FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1997
Commission File Number 0-10275
EVERGREEN BANCORP, INC.
-----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3114735
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
237 GLEN STREET, GLENS FALLS, NEW YORK 12801
--------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (518) 792-1151
--------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securi-
ties Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each Issuer's classes of
common stock, as of the latest practicable date:
Class of Common Stock Number of Shares Outstanding
as of October 31, 1997
------------------- ----------------------
$3.33 1/3 Par Value 8,938,339
EVERGREEN BANCORP, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
------
Item 1 Financial Statements (Unaudited):
Consolidated Statements of Income for the Three
Months Ended September 30, 1997, and 1996 1-2
Consolidated Statements of Income for the Nine
Months Ended September 30, 1997, and 1996 3-4
Consolidated Statements of Financial Condition
as of September 30, 1997, and December 31, 1996 5-6
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1997 and 1996 7-8
Notes to Consolidated Interim
Financial Statements 9-10
Independant Auditors' Review Report 11
Item 2 Management's Discussion and Analysis 12-23
PART II OTHER INFORMATION
-------
Item 1 Legal Proceedings - None
Item 2 Changes in Securities - None
Item 3 Defaults Upon Senior Securities - None
Item 4 Submission of Matters to a Vote of Security Holders - None
Item 5 Other Information - None
Item 6 Exhibits and Reports on Form 8-K
EVERGREEN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Except Per Share Data)
Three Months
Ended September 30,
1997 1996
(Unaudited)
Interest Income:
Interest and Fees on Loans $14,790 $14,657
Interest on U.S. Government & Agency Obligations 4,133 2,699
Interest on State & Municipal Obligations 234 241
Interest on Other Bonds, Notes, & Debentures 112 111
Interest on Federal Funds Sold & Bank Deposits 235 179
------- -------
Total Interest Income 19,504 17,887
------- -------
Interest Expense:
Interest on Deposits:
Regular Savings, Interest Checking and Money
Market Deposit Accounts 2,390 2,381
Other Time 5,823 4,408
Interest on Short-Term Borrowings 79 50
Interest on Long-Term Debt 420 383
------- -------
Total Interest Expense 8,712 7,222
------- -------
Net Interest Income 10,792 10,665
Provision for Loan Losses 450 360
------- -------
Net Interest Income After Provision for
Loan Losses 10,342 10,305
------- -------
Other Income:
Trust Department Income 663 551
Service Charges on Deposit Accounts 768 709
Net Gain on Security Transactions - 10
Other 355 312
------- -------
Total Other Income 1,786 1,582
------- -------
(Continued)
1
EVERGREEN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Continued)
(Dollars in Thousands)
(Except Per Share Data)
Three Months
Ended September 30,
1997 1996
(Unaudited)
Other Expense:
Salaries and Employee Benefits 4,206 4,360
Net Occupancy Expense 582 481
Equipment Expense 502 448
Professional Services 281 330
Data Processing 585 591
Supplies and Printing 224 205
Advertising 188 195
Postage 156 124
OREO Writedowns and Expenses, Net (8) (66)
Other 1,102 1,019
------- -------
Total Other Expense 7,818 7,687
------- -------
Income Before Taxes 4,310 4,200
Applicable Income Taxes 1,425 1,506
------- -------
Net Income $ 2,885 $ 2,694
======= =======
Earnings Per Common Share:
Average Shares Outstanding (In Thousands) 8,956 9,199
Net Income per Share $ .32 $ .29
See accompanying notes to consolidated interim financial statements.
2
EVERGREEN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Except Per Share Data)
Nine Months
Ended September 30,
1997 1996
(Unaudited)
Interest Income:
Interest and Fees on Loans $43,872 $42,211
Interest on U.S. Government & Agency Obligations 10,930 8,385
Interest on State & Municipal Obligations 657 877
Interest on Other Bonds, Notes, & Debentures 328 348
Interest on Federal Funds Sold & Bank Deposits 1,078 561
------ ------
Total Interest Income 56,865 52,382
------ ------
Interest Expense:
Interest on Deposits:
Regular Savings, Interest Checking and Money
Market Deposit Accounts 7,230 7,056
Other Time 16,556 13,216
Interest on Short-Term Borrowings 192 142
Interest on Long-Term Debt 1,232 1,190
------ ------
Total Interest Expense 25,210 21,604
------ ------
Net Interest Income 31,655 30,778
Provision for Loan Losses 1,260 1,080
------ ------
Net Interest Income After Provision for Loan Losses 30,395 29,698
------ ------
Other Income:
Trust Department Income 1,960 1,754
Service Charges on Deposit Accounts 2,104 2,119
Net Gain/(Loss) on Security Transactions 9 (7)
Other 1,076 928
------ ------
Total Other Income 5,149 4,794
------ ------
(Continued)
3
EVERGREEN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Continued)
(Dollars in Thousands)
(Except Per Share Data)
Nine Months
Ended September 30,
1997 1996
(Unaudited)
Other Expenses:
Salaries and Employee Benefits 12,268 12,141
Net Occupancy Expense 1,754 1,489
Equipment Expense 1,460 1,385
Professional Services 835 867
Data Processing 1,760 1,844
Supplies and Printing 643 622
Advertising 798 615
Postage 438 399
OREO Writedowns and Expenses, Net 133 327
Other 3,146 2,976
------- -------
Total Other Expenses 23,235 22,665
------- -------
Income Before Taxes 12,309 11,827
Applicable Income Taxes 4,070 4,235
------- -------
Net Income $ 8,239 $ 7,592
======= =======
Earnings Per Common Share:
Average Shares Outstanding (In Thousands) 9,016 9,257
Net Income per share $ .91 $ .82
See accompanying notes to consolidated interim financial statements.
