US SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR TRANSITION PERIOD FROM TO
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Commission file number 0-25286
CASCADE FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 91-1661954
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2828 Colby Avenue
Everett, Washington 98201
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(Address of principal executive offices) (Zip Code)
(425) 339-5500
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(Registrant's telephone number, including area code)
Indicate by a 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 twelve months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days. Yes X No
---- ----
Indicate by a check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of March 31, 2003
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Common Stock ($.01 par value) 6,524,734
CASCADE FINANCIAL CORPORATION
FORM 10-Q
for the Quarter Ended March 31, 2003
------------------------------------
INDEX
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PART I - Financial Information:
Item 1 - Financial Statements:
- Condensed Consolidated Balance Sheets 3
- Condensed Consolidated Statements of Operations 4
- Consolidated Statements of Comprehensive Income 5
- Condensed Consolidated Statements of Cash Flows 6
- Notes to Condensed Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 20
Item 4 - Controls and Procedures 22
PART II - Other Information 24
PART I -- FINANCIAL INFORMATION
CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, December 31,
ASSETS 2003 2002
- ------ --------- ------------
(unaudited)
Cash on hand and in banks $ 10,154 9,640
Interest-earning deposits in other institutions 969 10,955
Securities available for sale 204,373 159,897
Securities held-to-maturity (market value of
$31,756 and $49,639) 31,554 49,078
Loans 565,246 553,549
Allowance for loan losses (7,261) (6,872)
------- -------
Loans, net 557,985 546,677
Premises and equipment, at cost, net 9,014 9,261
Bank owned life insurance 10,754 10,619
Accrued interest receivable and other assets 6,827 8,026
------- -------
TOTAL ASSETS $831,630 804,153
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
- -----------
Deposits $535,606 509,850
Federal Home Loan Bank advances 192,000 197,500
Securities sold under agreements to repurchase 25,906 20,569
Advance payments by borrowers for taxes and insurance 2,098 1,507
Dividends payable 326 324
Accrued expenses and other liabilities 6,317 6,254
Deferred federal income taxes 1,082 1,509
------- -------
TOTAL LIABILITIES 773,335 737,513
Trust preferred securities 10,000 10,000
Stockholders' Equity:
Preferred stock, $.01 par value, 500,000 shares
authorized; no shares issued or outstanding - -
Common stock, $.01 par value, 8,000,000 shares
authorized; 6,698,841 and 6,657,547 shares
issued and outstanding 67 67
Additional paid-in capital 11,683 11,481
Treasury Stock, 174,107 and 173,427 shares at cost (1,355) (1,347)
Retained earnings, substantially restricted 47,416 45,438
Cumulative other comprehensive income, net 484 1,001
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TOTAL STOCKHOLDERS' EQUITY 58,295 56,640
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $831,630 804,153
======= =======
See notes to condensed consolidated financial statements
CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
(unaudited)
Three months ended
March 31,
2003 2002
Interest income: -----------------------
Loans $ 9,629 10,842
Securities held-to-maturity 616 81
Securities available for sale 2,222 2,200
FHLB stock dividends 232 194
Interest-earning deposits 49 56
-----------------------
Total interest income 12,748 13,373
Interest expense:
Deposits 2,869 3,169
Borrowings 2,865 3,459
Trust preferred securities 284 291
-----------------------
Total interest expense 6,018 6,919
Net interest income 6,730 6,454
Provision for loan losses 375 700
-----------------------
Net interest income after provision for loan losses 6,355 5,754
Other income:
Gain on sale of loans 205 118
Service charges 425 402
Gain on sale of securities available-for-sale 765 33
Net gain on sale of real estate owned, investment
property and other repossessed assets 41 376
Bank owned life insurance 148 8
Other 31 35
-----------------------
Total other income 1,615 972
Other expenses:
Salaries and employee benefits 2,485 2,141
Occupancy 613 602
Marketing 111 80
Data processing 71 60
Other 872 987
Debt prepayment fees 442 105
-----------------------
Total other expenses 4,594 3,975
Income before income taxes 3,376 2,751
Federal income taxes 1,072 903
Net income $ 2,304 1,848
=======================
Earnings per share, basic $ 0.35 0.29
Earnings per share, diluted 0.34 0.28
Weighted average number of shares outstanding:
Basic 6,499,663 6,296,989
Diluted 6,701,693 6,529,829
See notes to condensed consolidated financial statements
CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands, unaudited)
Three months ended
March 31,
2003 2002
------------------
Net Income $2,304 1,848
Increase in unrealized gain on
securities available for sale, net of tax
expense of $(6) and $(277) for the
three months ended March 31, 2003 and 2002
respectively. (12) (537)
Less reclassification adjustment for gain on sale
of securities available-for-sale of $765 and $33 net
of tax of $(260) and $(11) for the three months
ended March 31, 2003 and 2002, respectively. (505) (22)
------------------
Comprehensive Income $1,786 1,289
------------------
See notes to condensed consolidated financial statements
CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands, unaudited)
Three months ended
March 31,
2003 2002
------------------
Cash flows from operating activities:
Net Income $ 2,304 1,848
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization of premises and
equipment 333 299
Provision for losses on loans 375 700
Additions to mortgage servicing rights 37 --
