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 June 30, 1997
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
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 91-1661954
-------- ----------
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
2828 Colby Avenue, Everett, Washington 98201
-------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (425) 339-5500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $0.01
per share
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 no disclosure of delinquent filers pursuant to
Item 405 of Regulation 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. [ X ]
As of September 19, 1997, there were issued and outstanding 3,386,039
shares of the registrant's Common Stock. The registrant's voting stock is
traded over-the-counter and is listed on the Nasdaq Smallcap Market under the
symbol "CASB." Based on the average of the bid and asked prices for the
Common Stock on September 19, 1997, the aggregate value of the Common Stock
outstanding held by nonaffiliates of the registrant was $48.3 million
(3,386,039 shares at $14.25 per share). For purposes of this calculation,
officers and directors of the registrant are not considered nonaffiliates of
the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended
June 30, 1997 (the "Annual Report") (Parts I and II).
2. Portions of registrant's Definitive Proxy Statement for the 1997
Annual Meeting of Stockholders (Part III).
PART I
Item 1. Description of Business
General
Cascade Bank ("Cascade" or 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. Cascade
Financial Corporation ("Corporation"), a Delaware corporation, was organized
on August 18, 1994 for the purpose of becoming the holding company for
Cascade. On October 23, 1994, the stockholders of the Bank approved a plan to
reorganize the Bank into the holding company form of ownership. 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. Prior to completion of
the reorganization, the Corporation had no material assets or liabilities and
engaged in no business activities. Subsequent to the acquisition of Cascade,
the Corporation has engaged in no significant activity other than 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. The executive offices of the Corporation are located at 2828 Colby
Avenue, Everett, Washington, and the telephone number is (425) 339-5500.
As of June 30, 1997, the Corporation conducted its business from its main
office in Everett, Washington with seven other full service offices and one
loan origination office in the greater Puget Sound region. At June 30, 1997,
the Corporation had total assets of $368.1 million, total deposits of $244.8
million and stockholders' equity of $22.6 million. The savings deposits of
the Bank are insured by the Federal Deposit Insurance Corporation ("FDIC")
under the Savings Association Insurance Fund ("SAIF").
Recent Developments
On August 1, 1997 Cascade completed a merger with Amfirst Bancorporation,
the holding company for American First National Bank. The merger adds three
new full service offices to Cascade's branch network. The move immediately
establishes Cascade's commercial banking presence in Snohomish County.
Acquired assets were $66.7 million at July 31, 1997 including $36.0 million in
loans, primarily commerical loans. Deposits of $60.7 million were also
acquired in the merger. The merger adds approximately 803,300 shares of common
stock to the Corporation's already issued and outstanding stock at
August 1, 1997.
Regulatory Issues
Prior to March 1990, the Bank was for many years managed by a chief
executive officer who was subsequently charged by the Office of Thrift
Supervision ("OTS") with illegal actions. The OTS issued an order which
required the former chief executive to pay restitution to the Bank of $1.0
million. See "Item 3 -- Legal Proceedings -- Former Management." There has
been, and is likely to continue to be intense scrutiny of the Bank, its
affairs and past transactions by regulators, and possibly by others, with a
view toward asserting claims of some type against the Bank. Exposure of the
Corporation to claims and possible litigation may continue until the
completion of the restructuring of the balance sheet, the improvement of the
Corporation's capital position and its core earnings.
Current Business Strategy
Historically the Corporation's principal business activity has been the
acquisition of deposits which are used to originate and service one-to-four
family residential, construction, multi-family, and commercial real estate
loans. The Corporation seeks to control its interest rate risk by generally
retaining in its portfolio adjustable rate and balloon loans that are funded
with a combination of Federal Home Loan Bank of Seattle ("FHLB-Seattle")
advances and deposits from the local market area. Total assets at June 30,
1997 increased by $33.7 million or 10.1% from June 30, 1996. The increase
was fueled by a 28.2% increase in the Bank's loan portfolios. The Corporation
also sells a portion of the long-term fixed rate residential loans it
originates. The Corporation's strategy for the coming years is to maintain
the Bank's current real estate portfolio while providing growth through the
Bank's recently introduced lines of business and consumer products.
Market Area
Headquartered in Everett, Washington, the Corporation serves its customers
from eight full service offices, five in Snohomish County, two in King County,
and one in Skagit County. The Corporation has a mortgage origination office
in Whatcom County. The Corporation serves the savings and borrowing needs of
the diverse geographic communities in which it operates. Cascade plans to add
three new full service offices to it's branch network in the near future.
Located in the center of the western Washington region, Snohomish and King
counties have experienced significant growth in recent years. Much of this
growth can be attributed to the computer software and import/export businesses
in the region. Snohomish County is a fast growing county and the significant
migration of people to the area has supported growth in all types of
businesses. The Boeing Corporation employs approximately 80,000 people in the
Puget Sound region. Everett is a "home port" for a United States Navy Nuclear
Carrier battle group which has brought a significant number of new residents
to the surrounding market areas during the past year since its completed
construction.
Federal Legislation
RECAPITALIZATION OF SAIF AND ITS IMPACT ON SAIF PREMIUMS. Effective
January 1, 1996, the FDIC substantially reduced deposit insurance premiums for
well-capitalized, well-managed financial institutions that are members of the
Bank Insurance Fund ("BIF"). Under the new assessment schedule, approximately
92% of BIF members pay the statutory minimum annual assessment of $2,000.
Cascade is a member of the SAIF rather than the BIF. On September 30, 1996,
Congress enacted legislation which resulted in comparable FDIC insurance
premiums for the entire banking industry. The legislation provided for a
special one-time assessment on SAIF-insured deposits that were held as of
March 31, 1995. This assessment brought the SAIF's reserve ratio to the
legally required $1.25 per $100 of insured deposits level. Cascade's special
assessment resulted in a pretax charge of $1.2 million in 1997. As a result
of the legislation, the Bank's SAIF insurance premiums have been reduced to
6.30 cents per $100 as compared to the 23.0 cents per $100 paid prior to the
legislation.
POTENTIAL OPERATIONAL RESTRICTIONS ASSOCIATED WITH REGULATORY OVERSIGHT.
Cascade is subject to extensive regulation, supervision and examination by the
OTS, as its chartering authority and primary federal regulator, and by the
FDIC, which insures its deposits up to applicable limits. Cascade is a member
of the FHLB System and is subject to certain limited regulations promulgated
by the Board of Governors of the Federal Reserve System ("Federal Reserve").
As the holding company of Cascade, the Corporation also is subject to
regulation and oversight by the OTS. Such regulation and supervision govern
the activities in which an 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, whether by the OTS, the
FDIC or Congress, could have a material impact on the Corporation, Cascade and
their respective operations. See "Regulation."
Lending Activities
GENERAL. The Corporation originates business, consumer and real estate
loans primarily through its full service office staff and commissioned
business bankers and loan officers. Business bankers and loan officers direct
their efforts towards establishing and maintaining ongoing relationships with
local businesses and consumers. These customers are a valuable source for
new loan origination referrals. During the year just completed most loans have
been for the purchase or refinance of one-to-four family, multi-family, and
commercial properties, for construction of one-to-four family homes and home
equity lending. As of June 30, 1997, $230.7 million or 71% of the
Corporation's total loans consisted of loans secured by one-to-four family
residential properties (permanent and construction), $25.9 million or 8% of
total loans consisted of commercial real estate and land loans, $57.7 million
or 18% consisted of multi-family loans and $9.7 million or 3% of installment
loans.
To ensure that the yields on its loan portfolio and investments are
interest rate sensitive, the Corporation has implemented several measures,
including (i) adoption of a practice under which the Corporation generally
originates long-term, fixed-rate mortgage loans only when such loans are
written to specifications promulgated by the Federal Home Loan Mortgage
Corporation ("FHLMC"), the Federal National Mortgage Association ("FNMA"), or
the Federal Housing Administration and Veterans Administration (collectively
"FHA/VA"), and qualify for sale in the secondary market; (ii) when market
conditions permit, increased emphasis on the retention of adjustable rate or
balloon mortgages on residential properties; and (iii) origination of business
and consumer products with adjustable rates. These lending strategies were
adopted to shorten the term of the Corporation's assets and make the loan
portfolio less sensitive to interest rate volatility.
QUALITY CONTROL. The Corporation has implemented a quality control
process designed to ensure sound lending practices and compliance with the
guidelines established by FHLMC, FNMA, FHA and VA. An outside consultant
conducts reviews of completed transactions to ensure the Corporation's credit
personnel adhere to investors' underwriting criteria, regulatory conformance
and internal policy compliance. In addition, each operating department
performs certain quality control procedures.
ONE-TO-FOUR FAMILY RESIDENTIAL LOANS. The Corporation presently
originates both fixed rate and adjustable rate mortgage ("ARMs") loans secured
by one-to-four family properties with loan terms of up to 30 years. Newly
originated ARMs have interest rates that adjust based on the One Year United
States Treasury Constant Maturity Index or the Twelfth District Cost of Funds
Index, a lagging index. Borrower demand for ARMs versus fixed-rate mortgage
loans is a function of the level of interest rates, the expectations of
changes in the level of interest rates and the differences between the
interest rates and loan fees offered for fixed-rate mortgage loans and the
rates and loan fees for ARMs.
The Corporation's lending policies generally limit the maximum
loan-to-value ratio on fixed-rate and adjustable-rate residential one-to-four
family owner occupied loans to 80% or less of the lesser of the appraised
value or purchase price of the underlying residential property. Non-owner
occupied one-to-four family residential loans are limited to 70% or less, of
the lesser of the appraised value or purchase price of the underlying
residential property. The loan-to-value ratio, maturity and other provisions
of the loans made by the Corporation are generally reflected in the policy of
making less than the maximum loan permissible under federal regulations,
according to established lending practices, market conditions and underwriting
standards maintained by the Corporation. Loans originated with a loan-to-value
ratio above 80% have typically required private mortgage insurance.
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
For the Year Ended
June 30,
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(Dollars in thousands)
Total gross loans
at beginning of period $129,403 165,916 194,989 227,920 247,798
Loans originated:
Single-family residential 255,300 277,949 84,425 78,452 94,360
Multi-family residential
and commercial real estate 1,815 2,118 3,928 13,040 37,427
Single-family construction 11,315 22,601 22,708 31,599 28,592
Consumer 0 0 0 8,483 21,829
------- ------- ------- ------- -------
Total loans originated 268,430 302,668 111,061 131,574 182,208
Loans purchased 515 552 369 821 110
Whole loans sold 202,419 236,703 43,969 57,286 50,825
Loan principal repayments 33,304 37,840 32,834 54,502 54,979
Other (3,291) (396) 1,696 729 321
------- ------- ------- ------- -------
Loan activity, net 36,513 29,073 32,931 19,878 76,193
------- ------- ------- ------- -------
Total gross loans at end of
period 165,916 194,989 227,920 247,798 323,991
======= ======= ======= ======= =======
Loans converted to mortgage-
backed securities:
Loans securitized 108,835 61,148 15,393 32,330 17,419
Mortgage-backed securities
sold 110,377 45,049 10,623 32,330 17,419
LOAN PORTFOLIO ANALYSIS. The following table sets forth the
Corporation's loan portfolio by type of loan and by type of security as of the
dates indicated.