4
EVERGREEN BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands)
9/30/97 12/31/96
(Unaudited)
Assets:
Cash and Cash Equivalents:
Cash and Due From Banks $ 23,674 $ 33,430
Federal Funds Sold 8,700 22,700
-------- --------
Total Cash and Cash Equivalents 32,374 56,130
-------- --------
Securities:
Securities Available For Sale (Amortized
cost of $231,926 and $177,099 at 9/30/97
and 12/31/96, respectively) 233,323 177,140
Securities Held to Maturity (fair value
of $40,323 and $21,016 at 9/30/97
and 12/31/96, respectively) 39,300 20,028
-------- --------
Total Securities 272,623 197,168
-------- --------
Loans:
Commercial 226,745 225,420
Mortgage 301,742 283,664
Installment 137,228 149,745
Other 347 324
-------- --------
Total Loans 666,062 659,153
Less:
Allowance for Loan Losses (12,763) (12,393)
Unearned Income on Loans (2,093) (4,265)
-------- --------
Loans, net 651,206 642,495
-------- --------
Bank Premises and Equipment, net 16,444 15,278
Other Real Estate Owned 2,313 1,476
Other Assets 17,674 16,102
-------- --------
Total Assets $992,634 $928,649
======== ========
(Continued)
5
EVERGREEN BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Continued)
(Dollars in Thousands)
9/30/97 12/31/96
(Unaudited)
Liabilities:
Deposits:
Demand $ 92,699 $ 92,737
Regular Savings, Interest Checking and Money
Market Deposit Accounts 345,847 350,762
Certificates of Deposit over $100,000 110,498 79,808
Other Time 305,865 277,549
-------- --------
Total Deposits 854,909 800,856
-------- --------
Federal Funds Purchased and Other Short
Term Borrowings 6,960 3,846
Accrued Taxes and Other Liabilities 17,683 12,270
Long-Term Debt 25,778 26,238
-------- --------
Total Liabilities 905,330 843,210
-------- --------
Stockholders' Equity
Common Stock $3.33 1/3 Par Value: Authorized-
20,000,000 Shares; Issued 9,633,966 at September
30, 1997 and December 31, 1996 32,113 32,113
Surplus 6,787 6,787
Undivided Profits 57,463 53,149
Market Over Cost of Securities Available
For Sale, Net of Deferred Tax 838 24
Treasury Stock (697,627 shares at September 30,
1997 and 514,158 shares at December 31, 1996) (9,257) (5,826)
Common Stock Subscribed by ESOP (640) (808)
-------- --------
Total Stockholders' Equity 87,304 85,439
-------- --------
Total Liabilities and Stockholders' Equity $992,634 $928,649
======== ========
See accompanying notes to consolidated interim financial statements.
6
EVERGREEN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
The Nine Months Ended September 30, 1997 1996
(Unaudited)
-----------------
Cash Flows from Operating Activities:
Net Income. . . . . . . . . . . . . . . . . . . . $ 8,239 $ 7,592
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Net Change in Unearned Loan Fees. . . . . . . . 108 28
Net Change in Other Assets and Other Liabilities 4,065 1,077
(Gain)/Loss on Sale of Securities . . . . . . . (9) 7
Increase in Deferred Tax Benefit. . . . . . . . (766) (333)
Gain on Sale/Write-Down of Other Real Estate. . (7) (40)
Loss on Disposition of Assets . . . . . . . . . 12 10
Depreciation. . . . . . . . . . . . . . . . . . 1,329 1,139
Provision for Loan Losses . . . . . . . . . . . 1,260 1,080
Amortization of Premiums & Accretion of
Discounts on Securities, Net. . . . . . 409 308
------ ------
Net Cash Provided By Operating Activities. . 14,640 10,868
------ ------
Cash Flows From Investing Activities:
Proceeds From:
Sales of Securities Available for Sale. . . . . 532 6,737
Maturities of Securities Available for Sale . . 40,074 43,520
Maturities of Securities Held to Maturity . . . 2,598 6,684
Purchases of Securities Available for Sale. . . . (95,800) (24,162)
Purchases of Securities Held to Maturity. . . . . (21,903) (4,997)
Proceeds From Sales of Loans. . . . . . . . . . . 1,107 2,713
Net Increase in Loans . . . . . . . . . . . . . . (12,317) (57,094)
Change in Check Overdraft Receivables . . . . . . (207) 361
Proceeds From Sales of Other Real Estate. . . . . 508 2,844
Proceeds From Sale of Fixed Assets. . . . . . . . - 154
Capital Expenditures. . . . . . . . . . . . . . . (2,507) (604)
------ ------
Net Cash Used By
Investing Activities . . . . . . . . . . . (87,915) (23,844)
------ ------
Cash Flows From Financing Activities:
Net Increase in Deposits. . . . . . . . . . . . . 54,053 36,992
Net Increase/(Decrease) in Short-Term Borrowings. 3,114 (79)
Payments on Long Term Debt. . . . . . . . . . . . (292) (830)
Proceeds From Issuance of Common Stock. . . . . . - 127
Payments From Sale of Treasury Stock. . . . . . . 697 -
(Continued)
7
EVERGREEN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Dollars in Thousands)
The Nine Months Ended September 30, 1997 1996
(Unaudited)
-----------------
Payments for Purchase of Treasury Stock . . . . (4,525) (3,128)
Dividends Paid. . . . . . . . . . . . . . . . . (3,528) (2,789)
------ ------
Net Cash Provided By
Financing Activities . . . . . . . . . . 49,519 30,293
------ ------
Net (Decrease)/Increase in Cash
and Cash Equivalents . . . . . . . . . . . . (23,756) 17,317
Cash and Cash Equivalents at Beginning of Year. 56,130 43,621
------- -------
Cash and Cash Equivalents at End of Quarter . . $ 32,374 $ 60,938
======= =======
Supplemental Disclosure of Cash Flows:
Interest Paid . . . . . . . . . . . . . . . . . $ 24,802 $ 21,256
Taxes Paid. . . . . . . . . . . . . . . . . . . 683 4,808
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Certain properties which were foreclosed upon were transferred from loans
to other real estate in the amount of $1,397,000 and $312,000 during the
nine months ended September 30, 1997 and 1996, respectively.
