UNITED STATES 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, 2005.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR TRANSITION PERIOD FROM TO
------ ------
Commission file number 0-25286
CASCADE FINANCIAL CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-1661954
------------------------------ -----------------
(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
--------------------------------------------------
(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 April 30, 2005
- ---------------------------- ----------------------------------
Common Stock ($.01 par value) 9,569,315
-1-
CASCADE FINANCIAL CORPORATION
FORM 10-Q
for the Quarter Ended March 31, 2005
INDEX
-----
PART I - Financial Information:
Item 1 - Financial Statements:
- Condensed Consolidated Balance Sheets 3
- Condensed Consolidated Statements of Operations 4
- Consolidated Statements of Comprehensive Income (Loss) 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 10
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 20
Item 4 - Controls and Procedures 21
PART II - Other Information 23
-2-
PART I -- FINANCIAL INFORMATION
CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, December 31,
ASSETS 2005 2004
- ------ ------------- ------------
(unaudited)
Cash on hand and in banks $ 15,962 $ 11,692
Interest-bearing deposits in other institutions 44 1,337
Securities available-for-sale 135,401 124,276
Securities held-to-maturity 95,311 91,339
Loans 842,470 804,029
Allowance for loan losses (9,681) (9,563)
---------------------------
Loans, net 832,789 794,466
Goodwill and intangibles, net 26,248 26,292
Premises and equipment, net 12,720 12,824
Cash surrender value of bank-owned life insurance 16,814 16,650
Deferred tax asset 588 -
Accrued interest receivable and other assets 8,309 10,079
---------------------------
TOTAL ASSETS $1,144,186 $1,088,955
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
- ------------
Deposits $ 781,797 $ 721,908
Federal Home Loan Bank advances 221,000 228,000
Securities sold under agreements to repurchase 20,869 20,902
Junior subordinated debentures payable 15,302 15,454
Advance payments by borrowers for taxes
and insurance 474 677
Dividends payable 765 765
Accrued interest payable, expenses and other
Liabilities 7,183 4,959
Deferred federal income taxes - 40
---------------------------
TOTAL LIABILITIES 1,047,390 992,705
Stockholders' Equity:
- ---------------------
Preferred stock, $.01 par value, Authorized
500,000 shares; no shares issued or outstanding - -
Common stock, $.01 par value, Authorized
25,000,000 shares; issued and outstanding
9,566,844 shares at March 31, 2005 and
9,559,822 shares at December 31, 2004 96 96
Additional paid-in capital 37,581 37,326
Retained earnings, substantially restricted 61,464 59,975
Accumulated other comprehensive income (loss) (2,345) (1,147)
---------------------------
TOTAL STOCKHOLDERS' EQUITY 96,796 96,250
---------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,144,186 $1,088,955
===========================
See notes to condensed consolidated financial statements
-3-
CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
(unaudited)
Three months ended
March 31,
2005 2004
Interest income: --------------------
Loans $13,156 $ 9,335
Securities held-to-maturity 1,076 1,108
Securities available-for-sale 1,302 1,991
FHLB stock dividends 49 147
Interest-bearing deposits 17 28
--------------------
Total interest income 15,600 12,609
Interest expense:
Deposits 3,544 2,373
FHLB advances and repurchase agreements 3,009 2,764
Junior subordinated debentures 273 170
Total interest expense 6,826 5,307
--------------------
Net interest income 8,774 7,302
Provision for loan losses 245 225
--------------------
Net interest income after provision for loan losses 8,529 7,077
Other income:
Gain on sale of loans held-for-sale 30 62
Gain on sale of securities available-for-sale 12 269
Net gain on sale of REO 33 76
Checking service fees 776 440
Other service fees 212 142
BOLI 188 134
Other 349 30
--------------------
Total other income 1,600 1,153
Other expenses:
Salaries and employee benefits 3,159 2,632
Occupancy 807 609
Marketing 84 94
Data processing 145 79
Prepayment fees on FHLB advances - 26
Other 1,358 1,027
--------------------
Total other expenses 5,553 4,467
Income before provision for federal income taxes 4,576 3,763
Provision for federal income taxes 1,505 1,189
--------------------
Net income $ 3,071 $ 2,574
====================
Net income per common share, basic $ 0.32 $ 0.31
Weighted average number of shares
outstanding, basic 9,574,296 8,250,880
Net income per share, diluted 0.31 0.30
Weighted average number of shares
outstanding, diluted 9,874,799 8,619,193
Dividends declared per share 0.08 0.07
See notes to condensed consolidated financial statements
-4-
CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands)
(unaudited)
Three months ended
March 31,
2005 2004
------------------
Net Income $ 3,071 $ 2,574
Increase in unrealized gain (loss) on
securities available-for-sale, net of tax
(benefit) expense of $(650) and $332 for the
three months ended March 31, 2005 and 2004,
respectively. (1,206) 645
