US SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.   20549


                                       10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 1998

OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR TRANSITION PERIOD FROM ________________ TO
     _________________

     Commission file number 0-25286
                            -------

                               CASCADE FINANCIAL CORPORATION
                               -----------------------------
                 (Exact name of registrant as specified in its charter)

                      Delaware                             91-1661954
                      --------                             ----------
          (State or other jurisdiction of                 (IRS Employer
           incorporation or organization)                Identification No.)


                   2828 Colby Avenue
                  Everett, Washington                         98201
                  -------------------                         -----
          (Address of principal executive offices)          (Zip Code)


                                 (425) 339-5500
                                  --------------
              (Registrant's telephone number, including area code)

Indicate by a check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding twelve months (or for such shorter periods that the 
registrant was required to file such reports), and (2) has been subject to such 
filing requirements for the past ninety days.  Yes  [X]     No  [ ]

Indicate the number of shares outstanding of each of the issuer's classes of 
common stock, as of the latest practicable date.


            Class                  Outstanding as of September 30, 1998
            -----                  ------------------------------------

   Common Stock ($.01 par value)                 4,308,509

<PAGE>
                          CASCADE FINANCIAL CORPORATION

                                   FORM 10-Q
                    for the Quarter Ended September 30, 1998



                                      INDEX


PART I - Financial Information:

    Item 1 - Financial Statements:

        - Condensed Consolidated Balance Sheets . . . . . . . . . . . . . .3

        - Condensed Consolidated Statements of Operations . . . . . . . . .4

        - Condensed Consolidated Statements of Cash Flows . . . . . . . . .5

        - Notes to Consolidated Financial Statements. . . . . . . . . . . .7

    Item 2 - Management's Discussion and Analysis of Financial Condition
        and Results of Operations . . . . . . . . . . . . . . . . . . . . .8


PART II - Other Information. . . . . . . . . . . . . . . . . . . . . . . .13

                                        2
<PAGE>

                           PART I -- FINANCIAL INFORMATION

                     CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                         (dollars in thousands, unaudited)

                                                September 30,        June 30,
                                                -------------        --------
                                                    1998               1998
ASSETS                                             ------             ------

Cash on hand and in banks                       $   9,527             10,642
Interest-earning deposits in other institutions       215              1,324
Securities available for sale                      37,444             27,412
Loans available for sale, net                      25,951             19,920
Mortgage-backed securities held to maturity
  (market value of $3,635 and $4,654)               3,674              4,725
Loans, net                                        366,641            364,814
Premises and equipment, at cost, net                8,985              8,764
Accrued interest receivable and other assets        7,174              6,554
                                                 --------           --------
  TOTAL ASSETS                                  $ 460,469            444,155
                                                 ========           ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits                                        $ 318,654            312,518
Federal Home Loan Bank advances                    95,426             73,436
Securities sold under agreements to repurchase        745             13,391
Advance payments by borrowers for taxes and 
  insurance                                         3,081              1,953
Accrued expenses and other liabilities              8,505             10,065
Deferred income tax                                 1,442              1,374
                                                 --------           --------
  TOTAL LIABILITIES                               427,853            412,737

Preferred stock, $.01 par value, 500,000 shares
  authorized; no shares issued or outstanding          --                 --
Common stock, $.01 par value, 5,000,000 
  shares authorized; 4,308,509 and 4,265,624
  shares issued and outstanding                        43                 43
Additional paid-in capital                          4,614              4,433
Retained earnings, substantially restricted        27,929             27,046
Cumulative comprehensive income, net (note 4)          30               (104)
                                                 --------           --------
  TOTAL STOCKHOLDERS' EQUITY                       32,616             31,418
                                                 --------           --------
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY    $ 460,469            444,155
                                                 ========           ========

                  See notes to consolidated financial statements

                                       3

<PAGE>

                   CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (dollars in thousands, except per share amounts)
                                  (unaudited)

                                                   September 30,  September 30,
                                                   -------------  -------------
                                                       1998            1997
                                                      ------          ------
Interest income:
  Loans                                            $   8,422           7,482
  Mortgage-backed securities held-to-maturity             52              82
  Securities available for sale                          372             648
  FHLB stock dividends                                   104             102
  Interest-earning deposits                               70              74
                                                     -------         -------
    Total interest income                              9,020           8,388

