LIQUIDATED DAMAGES AGREEMENT

         THIS LIQUIDATED DAMAGES AGREEMENT (the "Agreement") is made and entered
into as of  February  25, 2000 by and among  CASCADE  FINANCIAL  CORPORATION,  a
Delaware corporation (the "Company"),  CASCADE CAPITAL TRUST I, a business trust
formed under the laws of the state of Delaware (the "Trust"),  SANDLER O'NEILL &
PARTNERS,  L.P., as representative of the initial purchasers named in Schedule A
of the Purchase Agreement (the "Initial Purchasers").

         WHEREAS,  as an inducement to the Initial  Purchasers to enter into the
Purchase Agreement,  dated February 25, 2000 (the "Purchase Agreement"),  by and
among the Company,  the Trust and the Initial  Purchasers  (providing for, among
other things,  the sale by the Trust to the Initial  Purchasers of 10,000 of the
Trust's 11.00% Capital  Securities,  Series A, liquidation  amount of $1,000 per
Capital Security (the "Capital Securities"),  the proceeds of which will be used
by  the  Trust  to  purchase  11.00%  Junior  Subordinated  Deferrable  Interest
Debentures  due March 1,  2030,  Series  A, of the  Company  (the  "Subordinated
Debentures")),  and as a  condition  to the several  obligations  of the Initial
Purchasers  thereunder,  the Company and the Trust have agreed to provide to the
Initial Purchasers and its direct and indirect  transferees certain registration
and  related  rights  pursuant  to and  in  accordance  with  the  terms  of the
Registration Rights Agreement,  dated the date hereof (the "Registration  Rights
Agreement"), by and among the Company, the Trust and the Initial Purchasers; and

         WHEREAS,  notwithstanding  the fact that the Company and the Trust have
consummated or will  consummate an Exchange  Offer,  pursuant to Section 2(b) of
the Registration  Rights  Agreement,  the Initial  Purchasers may, under certain
circumstances,  require the  Company and the Trust to file a Shelf  Registration
Statement for the resale of certain Registrable Securities held by it;

         WHEREAS,  the Registration Rights Agreement contains certain provisions
concerning  the time within  which the Company and the Trust must file the Shelf
Registration  Statement  and  the  period  for  which  such  Shelf  Registration
Statement must remain effective and usable for resales; and

         WHEREAS,  the Company,  the Trust and the Initial  Purchasers desire to
provide for the  payment of  liquidated  damages by the Company  directly to the
Initial  Purchasers  in the event that the  Company and the Trust fail to comply
with such contractual provisions, as more fully set forth herein.

         NOW, THEREFORE,  in consideration of the foregoing,  and for other good
and  valuable  consideration  the receipt of which is hereby  acknowledged,  the
parties hereto agree as follows:

         1.  Definitions.  Capitalized  terms used  (including  in the foregoing
recitals) but not defined  herein shall have the meanings given to such terms in
the Registration Rights Agreement,  except that (a) the term "Shelf Registration
Statement"  shall  refer  only to a Shelf  Registration  Statement  filed by the
Company  and the Trust  pursuant  to  Section  2(b) of the  Registration  Rights
Agreement,  and (b) the term "Registrable  Securities" shall refer only to those
Registrable Securities held at such time by the Initial Purchasers.

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<PAGE>



         2. Payment of Liquidated  Damages.  (a) In the event that (i) the Shelf
Registration  Statement  is not  filed  with the SEC on or prior to the 45th day
after a request for such filing is properly  made by the Initial  Purchasers  in
accordance with Section 2(b)(iv) of the Registration  Rights Agreement (provided
that in no event shall such date be  required  to be earlier  than 75 days after
the  Issue  Date),  or (ii) the Shelf  Registration  Statement  is not  declared
effective  by the SEC on or prior to the  later of the 40th day  after  the date
such Shelf Registration Statement was required to be filed pursuant to the terms
of the Registration Rights Agreement and the 180th date after the Issue Date, or
(iii) the Shelf  Registration  Statement  has been  declared  effective and such
Shelf Registration  Statement ceases to be continuously  effective or usable for
resales  (whether as a result of an event  contemplated  by Section  3(e) of the
Registration  Rights  Agreement  or  otherwise)  at any time  during the 180-day
period (and any  extensions  of such period  pursuant to the last  paragraph  of
Section 3 of the Registration Rights Agreement)  immediately  following the date
on which the Shelf  Registration  Statement is first declared  effective  (other
than  after  such  time as all  Registrable  Securities  have been  disposed  of
thereunder or otherwise cease to be Registrable Securities pursuant to the terms
of the Registration  Rights Agreement),  then in each case the Company shall pay
liquidated damages to the Initial  Purchasers,  at a rate of 25 basis points per
annum in respect of the aggregate  liquidation amount of Capital Securities held
by the  Initial  Purchasers  or, in the event that the Trust is  liquidated  and
Subordinated  Debentures are distributed to holders of Capital  Securities,  the
aggregate  principal  amount  of  Subordinated  Debentures  held by the  Initial
Purchasers,  as the case may be, in respect of the period (x)  commencing on the
46th day after such request for the filing of a Shelf Registration  Statement is
made by the  Initial  Purchasers  (provided  that in no event shall such date be
required to be earlier than 76 days after the Issue Date) and  terminating  upon
the  filing  of the Shelf  Registration  Statement  (in the case of  clause  (i)
above),  (y)  commencing  on the  later of the 41st day after the date the Shelf
Registration  Statement  was  required  to be filed  and the 181st day after the
Issue Date and  terminating  upon the  effectiveness  of the Shelf  Registration
Statement (in the case of clause (ii) above),  or (z)  commencing on the day the
Shelf  Registration  Statement  ceases to be effective or usable for resales and
terminating  at such  time as the Shelf  Registration  Statement  again  becomes
effective and usable for resales (in the case of clause (iii) above),  provided,
however,  that the maximum aggregate amount of liquidated damages payable by the
Company pursuant to this Agreement and the  Registration  Rights Agreement shall
not exceed 25 basis  points per annum in  respect of the  aggregate  liquidation
amount of the Capital  Securities  or, in the event the Trust is liquidated  and
Subordinated  Debentures are distributed to holders of Capital  Securities,  the
aggregate principal amount of Subordinated Debentures.