Less reclassification adjustment for gains included
in net income, net of tax of $4 and $(92) for the
three months ended March 31, 2005 and 2004,
respectively. 8 (177)
------------------
Comprehensive Income $ 1,873 $ 3,042
------------------
See notes to condensed consolidated financial statements
-5-
CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands, unaudited)
Three Months
Ended March 31,
2005 2004
Cash flows from operating activities: -------------------
Net income $ 3,071 $ 2,574
-------------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization of premises and equipment 459 348
Provision for losses on loans 245 225
Increase in cash surrender value of bank owned life
Insurance (164) (115)
Amortization of retained servicing rights 9 13
Amortization of core deposit intangible 35 --
Deferred federal income taxes -- 160
Deferred loan fees, net of amortization 178 (56)
Net gain on sales of securities available-for-sale 12 (269)
Net gain on sales of real estate owned, investment
property and other repossessed assets 33 (76)
Federal Home Loan Bank stock dividend received (49) (147)
Net increase (decrease) in accrued interest receivable
and other assets (under) over accrued interest
payable, expenses and other liabilities 3,866 1,183
-------------------
Net cash provided by operating activities 7,695 3,840
Cash flows from investing activities:
Loans originated, net of principal repayments (38,735) (29,341)
Purchases of securities held-to-maturity (5,054) (24,437)
Proceeds from sales/calls of securities
held-to-maturity -- 23,238
Principal repayments on securities held-to-maturity 1,082 649
Principal repayments on securities available-for-sale 5,510 5,266
Purchases of securities available-for-sale (20,000) (57,049)
Proceeds from sales of securities available-for-sale 1,519 73,261
Purchases of premises and equipment (376) (410)
Proceeds from sales/retirements of premises
and equipment 21 --
Proceeds from loan participations sold (12) (9)
-------------------
Net cash used in investing activities (56,045) (8,832)
Subtotal, carried forward $(48,350) $ (4,992)
-------------------
See notes to condensed consolidated financial statements
-6-
CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands, unaudited)
Three Months
Ended March 31,
2005 2004
--------------------
Subtotal, brought forward $(48,350) $ (4,992)
-------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 296 151
Dividends paid (766) (577)
Repurchase of common stock (857) --
Net increase in deposits 59,890 19,675
Net increase (decrease) in Federal Home Loan
Bank advances (7,000) (10,000)
Net increase (decrease) in securities sold under
agreements to repurchase (33) (1,877)
Net increase in advance payments by borrowers for
taxes and insurance (203) 633
-------------------
Net cash provided by financing activities 51,327 8,005
-------------------
Net increase (decrease) in cash and cash
Equivalents 2,977 3,013
Cash and cash equivalents at beginning of period 13,029 14,071
-------------------
Cash and cash equivalents at end of period $ 16,006 $ 17,084
===================
Supplemental disclosures of cash flow information-
cash paid during the period for:
Interest $ 6,630 $ 5,173
Federal income taxes 100 150
-------------------
Supplemental schedule of noncash investing activities:
Net mortgage loans transferred to real estate owned -- 915
Mark-to-market on securities available-for-sale 1,895 (709)
Tax benefit of non-qualified options exercised 201 25
See notes to condensed consolidated financial statements
-7-
CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(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 and Capital Trust II (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, 2004, 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, 2004 Annual Report on Form 10-K.
2. Commitments and Contingencies
In the normal course of business there are various commitments to fund
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 material 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
2005 2004
----------------------------
Dollars in thousands, except
share and per share amounts
Numerator:
Net income $ 3,071 $ 2,574
============================
Denominator:
Denominator for basic net income per share-
Weighted average shares 9,574,296 8,250,880
Effect of dilutive securities:
Stock options 300,503 368,313
----------------------------
-8-
Three Months Ended
2005 2004
----------------------------
Dollars in thousands, except
share and per share amounts
Denominator for diluted net income per share-
Weighted average shares and assumed conversion
of dilutive stock options 9,874,799 8,619,193
============================
Basic net income per share $ 0.32 $ 0.31
============================
Diluted net income per share $ 0.31 $ 0.30
============================
As of March 31, 2005, and 2004 there were anti-dilutive options to purchase
109,792 and 6,537 shares respectively, excluded from the above disclosure.
b) Cash Dividend Declared
On March 23, 2005, the company announced its eleventh consecutive cash
dividend payment. The dividend was $0.08 per share and was paid on April 20,
2005 to shareholders of record April 6, 2005.
