Evergreenbancorp (EVGGQ) 10-Q 2008 Q2 Quarterly report

UNITED STATES

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 1934

For the quarterly period ended June 30, 2008

¨ 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.

(Exact Name of Registrant as Specified in Its Charter)

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

(Address of Principal Executive Offices) (Zip Code)

(206) 628-4250

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  þ

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes  ¨    No  þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, no par value, outstanding as of July 28, 2008: 2,408,339 shares

No Preferred Stock was issued or outstanding.

PART I
FINANCIAL INFORMATION
Item 1.	Unaudited Consolidated Financial Statements	3
	Unaudited Consolidated Balance Sheets – June 30, 2008 and December 31, 2007	3
	Unaudited Consolidated Statements of Income - For the three months and six months ended June 30, 2008 and 2007	4
	Unaudited Consolidated Statements of Stockholders’ Equity - For the six months ended June 30, 2008 and 2007	5
	Unaudited Consolidated Statements of Cash Flows - For the six months ended June 30, 2008 and 2007	6
	Notes to Unaudited Consolidated Financial Information	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II
OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Submission of Matters to a Vote of Security Holders	28
Item 5.	Other Information	29
Item 6.	Exhibits	29
	Exhibit 3.1
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32.1
	Exhibit 32.2

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PART I – FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

EVERGREENBANCORP, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

June 30, 2008 and December 31, 2007

(in thousands, except share data)

	June 30, 2008			December 31, 2007
Assets
Cash and due from banks	$	6,497		$	14,076
Federal funds sold		8,010			2,383
Interest-bearing deposits in financial institutions		5,858			5,923
Total cash and cash equivalents		20,365			22,382
Securities available-for-sale		15,208			14,446
Loans		410,994			375,428
Allowance for loan losses		(5,593	)		(4,166	)
Net loans		405,401			371,262
Premises and equipment		3,515			2,886
Bank owned life insurance		5,643			5,537
Interest in escrow of Visa stock		2,122			—
Accrued interest and other assets		4,535			6,274
Total assets	$	456,789		$	422,787
Liabilities
Deposits
Noninterest-bearing	$	50,362		$	59,458
Interest-bearing		270,085			250,013
Total deposits		320,447			309,471
Federal Home Loan Bank advances		89,725			69,910
Indemnification liabilities		2,122			2,122
Junior subordinated debt		12,372			12,372
Accrued expenses and other liabilities		3,286			3,476
Total liabilities		427,952			397,351
Commitments and Contingencies
Stockholders’ equity
Preferred stock; no par value; 100,000 shares authorized; none issued		—			—
Common stock and surplus; no par value; 15,000,000 shares authorized; 2,406,339 shares issued at June 30, 2008; 2,388,804 shares issued at December 31, 2007		21,708			21,467
Retained earnings		7,194			3,972
Accumulated other comprehensive loss		(65	)		(3	)
Total stockholders’ equity		28,837			25,436
Total liabilities and stockholders’ equity	$	456,789		$	422,787

See accompanying notes to unaudited consolidated financial statements.

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EVERGREENBANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

Three month and six month periods ended June 30, 2008 and 2007

(in thousands, except per share data)

	Three months ended June 30,				Six months ended June 30,
	2008		2007		2008		2007
Interest income
Loans, including fees	$	6,820	$	6,861	$	14,088	$	13,256
Taxable securities		115		284		227		572
Tax exempt securities		25		31		52		63
Federal funds sold and other		43		71		107		107
Total interest income		7,003		7,247		14,474		13,998
Interest expense
Deposits		2,237		2,595		4,775		4,766
Federal funds purchased		1		28		3		64
Federal Home Loan Bank advances		718		447		1,491		1,118
Junior subordinated debt		136		314		330		548
Total interest expense		3,092		3,384		6,599		6,496
Net interest income		3,911		3,863		7,875		7,502
Provision for loan losses		509		233		2,341		496
Net interest income after provision for loan losses		3,402		3,630		5,534		7,006
Noninterest income
Service charges on deposit accounts		290		363		602		698
Merchant credit card processing		23		48		47		92
Net earnings on bank owned life insurance		58		59		106		115
Gain on redemption and interest in escrow fund of Visa stock		—		—		5,587		—
Other noninterest income		37		51		91		91
Total noninterest income		408		521		6,433		996
Noninterest expense
Salaries and employee benefits		1,625		1,396		3,074		2,853
Occupancy and equipment		580		484		1,090		963
Data processing		223		272		470		478
Professional fees		86		96		219		192
Marketing		303		165		367		226
State revenue and sales tax expense		140		139		322		246
Outside service fees		130		120		245		244
Other noninterest expense		511		368		1,065		733
Total noninterest expense		3,598		3,040		6,852		5,935
Income before income taxes		212		1,111		5,115		2,067
Income tax expense		60		364		1,556		664
Net income	$	152	$	747	$	3,559	$	1,403
Total comprehensive income	$	13	$	630	$	3,497	$	1,334
Basic earnings per share	$	0.06	$	0.32	$	1.48	$	0.60
Diluted earnings per share	$	0.06	$	0.31	$	1.47	$	0.59

See accompanying notes to unaudited consolidated financial statements.

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EVERGREENBANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Six months ended June 30, 2008, and 2007

(in thousands, except share and per share data)

	Common stock shares		Common stock and surplus		Retained earnings			Accumulated other comprehensive income (loss)			Total stockholders’ equity
Balance at January 1, 2007	2,353,262		$	21,129	$	3,453		$	(763	)	$	23,819
Comprehensive income
Net income	—			—		1,403			—			1,403
Change in net unrealized gain (loss) on securities available-for-sale, net of reclassification and tax effects	—			—		—			(69	)		(69	)
Total comprehensive income												1,334
Cash dividends ($.14 per share)	—			—		(329	)		—			(329	)
Exercise of stock options	5,072			62		—			—			62
Stock options earned	—			49		—			—			49
Balance at June 30, 2007	2,358,334		$	21,240	$	4,527		$	(832	)	$	24,935
	Common stock shares		Common stock and surplus		Retained earnings			Accumulated other comprehensive income (loss)			Total stockholders’ equity
Balance at January 1, 2008	2,388,804		$	21,467	$	3,972		$	(3	)	$	25,436
Comprehensive income
Net income	—			—		3,559			—			3,559
Change in net unrealized gain (loss) on securities available-for- sale, net of reclassification and tax effects	—			—		—			(62	)		(62	)
Total comprehensive income												3,497
Cash dividends ($.14 per share)	—			—		(337	)		—			(337	)
Exercise of stock options	18,835			141		—			—			141
Tax benefit from stock related compensation	—			33		—			—			33
Stock awards forfeited	(1,300	)		—		—			—			—
Stock options earned	—			67		—			—			67
Balance at June 30, 2008	2,406,339		$	21,708	$	7,194		$	(65	)	$	28,837

See accompanying notes to unaudited consolidated financial statements.

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EVERGREENBANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended June 30, 2008, and 2007

(in thousands)

	June 30, 2008			June 30, 2007
Cash flows from operating activities
Net income	$	3,559		$	1,403
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		541			467
Provision for loan losses		2,341			496
Gain on redemption of Visa stock		(3,465	)		—
Interest in escrow fund of Visa stock		(2,122	)		—
Amortization of premiums and discounts on securities		13			17
Net earnings on bank owned life insurance		(106	)		(115	)
Stock option compensation expense		67			49
Other changes, net		1,613			(1,107	)
Net cash provided by operating activities		2,441			1,210
Cash flows from investing activities
Proceeds from maturities and principal payments on securities available-for-sale		4,349			1,766
Proceeds from redemption of Visa stock		3,465			—
Net loan originations		(36,480	)		(41,505	)
Purchases of securities available-for-sale		(5,217	)		—
Purchases of premises and equipment		(1,170	)		(636	)
Net cash provided by (used in) investing activities		(35,053	)		(40,375	)
Cash flows from financing activities
Net increase in deposits		10,976			43,799
Proceeds from Federal Home Loan Bank advances		208,600			141,235
Repayments of Federal Home Loan Bank advances		(188,785	)		(148,679	)
Proceeds from the issuance of trust preferred securities		—			5,155
Proceeds from the exercise of stock options		141			62
Dividends paid		(337	)		(329	)
Net cash provided by financing activities		30,595			41,243
Net increase (decrease) in cash and cash equivalents		(2,017	)		2,078
Cash and cash equivalents at beginning of year		22,382			11,903
Cash and cash equivalents at end of period	$	20,365		$	13,981

See accompanying notes to unaudited consolidated financial statements.

