    
    
    4.00
    
    
    
    19,826
    
    
    
    5.00December 31, 2006Total capital (to risk-weighted assets)Consolidated
    
    $
    39,310
    
    
    
    13.20
    %
    
    $
    23,819
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    38,504
    
    
    
    12.94
    
    
    
    23,795
    
    
    
    8.00
    
    
    $
    29,744
    
    
    
    10.00
    %Tier 1 capital (to risk-weighted assets)Consolidated
    
    
    32,412
    
    
    
    10.89
    
    
    
    11,910
    
    
    
    4.00
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    35,720
    
    
    
    12.01
    
    
    
    11,898
    
    
    
    4.00
    
    
    
    17,847
    
    
    
    6.00Tier 1 capital (to average assets)(1)Consolidated
    
    
    32,412
    
    
    
    9.92
    
    
    
    13,074
    
    
    
    4.00
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    35,720
    
    
    
    11.15
    
    
    
    12,817
    
    
    
    4.00
    
    
    
    16,022
    
    
    
    5.00
 
 (1)
    
    Also referred to as the leverage ratio Contractual Obligations and Commitments
     -24-




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Within
    
    
    
    
    
    
    
    
    
    
    After(in thousands)
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years
    
    
    TotalFederal Home Loan Bank
advances
    
    $
    21,285
    
    
    $
    10,675
    
    
    $
    7,050
    
    
    $
    7,000
    
    
    $
    46,010Junior subordinated debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,372
    
    
    
    12,372Time Deposits
    
    
    159,080
    
    
    
    15,404
    
    
    
    2,164
    
    
    
    259
    
    
    
    176,907Operating leases
    
    
    713
    
    
    
    1,285
    
    
    
    941
    
    
    
    650
    
    
    
    3,589Total
    
    $
    181,078
    
    
    $
    27,364
    
    
    $
    10,155
    
    
    $
    20,281
    
    
    $
    238,878
 Liquidity
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Net interest income analysis as of September 30, 2007:
  ANNUALIZED DOLLAR CHANGEIMMEDIATE RATE CHANGE
    
    IN NET INTEREST INCOME
    
    PERCENT CHANGE+200bp
    
    
    991
    
    
    
    6.38+100bp
    
    
    500
    
    
    
    3.22+ 50bp
    
    
    246
    
    
    
    1.58- 50bp
    
    
    (261
    )
    
    
    (1.68
    )-100bp
    
    
    (478
    )
    
    
    (3.08
    )-200bp
    
    
    (887
    )
    
    
    (5.71
    )
   -25-




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ITEM 4. CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  -26-




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ITEM 6. EXHIBITS
 (a) Exhibits
 Exhibit 31.1 
 Exhibit 31.2 
 Exhibit 32.1 
 Exhibit 32.2 
 -27-




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/s/ Gordon D. BrowningGordon D. BrowningExecutive Vice President and Chief Financial Officer(Authorized Officer and Principal Financial Officer)
 -28-