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," as amended, 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,
2005 2004
-----------------------------
Dollars in thousands,
except per share amounts
Net income
As reported $3,071 $2,574
Less SFAS 123 compensation costs,
net of tax 53 42
----------------
Pro forma $3,018 $2,532
================
Net income per common share
Basic
As reported $ 0.32 $ 0.31
Pro forma 0.32 0.31
Diluted
As reported $ 0.31 $ 0.30
Pro forma 0.31 0.29
-9-
4. Recently Issued Accounting Standards
In December 2004 the FASB issued No. 123(R), Shared Based Payment, which is
a revision of No. 123, Accounting for Stock-Based Compensation. Statement
123(R) supersedes APB Opinion 25, which the Corporation had used to report
stock options granted to employees and directors. Statement 123(R) requires all
share-based payments to employees, including stock options, be recognized in
the income statement based on their fair values. The Corporation will adopt
Statement 123(R) effective January 1, 2006.
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, 2004 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, 2004.
Cascade Financial Corporation is a bank holding company incorporated in the
state of Washington. 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 sixteen branches located in Snohomish
and King Counties (Washington) and two additional branches in King County
through its Issaquah Bank Division.
Acquisition
- -----------
On June 3, 2004 the Company completed its acquisition of Issaquah
Bancshares, Inc. ("Issaquah"). The acquisition was accounted for using the
purchase method of accounting and accordingly, the assets and liabilities were
recorded based on their fair values at the acquisition date. The merger
enhances Cascade's commercial banking franchise by expanding Cascade's presence
in East King County. Total Issaquah assets on June 3, 2004 were approximately
$131 million and the total value of the transaction, both cash and stock, was
approximately $34.3 million as measured under the provisions of FAS 141, which
used the value of Cascade stock offered as of February 2004, the time when the
acquisition was announced. Cascade issued approximately 1.3 million shares and
paid cash of $9.5 million in connection with the merger. The Bank booked
$26.3 million in intangible assets associated with the transaction including
-10-
$25.2 million in goodwill and a $1.1 million core deposit intangible that will
be amortized under the straight-line method over an eight year period of time.
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,
2005 2004
----------------------
Return on average assets 1.10% 1.16%
Return on average stockholders' equity 12.82 15.79
Average stockholders' equity to average assets 8.60 7.38
Other expenses to average assets 1.99 2.02
Efficiency ratio 53.53 52.83
Average interest-bearing assets to average
interest-bearing liabilities 111.79 111.02
CHANGES IN FINANCIAL CONDITION
------------------------------
Total assets increased 5.1% or $55.2 million to $1.1 billion at March 31,
2005, compared to $1.09 billion at December 31, 2004. Net loans, i.e. net of
deferred loan fees and the allowance for loan losses, increased 4.8% or $38.3
million to $832.8 million at March 31, 2005, from $794.5 million at December
31, 2004.
Investment securities increased $15.1 million to $230.7 million at March
31, 2005, compared to $215.6 million at December 31, 2004. 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 investment purchases during the
quarter were rated AAA in terms of credit quality by Moody's and/or Standard
& Poors.
March 31, 2005
---------------------------------------------------------------------------
Gross Gross Gross Gross
Unreal- Unreal- Unreal- Unreal-
Amor- ized ized ized ized
tized Gains Gains Losses Losses Fair
Cost Less than More than Less than More than Value
1 year 1 year 1 year 1 year
---------------------------------------------------------------------------
Securities available-for-sale
MBS $ 41,220 $ 7 $ 18 $ 287 $1,047 $ 39,911
Agency notes 85,869 - - 2,299 - 83,570
FHLB Stock 11,920 - - - - 11,920
---------------------------------------------------------------------------
$139,009 $ 7 $ 18 $2,586 $1,047 $135,401
===========================================================================
-11-
March 31, 2005
--------------------------------------------------------------------------
Gross Gross Gross Gross
Unreal- Unreal- Unreal- Unreal-
Amor- ized ized ized ized
tized Gains Gains Losses Losses Fair
Cost Less than More than Less than More than Value
1 year 1 year 1 year 1 year
--------------------------------------------------------------------------
Securities held-to-maturity
MBS $ 29,047 $ - $ 23 $ 528 $ 382 $ 28,160
Agency notes 65,799 - - 829 1,169 63,801
Corporate/other 465 - - - - 465
---------------------------------------------------------------------------
$ 95,311 $ - $ 23 $1,357 $1,551 $ 92,426
===========================================================================
DECEMBER 31, 2004