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EVERGREENBANCORP, INC.

NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL INFORMATION

Note 1: Summary of Significant Accounting Policies

Organization.EvergreenBancorp, Inc. (“Bancorp”) was formed February 9, 2001 and is a Washington corporation chartered as a bank holding company. Bancorp holds all of the issued and outstanding shares of EvergreenBank (“the Bank”). The Bank is a Washington state chartered financial institution established in 1971 that engages in general commercial and consumer banking operations. Deposits in the Bank are insured to a maximum of $100,000 per depositor (in some instances up to $250,000 per deposit account, depending on the ownership category of the account) by the Federal Deposit Insurance Corporation (“the FDIC”).

Bancorp and the Bank are collectively referred to as “the Company.” EvergreenBancorp Statutory Trust II (“Trust II”) and EvergreenBancorp Statutory Trust III (“Trust III”) are special purpose business trusts formed by Bancorp in November 2006 and April 2007, respectively, to raise capital through trust preferred securities offerings. Under current accounting guidance, Financial Accounting Standards Board (“FASB”) Interpretation No. 46, as revised in December 2003, the trusts are not consolidated with the Company.

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, Federal Way, and Kent communities.

Operating Segments. While the Company’s management monitors the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the Company’s banking operations are considered by management to be aggregated in one reportable segment.

Principles of consolidation.The accompanying condensed consolidated financial statements include the combined accounts of Bancorp and the Bank for all periods reported. All significant intercompany balances and transactions have been eliminated.

Critical accounting policies and use of estimates.The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, including contingent amounts, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management has identified certain policies as being particularly sensitive in terms of judgments and the extent to which estimates are used. These policies relate to the determination of the allowance for loan losses on loans, other than temporary impairment of securities, contingencies and guarantees, 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, 2007. 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 December 2007 the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 141R,Business Combinations. SFAS 141R replaces the current standard on business combinations and will significantly change the accounting for and reporting of business combinations in consolidated financial statements. This statement requires an entity to measure the business acquired at fair value and to recognize goodwill attributable to any noncontrolling interests (previously referred to as minority interests) rather than just the portion attributable to the acquirer. The statement will also result in fewer exceptions to the principle of measuring assets acquired and liabilities assumed in a business combination at fair value. In addition, the statement will result in payments to third parties for consulting, legal, and similar services associated with an acquisition to be recognized as expenses when incurred rather than capitalized as part of the business combination. SFAS 141R is effective for fiscal years beginning on or after December 15, 2008.

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On March 19, 2008, the FASB issued FASB Statement No. 161,Disclosures about Derivative Instruments and Hedging Activities - an Amendment of FASB Statement 133. Statement 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities; and (c) derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Specifically, Statement 161 requires: disclosure of the objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation; disclosure of the fair values of derivative instruments and their gains and losses in a tabular format; disclosure of information about credit-risk-related contingent features; and cross-reference from the derivative footnote to other footnotes in which derivative-related information is disclosed. Statement 161 is effective for fiscal years and interim periods beginning after November 15, 2008.

In June 2008, the FASB issued Staff Position EITF 03-6-1,Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”). The FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. The FSP affects entities that accrue cash dividends on share-based payment awards during the awards’ service period when the dividends do not need to be returned if the employees forfeit the awards. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. The Company does not accrue cash dividends and therefore does not anticipate there to be an impact on the Company’s consolidated financial position, results of operations or cash flows.

Adoption of new accounting standards.In September 2006, the FASB issued Statement No. 157,Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157. This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of adoption was not material. See Note 7, “Fair Value” for disclosures related to the adoption of SFAS 157.

In February 2007, the FASB issued Statement No. 159,The Fair Value Option for Financial Assets and Financial Liabilities. The standard provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The Company did not elect the fair value option for any financial assets or financial liabilities as of January 1, 2008, the effective date of the standard.

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Note 2: Stock options

Stock option and equity compensation plan.In April 2000, the shareholders of the Bank adopted the 2000 Stock Option Plan that was subsequently adopted by Bancorp as a result of the holding company formation. In April 2003, the shareholders of Bancorp approved an amendment to the 2000 Stock Option Plan to increase the number of shares available under the plan by 66,000. In April 2006, the shareholders adopted the Second Amended 2000 Stock Option and Equity Compensation Plan which allows greater flexibility in the type of equity compensation to be awarded and to the terms of such awards. In April 2008, the shareholders adopted the Stock Option and Equity Compensation Plan (“Amended Plan”) which increased the number of shares available under the plan by 120,000. Up to 449,724 shares of common stock may be awarded under the Amended Plan. Awards available under the plan are subject to adjustment for all stock dividends and stock splits paid by the Company. As of June 30, 2008, approximately 148,037 shares of common stock were available for future grant under the Amended Plan.

In addition to stock options, the Amended Plan provides for the granting of restricted stock, stock appreciation rights, and restricted stock units. All employees, officers, and directors of the Company or a related corporation, and independent contractors who perform services for the Company or a related corporation, are eligible to be granted awards. The terms of each award are set forth in individual award agreements.

Stock options. All outstanding nonqualified stock options awarded to date to employees vest over a five-year period and expire after ten years from the date of grant. All outstanding nonqualified stock options awarded to date to directors vest over a three-year period and expire after three years, three months from the date of grant.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. Employee and management options are tracked separately. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

During the second quarter, no stock options were granted, 10,593 options were exercised, and 6,230 options were forfeited. During the second quarter of 2007, no stock options were granted or forfeited and 5,072 options were exercised.

The fair value of options granted during the first six months of 2007 were determined using the following weighted-average assumptions as of grant date.

	Six months ended June 30, 2007
Risk-free interest rate	4.47	%
Expected option life	6.5 years
Expected stock price volatility	20	%
Dividend yield	1.8	%

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A summary of activity in the stock option plan for the six months ended June 30, 2008 follows:

	Shares		Weighted- Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at the beginning of the year	198,628		$	10.43
Granted	—			—
Exercised	(18,835	)		7.44
Forfeited	(6,230	)		13.49
Outstanding at the end of the period	173,563		$	10.64	4.74 years		N/A
Exercisable at the end of the period	129,359		$	9.35	4.08 years	$	109,955
Vested or expected to vest	164,885		$	10.64	4.74 years		N/A

As of June 30, 2008, there was $128,000 of total unrecognized compensation cost related to outstanding stock options granted under the Plan. The cost is expected to be recognized over a weighted average period of 1.82 years.

Stock Awards. Restricted stock awards provide for the immediate issuance of shares of Company common stock to the recipient. In the event the shares are granted subject to certain conditions or vesting schedules, such shares are held in escrow until those conditions are met, or until such shares have vested. Recipients of restricted shares do not pay any cash consideration to the Company for the shares, have the right to vote all shares subject to such grant, and receive all dividends with respect to such shares, whether or not the shares have vested. The fair value of share awards is equal to the fair market value of the Company’s common stock on the date of grant.