The Company borrowed $1,600,000, which was used to subscribe for common
stock of the Company in 1990. Payments were made on the ESOP loan in the
amount of $168,000 and $159,000 during the nine months ended September
30, 1997 and 1996 respectively.
As a result of the adoption of Statement of Financial Accounting Standard
No. 115, securities available for sale are recorded at fair value. The
unrealized gain on these securities was $1,397,000 at September 30, 1997.
The adjustment to stockholders' equity for the unrealized gain was
$838,000, net of deferred income tax expense of $559,000.
At September 30, 1996 securities available for sale had an unrealized
loss of $294,000. The adjustment to stockholders' equity net of deferred
income tax benefit of $117,000, was $177,000.
See accompanying notes to consolidated interim financial statements.
8
EVERGREEN BANCORP, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statement Presentation
--------------------------------
The accompanying consolidated financial statements consist of Evergreen
Bancorp, Inc. ("the Company") and the financial statements of its wholly
owned subsidiary, Evergreen Bank, N.A. The unaudited consolidated interim
financial statements have been prepared according to the rules of the
Securities and Exchange Commission. In the opinion of the Company, the
accompanying unaudited consolidated interim financial statements contain
all adjustments necessary to present fairly the financial position as of
September 30, 1997, the results of operations for the three and nine
months ended September 30, 1997 and 1996 and cash flows for the nine
months ended September 30, 1997 and 1996. All adjustments are of a normal
recurring nature. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
rules and regulations applicable to interim financial statements.
The accompanying interim consolidated financial statements should be read
in conjunction with the Evergreen Bancorp, Inc. consolidated year-end
financial statements, including notes thereto, which are included in the
Evergreen Bancorp, Inc. 1996 Annual Report and Form 10-K.
2. Earnings Per Share
------------------
Earnings per share is calculated as net income divided by average shares
outstanding. Average shares outstanding for September 30, 1997, and 1996,
takes into consideration a reduction to issued shares by Treasury Stock
held, weighted by the number of days in the quarter such stock is held.
In February 1997, the Financial Accounting Standards Board issued State-
ment of Financial Accounting Standards No. 128, "Earnings per Share"
(Statement 128), which establishes standards for computing and presenting
earnings per share (EPS). This statement simplifies the standards for
computing EPS making them comparable to international EPS standards and
supersedes Accounting Principles Board Opinion No. 15, "Earnings per
Share" and related interpretations. Statement 128 replaces the present-
ation of primary EPS with the presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computa-
tion to the numerator and denominator of the diluted EPS computation.
Basic EPS excludes dilution (such as the effect of the Company's out-
standing stock options) and is computed by dividing income available to
common stockholders by the weighted-average number of common shares out-
standing for the period. Diluted EPS reflects the potential dilution that
9
EVERGREEN BANCORP, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Continued)
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in earnings of the entity (such as the
Company's stock options). This statement is effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods. Earlier application is not permitted. This Statement
requires restatement of all prior period EPS data presented. The Company
will present its EPS information in accordance with Statement 128 as of
December 31, 1997.
3. Payment of Dividends
--------------------
The Company is a legal entity separate and distinct from its bank and
other subsidiaries. The principal source of cash flow of the Registrant,
including cash flow to pay dividends to its stockholders, is dividends
from Evergreen Bank. The subsidiary bank is required to meet various
legal requirements prior to the payment of dividends to the Company.
Without the payment of dividends from Evergreen Bank the Company would
not be able to pay dividends to its stockholders.
