UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2004.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-25286
CASCADE FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Washington 91-1661954
- -------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer I.D. Number)
incorporation or organization)
2828 Colby Avenue, Everett, Washington 98201
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (425) 339-5500
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common Stock,
Par value $0.01
per share
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES [X] NO [ ]
The aggregate market value of Common Stock held by non-affiliates of
registrant at March 10, 2005 was $151.4 million (based on the last reported
sale on such date). The number of shares of registrant's Common Stock
outstanding at March 10, 2005 was 9,586,048.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the year ended December 31,
2004, including the Selected Financial Data and the Management Discussion and
Analysis attached as Exhibit 13 (the "Annual Report") (Part I, II & IV).
2. Portions of registrant's Definitive Proxy Statement for the Annual Meeting
of Stockholders (the "Proxy Statement") (Part III).
Cascade Financial Corporation
FORM 10-K
December 31, 2004
TABLE OF CONTENTS
Page
PART I ----
Item 1. Description of Business 3
Loan Portfolio 5
Asset and Liability Management Activities 13
Investment Portfolio 15
Deposits 16
Return on Equity and Assets 17
Borrowings 17
Regulation 18
Taxation 23
Item 2. Properties 24
Item 3. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 24
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
25
Item 6. Selected Financial Data 26
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 26
Item 9A. Controls and Procedures 26
Item 9B. Other Information 27
PART III
Item 10. Directors and Executive Officers of the Registrant 28
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters............................ 29
Item 13. Certain Relationships and Related Transactions 29
Item 14. Principal Accountant Fees and Services 29
PART IV
Item 15. Exhibits and Financial Statement Schedules 30
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FORWARD LOOKING STATEMENTS
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In addition to historical information, this Form 10-K contains certain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 ("PSLRA"). This statement is included for the
express purpose of availing Cascade Financial Corporation of the protections
of the safe harbor provisions of the PSLRA. The forward-looking statements
contained herein are subject to factors, risks, and uncertainties that may
cause actual results to differ materially from those projected.
The following items are among the factors that could cause actual results
to differ materially from the forward-looking statements: higher than expected
loan delinquency rates; general economic conditions, including their impact on
capital expenditures; business conditions in the banking industry; recent world
events and their impact on interest rates, businesses and customers; the
regulatory environment; new legislation; vendor quality and efficiency;
employee retention factors; rapidly changing technology and evolving banking
industry standards; competitive standards; competitive factors, including
increased competition with community, regional, and national financial
institutions; fluctuating interest rate environments; and similar matters.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only at the date of the
statement. The Corporation undertakes no obligation to publicly revise or
update these forward-looking statements to reflect events or circumstances
that arise after the date of this report. Readers should carefully review the
risk factors described in this and other documents the Corporation files from
time to time with the Securities and Exchange Commission. There can be no
assurance that any of the strategies described in this Form 10-K will be
implemented, or if implemented, achieve the amounts described or within the
time periods currently estimated. Sentences containing words such as "may,"
"will," "expect," "anticipate," "believe," "estimate," "should," "projected,
"or similar words may constitute such forward looking statements.
Item 1. Description of Business
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General
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Cascade Financial Corporation (the "Corporation") is a bank holding
company incorporated in the state of Washington that was formed in 1994.
The consolidated entity includes the Corporation and its wholly owned
subsidiaries. At December 31, 2004, the Corporation's wholly-owned
subsidiaries were Cascade Bank ("Cascade" or the "Bank"), Cascade Capital
Trust I and Capital Trust II. The executive offices of the Corporation are
located at 2828 Colby Avenue, Everett, Washington 98201. The telephone number
is (425) 339-5500 and the web site is www.CascadeBank.com.
The Bank has been serving the people of Snohomish and King Counties since
1916 when it was organized as a mutual savings and loan association. On
September 15, 1992, the Bank completed its conversion from a federal mutual
to a federal stock savings bank. In July 2001, the Bank converted from a
federal stock savings bank to a Washington state commercial bank.
The Corporation was organized on August 18, 1994, for the purpose of
becoming the holding company for Cascade Bank. The reorganization was
completed on November 30, 1994, on which date the Bank became the wholly-owned
subsidiary of the Corporation, and the stockholders of the Bank became
stockholders of the Corporation. Subsequent to the acquisition of Cascade, the
primary activity of the Corporation has been holding the stock of the Bank.
Accordingly, the information set forth in this report, including financial
statements and related data, relates primarily to the Bank.
In June of 2004, the Corporation completed the acquisition of Issaquah
Bancshares ("Issaquah"). Issaquah Bank, the only operating subsidiary of
Issaquah, was merged into Cascade Bank and conducts business as the Issaquah
Division of Cascade Bank.
In July of 2001, the Corporation elected to be treated as a financial
holding company with the Federal Reserve Board. In May of 2003, the Corporation
transferred its state of domicile from Delaware, which it had maintained since
its formation as a holding company in 1994, to Washington. Following this
conversion, the Corporation changed its fiscal year end from June 30 to
December 31 to align its reporting period with those of its commercial bank
peers.
The Corporation conducts its business from its main office in Everett,
Washington, and seventeen other full service offices in the greater Puget
Sound region. At December 31, 2004, the Corporation had total assets of $1.1
billion, total deposits of $721.9 million and stockholders' equity of $96.3
million.
-3-
The Bank, a full-service commercial bank, offers a wide range of products
and services. The deposits of the Bank are insured by the Federal Deposit
Insurance Corporation ("FDIC"), up to the limits specified by law.
Market Area
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Headquartered in Everett, Washington, the Corporation serves its customers
from eighteen full service offices, eleven in Snohomish County and seven in
King County. Located in the center of the western Washington region, Snohomish
and King counties have experienced significant growth in recent years, although
currently the area is recovering from an economic slowdown.
Our market area in King County includes the growing cities east of Seattle
and Lake Washington. This area's economy has been dominated by Microsoft, the
Boeing Company, with other high technology companies playing an important role.
The commercial real estate vacancy rates in east King County began improving
in 2004.
Everett is the home port of the Navy's carrier battle ship, the USS Abraham
Lincoln. The contribution that the Navy makes to the economy is not dependent
on other trends. The economy in the Corporation's market area has become more
dependent upon the health care and biotechnology industries, two industries
which have been less affected by the recent economic slowdown. Snohomish County
and Northeast King County are home to numerous biotechnology companies. Many
of these companies were severely impacted by the recession that began in 2000.
As a result, certain segments of the commercial real estate market were soft
in the 2002-2004 period.
As a gateway to Asia, the Bank's market area has also benefited from the
expansion of world trade. Economic weakness in either the United States or
Asia could reduce that trade. Such slowdowns in the international flow of goods
and services could prove detrimental to the economy of the market area and
potentially the quality of our loan portfolios.
Business Strategy
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The Corporation is in the process of implementing its business plan to
increase the Bank's emphasis on commercial banking. The Corporation is
attempting to pursue the following strategies:
* Increasing the percentage of its assets consisting of business,
construction, and commercial real estate loans with higher risk-adjusted
returns, shorter maturities and greater sensitivity to interest rate
fluctuations.
* Increasing deposits by attracting lower cost transaction accounts (such
as checking, savings and money market accounts) through an enhanced branch
network, customer service center and online banking.
* Diligently searching for additional sources of fee-based revenue.
* Maintaining cost-effective operations by efficiently offering products
and services.
* Maintaining its capital position at or above the "well-capitalized"
(as defined for regulatory purposes) level.
* Exploring prudent means to grow the business internally and through
acquisitions.
The primary objectives of these strategies are to: enhance shareholder value
measured through increasing returns, and to increase the opportunity for
quality earning asset growth, deposit generation, and fee-based income
activities. However, the shift in emphasis to commercial banking does
inherently contain additional risks (See "LOAN PORTFOLIO" below).
Competition
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The Bank competes for both loans and deposits. The Puget Sound metropolitan
area has a high density of financial institutions, including major national
banks, several local community banks, and credit unions.
The Bank's primary focus for loans is small to medium sized businesses,
builders and developers, and real estate investors in the Puget Sound area.
The major competitors for the Bank are large commercial and community banks.
The large banks often compete on the basis of competitive pricing, while the
community banks compete on the basis of local decision-making, loan structuring
flexibility, and promises of a higher level of service.
-4-
The Bank's primary competitors for residential mortgages are mortgage
bankers and local thrifts. The Bank's competitors for consumer business are
numerous, including banks, captive finance subsidiaries of auto companies,
etc. Cascade has made a conscious decision to de-emphasize consumer lending
in that intense competition has led to very low margins in this area.
Geographic location is still the primary factor in choosing a bank for the
checking account relationship. As a result, the Bank's competition for
checking deposits comes primarily from the large institutions with a broad
network of locations. Online banking continues to be an important convenience
service to attract checking customers from larger banks. In addition, Cascade
has recently made an arrangement with US Bank to allow customers to use US Bank
ATMs without a surcharge. Community banks, savings institutions, as well as
other non-banking financial institutions, provide the greatest competition for
the various savings vehicles such as money market deposit accounts and
certificates of deposit.
In addition to competition from other banking institutions, the Bank
continues to experience increased competition from non-banking companies such
as credit unions, financial services companies and brokerage houses. Recent
amendments to the federal banking laws to eliminate certain barriers between
banking and commercial firms are expected to result in even greater competition
in the future.
The Corporation anticipates continuing opportunities to arise from the
effects of substantial consolidation among financial institutions in Washington
that has occurred to date. Federal law allows mergers or other combinations,
relocations of a bank's main office and branching across state lines. Several
other financial institutions, which have greater resources than the Bank,
compete for banking business in the Bank's market area. Among the advantages
of some of these institutions are their ability to make larger loans, finance
extensive advertising and promotion campaigns, access international money
markets and allocate their investment assets to regions of highest yield and
demand.
LOAN PORTFOLIO
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General. The Bank originates business, real estate and consumer loans.
Total loans equaled $856.4 million at December 31, 2004. Total loans were
adjusted by loans in process, deferred loan fees, and the allowance for loan
losses for a net loan balance of $794.5 million. At December 31, 2004, $292.1
million or 34.1% of loans consisted of business loans; $157.1 million or 18.3%
were real estate construction loans; $178.7 million or 20.9% of loans consisted
of commercial real estate; $30.1 million or 3.5% were consumer loans; $106.0
million or 12.4% of the Bank's loans consisted of loans secured by one-to-four
family residential properties; and $92.4 million or 10.8% consisted of multi-
family loans. Total loans secured by first liens on residential real estate
was $198.4 million or 23.2% of total loans. The corporation sells almost all
its 30 year fixed-rate loans and the vast majority of its 15 year fixed-rate
loans in the secondary mortgage market. The Corporation had non-mandatory
forward commitments totaling $784 and $2,177 to sell loans into the secondary
market at December 31, 2004, and December 31, 2003, respectively.
-5-
Loan Portfolio Analysis. The following table sets forth the Corporation's
loan portfolio by type of loan and by type of security at the dates indicated.