There were no awards of restricted stock granted in the first six months of 2007 or 2008.

A summary of the status of the Company’s nonvested awards as of June 30, 2008 is as follows:

Nonvested Shares	Shares	Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2008	18,500	$	14.75
Granted	—		—
Vested	200		14.75
Forfeited	1,300		14.75
Nonvested at June 30, 2008	17,000		14.75
Vested or expected to vest	15,450	$	14.75

As of June 30, 2008, there was $212,000 of total unrecognized compensation cost related to nonvested stock awards granted under the Plan. The cost is expected to be recognized over a weighted average period of 2.57 years.

Note 3: Securities

Investment securities available-for-sale include $3,078,000 in mortgage-backed securities at June 30, 2008. This investment by the Bank in mortgage-backed securities qualifies as collateral for advances from the Federal Home Loan Bank of Seattle.

There were no sales of available-for-sale securities during the first six months of 2008 or 2007.

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Securities with unrealized losses at June 30, 2008 and December 31, 2007, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows (in thousands):

June 30, 2008

	Less than 12 Months					12 Months or More					Total
(in thousands) Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. agencies	$	2,913	$	(86	)	$	—	$	—		$	2,913	$	(86	)
Mortgage-backed securities		1,363	$	(39	)	$	1,432	$	(43	)	$	2,795	$	(82	)
Total temporarily impaired	$	4,276	$	(125	)	$	1,432	$	(43	)	$	5,708	$	(168	)
	Less than 12 Months					12 Months or More					Total
December 31, 2007 Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
State and political subdivisions	$	—	$	—		$	2,450	$	(10	)	$	2,450	$	(10	)
Mortgage-backed securities		95		(1	)		3,173		(52	)		3,268		(53	)
Total temporarily impaired	$	95	$	(1	)	$	5,623	$	(62	)	$	5,718	$	(63	)

At June 30, 2008 and December 31, 2007, securities with unrealized losses have an aggregate depreciation of 2.9 percent and 1.1 percent from the Company’s amortized cost basis. The unrealized losses are predominately the result of changing market values due to increasing short-term market interest rates, and are expected to regain the lost value with stable or declining interest rates and, accordingly, are considered as temporary. No credit issues have been identified that cause management to believe the declines in market value are other than temporary. The Company has the ability and intent to hold these securities until recovery, which may be maturity.

The scheduled maturities of securities available-for-sale at June 30, 2008 were as follows. Securities not due at a single maturity date are shown separately:

	Fair Value
(in thousands)	June 30, 2008		December 31, 2007
Due in one year or less	$	1,486	$	1,856
Due after one year through five years		6,345		6,569
Due after five years through ten years		156		503
Total		7,987		8,928
Mortgage-backed securities and collateralized mortgage obligations		3,078		3,593
Federal Home Loan Bank stock		4,143		1,925
Total	$	15,208	$	14,446

Note 4: 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. 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. All computations of basic and diluted earnings per share are adjusted for all applicable stock splits and dividends effected on the Company’s common stock and exclude shares considered to be antidilutive.

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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 (in thousands, except share and per share data):

	Three months ended June 30,
	2008		2007
Income (numerator):
Net income	$	152	$	747
Income (denominator):
Weighted average number of common stock shares outstanding – basic		2,401,556		2,357,308
Dilutive effect of outstanding stock options and nonvested stock awards		16,113		38,519
Weighted average number of common stock shares outstanding and assumed conversion – diluted		2,417,669		2,395,827
Basic earnings per share	$	0.06	$	0.32
Diluted earnings per share	$	0.06	$	0.31

	Six months ended June 30,
	2008		2007
Income (numerator):
Net income	$	3,559	$	1,403
Income (denominator):
Weighted average number of common stock shares outstanding – basic		2,396,815		2,355,108
Dilutive effect of outstanding stock options and nonvested stock awards		22,638		40,760
Weighted average number of common stock shares outstanding and assumed conversion – diluted		2,419,453		2,395,868
Basic earnings per share of common stock	$	1.48	$	0.60
Diluted earnings per share of common stock	$	1.47	$	0.59

For the diluted earnings per share calculation for the three month and six month periods ended June 30, 2008, 68,214 options, respectively, were considered anti-dilutive. Further, for the three month and six month periods ended June 30, 2008, 15,450 nonvested stock awards were excluded from the dilutive earnings per share calculation.

Note 5: Retirement Benefits

The Company participates in a defined contribution retirement plan. The 401(k) plan permits all salaried employees to contribute up to a maximum of 15 percent of gross salary per month. For the first 6 percent, the Company contributes two dollars for each dollar the employee contributes. Partial vesting of Company contributions to the plan begins at 20 percent after two years of employment, and such contributions are 100 percent vested with five years of employment. The Company’s contributions to the plan for the quarters ended June 30, 2008 and 2007 were $107,000 and $101,000, respectively. Contributions to the plan for the first six months of 2008 were $247,000 and $190,000 for the same period in 2007.

In 2007, the Company also participated in a multiple-employer defined benefit post-retirement health care plan that provided medical and dental coverage to directors and surviving spouses and to employees who retire after age 62 and 15 years of full-time service and their dependents. On November 30, 2007 the post-retirement plan was terminated. The following table shows post-retirement plan information for the three and six months ended June 30, 2007.

Components of net periodic benefit cost

	Three months ended,			Six months ended,
(in thousands)	June 30, 2007
Service cost	$	33		$	66
Interest cost		25			50
Amortization of transition obligation		—			—
Amortization of prior service cost		(5	)		(10	)
Recognized net actuarial (gain) loss		3			6
Net periodic benefit cost	$	56		$	112

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For further discussion of post-retirement benefits, see Note 13, “Retirement Benefits” to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K as of December 31, 2007.

Note 6: Junior Subordinated Debt

In April 2007, the Company formed EvergreenBancorp Statutory Trust III (“Trust III”) a statutory trust formed under the laws of the State of Delaware. Trust III issued $5 million in trust preferred securities in a private placement offering. Simultaneously with the issuance of the trust preferred securities by Trust III, the Company issued junior subordinated debentures to Trust III. The junior subordinated debentures are the sole assets of Trust III. 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 1.65 percent (4.43 percent at June 30, 2008). The junior subordinated debentures are redeemable at par beginning in December 2012; the debentures will mature in June 2037, at which time the preferred securities must be redeemed. The Company has the option to defer interest payments on these subordinated debentures from time to time for a period not to exceed twenty consecutive quarterly periods. In July of 2007, the Company used the net proceeds from the trust preferred issuance to call $5 million of trust preferred securities issued in May 2002 and concurrently redeemed related trust preferred securities issued to the public.

In November 2006, Bancorp formed EvergreenBancorp Statutory Trust II (“Trust II”) a statutory trust formed under the laws of the State of Connecticut. In November 2006, Trust II issued $7 million in trust preferred securities in a private placement offering. Simultaneously with the issuance of the trust preferred securities by Trust II, Bancorp issued junior subordinated debentures to Trust II. The junior subordinated debentures are the sole assets of Trust II. 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 1.70 percent (4.48 percent at June 30, 2008). The junior subordinated debentures are redeemable at par beginning in December 2011; the debentures will mature in December 2036, at which time the preferred securities must be redeemed. The Company has the option to defer interest payments on these subordinated debentures from time to time for a period not to exceed twenty consecutive quarterly periods. Bancorp has provided a full, irrevocable, and unconditional guarantee on a subordinated basis of the obligations of Trust II under the preferred securities as set forth in such guarantee agreement.

Under current accounting guidance, FASB Interpretation No. 46, as revised in December 2003, Trust II and Trust III are not consolidated with the Company. Accordingly, the Company does not report the securities issued by Trust II and Trust III as liabilities, and instead reports as liabilities the subordinated debentures issued by the Company and held by Trust II and Trust III, as these are not eliminated in consolidation. The Company’s investment in the common stock of Trust II and Trust III was $217,000 and $155,000, respectively, and is included in accrued interest and other assets on the Consolidated Balance Sheets.

