UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





þ
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE QUARTERLY PERIOD ENDED March 31,
      2009




OR




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




Commission
file number0-25286





CASCADE FINANCIAL
CORPORATION


(Exact
name of registrant as specified in its charter)





Washington
              
              91-1661954(State
      or other jurisdiction of incorporation or organization)
              
              (IRS
      Employer Identification No.)2828
      Colby AvenueEverett,
      Washington
              
              98201(Address
      of principal executive offices)
              
              (Zip
      Code)(425)
      339-5500(Registrant's
      telephone number, including area
code)





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 ninety days. Yes þ     No
 ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes þ    No
 ̈





Indicate
by check mark whether the registrant is a “large accelerated filer”, an
“accelerated filer”, a “non-accelerated filer”, or a “smaller reporting
company”. See definition of “large accelerated filer”, “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.




Large
Accelerated Filer  ̈    Accelerated
Filer þ    Non-Accelerated
Filer  ̈    Smaller
Reporting Company  ̈




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes  ̈     No
þ




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 April 30,
      2009Common
      Stock ($.01 par value)
            12,110,434


1


CASCADE
FINANCIAL CORPORATION





FORM
10-Q


For the Quarter Ended March 31, 2009








INDEX





PAGEPART I — Financial
    Information:Item 1
              —
      Financial Statements:—
      Condensed Consolidated Balance Sheets
              3—
      Condensed Consolidated Statements of Operations
              4—
      Consolidated Statements of Comprehensive (Loss) Income
              5—
      Condensed Consolidated Statements of Cash Flows
              6—
      Notes to Condensed Consolidated Financial Statements
              8Item 2
              —
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations
              15Item 3
              —
      Quantitative and Qualitative Disclosures about Market Risk
              29Item 4
              —
      Controls and Procedures
              30PART II — Other
Information:Item 1
              —
      Legal Proceedings
              31Item 1A
              —
      Risk Factors
              31Item 2
              —
      Unregistered Sales of Equity Securities and Use of
Proceeds
              31Item 3
              —
      Defaults Upon Senior Securities
              32Item 4
              —
      Submission of Matters to a Vote of Security Holders
              32Item 5
              —
      Other Information
              32Item 6
              —
      Exhibits
              32Signatures
              33







2


PART I –– FINANCIAL
INFORMATION


Item
1 – Financial Statements





CASCADE
FINANCIAL CORPORATION AND SUBSIDIARY


CONDENSED
CONSOLIDATED BALANCE SHEETS


(unaudited)


(Dollars
      in thousands, except share and per share amounts)
                
                March
      31,
                
                
                December
      31,2009
                
                
                2008ASSETSCash
      on hand and in banks
                
                $
                10,267
                
                
                $
                11,859Interest-earning
      deposits in other institutions
                
                
                42,166
                
                
                
                10,907Fed
      funds sold
                
                
                -
                
                
                
                30,700Securities
      available-for-sale, fair value
                
                
                196,391
                
                
                
                123,678Federal
      Home Loan Bank (FHLB) stock
                
                
                11,920
                
                
                
                11,920Securities
      held-to-maturity, amortized cost
                
                
                76,195
                
                
                
                120,594Loans,
      net of allowance for loan losses and deferred loan fees
                
                
                1,223,079
                
                
                
                1,238,733Goodwill
                
                
                24,585
                
                
                
                24,585Core
      deposit intangible, net
                
                
                458
                
                
                
                493Premises
      and equipment, net
                
                
                15,413
                
                
                
                15,463Cash
      surrender value of bank-owned life insurance (BOLI)
                
                
                23,860
                
                
                
                23,638Deferred
      tax asset
                
                
                11,984
                
                
                
                9,828Real
      estate owned (REO) and other repossessed assets
                
                
                9,082
                
                
                
                1,446Accrued
      interest receivable and other assets
                
                
                13,938
                
                
                
                13,475TOTAL
      ASSETS
                
                $
                1,659,338
                
                
                $
                1,637,319LIABILITIESDeposits
                
                $
                1,015,363
                
                
                $
                1,006,782FHLB
      advances
                
                
                249,000
                
                
                
                249,000Securities
      sold under agreements to repurchase
                
                
                146,495
                
                
                