--------------------------------------------------------------------------
Gross Gross Gross Gross
Unreal- Unreal- Unreal- Unreal-
Amor- ized ized ized ized
tized Gains Gains Losses Losses Fair
Cost Less than More than Less than More than Value
1 year 1 year 1 year 1 year
--------------------------------------------------------------------------
Securities available-for-sale
MBS $ 43,208 $ 50 $ 20 $ 544 $ 212 $ 42,522
Agency notes 70,910 18 - 652 394 69,882
FHLB Stock 11,872 - - - - 11,872
---------------------------------------------------------------------------
$125,990 $ 68 $ 20 $1,196 $ 606 $124,276
===========================================================================
--------------------------------------------------------------------------
Gross Gross Gross Gross
Unreal- Unreal- Unreal- Unreal-
Amor- ized ized ized ized
tized Gains Gains Losses Losses Fair
Cost Less than More than Less than More than Value
1 year 1 year 1 year 1 year
--------------------------------------------------------------------------
Securities held-to-maturity
MBS $ 25,083 $ - $ 30 $ 345 $ 184 $ 24,584
Agency notes 65,791 21 - 367 939 64,506
Corporate/other 465 - - - - 465
---------------------------------------------------------------------------
$ 91,339 $ 21 $ 30 $ 712 $1,123 $ 89,555
===========================================================================
We currently hold twelve securities in our available-for-sale portfolio and
seven securities in our held to maturity portfolio that have had an unrealized
loss for more than one year. The losses are due to increases in interest rates
and not related to credit deterioration. If rates were to move downward in the
future, the market value of these securities would rise accordingly. We have
the ability to hold the investments for a period of time sufficient for a
market price recovery. Therefore, we do not consider any portion of these
investments to be other-than-temporarily impaired.
At March 31, 2005, the Bank held FHLB of Seattle stock of $11.92 million.
In December 2004, the FHLB of Seattle announced it would not repurchase any
stock until further notice. On April 5, 2005, the FHLB of Seattle submitted
a proposed business and capital plan to its regulator, the Federal House
Finance Board. The FHLB of Seattle anticipates minimal to no dividends for
its members over the next years, and there is a possibility the FHLB of Seattle
may report a net loss for some financial reporting periods.
As the Bank continued its focus on deposit generation, total deposits
increased by $59.9 million from $721.9 million at December 31, 2004 to $781.8
million at March 31, 2005. Federal Home Loan Bank-Seattle (FHLB) advances
-12-
decreased by $7.0 million from $228.0 million at December 31, 2004 to $221.0
million at March 31, 2005. Securities sold under agreements to repurchase were
virtually unchanged at $20.9 million during the quarter.
Stockholders' equity increased by $546,000 from $96.3 million at December
31, 2004 to $96.8 million at March 31, 2005. The increase is primarily
attributable to the retention of most of the net income for the period less
dividend payments. The Corporation's eleventh consecutive cash dividend, which
was declared March 23, 2005, reduced stockholders' equity by $765,000.
Accumulated other comprehensive loss increased by $1.2 million to a negative
$2.3 million as of March 31, 2005, which effectively offset the dividend
payment. The Corporation repurchased 41,762 shares of its stock at a cost of
$813,340.
Loan Portfolio
Virtually all the Bank's loans are to businesses or individuals in the
Puget Sound area. Business loans are made to small and medium sized businesses
within that area. Included in the business loan total are loans secured by
real estate where the borrower is the primary tenant. 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 first trade-up homes. 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 73% of the home equity and consumer portfolio. The balance of this
category is non-residential, e.g. automobiles, credit cards, or boats.
Residential loans, held in the Bank's portfolio, are generally adjustable
rate loans secured by single family residences. The Bank also originates
longer term fixed rate residential loans, but sells the vast majority of those
loans into the secondary market on a servicing released basis. 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 $38.6 million
to $845.3 million as of March 31, 2005, compared to $806.7 million at December
31, 2004. In keeping with the Bank's evolution to a commercial bank, loans
more closely associated with a commercial bank, i.e. business, real estate
construction, and commercial real estate loans grew $37.3 million to $615.6
million as of March 31, 2005, compared to $578.3 million as of December 31,
2004.
Residential lending balances declined while consumer lending balances grew.
Residential loans decreased by $1.0 million to $105.0 million. Multi-family
loans increased $2.3 million to $94.6 million. Home equity loans and other
consumer loans were flat at $30.1 million.