At June 30,
------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
--------------- --------------- --------------- --------------- ---------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Type of Loan:
Residential(1)(2) $125,508 79.96 150,086 81.64 184,800 85.31 201,003 86.04 253,121 82.77
FHA and VA 7,099 4.52 2,762 1.50 3,458 1.60 3,085 1.32 3,955 1.29
Commercial 17,721 11.29 18,850 10.25 16,770 7.74 14,739 6.31 25,250 8.26
Construction 10,337 6.59 17,677 9.62 22,708 10.48 28,277 12.10 31,314 10.24
Land 5,251 3.35 5,614 3.05 202 .09 194 .08 606 .20
Installment 0 0 0 0 0 0 507 .22 9,745 3.19
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans 165,916 105.71 194,989 106.07 227,938 105.22 247,805 106.07 323,991 105.94
Less:
Due to borrowers on
construction loans 4,412 2.81 5,980 3.25 6,215 2.87 9,082 3.89 12,865 4.21
Unearned discounts 1,454 .93 1,685 .92 2,146 1.00 2,158 .92 2,416 .79
Allowance for possible
loan losses 3,090 1.97 3,485 1.90 2,950 1.35 2,946 1.26 2,890 .95
Valuation allowance on
loans held for sale 0 0 0 0 18 0 7 0 0 0
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans, net 156,960 100.00 183,839 100.00 216,609 100.00 233,612 100.00 305,820 100.00
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
Type of Security:
Residential real
estate
Single family(2) $113,439 72.27 146,217 79.54 183,797 84.85 194,825 83.39 230,735 75.45
Multi-family 29,505 18.80 24,308 13.22 27,169 12.54 37,540 16.07 57,655 18.85
Commercial or indus-
trial real estate 17,721 11.29 18,850 10.25 16,770 7.74 14,739 6.31 25,250 8.26
Land 5,251 3.35 5,614 3.05 202 .09 194 .08 606 .20
Other 0 0 0 0 0 0 507 .22 9,745 3.19
Less:
Due to borrowers on
construction loans 4,412 2.81 5,980 3.25 6,215 2.87 9,082 3.89 12,865 4.21
Unearned discounts 1,454 .93 1,685 .92 2,146 1.00 2,158 .92 2,416 .79
Allowance for possible
loan losses 3,090 1.97 3,485 1.90 2,950 1.35 2,946 1.26 2,890 .95
Valuation allowance on
loans held for sale 0 0 0 0 18 0 7 0 0 0
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans, net 156,960 100.00 183,839 100.00 216,609 100.00 233,612 100.00 305,820 100.00
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
<FN>
(1) Includes construction loans converted to permanent loans.
(2) Includes home equity loans for June 30, 1994 to 1997.
</FN>
The following table sets forth the estimated repricing or maturity of the
Corporation's loans and mortgage-backed securities for years ended June 30,
1995, 1996, and 1997 and the dollar amount of such securities and loans at
the date which are scheduled to mature after one year which have fixed or
adjustable interest rates. Demand loans, loans having no stated schedule of
repayments and no stated maturity and overdraft loans are reported as due in
one year or less. Mortgage-backed securities are reported without premiums
or discounts.
June 30, 1995 June 30, 1996 June 30, 1997
---------------------------------- ----------------------------------- ----------------------------------
Mortgage- Mortgage- Mortgage-
Mortgage Install. Total Backed Mortgage Install. Total Backed Mortgage Install. Total Backed
Loans Loans Loans Securities Loans Loans Loans Securities Loans Loans Loans Securities
-------- -------- ----- ---------- -------- -------- ----- ---------- -------- -------- ----- ---------
(In thousands)
Amount repricing or
maturing:
Within one year $78,894 0 78,894 34,721 101,759 10 101,769 15,269 127,077 466 127,543 6,100
After one year through
three years 39,261 0 39,261 6,502 42,399 144 42,543 4,854 61,875 113 61,988 5,014
After three years
through five years 46,501 0 46,501 13,193 69,867 99 69,966 4,956 92,582 8,069 100,651 4,743
After five years 63,264 0 63,264 14,723 33,273 254 33,527 18,609 32,712 1,097 33,809 14,091
------- ----- ------- ------ ------- ----- ------- ------ ------- ----- ------- ------
Total 227,920 0 227,920 69,139 247,298 507 247,805 43,688 314,246 9,745 323,991 29,948
======= ===== ======= ====== ======= ===== ======= ====== ======= ===== ======= ======
Interest rate terms on
amounts due after one
year:
Fixed 101,281 0 101,281 34,418 87,975 32 88,007 28,419 79,429 1,172 80,601 23,848
Adjustable 103,833 0 103,833 34,721 115,525 475 116,000 13,085 187,591 8,443 196,034 6,100
Loan Maturity and Repricing
The following table sets forth information at June 30, 1997 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. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as due in one
year or less. Mortgage loans that have adjustable rates and balloon repayment
dates are shown as maturing at their next repricing date. Loan balances do
not include unearned discounts, unearned income and allowance for loan losses.
Due After Due After Due After
Due During 3 Through 5 Through 10 Through Due After
the Year Ending 5 Yrs After 10 Yrs After 15 Yrs After 15 Yrs After
June 30, June 30, June 30, June 30, June 30,
------------------------- ----------- ------------ ------------ ------------
1998 1999 2000 1997 1997 1997 1997 Total
---- ---- ---- ---- ---- ---- ---- -----
(Dollars in thousands)
Real estate mortgage $92,896 23,065 35,227 74,998 3,521 7,412 20,288 257,407
Commercial real estate 6,568 1,394 908 15,973 407 0 0 25,250
Land 236 295 0 0 75 0 0 606
Installment 466 0 75 7,278 1,110 589 227 9,745
Construction--Single-family 27,853 716 475 1,634 305 0 0 30,983
------- ------ ------ ------ ----- ----- ------ -------
Total loans 128,019 25,470 36,685 99,883 5,418 8,001 20,515 323,991
======= ====== ====== ====== ===== ===== ====== =======
The following table sets forth the dollar amount of all loans as of June
30, 1997 due after one year which have fixed interest rates and have floating
or adjustable interest rates.
Fixed Floating or
Rates Adjustable Rates
-----------------------------
(Dollars in thousands)
Real estate mortgage $76,193 166,060
Commercial real estate 2,519 20,976
Land 370 127
Installment 1,172 8,443
Construction 347 428
------ -------
Total 80,601 196,034
====== =======
RESIDENTIAL CONSTRUCTION LOANS. The Corporation originates construction
loans on one-to-four family homes either to individual borrowers as custom
construction loans or to builders as speculative construction loans.
Construction loans generally have terms of twelve months. The interest rates
charged by the Corporation on construction loans are indexed to the prime rate
and vary depending on the loan. The Corporation requires personal guaranties
of payment from the principals of the borrowing entities. All construction
loans require approval by various levels of corporate personnel, depending on
the size of the loan. At June 30, 1996 and June 30, 1997, the percent of the
Corporation's gross loan portfolio that consisted of one-to-four family
construction loans was 12% and 10%, respectively. Management has sought to
increase the residential construction loan portfolio because of its relatively
high margins, beneficial asset/liability characteristics, and the favorable
housing market in the Corporation's market area. The residential construction
portfolio is limited by Board of Director policy to 15% of assets.
Construction loans involve further credit risks because loan funds are
advanced upon the security of the project under construction which is of
uncertain value before completion. The Corporation'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 Corporation may be
required to advance additional funds to complete the development. If, upon
completion of the project the marketability of the property proves to be
inaccurate, the borrower may be unable to sell the completed project in a
timely manner or obtain adequate proceeds to repay the loan, and the loan may
become nonperforming. Delays may arise from labor problems, material
shortages may be experienced and other unpredictable contingencies may occur.
Furthermore, if the estimate of value proves to be inaccurate, the Corporation
may be confronted with, at, or prior to the maturity of the loan, a project
with a value that is insufficient to assure full repayment.
HOME EQUITY/LINE OF CREDIT LENDING. Loans are made either independently
through the Corporation's retail offices or in connection with the closing of
a residential mortgage loan. Management views these loans as important in
building the Corporation's orientation toward a full service community bank.
The balance outstanding in this portfolio has increased $10.8 million during
the past year to $17.6 million as compared to $6.8 million in 1996. At June
30, 1996 and 1997, the total amount of outstanding unused lines was $5.9
million and $11.8 million, respectively.
MULTI-FAMILY LOANS. Multi-family loans totaled $57.7 million or 18% of
total loans at June 30, 1997. Management has reentered the multi-family market
since the general credit quality of the multi-family portfolio has been
outstanding. This portfolio has increased $20.1 million during the year from
it's total of $37.5 million in 1996. The multi-family portfolio is limited,
by policy, to 20% of assets. New loan originations are all in the Puget Sound
region with adjustable rates. The multi-family portfolio is principally
comprised of small to medium-size apartment projects ($2.5 million in loan
amount or less) with loan-to-value ratios in the 70% to 80% range. Total
multi-family originations for the years ended June 30, 1996 and 1997 totaled
$11.5 million and $21.1 million, respectively.
COMMERICAL REAL ESTATE AND LAND LOANS. Commercial real estate and land
loans totaled 8% of the Corporation's total loans at June 30, 1997. All
commercial real estate and land loans are secured by properties in the western
Washington area, mainly in the Puget Sound region. The Corporation's
commercial real estate loans are secured by improved property such as office
buildings and small commercial business properties such as strip shopping
centers. At June 30, 1997, the largest commercial real estate and land loan
in the Corporation's portfolio was $3.5 million, which was performing
according its to terms at that date.
Multi-family residential and commerical 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, more difficult to evaluate and
monitor and, therefore, involve a greater degree of risk than one-to-four
family residential mortgage loans. Because payments on loans secured by
mutli-family residential and commerical 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.
INSTALLMENT LOANS/CONSUMER LOANS. During 1996, an installment loan
program was initiated and Management anticipated, subject to market
conditions, an increase in installment lending on collateral such as boats,
automobiles, and recreational vehicles, as well as a limited amount of
unsecured personal loans. This portfolio increased $9.2 million to $9.7
million at June 30, 1997 as compared to the $507,000 outstanding at June 30,
1996. Most of this increase relates to loans on boats. Management expects
that this portfolio will continue to increase and diversify in future years as
new consumer products are introduced.
BUSINESS LOANS. During 1997, a line of business banking products was
developed and is currently being marketed by the Bank. Included in these
products are secured and unsecured loans and lines. Management has focused
its current year strategies and goals on this new market. Some of the area's
top business bankers have been and are being recruited for this product
development.
Management expects that most of the Bank's loan portfolio growth in the
coming year will occur in business and consumer products.
