FORM 11-K
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2002
Commission file number 0-25286
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
CASCADE FINANCIAL CORP. 401(k) Salary Deferral and Profit Sharing Plan
B. Name of the issuer of the securities held pursuant to the plan and the
address of its principal executive office.
Cascade Financial Corporation
2828 Colby Avenue
Everett, Washington 98201
THE PLAN IS SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED ("ERISA"). IN ACCORDANCE WITH ITEM NO. 4 OF REQUIRED
INFORMATION, THE PLAN FINANCIAL STATEMENTS AND SCHEDULES ATTACHED HERETO ARE
PREPARED IN ACCORDANCE WITH THE FINANCIAL REPORTING REQUIREMENTS OF ERISA.
CASCADE FINANCIAL CORP. 401(k) SALARY
DEFERRAL AND PROFIT SHARING PLAN
Index
Page
Independent Auditors' Report 1
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4
Supplemental Schedule
Schedule H, Line 4i - Schedule of Assets (Held at End of
Year, December 31, 2002) 10
CASCADE FINANCIAL CORP. 401(k) SALARY
DEFERRAL AND PROFIT SHARING PLAN
Financial Statements and Schedule
December 31, 2002 and 2001
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Participants and the Plan Administrator
Cascade Financial Corp. 401(k) Salary
Deferral and Profit Sharing Plan:
We have audited the accompanying statements of net assets available for
benefits of Cascade Financial Corp. 401(k) Salary Deferral and Profit Sharing
Plan (Plan) as of December 31, 2002 and 2001 and the related statements of
changes in net assets available for benefits for the years then ended. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2002 and 2001, and the changes in net assets available for
benefits for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule H, line 4i -
schedule of assets (held at end of year) at December 31, 2002 is presented for
the purpose of additional analysis and is not a required part of the basic
financial statements but is supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. This supplemental schedule
is the responsibility of the Plan's management. The supplemental schedule has
been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Seattle, Washington
June 26, 2003
1
CASCADE FINANCIAL CORP. 401(k) SALARY
DEFERRAL AND PROFIT SHARING PLAN
Statements of Net Assets Available for Benefits
December 31, 2002 and 2001
2002 2001
Assets: ---------- ----------
Participant directed investments at fair value:
Money market funds $ 82,779 70,795
Common stock of Cascade Financial Corporation 1,161,810 837,806
Mutual funds 1,315,930 1,743,635
Common commingled trust fund 470,238 --
Insurance company general account fund -- 463,417
Loans to participants 98,695 68,542
--------- ---------
3,129,452 3,184,195
--------- ---------
Receivables:
Sponsor 77,201 80,858
Participants 11,969 10,134
--------- ---------
89,170 90,992
--------- ---------
Total assets 3,218,622 3,275,187
Liabilities:
Excess contributions -- 2,127
--------- ---------
Net assets available for benefits $3,218,622 3,273,060
========= =========
See accompanying notes to financial statements.
2
CASCADE FINANCIAL CORP. 401(k) SALARY
DEFERRAL AND PROFIT SHARING PLAN
Statements of Changes in Net Assets Available for Benefits
Years ended December 31, 2002 and 2001
2002 2001
---------- ----------
Additions to net assets available for benefits
attributed to:
Investment income (loss):
Interest and dividends $ 50,560 36,635
Net appreciation (depreciation) in fair value
of investments:
Common stock of Cascade Financial Corporation 427,869 18,371
Mutual funds (431,062) (286,196)
--------- ---------
Total investment income (loss) 47,367 (231,190)
--------- ---------
Contributions:
Sponsor 77,201 83,353
Participants 378,224 310,426
--------- ---------
455,425 393,779
--------- ---------
Total additions, net 502,792 162,589
Deductions from net assets available for benefits
attributed to benefits paid to participants (557,230) (226,129)
--------- ---------
Net decrease in net assets available
for benefits (54,438) (63,540)
Net assets available for benefits at beginning
of year 3,273,060 3,336,600
--------- ---------
Net assets available for benefits at end of year $3,218,622 3,273,060
========= =========
See accompanying notes to financial statements.
3 (Continued)
CASCADE FINANCIAL CORP. 401(k) SALARY
DEFERRAL AND PROFIT SHARING PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(1) Plan Description
The following description of Cascade Financial Corp. 401(k) Salary
Deferral and Profit Sharing Plan (Plan) provides only general information.