At December 31,
2004 2003 2002
Amount Percent Amount Percent Amount Percent
--------------- --------------- ---------------
(Dollars in thousands)
Type of Loan
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Real estate mortgage
Residential (1) $198,347 23.16% $192,777 31.71% $216,914 37.63%
Commercial 178,704 20.87 83,856 13.79 63,108 10.95
Construction 157,088 18.34 93,704 15.41 104,790 18.18
Business 292,117 34.11 204,446 33.63 142,273 24.68
Consumer (2) 30,125 3.52 33,163 5.46 49,331 8.56
--------------------------------------------------
Total loans 856,381 100.00 607,946 100.00 576,416 100.00
Less:
Loans in process 49,657 30,962 20,669
Deferred loan fees, net 2,695 2,179 2,198
Allowance for loan losses 9,563 7,711 6,872
--------------------------------------------------
Total loans, net $794,466 $567,094 $546,677
==================================================
Type of Security
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Real estate mortgage
One-to-four family (2) $281,161 32.83% $221,130 36.38% $262,474 45.52%
Multi-family 92,372 10.79 87,212 14.35 94,245 16.35
Commercial 178,704 20.87 83,856 13.79 63,108 10.95
Land loans 3,546 0.41 1,786 0.29 1,720 0.30
Other 300,598 35.10 213,962 35.19 154,869 26.88
--------------------------------------------------
Total loans 856,381 100.00 607,946 100.00 576,416 100.00
Less:
Loans in process 49,657 30,962 20,669
Deferred loan fees, net 2,695 2,179 2,198
Allowance for loan losses 9,563 7,711 6,872
--------------------------------------------------
Total loans, net $794,466 $567,094 $546,677
==================================================
At December 31, At June 30,
2001 2001 2000
Amount Percent Amount Percent Amount Percent
--------------- --------------- ---------------
(Dollars in thousands)
Type of Loan
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Real estate mortgage
Residential (1) $262,460 42.80% $272,363 44.90% $288,660 51.11%
Commercial 62,938 10.26 56,913 9.38 54,320 9.62
Construction 104,131 16.98 103,206 17.01 73,488 13.01
Business 125,342 20.44 113,708 18.75 86,298 15.28
Consumer (2) 58,381 9.52 60,406 9.96 62,061 10.98
--------------------------------------------------
Total loans $613,252 100.00 $606,596 100.00 $564,827 100.00
==================================================
Less:
Loans in process 28,220 33,337 17,132
Deferred loan fees, net 2,502 2,703 2,719
Allowance for loan losses 6,304 5,687 5,004
--------------------------------------------------
Total loans, net $576,226 $564,869 $539,972
==================================================
-6-
At December 31, At June 30,
2001 2001 2000
Amount Percent Amount Percent Amount Percent
--------------- --------------- ---------------
(Dollars in thousands)
Type of Loan
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Real estate mortgage
One-to-four family (2) 295,941 48.26% $307,049 50.62% $290,857 51.49%
Multi-family 109,734 17.89 107,360 17.70 112,721 19.96
Commercial 62,938 10.26 56,913 9.38 54,320 9.62
Land loans 2,546 0.42 3,269 0.54 29 0.01
Other 142,093 23.17 132,005 21.76 106,900 18.92
--------------------------------------------------
Total loans $613,252 100.00 $606,596 100.00 $564,827 100.00
==================================================
Less:
Loans in process 28,220 33,337 17,132
Deferred loan fees, net 2,502 2,703 2,719
Allowance for loan losses 6,304 5,687 5,004
--------------------------------------------------
Total loans, net $576,226 $564,869 $539,972
==================================================
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(1) Includes construction loans converted to permanent loans, multi-family and
land loans.
(2) Includes home equity loans and HELOCs.
At December 31, 2004, loans in process attributed to construction loans
totaled $49.7 million; deferred fees were $2.7 million; and the allowance for
loan losses was $9.6 million.
Business Loans. Business loans increased from $204.4 million at December
31, 2003, to $292.1 million at December 31, 2004. Unsecured business loans
totaled $11.5 million at December 31, 2004. The Bank's business loan portfolio
consists primarily of commercial business loans to small and medium sized
businesses operating in Snohomish and King counties. These loans are secured
primarily by real estate, receivables, equipment, other assets of the business
and personal property, and the personal guarantee of the borrower. These loans
typically have variable-rate terms or fixed rates with maturities of up to five
years. The Bank also offers secured and unsecured operating lines of credit.
Business loans are underwritten by the Bank on the basis of the borrower's cash
flow, ability to service debt from earnings, and the underlying collateral
value. The borrower is generally required to provide the Bank with financial
statements, tax returns, current financial information on any and all
guarantors, and other reports that show trends in their financial condition;
and to update this information annually. Business loans also include owner
occupied real estate loans with terms comparable to the Bank's commercial real
estate loans. In addition, as the business banking activity increases, the Bank
expects to expand its lower cost deposit franchise through the growth of
commercial checking as a source of funding.
Business loans are inherently sensitive to adverse conditions in the
economy. In the case of loans secured by accounts receivable, the availability
of funds for the repayment of such loans may be substantially dependent on the
ability of the borrower to collect amounts due from its customers. The
collateral securing other loans may depreciate over time, may be difficult to
appraise and may fluctuate in value based on the success of the business.
Accordingly, the repayment of a business loan depends primarily on the
successful operation of the borrower's business and creditworthiness of the
borrower (and any guarantors), while liquidation of collateral is a secondary
and often insufficient source of repayment.
Construction Loans. The Bank originates construction loans on one-to-four
family homes either to borrowers as custom construction loans or to builders as
speculative construction loans. Construction loans generally have maturities of
12-18 months. The interest rates charged on construction loans are typically
indexed to the prime rate and vary depending on the characteristics of the
loan, particularly the credit risk inherent in the project. All construction
loans require approval by various levels of Bank personnel, depending on the
size of the loan. The Bank has attempted to increase its construction loan
portfolio because these loans have relatively high margins, floating interest
rates and short-term maturities. The historically strong housing market in the
Puget Sound area has made construction lending attractive. At December 31,
2004, and December 31, 2003, the Corporation's construction loans were $157.1
million (including $49.7 million of loans in process) or 18.3% of the total
loan portfolio and $93.7 million (including $31.0 million of loans in process)
or 15.4% of the total loan portfolio, respectively. Of this amount, $123.9
million was to builders, including $45.8 million for land acquisition and
development, and $26.8 million was to individuals for custom home construction.
The strength of the local housing market led to a rapid turnover in this
portfolio as builders were able to quickly sell new homes. The Bank's maximum
outstanding commitment to one builder at December 31, 2004 totaled $10.2
-7-
million involving one construction project, which is performing in accordance
with the terms of the loan.
Construction loans involve further credit risks because loan funds are
advanced upon the security of the project under construction that is of
uncertain value before completion. The Bank's risk of loss on a construction
loan is dependent largely upon the accuracy of the initial estimate of the
property's value at completion of construction or development and the estimated
cost (including interest) of the construction. If the estimate of construction
costs proves to be inaccurate, the Bank may be required to advance additional
funds to complete the development. If upon completion of the project, the
estimate of the marketability of the property is inaccurate, the borrower may
be unable to sell the completed project in a timely manner or obtain adequate
proceeds to repay the loan. Delays may arise from labor problems, material
shortages and other unpredictable contingencies in completing the project.
Furthermore, if the estimate of value of a completed project is inaccurate,
the Bank may be confronted with a project with a value that is insufficient
to assure full repayment. As a result, these loans may involve the disbursement
of substantial funds with repayment dependent, in part, on the success of the
ultimate project rather than the ability of the borrower or guarantor to repay
principal and interest.
Commercial Real Estate Loans. Commercial real estate loans totaled $178.7
million or 20.9% of the Bank's total loans at December 31, 2004, compared to
$83.9 million or 13.8% of the portfolio at December 31, 2003. All commercial
real estate loans are secured by properties in western Washington, mainly in
the Puget Sound region. Improved property such as office buildings and small
commercial business properties such as strip shopping centers secure the Bank's
commercial real estate loans. These loans are primarily fixed rate with a
maximum reset on the interest rate of five years. At December 31, 2004, the
largest commercial real estate and land loan in the Bank's portfolio was $7.4
million, which was performing according to its terms at that date.
Commercial real estate loans are also sensitive to local economic
conditions. An economic recession can lead to increased vacancies that would
lower the borrower's ability to service the debt. Commercial real estate loans
also have a degree of interest rate risk in that if rates fall borrowers
refinance, if rates rise the Bank could experience a squeeze on net interest
margin if the Bank does not accurately fund these loans, which often have a
fixed rate for the initial five years of the loan.
Multi-family Loans. Multi-family loans totaled $92.4 million or 10.8% of
the total loan portfolio at December 31, 2004. The multi-family portfolio is
principally comprised of small to medium-size apartment projects with loan-to-
value ratios usually up to 75%. All new loan originations are in the Puget
Sound region with adjustable rates.
Multi-family residential and commercial real estate lending affords the Bank
an opportunity to receive interest at rates higher than those generally
available from one-to-four family mortgage loans. However, loans secured by
such properties usually are greater in amount and may involve a greater degree
of risk than one-to-four family residential mortgage loans. Because payments
on loans secured by multi-family residential and commercial properties are
often dependent on the successful operation and management of the properties,
repayment of such loans may be affected by adverse conditions in the real
estate market or the economy. In addition, the low interest rate environment
and robust housing market has induced many erstwhile renters to purchase
houses. This has led to higher vacancy rates in some areas.
One-to-Four Family Residential Loans. At December 31, 2004, residential
loans totaled $106.0 million or 12.4% of the total loan portfolio. Residential
lending consists primarily of first mortgage loans secured by single family
residential properties located principally in Snohomish and King Counties. The
Bank originates both fixed rate and adjustable rate mortgages ("ARMs") with
maturities up to 30 years. ARM loans are generally held in the Bank's
portfolio. Newly originated ARMs have interest rates that adjust based on
the One Year Constant Maturity Treasury Index. Borrower demand for ARMs
versus fixed-rate mortgage loans is a function of the level of interest rates,
the shape of the yield curve, and the differences between the interest rates
and loan fees offered for fixed-rate mortgage loans and the rates and loan fees
for ARMs.
Fixed rate residential loans are generally sold and the servicing released
to one of the Bank's correspondents. The loans are sold on a "best efforts"
basis. The Bank no longer packages its loans to sell as mortgage backed
securities. The Bank had no loans held for sale at December 31, 2004, and no
loans held for sale at December 31, 2003. Loans held for sale are not material
and therefore the Bank does not include them as a separate line item on the
balance sheet. The Bank has greatly reduced its emphasis on mortgage banking
and mortgage lending in the past four years.
The Bank's conforming residential loans meet the Federal Home Loan Mortgage
Corporation's underwriting standards with respect to credit, borrower debt
ratios and documentation. The Bank's nonconforming residential loans are those
that do not conform to agency underwriting guidelines, due to the size of the
loan, as a result of credit histories, debt-to-income ratios, reliance on the
-8-
borrower's stated income, non-owner occupied property, rural property, or other
exceptions from agency guidelines.
Consumer Loans. The Bank's consumer loan activities take two forms: home
equity loans or lines of credit, and installment loans. Home equity loans are
secured by a junior lien in priority on the borrower's home. Such loans may
have a combined loan-to-value ratio of up to 90% of the value of the home
securing the loan. Home equity loans are fixed amount loans, which may have
fixed or floating interest rates. Home equity lines of credit can be drawn upon
at any time by the customer up to a specific amount. These loans are at a
floating rate with a floor on that rate. The balance outstanding for both types
of home equity loans decreased to $21.6 million at December 31, 2004, as
compared to $23.6 million at December 31, 2003. At December 31, 2004 and
December 31, 2003, the total amount of unused lines of credit were $22.7
million and $34.6 million, respectively. The second category of consumer loans
are installment loans in which boats, automobiles, and recreational vehicles
serve as collateral. This portfolio was $8.5 million at December 31, 2004, as
compared to $9.5 million outstanding at December 31, 2003. Although boat loans
total $4.1 million of the Corporation's installment loans at December 31, 2004,
the Corporation has significantly decreased its origination of boat loans and
expects this amount to decline further in the future. Since installment loans
are secured by depreciating assets any repossessed collateral for a defaulted
loan may not provide an adequate source of repayment of the outstanding loan
balance. The remaining deficiency often does not warrant further substantial
collection efforts against the borrower. Consumer loan collections are
dependent on the borrower's continuing financial ability, and are more likely
to be adversely affected by job loss, divorce, illness or personal bankruptcy.