Note 7: Fair Value

FASB Statement No. 157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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The fair values of securities available for sale are determined by matrix pricing, which is a mathematical technique widely used to in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

Assets and liabilities measured at fair value on a recurring basis are summarized below:

			Fair Value Measurements at June 30, 2008 Using
			Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets at June 30, 2008:
Available for sale securities	$	11,065	—	$	11,065	—

The following assets and liabilities were measured at fair value on a non-recurring basis:

			Fair Value Measurements at June 30, 2008 Using
			Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Assets at June 30, 2008:
Impaired loans	$	3,509	—	—	$	3,509

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $3,509,000 at June 30, 2008 as compared to $2,917,000 at March 31, 2008 and $779,000 at December 31, 2007. The fair value of collateral is calculated using a third party appraisal. The valuation allowance for these loans was $1,287,000 at June 30, 2008 as compared to $1,199,000 at March 31, 2008 and $630,000 at December 31, 2007. An additional provision for loan losses of $155,000 and $1,220,000 was made during the quarter and six months ended June 30, 2008 relating to impaired loans.

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, and other noninterest income. Operating expenses of the Bank include employee compensation and benefits, occupancy and equipment costs, data processing costs, professional fees, marketing, state and local taxes, 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 three and six month periods ended June 30, 2008. This discussion should be read in conjunction with the unaudited consolidated financial statements and accompanying notes contained elsewhere in this report. When warranted, comparisons are made to the same periods in 2007 and to the previous year ended December 31, 2007. 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, 2007.

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Forward-Looking Statements

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 results to differ materially 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. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results, is included in the Company’s filings with the Securities and Exchange Commission, including its Annual Report for 2007 on Form 10-K.

RESULTS OF OPERATIONS

Overview

The profitability of the Company’s operations depends primarily on the net interest income from its banking operations and investment activities, the provision for losses on loans, noninterest income, noninterest expense, and income tax expense. Net interest income is the difference between the interest income the Company receives on its loan and investment portfolios and its cost of funds, which consists of interest paid on deposits and borrowings. The provision for loan losses reflects the cost of credit risk in the Company’s loan portfolio. Noninterest income includes service charges on deposit accounts, net merchant credit card processing fees and gains or losses from sales of investment securities. Noninterest expense includes operating costs such as salaries and employee benefits, occupancy and equipment, data processing, professional fees, marketing, state and local taxes, and other administrative expense.

Net interest income is dependent on the amounts and yields on interest-earning assets as compared to the amounts and rates on interest-bearing liabilities. Net interest income is sensitive to changes in market rates of interest and the Company’s asset/liability management procedures in dealing with such changes.

The provision for loan losses is dependent on management’s assessment of the collectibility of the loan portfolio under current economic conditions. Other expenses are influenced by the growth of operations, with additional employees necessary to staff and operate new banking offices and marketing expenses necessary to promote them. Growth in the number of account relationships directly affects expenses such as technology costs, supplies, postage, and miscellaneous expenses.

Capital activities in the second quarter of 2008 included a quarterly cash dividend paid in May. Capital ratios remain strong with the equity-to-assets ratio at 6.31 percent at June 30, 2008.

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Net Income

Three months and six months ended June 30, 2008 and 2007

For the second quarter of 2008, the Company reported net income of $152,000 compared to $747,000 for the second quarter of 2007, a decrease of 80 percent. The primary reason for the decrease in net income was a significant decline interest income primarily attributable to a drop in the yield earned on interest-earning assets, most evident in commercial loans. Offsetting this decline, interest expense for the second quarter fell from $3,384,000 in 2007 to $3,092,000 in 2008 reflecting a drop in interest rates paid on average interest-bearing liabilities. In addition, net income was negatively impacted by an increase in the provision for loan losses to $508,000 for the second quarter of 2008 as compared with $233,000 for the same period in 2007. Net income was further reduced by an increase in noninterest expense of $559,000. This increase was mostly attributable to a rise in salaries and benefits expense as well as increases in FDIC insurance premiums, marketing expense, and occupancy expense.

Basic and diluted earnings per common share for the second quarter of 2008 were $0.06 and $0.06, respectively, compared to $0.32 and $0.31, respectively, for the same period one year ago.

For the second quarter of 2008, annualized return on average common equity and annualized return on average assets was 2 percent and 0.14 percent, respectively, compared to 12 percent and 0.81 percent, respectively, for the same period in 2007.

For the first six months of 2008, net income was $3,559,000, compared with $1,403,000 for the first six months of 2007, an increase of $2,156,000 or 154 percent. The primary reason for the increase in net income was an increase in noninterest income due to a gain totaling $5,587,000 that the Company realized as a result of Visa, Inc.’s initial public offering (“IPO”) in March 2008. Net interest income after provision for loan losses was lower in the first six months of 2008 compared with the same period in 2007 due primarily to a larger provision for loan losses. The provision for loan losses was $2,341,000 for the six months ended June 30, 2008 as compared with $496,000 for the same period in 2007.

Basic and diluted earnings per common share were $1.48 and $1.47, respectively, for the first six months of 2008 and $0.60 and $0.59, respectively, for the same period in 2007. Annualized return on average assets was 1.66 percent for 2008 and 0.78 percent for 2007. Annualized return on average common equity was 26 percent for the first six months of 2008 and 12 percent for the same period of 2007.

Additional analysis of financial components is contained in the discussion that follows.

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 $3,911,000 for the second quarter of 2008, compared to $3,863,000 for the same period in 2007, an increase of $48,000 or 1 percent. Net interest income before provision for loan losses was $7,875,000 for the first six months of 2008 compared with $7,502,000 for the first six months of 2007, an increase of $373,000 or 5 percent.

Interest income for the second quarter of 2008 was $7,003,000 as compared with $7,247,000 in the same quarter of 2007. The decrease in interest income was primarily attributable to a decline in the average yield on interest-earning assets. The yield on these assets decreased 159 basis points from 8.24 percent for the quarter ended June 30, 2007 to 6.65 percent for the quarter ended June 30, 2008. The decrease in yield was offset by a significant increase in average interest-earning assets, which rose to $423,540,000 in the second quarter of 2008 compared with $353,774,000 in the second quarter of 2007. Average loans rose from $320,167,000 for the three months ended June 30, 2007 to $399,561,000 for the same period in 2008, an

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increase of 25%. Yields on average loan balances decreased 175 basis points from the second quarter of 2007 to the second quarter of 2008. The decrease in average yields on interest-earning assets reflects the significant decline in short-term interest rates that began in the fourth quarter of 2007 and continued into the second quarter of 2008. The yield on average loans was also affected during the second quarter of 2008 when two loan relationships were put on non-accrual status and the related accrued interest income totaling approximately $180,000 was reversed. Also contributing to the decline in interest income was a decrease in average investment securities, which fell 47 percent from $28,236,000 at June 30, 2007 to $15,097,000 at June 30, 2008. The primary reason for this drop was the sale of an investment totaling $14,762,000 completed in November 2007 to provide liquidity to the Company to fund loan growth.