4. Recent Accounting Pronouncements
--------------------------------
In June of 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, (Statement 130),
which establishes standards for reporting and display of comprehensive
income and its components in financial statements. Statement 130 states
that comprehensive income includes reported net income of a company,
adjusted for items that are currently accounted for as direct entries to
equity, such as the net unrealized gain or loss on securities available
for sale, foreign currency items, and minimum pension liability adjust-
ments. This Statement is effective for both interim and annual periods
beginning after December 15, 1997. The Company will adopt Statement 130
in the first quarter of 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Inform-
ation" (Statement 131), which establishes standards for reporting by
public companies about operating segments of their business. Statement
131 also establishes standards for related disclosures about products and
services, geographic areas, and major customers. This Statement is effec-
tive for fiscal years beginning after December 15, 1997 and is not anti-
cipated to have a material effect on the Company's financial statements.
10
Independent Auditors' Review Report
The Board of Directors and Stockholders
Evergreen Bancorp, Inc.:
We have reviewed the consolidated statement of financial condition of
Evergreen Bancorp, Inc. and subsidiaries as of September 30, 1997 and the
related consolidated statements of income for the three-month and nine-
month periods ended September 30, 1997 and 1996, and the consolidated
statements of cash flows for the nine-month periods ended September 30,
1997 and 1996. These consolidated financial statements are the responsi-
bility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical proced-
ures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than
an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regard-
ing the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting prin-
ciples.
We have previously audited, in accordance with generally accepted audit-
ing standards, the consolidated statement of financial condition of
Evergreen Bancorp, Inc. and subsidiaries as of December 31, 1996, and the
related consolidated statements of income, changes in stockholders'
equity, and cash flows for the year then ended (not presented herein);
and in our report dated January 24, 1997, we expressed an unqualified
opinion on those consolidated financial statement. In our opinion, the
information set forth in the accompanying consolidated statement of
financial condition as of December 31, 1996, is fairly presented, in all
material respects, in relation to the consolidated statement of financial
condition from which it has been derived.
/s/ KPMG PEAT MARWICK LLP
Albany, New York
November 10, 1997
11
EVERGREEN BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL REVIEW
----------------
The principal source of earnings for the Company is its single banking
subsidiary, Evergreen Bank, N.A. All discussion herein refers to the
banking activities of the Company's banking subsidiary unless otherwise
noted.
When used in this quarterly Report on Form 10-Q, the words or phrases
"will likely result," "are expected to," "will continue," "is anticip-
ated," "estimate," "project" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties including, changes in economic conditions
in the Company's market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans in the Company's market
area and competition, that could cause actual results to differ mater-
ially from historical earnings and those presently anticipated or proj-
ected. The Company cautions readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made.
The factors listed above could affect the Company's financial performance
and could cause the Company's actual results for future periods to differ
materially from any opinions or statements expressed with respect to
future periods in any current statements.
The Company does not undertake, and specifically disclaims, any obliga-
tion to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after
the date of such events or to reflect the occurance of anticipated or
unanticipated events.
SUMMARY OF RESULTS OF OPERATIONS
--------------------------------
Net income for the three months ended September 30, 1996, was $2,885,000
or $.32 per share, compared to $2,694,000 or $.29 per share in 1996's
third quarter. For the nine month period, net income was $8,239,000, or
$.91 per share, compared to $7,592,000, or $.82 per share, in 1996.
Income for the third quarter was primarily affected by increased non-
interest income and a lower effective tax rate. On a year to date basis
increased net interest income has also enhanced results as compared to
the prior year.
In 1997, the annualized return on average assets for the nine months was
1.14%, compared to 1.15% for the first nine months last year. The annual-
ized return on average stockholders' equity, including the effect of FASB
115 "Accounting for Certain Investments in Debt and Equity Securities",
for the first nine months of 1997 was 12.8%, compared to 12.1% for the
same period in 1996. The increase in the return on average stockholders'
equity is due primarily to the increased level of net income.
12
EVERGREEN BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
NET INTEREST INCOME
-------------------
Net interest income for the three months ended September 30, 1997 was
$10,792,000, compared to $10,665,000 for the same period of 1996. This
represents an increase of $127,000 or 1.2%. The first nine months of 1997
reflects net interest income of $31,655,000, an increase of 2.8% as
compared to $30,778,000 for the same period last year. The increase in
net interest income in 1997's third quarter is attributed to an increase
in average earning assets, which offset the effects of a lower net
interest margin.
On a taxable equivalent basis, net interest income was $10,935,000 for
the quarter ended September 30, 1997 as compared to $10,821,000 for the
quarter ended September 30, 1996. This represents an increase of $114,000
or 1.1%. For the first nine months of 1997 taxable equivalent net
interest income increased 2.3% to $32,043,000 from the level reported for
the nine months ended September 30, 1996. The increase in net interest
income on a taxable equivalent basis resulted primarily from an increase
in the volume of average earning assets. Average earning assets increased
$85,618,000, or 10.3%, in comparison to the same period in 1996. Loans
increased $35.3 million, securities increased $38.1 million and Fed Funds
sold increased $12.3 million on average. The income increase due to
volume was partially offset by a lower net interest margin. At 4.67% the
margin for the first nine months of 1997 was 36 basis points lower than
the same period of the prior year. The decrease in the margin is due
primarily to promotions for time deposits at the Company's new branches
leading to somewhat higher rates on deposits, and slightly lower yielding
retail loans.