Participants should refer to the Plan document for a more complete description
of the Plan's provisions.
(a) General
The Plan is a defined contribution plan established for employees of
Cascade Financial Corporation (Sponsor) who are at least 18 years of age. The
Plan is subject to the Employee Retirement Income Security Act of 1974 (ERISA).
(b) Administration
The Sponsor has appointed an administrative committee to oversee the
Plan. Prior to December 2002, ING National Trust served as Trustee of the Plan
and ING-Aetna Financial Services administered the Plan. Effective December
2002, Circle Trust Company serves as the Trustee and the plan is administered
by NW Plan Services, Inc.
(c) Eligibility, Contributions, and Participants' Accounts
All nonunion employees of the Sponsor who are age 18 or older are
eligible to participate in the Plan after completing one hour of service, and
become eligible for employer contributions immediately following completion of
one year of service. To complete one year of service, as defined by the Plan, a
participant must complete at least 1,000 hours of service within that year.
Accounts are established for each participant and include the
participant's contributions (including those rolled over from another qualified
plan or trust), allocations of employer matching contributions, any
discretionary contributions from the Sponsor and earnings thereon. Annual
Sponsor matching contributions and discretionary contributions are determined
by the board of directors of the Sponsor. No discretionary contributions were
made in 2002 or 2001.
During 2002, participants were able to contribute from $1 to $11,000
or up to 60% of their pretax compensation, subject to limits established under
the Internal Revenue Code (IRC). Prior to January 1, 2002, participants could
contribute up to 15% of their pretax compensation, subject to limits
established under the IRC. Participants may also contribute amounts
representing distributions from other qualified plans. The Sponsor's matching
contribution is 50 cents for each dollar contributed on the first 5% of the
participant's eligible compensation. The employee must be employed as of the
last day of the Plan year to be eligible for employer matching or discretionary
contributions.
Participants have the option of directing their account balance in 1%
increments into any one or more of the Plan's investment fund options. The
Sponsor contributions are made in cash and allocated to a participant's account
balance in accordance with the participant's contributions elections. The Plan
currently offers common commingled trust funds, mutual funds and Sponsor common
stock as investment options for participants.
Participant accounts are valued daily based on quoted market prices.
Participants may change their investment elections and make transfers between
investment options daily.
4 (Continued)
CASCADE FINANCIAL CORP. 401(k) SALARY
DEFERRAL AND PROFIT SHARING PLAN
Notes to Financial Statements
December 31, 2002 and 2001
The Plan provides for various investment fund options which in turn
invest in a combination of stocks, bonds, and other investment securities.
Investment securities, in general, are exposed to various risks, such as
interest rate, credit and overall market volatility risks. Due to the level of
risk associated with certain investment securities, it is reasonably possible
that changes in the values of investment securities will occur in the near term
and that such changes could materially affect the amounts reported in the
statements of net assets available for benefits.
(d) Vesting
Participants are immediately vested in their contributions and
earnings thereon. Vesting of the Sponsor's contribution and earnings thereon is
based on years of credited service of participants. The following schedule sets
forth the vesting schedule:
Vested
Years of vesting service percent
------------------------ -------
Less than 2 0%
At least 2 but less than 3 20
At least 3 but less than 4 40
At least 4 but less than 5 60
At least 5 but less than 6 80
6 or more 100
Participants become fully vested at the age of 65, upon the
participant's death or upon permanent disability.
Forfeitures of nonvested Sponsor contributions are used to reduce
future Sponsor contributions. Unallocated forfeitures totalled $11,715 and
$2,287 at December 31, 2002 and 2001, respectively. Subsequent to yearend 2002
and 2001, Sponsor contributions were reduced by $11,600 and $2,287,
respectively, as a result of forfeited nonvested account balances.
(e) Participant Loans
Participants may borrow from the vested portion of their account
balance a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or
50% of their vested account balance. Loan terms range from one to five years
or, if the loan is used to purchase a primary residence, terms extend from one
to fifteen years. Loans are secured by the remaining vested balance in the
participant's account and bear interest at a rate ranging from 6.75% to 10.50%.
Principal and interest are paid ratably through semi-monthly payroll
deductions. As of December 31, 2002, loans mature through 2013.