Interest income for the first six months of 2008 was $14,474,000 as compared with $13,998,000 in the first six months of 2007, an increase of $476,000 or 3 percent. The increase is primarily due to a rise in average interest-earning assets which grew from $345,404,000 at June 30, 2007 to $415,301,000 at June 30, 2008. The yields on interest-bearing assets fell from 8.19 percent to 7.01 percent year over year reflecting the significant drop in short-term interest rates at occurred at the end of 2007 and continued into the second quarter of 2008. The increase in average interest-earning assets was primarily attributable to a rise in average loan balances of 25 percent or $79,133,000 for the six months ended June 30, 2008 as compared with the six months ended June 30, 2007. The average yield on loans decreased 134 basis points when comparing the six months ended June 30, 2008 to June 30, 2007. This decrease is attributable to the decline in short-term interest rates that occurred in late 2007 and early 2008 and a reversal of interest income recognized on two loan relationships that were put on non-accrual status in the second quarter of 2008. The $79,133,000 or 25 percent increase in average loan balances was partially offset by a decrease in average investment securities of $13,491,000 due to the sale of a security in the fourth quarter of 2007. The yield on average investment securities declined by 68 basis points from 4.68 percent at June 30, 2007 to 4.00 percent at June 30, 2008.

Interest expense for the three months ended June 30, 2008 was $3,092,000 compared to $3,384,000 for the same period in the prior year, a decrease of $292,000 or 9 percent. Average rates paid on interest-bearing deposits decreased 96 basis points from 4.42 percent for the three months ended June 30, 2007 to 3.46 percent for the same period in 2008. Average rates paid on FHLB advances dropped 165 basis points from an average of 5.13 percent for the second quarter of 2007 to 3.48 percent for the same period this year. These rate decreases reflect the succeeding cuts in interest rates that began in late 2007, as well as a shift in the mix of borrowings to less costly, shorter-term advances. The decrease in average rates paid on liabilities was partially offset by an increase in average interest-bearing liabilities. Average interest-bearing deposits increased from $235,414,000 for the quarter ended June 30, 2007 to $259,290,000 for the same period ended June 30, 2008. The average balance in Federal Home Loan Bank (“FHLB”) advances increased to $82,710,000 for the quarter ended June 30, 2008 compared to $35,013,000 for the quarter ended June 30, 2007.

For the six months ended June 30, 2008, interest expense totaled $6,599,000 as compared to $6,496,000 for the same period in 2007, an increase of $103,000 or 2 percent. Average interest-bearing deposits increased from $221,530,000 for the six months ended June 30, 2007 to $258,200,000 for the same period in 2008. An increase in the use of brokered funds accounts for the majority of the increase, rising from $88,996,000 to $108,826,000. Both the increase in balances and the higher rates paid on brokered funds contributed significantly to increasing the overall cost of funds. Average FHLB advance balances rose from $43,192,000 for the six months ended June 30, 2007 to $77,767,000 for the six months ended June 30, 2008. The average rates paid on these advances decreased 138 basis points from 5.22 percent for the six months ended June 30, 2007 to 3.84 percent for the six months ended June 30, 2008. The increased reliance on FHLB advances offset the decrease in average rates and contributed to the increase in interest expense.

The net interest margin, which is the ratio of taxable-equivalent net interest income to average earning assets, was 3.73 percent for the quarter ended June 30, 2008 compared with 4.40 percent for the same period in 2007. The net interest margin was 3.83 percent for the first six months of 2008 compared to 4.40 percent for the same period one year ago. The weighted average yield on interest earning assets was 7.01 percent for the first six months of 2008 compared to 8.19 percent for the first six months of 2007, a decrease of 118 basis points. Interest expense as a percentage of average earning assets was 3.19 percent

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for the first six months of 2008, compared to 3.79 percent during the same period in 2007, a decrease of 60 basis points. The smaller decrease in rates paid on interest-bearing liabilities as compared with the decrease in yields on interest-earning assets caused compression in the net interest margin. This is primarily the result of the Company’s interest-earning assets repricing more quickly than its interest-bearing liabilities as interest rates declined during the latter part of 2007 and the first half of 2008.

Yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries are reviewed on a fully taxable-equivalent basis (“FTE”). In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. The following table shows the reconciliation between net interest income and the taxable-equivalent net interest income as of June 30, 2008 and June 30, 2007:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except ratio data)	2008			2007			2008			2007
Net Interest Margin
Interest income (GAAP)	$	7,003		$	7,247		$	14,474		$	13,998
Taxable-equivalent adjustment:
Loans		3			3			6			6
Investments		13			16			27			33
Interest income - FTE		7,019			7,266			14,507			14,037
Interest expense (GAAP)		3,092			3,384			6,599			6,496
Net interest income - FTE	$	3,927		$	3,882		$	7,908		$	7,541
Net interest income - (GAAP)	$	3,911		$	3,863		$	7,875		$	7,502
Average interest earning assets	$	423,540		$	353,774		$	415,301		$	345,404
Net interest margin (GAAP)		3.70	%		4.38	%		3.81	%		4.38	%
Net interest margin - FTE		3.73	%		4.40	%		3.83	%		4.40	%

Noninterest Income/Expense

Noninterest income in the second quarter of 2008 was $408,000 compared to $521,000 in the same quarter of 2007, a decrease of $112,000 or 22 percent. This decrease was primarily due to a decline in income from service charges on deposit accounts, which fell from $363,000 for the three months ended June 30, 2007 to $290,000 for the same period in 2008. The decrease was primarily a result of a decline in NSF fee income. In addition, a decrease in merchant credit card processing fees reduced noninterest income, decreasing from $48,000 in the second quarter of 2007 to $23,000 in the same period in 2008. This decrease was primarily attributable to the decision of PEMCO Financial Services Group (“PFS”) and a couple of other significant credit card processing customers to move their credit card processing relationship away from the Company in 2008.

Noninterest income for the six months ended June 30, 2008 was $6,433,000 compared with $996,000 for the same period of 2007, an increase of $5,437,000 or 546 percent. The increase was primarily due to a gain of $5,587,000 resulting from Visa, Inc’s IPO that occurred in March 2008. This amount included a cash gain of $3,465,000 recorded as a result of the mandatory redemption of a portion of the Company’s Visa shares. An additional non-cash gain of $2,122,000 was recorded as a result of Visa establishing an escrow account to cover certain litigation judgments and settlements that the Company had recorded in the

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fourth quarter of 2007. This gain was offset by a decrease in service charge fee income due to a decline in NSF fees and a decrease in merchant credit card processing income. The latter is the result of a reduction in merchant credit card processing activity of a few merchant relationships that occurred in 2008.

Noninterest expense was $3,598,000 in the second quarter of 2008, compared to $3,040,000 in the same quarter of 2007, an increase of $558,000, or 18 percent. The increase is partially due to a rise in salaries and benefits expense, which was $1,625,000 for second quarter of 2008, compared with $1,396,000 for the same period in 2007, an increase of $229,000 or 16 percent, attributable to the addition of approximately 9 full-time equivalent staff (“FTE’s”) as compared with the same quarter in 2007. In addition to the increase in FTE’s, the use of temporary staffing increased, which had the effect of increasing salaries expense by $51,000 quarter over quarter. These increases were partially offset by the elimination of expense related to the post-retirement benefits plan that was terminated in November 2007. This reduced salaries expense for the second quarter of 2008 by $45,000. Occupancy and equipment expense was $580,000 for the three months ended June 30, 2008, a $96,000 or 20 percent increase from the same period in 2007 and is due to additional expenses related to the opening of the Kent branch office. Data processing was $223,000 for the three months ended June 30, 2008 as compared to $272,000 for the same period in the previous year, a decrease of $49,000 or 18 percent. The decrease is attributable to one time costs recognized in the second quarter of 2007 related to a change in the Company’s core data processor. Marketing expense for the second quarter was $303,000 compared with $165,000 for the same period in 2007, an increase of $138,000 or 84 percent. The increase is primarily due to the sponsorship of the Seattle Streetcar and related advertising which began in the second quarter of 2008. Professional fees decreased $10,000 or 10 percent quarter to quarter. State revenue and sales tax expense remained relatively constant at $140,000 for the quarter ended June 30, 2008 compared with $139,000 in the same quarter in 2007. Other noninterest expense increased $154,000 or 32 percent quarter over quarter primarily due to increased Federal Deposit Insurance Corporation (“FDIC”) insurance premiums.