The increase in average earning assets was funded by an increase average
interest bearing liabilities of $80.8 million. Average interest bearing
liability increases were concentrated in time deposits, which increased
$71.1 million.
ALLOWANCE FOR LOAN LOSSES
-------------------------
The Company's allowance for loan losses at September 30, 1997, has in-
creased $370,000 to $12,763,000 from the December 31, 1996 balance. As a
percent of total loans, net of unearned income, the allowance was approx-
imately 1.9% at September 30, 1997. The allowance represents 215.2% of
total non-performing loans at quarter end. The provision for loan losses
for the quarter ended September 30, 1997 was $450,000 compared to
$360,000 for the same period in 1996. For the nine months ended June 30,
1997 the provision totaled $1,260,000, compared to $1,080,000 a year
earlier. The increased provision, from year earlier levels, reflects the
significant loan growth incurred over the last year.
13
EVERGREEN BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The allowance for loan losses represents amounts available for future
credit losses and reflects management's ongoing detailed review of
certain individual credits, as well as analysis of the historic net
charge off experience of the loan portfolio, an evaluation of current and
anticipated economic conditions, peer group statistics and other pertinent
factors.
Loans (or portions thereof) deemed uncollectible are charged against the
allowance while recoveries of amounts previously charged off are added
to the allowance. Provisions for loan losses charged to earnings are
added to the allowance. Amounts are charged off once the probability of
loss has been determined, with consideration given to factors such as the
customer's financial condition, underlying collateral and guarantees, and
general and industry economic conditions.
The following table presents information concerning nonperforming loans
and other real estate.
9/30/97 12/31/96
------- --------
(Dollars In Thousands)
Non-Accrual $ 5,009 $ 3,792
Past Due 90 Days 793 1,414
Restructured 129 133
-------- --------
Total Non-Performing
Loans $ 5,931 $ 5,339
======== ========
Other Real Estate $ 2,313 $ 1,476
Non-accrual loans increased $1,217,000 from December 1996 levels, the
increase in the balance is due primarily to one loan, secured by real
estate, carried at a balance of approximately $800,000.
The majority of the Company's non-performing loans consist of commercial
and commercial real estate loans. There is no distinct concentration as
to type of borrower within these classifications.
OTHER INCOME AND EXPENSE
------------------------
Other income for the nine months ended September 30, 1997, is $5,149,000,
$355,000 more than the $4,794,000 recorded in the same period last year.
Increases in other income included an increase in Trust Department income
of $206,000 versus prior year levels and an increase in other income of
$148,000. Other income for the third quarter of 1997 was $1,786,000 up
12.9% from $1,582,000 in the third quarter of 1996.
14
EVERGREEN BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Other expense for the quarter ended September 30, 1997 was $7,818,000,
compared to $7,687,000 for the same quarter last year, an increase of
$131,000 or 1.7%. Salaries and employee benefits expense, the largest
component of other operating expense, decreased $154,000 to $4,206,000
for the three months ended September 30, 1997, from $4,360,000 during the
same period of 1996. The principal cause of the decrease was reduced
employee benefits expense, which offset increases in salaries associated
with the opening of three new branches since December of 1996.
Net occupancy expense of $582,000 increased $101,000 from $481,000 during
the third quarter of 1996. Equipment expense increased $54,000 to
$502,000 from $448,000 in the third quarter of the prior year. On a year
to date basis occupancy expense and equipment expense have increased
$265,000 and $75,000, respectively, from prior year levels. This increase
is due primarily to the branch expansion.
INCOME TAX EXPENSE
------------------
Income tax expense for the three months ended September 30, 1997, was
$1,425,000 as compared to $1,506,000 for the three months ended September
30, 1996. For the nine months ended September 30, 1997, income tax
expense was $4,070,000 compared to $4,235,000 in 1996. The effective tax
rate for the periods ended September 30, 1997 and 1996 were 33.1% and
35.8%, respectively. The decrease in the effective tax rate is attribut-
able to somewhat lower State income taxes.
CAPITAL AND LIQUIDITY
---------------------
At September 30, 1997, stockholders' equity was $87,304,000 as compared
to $85,439,000 at December 31, 1996, an increase of $1,865,000 or 2.2%.
The increase in stockholders' equity is a result of the retention of
earnings of $4,711,000, treasury stock sales of $697,000, a reduction of
the ESOP balance of $168,000 and a change in the valuation of securities
available for sale, net of deferred tax expense, of $814,000. These were
offset by treasury share purchases of $4,525,000.
On July 18, 1996 the Company indicated its intent to repurchase up to 4%
of issued shares or approximately 386,000 shares, at market prices. From
time to time, and throughout the third quarter of 1997, the Company
purchased 385,500 shares at an aggregate cost of $6,168,000, effectively
completing the July 1996 program.
On October 16, 1997 the Company announced a new repurchase program, auth-
rizing purchases of an additional 5% of issued shares or approximately
482,000 shares, at market prices. The funding for this program is not
anticipated to materially affect the liquidity or capital position of
either the Company or the Bank.
15
EVERGREEN BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The following table sets forth the Company's risk based capital ratios as
of September 30, 1997 and the regulatory guidelines for well capitalized
institutions.