                146,390Federal
      Reserve Bank (FRB) TAF borrowing
                
                
                60,000
                
                
                
                40,000Junior
      subordinated debentures payable
                
                
                15,465
                
                
                
                15,465Junior
      subordinated debentures payable, fair value
                
                
                8,720
                
                
                
                10,510Advance
      payments by borrowers for taxes and insurance
                
                
                1,322
                
                
                
                515Dividends
      payable
                
                
                365
                
                
                
                759Accrued
      interest payable, expenses and other liabilities
                
                
                6,442
                
                
                
                7,776TOTAL
      LIABILITIES
                
                
                1,503,172
                
                
                
                1,477,197STOCKHOLDER’S EQUITYPreferred
      stock, no par value, authorized 38,970 shares;
                  Series
      A (liquidation preference $1,000 per share); issued and outstanding 38,970
      at March 31, 2009, and December 31, 2008
                
                
                36,721
                
                
                
                36,616Preferred
      stock, $.01 par value, authorized 500,000 shares; no shares issued or
      outstanding
                
                
                -
                
                
                
                -Common
      stock, $.01 par value, authorized 25,000,000 shares; issued and
      outstanding 12,110,434 shares at March 31, 2009, and 12,071,032 shares at
      December 31, 2008
                
                
                121
                
                
                
                121Additional
      paid-in capital
                
                
                40,906
                
                
                
                40,781Retained
      earnings, substantially restricted
                
                
                75,423
                
                
                
                80,875Warrants
      issued to US Treasury
                
                
                2,389
                
                
                
                2,389Accumulated
      other comprehensive income (loss), net of tax
                
                
                606
                
                
                
                (660
                )TOTAL
      STOCKHOLDERS’ EQUITY
                
                
                156,166
                
                
                
                160,122TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                $
                1,659,338
                
                
                $
                1,637,319





See notes
to condensed consolidated financial statements


3


CASCADE
FINANCIAL CORPORATION AND SUBSIDIARY


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


Three
      months ended March 31,(Dollars
      in thousands, except share and per share amounts)
                
                2009
                
                
                2008Interest
      income:
                
                (unaudited)Loans
                
                $
                18,215
                
                
                $
                19,308Securities
      available-for-sale
                
                
                1,875
                
                
                
                1,527FHLB
      dividends
                
                
                -
                
                
                
                30Securities
      held-to-maturity
                
                
                1,310
                
                
                
                2,084Interest-earning
      deposits
                
                
                10
                
                
                
                65Total
      interest income
                
                
                21,410
                
                
                
                23,014Interest
      expense:Deposits
                
                
                4,956
                
                
                
                7,966FHLB
      advances
                
                
                2,656
                
                
                
                2,740Securities
      sold under agreements to repurchase
                
                
                2,103
                
                
                
                1,303Federal
      Reserve Bank borrowings
                
                
                46
                
                
                
                -Junior
      subordinated debentures
                
                
                530
                
                
                
                530Total
      interest expense
                
                
                10,291
                
                
                
                12,539Net
      interest income
                
                
                11,119
                
                
                
                10,475Provision
      for loan losses
                
                
                13,875
                
                
                
                2,390Net
      interest (loss) income after provision for loan losses
                
                
                (2,756
                )
                
                
                8,085Other
      income:Checking
      fees
                
                
                1,112
                
                
                
                1,036Service
      fees
                
                
                249
                
                
                
                231Increase
      in cash surrender value of BOLI
                
                
                239
                
                
                
                260Net
      gain on sales/calls of securities available-for-sale
                
                
                -
                
                
                
                359Net
      gain on calls of securities held-to-maturity
                
                
                118
                
                
                
                105Gain
      on sale of loans
                
                
                39
                
                
                
                37Net
      gain on fair value of financial instruments
                
                
                1,790
                
                
                
                305Loss
      on real estate owned
                
                
                (54
                )
                
                
                -Other
                
                
                117
                
                
                
                121Total
      other income
                
                
                3,610
                
                
                
                2,454Other
      expenses:Compensation
      and employee benefits
                
                
                3,605
                
                
                
                3,641Occupancy
                
                
                1,049
                
                
                