Deferred loan fees, net of amortization 60 (115)
Net gain on sales of securities available-
for-sale (765) (33)
Net gain on sales of real estate owned, invest-
ment property and ther repossessed assets (41) (376)
Federal Home Loan Bank stock dividend received (232) (194)
Deferred Federal income taxes 161 421
Net change in accrued interest receivable and
other assets over accrued expenses and other
liabilities 885 672
------------------
Net cash provided by operating activities 3,117 3,222
Cash flows from investing activities:
Loans originated, net of principal repayments (11,817) 18,068
Principal repayments on securities held-
to maturity 601 829
Purchase of securities held-to-maturity (9,990) --
Proceeds from sales/calls of securities held-
to-maturity 26,913 --
Principal repayments on securities available-
for-sale 19,866 6,467
Purchases of securities available-for-sale (135,347) (45,822)
Proceeds from sales of securities available-
for-sale 71,218 27,514
Proceeds from sale of investment property -- 956
Purchases of premises and equipment (89) (56)
Proceeds from sales/retirements of premises
and equipment 2 --
------------------
Net cash provided by (used in)
investing activities (38,643) 7,956
Subtotal, carried forward (35,526) 11,178
------------------
See notes to condensed consolidated financial statements
CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands, unaudited)
Three months ended
March 31,
2003 2002
--------------------
Subtotal, brought forward $ (35,526) 11,178
Cash flows from financing activities:
Proceeds from issuance of common stock 202 498
Dividend paid (324) --
Purchase of treasury stock (8) (252)
Net increase in deposits 25,756 20,726
Net increase (decrease) in Federal Home Loan
Bank advances (5,500) (8,000)
Net increase (decrease) in securities sold under
agreements to repurchase 5,337 (13,157)
Net increase in advance payments by borrowers
for taxes and insurance 591 759
--------------------
Net cash provided by financing activities 26,054 574
--------------------
Net increase (decrease) in cash and cash
equivalents (9,472) 11,752
Cash and cash equivalents at beginning of period 20,595 11,622
--------------------
Cash and cash equivalents at end of period $ 11,123 23,374
====================
Supplemental disclosures of cash flow information-
cash paid during the period for:
Interest $ 6,901 6,631
Federal income taxes 850 --
--------------------
Supplemental schedule of noncash investing
activities:
Net mortgage loans transferred to real
estate owned 75 695
See notes to condensed consolidated financial statements.
CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(unaudited)
1. Presentation of Financial Information
The accompanying financial information is unaudited and has been prepared
from the consolidated financial statements of Cascade Financial Corporation
(the "Corporation"), its subsidiaries, Cascade Bank (the "Bank" or "Cascade")
and Cascade Capital Trust I (the "Trust"), and the Bank's subsidiary, Cascade
Investment Services, Inc. All significant intercompany balances have been
eliminated in the consolidation. In the opinion of management, the financial
information reflects all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial condition,
results of operations, and cash flows of the Corporation pursuant to the
requirements of the SEC for interim reporting.
Certain information and footnote disclosures included in the Corporation's
financial statements for the year ended December 31, 2002, have been condensed
or omitted from this report. Accordingly, these statements should be read with
the financial statements and notes thereto included in the Corporation's
December 31, 2002 Annual Report on Form 10-K.
2. Commitments and Contingencies
In the normal course of business there are various commitments to fund
mortgage loans. Management does not anticipate any material loss as a result of
these commitments.
Periodically there have been various claims and lawsuits against the
Corporation or the Bank, such as claims to enforce liens, condemnation
proceedings on properties in which the Bank holds security interests, claims
involving the making and servicing of real property loans and other issues
incidental to the Corporation's and the Bank's business. In the opinion of
management no significant loss is expected from any of such pending lawsuits.
3. Stockholders' Equity
a) Earnings Per Share
The following table presents the computation of basic and diluted net
income per share for the three-month period ended March 31:
Three Months Ended
2003 2002
---------------------
Dollars in thousands,
Except share and per
share amounts
Numerator:
Net income $ 2,304 1,848
======================
Denominator:
Denominator for basic net income per share-
Weighted average shares 6,499,663 6,296,989
Effect of dilutive securities:
Stock options 202,030 232,840
----------------------
Denominator for diluted net income per share-
Weighted average shares and assumed conversion
of dilutive stock options 6,701,693 6,529,829
Basic net income per share $ 0.35 0.29
======================
Diluted net income per share $ 0.34 0.28
======================
As of March 31, 2003, and 2002 there were anti-dilutive options to purchase
shares of 0 and 140,570 respectively, excluded from the above disclosure.
b) Cash Dividend Declared
On March 26th, the company announced its third cash dividend payment of
$0.05 per share, which was paid on April 24, 2003, to shareholders of record on
April 10, 2003.
c) Stock-based compensation
The Corporation measures its employee stock-based compensation
arrangements using the provisions outlined in Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," which is an
intrinsic value-based method of recognizing compensation costs. As none of the
Corporation's stock options have an intrinsic value at grant date, no
compensation cost has been recognized for its stock option plans.