Evergreen Well Capitalized
Risk-Based Bancorp, Inc. Regulatory
Ratios Sept. 30, 1997 Guidelines
---------- -------------- ----------------
Leverage Ratio 8.7 % 5.0 %
Tier 1 13.6 % 6.0 %
Total Capital 14.9 % 10.0 %
Average federal funds sold for the nine months ended September 30, 1997
were $26,338,000, as compared to $14,058,000 for the nine months ended
September 30, 1996. Net cash provided by operating activities was
$14,640,000 for the nine months ended September 30, 1997 as compared to
net cash provided of $10,868,000 for the nine months ended September 30,
1996. Largely due to increases in securities balances, net cash used by
investing activities was $87,915,000 for the nine months ended September
30, 1997 as compared to net cash used of $23,844,000 for the same period
last year. Net cash provided by financing activities was $49,519,000 for
the nine months of 1997 as compared to cash provided of $30,293,000 for
the nine months of 1996. The increase in cash provided by financing act-
ivities resulted from a $17,061,000 net increase in cash inflows from
deposit accounts. The level of cash and cash equivalents was $32,374,000
at September 30, 1997 as compared to $60,938,000 at September 30, 1996.
Evergreen Bank, N.A. is the principal source of funds to the Company and,
if it cannot pay dividends to the Company, the Company will be unable to
pay dividends to its shareholders.
CAPITAL EXPENDITURES AND COMMITMENTS
------------------------------------
Like other Financial Institutions, the Company expects to incur substan-
tial costs in the next two years to assure that it's computer operating
systems are Year 2000 compliant. Being "Year 2000 Compliant" means
generally, assuring that two digit "year" fields, in all computer
application programs, are replaced by four digit "year" fields. The
Company has developed a comprehensive plan, involving senior management
and outside vendors, designed to ensure that the Company is Year 2000
compliant by December 1998.
As part of the Year 2000 compliance program, management has determined
that the Company should convert computer systems and change item pro-
cessing vendors during 1998. The new systems will enhance the Company's
16
EVERGREEN BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
computer and item processing capabilities and will provide for a base
operating system that is Year 2000 compliant. Capitalized costs resulting
from the conversions are expected to approximate $900,000. In addition,
one time expenses related to the coversions are estimated to be $350,000
in 1998. These preliminary cost estimates will change as the Company
enters into contracts with vendors and as assessments of the project are
modified.
RATE VOLUME ANALYSIS
--------------------
For the purposes of the following analysis, Securities Available for Sale
are stated at average amortized cost and Stockholders' Equity is
unadjusted for the effects of SFAS No. 115.
Non-accrual loans are included in the following analysis and the average
balance of these loans is deemed immaterial.
Portions of income earned on certain Commercial Loans, U.S. Government
Obligations and Obligations of State and Political Subdivisions are
exempt from Federal and/or State taxation. Appropriate adjustments have
been made to reflect the equivalent amount of taxable income that would
have been necessary to generate an equal amount of after tax income. The
taxable equivalent adjustment is based on a marginal Federal income tax
rate of 35.0% in 1997 and 1996 along with a marginal State income tax
rate of 9.0% for 1997 and 9.225% for 1996.
The following table sets forth the dollar amounts of interest income (on
a taxable equivalent basis) and interest expense and changes therein
resulting from changes in volume and changes in rate. The change in
interest due to both rate and volume has been allocated to change due to
volume and change due to rate based on the percentage relationship of
such variances to each other.
17
EVERGREEN BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Dollars in Thousands)
Analysis of Variance in Net Interest Income Due to Volume and Rates
For the three months ended
September 30, 1997 VS September 30, 1996
Increase / (Decrease) Total
Due to Change in Increase/
Volume Rate (Decrease)
--------------------- ----------
Interest Earned:
Loans
Taxable $ 548 $ (393) $ 155
Tax-Exempt (56) 25 (31)
Investment Securities
Taxable 1,306 101 1,407
Tax-Exempt 39 (22) 17
Federal Funds Sold &
Interest-Bearing Deposits 48 8 56
------ ------ ------
Changes in Total Interest
Income 1,885 (281) 1,604
------ ------ ------
Less Interest Expense Incurred:
Regular Savings, Interest
Checking and MMDAs 16 (7) 9
Time Deposits 1,198 217 1,415
Short-Term Borrowings 33 (4) 29
Long Term Debt 55 (18) 37
Changes in Total Interest ------ ------ ------
Expense 1,302 188 1,490
------ ------ ------
Changes in Net Interest
Income $ 583 $ (469) $ 114
====== ====== ======
18
EVERGREEN BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Dollars in Thousands)
Analysis of Variance in Net Interest Income Due to Volume and Rates
For the nine months ended
September 30, 1997 VS September 30, 1996
Increase / (Decrease) Total
Due to Change in Increase/
Volume Rate (Decrease)
---------------------- ----------
Interest Earned:
Loans and Leases
Taxable $ 2,562 $ (775) $ 1,787
Tax-Exempt (182) (3) (185)
Investment Securities
Taxable 2,057 388 2,445
Tax-Exempt (170) (78) (248)
Federal Funds Sold &
Interest-Bearing Deposits 502 15 517
------ ------ ------
Changes in Total Interest
Income 4,769 (453) 4,316
------ ------ ------
Less Interest Expense Incurred:
Regular Savings, Interest