                952Marketing
                
                
                250
                
                
                
                238Other
      than temporary impairment (OTTI) on investments
                
                
                858
                
                
                
                -Other
                
                
                2,811
                
                
                
                2,104Total
      other expenses
                
                
                8,573
                
                
                
                6,935(Loss)
      income before (benefit) provision for federal income taxes
                
                
                (7,719
                )
                
                
                3,604(Benefit)
      provision for federal income taxes
                
                
                (2,902
                )
                
                
                990Net
      (loss) income
                
                
                (4,817
                )
                
                
                2,614Dividends/senior
      preferred stock
                
                
                482
                
                
                
                -Net
      (loss) income available for common stockholders
                
                $
                (5,299
                )
                
                $
                2,614Net
      (loss) income per common share, basic
                
                $
                (0.44
                )
                
                $
                0.22Weighted
      average number of shares outstanding, basic
                
                
                12,100,584
                
                
                
                12,035,806Net
      (loss) income per share, diluted
                
                $
                (0.44
                )
                
                $
                0.21Weighted
      average number of shares outstanding, diluted
                
                
                12,100,584
                
                
                
                12,206,374Dividends
      declared per share
                
                $
                0.01
                
                
                $
                0.09


See notes
to condensed consolidated financial statements


4


CASCADE
FINANCIAL CORPORATION AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF COMPREHENSIVE (LOSS) INCOME


(unaudited)








Three
      months Ended(Dollars
      in thousands)
                
                March
      31,2009
                
                
                2008Net
      (loss) income
                
                $
                (4,817
                )
                
                $
                2,614Unrealized
      (loss) gain on securities available-for-sale, net of tax (benefit) expense
      of $682 and $(226) for the three months ended March 31, 2009, and 2008,
      respectively.
                
                
                1,266
                
                
                
                (421
                )Reclassification
      adjustment for gains on securities included in net income, net of tax
      provision of $0 and $126 for the three months ended March 31, 2009, and
      2008, respectively.
                
                
                -
                
                
                
                233Comprehensive
      (loss) income
                
                $
                (3,551
                )
                
                $
                2,426





























See notes
to condensed consolidated financial statements


5


CASCADE
FINANCIAL CORPORATION AND SUBSIDIARY


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(unaudited)


Three
      Months Ended
                      March
      31,(Dollars
      in thousands)
                    
                    2009
                    
                    
                    2008Cash
      flows from operating activities:Net
      (loss) income
                    
                    $
                    (4,817
                    )
                    
                    $
                    2,614Adjustments
      to reconcile net (loss) income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization of premises and equipment
                    
                    
                    564
                    
                    
                    
                    497Provision
      for losses on loans
                    
                    
                    13,875
                    
                    
                    
                    2,390Increase
      in cash surrender value of BOLI
                    
                    
                    (222
                    )
                    
                    
                    (232
                    )Amortization
      of retained servicing rights
                    
                    
                    8
                    
                    
                    
                    11Amortization
      of core deposit intangible
                    
                    
                    35
                    
                    
                    
                    35Deferred
      federal income taxes
                    
                    
                    (2,838
                    )
                    
                    
                    (219
                    )Deferred
      loan fees, net of amortization
                    
                    
                    (295
                    )
                    
                    
                    (2
                    )Gain
      on sale of loans
                    
                    
                    (39
                    )
                    
                    
                    (37
                    )Stock-based
      compensation
                    
                    
                    61
                    
                    
                    
                    51Excess
      tax benefit from stock-based payments
                    
                    
                    (4
                    )
                    
                    
                    -Net
      gain on fair value of financial instruments
                    
                    
                    (1,790
                    )
                    
                    
                    (305
                    )Gain
      on sales/calls of securities available-for-sale
                    
                    
                    -
                    
                    
                    
                    (359
                    )Gain
      on calls of securities held-to-maturity
                    
                    
                    (118
                    )
                    
                    
                    (105
                    )Net
      decrease (increase) in accrued interest receivable, REO and other
      assets
                    
                    
                    492
                    
                    
                    
                    (92
                    )Net
      decrease in accrued interest payable, expenses and other
      liabilities
                    
                    
                    (1,728
                    )
                    