The Loan Maturity Table
- -----------------------
The following table sets forth information at December 31, 2004 regarding
the dollar amount of loans maturing in the Corporation's portfolio based on
their contractual terms to maturity, but does not include scheduled payments
or potential prepayments. Loan balances do not include deferred loan fees.
Construction loans are net of loans in process.
With variable With fixed
rate (for rate(for
maturities maturities
Due in one Due in one Due after of (more of more
year or less to five years five years Total than one year) than one year)
------------------------------------------------------------------------------------------
(Dollars in thousands)
Business $56,728 $118,711 $121,300 $296,739 $119,173 $120,862
Construction 66,660 42,828 - 109,488 40,076 2,873
Commercial Real Estate 9,066 33,457 116,076 158,599 100,097 49,436
Multi-family 1,653 5,991 91,006 98,650 89,393 7,604
Home Equity/Consumer 4,947 4,719 24,611 34,277 21,035 8,304
Residential 1,692 5,950 101,329 108,971 93,132 14,147
Asset Quality
- -------------
Banking regulations require that each insured institution review and
classify its assets regularly. In addition, bank examiners have the authority
to identify problem assets and, if appropriate, require them to be adversely
classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets must have one or more defined weaknesses
and are characterized by the distinct possibility that the insured institution
will sustain some loss if the deficiencies are not corrected. Doubtful assets
have sufficient weaknesses that make collection or payment in full, based on
currently existing facts, conditions and values, questionable. There is a high
possibility of loss. An asset classified "loss" is considered uncollectible
and of such little value that its continuance as an asset of the institution
is not warranted. Assets classified as "substandard" or "doubtful" require the
institution to establish general allowances for loan losses. If an asset, or
portion thereof, is classified loss, the insured institution must either
establish specific allowances for loan losses in the amount of 100% of the
portion of the asset classified loss or charge off such amounts. The bank uses
two other asset classification categories for potential problem loans. They
are watch and special mention. Borrowers with declining earnings, strained
cash flow, increasing leverage and/or weakening market fundamentals that
indicate above average risk are classified as watch. Loans on special mention
represent borrowers who exhibit potential credit weaknesses or trends deserving
bank management's close attention.
-9-
Cascade established the Credit Administration Division in 2001 which is
intended to assure that the Bank maintains the quality of its loan portfolio.
Management has comprehensive monthly and annual review procedures for
identifying and classifying assets for weaknesses. Reserves are maintained
for assets classified as substandard or doubtful. The objective of these
review procedures is to identify any trends and determine the levels of loss
exposure to evaluate the need for an adjustment to the reserve accounts.
Delinquencies. A report containing delinquencies of all loans is reviewed
monthly by the Asset Review Committee and periodically by the Board of
Directors. Procedures taken with respect to delinquent loans differ depending
on the particular circumstances of each loan. The Bank's general procedures
provide that when a loan becomes delinquent, the borrower is contacted, usually
by phone, within 15 to 30 days. When the loan is over 30 days delinquent, the
borrower is usually contacted in writing. Typically, the Bank will initiate
foreclosure or other corrective action against the borrower when principal and
interest become 90 days or more delinquent. In any event, interest income is
reduced by the full amount of accrued and uncollected interest on loans once
they become 90 days delinquent, go into foreclosure or are otherwise determined
to be uncollectible. Once interest has been paid to date or management
considers the loan fully collectable, it is returned to accrual status. An
allowance for loss is established when, in the opinion of management, the fair
value less sales costs of the property collateralizing the loan is less than
the outstanding principal and the collectibility of the loan's principal
becomes uncertain. It is intended that the Bank's allowance for loan losses be
adequate to cover known potential and reasonably estimated unknown losses. At
December 31, 2004 and December 31, 2003, the Bank had $532,000 and $1.9
million, respectively, of loans accounted for on a non-accrual basis.
Allowance for Loan Losses/Non-Performing Assets
- -----------------------------------------------
Management provides for possible loan losses by maintaining an allowance.
The level of the allowance is determined based upon judgments regarding the
size and nature of the loan portfolio, historical loss experience, the
financial condition of borrowers, the level of non-performing loans, and
anticipated general economic conditions. Additions to the allowance are charged
to expense. Loans are charged against the allowance when management believes
the collection of principal is unlikely. Increases in the allowance for loan
losses made through provisions were primarily a result of loan growth,
awareness of the greater risk inherent in business lending and the impact of
the economic climate on the loan portfolio.
Management measures the reasonableness of the allowance for loan losses by
utilizing a loan grading system to determine risk in the loan portfolio and by
considering the results of credit reviews. The loan portfolio is separated by
quality and then by loan type. Loans of acceptable quality are evaluated as a
group, by loan type, with a loss rate assigned to the total loans in each type,
but unallocated to any individual loan. Adversely classified loans may be
individually analyzed, to determine an estimated loss amount. A loss rate is
also assigned to these adversely classified loans, but at a higher rate due to
the greater risk of loss. Past due and impaired loans are actively managed to
minimize the potential loss.
Although management has allocated a portion of the allowance to the loan
categories using the method described above, the adequacy of the allowance must
be considered as a whole. To mitigate the imprecision in most estimates of
expected loan losses, the allocated component of the allowance is supplemented
by an unallocated component. The unallocated portion includes management's
judgmental determination of the amounts necessary for qualitative factors such
as the consideration of new products and policies, economic conditions,
concentrations of credit risk, and the experience and abilities of lending
personnel. Loan concentrations, quality, terms, and basic underlying
assumptions remained substantially unchanged during the period.
-10-
The following table presents information with respect to the Corporation's
non-performing assets and restructured loans at the dates indicated.
December 31,
2004 2003 2002
-----------------------
(Dollars in thousands)
Non-performing loans:
Commercial loans:
Commercial $ - $ 128 $ 132
Commercial real estate 488 - -
-----------------------
488 128 132
Residential 34 1,704 742
Consumer loans 10 89 82
-----------------------
Total non-performing loans 532 1,921 956
Other real estate 868 474 461
-----------------------
Total non-performing assets $1,400 $2,395 $1,417
=======================
Restructured loans $ 95 $3,467 $ -
Total non-performing loans to net loans .07% .34% .17%
Total non-performing loans to total assets .05 .22 .12
Total non-performing assets to total assets .13 .27 .18
The Corporation's non-performing assets at December 31, 2004, consisting of
non-performing loans and other real estate, totaled $1.4 million or 0.13% of
total assets. This is a decrease from $2.4 million or 0.27% of total assets at
December 31, 2003, and a decrease from $1.4 million or 0.18% of total assets at
December 31, 2002.
Loans are generally placed on non-accrual when they become past due over 90
days or when the collection of interest or principal is considered unlikely.
Loans past due over 90 or 120 days that are not on non-accrual status must be
well secured by tangible collateral and in the process of collection. The Bank
does not return a loan to accrual status until it is brought current with
respect to both principal and interest and future principal and interest
payments are no longer in doubt.
Non-performing loans decreased to $532,000 at December 31, 2004, compared to
a $1.9 million at December 31, 2003, and $1.0 million at December 31, 2002. The
decrease in non-performing loans from December 31, 2003, to December 31, 2004
is due to a decrease in non-performing residential loans. Management believes
that the allowance for losses on loans is adequate to provide for losses that
may be incurred on non-performing loans.
Other real estate owned includes property acquired by the Bank through
foreclosure. Other real estate is carried at the lower of the estimated fair
value or the principal balance of the foreclosed loans. Non-performing other
real estate was $868,000 at December 31, 2004, an increase from $474,000 at
December 31, 2003, and an increase from $461,000 at December 31, 2002. All
real estate owned was single-family residential real estate.
Interest income that would have been recognized for the year ended December
31, 2004, December 31, 2003, and December 31, 2002, had non-accrual loans been
current in accordance with their contractual terms amounted to $2,000, $90,000,
and $32,000, respectively.
-11-
The following tables set forth information regarding changes in the
Corporation's allowance for loan losses for the most recent five years
(dollars in thousands).
Year Ended December 31,
2004 2003 2002
-------------------------------
Balance at beginning of period $ 7,711 $ 6,872 $ 6,304
Issaquah Bank balance at June 2004 1,394 - -
Charge Offs:
Business 310 295 1,028
Commercial Real Estate - 95 -
Single-Family Residence 34 59 249
Consumer and other 97 302 164
Recoveries: (223) (315) (114)
-------------------------------
Net charge-offs (recoveries): 218 436 1,327
Provision for loan losses 675 1,275 1,895
-------------------------------
Balance at end of period 9,563 7,711 6,872
Average loans outstanding $691,372 $565,453 $566,302
===============================
Ratio of net charge-offs during
the period to average loans
outstanding .03% .08% .23%
Ratio of allowance for loan losses
to average loans outstanding 1.38 1.36 1.21
A material estimate that is particularly susceptible to significant change
relates to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the estimated
losses on loans and foreclosed assets held for sale, management obtains
independent appraisals for significant properties.
While management uses available information to recognize losses on loans,
further reductions in the carrying amounts of loans may be necessary based on
changes in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the estimated
losses on loans. Such agencies may require the Bank to recognize additional
losses based on their judgment about information available to them at the time
of their examination.
Certain loans may meet the criteria of troubled debt restructuring as
defined in Statement of Financial Accounting Standards ("SFAS") No. 114 and
No. 118, "Accounting by Creditors for Impairment of a Loan," and "Accounting
by Creditors for Impairment of a Loan-Income Recognition and Disclosures,"
respectively.
The following tables set forth information concerning the Company's
allocation of the allowance for loan losses and the percentage of loans by
category at the dates indicated (dollars in thousands).
December 31,
---------------------------------------------
2004 2003 2002
Amount %* Amount %* Amount %*
------------- ------------- -------------
Business $4,181 34.11% $2,833 33.63% $2,918 24.68%
Commercial Real Estate 583 20.87 787 13.79 274 10.95
Single-Family Residential 432 12.37 745 17.37 745 21.28
Multifamily 616 10.79 245 14.35 366 16.35
Real Estate Construction 1,295 18.34 642 15.41 1,887 18.18
Consumer and Other 513 3.52 444 5.45 252 8.56
Unallocated 1,943 - 2,015 - 430 -
---------------------------------------------
Total allowance for loan losses $9,563 100.0% $7,711 100.0% $6,872 100.0%
* Percent of loans in each category to total loans.
-12-
The provision for loan losses for the year ended December 31, 2004, totaled
$675,000 compared to $1,275,000 for the year ended December 31, 2003, and
$1,895,000 for the year ended December 31, 2002. The decrease in the provision
for loan losses for the twelve month period ended December 31, 2004, was due to
the decrease in actual adversely classified loans (which includes the
substandard and doubtful categories) under the Bank's loan classification
system. Adversely classified loans decreased to $9.3 million at December 31,
2004, from $12.0 million at December 31, 2003.