Noninterest expense for the six months ended June 30, 2008 was $6,852,000 compared with $5,935,000 for the same period of 2007, an increase of $917,000 or 15 percent. The increase was partially due to an increase in salaries and benefits expense of $221,000, or 8 percent for the six months ended June 30, 2008, as compared with the same period in 2007, a result of staff additions. The increase of $127,000, or 13 percent, in occupancy expense for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007 was primarily due to costs associated with the opening of the Kent branch office in April 2008. Data processing decreased $8,000 or 2 percent for the six months ended June 30, 2008 as compared with the same period in 2007. Professional fees were $219,000 for the six months ended June 30, 2008 as compared with $192,000 for the same period in 2007. The increase was primarily due to additional accounting fees charged to the Company in the first quarter of 2008; these charges were related to certain transactions completed in the last year. Marketing expense grew to $367,000 for year-to-date period ended June 30, 2008 from $226,000 for the same period in 2007, an increase of $141,000 or 62 percent partially due to the sponsorship of the Seattle Streetcar and related advertising which began in the second quarter of 2008. State revenue and sales tax expense for the first six months of 2008 increased by $76,000 or 31 percent primarily due to increased revenues related primarily to the gain resulting from Visa, Inc.’s IPO recognized in the first quarter of 2008. The increase in other noninterest expense of $332,000 or 45 percent for the first six months of 2008 as compared to the same six months in 2007 is primarily related to increased FDIC insurance premiums and increased costs as a result of Company growth over the past year.

Income tax expense

The Company recognized income tax expense of $60,000 during the second quarter of 2008, down from $364,000 in the same quarter of 2007, a decrease of 84 percent, or $304,000. Income tax expense for the six months ended June 30, 2008 was $1,556,000, compared to $664,000 for the same period of 2007, an increase of 134 percent or $892,000. The effective income tax rate for the second quarter of 2008 was 28 percent as compared with 33 percent for the same period in 2007. The lower effective tax rate was due to lower net income before taxes. The effective tax rate for six months ended June 30, 2008 was 30 percent as compared to 32 percent for the same period in 2007.

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Provision and Allowance for Loan Losses

Included in the results of operations for the quarters ended June 30, 2008 and 2007 is expense of $509,000 and $233,000, respectively, related to the provision for loan losses. The provision for loan losses for the six months ended June 30, 2008 was $2,341,000 compared to $496,000 for the same period of 2007. The increase in the provision for loan losses in the second quarter and first half of 2008 as compared to the second quarter and first half of 2007 was a result of an increase in the allowance allocated to impaired loans, an increase in net charge-offs during the quarter, and as a result of continued loan growth.

Please refer to Financial Condition, “Allowance for Loan Losses” for further discussion of the provision for loan losses.

FINANCIAL CONDITION

Loans

At June 30, 2008, loans totaled $410,994,000 compared to $375,428,000 at December 31, 2007, an increase of $35,566,000 or 9 percent.

At June 30, 2008, the Bank had $339,690,000 in loans secured by real estate, which includes loans primarily for a commercial purpose, 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 June 30, 2008 and December 31, 2007:

Types of Loans

(in thousands)	June 30, 2008		% of loans in each category to total loans		December 31, 2007		% of loans in each category to total loans
Commercial	$	97,975	24	%	$	89,146	24	%
Real estate:
Commercial		196,960	48			159,167	42
Construction		56,947	14			58,968	16
Residential 1-4 family		36,711	9			44,598	12
Consumer and other		22,401	5			23,549	6
Total	$	410,994	100	%	$	375,428	100	%

Allowance for Loan Losses

Management evaluates the adequacy of the allowance for loan losses on a quarterly basis after consideration of a number of factors, including the volume and composition of the loan portfolio, impairment of individual loans, concentrations of credit, past loss experience, current delinquencies, information about specific borrowers, current economic conditions, and other factors. Although management believes the allowance for loan losses was at a level adequate to absorb probable incurred losses on existing loans at June 30, 2008, there can be no assurance that such losses will not exceed estimated amounts.

Over the past few months, significant deterioration in the national economy has become more apparent. To a lesser degree to date, the local economy is also showing signs of slowdown. Residential real estate sales volumes have declined and the housing prices have declined modestly in the Company’s market area. While net loan charge-offs and the provision for loan losses both increased quarter over quarter, the Company is not experiencing broad-based credit quality deterioration in any segment of its loan portfolio. The Company recognizes, however, that further deterioration in the local economy could adversely affect cash flows for both commercial and individual borrowers. As a result, the Company could experience increases in problem assets, delinquencies, and losses on loans.

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At June 30, 2008, the allowance for loan losses was $5,593,000 compared to $4,166,000 at December 31, 2007. The ratio of the allowance to total loans outstanding was 1.36 percent at June 30, 2008, and 1.11 percent at December 31, 2007.

In the following table, the allowance for loan losses at June 30, 2008 and December 31, 2007 has been allocated among major loan categories based on a number of factors including quality, volume, current economic outlook, and other business considerations.

(in thousands)	June 30, 2008 Amount			% of Loans in Each Category to Total Loans	December 31, 2007 Amount			% of Loans in Each Category to Total Loans
Commercial	$	1,651		24	$	1,644		24
Real estate:
Commercial		1,601		48		1,526		42
Construction		1,764		14		663		16
Residential 1-4 family		200		9		42		12
Consumer and other		377		5		291		6
Total	$	5,593		100	$	4,166		100
% of Loan portfolio		1.36	%			1.11	%

This analysis of the allowance for loan losses should not be interpreted as an indication that chargeoffs will occur in these amounts or proportions, or that the allocation indicates future chargeoff trends. Furthermore, the portion allocated to each category is not the total amount available for future losses that might occur within each category.

The following table summarizes activity in the allowance for loan losses and details the chargeoffs, recoveries and net loan losses by loan category.

(in thousands)	Six months ended June 30, 2008		Six months ended June 30, 2007
Beginning Balance	$	4,166	$	2,784
Chargeoffs
Commercial		716		60
Real estate:
Commercial		—		—
Construction		—		—
Residential 1-4 family		103		—
Consumer and other		144		34
Total charge-offs		963		94
Recoveries
Commercial		10		61
Real estate:
Commercial		—		—
Construction		—		—
Residential 1-4 family		21		—
Consumer and other		18		4
Total Recoveries		49		65
Net chargeoffs/(recoveries)		914		29
Provision		2,341		496
Ending balance	$	5,593	$	3,251

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Nonperforming loans at June 30, 2008 and December 31, 2007 were as follows:

(in thousands except ratio data)	June 30, 2008			December 31, 2007
Loans past due 90 days or more and still accruing	$	—		$	36
Loans accounted for on a nonaccrual basis		7,492			779
Nonperforming loans to allowance for loan losses		133.9	%		19.6	%
Nonperforming loans to total loans		1.82	%		0.22	%

Non-performing loans were $7,492,000 at June 30, 2008 as compared to $815,000 at December 31, 2007. Non-performing loans to total loans ratio stood at 1.82 percent at June 30, 2008 as compared to 0.22 percent at December 31, 2007.