The Corporation applies Accounting Principles Board (APB) Opinion 25,
"Accounting for Stock Issued to Employees," in accounting for its stock option
plans. Had compensation cost on the fair value at the grant dates for the
Corporation's stock option plan been determined to be consistent with the
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock Based Compensation," the Corporation's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
Three months ended March 31,
2003 2002
----------------------------
Dollars in thousands,
except per share amounts
Net income
As reported $ 2,304 1,848
Less SFAS 123 compensation costs 40 34
---------------------------
Pro forma $ 2,264 1,814
===========================
Net income per common share
Basic
As reported $ 0.35 0.29
Pro forma 0.35 0.29
Diluted
As reported $ 0.34 0.28
Pro forma 0.34 0.28
4. Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board issued Statement
No. 143, Accounting for Asset Retirement Obligations, which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
standard applies to legal obligations associated with the retirement of long
- -lived assets that result from the acquisition, construction, development and
(or) normal use of the asset. Statement No. 143 requires that the fair value of
a liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
fair value of the liability is added to the carrying amount of the associated
asset and this additional carrying amount is depreciated over the life of the
asset. The liability is accreted at the end of each period through charges to
operating expense. If the obligation is settled for other than the carrying
amount of the liability, the Company will recognize a gain or loss on
settlement. The Statement was adopted in March 2003 and did not have a material
effect on the results of our operations or financial position.
In June 2002, the Financial Accounting Standards Board issued Financial
Accounting Standard (FAS) No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. This Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). The provisions of this
Statement are effective for exit and disposal activities that are initiated
after December 31, 2002. This statement was adopted January 1, 2003 and did
not have a material effect on the results of our operations or financial
position.
In October 2002, the Financial Accounting Standards Board issued Financial
Accounting Standard (FAS) No. 147, Acquisitions of Certain Financial
Institutions-an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9. This Statement addresses FAS No. 72, Accounting for
Certain Acquisitions of Banking or Thrift Institutions, and FASB Interpretation
No. 9, Applying APB Opinions No. 16 and 17 When a Savings and Loan Association
or a Similar Institution Is Acquired in a Business Combination Accounted for by
the Purchase Method, provided interpretive guidance on the application of the
purchase method to acquisitions of financial institutions. Except for
transactions between two or more mutual enterprises, this Statement removes
acquisitions of financial institutions from the scope of both Statement 72 and
Interpretation 9 and requires that those transactions be accounted for in
accordance with FASB Statements No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets. In addition, this Statement amends FASB
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, to include in its scope long-term customer-relationship intangible
assets of financial institutions such as depositor- and borrower-relationship
intangible assets and credit cardholder intangible assets. This statement was
adopted in December 2002 and did not have a material effect on the results of
our operations or financial position.
In December 2002, the Financial Accounting Standards Board issued
Financial Accounting Standard (FAS) No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123.
This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements
of Statement 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.
The disclosure provisions of this statement were adopted in December 2002 and
did not have a material effect on the results of our operations or financial
position.
In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, clarifying the accounting treatment and
financial statement disclosure of certain guarantees issued and outstanding.
Interpretation No. 45 clarifies that a guarantor is required to recognize, at
the inception of certain guarantees, a liability for the fair value undertaken
in issuing the guarantee. In addition, guarantors must disclose the
approximate term and nature of the guarantee, the maximum potential amount of
future payments, current carrying amount of the liability and the nature of
recourse provisions and collateral. The initial recognition and measurement
provisions of Interpretation No. 45 are effective for guarantees issued or
modified after December 31, 2002. Management does not expect the adoption of
the initial recognition and measurement provisions of Interpretation No. 45 to
have a material impact on our consolidated financial statements, results of
operations or liquidity. Disclosure provisions of Interpretation No. 45 became
effective and were adopted by us on December 31, 2002.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, addressing consolidation by business enterprises of
certain variable interest entities. Under the provisions of Interpretation No.
46, an enterprise must consolidate a variable interest entity if that
enterprise will absorb a majority of the entity's expected losses or receive a
majority of the entity's residual returns, or both, regardless of the
enterprise's direct or indirect ability to make decisions about the entity's
activities through voting or similar rights. Interpretation No. 46 applies
immediately to interests in variable interest entities created or acquired
after January 31, 2003 and to the first fiscal year or interim period beginning
after June 15, 2003 for interests in variable interest entities acquired before
February 1, 2003. Application of this Interpretation did not have a material
effect on our financial statements.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion is intended to assist in understanding the financial
condition and results of the Corporation. The information contained in this
section should be read with the unaudited condensed consolidated financial
statements and its accompanying notes, and the December 31, 2002 audited
consolidated financial statements and its accompanying notes included in our
recent Annual Report on Form 10-K.
This section contains forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. Those factors include, but are not limited to: the impact of the
current national and regional economic recession on small business loan demand
in the Puget Sound area; loan delinquency rates; the Bank's ability to continue
to attract quality commercial business; interest rate movements; changes in the
demographic make-up of the company's market area; fluctuation in demand for the
Bank's products and services; the Corporation's ability to attract and retain
qualified people, and other factors. For a discussion of factors that could
cause actual results to differ, and for certain mandated SEC guide 3
information that has not materially changed since the balance sheet, please see
its Annual Report on Form 10-K for the year ended December 31, 2002.
Cascade Financial Corporation is a bank holding company incorporated in
Delaware. The Corporation's sole operating subsidiary is Cascade Bank, a
Washington state chartered commercial bank. The Corporation and the Bank are
headquartered in Everett, Washington. The Bank offers loan, deposit and other
financial services through its fifteen branches located in Snohomish and King
Counties (Washington.)