ASSET AND LIABILITY MANAGEMENT ACTIVITIES
- -----------------------------------------
A prime focus of the Bank's asset/liability management activity is interest
rate risk management. The Bank uses a variety of tools to measure, monitor,
and manage interest rate risk. The Board of Directors reviews the interest rate
risk management activities of the Bank on a regular basis and has established
policies and guidelines on the amount of risk deemed appropriate. The Bank's
net interest income and the fair value of its capital are measured under
different interest rate scenarios. The Board, through the Asset/Liability
Management Policy, has established targets for maximum negative impact that
changes in interest rates have on the Bank's net interest income, the fair
value of equity and adjusted capital/asset ratios under certain interest rate
shock scenarios. Cascade uses a simulation model to measure rate risk and the
impact on net interest income, the fair value of equity, and the fair value
capital/asset ratio. In general the Bank seeks to manage its rate risk through
its balance sheet. The Bank focuses on originating more interest rate
sensitive assets, such as prime-based loans, while reducing its long-term,
fixed rate assets through the sale of long-term residential mortgages in the
secondary market. The vast majority of the loans that the Bank keeps in its
portfolio have repricing periods of five years or less. The Bank often uses
FHLB advances to fund its intermediate term assets. Cascade uses reverse
repurchase agreements to provide inexpensive short term funding. These
agreements are generally for three months or less and provide the Bank with
liabilities that reprice relatively quickly, which helps match the repricing
characteristics of our prime based loans.
Using standard interest rate shock methodology (an instantaneous uniform
change in interest rates at all maturities), the Bank is well within the
guidelines established by the Board of Directors for the changes in fair value
of equity and the adjusted capital/asset ratios. The Bank's fair value of
equity decreases 11.6% in an up 200 bp shock scenario and decreases 11.5% in a
down 200 bp shock, within the established guideline of a maximum 30% decline.
The adjusted capital/asset ratio is 9.3% in the up 200 bp scenario and 8.9% in
the down 200 bp scenario, both above the 5% minimum established guideline. The
net interest income increases 3.0% in the up 200 basis point scenario, well
within the guideline of a 10% decline. In the unlikely down 200 bp shock
scenario, the Bank's net income decreases 11.9%, slightly in excess of the 10%
decline guideline. Additional action will be implemented to counter this
exposure in the event of declining short-term interest rates.
Further, since the third quarter of 2003, the Bank has sought to limit
exposure, particularly to rising rates. Limits have been established on the
final maturity of investments and limits have been initiated on the price
volatility of mortgage-backed securities (MBS) (including collateralized
mortgage obligations (CMOs)). Additionally, the Bank extends the maturities of
its liabilities by offering long-term deposit products to customers, and
obtaining longer term FHLB advances. As of December 31, 2004, $196 million of
the $228 million in advances had original maturities greater than one year and
$151 million have remaining maturities greater than one year.
The Bank uses interest rate swaps and has used caps and floors in the past
to control the amount of its interest rate risk. During the third quarter of
2004, the Bank implemented two $25 million interest rate swaps to reduce its
exposure to increasing interest rates. The first of these swaps is a 5 year
pay-fixed instrument used as a cash flow hedge to offset increases in LIBOR in
a $25 million FHLB advance. The second swap is a 10 year, pay-fixed instrument,
originally accounted for as a fair value hedge to offset changes in value of
$26 million of the Bank's available for sale investment portfolio. As of
December 15, 2004, due to narrowing of swap spreads, the hedge lost its "highly
effective designation" and is being marked to market through the Bank's income
statement.
Another major component of asset/liability management is liquidity
management. The Board of Directors has also established liquidity parameters
that seek to assure that the Bank will have sufficient liquidity to meet all
its customer needs for funding and/or deposit withdrawals.
The balance sheets and the section of Management's Discussion and Analysis
titled "Average Balances and an Analysis of Average Rates Earned and Paid"
contained in the Annual Report are incorporated herein by reference.
Rate/Volume Analysis. The following table sets forth the effects of changing
rates and volumes on net interest income of the Bank. Information is provided
with respect to (i) effects on interest income attributable to changes in
volume (changes in volume multiplied by prior rate); (ii) effects on interest
income attributable to changes in rate (changes in rate multiplied by prior
volume); and (iii) changes in rate/volume (change in rate multiplied by change
in volume).
-13-
Year Ended December 31, Year Ended December 31,
---------------------------------------- ----------------------------------------
2004 Compared to Year Ended 2003 Compared to Year Ended
December 31, 2003 December 31, 2002
Increase (Decrease) Due to Increase (Decrease) Due to
---------------------------------------- ----------------------------------------
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
(Dollars in thousands)
Interest-earning assets
- -----------------------
Single-family loans (1) $ (873) $ (406) $ 48 $(1,231) $(1,396) $(1,742) $ 235 $(2,903)
Multi-family loans (1) (733) 317 (37) (453) (491) (1,115) 70 (1,536)
Commercial real estate loans (1) (521) 3,456 (340) 2,595 (508) 813 (82) 223
Construction loans (1) 393 632 55 1,080 (484) (150) 14 (620)
Consumer loans (1) - (533) - (533) (157) (1,203) 46 (1,314)
Business loans (1) 48 4,958 21 5,027 (912) 3,251 (316) 2,023
---------------------------------------- ----------------------------------------
Total loans (1,686) 8,424 (253) 6,485 (3,948) (146) (33) (4,127)
Securities available-for sale (1,243) (1,442) 195 (2,490) (1,595) 2,237 (399) 243
Securities held-to-maturity (217) 1,301 (85) 999 (156) 2,426 (281) 1,989
Daily interest-earning deposits 33 (58) (17) (42) (83) (173) 44 (212)
---------------------------------------- ----------------------------------------
Total net change in income on
interest earning assets $(3,113) $ 8,225 $(160) $ 4,952 $(5,782) $ 4,344 $(669) $(2,107)
======================================== ========================================
Interest-bearing liabilities
- ----------------------------
Interest-bearing deposits $(1,258) $ 1,616 $(172) $ 186 $(3,056) $ 1,984 $(484) $(1,556)
FHLB advances (504) 838 (41) 293 (1,364) (530) 60 (1,834)
Other borrowings (205) (125) 17 (313) (334) 38 (7) (303)
-------------------------------------- --------------------------------------
Total net change in expenses on
interest-bearing liabilities $(1,967) $ 2,329 $(196) $ 166 $(4,754) $ 1,492 $(431) $(3,693)
======================================== ========================================
Net increase in net interest income $ 4,786 $ 1,586
======= =======
(1) Does not include interest on loans 90 days or more past due.
Year Ended December 31,
-----------------------------------------
2002 Compared to Year Ended
December 31, 2001
(unaudited)
Increase (Decrease) Due to
-----------------------------------------
Rate/
Rate Volume Volume Net
(Dollars in thousands)
Interest-earning assets
- -----------------------
Single-family loans (1) $ (348) $(2,571) $ 68 $(2,851)
Multi-family loans (808) (160) 15 (953)
Commercial real estate loans (211) 102 (4) (113)
Construction loans (1,347) 1,134 (273) (486)
Consumer loans (1) (654) (421) 54 (1,021)
Business loans (1) (1,360) 1,461 (209) (108)
------------------------------------------
Total loans (4,728) (455) (349) (5,532)
Securities available-for-sale (464) 1,608 (94) 1,050
Securities held-to-maturity 13 907 30 950
Daily interest-earning deposits (88) 359 (153) 118
------------------------------------------
Total net change in income on
interest-earning assets $(5,267) $ 2,419 $ (566) $(3,414)
==========================================
Interest-bearing liabilities
- ----------------------------
Interest-bearing deposits (6,871) 2,887 (1,125) (5,109)
FHLB advances (395) (1,598) 45 (1,948)
Other borrowings (833) (208) 63 (978)
------------------------------------------
Total net change in expenses on
interest-bearing liabilities $(8,099) $ 1,081 $(1,017) $(8,035)
==========================================
Net increase in net interest income $ 4,621
======
(1) Does not include interest on loans 90 days or more past due.
-14-
INVESTMENT PORTFOLIO
- --------------------
The Board of Directors sets the investment policy of the Bank. This policy
dictates that investments will be made based on the safety of the principal
amount, interest rate risk, liquidity requirements of the Bank as well as the
return on the investment. The Bank's policy does not permit the purchase of
non-investment grade bonds. The policy permits the investment in various types
of assets permissible under FDIC regulation including: United States Treasury
obligations; securities of government sponsored enterprises, MBS including
CMOs, state and municipal government bonds, deposits at the FHLB-Seattle,
certificates of deposit of federally insured institutions, investment grade
corporate bonds, certain bankers' acceptances and Federal funds. Subject to
various restrictions, the Bank may also invest part of its assets in commercial
paper, corporate debt securities and mutual funds, if those assets conform to
FDIC regulations.
Investment securities decreased to $215.6 million at December 31, 2004, from
$276.5 million at December 31, 2003, a 22% decrease. The investment portfolio
declined to assist in the funding of our loan portfolio throughout the year.
The decline in the portfolio was also the result in the lower spread on
investments compared to funding costs as the Fed began raising short-term rates
in June 2004. The investment portfolio represented 20% of total assets at
December 31, 2004 compared to 31% at December 31, 2003. MBS (including CMOs)
available for sale decreased from $70.5 million to $42.5 million as of December
31, 2004. Agency notes available for sale also decreased from $99.2 million to
$69.8 million. Agency notes held to maturity decreased from $73.8 million to
$65.8 million for the year ended December 31, 2004.
The following tables set forth the Bank's securities available for sale at
the dates indicated.
December 31, 2004 December 31, 2003 December 31, 2002
Estimated Percent of Estimated Percent of Estimated Percent of
(Dollars in thousands) Fair Value Portfolio Fair Value Portfolio Fair Value Portfolio
- -----------------------------------------------------------------------------------------------------------
MBS $ 42,522 34.22% $ 70,523 37.17% $ 90,073 56.33%
Agency notes 69,882 56.23 99,240 52.30 55,874 34.94
FHLB stock 11,872 9.55 14,741 7.77 13,950 8.73
Corporate/other - - 5,243 2.76 - -
-----------------------------------------------------------------------------
Total $124,276 $189,747 $159,897
=============================================================================
The following table sets forth the contractual maturities and weighted
average yields of the Corporation's securities available for sale at December
31, 2004. Securities with no stated maturity dates are reported as due within
one year.
Less Than One Year One to Five Years Five to Ten Years Over Ten Years
-----------------------------------------------------------------------------------
Estimated Estimated Estimated Estimated
Fair Fair Fair Fair
(Dollars in thousands) Value Yield Value Yield Value Yield Value Yield
- ------------------------------------------------------------------------------------------------------------------
MBS $15,809 5.39% $24,598 5.14% $ 2,115 5.24% $ - -%
Agency notes 86 1.00 11,006 4.13 43,108 4.64 15,682 5.12
FHLB stock 11,872 2.00 - - - - - -
Corporate/other - - - - - - - -
------ ------ ------ ------
Total $27,767 $35,604 $45,223 $15,682
====== ====== ====== ======
The following table sets forth amortized cost and estimated fair values for
Cascade's securities held to maturity at the dates indicated.
December 31, 2004 December 31, 2003 December 31, 2002
----------------------------------------------------------------------------------------------
Amortized Fair % of Amortized Fair % of Amortized Fair % of
(Dollars in thousands) Cost Value Portfolio Cost Value Portfolio Cost Value Portfolio
- --------------------------------------------------------------------------------------------------------------------------
MBS $25,083 $24,584 27.45% $12,587 $12,328 14.44% $ 4,212 $ 4,378 8.77%
Agency notes 65,791 64,506 72.03 73,822 72,709 85.20 44,866 45,261 90.61
Corporate/other 465 465 0.52 310 307 0.36 310 310 0.62
----------------------------------------------------------------------------------------------
Total $91,339 $89,555 $86,719 $85,344 $49,388 $49,949
-15-
The following table sets forth the contractual maturities and weighted
average yields of the Corporation's securities held to maturity at December 31,
2004. Securities with no stated maturity dates are reported as due within one
year.