                    
                    (557
                    )Other
      than temporary impairment on investments
                    
                    
                    858
                    
                    
                    
                    -Net
      cash provided by operating activities
                    
                    
                    4,036
                    
                    
                    
                    3,690Cash
      flows from investing activities:Loans
      originated, net of principal repayments
                    
                    
                    (5,582
                    )
                    
                    
                    (46,407
                    )Net
      purchases of securities available-for-sale
                    
                    
                    (78,011
                    )
                    
                    
                    (98,951
                    )Proceeds
      from sales/calls of securities available-for-sale
                    
                    
                    3,750
                    
                    
                    
                    63,851Principal
      repayments on securities available-for-sale
                    
                    
                    2,639
                    
                    
                    
                    520Net
      purchases of securities held-to-maturity
                    
                    
                    -
                    
                    
                    
                    (57,763
                    )Proceeds
      from calls of securities held-to-maturity
                    
                    
                    43,500
                    
                    
                    
                    60,050Principal
      repayments on securities held-to-maturity
                    
                    
                    1,017
                    
                    
                    
                    483Purchases
      of premises and equipment
                    
                    
                    (515
                    )
                    
                    
                    (1,559
                    )Net
      change in investment in Community Reinvestment Act (CRA) – low income
      housing
                    
                    
                    (500
                    )
                    
                    
                    108Net
      cash used in investing activities
                    
                    
                    (33,702
                    )
                    
                    
                    (79,668
                    )Subtotal,
      carried forward
                    
                    $
                    (29,666
                    )
                    
                    $
                    (75,978
                    )























See notes
to condensed consolidated financial statements


6


CASCADE
FINANCIAL CORPORATION AND SUBSIDIARY


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(unaudited)


Three
      Months EndedMarch
      31,(Dollars
      in thousands)
                          
                          2009
                          
                          
                          2008Subtotal,
      brought forward
                          
                          $
                          (29,666
                          )
                          
                          $
                          (75,978
                          )Cash
      flows from financing activities:Proceeds
      from issuance of common stock
                          
                          
                          132
                          
                          
                          
                          221Dividends
      paid
                          
                          
                          (998
                          )
                          
                          
                          (1,082
                          )Excess
      tax benefits from stock-based payments
                          
                          
                          4
                          
                          
                          
                          -Net
      increase in deposits
                          
                          
                          8,581
                          
                          
                          
                          46,579Net
      increase in FHLB advances
                          
                          
                          -
                          
                          
                          
                          18,000Net
      increase in securities sold under agreements to repurchase
                          
                          
                          105
                          
                          
                          
                          8Net
      increase in Federal Reserve TAF borrowing
                          
                          
                          20,000
                          
                          
                          
                          20,000Net
      decrease in advance payments by borrowers for taxes and
      insurance
                          
                          
                          807
                          
                          
                          
                          213Net
      cash provided by financing activities
                          
                          
                          28,631
                          
                          
                          
                          83,939Net
      (decrease) increase in cash and cash equivalents
                          
                          
                          (1,035
                          )
                          
                          
                          7,961Cash
      and cash equivalents at beginning of period
                          
                          
                          53,466
                          
                          
                          
                          14,530Cash
      and cash equivalents at end of period
                          
                          $
                          52,433
                          
                          
                          $
                          22,491Supplemental
      disclosures of cash flow information—cash paid during the period
      for:Interest
                          
                          $
                          10,587
                          
                          
                          $
                          13,193Federal
      income taxes
                          
                          
                          350
                          
                          
                          
                          200Supplemental
      schedule of non-cash investing activities:Change
      in unrealized gain on securities available-for-sale, net of
      tax
                          
                          
                          (1,266
                          )
                          
                          
                          (421
                          )Dividends
      declared – Common stock
                          
                          
                          121
                          
                          
                          
                          1,084Dividends
      declared – Preferred stock
                          
                          
                          244
                          
                          
                          
                          -Loans
      transferred to REO and other repossessed assets
                          
                          
                          7,690
                          
                          
                          
                          154








See notes
to condensed consolidated financial statements




7




CASCADE FINANCIAL CORPORATION AND
SUBSIDIARY  NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


March
31, 2009


(unaudited)





1.
            Presentation
      of Financial Information





The
accompanying financial information is unaudited and has been prepared from the
consolidated financial statements of Cascade Financial Corporation (the
“Corporation”), and its operating subsidiary, Cascade Bank (the “Bank” or
“Cascade”). All significant intercompany balances have been eliminated in the
consolidation. 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. Operating results for the three months ended March 31, 2009, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2009.