Selected Financial Data
The following table sets forth certain selected financial data concerning
the Corporation for the periods indicated:
At or for the three
months ended March 31,
2003 2002
Return on average assets 1.13% 0.98%
Return on average stockholders' equity 16.16 15.33
Average stockholders' equity to average assets 7.01 6.38
Other expenses to average assets 2.23 2.08
Efficiency ratio 55.05 53.53
Average interest-bearing assets to average
interest-bearing liabilities 110.11 106.90
CHANGES IN FINANCIAL CONDITION
Total assets increased 3.4% or $27.4 million to $831.6 million at March
31, 2003, compared to $804.2 million at December 31, 2002. Net loans increased
2.1% or $11.3 million to $558.0 million at March 31, 2003, from $546.7 million
at December 31, 2002.
Investment securities increased $26.9 million to $235.9 million at March
31, 2003, compared to $209.0 million at December 31, 2002. This investment
growth was partially funded by a decrease in interest-earning deposits held at
other institutions which decreased $10.0 million from $11.0 million at December
31, 2002 to $969,000 at March 31, 2003. The investments made during the
quarter, as well as the existing investment portfolio, are concentrated in the
securities of Government Sponsored Enterprises (GSEs, e.g FNMA or FHLMC) and
collateralized mortgage obligations (CMOs) backed by pools of single family
residential mortgages. All additions to the investment portfolio during the
quarter were rated AAA in terms of credit quality by Moody's and/or Standard &
Poors.
As the Bank continued its focus on deposit generation, total deposits
increased by $25.7 million from $509.9 million at December 31, 2002 to $535.6
million at March 31, 2003. Other borrowings outstanding were essentially
unchanged. Federal Home Loan Bank-Seattle (FHLB) advances decreased by $5.5
million from $197.5 million at December 31, 2002 to $192.0 million at March 31,
2003. Securities sold under agreements to repurchase increased $5.3 million
from $20.6 million at December 31, 2002 to $25.9 million at March 31, 2003.
Stockholders' equity increased by $1.7 million from $56.6 million at
December 31, 2002 to $58.3 million at March 31, 2003. The increase is primarily
attributable to the retention of most of the net income for the period, which
was $2.3 million. The Corporation's third cash dividend reduced stockholders'
equity by $326,000 which was declared March 26, 2003. Accumulated
comprehensive income decreased by $517,000 to $484,000 as of March 31, 2003.
Loan Portfolio
Virtually all the Bank's loans are to businesses and individuals in the
Puget Sound area. Business loans are made to small businesses within that
area. Real estate construction loans are primarily extended to builders and
developers of single family, residential real estate. The vast majority of
these projects focus on entry level homes and/or the first trade-up home.
Commercial real estate loans fund small non-owner occupied buildings. Home
equity and consumer loans are primarily second mortgages on the borrower's
primary residence. These loans comprise 74% of the home equity and consumer
portfolio. The balance of this category are non-residential, e.g. automobiles,
credit cards, or boats.
Residential loans, held in the Bank's portfolio, are primarily adjustable
rate loans secured by single family residences. Multi-family loans are usually
adjustable rate loans secured by mortgages on projects with five or more units.
As displayed in the following table, total loans increased by $11.8
million as of March 31, 2003, compared to December 31, 2002. In keeping with
the Bank's evolution to a commercial bank, loans more closely associated with a
commercial bank, i.e. business and real estate construction loans, grew. On the
other hand, residential and consumer lending balances declined. Cascade sells
almost all its 15 year and 30 year fixed rate, residential originations. The
continuing mortgage refinancing wave has led to a $2.9 million (2.3%) reduction
in our residential loan balances.
The following summary reflects the Bank's loan portfolio as of the dates
indicated:
Types of Loans Mar. 31, % of Dec. 31, % of
- -------------- 2003 Portfolio 2002 Portfolio
--------------------------------------------
($ in thousands)
Business $153,615 27.1% $142,273 25.6%
Real estate construction (net) 88,402 15.6 84,229 15.1
Commercial real estate 67,028 11.8 63,108 11.4
Home equity and consumer 44,416 7.8 49,331 8.9
Residential 119,701 21.1 122,561 22.0
Multifamily 94,341 16.6 94,245 17.0
-----------------------------------------
Total loans 567,503 100% 555,747 100%
Deferred loan fees (2,257) (2,198)
-----------------------------------------
Loans $565,246 $553,549
(Loans held for sale are included in residential loans and at less than 1% of
total loans are not considered material.)
Asset Quality
Non-performing assets (non-performing loans and real estate owned) totaled
$1.5 million and $1.4 million at March 31, 2003 and December 31, 2002,
respectively. Non-performing loans, those on non-accrual, those that are
ninety days past due, and those that management otherwise has serious
reservations about their collectibility, increased to $1.3 million at March 31,
2003, compared to $1.0 million at December 31, 2002. Of the $1.3 million,
$726,660 were Business loans, $472,999 were Residential, and $117,154 were Home
equity and consumer loans. Real estate owned was $231,000 as of March 31, 2003
compared to $461,000 at December 31, 2002.
At March 31, 2003 the Bank's loan loss allowance totaled $7.3 million
compared to $6.9 million at December 31, 2002. The allowance for loan losses
was 1.28% of total loans outstanding at March 31, 2003 compared to 1.24% at
December 31, 2002. The allowance for loan losses was 551% of non-performing
loans at March 31, 2003. The allowance for loan losses is maintained at a level
sufficient to provide for losses based on management's evaluation of known and
inherent risks in the portfolio. This evaluation includes analyses of the
financial condition of the borrower, the value of the collateral securing
selected loans, consideration of historical loss experience and management's
projection of trends affecting credit quality. The increase in the allowance is
primarily attributable to the continued emphasis on business and construction
lending, and a slowdown in the economy of our market area. Management believes
that the allowance for losses on loans is adequate to provide for losses that
may be incurred on non-performing loans.