Less Than One Year One to Five Years Five to Ten Years Over Ten Years
-----------------------------------------------------------------------------------
Estimated Estimated Estimated Estimated
Fair Fair Fair Fair
(Dollars in thousands) Value Yield Value Yield Value Yield Value Yield
- ------------------------------------------------------------------------------------------------------------------
MBS - - $20,901 4.62% $ 3,683 4.60% $ - -%
Agency notes - - 20,504 4.08 17,816 4.63 26,186 5.21
Corporate/other - - - - - - 465 -
------ ------ ------ ------
Total - - $41,405 $21,499 $26,651
====== ====== ====== ======
For further information concerning the Corporation's securities portfolio,
see Note 2 of the Notes to the Consolidated Financial Statements contained in
the Annual Report listed in Item 15.
DEPOSITS
- --------
The Bank's primary source of funds is customer deposits. In addition to
checking accounts, the Bank offers a variety of interest-bearing accounts
designed to attract both short-term and longer-term deposits from customers.
Interest-bearing accounts earn interest at rates established by Bank management
based on competitive market factors and the Bank's need for funds.
Deposits increased to $721.9 million at December 31, 2004, from $564.3
million at December 31, 2003, an increase of 27.9% during this period. Deposits
at December 31, 2002 were $509.9 million. The market for retail deposits
remains fiercely competitive. Previously, the Bank paid rates at the higher end
of the competitive range of financial institutions in its market area. In an
attempt to lower the absolute and relative cost of funds, the Bank modified its
deposit pricing strategy by pricing its deposits in the middle of that range.
The following table sets forth the average balances for each major category
of deposit and the weighted average interest rate paid for deposits during the
years ended December 31, 2004, 2003, and 2002 (dollars in thousands).
Average Deposits by Type
------------------------
December 31, 2004 December 31, 2003 December 31, 2002
Amount Rate Amount Rate Amount Rate
-------------------------------------------------------------
Non-interest-bearing demand deposits $ 59,050 -% $ 38,243 -% $ 29,122 -%
Interest-bearing demand deposits 29,562 0.09 21,854 0.48 22,641 1.04
Money market deposit 145,626 1.37 113,263 1.32 107,363 2.14
Savings 14,895 0.32 11,828 0.46 11,324 1.15
Time certificates 401,620 2.57 357,955 2.60 294,554 3.35
------------------------------------------------------------
$650,753 $543,143 $465,004
============================================================
The following table indicates the amount of the Bank's jumbo certificates
of deposit by time remaining until maturity at December 31, 2004. Jumbo
certificates of deposit require minimum deposits of $100,000 and rates paid
on such accounts are negotiable.
Maturity Period Jumbo Certificates of Deposit
--------------------------------------------------------
(Dollars in thousands)
Three months or less $ 55,624
Over three through six months 110,590
Over six through twelve months 76,809
Over twelve months 34,319
-------
Total $277,342
=======
The flow of deposits is influenced significantly by general economic
conditions, changes in the money market and prevailing interest rates. In
addition, there is strong competition for customer dollars from other financial
institutions, mutual funds and non-bank corporations, such as securities
-16-
brokerage companies and other diversified companies. The Bank's deposits are
obtained primarily from the areas in which its branches are located. The Bank
relies primarily on customer service and longstanding relationships with
customers to attract and retain these deposits. In the coming year, the Bank
will focus on its deposit gathering activities, and management expects a
significant portion of its deposit growth in 2005 will occur in its business
deposit products. In the event the Bank were liquidated, certain depositors
would be entitled to full payment of their deposit accounts prior to any
payment being made to the shareholders.
RETURN ON EQUITY AND ASSETS
- ---------------------------
The section entitled "Selected Financial Data" of the Annual Report listed
in Item 15 is incorporated herein by reference.
BORROWINGS
- ----------
The Bank relies on advances from the Federal Home Loan Bank of Seattle
(FHLB-Seattle) to supplement its supply of funds and to meet deposit
withdrawal requirements. Advances from the FHLB-Seattle are typically secured
by the Bank's first mortgage residential loans, investment securities and other
eligible mortgages secured by real estate. FHLB advances were $228.0 million
at December 31, 2004, compared to $200.0 million at December 31, 2003, a 14.0%
increase. FHLB advances were $197.5 million at December 31, 2002.
The Bank enters into repurchase agreements with its correspondent banks.
Reverse repurchase agreements are accounted for as borrowings by the Bank and
are secured by designated investments, primarily the notes of federal agencies
and mortgage-backed securities guaranteed by those agencies. The proceeds of
these transactions are used to meet the cash flow and interest rate risk
management needs of the Bank. Repurchase agreements decreased to $20.9 million
at December 31, 2004, from $39.9 million at December 31, 2003.
Cascade Bank has established Fed funds borrowing lines with two of its
correspondent banks. One line was used for three days during 2004. The usage
was a test of our liquidity management processes.
The following table sets forth certain information regarding borrowings by
the Corporation at the end of, and during, the periods indicated.
At or for the
year ended
December 31,
2004 2003 2002
---------------------------
(Dollars in thousands)
Weighted average rate on:
Securities sold under agreements
to repurchase 2.23% 1.17 1.49
FHLB advances 4.86% 4.85 5.78
Maximum amount of borrowings outstanding
at any month end:
Securities sold under agreements
to repurchase $ 40,251 40,587 49,666
FHLB advances $237,500 211,750 226,500
Approximate average borrowings outstanding
with respect to:
Securities sold under agreements to repurchase $ 31,085 35,334 34,415
FHLB advances $210,023 194,229 203,022
Approximate weighted average rate paid on:
Other interest-bearing liabilities* 2.79% 3.39 4.00
FHLB advances 5.05% 5.31 5.98
* Including Trust Preferred Securities.
Junior Subordinated Debentures Payable (Trust Preferred Securities). On
March 1, 2000, $10 million of 11 percent Capital Securities due March 1, 2030
were issued by a wholly owned business Trust whose common equity is 100% owned
by Cascade Financial Corporation. The Trust exists for the exclusive purposes
of issuing and selling the capital securities, using the proceeds from the sale
of the capital securities to acquire junior subordinated debentures issued by
Cascade Financial Corporation, and engaging in only those other activities
necessary, advisable, or incidental to the above. The Corporation used the
proceeds for general corporate purposes including stock repurchases and
investment in its subsidiary bank. At December 31, 2003, as a result of the
adoption of FIN 46R, we deconsolidated the Trust and all periods in the
consolidated financial statements have been restated to reflect this change.
The $10.3 million of junior subordinated debentures issued by the Company to
the Trust were reflected as junior subordinated debentures payable in the
-17-
consolidated balance sheet at December 31, 2004. The Trust will redeem the
trust preferred securities when we pay the junior subordinated debentures at
maturity or upon any earlier redemption of the junior subordinated debentures.
Prior to December 31, 2003, the Trust was consolidated and was included in
liabilities in the consolidated balance sheet, as "Trust Preferred Securities.
" The common securities and debentures, along with the related income effects
were eliminated in the consolidated financial statements.
On December 15, 2004, Cascade Financial Corporation issued $5 million of
5.82% capital securities due January 7, 2035. The proceeds from the issuance
were invested in Cascade Bank, which will use the increased capital for general
corporate purposes.
Subsidiary Activity
- -------------------
The Corporation has three subsidiaries: Cascade Bank, Cascade Capital Trust
I and Capital Trust II. The activities of the Corporation are primarily
conducted through the Bank. Accordingly, this Form 10-K principally discusses
the Bank's operations.
Cascade Capital Trust I was formed for the exclusive purpose of issuing
Trust Preferred Securities and common securities and using the proceeds to
acquire junior subordinated debentures issued by the Corporation. The junior
subordinated debentures total $10.2 million, have an interest rate of 11.00%,
mature on March 1, 2030, and are the sole assets of Cascade Capital Trust I.
The junior subordinated debentures are prepayable, in whole or in part, at the
Corporation's option on or after March 1, 2010, at declining premiums to
maturity. Proceeds totaling approximately $9.23 million from the issuance of
the junior subordinated debentures were used to increase the capital level of
the Bank.
Cascade Capital Trust II incorporates the same structure for the same
purposes as Capital Trust I. The junior subordinated debentures issued under
Capital Trust II equals $5.2 million and has a rate of 5.82% for the first 5
years of the security, and floats at the 3 month LIBOR plus 190 basis points
thereafter.
Personnel
- ---------
At December 31, 2004, the Corporation had 200 full-time equivalent
employees. The Corporation believes that employees play a vital role in the
success of a service company and that the Corporation's relationship with its
employees is good. The employees are not represented by a collective
bargaining unit.
REGULATION
----------
Introduction/General
- --------------------
The following generally refers to certain statutes and regulations affecting
the Corporation and the Bank. This provides only a brief summary of the
regulations impacting the Corporation and is not complete. This discussion is
qualified in its entirety by the statutes and regulations. In addition, some
statutes and regulations exist which impact the Corporation which are not
referenced below.
The Corporation is subject to extensive regulation, supervision and
examination. Such regulation and supervision govern the activities in which the
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. Regulatory authorities have been granted
extensive discretion in connection with their supervisory and enforcement
activities, which are intended to strengthen the financial condition of the
banking industry, including the imposition of restrictions on the operation of
an institution, the classification of assets by the institution and the
adequacy of an institution's allowance for loan losses. Any change in such
regulation and oversight could have an adverse material impact on the
Corporation, Cascade and their respective operations.
The Corporation
- ---------------
The Corporation is a bank holding company that has elected to be treated as
a financial holding company with the Board of Governors of the Federal Reserve
-18-
Board (the "FRB"). The Bank Holding Company Act of 1956, as amended ("BHCA")
subjects the Corporation and its subsidiaries to supervision and examination by
the FRB. The Corporation files annual reports of operations with the FRB.
Bank Holding Company Regulation. In general, the BHCA limits bank holding
company business to owning or controlling banks and engaging in other banking-
related activities. Bank holding companies must obtain the FRB's approval
before they: (1) acquire direct or indirect ownership or control of any voting
shares of any bank that results in total ownership or control, directly or
indirectly, of more than 5 percent of the voting shares of such bank; (2) merge
or consolidate with another bank holding company; or (3) acquire substantially
all of the assets of any additional banks. Subject to certain state laws, such
as age and contingency restrictions, a bank holding company that is adequately
capitalized and adequately managed may acquire the assets of both in-state and
out-of-state banks. With certain exceptions, the BHCA prohibits bank holding
companies from acquiring direct or indirect ownership or control of voting
shares in any company that is not a bank or a bank holding company unless the
FRB determines that the activities of such company are incidental or closely
related to the business of banking. If a bank holding company is well-
capitalized and meets certain criteria specified by the FRB, it may engage de
novo in certain permissible non-banking activities without prior FRB approval.
The Change in Bank Control Act of 1978, as amended, requires a person (or
group of persons acting in concert) acquiring "control" of a bank holding
company to provide the FRB with 60 days prior written notice of the proposed
acquisition. Following receipt of this notice, the FRB has 60 days within which
to issue a notice disapproving the proposed acquisition, but the FRB may extend
this time period for up to another 30 days. An acquisition may be completed
before expiration of the disapproval period if the FRB issues written notice of
its intent not to disapprove the transaction. In addition, any "company" must
obtain the FRB's approval before acquiring 25% (5% if the "company" is a bank
holding company) or more of the outstanding shares or otherwise obtaining
control over the Corporation.
Financial Holding Company Election/Affiliations. In 2001, the Corporation
elected to be treated as a financial holding company with the FRB, as permitted
under the Gramm-Leach-Bliley Financial Services Modernization Act (the "GLB").
This election allows the Corporation to conduct activities that previously were
unavailable to bank holding companies, provided that notice requirements are
generally required before engaging in any such activities.