A portion of the allowance for loan losses is allocated to impaired loans. Information with respect to impaired loans and the related allowance for loan losses is as follows (in thousands):

	June 30, 2008		December 31, 2007
Impaired loans for which no allowance for loan losses was allocated	$	3,881	$	898
Impaired loans with an allocation of the allowance for loan losses		3,509		779
Total	$	7,390	$	1,677
Amount of the allowance for loan losses allocated	$	1,287	$	630

Impaired loans were $7,390,000 at June 30, 2008 as compared to $1,677,000 at December 31, 2007. The increase in impaired loans was primarily related to two borrowing relationships. One was a construction loan relationship totaling $3,133,000 in outstanding balances. The allowance allocated on this loan relationship is approximately $1,000,000 and is based upon appraisals obtained in June 2008. The second impairment was for a single loan totaling $3,861,000. This loan, secured by undeveloped land, was placed on non-accrual during the second quarter. An appraisal was completed in June 2008 and it was determined that the value of the property less estimated selling costs exceeds the outstanding principal balance of the loan, therefore, no specific allocation was made for this loan.

Investments

At June 30, 2008, investments totaled $15,208,000, an increase of $762,000 or 5 percent from $14,446,000 at December 31, 2007. The increase in investments was primarily due to purchases of additional Federal Home Loan Bank (“FHLB”) stock totaling approximately $2,200,000 and two new securities totaling $3,000,000. These were mostly offset by maturities and principal payments on securities available-for-sale.

For more information regarding securities, see Note 3, “Securities” to the unaudited consolidated financial statements.

Deposits

At June 30, 2008, total deposits were $320,447,000, compared to $309,471,000 at December 31, 2007, a 4 percent increase. Non-interest-bearing deposits totaled $50,362,000 at June 30, 2008 compared to $59,458,000 at December 31, 2007, a decrease of $9,096,000 or 15 percent. Noninterest-bearing deposits fell partially due to a decision made by PEMCO Financial Services Group (“PFS”) to move a portion of

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their deposit relationship away from the Company in 2008. Interest-bearing deposits totaled $270,085,000 at June 30, 2008, compared to $250,013,000 at December 31, 2007, an increase of $20,072,000 or 8 percent. Approximately $13,600,000 or 68 percent of the net growth in interest-bearing deposits in the first six months of 2008 was through the use of brokered certificates of deposit.

Borrowings and Junior Subordinated Debt

At June 30, 2008, the Bank’s Federal Home Loan Bank advances were $89,725,000 compared to $69,910,000 at December 31, 2007, a 28 percent increase.

At June 30, 2008 and December 31, 2007 the Company had junior subordinated debt totaling $12,372,000. For discussion of trust preferred securities, see Note 6, “Junior Subordinated Debt” to the unaudited consolidated financial statements.

For discussion of Federal Home Loan Bank advances and junior subordinated debt, see Note 8, “Borrowings and Junior Subordinated Debt” to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K as of December 31, 2007.

Stockholders’ Equity and Capital Resources

Stockholders’ equity totaled $28,837,000 at June 30, 2008, an increase of $3,401,000 or 13 percent over December 31, 2007. Current earnings were $3,559,000 and dividends paid were $337,000 for the six months ended June 30, 2008. The change in unrealized losses on securities available-for-sale, net of deferred taxes, reduced stockholders’ equity by $62,000. Equity increased by $100,000 in common stock and surplus due to the recognition of stock option compensation expense and the related tax benefit, and by $141,000 in surplus from the exercise of 18,835 stock options in the first half of 2008.

Book value per share was $11.98 at June 30, 2008 and $10.65 at December 31, 2007. Book value per share is calculated by dividing total equity by total shares outstanding.

The following table displays the capital ratios at June 30, 2008 and December 31, 2007 for the Company and the Bank. As the table illustrates, the capital ratios exceed those required to be considered well-capitalized.

	Actual				Minimum for Capital Adequacy Purposes				Minimum to Be Well Capitalized Under the Prompt Corrective Action Provisions
(in thousands, except ratio data)	Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2008
Total capital (to risk-weighted assets)
Consolidated	$	46,379	11.37	%	$	32,643	8.00	%		N/A	N/A
Bank		45,531	11.16			32,631	8.00		$	40,789	10.00	%
Tier 1 capital (to risk-weighted assets)
Consolidated		38,514	9.44			16,321	4.00			N/A	N/A
Bank		40,426	9.91			16,316	4.00			24,474	6.00
Tier 1 capital (to average assets) (1)
Consolidated		38,514	8.69			17,724	4.00			N/A	N/A
Bank		40,426	9.12			17,724	4.00			22,155	5.00
December 31, 2007
Total capital (to risk-weighted assets)
Consolidated	$	41,977	11.24	%	$	29,877	8.00	%		N/A	N/A
Bank		41,200	11.28			29,212	8.00		$	36,515	10.00	%
Tier 1 capital (to risk-weighted assets)
Consolidated		33,951	9.09			4,938	4.00			N/A	N/A
Bank		37,034	10.14			14,606	4.00			21,909	6.00
Tier 1 capital (to average assets)(1)
Consolidated		33,951	8.19			16,585	4.00			N/A	N/A
Bank		37,034	8.97			16,518	4.00			20,647	5.00

(1) Also referred to as the leverage ratio

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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 June 30, 2008, the Company had commitments to extend credit and contingent liabilities under lines of credit, standby letters of credit and similar arrangements totaling $87,866,000. 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.

The Company, as a Visa member bank, is obligated to indemnify Visa for certain litigation losses. In the fourth quarter of 2007, the Company recognized indemnification charges of $2,122,000 related to this obligation. A receivable was recorded to offset the litigation reserve in March 2008 when, upon completion of its IPO, Visa, Inc. established an escrow account that will be used to settle certain litigation judgments and settlements. The Company expects that the remaining shares it owns of Visa Inc., which are currently restricted, will be sufficient to cover any future possible litigation against Visa, Inc.

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, 2007.

The following table summarizes the Company’s significant contractual obligations and commitments at June 30, 2008:

(in thousands)	Within 1 Year		1-3 Years		3-5 Years		After 5 Years		Total
Federal Home Loan Bank advances	$	56,000	$	6,675	$	17,050	$	10,000	$	89,725
Junior subordinated debt		—		—		—		12,372		12,372
Time Deposits		179,077		6,848		1,269		—		187,194
Operating leases		900		1,672		1,109		1,226		4,907
Total	$	235,977	$	15,195	$	19,428	$	23,598	$	294,198

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. 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.

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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 June 30, 2008 and 2007. See the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 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, 2007. The analysis of the potential impact of rate on net interest income is indicated in the tables below.

Net interest income analysis as of June 30, 2008:

In thousands; rate changes in basis points (bp) = 1/100 of 1%.

IMMEDIATE RATE CHANGE	ANNUALIZED DOLLAR CHANGE IN NET INTEREST INCOME		PERCENT CHANGE
+200bp	(643	)	(4.38	)
+100bp	(350	)	(2.39	)
+ 50bp	(168	)	(1.14	)
- 50bp	175		1.19
-100bp	329		2.24
-200bp	265		1.80

The table above indicates, for example, that the estimated effect of an immediate 100 basis point increase in interest rates would decrease the Company’s net interest income by an estimated 2.39 percent or approximately $350,000. An immediate 100 basis point decrease in rates indicates a potential increase in net interest income by 2.24 percent or approximately $329,000.

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.

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 June 30, 2008. 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.

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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 condition or results of operations of the Company.

ITEM 1A. RISK FACTORS

Our business exposes us to certain risks. The following is a discussion of the most significant risks and uncertainties that may affect our business, financial condition, and future results.

• Fluctuating interest rates can adversely affect our profitability

Our profitability is dependent to a large extent upon net interest income, which is the difference (or “spread”) between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings, and other interest-bearing liabilities. Because of the differences in maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes in interest rates do not produce equivalent changes in interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Accordingly, fluctuations in interest rates could adversely affect our interest rate spread, and, in turn, our profitability. We cannot make assurances that we can minimize our interest rate risk. In addition, interest rates also affect the amount of money we can lend. When interest rates rise, the cost of borrowing also increases. Accordingly, changes in levels of market interest rates could materially and adversely affect our net interest spread, asset quality, loan origination volume, business and prospects. We assess rate risk by various means including analysis of financial data and by modeling the impact of rate changes on financial performance. Current information suggests that the Company is slightly “asset-sensitive,” suggesting that rising interest rates may tend to increase net interest income and improve profits, and that falling interest rates would have the opposite effect.