Interest expense:
  Deposits                                             4,023           3,953
  Borrowings                                           1,222           1,246
                                                     -------         -------
    Total interest expense                             5,245           5,199

Net interest income                                    3,775           3,189
  Provision for loan losses                              150             102
                                                     -------         -------
Net interest income after provision for loan losses    3,625           3,087

Other income:
  Gain (loss) on sale of loans                           228             (41)
  Service charges                                        255             347
  Gain on sale of securities available for sale            4              82
  Other                                                   49              74
                                                     -------         -------
    Total other income                                   536             462

Other expenses:
  Salaries and employee benefits                       1,476           1,241
  Occupancy                                              435             402
  Federal deposit insurance premiums                      46              42
  Advertising                                            107              71
  Data processing                                        143              39
  Other                                                  616             726
                                                     -------         -------
    Total other expenses                               2,823           2,521

    Income before income taxes                         1,338           1,028
  Federal income taxes                                   455             382
                                                     -------         -------

    Net income                                     $     883             646
                                                     =======         =======

Earnings per share, basic                          $    0.20            0.15
Earnings per share, diluted                             0.19            0.14

Weighted average number of shares outstanding:
  Basic                                            4,308,509       4,237,894
  Diluted                                          4,753,041       4,669,407


               See notes to consolidated financial statements

                                        4
<PAGE>

                           CASCADE FINANCIAL CORPORATION
                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (dollars in thousands, unaudited)

                                             Three Months Ended September 30,
                                             --------------------------------
                                                    1998               1997
                                                   ------             ------ 
Cash flows from operating activities:
 Net income                                   $      883                646
                                                ---------          ---------
  Adjustments to reconcile net income
   to net cash provided by (used in)
   operating activities:
    Depreciation and amortization of premises
     and equipment                                   173                165
    Amortization of retained servicing rights        107                 70
    Provision for losses on:
     Loans                                           150                102
     Mortgage servicing rights                        94                 --
    Additions to mortgage servicing rights          (187)              (212)
    Deferred loan fees, net of amortization         (170)                98
    Origination of loans held-for-sale and 
     mortgage-backed securities held for 
     trading                                     (49,837)           (33,088)
    Proceeds from sale of loans held-for-
     sale and mortgage-backed securities 
     held for trading                             43,805             30,147
    Net loss (gain) on sales of:
     Securities available for sale                    (4)               (82)
     Premises and equipment                           (1)                --
     Real Estate Owned                                --                  6
    Federal Home Loan Bank stock dividend
     received                                       (104)              (102)
    Net change in accrued interest receivable
     and other assets over principal and 
     interest payable on loans serviced for
     others and accrued expenses and other 
     liabilities                                  (2,688)             1,298
                                                ---------          ---------
      Total adjustments                           (8,662)            (1,598)
                                                ---------          ---------
       Net cash used in operating activities      (7,779)              (952)

Cash flows from investing activities:
 Loans originated, net of principal repayments    (2,170)           (10,859)
 Principal repayments on securities held-to
  maturity                                         1,051                434
 Principal repayments on securities available-
  for-sale                                         2,204                874
 Purchases of securities available-for-sale      (14,933)               (39)
 Proceeds from sales of securities available-
  for-sale                                         3,007             17,918
 Proceeds from sales of real estate owned             --                435
 Purchases of premises and equipment                (394)              (384)
 Proceeds from sales of premises and equipment,
  and other assets                                     1                 --
                                                ---------          ---------
  Net cash (provided by) used in investing 
   activities                                    (11,234)             8,379

Subtotal, carried forward                        (19,013)             7,427
                                                ---------          ---------

                  See notes to consolidated financial statements
                                         5

<PAGE>
                            CASCADE FINANCIAL CORPORATION
                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (dollars in thousands, unaudited)

                                             Three Months Ended September 30,
                                             --------------------------------
                                                    1998               1997
                                                   ------             ------ 

Subtotal, brought forward                     $  (19,013)             7,427

Cash flows from financing activities:
 Proceeds from issuance of common stock              181                 39
 Net increase (decrease) in deposits               6,136               (947)
 Proceeds from Federal Home Loan Bank advances   133,950             68,000
 Repayment of Federal Home Loan Bank advances   (111,960)           (74,750)
 Net decrease in securities sold under
  agreements to repurchase                       (12,646)            (3,128)
 Net decrease in advance payments by borrowers
  for taxes and insurance                          1,127              1,219
                                                ---------          ---------
   Net cash provided by (used in) financing 
    activities                                    16,788             (9,567)
                                                ---------          ---------