In a change from previous law, bank holding companies are in a position to
be owned, controlled or acquired by any company engaged in financially related
activities, so long as such company meets certain regulatory requirements. To
the extent the legislation permits banks, securities firms and insurance
companies to affiliate, the financial services industry may experience further
consolidation. This consolidation could result in a growing number of larger
financial institutions that offer a wider variety of financial services than
the Corporation currently offers and that can aggressively compete in the
markets currently served by the Corporation.
Transactions with Affiliates. The Corporation and its subsidiaries are
deemed affiliates within the meaning of the Federal Reserve Act, and
transactions between affiliates are subject to certain restrictions.
Accordingly, the Corporation and its subsidiaries must comply with Sections 23A
and 23B of the Federal Reserve Act. Generally, Sections 23A and 23B (1) limit
the extent to which a financial institution or its subsidiaries may engage in
"covered transactions" with an affiliate, as defined, to an amount equal to 10%
of such institution's capital and surplus and an aggregate limit on all such
transactions with all affiliates to an amount equal to 20% of such capital and
surplus, and (2) require all transactions with an affiliate, whether or not
"covered transactions," to be on terms substantially the same, or at least as
favorable to the institution or subsidiary, as those provided to a non-
affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and other similar types of
transactions.
Tie-In Arrangements. The Corporation and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection with any extension
of credit, sale or lease of property or furnishing of services. For example,
with certain exceptions, neither the Corporation nor its subsidiaries may
condition an extension of credit on either a requirement that the customer
obtain additional services provided by it or an agreement by the customer to
refrain from obtaining other services from a competitor.
State Law Restrictions. As a Washington corporation, the Corporation is
subject to certain limitations and restrictions as provided under applicable
Washington corporate laws.
Securities Registration and Reporting. The Corporation's common stock is
registered as a class with the SEC under the Securities Exchange Act of 1934
and thus the Corporation is subject to the periodic reporting and proxy
solicitation requirements and the insider-trading restrictions of that Act. The
periodic reports, proxy statements, and other information filed by the
-19-
Corporation under that Act can be inspected and copied at or obtained from the
Washington, D.C. office of the SEC. In addition, the securities issued by the
Corporation are subject to the registration requirements of the Securities Act
of 1933 and applicable state securities laws unless exemptions are available.
The corporation is listed as a NASDAQ/Small Capitalization stock. As such,
it is subject to the listing and reporting requirements of the NASD. Failure
to meet these requirements could lead to a delisting of the Corporation's
stock.
Disclosure Controls and Procedures. The Sarbanes-Oxley Act of 2002 and
related rulemaking by the SEC, which effect sweeping corporate disclosure and
financial reporting reform, generally require public companies to focus on
their disclosure controls and procedures. As a result, public companies such
as the Corporation now must have disclosure controls and procedures in place
and make certain disclosures about them in their periodic SEC reports (i.e.,
Forms 10-K and 10-Q) and their chief executive and chief financial officers
must certify in these filings that they are responsible for developing and
evaluating disclosure controls and procedures and disclose the results of an
evaluation conducted by them within the 90-day period preceding the filing of
the relevant report, among other things.
Dividends. The FRB has issued a policy statement on the payment of cash
dividends by bank holding companies, which expresses the FRB's view that a bank
holding company should pay cash dividends only to the extent that the
Corporation's net income for the past year is sufficient to cover both the cash
dividend and a rate of retention consistent with the Corporation's capital
needs. The FRB also indicated that it would be inappropriate for a company
experiencing serious financial problems to borrow to pay dividends.
Capital Requirements. The FRB has established capital adequacy guidelines
for bank holding companies that generally parallel the capital requirements the
FDIC has for the Bank. The FRB regulations provided that capital standards will
be applied on a consolidated basis in the case of a bank holding company with
more than $150 million in total consolidated assets. The Corporation's total
risk based capital must equal 8% of risk weighted assets and 4% must consist
of Tier 1 capital.
Stock Repurchases. Bank holding companies, except for certain "well
securities if the gross consideration for the purchase or redemption is equal
to or greater than 10% of consolidated net worth during the preceding twelve
months. The FRB may disapprove any such purchase or redemption if it determines
that the proposal would constitute an unsafe or unsound practice.
Cascade Bank
- ------------
General. Applicable federal and state statutes and regulations governing a
bank's operations relate, among other matters, to capital requirements,
investments, loans, legal lending limits, mergers and consolidations,
borrowings, issuance of securities, payment of dividends, establishment of
branches, and dealings with affiliated persons. The Federal Deposit Insurance
Corporation ("FDIC") has authority to prohibit banks under its supervision from
engaging in what it considers to be unsafe or unsound practices in conducting
their business. Cascade Bank is a state-charted commercial bank subject to
extensive regulation and supervision by both the Washington Department of
Financial Institutions ("DFI") and the FDIC. The federal laws that apply to
Cascade Bank regulate, among other things, the scope of its business, its
investments, the timing of the availability of deposited funds and the nature
and amount of collateral for loans. The laws and regulations governing Cascade
Bank generally have been promulgated to protect depositors and not to protect
shareholders of such institutions or their holding companies.
CRA. The Community Reinvestment Act requires that, in connection with
examinations of financial institutions within their jurisdiction, the FRB or
the FDIC evaluates the record of the financial institutions in meeting the
credit needs of their local communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of those banks.
These factors are also considered in evaluating mergers, acquisitions, and
applications to open a branch or facility. The four possible ratings of meeting
community credit needs are outstanding, satisfactory, needs to improve and
substantial noncompliance. Cascade Bank received a satisfactory CRA rating at
the last examination.
Standards for Safety and Soundness. The federal banking regulatory agencies
have prescribed, by regulation, standards for all insured depository
institutions and depository institution holding companies relating to: (i)
internal controls, information systems and internal audit systems; (ii) loan
documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v)
asset growth; (vi) asset quality; (vii) earnings; and (viii) compensation, fees
and benefits ("Guidelines"). The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address
problems at insured depository institutions before capital becomes impaired.
If a federal banking agency determines that a financial institution fails to
-20-
meet any standard prescribed by the Guidelines, the agency may require the bank
to submit to the agency an acceptable plan to achieve compliance with the
standard. Management is not aware of any conditions relating to these safety
and soundness standards which would require the submission of a plan of
compliance.
Insider Credit Transactions. Cascade Bank is also subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to
executive officers, directors, principal shareholders, or any related interests
of such persons. Extensions of credit (i) must be made on substantially the
same terms, including interest rates and collateral, and follow credit
underwriting procedures that are not less stringent than those prevailing at
the time for comparable transactions with persons not covered above and who are
not employees; and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features. Cascade Bank is also subject to certain
lending limits and restrictions on overdrafts to such persons. A violation of
these restrictions may result in the assessment of substantial civil monetary
penalties on the affected bank or any officer, director, employee, agent, or
other person participating in the conduct of the affairs of Cascade Bank, the
imposition of a cease and desist order, and other regulatory sanctions.
FDICIA. Under the Federal Deposit Insurance Corporation Improvement Act of
1991 (the "FDICIA"), each federal banking agency has prescribed, by regulation,
non-capital safety and soundness standards for institutions under its
authority. These standards cover internal controls, information systems, and
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, such other operational
and managerial standards as the agency determines to be appropriate, and
standards for asset quality, earnings and stock valuation. An institution that
fails to meet these standards must develop a plan acceptable to the agency,
specifying the steps that the institution will take to meet the standards.
Failure to submit or implement such a plan may subject the institution to
regulatory sanctions. Management of the Corporation believes that Cascade Bank
meets all such standards, and therefore, does not believe that these regulatory
standards materially affect the Corporation's business operations currently.
Loans to One Borrower. Cascade Bank is subject to limitations on the
aggregate amount of loans that it can make to any one borrower, including
related entities. Applicable regulations generally limit loans to one borrower
to 20% of unimpaired capital and surplus. At December 31, 2004, the Bank had no
borrowers with balances in excess of the loans-to-one-borrower limit.
Interstate Banking and Branching. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Act") permits nationwide
interstate banking and branching under certain circumstances. This legislation
generally authorizes interstate branching and relaxes federal law restrictions
on interstate banking. Currently, bank holding companies may purchase banks in
any state, and states may not prohibit such purchases. Additionally, banks are
permitted to merge with banks in other states as long as the home state of
neither merging bank has "opted out." The Interstate Act requires regulators to
consult with community organizations before permitting an interstate
institution to close a branch in a low-income area. With regard to interstate
bank mergers, Washington has "opted in" to the Interstate Act and allows
in-state banks to merge with out-of-state banks subject to certain aging
requirements. Washington law generally authorizes the acquisition of an
in-state bank by an out-of-state bank or bank holding company through the
acquisition of or a merger with a financial institution that has been in
existence for at least 5 years prior to the acquisition.
Deposit Insurance. The deposits of Cascade Bank are currently insured to a
maximum of $100,000 per depositor through the Savings Association Insurance
Fund (the "SAIF") administered by the FDIC. All insured banks are required to
pay semi-annual deposit insurance premium assessments to the FDIC. The FDICIA
included provisions to reform the Federal Deposit Insurance System, including
the implementation of risk-based deposit insurance premiums. The FDICIA also
permits the FDIC to make special assessments on insured depository institutions
in amounts determined by the FDIC to be necessary to give it adequate
assessment income to repay amounts borrowed from the U.S. Treasury and other
sources, or for any other purpose the FDIC deems necessary. The FDIC has
implemented a risk-based insurance premium system under which banks are
assessed insurance premiums based on how much risk they present to the SAIF.
Banks with higher levels of capital and a low degree of supervisory concern
are assessed lower premiums than banks with lower levels of capital or a higher
degree of supervisory concern.
Dividends. The principal source of the Corporation's revenue is dividends
received from Cascade Bank. The payment of dividends is subject to government
regulation, in that regulatory authorities may prohibit banks and bank holding
companies from paying dividends that would constitute an unsafe or unsound
banking practice. In addition, a bank may not pay cash dividends if that
payment could reduce the amount of its capital below that necessary to meet
minimum applicable regulatory capital requirements. Other than the laws and
regulations noted above, which apply to all banks and bank holding companies,
neither the Corporation nor Cascade Bank is currently subject to any regulatory
restrictions on its dividends.
-21-
Capital Adequacy. Federal bank regulatory agencies use capital adequacy
guidelines in the examination and regulation of bank holding companies and
banks. If capital falls below minimum guideline levels, the holding company or
bank may be denied approval to acquire or establish additional banks or
non-bank businesses or to open new facilities. The FDIC and FRB use risk-based
capital guidelines for banks and bank holding companies. These are designed to
make such capital requirements more sensitive to differences in risk profiles
among banks and bank holding companies, to account for off-balance sheet
exposure and to minimize disincentives for holding liquid assets. Assets and
off-balance sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items. The
guidelines are minimums, and the FRB has noted that bank holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain ratios well in excess of the
minimum. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier I capital. Tier I capital for
bank holding companies includes common shareholders' equity, certain qualifying
perpetual preferred stock and minority interests in equity accounts of
consolidated subsidiaries, less intangibles except as described above. At
December 31, 2004, the Bank had Tier 1 capital equal to $85.0 million or 8.04%
of average total assets, which is $42.7 million above the minimum leverage
requirement of 4% as in effect on that date.
The FDIC also employs a leverage ratio, which is Tier I capital as a
percentage of total assets less intangibles, to be used as a supplement to
risk-based guidelines. The principal objective of the leverage ratio is to
constrain the maximum degree to which a bank holding company may leverage its
equity capital base. The FDIC requires a minimum leverage ratio of 3 percent.
However, for all but the most highly rated bank holding companies and for bank
holding companies seeking to expand, the FDIC expects an additional cushion of
at least 1% to 2%.
