SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission File No. 000-32915

EVERGREENBANCORP, INC.

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 I – FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

EVERGREENBANCORP, INC.

See accompanying notes to unaudited consolidated financial statements.

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EVERGREENBANCORP, INC.

See accompanying notes to unaudited consolidated financial statements.

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EVERGREENBANCORP, INC.

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EVERGREENBANCORP, INC.

See accompanying notes to unaudited consolidated financial statements

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EVERGREENBANCORP, INC.

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

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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.

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.

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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.

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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.

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.

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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

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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

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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.

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.