• Our allowance for loan losses may not be adequate to cover actual loan losses, which could adversely affect our earnings

We maintain an allowance for loan losses in an amount that we believe is adequate to provide for probable incurred losses in the portfolio. While we strive to carefully monitor credit quality and to identify loans that may become nonperforming, at any time there are loans included in the portfolio that will result in losses, but that have not been identified as nonperforming or potential problem loans. We cannot be sure that we will be able to identify deteriorating loans before they become nonperforming assets, or that we will be able to limit losses on those loans that are identified. As a result, future additions to the allowance may be necessary. Additionally, future additions to the allowance may be required based on changes in the loans comprising the portfolio and changes in the financial condition of borrowers, such as may result from changes in economic conditions or as a result of incorrect assumptions by management in determining the allowance. Furthermore, federal banking regulators, as an integral part of their supervisory function, periodically review our allowance for loan losses. These regulatory agencies may require us to recognize further loan charge-offs based upon their judgments, which may be different from ours. Any increase in the allowance for loan losses could have a negative effect on our financial condition and results of operation.

• Our loan portfolio contains a high percentage of commercial and commercial real estate loans in relation to our total loans and total assets

Commercial and commercial real estate loans generally are viewed as having more risk of default than residential real estate loans or certain other types of loans or investments. These types of loans also typically are larger than residential real estate loans. Further deterioration in the local economy could

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adversely affect cash flows for both commercial and individual borrowers, thus causing the Company to experience increases in problem assets, delinquencies, and losses on loans. Because the loan portfolio contains a significant number of commercial and commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans may cause a significant increase in nonperforming loans. An increase in nonperforming loans could result in: a loss of earnings from these loans; an increase in the provision for loan losses; or an increase in loan charge-offs, which could have an adverse impact on our results of operations and financial condition.

• An economic downturn in the market area we serve may cause us to have lower earnings and could increase our credit risk associated with our loan portfolio

The inability of borrowers to repay loans can erode our earnings. Substantially all of our loans are to businesses and individuals in the Seattle, Bellevue, Lynnwood, Federal Way, and Kent communities, and any decline in the economy of this market area could impact us adversely. As a lender, we are exposed to the risk that our customers will be unable to repay their loans in accordance with their terms, and that any collateral securing the payment of their loans may not be sufficient to assure repayment.

• A tightening of the credit market may make it difficult to obtain available money to fund loan growth, which could adversely affect our earnings

A tightening of the credit market and the inability to obtain adequate money to fund continued loan growth may negatively affect our asset growth and, therefore, our earnings capability. In addition to core deposit growth, maturity of investment securities and loan payments, the Bank also relies on alternative funding sources through correspondent banking and a borrowing line with the FHLB to fund loans. In the event of a downturn in the economy, particularly in the housing market, these resources could be negatively affected, which would limit the funds available to the Bank.

• Competition in our market area may limit our future success

Commercial banking is a highly competitive business. We compete with other commercial banks, savings and loan associations, credit unions, and finance companies operating in our market area. We are subject to substantial competition for loans and deposits from other financial institutions. Some of our competitors are not subject to the same degree of regulation and restriction as we are. Some of our competitors have greater financial resources than we do. We compete for funds with other financial institutions that, in most cases, are significantly larger and able to provide a greater variety of services than we do and thus may obtain deposits at lower rates of interest. If we are unable to effectively compete in our market area, our business and results of operations could be adversely affected.

• There is not significant trading activity of our shares, which could result in price volatility

Our shares are traded on the OTC Bulletin Board under the symbol “EVGG.” There is not what would be characterized as an active trading market for the shares, and trading volume is not substantial. Accordingly, the trading price of our shares may be more susceptible to fluctuation, for example in the event of a transaction involving a significant block of shares, than a stock that was more actively traded. There can be no assurance that an active and liquid market for our common stock will develop. Accordingly, shareholders may find it difficult to sell a significant number of shares at the prevailing market price.

• We would be adversely affected if we lost the services of key personnel

We depend upon the services of Gerald Hatler, our President and CEO, and the experienced management he has assembled. The loss of Mr. Hatler in particular, if not replaced shortly with an equally competent person, could disrupt our operations and have an adverse effect on us. If Mr. Hatler were to die, EvergreenBank has a bank owned life insurance policy that would provide approximately $831,000. The proceeds from this death benefit could be used to mitigate costs that we may incur in locating and hiring a replacement.

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Our business success is also dependent upon our ability to continue to attract, hire, motivate and retain skilled personnel to develop our customer relationships, as well as new financial products and services. Many experienced banking professionals employed by our competitors are covered by agreements not to compete or solicit their existing customers if they were to leave their current employment. These agreements make the recruitment of these professionals more difficult. The market for these people is competitive, and we cannot be assured that we will be successful in attracting, hiring, motivating or retaining them.

• There are restrictions on changes in control of the Company that could decrease our shareholders’ chance to realize a premium on their shares

As a Washington corporation, we are subject to various provisions of the Washington Business Corporation Act that impose restrictions on certain takeover offers and business combinations, such as combinations with interested shareholders and share repurchases from certain shareholders. Provisions in our Articles of Incorporation requiring a staggered Board and/or containing fairness provisions could have the effect of hindering, delaying or preventing a takeover bid. These provisions may inhibit takeover bids and could decrease the chance of shareholders realizing a premium over market price for their shares as a result of the takeover bid.

• The FDIC likely will increase deposit insurance premiums to rebuild and maintain the federal deposit insurance fund

Based on recent events and the state of the economy, it is likely that the FDIC may increase federal deposit insurance premiums as early as September 2008. Depending on circumstances, this increase may be relatively significant and will add to our cost of operations. It is too soon to predict the exact amount of any premium increase or the impact on the Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) Bancorp’s Annual Meeting of Stockholders was held on April 24, 2008 at 1111 3^rd Avenue, Suite 300, Seattle, Washington. A total of 1,957,386 of the Company’s shares were present or represented by proxy at the meeting. This represented 82 percent of the Company’s outstanding votable shares.

The matters approved by the shareholders at the meeting and the number of votes cast for, against, or withheld (as well as the number of abstentions and broker non-votes) as to each matter are set forth below:

Proposal No. 1: Election of Directors:

Election of directors to three year terms, expiring 2011	For	Withheld
Richard W. Baldwin	1,941,720	15,666
Craig O. Dawson	1,942,350	15,036

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Proposal No. 2:Amendments to the Company’s Articles of Incorporation – Board composition.

For	Against	Abstain	Non-Votes
1,329,895	136,795	4,956	485,740
Proposal No. 3:Amendments to the Company’s Articles of Incorporation – Director indemnification.
For	Against	Abstain	Non-Votes
1,885,947	37,307	34,132	—
Proposal No. 4:Amendments to the Company’s Second Amended 2000 Stock Option and Equity Compensation Plan.
For	Against	Abstain	Non-Votes
1,221,619	207,104	42,923	485,740
Proposal No. 5: Ratification of Crowe Chizek and Company LLC as the Company’s Independent Registered Public Accounting Firm for the 2008 fiscal year.
For	Against	Abstain	Non-Votes
1,928,147	—	8,008	—

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a) Exhibits

Exhibit 3.1— Second Amended and Restated Articles of Incorporation

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

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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: July 31, 2008

EVERGREENBANCORP, INC.

/s/ Gordon D. Browning

Gordon D. Browning

Executive Vice President and Chief Financial Officer

(Authorized Officer and Principal Financial Officer)

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