Asset Quality
GENERAL. OTS regulations require that each insured institution review
and classify its assets regularly. In addition, in connection with
examinations of insured institutions, OTS examiners have authority to identify
problem assets and, if appropriate, require them to be 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
the weaknesses of substandard assets with the additional characteristic that
the weaknesses make collection or liquidation in full based on currently
existing facts, conditions and values questionable, and 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.
Cascade has comprehensive monthly and quarterly review procedures for
reviewing, identifying and classifying assets for weaknesses. Reserves are
maintained for assets classified as substandard or doubtful. Any portion of
an asset classified as loss is immediately written off. 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 Management Committee and periodically by the Board of
Directors. Procedures taken with respect to delinquent loans differ depending
on the particular circumstances of the loan. The Corporation'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 contacted in writing. Typically, the
Corporation will initiate foreclosure 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 collectability of the
loan's principal becomes uncertain. It is intended that the Corporation's
allowance for loan losses be adequate to cover known potential and
reasonablely estimated unknown losses. As of June 30, 1996 and 1997, the
Corporation had $373,000 and $759,000, respectively, of loans accounted for on
a nonaccrual basis (i.e., loans upon which management believes the future
collectability of interest is uncertain).
The aggregate amounts of the Corporation's classified assets, and of the
Corporation's general and specific loss allowances and charge-offs for the
period then ended, were as follows:
At June 30,
---------------------------------------
1993 1994 1995 1996 1997
----- ----- ----- ----- -----
(Dollars in thousands)
Substandard $14,930 12,693 8,165 2,527 2,273
General loss allowances 2,890 3,185 2,650 2,646 2,590
Specific loss allowances 200 300 300 300 300
Charge-offs 434 100 200 4 59
Allowances for Loan Losses
It is management's policy to maintain adequate allowances for estimated
losses on known and inherent risks in the loan portfolio. Generally, the
allowances are based on, among other things, the size and composition of the
loan portfolio, historical loan loss experience, evaluation of economic
conditions, and in various sectors of the Corporation's customer base,
detailed analysis of individual loans for which collectibility may not be
assured and determination of the existence and realizable value of the
collateral and guarantees securing the loan. Management has allocated the
allowance to various portfolio segments; however, the allowance is applicable
to the loan portfolio in its entirety.
While the Corporation believes that the established allowance for loan
losses is adequate at June 30, 1997, there can be no assurance that regulators,
when reviewing the Corporation's loan portfolio in the future, will not require
the Corporation to increase its allowance for loan losses, thereby adversely
affecting the Corporation's financial condition and net income.
The Corporation did not record any provisions for losses on loans for
the years ended June 30, 1997 and 1996 and recorded a reversal of loan loss
provisions for the year ended June 30, 1995 of $335,000. The principal reason
for the recovery in fiscal 1995 was the payoff of a $5.1 million land loan,
and continued improvements in the Corporation's asset quality. The
Corporation had an allowance for loan losses of $2.9 million at June 30 1996
and 1997. The merger with Amfirst Bancorporation adds a portfolio of approx-
imately $25 million in commercial business loans. While adequately reserved
at the time of merger, this portfolio coupled with the Bank's intent to
originate additional commercial loans and other higher risk loan products will
necessitate increasing the Bank's allowance for loan losses in future years.
Management expects to record additional provisions for losses on loans in
future years as portfolios increase and diversify.
The following table sets forth information with respect to the
Corporation's nonperforming assets at the dates indicated.
At June 30,
---------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(Dollars in thousands)
Loans accounted for on
nonaccural basis:
Real estate--
Residential $ 214 357 597 373 759
Commercial real estate 1,251 1,272 0 0 0
Land 4,608 5,082 0 0 0
------ ----- ----- ----- -----
Total 6,073 6,711 597 373 759
Accruing loans which are
contractually past due
90 days or more:
Commercial real estate 0 0 1,219 0 0
Total of nonaccrual and
90 days past due loans 6,073 6,711 1,816 373 759
Real estate owned 2,381 150 1,643 747 750
Other nonperforming
assets 0 0 0 0 0
------ ----- ----- ----- -----
Total nonperforming
assets 8,454 6,861 3,459 1,120 1,509
====== ===== ===== ===== =====
Total loans delinquent
90 days or more to net
loans 3.87% 3.65 0.84 0.16 0.25
Total loans delinquent
90 days or more to
total assets 2.73 2.60 0.58 0.11 0.21
Total nonperforming
assets to total assets 3.80 2.66 1.11 0.36 0.41
Certain loans meet the criteria of troubled debt restructurings as
defined in SFAS 114 and 118, "Accounting by Creditors for Impairment of a
Loan", and "Accounting by Creditors for Impairment of a Loan-Income Recognition
and Disclosures", respectively. See Note 3 of the Notes to the Consolidated
Financial Statements contained in the Annual Report for information concerning
troubled debt restructurings.
<CAPTION
At June 30,
-----------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(Dollars in thousands)
Restructured loans $6,287 4,186 4,168 4,150 0
Interest foregone on
restructured loans 198 192 148 97 6
The following table sets forth the breakdown of the allowance for loan
losses by loan category and the percentage by category as of the dates
indicated.
At June 30,
-----------------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------- ------------- ------------- -------------- --------------
Amount % Amount % Amount % Amount % Amount %
------- ---- ------ ---- ------ ---- ------ ---- ------ ----
(Dollars in thousands)
Real estate -- mortgage:
Residential $ 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00
Commercial real estate 200 1.13 300 1.59 300 1.79 300 2.04 300 1.19
Real estate -- construction 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00
Consumer 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00
Land acquisition & development 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00
Unallocated 2,890 n/a 3,185 n/a 2,650 n/a 2,646 n/a 2,590 n/a
Total allowance for
loan losses to net loans 3,090 1.93 3,485 1.86 2,950 1.36 2,946 1.26 2,890 0.96
The following table sets forth an allocation of the unallocated
allowance by loan category as of the dates indicated. The unallocated
allowance is however applicable to the loan portfolio in its entirety.
At June 30,
-------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(Dollars in thousands)
Real estate -- mortgage:
Single-family residential $ 210 320 390 290 514
Multi-family 520 330 270 380 577
Commercial real estate 1,090 1,120 910 410 607
Real estate -- construction 160 150 220 260 512
Land acquisition and development 20 900 0 0 6
Home equity and installment 0 0 0 0 299
Unallocated 890 365 860 1,306 15
----- ----- ----- ----- -----
Unallocated allowance for
loan losses to net loans 2,890 3,185 2,650 2,646 2,590
===== ===== ===== ===== =====
The following table sets forth an analysis of the Corporation's allowance
for possible loan losses for the periods indicated.
For the Year
Ended June 30,
----------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(Dollars in thousands)
Allowance at beginning of period $3,424 3,090 3,485 2,950 2,946
Provision for (recovery of)
loan losses 100 495 (335) 0 0
Charge offs:
Residential real estate 400 0 0 0 59
Commercial real estate 0 100 200 0 0
Real estate construction 9 0 0 0 0
Consumer 0 0 0 4 0
Land 25 0 0 0 0
----- ----- ----- ----- -----
Total charge offs 434 100 200 4 59
----- ----- ----- ----- -----
Recoveries 0 0 0 0 3
Net charge offs and allowance
recovered 434 100 535 4 56
----- ----- ----- ----- -----
Balance at end of period 3,090 3,485 2,950 2,946 2,890
===== ===== ===== ===== =====
Ratio of allowance to net loans
outstanding at the end of
the period 1.93 1.86 1.36 1.26 0.96
Ratio of net charge offs to
average loans outstanding
during the period 0.35 0.06 0.27 0 0.02
Ratio of loan loss allowance to
nonperforming assets 36.55 50.79 83.52 263.04 191.52
Ratio of loan and real estate
owned allowance to non-
performing assets 41.18 50.79 83.52 263.04 191.52
Asset and Liability Management Activities
The Corporation may use interest rate exchange agreements ("swaps") and
interest rate caps to control the amount of its interest rate risk by more
closely matching the repricing characteristics of its earning assets and
costing liabilities or to reduce the cost of longer liabilities. Swaps are
agreements in which the Corporation and another party, generally the
FHLB-Seattle, and primary dealers of United States government securities,
agree to exchange interest payments on a notional principal amount. Caps are
agreements whereby for a fixed fee, the Corporation will receive cash payments
if a particular interest rate exceeds the predetermined level. Caps and swaps
are one component of the Corporation's asset/liability management program.
Depending on customer preferences for loan and deposit products, the
Corporation may increase its use of interest rate swaps and caps. The Board
of Directors reviews the outstanding hedging transactions of the Corporation
periodically. At June 30, 1997 and 1996, the Corporation had $10.0 million
and $5.0 million notional amount of caps outstanding. These agreements were
designated against certain loans. See Note 6 of the Notes to the
Consolidated Financial Statements contained in the Annual Report for
additional information.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at June 30, 1997, which are
anticipated by the Bank, based upon certain assumptions, to reprice or mature
in each of the future time periods shown (the "GAP Table"). The table sets
forth an approximation of the projected repricing of assets and liabilities at
June 30, 1997, on the basis of contractual maturities, anticipated prepayments,
and scheduled rate adjustments within selected time intervals. An asset or
liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivy gap is defined as the difference between the amount of interest-
earning assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within that same
time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities.
A gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. Accordingly,
during a period of rising interest rates, an institution with a negative gap
position would be in a worse position to invest in higher yielding assets as
compared to an institution with a positive gap position which consequently,
may result in the cost of its interest-bearing liabilities at a rate faster
than its yield on interest-earning assets than if it has a positive gap.
During a period of falling interest rates, an institution with a negative gap
would tend to have its interest-bearing liabilities repricing downward at a
faster rate than its interest-earning assets as compared to an institution with
a positive gap which, consequently, may tend to positively affect the growth of
its net interest income.