FDICIA created a statutory framework of supervisory actions indexed to the
capital level of the individual institution. Under regulations adopted by the
FDIC, an institution is assigned to one of five capital categories depending on
its total risk-based capital ratio, Tier I risk-based capital ratio, and
leverage ratio, together with certain subjective factors. Institutions which
are deemed to be "undercapitalized" depending on the category to which they are
assigned are subject to certain mandatory supervisory corrective actions. The
Corporation does not believe that these regulations have any material effect on
its operations currently.
Reference is made to Note 11 of the Notes to the Consolidated Financial
Statements in the Annual Report, which is listed as an exhibit under Item 15,
for additional information concerning regulatory capital.
The FDIC risk-based requirement requires financial institutions to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
Tier I capital and supplementary capital. Supplementary capital consists of
certain permanent and maturing capital instruments that do not qualify as Tier
I capital and general valuation loan and lease loss allowances up to a maximum
of 1.25% of risk-weighted assets. Supplementary capital may be used to satisfy
the risk-based requirement only to the extent of Tier I capital.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, are multiplied by a risk weight, ranging from
0% to 100%, based on the risk inherent in the type of asset. For example,
prudently underwritten permanent one-to-four family first lien mortgage loans
not more than 90 days delinquent and having a loan-to-value ratio of not more
than 80% at origination unless insured to such ratio by an insurer approved by
FNMA or FHLMC, have been assigned a risk weight of 50%.
On December 31, 2004, the Bank had total risk-based capital of approximately
$94.6 million, including $85.0 million in Tier I capital and $9.6 million in
qualifying supplementary capital (the allowance for loan losses), and
risk-weighted assets of $854.8 million, or total capital of 11.06% of
risk-weighted assets. This amount was $26.2 million above the 8% requirement in
effect on that date.
FDIC capital requirements are designated as the minimum acceptable standards
for banks whose overall financial condition is fundamentally sound. The FDIC
regulations state that if the FDIC determines that conditions so warrant, it
may impose a greater capital standard on a particular institution.
Management believes that the Bank will continue to meet its minimum capital
requirements in the foreseeable future. However, if circumstances were to
materially and adversely impact the future earnings of the Bank, the ability of
the Bank to meet its capital requirements could be impaired.
-22-
Prompt Corrective Action. Federal statutes establish a supervisory framework
based on five capital categories: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. An institution's category depends upon where its capital
levels are in relation to relevant capital measures. In order to be adequately
capitalized, an institution must have a total risk-based capital ratio of not
less than 8%, a Tier 1 risk-based capital of not less than 4%, and a leverage
ratio of not less than 4%. Any institution which fails to meet these levels
will be considered undercapitalized.
Undercapitalized institutions are subject to certain prompt corrective
action requirements, regulatory controls and restrictions, which become more
extensive as an institution becomes more severely undercapitalized. Failure by
an institution to comply with applicable capital requirements will result in
restrictions on their activities and lead to enforcement actions, including the
issuance of a capital directive to ensure the maintenance of adequate capital
levels. Banking regulators will take prompt corrective action with respect to
depository institutions that do not meet minimum capital requirements.
At December 31, 2004, Cascade was a "well capitalized" institution under the
prompt corrective action regulations of the FDIC.
TAXATION
--------
Federal Taxation
- ----------------
The Corporation reports its income on a fiscal year basis using the accrual
method of accounting and is subject to federal income taxation in the same
manner as other corporations with some exceptions, including particularly
Cascade's reserve for bad debts as discussed below. In 2001, the Corporation's
fiscal year was changed to the calendar year. The following discussion of tax
matters is intended only as a summary and does not purport to be a
comprehensive description of the tax rules applicable to the Bank or the
Corporation.
Tax Bad Debt Reserves
- ---------------------
The reserve method of accounting for bad debt reserves was repealed for tax
years beginning after December 31, 1995. As a result, the Bank is no longer
able to calculate its deduction for bad debts using the percentage-of-taxable-
income method. Instead, Cascade is required to compute its deduction based on
specific charge-offs during the taxable year.
Distributions
- -------------
To the extent that the Bank makes "non-dividend distributions" to the
Corporation that are considered as made (i) from the reserve for losses as of
June 30, 1988, or (ii) from the supplemental reserve for losses on loans
("Excess Distributions"), then an amount based on the amount distributed will
be included in Cascade's taxable income. Non-dividend distributions include
distributions in excess of the Bank's current and accumulated earnings and
profits, distributions in redemption of stock, and distributions in partial or
complete liquidation. However, dividends paid out of Cascade's current or
accumulated earnings and profits, as calculated for federal income tax
purposes, will not be considered to result in a distribution from the Bank's
bad debt reserve. Thus, any dividends to the Corporation that would reduce
amounts appropriated to the Bank's bad debt reserve and deducted for federal
income tax purposes would create a tax liability for Cascade. The amount of
additional taxable income attributable to an Excess Distribution is an amount
that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Thus, if Cascade makes a "non-dividend
distribution," then approximately one and one-half times the amount so used
would be included in gross income for federal income tax purposes.
Dividends-Received Deduction and Other Matters
- ----------------------------------------------
The Corporation may exclude from its income 100% of dividends received from
the Bank as a member of the same affiliated group of corporations. The
corporate dividends-received deduction is generally 70% in the case of
dividends received from unaffiliated corporations with which the Corporation
and the Bank will not file a consolidated tax return, except that if the
Corporation or the Bank owns more than 20% of the stock of a corporation
distributing a dividend, then 80% of any dividends received may be deducted.
-23-
Washington Tax
- --------------
The Bank is subject to a business and occupation tax which is imposed under
Washington law at the rate of 1.5% of gross receipts; however interest received
on loans secured by mortgages or deeds of trust on residential properties and
interest on obligations issued or guaranteed by the United States are not
presently subject to the tax. On August 15, 1994, the Department of Revenue of
the State of Washington began an audit of the Corporation's records for
compliance regarding the business and occupation tax. The Corporation had not
been audited for 18 years. The Department of Revenue has issued a tax billing
for approximately $148,000 of which the Corporation has accrued $104,000 and
paid $16,000. The Corporation has filed an appeal with the Department of
Revenue. A determination has been issued reversing two of the three billing
issues in the audit. The Corporation has filed another appeal regarding the
final issue.
Availability of Filings
- -----------------------
You may access, free of charge, copies of the following reports of the
Corporation on the SEC's website at www.sec.gov, or the Bank's website at
www.cascadebank.com:
1) Annual Reports on Form 10-K; and
2) Quarterly Reports on Form 10-Q.
These documents are generally posted within 24 hours after the Corporation
files these documents electronically with the Securities and Exchange
Commission. The Corporation is also willing to provide electronic or paper
copies of its filings (subject to actual copying costs) upon reasonable
request.
Item 2. Properties
- -------------------
The Corporation owns eight full service branch locations and leases ten full
service locations. Owned offices range in size from 3,500 to 52,000 square
feet and have a total net book value at December 31, 2004, including leasehold
improvements, furniture and fixtures, of $12.9 million. The Corporation leases
approximately 5% of its main office, approximately 25% of its Marysville
office, and 50% of its Issaquah West office to non-affiliated parties. See
Note 4 of the Notes to the Consolidated Financial Statements contained in the
Annual Report which is listed in Item 15.
Item 3. Legal Proceedings
- --------------------------
The Corporation is not engaged in any legal proceedings of a material nature
at the present time. Periodically, there have been various claims and lawsuits
involving the Corporation and the Bank, principally as a defendant, 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 incident to the Corporation's business.
In the opinion of management and the Corporation's legal counsel, no
significant loss is expected from any of such pending claims or lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
-24-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------
(a) Cascade Financial Corporation's common stock is traded on the NASDAQ
Small Cap Market under the symbol CASB. The table below indicates the
high/low trading range of Cascade stock over the last eight quarters:
Quarter Ended High Low
----------------------------------
March 31, 2003 $10.56 9.04
June 30, 2003 13.20 9.16
September 30, 2003 16.00 12.01
December 31, 2003 20.99 14.92
March 31, 2004 $20.63 16.52
June 30, 2004 21.28 15.30
September 30, 2004 17.98 15.25
December 31, 2004 19.72 16.62
(b) Cascade Financial Corporation has only one class of stock outstanding
which is common stock. At December 31, 2004, there were 9,559,822
shares outstanding.
(c) The Table below indicates the cash dividends paid on each share of its
common stock:
Quarter Ended Record Date Payment Date Dividend Declared
------------------------------------------------------------------
December 2003 01/07/04 01/22/04 $0.07
March 2004 04/08/04 04/22/04 0.07
June 2004 07/07/04 07/21/04 0.07
September 2004 10/13/04 10/27/04 0.08
Issuer Purchases of Equity Securities
- -------------------------------------
Total Number Maximum
of Shares Number of
Total Number Purchased as Shares that May
Period of Shares Average Price Part of Publicly yet be Purchased
Beginning Ending Purchased (1) Paid per Share Announced Plan Under the Plan
- ---------------------------------------------------------------------------------------------------------------
June 1, 2004 June 30, 2004 - $ - - 200,000
July 1, 2004 July 31, 2004 1,275 $17.81 1,275 198,725
August 1, 2004 August 31, 2004 424 $16.59 - 198,725
September 1, 2004 September 30, 2004 5,000 $16.18 5,000 193,725
October 1, 2004 October 31, 2004 - $ - - 193,725
November 1, 2004 November 30, 2004 55 $18.25 55 193,670
December 1, 2004 December 31, 2004 2,000 $18.90 2,000 191,670
---------------------------------------------------------------
Total 8,754 $17.55 8,330 191,670
===============================================================
1) During the periods presented there were 424 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.
This program will expire on May 31, 2005.
-25-
Item 6. Selected Financial Data
- --------------------------------
The information contained in the section entitled "Selected Financial Data"
of the Annual Report listed in Item 15 is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ------------------------------------------------------------------------
The information contained in the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations" of the Annual
Report listed in Item 15 is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
The information contained under the section captioned "Market Risk" in the
Management's Discussion and Analysis section of the Annual Report listed in
Item 15 is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The financial statements and supplementary data in the Annual Report listed
in Item 15 is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- ------------------------------------------------------------------------
On November 10, 2003, the Audit Committee of the Board of Directors of
Cascade Financial Corporation ("Registrant") engaged the accounting firm of
Moss Adams LLP as independent accountants for the Registrant for the fiscal
year 2004. On November 10, 2003, the Board notified KPMG LLP ("KPMG") that
KPMG would be dismissed upon the completion of its independent audit of the
2003 consolidated financial statements of the Registrant and would not be
retained to serve as the Registrant's independent public accountants for the
fiscal year 2004.
KPMG's report on the consolidated financial statements of the Company for
the years 2003 and 2002, contained no adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or accounting
principle. In connection with its audits of the Company's consolidated
financial statements as of and for the years ended December 31, 2003 and 2002,
there were no disagreements with KPMG on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of KPMG, would have
caused KPMG to make reference thereto in its reports on the consolidated
financial statements for such years. During the Company's years ended December
2003 and 2002, there were no "reportable events," as that term is defined in
Item 304(a)(1)(v) of Regulation S-K.
Item 9A. Controls and Procedures
- ---------------------------------
(a) Evaluation of Disclosure Controls and Procedures: An evaluation of the
Corporation'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 Corporation's Chief
Executive Officer, Chief Financial Officer and several other members of the
Corporation's senior management effective December 31, 2003. The Corporation's
Chief Executive Officer and Chief Financial Officer concluded that the
Corporation's disclosure controls and procedures as currently in effect are
effective in ensuring that the information required to be disclosed by the
Corporation in the reports it files or submits under the Act is (i)
accumulated and communicated to the Corporation's management (including the
Chief Executive Officer and Chief Financial Officer) in a timely manner, and
(ii) recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms.