         (b) Any amounts of liquidated  damages payable by the Company  pursuant
to this Section 2 shall be paid in cash  directly to the Initial  Purchasers  on
the next succeeding  March 1st and September 1st, as the case may be,  following
the  period in  respect of which such  Liquidated  Damages  have  become due and
payable hereunder.

         3.       General.

         (a)  Counterparts;  Facsimile.  This  Agreement  may be executed in any
number of counterparts and by the parties hereto in separate  counterparts,  and
signature  pages may be delivered by  facsimile,  each of which when so executed
shall  be  deemed  to be an  original  and all of  which  taken  together  shall
constitute one and the same agreement.


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<PAGE>



         (b)  Amendments.  This  Agreement may be amended by the parties  hereto
only by a written  instrument  duly  executed  on behalf of each of the  parties
hereto.

         (c)  Entire  Agreement.  This  Agreement  and the  Registration  Rights
Agreement constitute the entire agreement and supersede all prior agreements and
understandings,  both  written and oral,  among the parties  with respect to the
subject matter hereof.

         (d) GOVERNING LAW. THIS AGREEMENT  SHALL BE DEEMED TO HAVE BEEN MADE IN
THE STATE OF NEW YORK. THE VALIDITY AND  INTERPRETATION  OF THIS AGREEMENT,  AND
THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT  GIVING EFFECT TO ANY
PROVISIONS  RELATING TO CONFLICTS OF LAWS.  EACH OF THE PARTIES HERETO AGREES TO
SUBMIT TO THE EXCLUSIVE  JURISDICTION  OF THE COURTS OF THE STATE OF NEW YORK IN
ANY ACTION OR PROCEEDING  ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF
THE  MATTERS  CONTEMPLATED  HEREBY,  IRREVOCABLY  WAIVES ANY  DEFENSE OF LACK OF
PERSONAL  JURISDICTION AND IRREVOCABLY  AGREES THAT ALL CLAIMS IN RESPECT OF ANY
SUIT,  ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT.  EACH
OF  THE  PARTIES  HERETO  IRREVOCABLY  WAIVES,  TO  THE  FULLEST  EXTENT  IT MAY
EFFECTIVELY  DO SO  UNDER  APPLICABLE  LAW,  ANY  OBJECTION  WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

         (e) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if  delivered to the parties at the  addresses
set  forth  in,  and  in a  manner  contemplated  by,  the  Registration  Rights
Agreement.




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<PAGE>


                  IN WITNESS WHEREOF,  the parties have executed this Liquidated
Damages Agreement as of the date first written above.

                                    CASCADE FINANCIAL CORPORATION


                                    By:    /s/ Frank M. McCord
                                           ------------------------------------
                                           Frank M. McCord
                                           Chairman and Chief Executive Officer



                                    CASCADE CAPITAL TRUST I


                                    By:  CASCADE FINANCIAL CORPORATION
                                         as Sponsor

                                    By:    /s/ C.F. Safstrom
                                           ------------------------------------
                                           C.F. Safstrom
                                           President



                                         SANDLER  O'NEILL & PARTNERS,   L.P.
                                         Acting severally on behalf of itself
                                         and as representative of the several
                                         Initial Purchasers named in Schedule
                                         A of the Purchase Agreement.

                                    By:  SANDLER O'NEILL & PARTNERS CORP.,
                                         the sole general partner


                                    By:    /s/ Thomas W. Killian
                                           ------------------------------------
                                           Thomas W. Killian
                                           Vice President





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