Maturity or Repricing Period
----------------------------------------------------------
Over
Within 1-3 3-5 5-10 10
One Year Years Years Years Years Total
-------- ----- ------- ------ ------ ------
(Dollars in thousands)
INTEREST-SENSITIVE ASSETS:
Fixed-rate mortgage loans $ 35,261 $ 37,375 $3,956 $ 5,763 $ 5,925 $ 88,280
Adjustable rate mortgage loans 135,664 87,182 0 0 0 222,846
Interest bearing deposits 4,109 0 0 0 0 4,109
Securities available-for-sale 23,866 3,033 2,575 4,912 0 34,386
Securities held-to-maturity 1,147 5,630 0 0 0 6,777
------- ------- ----- ------ ------ -------
Interest-earning assets 200,047 133,220 6,531 10,675 5,925 356,398
Interest rate caps and swaps
on loans 8,500 (8,500) 0 0 0 0
------- ------- ----- ------ ------ -------
Total interest-sensitive assets 208,547 124,720 6,531 10,675 5,925 356,398
======= ======= ===== ====== ===== =======
Cash on hand and in banks 4,369
Other assets (non interest
sensitive) 7,359
-------
Total assets 368,126
=======
INTEREST-SENSITIVE LIABILITIES:
Deposits:
Regular savings and checking
accounts 16,379 0 0 0 0 16,379
Money market deposit accounts 48,139 0 0 0 0 48,139
Certificates of deposit 143,313 27,762 6,440 147 0 177,662
Other borrowings 93,308 0 0 159 0 93,467
------- ------ ----- ------ ------ -------
Interest-sensitive liabilities 301,139 27,762 6,440 306 0 335,647
Interest rate swaps on deposits (5,000) 5,000 0 0 0 0
------- ------ ----- ------ ------ -------
Total interest-sensitive
liabilities 296,139 32,762 6,440 306 0 335,647
======= ====== ===== ====== ====== =======
Other liabilities (non-
interest-sensitive) 9,921
Retained earnings 22,558
-------
Total liabilities and retained
earnings 368,126
=======
Excess (deficiency) of interest-
sensitive assets over interest-
sensitive liabilities (82,592) 91,958 91 10,369 5,925 25,751
Cumulative excess (deficiency)
of interest-sensitive assets (82,592) 9,366 9,457 19,826 25,751 25,751
Ratio of cumulative gap to
total assets (22.74)% 2.58 2.60 5.46 7.09 7.09
Average Balance Sheets
In addition to mortgage banking income, the Bank depends on the spread
between the yield on interest-earning assets (primarily loans and investments)
and the cost of interest-bearing liabilities (primarily deposit accounts and
borrowings), as well as the relative size of the Bank's interest-earning assets
and interest-bearing liability portfolios. The following tables set forth, for
the periods indicated, information regarding average balances of assets and
liabilities as well as the total dollar amounts of interest income from average
interest-earning assets and interest expense on average interest-bearing
liabilities, resultant yields, interest rate spread, ratio of interest-earning
assets to interest-bearing liabilities and net interest margin. Average
balances for a period have been calculated using the average of month-end
balances during such period. Such average balances are considered to be
representative of the average daily balance for each period presented.
For the Year Ended June 30,
---------------------------------------------------------------------------
1995 1996 1997
----------------------- ----------------------- -----------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
ASSETS Balance Dividend Cost Balance Dividend Cost Balance Dividend Cost
------- -------- ------ ------- -------- ------ ------- -------- ------
(Dollars in thousands)
Interest-earning assets(1):
Mortgage loans 198,568 18,384 9.26 221,827 19,170 8.64 252,121 20,867 8.28
Consumer loans 0 0 0.00 5,438 480 8.83 15,669 1,345 8.58
------- ------ ---- ------- ------ ---- ------- ------ ----
Total loans 198,568 18,384 9.26 227,265 19,650 8.65 267,790 22,212 8.29
Mortgage-backed securities 78,238 4,477 5.72 56,670 3,616 6.38 39,435 2,240 5.68
Investment and trading
securities 3,135 213 6.79 17,542 1,098 6.26 23,838 1,403 5.89
Daily interest-earning
deposits and FHLB Stock 4,207 304 7.23 5,286 412 7.79 7,091 460 6.49
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-earning
assets 284,148 23,378 8.23 306,763 24,776 8.08 338,154 26,315 7.78
Non interest-earning assets:
Office properties and
equipment, net 6,471 6,206 6,132
Real estate, net 589 1,807 770
Other non-interest-earning
assets 2,789 4,334 2,650
------- ------- -------
Total assets 293,997 319,110 347,706
======= ======= =======
LIABILITIES AND EQUITY
Interest-bearing
liabilities:
Passbook accounts 8,788 271 3.09 7,844 253 3.23 8,002 246 3.07
Checking accounts 8,205 182 2.22 9,711 165 1.70 9,982 180 1.80
Money market accounts 22,542 894 3.97 20,853 896 4.30 37,561 1,815 4.83
Certificates of deposit 145,061 7,786 5.37 167,150 10,077 6.03 170,904 9,849 5.76
------- ----- ---- ------- ------ ---- ------- ------ ----
Total deposits 184,596 9,133 4.95 205,558 11,391 5.54 226,449 12,090 5.34
Other interest-bearing
liabilities:
FHLB advances 55,309 3,196 5.78 64,380 3,937 6.12 72,071 4,183 5.80
Other interest-bearing
liabilities 28,229 1,604 5.68 21,697 1,235 5.69 19,954 1,115 5.59
Total interest-bearing
liabilities 268,134 13,933 5.20 291,635 16,563 5.68 318,474 17,388 5.46
Other liabilities 7,518 7,429 7,897
------- ------- -------
Total liabilities 275,652 299,064 326,371
Retained earnings 18,345 20,046 21,335
------- ------- -------
Total liabilities and
retained earnings 293,997 319,110 347,706
======= ======= =======
Net interest income(2) 9,445 8,213 8,927
Interest rate spread(3) 3.03 2.40 2.32
Net interest margin(4) 3.32 2.68 2.63
Average interest-earning
assets to average
interest-bearing
liabilities 105.97 105.19 106.17
<FN>
(1) Does not include interest on loans 90 days or more past due.
(2) Interest and dividends on total interest-earning assets less interest on
total interest-bearing liabilities.
(3) Total interest-earning assets yield less total interest-bearing
liabilities cost.
(4) Net interest income as an annualized percentage of total interest-earning
assets.
</FN>
Investment Activities
Federally chartered savings institutions have authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies and of state and municipal governments,
deposits at the FHLB-Seattle, certificates of deposit of federally insured
institutions, certain bankers' acceptances and federal funds. Subject to
various restrictions, such savings institutions may also invest part of their
assets in commercial paper, corporate debt securities and mutual funds, the
assets of which conform to the investments that federally chartered savings
institutions are otherwise authorized to make directly. Savings institutions
are also required to maintain liquid assets at minimum levels that are set by
the OTS. See "REGULATION -- Federal Home Loan Bank System." The Corporation
may decide to increase its liquidity above the required levels depending upon
the availability of funds and comparative yields on investments in relation to
return on loans. For the month ended June 30, 1997, Cascade's regulatory
liquidity was 5.01%.
The Board of Directors sets the investment policy of the Corporation.
This policy dictates that investments will generally be made with the intent
of holding them available-for-sale and will be made based on the safety of the
principal amount, interest rate risk, liquidity requirements of the
Corporation and the return on the investments. The Corporation's policy does
not permit investment in noninvestment grade bonds and permits investment in
various types of liquid assets permissible under OTS regulation, which include
United States Treasury obligations, securities of various federal agencies,
mortgage-backed securities ("MBS"), Small Business Administration securities
("SBA"), collateralized mortgage obligations ("CMOs"), certain certificates of
deposits of insured banks, repurchase agreements and federal funds.
Investment decisions are made by the Management Committee, which meets
at least weekly and consists of three members of the Board of Directors, the
Chief Financial Officer and other members of senior management. The
Management Committee acts within policies established by the Board of
Directors. At June 30, 1996 and 1997, the Corporation's securities portfolio
totaled approximately $82.0 million and $42.8 million, respectively. 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.
Subsidiary Activity
Federal savings associations generally may invest up to 3% of their
assets in service corporations, provided that at least one-half of any amount
in excess of 1% is used primarily for community, inner-city and community
development projects. Cascade's investment in its service corporations did
not exceed these limits at June 30, 1997. At June 30, 1997, Cascade's
investment in its subsidiaries was $210,000.
On October 1, 1992, the Corporation began marketing annuity products,
mutual funds and property and casualty insurance to customers and noncustomers
in its market areas through a subsidiary, Cascade Investment Services, Inc.
During the past year a reverse mortgage product was added to Cascade
Investment Services product lines and the subsidiary has been quite successful
in marketing this new product. Management believes offering these product
lines increases customer awareness, expands product lines and provides a
valuable alternative to the deposit products offered by the Bank. Revenues
from the subsidiary increase the Corporation's noninterest income.
The following table summarizes the carrying value and estimated market
value of the Corporation's portfolio of investment securities at the dates
indicated.
At June 30,
-----------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
---------------- ---------------- ---------------- ---------------- ----------------
Carrying Market Carrying Market Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value Value Value Value Value
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
(Dollars in thousands)
Investment securities:
United States government
agency securities and
obligations
SBA 0 0 0 0 0 0 13,721 13,721 5,916 5,871
MBS 28,736 29,380 48,946 46,929 69,896 69,360 43,213 42,709 29,657 29,517
CMO 7,983 8,085 0 0 0 0 0 0 0 0
Corporate securities and
mutual funds 7,134 7,176 11,315 11,315 4,507 4,507 21,069 21,069 2,971 2,971
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total investment
securities 43,853 44,641 60,261 58,244 74,403 73,867 78,003 77,499 38,544 38,359
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
FHLB-Seattle stock 2,102 2,102 2,333 2,333 3,319 3,319 4,014 4,014 4,332 4,332
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
The following table sets forth the Corporation's securities portfolio at
carrying value at the dates indicated.
At June 30,
1993 1994 1995 1996 1997
----------------- ----------------- ----------------- ----------------- -----------------
Carrying Percent Carrying Percent Carrying Percent Carrying Percent Carrying Percent
Value of Value of Value of Value of Value of
Portfolio Portfolio Portfolio Portfolio Portfolio
------ --------- ------- --------- ------- --------- ------- --------- ------- ---------
(Dollars in thousands)
United States government
securities
SBA 0 0.00 0 0.00 0 0.00 13,721 17.59 5,916 15.35
MBS 28,736 65.53 48,946 81.22 69,896 93.94 43,213 55.40 29,657 76.94
CMO 7,983 18.20 0 0.00 0 0.00 0 0.00 0 0.00
Corporate securities
and mutual funds 7,134 16.27 11,315 18.78 4,507 6.06 21,069 27.01 2,971 7.71
Total 43,853 100.00 60,261 100.00 74,403 100.00 78,003 100.00 38,544 100.00
Deposit Activities and Other Sources of Funds
GENERAL. The Corporation's primary sources of funds are deposits,
proceeds from principal and interest payments on loans and mortgage-backed
securities, proceeds from loan sales, FHLB-Seattle advances and reverse
repurchase agreements. Deposits and loan repayments are the major source of
Cascade's funds for lending and other investment purposes. Loan repayments
are a relatively stable source of funds, while deposit inflows and outflows
and loan prepayments are significantly influenced by general interest rates
and money market conditions. Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds from other sources, or
on a longer term basis for general business purposes.
DEPOSIT ACCOUNTS. The Corporation offers a variety of deposit accounts
having a range of interest rates and terms. The Corporation's deposits
consist of passbook, negotiable order of withdrawal ("NOW"), money market, and
certificate accounts. 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 credit unions, mutual funds and nonbank corporations such as securities
brokerage companies and other diversified companies. The Corporation's
deposits are obtained primarily from the areas in which its branches are
located. The Corporation relies primarily on customer service and
longstanding relationships with customers to attract and retain these
deposits. Individual certificate accounts in excess of $100,000 are not
actively solicited by the Corporation but are accepted at rates at or below
other funding sources. The Corporation does not accept accounts by any agent
or broker acting on behalf of the Corporation. In the coming year the Bank
will focus deposit gathering activities on its new line of business deposit
products and management expects a large portion of the year's deposit growth
will occur in these products.