(f) Payment of Plan Benefits
Participants may elect to have payments of vested benefits paid either
in a lump sum or on an installment basis after their retirement or termination
date. With approval of the Sponsor, early withdrawals may be paid by the Plan
to those employees experiencing a financial hardship, as defined by the Plan.
Distributions are paid in a single lump sum or, if the account balance exceeds
5 (Continued)
CASCADE FINANCIAL CORP. 401(k) SALARY
DEFERRAL AND PROFIT SHARING PLAN
Notes to Financial Statements
December 31, 2002 and 2001
$5,000 and at the participant's election, by payment in monthly,
quarterly or annual installments over a fixed, reasonable period of time not to
exceed the combined life expectancy of the participant and beneficiary. For
termination of service with vested benefits of $5,000 or less, a participant
will automatically receive the vested interest in their account as a lump sum
distribution.
(g) Plan Expenses
Expenses of the Plan are paid by the Sponsor and, therefore, are not
included in the accompanying financial statements of the Plan.
(h) Plan Termination
Although it has not expressed any intent to do so, the Sponsor has
the right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. Should the Plan be
terminated at some future date, all participants would become fully vested in
their account balances.
(i) Excess Contributions
Excess contributions represent amounts withheld from participants in
excess of IRC limitations that were refunded to participants subsequent to
yearend.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation and Accounting
The Plan financial statements are presented on the accrual basis of
accounting.
(b) Investments
The investment in the Sponsor's common stock, which is traded on the
NASDAQ Small Cap Market under the symbol CASB, is valued at the last reported
sales price before the end of the Plan year. The investments in mutual funds
are stated at fair value based on quoted market prices. Loans to participants
are valued at their unpaid principal value.
The Capital Preservation Fund is a common commingled trust fund and
the Aetna Fixed Account is an insurance company general account fund investing
primarily in guaranteed investment contracts (GICs), synthetic GICs and U.S.
government securities. The GICs are fully benefit-responsive and are recorded
at contract value, which approximates fair value. The effective yield and
crediting rate of the Capital Preservation Fund and the Aetna Fixed Account was
5.79% and 4.75%, respectively, for the year ended December 31, 2002.
Net appreciation/(depreciation) of investments includes both realized
and unrealized gains and losses. Purchases and sales of investments are
recorded on a trade-date basis. Interest is recorded when earned. Dividends
are recorded on the dividend date.
(c) Benefit Payments
Benefits are recorded when paid.
6 (Continued)
CASCADE FINANCIAL CORP. 401(k) SALARY
DEFERRAL AND PROFIT SHARING PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(d) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the plan administrator to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and changes therein, and disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
(e) Reclassifications
Certain amounts in the 2001 financial statements have been
reclassified to conform with the presentation in the 2002 financial statements.
(3) Tax Status
The Internal Revenue Service has determined and informed the Sponsor by a
letter dated April 21, 1993, that the Plan and related trust are designed in
accordance with applicable sections of the IRC. The Plan has been amended since
receiving the determination letter. However, the plan administrator believes
that the Plan is designed and is currently being operated in compliance with
the applicable requirements of the IRC.
(4) Party In Interest Transactions
Certain Plan assets are invested in cash held by the Trustee and the
sponsors' common stock, and therefore these transactions qualify as party in
interest transactions.
Certain Plan assets were invested in shares of mutual funds managed by the
previous record keeper and custodian of the Plan, Aetna Financial Services,
Inc. and, therefore, these transactions qualified as party in interest
transactions.
(5) Subsequent Events
Effective calendar year 2003, the sponsor's matching contribution is 50
cents for each dollar contributed, without regard to compensation, subject to
limits established under the IRC.