Checking and MMDAs 106 68 174
Time Deposits 2,956 384 3,340
Short-Term Borrowings 53 (3) 50
Long Term Debt 148 (106) 42
------ ------ ------
Changes in Total Interest
Expense 3,263 343 3,606
------ ------ ------
Changes in Net Interest
Income $ 1,506 $ (796) $ 710
====== ====== ======
19
EVERGREEN BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
Average Balances For The Three Months Ended September 30, 1997
(Dollars in Thousands)
Interest Average
Average Income/ Yield/
Balance Expense Rate
Assets: ------- ------- -------
Loans
Taxable $649,007 $14,602 8.93%
Tax Exempt 13,025 266 8.10%
Securities
Taxable 250,189 4,318 6.85%
Tax Exempt 10,747 226 8.34%
Federal Funds Sold &
Interest Bearing Deposits 16,790 235 5.55%
-------- -------
Total Earning Assets 939,758 19,647 8.29%
------- -----
Allowance for Loan
Losses (12,801)
Cash and Due from Banks 23,958
Other Non-Earning Assets 35,488
--------
Total Assets $986,403
========
Liabilities and
Stockholders' Equity:
Regular Savings, Interest
Checking and MMDAs $343,508 2,390 2.76%
Time Deposits 410,132 5,823 5.63%
Short-Term Borrowings 6,369 79 4.92%
Long Term Debt 25,800 420 6.46%
-------- -------
Total Interest
Bearing Liabilities 785,809 8,712 4.40%
------- -----
Demand Deposits 98,595
Other Liabilities 15,800
Stockholders' Equity 86,199
Total Liabilities and --------
Stockholders' Equity $986,403
========
Net Interest Income (Tax
Equivalent Basis) 10,935
Tax Equivalent Adjustment (143)
-------
Net Interest Income $10,792
=======
Net Interest Rate Spread 3.89%
=====
Net Interest Margin 4.62%
=====
20
EVERGREEN BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
Average Balances For The Three Months Ended September 30, 1996
(Dollars in Thousands)
Interest Average
Average Income/ Yield/
Balance Expense Rate
Assets: ------- ------- -------
Loans
Taxable $625,871 $14,447 9.18%
Tax Exempt 15,876 297 7.44%
Securities
Taxable 174,732 2,911 6.63%
Tax Exempt 8,985 209 9.25%
Federal Funds Sold &
Interest Bearing Deposits 13,401 179 5.31%
-------- -------
Total Earning Assets 838,865 18,043 8.56%
------- -----
Allowance for Loan
Losses (12,783)
Cash and Due from Banks 30,011
Other Non-Earning Assets 30,420
--------
Total Assets $886,513
========
Liabilities and
Stockholders' Equity:
Regular Savings, Interest
Checking and MMDAs $341,791 2,381 2.77%
Time Deposits 325,913 4,408 5.38%
Short-Term Borrowings 3,762 50 5.29%
Long Term Debt 22,508 383 6.77%
-------- -------
Total Interest
Bearing Liabilities 693,974 7,222 4.14%
------- -----
Demand Deposits 96,778
Other Liabilities 11,304
Stockholders' Equity 84,457
Total Liabilities and --------
Stockholders' Equity $886,513
========
Net Interest Income (Tax
Equivalent Basis) 10,821
Tax Equivalent Adjustment (156)
-------
Net Interest Income $10,665
=======
Net Interest Rate Spread 4.42%
=====
Net Interest Margin 5.13%
=====
21
EVERGREEN BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
Average Balances For The Nine Months Ended September 30, 1997
(Dollars in Thousands)
Interest Average
Average Income/ Yield/
Balance Expense Rate
Assets: ------- ------- -------
Loans
Taxable $644,960 $43,359 8.99%
Tax Exempt 12,433 720 7.74%
Securities
Taxable 224,796 11,500 6.84%
Tax Exempt 9,160 596 8.70%
Federal Funds Sold &
Interest Bearing Deposits 26,338 1,078 5.47%
-------- -------
Total Earning Assets 917,687 57,253 8.34%
------- -----
Allowance for Loan
Losses (12,732)
Cash and Due from Banks 25,869
Other Non-Earning Assets 34,075
--------
Total Assets $964,899
========
Liabilities and
Stockholders' Equity:
Regular Savings, Interest
Checking and MMDAs $345,611 7,230 2.80%
Time Deposits 395,461 16,556 5.60%
Short-Term Borrowings 5,105 192 5.03%
Long Term Debt 25,883 1,232 6.36%
-------- -------
Total Interest
Bearing Liabilities 772,060 25,210 4.37%
------- -----
Demand Deposits 92,841
Other Liabilities 14,209
Stockholders' Equity 85,789
Total Liabilities and --------
Stockholders' Equity $964,899
========
Net Interest Income (Tax
Equivalent Basis) 32,043
Tax Equivalent Adjustment (388)
-------
Net Interest Income $31,655
=======
Net Interest Rate Spread 3.97%
=====
Net Interest Margin 4.67%
=====
22
EVERGREEN BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
Average Balances For The Nine Months Ended September 30, 1996
(Dollars in Thousands)
Interest Average
Average Income/ Yield/
Balance Expense Rate
Assets: ------- ------- -------
Loans
Taxable $606,580 $41,572 9.15%
Tax Exempt 15,559 905 7.77%
Securities
Taxable 184,196 9,055 6.57%
Tax Exempt 11,676 844 9.66%
Federal Funds Sold &
Interest Bearing Deposits 14,058 561 5.33%
-------- -------
Total Earning Assets 832,069 52,937 8.50%
------- -----
Allowance for Loan
Losses (12,471)
Cash and Due from Banks 29,692
Other Non-Earning Assets 31,425
--------
Total Assets $880,715
========
Liabilities and
Stockholders' Equity:
Regular Savings, Interest
Checking and MMDAs $340,345 7,056 2.77%
Time Deposits 324,365 13,216 5.44%
Short-Term Borrowings 3,689 142 5.14%
Long Term Debt 22,879 1,190 6.95%
-------- -------
Total Interest
Bearing Liabilities 691,278 21,604 4.17%
------- -----
Demand Deposits 93,810
Other Liabilities 12,011
Stockholders' Equity 83,616
Total Liabilities and --------
Stockholders' Equity $880,715
========
Net Interest Income (Tax
Equivalent Basis) 31,333
Tax Equivalent Adjustment (555)
-------
Net Interest Income $30,778
=======
Net Interest Rate Spread 4.33%
=====
Net Interest Margin 5.03%
=====
23
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3) Certificate of Incorporation (incorporated by reference to
Registrants' Registration Statement on Form S-8, Registration
No. 333-36303, Dated September 24, 1997).