In the unlikely event Cascade is liquidated, certain depositors will be
entitled to full payment of their deposit accounts prior to any payment being
made to the shareholders. Substantially all of Cascade's depositors are
residents of the State of Washington.
The following table sets forth information concerning the Corporation's
deposits at June 30, 1997. The indicated interest rates were those being
offered at September 24, 1997.
Percentage
Interest Minimum of Total
Rate Term Category Amount Balance Deposits
- ------- ----------- --------------------- ------- ------- ---------
(In thousands)
1.90% None NOW accounts 100 8,246 3.37%
3.00 None Regular savings 100 8,133 3.32
3.70 None Money market accounts 2,500 48,139 19.67
0.00 None Non-interest checking 100 2,615 1.07
Certificates of Deposit
-----------------------
4.40 0 - 3 mos. Fixed term, fixed rate 1,000 431 .18
5.05 4 - 6 mos. Fixed term, fixed rate 1,000 8,963 3.66
5.45 7 - 12 mos. Fixed term, fixed rate 1,000 79,160 32.33
5.30 13 - 24 mos. Fixed term, fixed rate 1,000 10,355 4.23
5.15 25 - 48 mos. Fixed term, fixed rate 1,000 7,129 2.91
5.25 49 - 120 mos. Fixed term, fixed rate 1,000 25,587 10.45
4.76 Various Variable rate 1,000 52 .02
5.30 Various Jumbo certificates 100,000 45,985 18.79
------- ------
244,795 100.00
======= ======
The following table indicates the amount of the Corporation's jumbo
certificates of deposit by time remaining until maturity as of June 30, 1997.
Jumbo certificates of deposit require minimum deposits of $100,000 and rates
paid on such accounts are negotiable.
Jumbo
Certificates
Maturity Period of Deposits
- --------------- ------------
(In thousands)
Three months or less 11,794
Three through six months 13,798
Six through twelve months 14,536
Over twelve months 5,857
------
Total 45,985
======
BORROWINGS. Savings deposits are the primary source of funds for
Cascade's lending and investment activities and for its general business
purposes. The Corporation has in the past, however, relied upon advances from
the FHLB-Seattle to supplement its supply of lendable funds and to meet
deposit withdrawal requirements. Advances from the FHLB-Seattle are typically
secured by the Corporation's first mortgage loans, and stock issued by the
FHLB-Seattle. At June 30, 1996 and 1997, the Corporation had $68.5 million
and $74.7 million, respectively, in advances from the FHLB-Seattle. The
Corporation's current credit limit with the FHLB-Seattle is 30% of total
assets.
The Corporation enters into reverse repurchase agreements with
nationally recognized primary securities dealers. Reverse repurchase
agreements are accounted for as borrowings by the Corporation and are secured
by designated investments, and mortgage-backed securities. The proceeds of
these transactions are used to meet the cash flow needs of the Corporation.
At June 30, 1996 and 1997, the Corporation had $20.5 million and $18.8
million, respectively, in outstanding reverse repurchase agreements.
The Corporation has an unused commitment of $2.0 million from a regional
commercial bank to purchase Fed funds on an unsecured basis.
The following table sets forth certain information regarding borrowings
by the Corporation at the end of and during the periods indicated:
At June 30,
---------------------
1995 1996 1997
---- ---- ----
Weighted average rate paid on:
Securities sold under agreements to repurchase 6.12% 5.44 5.63
FHLB advances 6.44 5.86 5.88
For the Year
Ended June 30,
------------------------
1995 1996 1997
------ ------ ------
(Dollars in thousands)
Maximum amount of borrowings outstanding at
any month end:
Securities sold under agreements to repurchase 36,313 24,261 22,006
FHLB advances 62,459 78,792 76,464
Approximate average short-term borrowings
outstanding with respect to:
Securities sold under agreements to repurchase 26,418 21,432 19,948
FHLB advances 53,281 64,104 72,071
Approximate weighted average rate paid on:
Securities sold under agreements to repurchase 5.72% 5.76 5.59
FHLB advances 5.99 6.14 5.80
Competition
The Corporation competes for both loans and deposits. The Puget Sound
metropolitan area has a high density of financial institutions, some of which
are larger and have greater financial resources than the Corporation, and all
of which are competitors of the Corporation to varying degrees. The
Corporation's competition for loans comes principally from savings and loan
associations, corporations, mortgage banking companies, insurance companies,
and commercial banks. Its most direct competition for deposits has
historically come from savings and loan associations, corporations,
commercial banks, and credit unions. The Corporation faces additional
competition for deposits from short-term money market funds and other
corporate and government securities.
Personnel
As of June 30, 1997, the Corporation had 103 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
General
The Bank is subject to extensive regulation, examination and supervision
by the OTS as its chartering agency, and the FDIC, as the insurer of its
deposits. The activities of federal savings institutions are governed by the
Home Owners' Loan Act, as amended (the "HOLA") and, in certain respects, the
Federal Deposit Insurance Act ("FDIA") and the regulations issued by the OTS
and the FDIC to implement these statutes. These laws and regulation delineate
the nature and extent of the activities in which federal savings associations
may engage. Lending activities and other investments must comply with various
statutory and regulatory capital requirements. In addition, the Bank's
relationship with its depositors and borrowers is also regulated to a great
extent, especially in such matters as the ownership of deposit accounts and
the form and content of the Bank's mortgage documents. The Bank must file
reports with the OTS and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the OTS and the FDIC to
review the Bank's compliance with various regulatory requirements. The
regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such policies, whether by the OTS, the FDIC or
Congress, could have a material adverse impact on the Corporation, the Bank
and their operations. The Corporation, as a savings and loan holding company,
is also required to file certain reports with, and otherwise comply with the
rules and regulations of, the OTS.
FEDERAL REGULATION OF SAVINGS BANKS
Office of Thrift Supervision
The OTS is an office in the Department of the Treasury subject to the
general oversight of the Secretary of the Treasury. The OTS possesses the
supervisory and regulatory duties and responsibilities formerly vested in the
FHLBB. Among other functions, the OTS issues and enforces regulations
affecting federally-insured savings associations and regularly examines these
institutions. OTS regulations require Cascade Financial Corporation, as a
savings and loan holding company, to file periodic reports with the OTS. In
addition, it must observe such record keeping requirements as the OTS may
prescribe and is subject to holding company examination by the OTS. The OTS
may take enforcement action if the activities of a savings and loan holding
company constitute a serious risk to the financial safety, soundness or
stability of a subsidiary savings association.
Federal Deposit Insurance Corporation
The FDIC is an independent federal agency that insures the deposits, up
to prescribed statutory limits, of depository institutions. The FDIC
currently maintains two separate insurance funds: the BIF and the SAIF. As
insurer of the Bank's deposits, the FDIC has examination, supervisory and
enforcement authority over the Bank.
Cascade's accounts are insured by the SAIF. The FDIC insures deposits
at Cascade to the maximum extent permitted by law. Cascade currently pays
deposit insurance premiums to the FDIC based on a risk-based assessment system
established by the FDIC for all SAIF-member institutions. Under applicable
regulations, institutions are assigned to one of three capital groups which
are based solely on the level of an institution's capital -- "well
capitalized," "adequately capitalized," and "undercapitalized" -- which are
defined in the same manner as the regulations establishing the prompt
corrective action system, as discussed below. These three groups are then
divided into three subgroups based on reviews by the institution's primary
federal or state regulator, statistical analyses of financial statements, and
other information relevant to gauging the risk posed by the institution.
Based on its capital and supervisory subgroups, each institution is assigned
an annual FDIC assessment rate. Cascade's assessments expensed for the year
ended June 30, 1997, totaled $289,000.
Effective January 1, 1996, the FDIC substantially reduced deposit
insurance premiums for well capitalized, well-managed financial institutions
that are members of the BIF. Under the new assessment schedule, approximately
92% of BIF members pay the statutory minimum annual assessment of $2,000.
During the year, Congress enacted legislation which resulted in comparable
FDIC insurance premiums for the entire banking industry. The legislation
provided for a special one-time assessment on SAIF-insured deposits that were
held as of March 31, 1995. This assessment brought the SAIF's reserve ratio
to the legally required $1.25 per $100 of insured deposits level. Cascade's
special assessment resulted in a pretax charge of $1.2 million. Management
believes the legislation is in the best interests of the Bank because SAIF
insurance premiums have been reduced to 6.48 cents per $100 as compared to the
23.0 cents per $100 paid prior to the legislation. Cascade is a member of the
SAIF rather than the BIF.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged
or is engaging in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations, or has violated any applicable law,
regulation, order or any condition imposed by an agreement with the FDIC. It
also may suspend deposit insurance temporarily during the hearing process for
the permanent termination of insurance, if the institution has no tangible
capital. If insurance of accounts is terminated, the accounts at the
institution at the time of termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined
by the FDIC. Management is aware of no existing circumstances which could
result in termination of the deposit insurance of Cascade.
Federal Home Loan Bank System
The FHLB System, consisting of 12 FHLBs, now is under the jurisdiction
of the Federal Housing Finance Board ("FHFB"). The designated duties of the
FHFB are to: supervise the FHLBs; ensure that the FHLBs carry out their
housing finance mission; ensure that the FHLBs remain adequately capitalized
and able to raise funds in the capital market; and ensure that the FHLBs
operate in a safe and sound manner. Cascade, as a member of the FHLB-Seattle,
is required to acquire and hold shares of capital stock in the FHLB-Seattle
equal to the greater of (i) 1.0% of the aggregate outstanding principal amount
of residential mortgage loans, home purchase contracts and similar obligations
at the beginning of each year, or (ii) 1/20 of its advances (borrowings) from
the FHLB-Seattle. Cascade complied with this requirement with an investment
in FHLB-Seattle stock of $4.3 million at June 30, 1997. Among other benefits,
the FHLB provides a central credit facility primarily for member institutions.
It is funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes advances to members in accordance
with policies and procedures established by the FHFB and the Board of
Directors of the FHLB-Seattle. At June 30, 1997, Cascade had $74.7 million in
advances from the FHLB-Seattle.
Community Reinvestment Act
The Community Reinvestment Act ("CRA") requires financial institutions
regulated by the federal financial supervisory agencies to ascertain and help
meet the credit needs of their delineated communities, including low-income
and moderate-income neighborhoods within those communities, while maintaining
safe and sound banking practices. The regulatory agency assigns one of four
possible ratings to an institution's CRA performance and is required to make
public an institution's rating and written evaluation. The four possible
ratings of meeting community credit needs are outstanding, satisfactory, needs
to improve and substantial noncompliance.
Cascade has received an "outstanding" CRA rating from the OTS reflecting
the Bank's commitment to meeting the credit needs of the communities it
serves.