-13-
The following summary reflects the Bank's loan portfolio as of the dates
indicated:
Types of Loans March 31, % of December 31, % of
- -------------- 2005 Portfolio 2004 Portfolio
----------------------------------------------
($ in thousands)
Business $301,085 35.6% $292,117 36.3%
Real estate construction (net) 125,275 14.8 107,431 13.3
Commercial real estate 189,218 22.4 178,704 22.2
Home equity and consumer 30,133 3.6 30,125 3.7
Residential real estate 105,009 12.4 105,975 13.1
Multifamily real estate 94,623 11.2 92,372 11.4
--------------------------------------------
Total loans 845,343 100.0% 806,724 100.0%
Deferred loan fees (2,873) (2,695)
--------------------------------------------
Loans $842,470 $804,029
(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
$1.0 million and $1.4 million at March 31, 2005 and December 31, 2004,
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 $767,000 at March 31,
2005, compared to $532,000 at December 31, 2004. Of the $767,000, $488,000
were business loans, $262,000 were residential, and $17,000 were home equity
and consumer loans. Real estate owned (REO) was $256,000 as of March 31, 2005
compared to $868,000 at December 31, 2004. The decrease in REO was due to the
sale of two residential properties, which resulted in a gain of $33,000.
At March 31, 2005 the Bank's loan loss allowance totaled $9.7 million
compared to $9.6 million at December 31, 2004. The allowance for loan losses
was 1.15% of total loans outstanding at March 31, 2005 (or 1.18% of total
average loans for the quarter) compared to 1.19% at December 31, 2004 (or 1.20%
of total average loans at December 31, 2004). The allowance for loan losses was
1,262% of non-performing loans at March 31, 2005. 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, 2005, loan charge-offs equaled $180,000
while recoveries were $53,000 resulting in net charge-offs of $127,000.
-14-
The following table provides summary information concerning asset quality
as of and for the three months ended March 31, 2005 and December 31, 2004,
respectively:
March 31, December 31,
2005 2004
------------------------
Non-performing loans to total assets 0.07% 0.05%
Non-performing loans to total loans outstanding 0.09 0.07
Non-performing assets to total assets 0.09 0.13
Allowance for loan losses to non-performing loans 1,262 1,798
Allowance for loan losses to total average loans 1.18 1.20
Net charge-offs to total loans 0.02 0.00
RESULTS OF OPERATIONS
- ---------------------
Comparison of the Three Months Ended March 31, 2005 and 2004
General
Net income increased 19.3% to $3.1 million for the three months ended March
31, 2005 compared to $2.6 million for the comparable period in 2004. Diluted
net income per share was $0.31 for the quarter ended March 31, 2005 and $0.30
per share for the quarter ended March 31, 2004, an increase of 3.3%. This
increase is primarily attributable to the increase in net interest income of
$1.5 million to $8.8 million for the quarter ended March 31, 2005. Other
income increased by $447,000 to $1.6 million for the quarter ended March 31,
2005. Other expense increased $1.1 million to $5.6 million for the quarter
ended March 31, 2005 as compared to the quarter ended March 31, 2004.
Net Interest Income
Net interest income increased 20.2% or $1.5 million to $8.8 million for the
three months ended March 31, 2005 compared to $7.3 million for the three months
ended March 31, 2004. Average interest earning assets increased $194.1 million
or 22.6% to $1.1 billion for the three months ended March 31, 2005 compared to
the same period in 2004. Average total loans increased $241.8 million to
$823.5 million and average investment securities decreased $38.1 million to
$228.3 million for the three months ended March 31, 2005 compared to the same
quarter of the prior year.
At or for the
three months ended
March 31,
(dollars in thousands)
2005 2004
------------------------
Average interest earning assets $1,052,860 $858,792
Average interest bearing liabilities 941,853 773,515
Yield on interest earning assets 5.97% 5.89%
Cost of interest bearing liabilities 2.94 2.76
Net interest spread 3.03 3.13
Net interest margin 3.34 3.40
-15-
The net interest margin decreased 6 basis points to 3.34% for the three
months ended March 31, 2005 compared to the same quarter the prior year. The
yield on interest earning assets increased 8 basis points to 5.97% for the
three months ended March 31, 2005, compared to 5.89% for the three months
ended March 31, 2004. The cost of funds increased to 2.94% for the three
months ended March 31, 2005 compared to 2.76% for the same period in 2004,
an increase of 18 basis points.
The yield on assets rose as prime based loans repriced upward as the
Federal Reserve continued to raise the target Fed funds rate. The yield on
assets was also enhanced as loans made a larger percentage of earning assets
compared to investments. The yield on assets was hindered as was the net
interest margin as the dividend on FHLB stock dropped from 5% to 1.6%.
On the other hand, the cost of liabilities increased as the rates paid on
deposits increased with the general level of interest rates. Deposits
continued to reprice to higher rates throughout the quarter.