During the quarter ended March 31, 2003, loan charge-offs equaled $101,000
while recoveries were $115,000 resulting in a net recovery of $14,000. Of the
total, $46,000 represented the charge-offs of three business loans during the
quarter, and the bulk of the recoveries was due to the successful restructuring
of a business loan.
The following table provides summary information concerning asset quality
as of and for the three months ended March 31, 2003 and December 31, 2002
respectively:
March 31, December 31,
2003 2002
--------------------------
Non-performing loans to total assets .16 % .12 %
Non-performing loans to total loans outstanding .23 .17
Non-performing assets to total assets .19 .18
Allowance for loan losses to non-performing loans 551 719
Allowance for loan losses to total loans 1.28 1.24
Net charge-offs to total loans .00 .07
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 2003 and 2002
General
Net income increased 25.0% to $2.3 million for the three months ended
March 31, 2003 compared to $1.8 million during the comparable period in 2002.
Diluted net income per share was $0.34 for the quarter ended March 31, 2003 and
$0.28 per share for the quarter ended March 31, 2002, an increase of 21%. This
increase is primarily attributable to the increase in net interest income of
$276,000 to $6.7 million for the quarter ended March 31, 2003. Other income
increased by $643,000 to $1.6 million for the quarter ended March 31, 2003.
Other expense increased $619,000 to $4.6 million for the quarter ended March
31, 2003 as compared to the quarter ended March 31, 2002. During the quarter,
the Bank paid $442,000 in prepayment fees on Federal Home Loan Bank (FHLB)
advances compared to $105,000 during the quarter ended March 31, 2002.
Net Interest Income
Net interest income increased 4.3% or $276,000 to $6.7 million for the
three months ended March 31, 2003 compared to $6.5 million for the three months
ended March 31, 2002. An increase in average earning assets accounted for most
of the change in net interest income. Average interest earning assets
increased $51.6 million or 6.9% to $798.9 million for the three months ended
March 31, 2003 compared to the same period in 2002. Average total loans
(including loans held for sale) decreased $17.7 million to $561.0 million and
average investment securities increased $66.9 million to $225.1 million for the
three months ended March 31, 2003 compared to the same quarter of the prior
year.
At or for the
three months ended
March 31,
2003 2002
----------------------
(dollars in thousands)
Average interest earning assets $798,937 $747,341
Average interest bearing liabilities 725,571 699,097
Yield on interest earning assets 6.44% 7.22%
Cost of interest bearing liabilities 3.36 4.01
Net interest spread 3.08 3.21
Net interest margin 3.38 3.46
The net interest margin decreased 8 basis points to 3.38% for the three
months ended March 31, 2003 compared to the same quarter the prior year. The
decrease in the net interest margin is the result of a decrease in asset yields
that exceeded the decrease in liability costs. The yield on interest earning
assets decreased 78 basis points to 6.44% for the three months ended March 31,
2003, compared to 7.22% for the three months ended March 31, 2002. The cost of
funds decreased to 3.36% for the three months ended March 31, 2003 compared to
4.01% for the same period in 2002, a drop of 65 basis points.
The yield on assets fell as the steep descent in rates led to the
refinancing or rate modification on many loans. Also, mortgage backed
securities repaid and investment securities, with call features, were called.
Asset yields were also lowered by the increased percentage of earning assets
represented by investment securities and cash equivalents. Finally, the
purchase of $10 million in Bank Owned Life Insurance (BOLI) decreased the total
of interest earning assets. The income from BOLI is categorized as a separate
line item of other income.
On the other hand, the cost of liabilities declined as the rates paid on
deposits dropped with the general level of interest rates. However, deposits
continued to reprice to slightly lower rates throughout the quarter. Also,
during the period, the Bank prepaid $19.5 million in long term, high rate FHLB
advances that resulted in prepayment fees, but lowered the cost of funds as the
bank replaced these high rate advances with $14 million in low rate advances.
Provision for loan losses
Cascade's provision for loan losses was $375,000 for the three months
ended March 31, 2003. The provision was $700,000 for the same period in 2002.
The decrease in the provision reflects a decrease in net charge-offs, growth in
the ALLL, and continuing low levels of non-performing loans.
The immediate prospects for the economy in the Corporation's market area
(Snohomish County and East King County of Washington state) remain less than
robust. The area's largest employer, Boeing, continues to layoff employees due
to the slowing demand for commercial aircraft. The slowdown in many areas of
technology has had a negative impact on the demand for commercial real estate
in our market area. The vacancy rates for Class A, high rise office space has
increased in Seattle and Bellevue to 25% today. While the impact on the Bank's
asset quality has been muted to date, a continued economic slump will have
adverse ramifications for some borrowers and hence lenders in our market.
This economic slowdown comes at a time when management intends to
emphasize the growth of the business and construction portfolios. These loans
typically have a higher credit risk that may require additions to the reserve
in future periods. Management monitors these loans at an increased level to
maintain credit quality and adequate reserve levels.