Liquidity
Under OTS regulations, each savings institution is required to maintain
an average daily balance of liquid assets (cash, certain time deposits and
savings accounts, bankers' acceptances, and specified U.S. government, state
or federal agency obligations and certain other investments) equal to a
monthly average of not less than a specified percentage (currently 5%) of its
net withdrawable accounts plus short-term borrowings. OTS regulations also
require each savings institution to maintain an average daily balance of
short-term liquid assets at a specified percentage (currently 1.0%) of the
total of its net withdrawable savings accounts and borrowings payable in one
year or less. Monetary penalties may be imposed for failure to meet liquidity
requirements. The liquidity ratio of Cascade for the month ended June 30,
1997 was 5.01%.
Prompt Corrective Action
Under the FDIA, each federal banking agency is required to implement a
system of prompt corrective action for institutions that it regulates. The
federal banking agencies have promulgated substantially similar regulations
intended to implement this system of prompt corrective action. Under the
regulations, an institution shall be deemed to be (i) "well capitalized" if it
has a total risk-based capital ratio of 10.0% or more, has a Tier I risk-based
capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is not
subject to specified requirements to meet and maintain a specific capital
level for any capital measure, (ii) "adequately capitalized" if it has a total
risk-based capital ratio of 8.0% or more, a Tier I risk-based capital ratio of
4.0% or more and a leverage ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less
than 8.0%, a Tier I risk-based capital ratio that is less than 4.0% or a
leverage ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio
that is less than 6.0%, a Tier I risk-based capital ratio that is less than
3.0% or a leverage ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized
and may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has
received in its most recent examination, and has not corrected, a less than
satisfactory rating for asset quality, management, earnings or liquidity.
(The OTS may not, however, reclassify a significantly undercapitalized
institution as critically undercapitalized.)
An institution generally must file a written capital restoration plan
which meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to various mandatory and
discretionary restrictions on its operations.
At June 30, 1997, Cascade was a "well capitalized" institution under the
prompt corrective action regulations of the OTS.
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 the OTS determines that Cascade fails to meet any standard
prescribed by the Guidelines, the agency may require Cascade to submit to the
agency an acceptable plan to achieve compliance with the standard. The final
regulations establish deadlines for the submission and review of such safety
and soundness compliance plans.
Qualified Thrift Lender Test
All savings associations are required to meet a QTL test set forth in
the HOLA and regulations of the OTS thereunder to avoid certain restrictions
on their operations. A savings institution that fails to become or remain a
QTL shall either become a national bank or be subject to the following
restrictions on its operations: (1) the association may not make any new
investment or engaging in activities that would not be permissible for
national banks; (2) the association may not establish any new branch office
where a national bank located in the savings institution's home state would
not be able to establish a branch office; (3) the association shall not be
eligible to obtain new advances from any FHLB; and (4) the payment of
dividends by the association shall be subject to the rules regarding the
statutory and regulatory dividend restrictions applicable to national banks.
Also, beginning three years after the date on which the savings institution
ceases to be a qualified thrift lender, the savings institution would be
prohibited from retaining any investment or engaging in any activity not
permissible for a national bank and would be required to repay any outstanding
advances to any FHLB. In addition, within one year of the date on which a
savings association controlled by a company ceases to be a QTL, the company
must register as a bank holding company and becomes subject to the rules
applicable to such companies. A savings institution may requalify as a
qualified thrift lender if it thereafter complies with the QTL test.
Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Internal Revenue Code or that
65% of an institution's "portfolio assets" (as defined) consist of certain
housing and consumer-related assets on a monthly average basis in nine out of
every 12 months. Assets that qualify without limit for inclusion as part of
the 65% requirement are loans made to purchase, refinance, construct, improve
or repair domestic residential housing and manufactured housing; home equity
loans; mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; and direct or
indirect obligations of the FDIC; and loans for educational purposes, loans to
small businesses and loans made through credit cards. In addition, the
following assets, among others, may be included in meeting the test subject to
an overall limit of 20% of the savings institution's portfolio assets: 50% of
residential mortgage loans originated and sold within 90 days of origination;
100% of consumer; and stock issued by the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association. Portfolio assets
consist of total assets minus the sum of (i) goodwill and other intangible
assets, (ii) property used by the savings institution to conduct its business,
and (iii) liquid assets up to 20% of the institution's total assets. At June
30, 1997, the qualified thrift investments of Cascade were approximately 90%
of the its portfolio assets.
Capital Requirements
Under OTS regulations a savings association must satisfy three minimum
capital requirements: core capital, tangible capital and risk-based capital.
Savings associations must meet all of the standards to comply with the capital
requirements.
The OTS requires savings associations, such as Cascade to meed each of
three separate capital adequacy standards: a core capital leverage
requirement, a tangible capital requirement and a risk-based capital
requirement. OTS regulations require savings associations to maintain core
capital of at least 3.0% of assets and tangible capital of at least 1.5% of
Assets. At June 30, 1997, Cascade core capital and tangible capital rations
were both 6.4%. Core capital is defined to include common stockholders'
equity, noncumulative perpetual preferred stock and any related surplus, and
minority interests in equity accounts of consolidated subsidiaries, less (i)
any intangible assets, except for certain qualifying intangible assets; (ii)
certain mortgage servicing rights; and (iii) equity and debt investments in
subsidiaries that are not "includable subsidiaries," which is defined as
subsidiaries engaged solely in activities not impermissible for a national
bank, engaged in activities impermissible for a national bank but only as an
agent for its customers, or engaged solely in mortgage-banking activities. In
calculating adjusted total assets, adjustments are made to total assets to
give effect to the exclusion of certain assets from capital and to
appropriately account for the investments in and assets of both includable and
nonincludable subsidiaries. "Tangible capital" is defined, generally, as core
capital minus any "intangible assets," other than purchased mortgage servicing
rights.
Institutions that fail to meet the core capital requirement would be
required to file with the OTS a capital plan that details the steps they will
take to reach compliance. In addition, the OTS prompt corrective action
regulation provides that a savings institution that has a core capital
leverage ratio of less than 4% (3% for institutions receiving the highest
CAMEL examination rating) will be deemed to be "undercapitalized" and may be
subject to certain restrictions. See "- Prompt Corrective Action."
OTS regulations incorporate a risk-based capital requirement that is
designed to be no less stringent than the capital standard applicable to
national banks. These regulations require a core risk-based capital ratio of
at least 4.0% of total risk-weighted assets and a total risk-based capital
ratio of at least 8.0% of total risk-weighted assets. At June 30, 1997, the
bank has core risk-based and total risk-based capital ratios of 9.7% and 10.8%
respectively. Total capital consists of the sum of core and supplementary
capital, provided that supplementary capital cannot exceed core capital, as
previously defined. Supplementary capital includes (i) permanent capital
instruments such as cumulative perpetual preferred stock, perpetual
subordinated debt, and mandatory convertible subordinated debt, (ii) maturing
capital instruments such as subordinated debt, intermediate-term preferred
stock and mandatory convertible subordinated debt, and (iii) general valuation
loan and lease loss allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not
included for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities
that are backed by the full faith and credit of the U.S. Government to 100%
for repossessed assets or assets more than 90 days past due. Qualifying
residential mortgage loans (including multi-family mortgage loans) are
assigned a 50% risk weight. Consumer, commercial, home equity and residential
construction loans are assigned a 100% risk weight, as are nonqualifying
residential mortgage loans and that portion of land loans and nonresidential
construction loans which do not exceed an 80% loan-to-value ratio. The book
value of assets in each category is multiplied by the weighing factor (from 0%
to 100%) assigned of that category. These products are then totaled to arrive
at total risk-weighted assets. Off-balance sheet items are included in
risk-weighted assets by converting them to an approximate balance sheet
"credit equivalent amount" based on a conversion schedule. These credit
equivalent amounts are then assigned to risk categories in the same manner as
balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of
the association's assets, as calculated in accordance with guidelines set
forth by the OTS. A savings association whose measured interest rate risk
exposure exceeds 2% must deduct an interest rate component in calculating its
total capital under the risk-based capital rule. The interest rate risk
component is an amount equal to one-half of the difference between the
institution's measured interest rate risk and 2%, multiplied by the estimated
economic value of the association's assets. That dollar amount is deducted
from an association's total capital in calculating compliance with its
risk-based capital requirement. Under the rule, there is a two quarter lag
between the reporting date of an institution's financial data and the
effective date for the new capital requirement based on that data. The rule
also provides that the Director of the OTS may waive or defer an association's
interest rate risk component on a case-by-case basis. Under certain
circumstances, a savings association may request an adjustment to its interest
rate risk component if it believes that the OTS-calculated interest rate risk
component overstates its interest rate risk exposure. In addition, certain
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to calculate their interest rate risk component in
lieu of the OTS-calculated amount. The OTS has postponed the date that the
component will first be deducted from an institution's total capital.
The following table summarizes the capital requirements and the
Corporation's capital position at June 30, 1997:
At June 30, 1997
----------------------
Percent of
Amount Assets
------- ---------
(Dollars in thousands)
Tangible capital $22,821 6.19%
Tangible capital requirement 5,526 1.50
------ -----
Excess 17,295 4.69
====== =====
Core capital 22,821 6.19
Core capital requirement 11,053 3.00
------ -----
Excess 11,768 3.19
====== =====
Risk-based capital(a) 25,411 10.79
Risk-based capital requirement(a) 18,844 8.00
------ -----
Excess 6,657 2.79
====== =====
<FN>
(a) Based on total risk-weighted assets.
</FN>
Limitations on Capital Distributions
OTS regulations impose uniform limitations on the ability of all savings
associations to engage in various distributions of capital such as dividends,
stock repurchases and cash-out mergers. In addition, OTS regulations require
Cascade to give the OTS 30 days' advance notice of any proposed declaration of
dividends, and the OTS has the authority under its supervisory powers to
prohibit the payment of dividends. The regulation utilizes a three-tiered
approach which permits various levels of distributions based primarily upon a
savings association's capital level.
A Tier 1 savings association has capital in excess of its fully
phased-in capital requirement (both before and after the proposed capital
distribution). A Tier 1 savings association may make (without application but
upon prior notice to, and no objection made by, the OTS) capital distributions
during a calendar year up to 100% of its net income to date during the
calendar year plus one-half its surplus capital ratio (i.e., the amount of
capital in excess of its fully phased-in requirement) at the beginning of the
calendar year or the amount authorized for a Tier 2 association. Capital
distributions in excess of such amount require advance notice to the OTS. A
Tier 2 savings association has capital equal to or in excess of its minimum
capital requirement but below its fully phased-in capital requirement (both
before and after the proposed capital distribution). Such an association may
make (without application) capital distributions up to an amount equal to 75%
of its net income during the previous four quarters depending on how close the
association is to meeting its fully phased-in capital requirement. Capital
distributions exceeding this amount require prior OTS approval. Tier 3
associations are savings associations with capital below the minimum capital
requirement (either before or after the proposed capital distribution). Tier
3 associations may not make any capital distributions without prior approval
from the OTS.
Cascade is currently meeting the criteria to be designated a Tier 1
association and, consequently, could at its option (after prior notice to, and
no objection made by, the OTS) distribute up to 100% of its net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of
the calendar year less any distributions previously paid during the year.