(b) Changes in Internal Controls: In the year ended December 31, 2004, the
Corporation 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.
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Disclosure Controls and Internal Controls. Disclosure controls are
procedures that are designed with the objective of ensuring that information
required to be disclosed in the 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 statements in conformity
with generally accepted accounting principles.
Limitations on the Effectiveness of Controls. The 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 the 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.
As permitted by the Order Under Section 36 of the Securities Exchange Act of
1934 Granting an Exemption from Specified Provisions of Exchange Act Rules
13a-1 and 15d-1 issued by the SEC on November 30, 2004, the Company will file
Management's Annual Report on Internal Control Over Financial Reporting and the
related Attestation Report of the Registered Public Accounting Firm by April
30, 2005 through an amendment to this annual report on Form 10-K.
Item 9B. Other Information
- ---------------------------
None.
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PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The information contained under the section captioned "Proposal I-Election
of Directors" contained in the Corporation's Definitive Proxy Statement for the
Corporation's Annual Meeting of Stockholders (the "Proxy Statement"), is
incorporated herein by reference. Reference is made to the cover page of this
report for information regarding compliance with Section 16(a) of the Exchange
Act, and to the section therein captioned "COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT".
The following table sets forth information with respect to the executive
officers of the Corporation and the Bank.
Name Age (a) Position
- ---- ------- --------
David M. Duce 45 Chairman, Cascade Financial Corporation
Chairman, Cascade Bank
Carol K. Nelson (b) 48 President, Chief Executive Officer and
Director of Cascade Bank and Cascade
Financial Corporation
Robert M. Ittes 54 President, Issaquah Bank Division of
Cascade Bank
Robert G. Disotell 50 Executive Vice President, Chief Credit
Officer
Steven R. Erickson(b) 49 Executive Vice President, Real Estate
Lending
Lars H. Johnson(b) 51 Executive Vice President, Chief
Financial Officer
LeAnne M. Frank 35 Executive Vice President, Chief
Administrative Officer
Robert F. Wojcik 55 Executive Vice President,
Business Banking
Debbie E. McLeod 39 Executive Vice President, Retail
Banking
(a) At December 31, 2004.
(b) Officer of the Corporation and Bank.
The principal occupation of each executive officer of the Corporation and
Bank is set forth in the Proxy Statement or below. There are no family
relationships among or between the executive officers listed above.
ROBERT M. ITTES is President of the Issaquah Bank Division of the Bank. He
joined Cascade Bank in 2004 as a result of the Bank's acquisition of Issaquah
Bancshares, Inc. Mr. Ittes' responsibilities include managing the business
lending activities in the Issaquah and North Bend market areas. His community
activities include serving on the boards of the Issaquah Chamber of Commerce,
Issaquah Schools Foundation/Communities In School Issaquah, and the Issaquah
Historical Society. He is also involved in government relations activities,
both with the Washington Bankers Association and the Eastside Business
Alliance. Mr. Ittes is a resident of Sammamish, Washington.
ROBERT G. DISOTELL has been employed by Cascade Bank since 1977 and
currently serves as Executive Vice President of Credit Administration. He is
responsible for overseeing the credit quality of the Bank's loan portfolios.
Mr. Disotell has managed a variety of business groups in his tenure at Cascade,
including Mortgage Banking, Loan Servicing, Secondary Marketing, Retail
Banking, and Community Reinvestment Act (CRA) activities. Mr. Disotell is a
resident of Arlington, Washington.
STEVEN R. ERICKSON is the Executive Vice President of Real Estate Lending
for the Bank, responsible for managing commercial and income property lending
and serves as the Assistant Secretary for the Corporation. Mr. Erickson joined
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Cascade in 1978. He is a member of the Board for Big Brothers and Big Sisters
of Snohomish County, Advisory Board Member for Snohomish County's Pre-Diversion
Program, and Trustee of the Boys and Girls Club of Snohomish County. He is a
resident of Marysville, Washington.
LARS H. JOHNSON is the Executive Vice President, Chief Financial Officer of
the Bank and Corporation and also serves as the corporate secretary. Mr.
Johnson joined Cascade in April 2000. Mr. Johnson has 30 years of financial
management experience, including 16 years with the Federal Home Loan Bank of
Seattle. Mr. Johnson is a resident of Edmonds, Washington.
LEANNE M. FRANK is the Executive Vice President and Chief Administrative
Officer for the Bank. She has 18 years of consumer banking experience starting
with Rainier Bank and most recently Bank of America, where she served as Vice
President and Region Service Manager. She is a 2002 graduate of Leadership
Snohomish County and has served as Vice President of the Everett Theatre
Society Board. Ms. Frank is a resident of Everett, Washington.
ROBERT F. WOJCIK is the Executive Vice President of Business Banking for the
Bank, responsible for managing business relationships consisting of business
loans, business deposits, lines of credit, owner occupied commercial real
estate and other business services. Mr. Wojcik joined Cascade Bank in August
2004. He has 26 years of commercial banking experience, recently retiring from
Bank of America after 25 years in commercial banking. Mr. Wojcik is a Trustee
for the Snohomish County YMCA and has been involved in numerous other community
organization as a board member, coach and volunteer.
DEBBIE E. McLEOD is Executive Vice President of Retail Banking for the Bank.
Ms. McLeod joined Cascade Bank in February 2001. She has over 15 years of
commercial banking experience and was previously Vice President and Northern
Region Sales Manager for Bank of America. Ms. McLeod is a past Board Chair for
United Way of Skagit County and is a Director of United Way of Snohomish
County. Ms. McLeod resides in Burlington, Washington.
Item 11. Executive Compensation
- --------------------------------
The information contained under the section captioned "Executive
Compensation" in the Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference
to the section captioned "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.
(b) Security Ownership of Management
The information required by this item is incorporated herein by
reference to the section captioned "Security Ownership of Certain Beneficial
Owners and Management" of the Proxy Statement.
(c) Changes in Control
The Corporation is not aware of any arrangements, including any pledge
by any person of securities of the Corporation, the operation of which may at a
subsequent date result in a change in control of the Corporation.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this Item is incorporated herein by reference to
the section captioned "Transactions with Management and Others" of the Proxy
Statement.
Item 14. Principal Accountant Fees and Services
- ------------------------------------------------
The information required by this Item is incorporated herein by reference to
the section captioned "INDEPENDENT AUDITORS" of the Proxy Statement."
-29-
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) (1)(2) Reports of Independent Registered Public Accounting Firms
Consolidated Financial Statements
(a) Consolidated Balance Sheets at December 31, 2004, and
December 31, 2003.
(b) Consolidated Statements of Operations for the year ended
December 31, 2004, 2003 and 2002.
(c) Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the year ended December 31, 2004,
2003 and 2002.
(d) Consolidated Statements of Cash Flows for the year ended
December 31, 2004, 2003 and 2002.
(e) Notes to Consolidated Financial Statements
All schedules have been omitted, as the required information is either
inapplicable or contained in the Consolidated Financial Statements or related
Notes contained in the Annual Report.
(3) Exhibits
3.1 Certificate of Incorporation of Cascade Financial Corporation
(Incorporated by reference to the Corporation's Proxy statement
on Form S-4 (File No. 33-83200)).
3.2 Bylaws of Cascade Financial Corporation (Incorporated by
reference to the Corporation's Registration Statement on Form S-4
(File No.33-83200)).
10.1 Cascade Financial Corporation 1994 Employee Stock Purchase Plan
(Incorporated by reference to the Corporation's Registration
Statement on Form S-4 (File No. 33-83200)).
10.2 Cascade Financial Corporation 1992 Stock Option and Incentive
Plan (Incorporated by reference to the Corporation's Form 10-KSB
for the period ending June 30, 1995).
10.3 Cascade Financial Corporation Employee Stock Ownership Plan
(Incorporated by reference to the Corporation's Annual Report on
Form 10-KSB for the period ending June 30, 1995).
10.4 Cascade Financial Corporation 1997 Stock Option Plan
(Incorporated by reference to Appendix E to the Prospectus
included in the Corporation's Registration Statement on Form S-4
(File No. 333-24203)).
10.5 Employment Agreement entered into between the Bank and Carol K.
Nelson dated November 27, 2001. (Incorporated by reference to
Exhibit 10.5 of the Corporation's Form 10-K for the period ending
December 31, 2001).
10.6 Form of Change of Control Agreement entered into between the
Bank and its executive officers. (Incorporated by reference to
Exhibit 10.6 of the Corporation's Form 10-K for the period ending
December 31, 2001).
10.7 Cascade Financial Corporation 1997 Elective Equity Plan.
(Incorporated by reference to Exhibit 10.7 of the Corporation's
Form 10-K for the period ending December 31, 2001).
10.8 Employment Agreement Extension with Carol K. Nelson dated
January 27, 2004 (Incorporated by reference to Exhibit 10.6 of
the Corporation's Form 10-Q for the period ending March 31,
2004).
10.9 Cascade Bank Deferred Compensation Plan, Election Form, and
Election Form of Mr. Ittes. (Incorporated by reference to
Exhibits 99.1, 99.2 & 99.3 of the Corporation's Form 8-K filed
with the SEC on December 20, 2004).
13 Cascade Financial Corporation December 31, 2004 Annual Report to
Stockholders, including the Selected Financial Data and
Management Discussion and Analysis.
21 Subsidiaries
23 Consent of Independent Registered Public Accounting Firm - Moss
Adams LLP
23.1 Consent of Independent Registered Public Accounting Firm - KPMG
LLP
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32 Certification of Annual Report on Form 10-K pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
-30-
(b) Reports on Form 8-K
On December 21, 2004, the Corporation filed a Form 8-K reporting a $.08
quarterly cash dividend under item 2.02 of Form 8-K. The dividend was paid on
January 27, 2005 to shareholders of record on January 13, 2005.
On December 16, 2004, the Corporation filed a Form 8-K announcing that
Cascade Bank, the banking subsidiary of Cascade Financial Corporation, adopted
the Cascade Bank Deferred Compensation Plan, under Item 1.01 of Form 8-K.
On October 20, 2004, the Corporation filed a Form 8-K reporting and attached
press release announcing earnings information for the third quarter and nine
months ended September 30, 2004, under Item 2.02 of Form 8-K.
On October 1, 2004, the Corporation filed a Form 8-K reporting a $.08
quarterly cash dividend under item 8.1 of Form 8-K.
-31-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: March 11, 2005 By: /s/ Carol K Nelson
------------------
Carol K. Nelson
President and Chief
Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Lars H. Johnson By: /s/ D. R. Murphy
------------------- ----------------
Lars H. Johnson D. R. Murphy
Executive Vice President Director
(Chief Financial Officer) Date: March 11, 2005
Date: March 11, 2005
By: /s/ David W. Duce By: /s/ Ronald E Thompson
----------------- ---------------------
David W. Duce Ronald E. Thompson
Chairman Director
Date: March 11, 2005 Date: March 11, 2005
By: /s/ Janice Halladay By: /s/ G. Brandt Westover
------------------- ----------------------
Janice Halladay G. Brandt Westover
Director Director
Date: March 11, 2005 Date: March 11, 2005
By: /s/ Frank M. McCord By: /s/ Craig Skotdal
------------------- -----------------
Frank M. McCord Craig Skotdal
Director Director
Date: March 11, 2005 Date: March 11, 2005
By: /s/ David O'Connor By: /s/ Dwayne Lane
------------------ ---------------
David O'Connor Dwayne Lane
Director Director
Date: March 11, 2005 Date: March 11, 2005
By: /s/ Henry Robinett By: /s/ Richard Anderson
------------------ --------------------
Henry Robinett Richard Anderson
Director Director
Date: March 11, 2005 Date: March 11, 2005
-32-