Other Income
Other income increased $643,000 or 66.2% to $1.6 million for the three
months ended March 31, 2003 as compared to $972,000 for the three months ended
March 31, 2002. For the three months ended March 31, 2003, gain on the sale of
investment securities increased by $732,000 to $765,000 as the Bank realigned
its investment portfolio as rates fell to levels not seen in 40 years. Service
fee income rose to $425,000 compared to $402,000 for the same period in the
prior year. Gain on sale of loans increased $87,000 from $118,000 to $205,000
due to continued high levels of refinance activity. Lower service fees in the
Bank's investment advisory subsidiary, Cascade Investment Services, were more
than offset by increases in miscellaneous fees and service charges.
Other Expense
Other expense was $4.6 million for the three months ended March 31, 2003
compared with $4.0 million for the three months ended March 31, 2002. The
increase in other expense was driven by increases in salary and benefit expense
and prepayment fees on Federal Home Loan Bank advances.
Salary and employee benefit expenses increased $344,000 to $2.5 million
during the three months ended March 31, 2003 compared to the same quarter
last year. The increase in these expenses was primarily due to: a modest
increase in the number of employees due to opening a new branch and a customer
service center during the fourth quarter of 2002; an increase in incentive
accruals based upon the Corporation's financial performance; as well as an
increase in health insurance premiums paid on behalf of employees.
The remaining other operating expense categories, excluding prepayment
fees, totaled $1.7 million for the three months ended March 31, 2003. For the
same period in 2002, other operating expenses were also $1.7 million.
Prepayment fees on Federal Home Loan Bank advances were $442,000 for the
three months ended March 31, 2003. The prepayments of advances were made
possible by deposit growth exceeding asset growth. The advances prepaid were
high rate and were extinguished to lower the cost of funds and improve the net
interest margin.
Federal income tax expenses increased $169,000 to $1.1 million, an
increase of 18.7% during the three months ended March 31, 2003 compared to the
same period last year. For the three months ended March 31, 2003, the
Corporation's effective tax rate was 32% compared to 33% for the same period in
2002. Tax benefits related to bank owned life insurance, interest on tax
exempt loans, and exercises of non-qualifying options accounted for the
difference from the "expected" Federal income tax rate of 34% during each
of the periods.
Since the Corporation has no goodwill on its balance sheet, the
implementation of the new accounting standard for goodwill had no impact on its
operating results.
Segment Results
The following is a summary of selected operating segment information for
the three month periods ended March 31, 2003 and 2002. The Corporation manages
its operations and prepares management reports with a primary focus on its
various business units. The accounting policies of the individual units are
the same as those of the Corporation. The Corporation allocates centrally
provided services to the business units based upon estimated usage of those
services. All amounts are in thousands.
For the three months ended March 31, 2003
- -----------------------------------------
Income Administration/
Business Residential Construction Property Consumer Treasury Total
-------------------------------------------------------------------------------------------
(In thousands)
Condensed Income Statement
Net Interest after
provision for loan losses $1,488 443 954 1,444 432 1,594 6,355
Other Income 14 231 - - 354 1,016 1,615
Direct Expense 276 144 85 28 312 3,749 4,594
Allocated Overhead 294 243 180 327 95 (1,139) -
-----------------------------------------------------------------------------------------
Income before Income Tax 932 287 689 1,089 379 - 3,376
Federal Income Taxes 296 91 219 346 120 - 1,072
-----------------------------------------------------------------------------------------
Net Income $ 636 196 470 743 259 - 2,304
-----------------------------------------------------------------------------------------
For the three months ended March 31, 2002
- -----------------------------------------
Income Administration/
Business Residential Construction Property Consumer Treasury Total
-------------------------------------------------------------------------------------------
(In thousands)
Condensed Income Statement
Net Interest after
provision for loan losses $1,151 560 919 1,266 454 1,404 5,754
Other Income 16 150 - 2 314 490 972
Direct Expense 287 148 93 31 288 3,128 3,975
Allocated Overhead 277 304 166 368 119 (1,234) -
-----------------------------------------------------------------------------------------
Income before Income Tax 603 258 660 869 361 - 2,751
Federal Income Taxes 198 85 217 285 118 - 903
-----------------------------------------------------------------------------------------
Net Income $ 405 173 443 584 243 - 1,848
-----------------------------------------------------------------------------------------
Income Property includes Commercial Real Estate and Multi-family lending.
Liquidity and Sources of Funds
The Bank monitors its liquidity position to assure that it will have
adequate resources to meet its customers needs. Potential uses of funds are new
loans; the disbursement of construction loans in process; draws on unused
business lines of credit and unused consumer lines of credit; and deposit
withdrawals. As of March 31, 2003, Cascade had $23.3 million of construction
loans in process, $41.4 million in unused business lines of credit and $28.9
million in unused consumer lines of credit. While virtually all the loans in
process will be funded as the construction projects move toward completion,
only a modest portion of the business and consumer lines will require funding.
Historically, the Bank's business customers use approximately 36% of their
line. About 50% of the home equity lines of credit are not drawn upon at any
point in time.
Funding needs are met through the sale of loans, existing liquidity
balances, repayment of existing loans, deposit growth, FHLB-Seattle advances,
and other borrowings. Cascade maintains balances in FHLB deposits, which
equaled $969,000 as of March 31, 2003 and $11.0 million at December 31, 2002.
Liquidity is also provided by the Bank's unencumbered securities portfolio.
Securities that could be pledged to secure additional funding were $154.0
million at the end of the quarter and $105.9 million as of December 31, 2002.