Loans-to-One Borrower
Under the HOLA, savings institutions are generally subject to the
national bank limit on loans to one borrower. Generally, this limit is 15% of
Cascade's unimpaired capital and surplus, plus an additional 10% of unimpaired
capital and surplus, if such loan is secured by readily-marketable collateral,
which is defined to include certain financial instruments and bullion. The
OTS by regulation has amended the loans-to-one-borrower rule to permit savings
associations meeting certain requirements, including capital requirements, to
extend loans to one borrower in additional amounts under circumstances limited
essentially to loans to develop or complete residential housing units.
At June 30, 1997, the Corporation had two borrowers with balances in
excess of current loans-to-one borrower limits, which total $9.7 million and
represent 6.0% of net loans receivable. These loan amounts are $5.2 million
and $4.5 million. Not included in the above is one loan that the OTS has
determined was originated violating the limits described above. The OTS
has not required divestiture of this loan that now totals $2.0 million, and
represents 0.9% of net loans receivable.
Activities of Savings Associations and Their Subsidiaries
When a savings association establishes or acquires a subsidiary or
elects to conduct any new activity through a subsidiary that the association
controls, the savings association shall notify the FDIC and the OTS 30 days in
advance and provide the information each agency may, by regulation, require.
Savings associations also must conduct the activities of subsidiaries in
accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The
FDIC also may determine by regulation or order that any specific activity
poses a serious threat to the SAIF. If so, it may require that no SAIF member
engage in that activity directly.
Transactions with Affiliates
Savings associations must comply with Sections 23A and 23B of the
Federal Reserve Act ("Sections 23A and 23B") relative to transactions with
affiliates in the same manner and to the same extent as if the savings
association were a Federal Reserve member bank. A savings and loan holding
company, its subsidiaries and any other company under common control are
considered affiliates of the subsidiary savings association under the HOLA.
Generally, Sections 23A and 23B: (i) limit the extent to which the insured
association or its subsidiaries may engage in certain covered transactions
with an affiliate to an amount equal to 10% of such institution's capital and
surplus and place an aggregate limit on all such transactions with affiliates
to an amount equal to 20% of such capital and surplus, and (ii) require that
all such transactions 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 guaranty and similar other types of
transactions.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank
holding companies; (ii) a savings association may not purchase or invest in
securities issued by an affiliate (other than securities of a subsidiary); and
(iii) the OTS may, for reasons of safety and soundness, impose more stringent
restrictions on savings associations but may not exempt transactions from or
otherwise abridge Section 23A or 23B. Exemptions from Section 23A or 23B may
be granted only by the Federal Reserve Board, as is currently the case with
respect to all FDIC-insured banks. Cascade has not been significantly
affected by the rules regarding transactions with affiliates and is in
compliance with such requirements.
Cascade's authority to extend credit to executive officers, directors
and 10% shareholders, as well as entities controlled by such persons, is
currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act, and
Regulation O thereunder. Among other things, these regulations require that
such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk
of repayment. Regulation O also places individual and aggregate limits on the
amount of loans Cascade may make to such persons based, in part, on Cascade's
capital position, and requires certain board approval procedures to be
followed. The OTS regulations, with certain minor variances, apply Regulation
O to savings institutions.
Regulation of the Corporation
HOLDING COMPANY ACQUISITIONS. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without
prior OTS approval, from acquiring more than 5% of the voting stock of any
other savings association or savings and loan holding company or controlling
the assets thereof. They also prohibit, among other things, any director or
officer of a savings and loan holding company, or any individual who owns or
controls more than 25% of the voting shares of such holding company, from
acquiring control of any savings association not a subsidiary of such savings
and loan holding company, unless the acquisition is approved by the OTS.
HOLDING COMPANY ACTIVITIES. As a unitary savings and loan holding
company, the Corporation generally is not subject to activity restrictions.
If the Corporation acquires control of another savings association as a
separate subsidiary other than in a supervisory acquisition, it would become a
multiple savings and loan holding company. There generally are more
restrictions on the activities of a multiple savings and loan holding company
than on those of a unitary savings and loan holding company. The HOLA
provides that, among other things, no multiple savings and loan holding
company or subsidiary thereof which is not an insured association shall
commence or continue for more than two years after becoming a multiple savings
and loan association holding company or subsidiary thereof, any business
activity other than: (i) furnishing or performing management services for a
subsidiary insured institution, (ii) conducting an insurance agency or escrow
business, (iii) holding, managing, or liquidating assets owned by or acquired
from a subsidiary insured institution, (iv) holding or managing properties
used or occupied by a subsidiary insured institution, (v) acting as trustee
under deeds of trust, (vi) those activities previously directly authorized by
regulation as of March 5, 1987 to be engaged in by multiple holding companies
or (vii) those activities authorized by the Federal Reserve Board as
permissible for bank holding companies, unless the OTS by regulation,
prohibits or limits such activities for savings and loan holding companies.
Those activities described in (vii) above also must be approved by the OTS
prior to being engaged in by a multiple holding company.
QUALIFIED THRIFT LENDER TEST. The HOLA requires any savings and loan
holding company that controls a savings association that fails the QTL test,
as explained under "-- Federal Regulation of Savings Associations -- Qualified
Thrift Lender Test," must, within one year after the date on which the
association ceases to be a QTL, register as and be deemed a bank holding
company subject to all applicable laws and regulations.
TAXATION
Federal Taxation
GENERAL. The Corporation and Cascade report their income on a fiscal
year basis using the accrual method of accounting and will be subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly Cascade's reserve for bad debts discussed
below. 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 Cascade or the Corporation.
TAX BAD DEBT RESERVES. For taxable years beginning prior to January 1,
1996, savings institutions such as Cascade which met certain definitional
tests primarily relating to their assets and the nature of their business
("qualifying thrifts") were permitted to establish a reserve for bad debts and
to make annual additions thereto, which additions may, within specified
formula limits, have been deducted in arriving at their taxable income.
Cascade's deduction with respect to "qualifying loans," which are generally
loans secured by certain interests in real property, may have been computed
using an amount based on Cascade's actual loss experience, or a percentage
equal to 8% of Cascade's taxable income, computed with certain modifications
and reduced by the amount of any permitted additions to the nonqualifying
reserve. Cascade's deduction with respect to nonqualifying loans was computed
under the experience method, which essentially allows a deduction based on
Cascade's actual loss experience over a period of several years. Each year
Cascade selected the most favorable way to calculate the deduction
attributable to an addition to the tax bad debt reserve. Cascade used the
percentage method bad debt deduction for the taxable years ended June 30,
1994, 1995 and 1996.
Recently enacted legislation repealed the reserve method of accounting
for bad debt reserves for tax years beginning after December 31, 1995. As
result, Cascade will no longer be able to calculate its deduction for bad
debts using the percentage-of-taxable-income method. Instead, Cascade will be
required to compute its deduction based on specific charge-offs during the
taxable year (Cascade anticipates that this will result in a higher effective
tax rate). This legislation also requires savings associations to recapture
into income over a six-year period their post-1987 additions to their bad debt
tax reserves, thereby generating additional tax liability. The Corporation
has qualified, under the provisions of this tax legislation, for a two-year
deferral of their bad debt recapture which amount is approximately $2.7
million.
Under prior law, if Cascade failed to satisfy the qualifying thrift
definitional tests in any taxable year, it would be unable to make additions
to its bad debt reserve. Instead, Cascade would be required to deduct bad
debts as they occur and would additionally be required to recapture its bad
debt reserve deductions ratably over a multi-year period. SFAS 109 provides
that savings banks are not required to provide a deferred tax liability for
additions to the tax bad debt reserve accumulated as of December 31, 1987,
which amount for the Corporation is $473. Among other things, the qualifying
thrift definitional tests required Cascade to hold at least 60% of its assets
as "qualifying assets." Qualifying assets generally include cash, obligations
of the United States or any agency or instrumentality thereof, certain
obligations of a state or political subdivision thereof, loans secured by
interests in improved residential real property or by savings accounts, student
loans and property used by Cascade in the conduct of its banking business.
Under current law, a savings association will not be required to recapture its
pre-1988 bad debt reserves if it ceases to meet the qualifying thrift
definitional tests.
DISTRIBUTIONS. To the extent that Cascade makes "nondividend
distributions" to the Corporation that are considered as made: (i) from the
reserve for losses on qualifying real property loans, to the extent the
reserve for such losses exceeds the amount that would have been allowed under
the experience method; 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. Nondividend distributions
include distributions in excess of Cascade'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
Cascade's bad debt reserve. Thus, any dividends to the Corporation that would
reduce amounts appropriated to Cascade'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, after the Conversion, Cascade
makes a "nondividend distribution," then approximately one and one-half times
the amount so used would be includable in gross income for federal income tax
purposes.
CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. The excess of
the tax bad debt reserve deduction using the percentage of taxable income
method over the deduction that would have been allowable under the experience
method is treated as a preference item for purposes of computing the AMTI. In
addition, only 90% of AMTI can be offset by net operating loss carryovers.
AMTI is increased by an amount equal to 75% of the amount by which Cascade's
adjusted current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses). For taxable
years beginning after December 31, 1986, and before January 1, 1996, an
environmental tax of .12% of the excess of AMTI (with certain modification)
over $2.0 million is imposed on corporations, including Cascade, whether or
not an Alternative Minimum Tax ("AMT") is paid.
DIVIDENDS-RECEIVED DEDUCTION AND OTHER MATTERS. The Corporation may
exclude from its income 100% of dividends received from Cascade 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 Cascade will not file a
consolidated tax return, except that if the Corporation or Cascade owns more
than 20% of the stock of a corporation distributing a dividend, then 80% of
any dividends received may be deducted.
The Bank is subject to a business and occupation tax which is imposed
under Washington law at the rate of 1.70% 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 records for compliance regarding the business and occupation tax.
The Corporation had not been audited for seventeen years. The Department of
Revenue has issued a tax billing for approximately $270,000 of which the
Corporation has set aside reserves of $120,000. 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.
Item 2. Description of Properties
The Corporation owns four full service branch locations and leases four
full service locations along with one loan origination office. Owned offices
range in size from 3,500 to 52,000 square feet and have a total net book value
at June 30, 1996, including leasehold improvements, furniture and fixtures, of
$6.1 million. The Corporation leases approximately 20% of its main office and
approximately 50% of its Marysville office to non-affiliated parties. See
Note 4 of the Notes to the Consolidated Financial Statements contained in the
Annual Report.
Item 3. Legal Proceedings
Periodically, there have been various claims and lawsuits involving the
Corporation as a defendant, such as claims to enforce liens, condemnation
proceedings on properties in which the Corporation 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.
FORMER MANAGEMENT. On February 21, 1995, the United States Supreme
Court refused to consider the United States Ninth Circuit Court of Appeals
ruling upholding an OTS restitution order against the Corporation's former
Chairman and Chief Executive Officer. As a result the Corporation recorded
approximately $400,000 of after-tax income from the restitution order. The OTS
has separately brought an enforcement action in relation to security provided
by the former executive, and in March 1994, the United States District Court
for the Western District of Washington entered a judgement requiring payment
of approximately $280,000 to the Corporation by the former executive. During
1996, $150,000 of this amount was collected. Ultimate collection of the
remaining amount will be recorded as income when received.