 Net decrease in cash and cash equivalents        (2,225)            (2,140)
Cash and cash equivalents at beginning of
 period                                           11,967             14,311
                                                ---------          ---------
Cash and cash equivalents at end of period    $    9,742             12,171
                                                =========          =========

Supplemental disclosures of cash flow 
 information-cash paid during the period for:
  Interest                                    $    5,237              5,053
  Federal income taxes                               200                550
                                                ---------          ---------
Supplemental schedule of noncash investing
 activities:
  Mortgage loans securitized into mortgage
   backed securities and held-for-trading 
   and sold                                        5,035             11,086
  Net mortgage loans transferred to real 
   estate owned                                      363                226

                See notes to consolidated financial statements.
                                      6
<PAGE>
                  CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              September 30, 1998
                                   (unaudited)

1.  Presentation of Financial Information

    The accompanying financial information is unaudited and has been prepared 
from the books and records of Cascade Financial Corporation, ("Cascade" or the
"Corporation").  The Corporation's sole subsidiary is Cascade Bank, (the 
Bank").  In the opinion of management, the financial information reflects all 
adjustments (consisting of normal recurring adjustments) necessary for a fair 
presentation of the financial condition, results of operations, and cash flows
of the Corporation pursuant to the requirements of the SEC for interim 
reporting.

    Certain information and footnote disclosures included in the Corporation's 
financial statements for the year ended June 30, 1998, have been condensed or 
omitted from this report.  Accordingly, these statements should be read with 
the financial statements and notes thereto included in the Corporation's 1998 
Annual Report on Form 10-K.

2.  Commitments and Contingencies

    In the normal course of business there are various commitments to fund 
mortgage loans.  Management does not anticipate any material loss as a result 
of these commitments.

    Periodically there have been various claims and lawsuits against the
Corporation or the Bank, such as claims to enforce liens, condemnation 
proceedings on properties in which the Bank holds security interests, claims 
involving the making and servicing of real property loans and other issues 
incidental to the Corporation's and the Bank's business.  In the opinion of 
management no significant loss is expected from any of such pending lawsuits.

3.  Financial Statement Reclassification

    Certain amounts in the financial statements for fiscal 1998 have been 
reclassified to conform with the financial statement classification for fiscal 
1999.

4.  New Accounting Pronouncements

    Effective January 1, 1998, the Corporation adopted SFAS No. 130, "Reporting 
Comprehensive Income".  Comprehensive income for the three months ended 
September 30, 1998 and 1997 was $1,017 and $724, respectively.  Total 
comprehensive income for the three months ended September 30, 1998 and 1997 
consisted of net income and the change in the unrealized gain on investments.

    SFAS No. 131, "Disclosures About Segments of an Enterprise and Related 
Information", was issued in June 1997 and redefines how operating segments are 
determined and requires disclosure of certain financial and descriptive 
information about a company's operating segments.  This statement was adopted 
on July 1, 1998.  Provisions of this statement require annual disclosure in the 
year of adoption and interim reporting for periods thereafter.

                                        7
<PAGE>
    SFAS No. 133, "Accounting for Derivative Instruments and Hedging 
Activities", was issued in June 1998 and establishes accounting and reporting 
standards for derivative instruments, including certain derivative instruments 
embedded in other contracts (collectively referred to as derivatives) and for 
hedging activities.  SFAS No. 133 is effective for all quarters of fiscal years
beginning after June 15, 1999.  Management is reviewing this statement and does
not expect that application of this statement will have a material effect on 
the results of operations or the financial position of the Corporation.

    SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the 
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking 
Enterprise", was issued in October 1998 and requires that entities securitizing 
mortgage loans held for sale shall classify any retained mortgage-backed 
securities in accordance with the provisions of Statement No. 115, which 
requires the classification be based upon the enterprise's ability and intent 
to sell or hold those investments.  This statement is effective for the first 
fiscal quarter beginning after December 15, 1998.  Application of this 
statement will not have a material effect on the results of operations or the 
financial position of the Corporation.

    ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                            RESULTS OF OPERATIONS

    This section contains forward-looking statements that have been prepared on 
the basis on the Corporation's best judgments and currently available 
information.  These forward-looking statements are inherently subject to 
significant business, economic and competitive uncertainties and contingencies, 
many of which are beyond the control of the Corporation.  In addition, these 
forward-looking statements are subject to assumptions with respect to future 
business strategies and decisions that are subject to changes.  Accordingly, 
there can be no assurance that many of these strategies will be implemented, or 
if implemented, achieve the amounts described or within the time periods 
currently estimated.

                                     MERGER

    On August 1, 1997, Cascade Financial Corporation completed a merger with 
AmFirst Bancorporation ("AmFirst").  This merger added three new full-service 
offices to Cascade's branch network and immediately established Cascade's 
commercial banking presence in Snohomish County.  Acquired assets were $67.3 
million, including $36.0 million primarily in commercial loans.  Cascade also 
acquired deposits of $60.7 million in the merger.  The merger was accounted for 
as a pooling-of-interests.  Accordingly, the assets and liabilities of AmFirst 
were added to those of Cascade at their recorded book values, and the financial 
statements of Cascade were restated as if the merger had taken place at the 
beginning of the periods covered.

                                       8
<PAGE>
                            ASSET/LIABILITY MANAGEMENT

    Cascade, like other financial institutions, is subject to fluctuations in 
interest rates because its interest-bearing liabilities reprice on different 
terms than its interest-earning assets.  During periods of interest rate 
declines this position has a generally favorable impact on net interest income, 
while increases in interest rates have a generally adverse impact on net 
interest income.

    Cascade uses a simulation model to measure its interest rate risk and the 
effects on net interest income resulting from changes in market interest rates.
Based on this model (which includes a number of significant assumptions and 
estimates), a 200 basis point increase in general interest rates would reduce 
Cascade's annual net interest income by 2% at June 30, 1998.  Cascade manages 
interest rate risk by retaining in its portfolio permanent and construction 
adjustable rate loans with repricing periods that generally do not exceed seven 
years.  Principally all new fifteen and thirty year fixed rate loans are sold.  
Cascade extends the maturity of its liabilities by offering deposit products to 
long-term, less rate sensitive customers, and by periodically obtaining longer 
term Federal Home Loan Bank-Seattle ("FHLB") advances.  Cascade also uses 
interest rate swap and interest rate cap agreements to effectively extend the 
repricing of short-term deposit accounts.

    Cascade uses mandatory and optional forward commitments from investment 
banking firms to mitigate the interest rate risk from its mortgage banking 
operation.

                          CHANGES IN FINANCIAL CONDITION

    Total assets increased to $460.5 million at September 30, 1998, compared 
with $444.2 million at June 30, 1998.  Loans, net increased by $1.8 million and 
securities available for sale increased $10 million.  Increases in assets were 
funded by a $6.1 million increase in deposits and a $9.3 million increase in 
FHLB-Seattle advances.

Asset Quality
    Nonperforming assets totaled $1.8 million and $2.0 million at September 30, 
1998 and June 30, 1998, respectively.  Assets classified as substandard totaled 
$4.4 million at both September 30, 1998 and June 30, 1998.

                                 RESULTS OF OPERATIONS

       Comparison of the Three months Ended September 30, 1998 and 1997

General

    Net income for the three months ended September 30, 1998 increased to 
$883,000 compared with $646,000 in 1997.  The principal reason for the increase 
in the three months earnings was an increase in interest income of $632,000.

                                        9
<PAGE>

Net Interest Income

    Net interest income increased $586,000 to $3.8 million for the three months 
ended September 30, 1998, compared to the quarter ended September 30, 1997.  
The Bank's net interest margin increased 23 basis points for quarter ended 
September 30, 1998, to 3.39%, as compared to the quarter ended September 30, 
1997. Average interest earning assets increased $20.3 million to $426.8 million 
for the quarter ended September 30, 1998.  Average loans increased $44.4 
million and average securities decreased $20.4 million during the quarter ended 
September 30, 1998 as compared to the quarter ended September 30, 1997.  The 
increase in average loans, which provide a much higher yield than investments, 
coupled with a decrease of 21 basis points in the Bank's cost of funds, which 
decreased to 5.15% for the quarter ended September 30, 1998, were the primary 
factors leading to the increase in net interest margin.