Provision for loan losses
Cascade's provision for loan losses was $245,000 for the three months ended
March 31, 2005. The provision was $225,000 for the same period in 2004. The
provision is based on management's evaluation of known and inherent risks in
the portfolio, as well as loss experience.
Other Income
Other income increased $447,000 or 38.8% to $1.6 million for the three
months ended March 31, 2005 as compared to $1.2 million for the three months
ended March 31, 2004. For the three months ended March 31, 2005, gain on the
sale of investment securities decreased by $257,000 to $12,000. Checking fee
income rose to $776,000 compared to $440,000 for the same period in the prior
year. During 2004, the Bank added new checking fee services, made a concerted
effort to expand the deposit customer base, and decrease the number of waived
fees. Gain on sale of loans decreased $32,000 from $62,000 to $30,000. Other
service fee income increased $70,000 to $212,000.
Other income for the three months ended March 31, 2005, included $275,000
in gains on the termination of $50 million (notional principle) in interest
rate swaps.
While the Corporation is pursuing many avenues to augment its other (non-
interest) income, it will continue to replace the gain on sale of securities
and loans with net interest income in the near future.
Other Expense
Other expense was $5.6 million for the three months ended March 31, 2005
compared with $4.5 million for the three months ended March 31, 2004. The
increase in other expense was primarily the result of the operations of
Issaquah acquired on June 3, 2004, and the operation of a new branch.
-16-
Salary and employee benefit expenses increased $527,000 to $3.2 million
during the three months ended March 31, 2005 compared to the same quarter last
year. The increase in these expenses was primarily due to an increase in the
number of employees, as the Bank added to its staff.
The remaining other operating expense categories totaled $2.4 million for
the three months ended March 31, 2005. For the same period in 2004, other
operating expenses were $1.8 million.
Federal income tax expenses increased $316,000 to $1.5 million, an increase
of 26.6% during the three months ended March 31, 2005 compared to the same
period last year. For the three months ended March 31, 2005, the Corporation's
effective tax rate was 33%. Tax benefits related to bank owned life insurance
and interest on tax exempt loans accounted for the difference from the
"expected" Federal income tax rate of 35% during each of the periods.
Segment Results
The following is a summary of selected operating segment information for
the three month periods ended March 31, 2005 and 2004. 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, 2005
- -----------------------------------------
Income Administration/
Business Residential Construction Property Consumer Treasury Total
-------- ----------- ------------ -------- -------- -------------- ------
(dollars in thousands)
Condensed Income Statement
- --------------------------
Net interest income after
provision for loan losses $3,807 $ 132 $1,633 $2,006 $ 273 $ 678 $8,529
Other income 36 77 4 - 893 590 1,600
Other expense 392 130 117 246 440 4,228 5,553
-----------------------------------------------------------------------------------------
Contribution before overhead 3,451 79 1,520 1,760 726 (2,960) 4,576
Support transfer 1,065 379 398 1,012 106 (2,960) -
-----------------------------------------------------------------------------------------
Income before provision for
income tax 2,386 (300) 1,122 748 620 - 4,576
Provision for income tax 785 (99) 369 246 204 - 1,505
-----------------------------------------------------------------------------------------
Net Income $1,601 $(201) $ 753 $ 502 $ 416 $ - $3,071
=========================================================================================
-17-
For the three months ended March 31, 2004
- -----------------------------------------
Income Administration/
Business Residential Construction Property Consumer Treasury Total
-------- ----------- ------------ -------- -------- -------------- ------
(dollars in thousands)
Condensed Income Statement
- --------------------------
Net interest income after
provision for loan losses $2,464 $ 335 $ 918 $1,820 $ 372 $ 1,168 $7,077
Other income 8 86 2 - 534 523 1,153
Other expense 351 160 79 79 321 3,477 4,467
-----------------------------------------------------------------------------------------
Contribution before overhead 2,121 261 841 1,741 585 (1,786) 3,763
Support transfer 640 323 204 520 99 (1,786) -
-----------------------------------------------------------------------------------------
Income before provision for
income tax 1,481 (62) 637 1,221 486 - 3,763
Provision for income tax 468 (20) 201 386 154 - 1,189
-----------------------------------------------------------------------------------------
Net income $1,013 $ (42) $ 436 $ 835 $ 332 $ - $2,574
=========================================================================================
Income Property includes Commercial Real Estate and Multi-family lending.
Interest income is assigned based upon the loans held by that line of
business. Investment income is assigned to Administration. Interest expense
is allocated based upon the Corporation's cost of funds and the average
maturity of the line of business's assets. Overhead is allocated on the basis
of average total assets.