Subject to the availability of eligible collateral, the Bank's credit line
with the FHLB-Seattle is 35% of total assets or up to approximately $291
million at current asset levels. At March 31, 2003, the Bank had $192.0
million in advances and an unused line of credit from the FHLB-Seattle of
approximately $99.0 million. The Bank also uses reverse repurchase agreements
to provide a flexible source of funding. At March 31, 2003 the Bank had $25.9
million in reverse repurchase agreements outstanding. The Bank also has a $6
million Fed funds line with its correspondent bank, which was not used during
the quarter.
Capital Resources
The Corporation's primary source of capital is the retention of its net
income. On March 26, 2003, the Board of Directors voted to declare the
Corporation's third cash dividend. The $.05 per share dividend was payable on
April 24th to shareholders of record on April 10th. The $326,000 dividend
payout represented 14% of quarterly earnings.
The Corporation also receives capital through the exercise of options
granted to employees and directors. The Corporation permits employees and
directors to tender shares of Cascade's stock which they have held for a
minimum of six months to exercise options.
Through this tender activity and a stock repurchase program that expired
in July 2001, the Corporation has repurchased approximately 174,000 shares of
stock at a cost of $1.4 million as of March 31, 2003. These shares, which
represent 2.6% of shares outstanding, are accounted for as Treasury Stock.
Cascade does not currently have a stock repurchase program.
On March 1, 2000 Cascade Capital Trust I issued ten million par value
Trust Preferred Securities. Cascade Capital Trust I is a statutory business
trust created for the exclusive purposes of issuing and selling capital
securities and utilizing sale proceeds to acquire junior subordinated debt
issued by Cascade Financial Corporation. Accordingly, the junior subordinated
debentures are the sole assets of the Trust, and payments under the junior
subordinated debentures will be the sole revenues of the Trust. All of the
common securities of the Trust are owned by the Corporation.
Capital Requirements
Cascade Bank is in full compliance with all capital requirements
established by the FDIC and the Washington State Department of Financial
Institutions. The Bank's regulatory capital requirements are expressed as a
percentage of assets. As of March 31, 2003, for the purposes of this
calculation, the Bank's total assets and total risk based assets were $822.3
million and $573.1 million respectively. The related excess capital amounts as
of March 31, 2003 are presented in the following table ($ amounts in 000's):
Core capital Amount Percentage
------ ----------
Tier 1 (Core) capital $66,598 8.10%
Less: Minimum requirement 32,892 4.00
------ ------
Excess $33,706 4.10%
====== ======
Risk-based capital Amount Percentage
------ ----------
Risk-based capital $73,763 12.87%
Less: Minimum requirement(1) 45,848 8.00
------ ------
Excess $27,915 4.87%
====== ======
(1) Based on risk-weighted assets.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was signed into law on December 19, 1991. Among other things, the
FDICIA provides the FDIC, effective December 19, 1992, with broad powers to
take "prompt corrective action" to resolve problems of insured depository
institutions. The actions the FDIC can take depend upon whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Under FDIC guidelines, Cascade Bank is a "well capitalized"
institution as of March 31, 2003, which requires a core capital to assets of at
least 6% and a risk based capital to assets of at least 10%.
The Corporation, as a bank holding company regulated by the Federal
Reserve, is also subject to capital requirements that are similar to those for
Cascade Bank. The Corporation is well capitalized under Federal Reserve
guidelines with a Tier 1 ratio of 8.25% and a Risk Based ratio of 13.08%.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
ASSET/LIABILITY MANAGEMENT
The Bank, like other financial institutions, is subject to fluctuations in
interest rates because its interest-bearing liabilities re-price on different
terms than its interest-earning assets.
The Bank has sought to manage its interest rate exposure through the
structure of its balance sheet. While the Bank has used interest rate swaps and
other off balance sheet instruments in the past, it has not used any such
contracts during the time periods covered by this report. Instead, to limit its
interest rate risk, the Bank has migrated its loan mix toward prime based
business and construction loans. The Bank sells virtually all new 15 and 30
year fixed rate residential loans, servicing released to its correspondent
mortgage banks on a best efforts basis. The Bank's fixed rate portfolio loans
secured by real estate consist primarily of mortgages with initial fixed rate
periods of three or five years that after the initial period convert to one
year adjustable rate loans.
The growth in the Bank's investment portfolio has been generally limited
to collateralized mortgage obligations (CMOs) with expected average lives
under five years and callable Agency securities. The callable Agency securities
have intermediate maturities with durations less than five years but final
maturities of up to 15 years in some cases. Given the steepness of the yield
curve, these securities offer very attractive yields compared to securities
with shorter final maturities. Since most of these securities are classified
as "available for sale", in an increasing interest rate environment, these
securities could produce mark to market losses that would be reflected in the
Corporation's comprehensive income. If however, interest rates decline, these
securities could be called by the issuer. During the quarter ended March 31,
2003, $53.0 million of these securities were called.
The Bank extends the maturity of its liabilities by offering deposit
products to long-term customers, and by obtaining longer term FHLB-Seattle
advances. As of March 31, 2003, all of the $192.0 million of advances had
original maturities greater than one year and all but $27 million have
remaining maturities greater than one year. Of the total amount, $145 million
of these advances have provisions that allow the FHLB to convert the advance to
a LIBOR based, adjustable rate borrowing. However, at current interest rates,
no advances would likely be converted. Further, even in a +200 basis point
rate shock scenario, only a total of $20 million would be converted.