    Cascade is focusing on adding commercial businesses, nonconforming one-to-
four family loans, multi-family loans, home equity lines of credit, and one-to-
four family construction loans to its portfolio.  Nonconforming loans generally 
include loans where the borrower has a debt level or other financial 
consideration that makes the loan unsaleable to government agencies such as 
FHLMC and FNMA.  Management believes these products provide the best returns 
for Cascade and can be underwritten conservatively to ensure low delinquency, 
absent unforeseen changes in local or national economic conditions.  
Additionally, these loan types are typically not effected as much by refinance 
activity as conforming loans.  This should help to lower Cascade's overall 
origination and servicing costs in the future.

Provision for Loan Losses

    Cascade's provision for loan losses was $150,000 for the three months ended 
September 30, 1998 compared with $102,000 in 1997.  At September 30, 1998 and 
June 30, 1998, the Bank's loan loss allowance totaled $4.3 million and $4.1 
million, respectively and the loan loss allowance as a percent of net loans 
outstanding was 1.1% for both periods.  Nonperforming loans decreased $557,000 
to $1.3 million at September 30, 1998 as compared to the period ending June 30, 
1998.  Substandard loans were unchanged during the same period.  The provision 
for loan losses reflects management's quarterly evaluation of the adequacy of 
the allowance for losses on loans.  In determining adequacy, management 
considers changes in the size and composition of the loan portfolio, actual 
loan loss experience, current and anticipated economic conditions and other 
factors.  Management intends to grow the commercial, nonconforming, 
construction, and income property portfolios.  These loans typically have a 
higher credit risk which will require additions to the reserve in future 
periods.  Management monitors these loans at an increased level to maintain 
credit quality and adequate reserve levels.

Other Income

    Other income increased during the quarter ended September 30, 1998 to 
$536,000 as compared with the $462,000 recorded in the three months ended 
September 30, 1997.  This increase was the result of an increase in gains from 
the sales of loans of $269,000.  The decrease in market interest rates caused a 
significant increase in the production of loans available for sale, which 
resulted in an increase in gains from sales.  These gains were offset by 
decreases in service charges of $92,000 and gains on sales of securities 
available for sale of $78,000.

Other Expenses

    Other expenses increased $302,000 to $2.8 million for the three months 
ended September 30, 1998 compared with $2.5 million for the three months ended 
September 30, 1997.  This increase is due primarily to increases in salaries 
and employee benefits of $235,000 and data processing of $104,000 resulting 
from the Corporation's expansion of products and services.

                                         10

<PAGE>

Liquidity and Sources of Funds

    Cascade maintains liquidity balances in FHLB deposits and short-term 
securities at levels in accordance with regulatory guidelines.  The Bank held 
average liquid assets of $31.6 million in September 1998, which was in excess 
of the required liquidity level of $15.4 million.

    Loan commitments outstanding at September 30, 1998, were $29.7 million and 
will be funded through sales of loans, existing liquidity balances, FHLB-
Seattle advances, and other borrowings.  Outstanding commitments to sell loans 
totaled $14.2 million at September 30, 1998.

    At September 30, 1998, the Bank had an unused line of credit from the FHLB-
Seattle of $34.6 million.  The Bank's credit line with the FHLB-Seattle is 30% 
of total assets or up to $130 million.  The Bank also had $745,000 of reverse 
repurchase agreements outstanding, a decrease of $12.6 million from June 30, 
1998.

Capital Resources

    Cascade Bank is in full compliance with all capital requirements 
established by the OTS at September 30, 1998.  Cascade's regulatory capital, 
capital requirements, and related excess capital amounts as of September 30, 
1998 are presented in the following table:

    Core capital                  Amount       Percentage
    ------------                  ------       ----------
    Tier 1 (Core) capital       $ 32,053          6.96%
    Less:  Minimum requirement    18,412          4.00
                                 -------         -----
    Excess                      $ 13,641          2.96%
                                 =======         =====

    Risk-based capital            Amount       Percentage
    ------------------            ------       ----------
    Risk-based capital          $ 35,437         11.64%
    Less: Minimum requirement(1)  24,345          8.00
                                 -------         -----
    Excess                      $ 11,092          3.64%
                                 =======         =====

    (1)  Based on risk-weighted assets.

    The Federal Deposit Insurance Corporation Improvement Act of 1991 
("FDICIA") was signed into law on December 19, 1991.  Among other things, the 
FDICIA provides the OTS, effective December 19, 1992, with broad powers to take 
"prompt corrective action" to resolve problems of insured depository 
institutions.  The actions the OTS can take depend upon whether the institution 
in question is "well capitalized", "adequately capitalized", undercapitalized",
"significantly undercapitalized" or "critically undercapitalized".  The OTS has 
advised the Corporation that at September 30, 1998, Cascade Bank is a "well 
capitalized" institution.