(10) Evergreen Bancorp, Inc. Amended and restated 1995 Stock
Incentive Plan (incorporated by reference to Registrants'
Registration Statement on Form S-8, Registration No. 333-
36303, Dated September 24, 1997).
(11) Earnings Per Share
(27) Financial Data Schedule
(b) Reports on 8-K
None
24
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant, has duly caused this report to be signed on its
behalf by the undersigned duly authorized.
EVERGREEN BANCORP, INC.
November 13, 1997 /s/ George W. Dougan
----------------- --------------------
Date George W. Dougan
President & Chief Executive Officer
(Principal Executive Officer)
November 13, 1997 /s/ George L. Fredette
----------------- ----------------------
Date George L. Fredette
Senior Vice President, Treasurer
(Chief Financial Officer)
25
Exhibit 11 - Earnings Per Share
EVERGREEN BANCORP, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(Dollars in Thousands, Except Per Share Amount)
Nine Months Ended September 30,
___________________________________
1997 1996
____________ ____________
Net Income Per Common Share:
Weighted Average Common Shares
Outstanding 9,016,000 9,257,000
========== ==========
Net Income $ 8,239 $ 7,592
========== ==========
Net Income Per Common Share $ .91 $ .82
========== ==========
Net Income Per Common Share - Primary:
Weighted Average Common Shares
Outstanding 9,016,000 9,257,000
Common Stock Equivalents - Primary 161,000 124,000
---------- ----------
Weighted Average Common Shares and
Common Share Equivalents Outstanding 9,177,000 9,381,000
========== ==========
Net Income $ 8,239 $ 7,592
========== ==========
Net Income Per Common Share $ .90 $ .81
========== ==========
Net Income Per Common Share - Fully Diluted:
Weighted Average Common Shares
Outstanding 9,016,000 9,257,000
Common Stock Equivalents - Fully Diluted 230,000 175,000
---------- ----------
Weighted Average Common Shares and
Common Share Equivalents Outstanding 9,246,000 9,432,000
========== ==========
Net Income $ 8,239 $ 7,592
========== ==========
Net Income Per Common Share $ .89 $ .80
========== ==========
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
<ARTICLE> 9
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 23,536
<INT-BEARING-DEPOSITS> 138
<FED-FUNDS-SOLD> 8,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 233,323
<INVESTMENTS-CARRYING> 39,300
<INVESTMENTS-MARKET> 40,323
<LOANS> 663,969
<ALLOWANCE> 12,763
<TOTAL-ASSETS> 992,634
<DEPOSITS> 854,909
<SHORT-TERM> 6,960
<LIABILITIES-OTHER> 17,683
<LONG-TERM> 25,778
<COMMON> 32,113
0
0
<OTHER-SE> 55,191
<TOTAL-LIABILITIES-AND-EQUITY> 992,634
<INTEREST-LOAN> 43,872
<INTEREST-INVEST> 11,915
<INTEREST-OTHER> 1,078
<INTEREST-TOTAL> 56,865
<INTEREST-DEPOSIT> 23,786
<INTEREST-EXPENSE> 25,210
<INTEREST-INCOME-NET> 31,655
<LOAN-LOSSES> 1,260
<SECURITIES-GAINS> 9
<EXPENSE-OTHER> 23,235
<INCOME-PRETAX> 12,309
<INCOME-PRE-EXTRAORDINARY> 12,309
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,239
<EPS-PRIMARY> .90
<EPS-DILUTED> .89
<YIELD-ACTUAL> 4.67
<LOANS-NON> 5,009
<LOANS-PAST> 793
<LOANS-TROUBLED> 129
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,393
<CHARGE-OFFS> 1,579
<RECOVERIES> 689
<ALLOWANCE-CLOSE> 12,763
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 12,763
</TABLE>