On March 30, 1995, the United States District Court granted the
Corporation's motion for summary judgement in a suit brought by the former
executive against the Corporation and several current executive officers.
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of Shareholders of Cascade ("Meeting") was held on
June 24, 1997. The results of the vote on the matters presented at the
Meeting is as follows:
1. The merger of Cascade with AmFirst Bancorporation was approved by
shareholders by the following vote:
For 1,389,891; Against 4,449; Abstain 22,667
--------- ----- ------
Broker non-votes totaled 196,570.
-------
2. The amendment to Cascade's Certificate of Incorporation to
increase the number of authorized shares from 5,000,000 to
8,000,000 was approved by stockholders by the following vote:
For 1,560,075; Against 24,072; Abstain 29,330
--------- ------ ------
Broker non-votes totaled 0 .
---
3. The Cascade Financial Corporation 1997 Stock Option Plan was
approved by stockholders by the following vote:
For 1,346,162; Against 52,865; Abstain 26,477
--------- ------ ------
Broker non-votes totaled 187,973.
-------
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information contained under the caption "Common Stock Information"
in the Annual Report is incorporated herein by reference.
Item 6. Selected Financial Data
Five Year Financials Highlights Data contained in the Annual Report are
incorporated herein by reference.
Quarterly Results:
Quarter Ended Quarter Ended
-------------------------------- ------------------------
Sept 30, Dec 31, Mar 31, Jun 30, Sept 30, Dec 31, Mar 31, Jun 30,
1995 1995 1996 1996 1996 1996 1997 1997
---- ---- ---- ---- ---- ---- ---- ----
(dollars in thousands, except per share data, unaudited)
Results of Operations
Interest income 5,809 5,922 6,189 6,854 6,274 6,543 6,629 6,868
Interest expense 4,150 4,108 4,190 4,113 4,236 4,356 4,319 4,476
----- ----- ----- ----- ----- ----- ----- -----
Net interest income 1,659 1,814 1,999 2,741 2,038 2,187 2,310 2,392
Provision for loan losses 0 0 0 0 0 0 0 0
Other income 548 327 780 571 359 334 383 333
Other expense 1,716 1,611 1,788 1,888 2,946 1,830 1,887 1,848
----- ----- ----- ----- ----- ----- ----- -----
Income before income
taxes 491 530 991 1,424 (549) 691 806 877
Provision for income taxes 167 180 337 484 (187) 235 274 298
----- ----- ----- ----- ----- ----- ----- -----
Net income 324 350 654 940 (362) 456 532 579
===== ===== ===== ===== ===== ===== ===== =====
Earnings per common and
common equivalent share,
primary 0.11 0.12 0.22 0.35 (0.13) 0.16 0.19 0.20
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the Annual Report is incorporated herein by reference.
Item 7. Quantitative and Qualitative Disclosures About Market Risk.
For information regarding the market risk of the Corporation's investments,
see "Asset and Liability Management Activities" and "Loan Maturity and
Repricing" under Item 1 of this Report.
Item 8. Financial Statements and Supplementary Data
The financial statements contained in the Annual Report which are listed
under Item 14 herein are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
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 1997 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.
The following table sets forth information with respect to the executive
officers of the Corporation and the Bank.
Name Age(a) Position
Frank M. McCord 67 Chairman and Chief
Executive Officer(b)
C. Fredrick Safstrom 43 President, Chief Operating
Officer and Director(b)
Robert G. Disotell 43 Executive Vice President,
Chief Lending Officer and
Director(b)
Russell E. Rosendal 38 Executive Vice President,
Chief Financial Officer
and Secretary/Treasurer(b)
Steven R. Erickson 41 Executive Vice President,
Credit Administration and
Construction Lending
J. Wesley Cochran 43 Senior Vice President
Chief Savings Officer
(a) As of June 30, 1997.
(b) Officer of the Corporation and Bank
The principal occupation of each executive officer of the Corporation
and Bank is set forth below. All of the officers listed above have held
positions with or been employed by the Corporation or Bank for five years
unless otherwise stated. All executive officers reside in Everett,
Washington, unless otherwise stated. There are no family relationships among
or between the executive officers listed above.
FRANK M. McCORD, C.P.A. became Chairman of the Board of Directors,
President and Chief Executive Officer of the Bank in 1990 and subsequently the
Corporation. Mr. McCord was the Managing Partner of KPMG Peat Marwick,
Seattle, Washington office until his retirement in 1986. In addition to his
responsibilities to the Corporation, Mr. McCord is a director of the Everett
Area Chamber of Commerce and serves as it's Chairman, the Everett Performing
Arts Association, and Housing Hope, a local housing agency. Mr. McCord also
serves as a Director of Horizon/CMS Healthcare Corporation a publicly-held
company listed on the New York Stock Exchange, which is one of the largest
diversified health care providers in the United States. Mr. McCord has
previously served as President of the Evergreen Area Council of Boy Scouts of
America, Treasurer of the United Way of King County, Trustee of Seattle
University, a Fellow of Seattle Pacific University, Treasurer of the
Washington Society of Certified Public Accountants, and a Director of the
Seattle Chamber of Commerce.
C. FREDRICK SAFSTROM joined Cascade in 1976 and has managed several
areas including branch management, secondary marketing, loan underwriting and
regulatory compliance. In June 1990 Mr. Safstrom was elected to the Board of
Directors and in December 1991 was elected President. Mr. Safstrom is a
trustee and the treasurer of the Snohomish County YMCA, a board member of the
Snohomish County Investment Plan Corporation, a director of the Everett Public
Schools Foundation, member of the Everett Rotary, and is active in various
housing related boards and committees.
ROBERT G. DISOTELL has been employed by Cascade for approximately
nineteen years and has managed all areas of the Loan Division. He currently
serves as a Director and an Executive Vice President. As Chief Lending
Officer, he is responsible for mortgage loan production, consumer lending, and
is the Bank's Community Reinvestment Act ("CRA") officer. Mr. Disotell also
serves on the Board of Directors for Catholic Community Services of Snohomish
County. Mr. Disotell is a resident of Arlington, Washington.
RUSSELL E. ROSENDAL is the Executive Vice President, Chief Financial
Officer and Secretary/Treasurer of the Corporation. Mr. Rosendal joined
Cascade in September 1983 and was elected Corporate Secretary/Treasurer in
December 1991. He has served as President of the Puget Sound chapter of the
Financial Managers Society and serves on their Asset/Liability Committee. Mr.
Rosendal is a resident of Mukilteo, Washington.
STEVEN R. ERICKSON is the Executive Vice President of the Bank
responsible for managing business, residential construction, and income
property lending and serves as the Assistant Secretary for the Corporation.
Mr. Erickson joined Cascade in 1978. He is a member of the Board of Directors
of the Boys and Girls Club of Snohomish County. He is a resident of
Marysville, Washington.
J. WESLEY COCHRAN joined Cascade in 1992 as Chief Savings Officer and
Manager of the Everett Main Office Branch. As Chief Savings Officer, he is
responsible for management of the bank's full service offices and deposit
production. In August 1996 he was elected as a Senior Vice President. Mr.
Cochran has a 20 year background in mortgage banking and thrift institution
branch management. Mr. Cochran serves on the boards of the Everett Salvation
Army, American Heart Association, Everett Theater Society and is a member of
the South Everett/Mukilteo Rotary Club. He is a resident of Redmond,
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 "Voting Securities and Principal Holders
Thereof" of the Proxy Statement
(b) Security Ownership of Management
The information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and Principal
Holders Thereof" 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 "Proposal I -- Election of Directors --
Certain Transactions with the Corporation" of the Proxy Statement.
PART IV
Item 14. Exhibits Financial Statement Schedules, and Reports on Form 8-K
(a) (1)(2) Independent Auditors' Report
Consolidated Financial Statements
(a) Consolidated Balance Sheets as of June 30, 1996 and June 30, 1997.
(b) Consolidated Statements of Operations for the Years Ended June 30,
1995, 1996 and 1997.
(c) Consolidated Statements of Stockholders' Equity for the Years Ended
June 30, 1995, 1996 and 1997.
(d) Consolidated Statements of Cash Flows for the Years Ended June 30,
1995, 1996 and 1997.
(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 to Stockholders.
(3) Exhibits
3.1 Certificate of Incorporation of Cascade Financial Corporation*
3.2 Bylaws of Cascade Financial Corporation*
10.1 Cascade Financial Corporation 1994 Employee Stock Purchase Plan*
10.2 Cascade Financial Corporation 1992 Stock Option and Incentive
Plan**
10.3 Cascade Financial Corporation Employee Stock Ownership Plan**
10.4 Cascade Financial Corporation 1997 Stock Option Plan***
13 Cascade Financial Corporation 1997 Annual Report to Stockholders
21 Subsidiaries
(b) Reports on Form 8-K
No Forms 8-K were filed during the quarter ended June 30, 1997.
* Incorporated by reference to the Corporation's Registration Statement on
Form S-4 File No. 33-83200.
** Incorporated by reference to the Corporation's Annual Report on Form
10-KSB For June 30, 1995.
*** Incorporated by reference to Appendix E to the Prospectus included in the
Corporation's Registration Statement on Form S-4 (File No. 333-24203).
SIGNATURES
Pursuant to the requirements of 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: September 30, 1997 By: /s/ Frank M. McCord
Frank M. McCord
Chairman and
Chief Executive Officer
(Principal 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/ Russell E. Rosendal By: /s/ D. R. Murphy
Russell E. Rosendal D. R. Murphy
Executive Vice President Director
(Chief Financial and Date: September 30, 1997
Accounting Officer)
Date: September 30, 1997
By: /s/ C. F. Safstrom By: /s/ Ronald E Thompson
C. F. Safstrom Ronald E. Thompson
President and Director Director
Date: September 30, 1997 Date: September 30, 1997
By: /s/ Robert Disotell By: /s/ G. Brandt Westover
Robert Disotell G. Brandt Westover
Executive Vice President/Director Director
Date: September 30, 1997 Date: September 30, 1997
By: /s/ David W. Duce By: /s/ Paull Shin
David W. Duce Paull Shin
Director Director
Date: September 30, 1997 Date: September 30, 1997
By: /s/ Gary Meisner By: /s/Joan M. Earl
Gary Meisner Joan M. Earl
Director Director
Date: September 30, 1997 Date: September 30, 1997
By: /s/ Dwayne Lane
Dwayne Lane
Director
Date: September 30, 1997
Exhibit 21
Subsidiaries of the Registrant
Parent
- ------
Cascade Financial Corporation
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
- ---------------- ------------ ----------------------
Cascade Bank 100% United States
Cascade Investment Services, Inc. (b) 100% Washington
(a) The operation of the Corporation's wholly owned subsidiaries are
included in the Corporation's Financial Statements contained in the
Annual Report attached hereto as Exhibit 13.
(b) Wholly-owned subsidiary of Cascade Bank.