    The OTS issued a final rule on August 31, 1993 that incorporates an 
interest rate risk component into the OTS's risk-based capital rule.  The rule 
requires that an institution with an "above normal" level of interest rate risk 
hold additional capital against interest rate risk exposure.  This additional 
capital for interest rate risk exposure would be in excess of the 8% risk-based 
capital requirement.  Only institutions whose measured interest rate risk 
exceeds the above normal level, has risk-based capital below 12%, and assets 
exceed $300 million will be required to maintain an interest rate risk 
component.  The interest rate risk component will be computed quarterly.  The 
OTS has postponed the date the component will first be deducted from an 
institution's total capital until an appeal process is developed for the 
measurement of an institution's interest rate risk.

                                        11
<PAGE>
    Management currently does not believe the final rule will materially 
adversely increase Cascade's regulatory capital requirement nor materially 
adversely effect the current business strategy when, or if it is implemented.

                              YEAR 2000 DISCLOSURE

    Cascade Bank is committed to providing continuous, secure, quality banking 
operations and services as we transition to the twenty-first century.  Cascade 
Bank has performed an assessment of its year 2000 exposure, and is in the 
process of resolving all year 2000 incompatibilities with its current systems 
and operations.  Most of the software systems used by Cascade Bank are standard 
vendor-supplied solutions under maintenance contracts.  These solutions have 
either been certified by the vendors as year 2000 compliant, are being modified 
for year 2000 compliance by the vendor, or are being replaced by Cascade Bank 
with year 2000 compliant systems.

    Cascade Bank has established a year 2000 project that is being managed at 
the executive vice president level, with regular status reports provided to 
senior management and the board of directors.  The project encompasses all 
activities associated with achieving year 2000 compliance and minimizing year 
2000 risk at Cascade Bank.  Examiners from the Office of Thrift Supervision 
(OTS), the Bank's regulators, have also reviewed the Bank's year 2000 progress 
and project plans. 

    The assessment phase of the year 2000 project has been completed, and a 
report was provided to the Board of Directors, and the OTS.  The report 
analyzes readiness from two perspectives.  In the first stage a business 
readiness assessment was provided in terms of the Bank's critical business 
processes, significant borrowers, and significant business partners.  This was 
followed with a technical review of the Bank's automated systems.  The report 
provides a year 2000 project plan with schedules, budget estimates, and 
contingency plans based on the business and technical analysis, hardware and 
software inventories, vendor-provided year 2000 product information, software 
conversion estimates, equipment and software upgrades, and contingency plans.  
The project calls for all year 2000 testing to be completed by December 31, 
1998.

    As of September 30, 1998, the Bank has spent $54,000 of its $250,000 budget 
to upgrade computer equipment and purchase software upgrades for year 2000.  
The Bank has not added additional staff due to the year 2000 project, and does 
not anticipate adding any in the future.

    Mission critical computer functions are either in the process of being 
tested or have been tested.  The Year 2000 Committee is currently preparing 
detailed contingency plans for all mission critical computer functions.  The 
Bank is anticipating a December 31, 1998, completion date for testing and the 
contingency plan.
                                         12
<PAGE>

                             PART II -- OTHER INFORMATION

Item 1.  Legal Proceedings.
---------------------------

    The Corporation and the Bank have certain litigation and negotiations in 
progress resulting from activities arising from normal operations.  In the 
opinion of management, none of these matters is likely to have a materially 
adverse effect on the Corporation's financial position.

Item 2.  Changes in Securities.
-------------------------------

    Not applicable

Item 3.  Defaults upon Senior Securities.
-----------------------------------------

    Not applicable

Item 4.  Submission of Matters to a Vote of Security Holders.
-------------------------------------------------------------

    Not applicable

Item 5.  Other information.
---------------------------

    Not applicable

Item 6.  Exhibits and Reports on Form 8-K.
------------------------------------------

    Not applicable


Signatures
----------

    Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.

                                         CASCADE FINANCIAL CORPORATION

                                         /S/  Russell E. Rosendal
November 13, 1998                        -----------------------------
                                         By:  Russell E. Rosendal
                                              Executive Vice President
                                              (Chief Financial Officer)