Liquidity and Sources of Funds
The Bank monitors its liquidity position to assure that it will have
adequate resources to meet its customer's 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; the purchase of
investment securities; and deposit withdrawals. As of March 31, 2005, Cascade
had $77.0 million of construction loans in process, $63.8 million in unused
business lines of credit and $33.8 million in unused consumer lines of credit.
Recent history indicates construction lines will be funded at 65% of
commitments at any point in time. Historically, the Bank's business customers
use 39% of their lines. About 44% of the home equity lines of credit are drawn
upon at any point in time. Cash flows from operations contribute to liquidity
as well as proceeds from maturities of securities and customer deposits. As
indicated on the Company's condensed Consolidated Statement of Cash Flows, net
cash from operating activities for the three months ended March 31, 2005
contributed $7.7 million to liquidity compared to $3.8 million for the three
months ended March 31, 2004.
Funding needs are met through existing liquidity balances, deposit growth,
FHLB-Seattle advances, and other borrowings, as well as the repayment of
existing loans and sale of single family loans. Cascade maintains balances in
FHLB deposits, which equaled $44,000 as of March 31, 2005 and $1.3 million at
December 31, 2004. Liquidity is also provided by the Bank's unencumbered
securities portfolio. Securities that could be pledged to secure additional
funding at the FHLB-Seattle or the repurchase market were $68.3 million at the
end of the quarter and $46.0 million as of December 31, 2004. An additional
$56.0 million in commercial real estate loans provides and alternative source
of incremental collateral.
-18-
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 $400
million at current asset levels, subject to certain requirements. At March 31,
2005, the Bank had $221.0 million in advances and an unused line of credit from
the FHLB-Seattle of approximately $179.0 million. The Bank also uses reverse
repurchase agreements to provide a flexible source of funding. At March 31,
2005 the Bank had $20.9 million in reverse repurchase agreements outstanding.
The Bank also has $23 million Fed funds lines with its correspondent banks,
neither of which were used during the quarter.
Capital Resources
The Corporation's usual main source of capital is the retention of its net
income. 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.
At its June 2004 meeting, the Board of Directors authorized a stock
repurchase program of up to 200,000 shares of the Corporation's stock. As of
March 31, 2005, there were 48,330 shares repurchased under this program. The
repurchase program does not obligate the Corporation to acquire any specific
number of shares. The main focus of the program is to attempt to offset the
dilution created by the exercise of stock options and other stock grants; see
Part II - Other Information, Item 2 - Unregistered Sales of Equity Securities
and Use of Proceeds.
On December 15, 2004, Cascade Capital Trust II issued $5 million in par
value junior subordinated debentures. Cascade Capital Trust II 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. On
March 1, 2000, Cascade Capital Trust I issued $10.0 million par value trust
preferred securities. The structure of Cascade Capital Trust I is identical
to Cascade Capital Trust II. In keeping with the recently adopted FIN 46R,
the Corporation's balance sheet has replaced "trust preferred securities" with
"junior subordinated debentures payable", although there have been no changes
in terms of the underlying obligations. The Trust has been deconsolidated upon
adoption of FIN 46R at December 31, 2003 and did not have a significant impact
on the Corporation's financial condition or results of operations.
Capital Requirements
Both the Corporation and Cascade Bank are subject to regulatory 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, 2005, for the purposes of this
calculation, the Bank's average total assets and total risk-weighted assets
were $1,091.6 million and $893.8 million respectively. The related excess
capital amounts as of March 31, 2005 are presented in the following table
(dollars in thousands):
-19-
Core capital Amount Percentage
------------ ------ ----------
Tier 1 (Core) capital $87,347 8.00%
Less: Minimum requirement 43,664 4.00
------ ------
Excess $43,683 4.00%
====== ======
Risk-based capital Amount Percentage
------------------ ------ ----------
Risk-based capital $97,028 10.86%
Less: Minimum requirement(1) 71,507 8.00
------ ------
Excess $25,521 2.86%
====== ======
(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, 2005, 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 8.18% and a Risk Based ratio of 10.99%.
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. Cascade actively monitors the inherent
interest rate risk for the potential impact of changes in rates on the Bank.
The Bank uses a simulation model as its primary tool to measure its
interest rate risk. A major focus of the Bank's asset/liability management
process is to preserve and enhance net interest income in likely interest rate
scenarios. Further, Cascade's Board of Directors has enacted policies that
establish targets for maximum negative impact that changes in interest rates
may have on the Bank's net interest income, the fair value of equity and
adjusted capital/asset ratios under certain interest rate shock scenarios.
Key assumptions are made to evaluate the change to Cascade's income and capital
to changes in interest rates. These assumptions, while deemed reasonable by
management, are inherently uncertain. As a result, the estimated effects of
changes in interest rates from the simulation model could likely be different
than actual experience.