7 (Continued)
CASCADE FINANCIAL CORP. 401(k) SALARY
DEFERRAL AND PROFIT SHARING PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(6) Investments
The following table presents the assets held for investment purposes at
December 31:
2002 2001
Investment Investment
value value
---------- ----------
Money market funds:
Circle Trust Liquidity Fund $ 82,779 $ --
Fidelity Institutional Fund -- 70,795
Common stock:
Cascade Financial Corporation 1,161,810 837,806
Mutual & common commingled trust funds:
CTC Capital Preservation Fund 470,238 --
Van Kampen, Equity & Income Fund 25,724 --
Van Kampen, Large Cap, Growth & Income Fund 146,112 --
Alger, Mid Cap Growth Fund 82,959 --
Davis NY Venture, Large Cap Fund 919,859 --
PIMCO, Small Cap Value Fund 45,751 --
Growth Fund of America, Large Cap Growth Fund 71,172 --
First Eagle SoGen Overseas, Foreign Equity
Stock Fund 24,353 --
ING Aetna Financial Services, Inc.:
Fixed Account -- 463,417
Money Market Fund -- 2,244
Ascent Fund -- 1,930
Crossroads Fund -- 9,856
Legacy Fund -- 1,471
Index Plus Large Cap Fund -- 697,239
Growth Fund -- 22,992
Index Plus Small Cap Fund -- 19,106
International Fund -- 38,699
AIM Advisors, Inc.:
Charter Fund -- 32,749
Value Fund -- 104,347
Constellation Fund -- 87,314
Fidelity Investments Growth:
Opportunities Fund -- 190,561
MFS Investment Management:
Research Fund -- 53,537
Emerging Growth Fund -- 75,958
Oppenheimer Funds, Inc. Main:
Street Growth & Income Fund -- 405,632
--------- ---------
Total 3,030,757 3,115,653
Loans to participants 98,695 68,542
--------- ---------
Total Investments $3,129,452 $3,184,195
========= =========
8 (Continued)
CASCADE FINANCIAL CORP. 401(k) SALARY
DEFERRAL AND PROFIT SHARING PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(7) Reconciliation of Financial Statements to the Annual Return Report of
Employee Benefit Plan (Form 5500)
The following is a reconciliation of net assets available for benefits per
the financial statement to the Form 5500:
2002 2001
------------ ------------
Net assets available for Plan benefits
per financial statements $3,218,622 $3,273,060
Receivables -- (90,992)
Excess contributions -- 2,127
Net assets available for benefits per --------- ---------
form 5500 $3,218,622 $3,184,195
========= =========
The following is a reconciliation of the changes in net assets available
for Plan benefits per the financial statements to the Form 5500:
Year ended Year ended
December 31, December 31,
2002 2001
------------ ------------
Net decrease per financial statements $(54,438) $ (63,540)
Less:
Contributions receivable, 12/31/01 -- 90,992
Excess contributions payable, 12/31/00 -- 20,220
Plus:
Contributions receivable, 12/31/01 90,992 87,605
Excess contributions payable, 12/31/01 (2,127) 2,127
------- --------
Net increase/(decrease) per Form 5500 $ 34,427 $ (85,020)
======= =======
9
CASCADE FINANCIAL CORP. 401(k) SALARY
DEFERRAL AND PROFIT SHARING PLAN
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2002
Description of investment, including
Identity of issuer, borrower, maturity date, rate of interest, Current
lessor, or similar party collateral, and par or maturity value value
*Circle Trust Liquidity Fund Cash $ 82,779
Gartmore Morley CTC Capital Preservation Fund 470,238
Van Kampen Equity & Income Fund 25,724
Van Kampen Large Cap, Growth & Income Fund 146,112
Alger Mid Cap Growth Fund 82,959
Davis NY Venture Large Cap Fund 919,859
PIMCO Small Cap Value Fund 45,751
Growth Fund of America Large Cap Growth Fund 71,172
First Eagle SoGen Overseas Foreign Equity Stock Fund 24,353
*Cascade Financial Corporation Common Stock 1,161,810
Various participants Loans to participants-Interest
at 6.75% to 10.50%, 98,695
maturing through 2013 ---------
$3,129,452
=========
*Party in interest of the Plan as defined by Section 3(14) of ERISA.
10
CASCADE FINANCIAL CORP. 401(k) SALARY
DEFERRAL AND PROFIT SHARING PLAN
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized on this 26th day of June, 2003.
Cascade Financial Corporation 401(k)
Salary Deferral and Profit Sharing Plan
Date: June 26, 2003 By: /s/ Lars H. Johnson
-------------------------------
Lars H. Johnson
Chief Financial Officer
11
CASCADE FINANCIAL CORP. 401(k) SALARY
DEFERRAL AND PROFIT SHARING PLAN
EXHIBIT INDEX
The following documents are filed as part of this report
Exhibit No. Exhibit
----------- ---------------
23 Consent of Independent Auditors
99 Certification of the Chief Executive Officer and the
Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to section 906 of the Sarbanes-Oxley Act of
2002.
12