Cascade uses a simulation model to measure its interest rate risk which is
defined as the impact on net interest income resulting from changes in market
interest rates. Cascade uses mark to market reports to measure the impact of
changes in rates on the fair value of its balance sheet in rate shock
scenarios. Cascade's Board of Directors has established policies that limit the
reduction in the Bank's net interest income, the fair value of equity and
adjusted capital/asset ratios under certain interest rate shock scenarios.
Using standard rate shock methodology, the Bank's net interest income
increases 1.2% in the up 200 basis points scenario and decreases 7.2% in the
down 200 basis point scenario, both within the Board established limit of a 10%
decline. The Bank's fair value of equity decreases 9.4% in the up 200 basis
points shock and increases 5.1% in the down 200 basis point scenario. The
established limit is a 30% decline. The minimum adjusted capital to asset
limit is 5% in either scenario. In the up 200 basis point scenario, the
capital/asset ratio is 7.07%. In the down 200 basis point shock, the capital
ratio is 7.93%.
Item 4 - Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
An evaluation of the Registrant's disclosure controls and procedures (as
defined in section 13(a) - 14(c) of the Securities Exchange Act of 1934 (the
"Act")) was carried out under the supervision and with the participation of the
Registrant's Chief Executive Officer, Secretary/Treasurer and several other
members of the registrant's senior management within the 90-day period
preceding the filing date of this quarterly report. The Registrant's Chief
Executive Officer and Secretary/Treasurer concluded that the Registrant's
disclosure controls and procedures as currently in effect are effective in
ensuring that the information required to be disclosed by the Registrant in the
reports it files or submits under the Act is (i) accumulated and communicated
to the Registrant's management (including the Chief Executive Officer and
Secretary/Treasurer) in a timely manner, and (ii) recorded, processed,
summarized and reported within the time periods specified in the SEC's rules
and forms.
CHANGES IN INTERNAL CONTROLS
In the quarter ended March 31, 2003, the Registrant did not make any
significant changes in, nor take any corrective actions regarding, its internal
controls or other factors that could significantly affect these controls.
DISCLOSURE CONTROLS AND INTERNAL CONTROLS
Disclosure controls are procedures that are designed with the objective of
ensuring that information required to be disclosed in Cascade Financial
Corporation's reports filed under the Securities Exchange Act of 1934 (Exchange
Act) is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's (SEC) rules and forms.
Disclosure controls are also designed with the objective of ensuring that such
information is accumulated and communicated to our management, as appropriate
to allow timely decisions regarding required disclosure. Internal Controls are
procedures which are designed with the objective of providing reasonable
assurance that (1) transactions are properly authorized; (2) assets are
safeguarded against unauthorized or improper use; and (3) transactions are
properly recorded and reported, all to permit the preparation of financial
statement in conformity with accounting principles generally accepted in the
United States of America.
LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS
Cascade Financial Corporation's management does not expect that our
disclosure controls or our internal controls will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within Cascade Financial
Corporation have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or
more people, or by management override of the control. The design of any system
of controls also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
The Corporation and the Bank is involved litigation and negotiations in
progress resulting from activities arising from normal operations. In the
opinion of management, none of these matters is likely to have a materially
adverse effect on the Corporation's financial position.
Item 2. Changes in Securities.
Not applicable
Item 3. Defaults upon Senior Securities.
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
Item 5. Other information.
Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Certificate of Incorporation of Cascade Financial Corporation(1)
3.2 Bylaws of Cascade Financial Corporation1
10.1 Cascade Financial Corporation 1994 Employee Stock Purchase Plan(1)
10.2 Cascade Financial Corporation 1992 Stock Option and Incentive Plan(2)
10.3 Cascade Financial Corporation Employee Stock Ownership Plan(2)
10.4 Cascade Financial Corporation 1997 Stock Option Plan(3)
(b) Reports on Form 8-K
Not applicable
(1) Incorporated by reference to the Corporation's Registration Statement on
Form S-4 (File No. 33-83200).
(2) Incorporated by reference to the Corporation's Form 10-KSB for December
31, 1995.
(3) Incorporated by reference to Appendix E to the Prospectus included in the
Corporation's Registration Statement on Form S-4 (File no. 333-24203).
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 thereunto duly authorized.
CASCADE FINANCIAL CORPORATION
May 13, 2003 /s/ Lars H. Johnson
By: Lars H. Johnson,
Executive Vice President
(Chief Financial Officer)
CERTIFICATIONS
I, Carol K. Nelson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cascade Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 13, 2003 /s/ Carol K. Nelson
---------------------------
Carol K. Nelson,
President and CEO
I, Lars H. Johnson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cascade Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 13, 2003 /s/ Lars H. Johnson
---------------------------
Lars H. Johnson,
Chief Financial Officer
CERTIFICATION OF QUARTERLY REPORT ON FORM 10-Q
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned are the Chief Executive Officer and the Chief Financial
Officer of Cascade Financial Corporation (the "Registrant"). This
Certification is made pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. This Certification accompanies the Quarterly Report on Form 10-Q of the
Registrant for the quarterly period ended March 31, 2003.
We certify that such Quarterly Report on Form 10-Q fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
and that the information contained in such 10-Q Report fairly presents, in all
material respects, the financial condition and the results of operations of the
Registrant.
Date: May 13, 2003 /s/ Carol K. Nelson
---------------------------
Carol K. Nelson,
President and CEO
/s/ Lars H. Johnson
---------------------------
Lars H. Johnson,
Chief Financial Officer