Using standard interest rate shock (an instantaneous uniform change in
interest rates at all maturities) methodology, as of March 31, 2005 the Bank is
-20-
within all the guidelines established by the Board for the changes in net
interest income, fair value of equity, and the adjusted capital/asset ratios.
As of March 31, 2005, the Bank's fair value of equity decreases 22.5% in the up
200 basis point scenario and 1.1% in the down 200 basis point scenario, within
the established guideline of a maximum 30% decline. Using the same
methodology, the adjusted capital/asset ratio is 7.9% in the up 200 basis point
scenario, and 9.5% in the down 200 basis point scenario, both above the 5%
minimum established guideline. The net interest income decreases 0.4% in the
up 200 basis point scenario and 7.4% in the down 200 basis point scenario,
within guideline of a 10% decline. The increase in measured exposure to rising
interest rates as compared to the prior period is primarily a result of
termination of off-balance sheet rate swaps, in which the Bank paid a fixed
rate and received three month LIBOR, and the increase in intermediate
borrowings to fund loan growth.
The Bank has sought to manage its interest rate exposure through the
structure of its balance sheet. To limit its interest rate risk, the Bank has
sought to emphasize its loan mix toward prime based business and construction
loans. In addition to selling virtually all new 15 and 30 year fixed rate
loans, it has begun selling its hybrid ARM residential loans as well.
Since the third quarter of 2003, the Bank has sought to limit the extension
risk of the investment portfolio in the event that interest rates rise. The
maximum final maturity of callable investments eligible for purchase has been
reduced from 15 years to 7 years. CMOs purchased must generally not have
average life extensions of more than 6 years in an up 200 basis point interest
rate shock scenario. The Asset/Liability Policy has been amended to include
limits on the percentage of investments that mature in greater than 10 years
and limits on CMOs that have too large of variability in average lives in a
plus 200 basis point rate shock scenario.
The Bank extends the maturity of its liabilities by offering long-term
deposit products to customers, and by obtaining longer term FHLB-Seattle
advances. As of March 31, 2005, $213 million ($25 million of which is a 3-month
LIBOR adjustable) of the $221 million in advances had original maturities
greater than one year, $8 million had original maturities of less than one
year. Currently, $70 million have remaining maturities less than one year.
Of the total amount, $165 million of these advances have provisions that allow
the FHLB to convert the advance to a LIBOR based, adjustable rate borrowing.
The FHLB would exercise this option if interest rates rise significantly,
however in an up 200 basis point rate shock scenario, it is unlikely any of
these advances would be converted within six months.
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, Chief Financial Officer, and several
other members of the registrant's senior management as of March 31, 2004. The
Registrant's Chief Executive Officer and Chief Financial Officer 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 Chief Financial Officer) in a timely manner, and (ii) recorded,
-21-
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, 2005, 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 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 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 statements 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 errors 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 the 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.
-22-
PART II-OTHER INFORMATION
-------------------------
Item 1. Legal Proceedings.
- ---------------------------
The Corporation and the Bank are involved in 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. Unregistered Sales of Equity Securities and Use of Proceeds.
- ---------------------------------------------------------------------
Issuer Purchases of Equity Securities
Total Number Maximum
of Shares Number of
Purchased Shares that
Total Average as Part of May yet be
Period Number Price Publicly Purchased
- --------------------------------------- of Shares Paid per Announced Under the
Beginning Ending Purchased (1) Share Plan Plan (2)
- --------------------------------------- ------------- --------- ------------ ------------
January 1, 2005 January 31, 2005 -- $ -- -- 191,670
February 1, 2005 February 28, 2005 9,262 $19.46 7,500 184,170
March 1, 2005 March 31, 2005 32,500 $19.48 32,500 151,670
------ ------ ------ -------
Total 41,762 $19.47 40,000 151,670
====== ====== ====== =======
1) During the periods presented there were 1,762 shares purchased, which were
acquired at current market values as consideration for the exercise of fully
vested options.
2) At its June 2004 meeting, the Board of Directors authorized a stock
repurchase program of up to 200,000 shares of the Corporation's stock.
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
31.1 Certifications of the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act
31.2 Certifications of the Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
-23-
Reports on Form 8-K
On January 26, 2005, the Corporation filed a Form 8-K reporting and
attached press release announcing earnings information for the fourth quarter
and year ended December 31, 2004, under Item 2.02 of Form 8-K.
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 6, 2005 /s/ Lars H. Johnson
-----------------------------
By: Lars H. Johnson,
Executive Vice President
(Chief Financial Officer)
-24-