Certain
information and footnote disclosures included in the Corporation’s financial
statements for the year ended December 31, 2008, have been condensed or omitted
from this report. Accordingly, these statements should be read in conjunction
with the financial statements and notes thereto included in the Corporation’s
December 31, 2008 Annual Report on Form 10-K.





2.
            Commitments
      and Contingencies





In the
normal course of business there are various commitments to fund loans to meet
the financing needs of our customers. 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, claims involving the origination of real
property loans and other issues incidental to the Corporation’s and the Bank’s
business. In the opinion of management, no material loss is expected from any
such pending lawsuits.





3.
            Recently
      Issued Accounting Standards





In
December 2007, FASB issued SFAS No. 141 (revised), Business Combinations. SFAS
No. 141(R) establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. SFAS No. 141(R) also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the
business combination. This statement applies prospectively to business
combinations for which the acquisition date is on or after January 1, 2009. The
adoption of the SFAS No. 141(R) for reporting as of March 31, 2009, had no
affect on the Corporation’s financial statements.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB
No. 51.  SFAS 160 establishes accounting and
reporting standards that require that the ownership interests in subsidiaries
held by parties other than the parent be clearly identified, labeled, and
presented in the consolidated statement of financial position within equity, but
separate from the parent’s equity; the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of income;
and changes in a parent’s ownership interest while the parent retains
its


8


controlling
financialinterest in its subsidiary be accounted for consistently. SFAS 160
also requires that any retained noncontrolling equity investment in the former
subsidiary be
initially measured at fair value when a subsidiary is deconsolidated.
SFAS 160 also sets forth the disclosure requirements to identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners. SFAS 160 applies to all entities that prepare
consolidated financial statements, except not-for-profit organizations, but will
affect only those entities that have an outstanding noncontrolling interest in
one or more subsidiaries or that deconsolidate a subsidiary. SFAS 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is prohibited.
SFAS 160 must be applied prospectively as of the beginning of the fiscal
year in which SFAS 160 is initially applied, except for the presentation
and disclosure requirements. The presentation and disclosure requirements are
applied retrospectively for all periods presented.  The Corporation
does not have a noncontrolling interest in one or more subsidiaries. The
adoption of the SFAS No. 160 for reporting as of March 31, 2009, did not
have a material impact on the Corporation’s consolidated financial
statements.





In May
2008,The FASB
issued SFAS
No. 162, The Hierarchy of
Generally Accepted Accounting Principles. The new standard is intended to
improve financial reporting by identifying a consistent framework, or hierarchy,
for selecting accounting principles to be used in preparing financial statements
that are presented in conformity with U.S. generally accepted accounting
principles (GAAP) for nongovernmental entities.Prior to the
issuance of SFAS
No. 162, GAAP hierarchy was defined in the American Institute of
Certified Public Accountants (AICPA) Statement on Auditing Standards (SAS) No.
69, The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles. SAS
69 has been criticized because it is directed to the auditor rather than the
entity. SFAS
No. 162
addresses these issues by establishing that the GAAP hierarchy should be
directed to entities because it is the entity (not its auditor) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP.Accordingly,
the initial application of SFAS No. 162 will not have an impact on our
financial statements.





On
January 12, 2009, FASB issued FSP Emerging Issues Task Force (EITF) 99-20-1,
Amendments to the Impairment
Guidance of EITF Issue No. 99-20. FSP EITF 99-20-1 addresses certain
practice issues in EITF No. 99-20, Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests That
Continue to Be Held by a Transferor in Securitized Financial Assets, by
making its other-than-temporary impairment assessment guidance consistent with
SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. FSP EITF 99-20-1
removes the reference to the consideration of a market participant's estimates
of cash flows in EITF 99-20, and instead requires an assessment of whether it is
probable, based on current information and events, that the holder of the
security will be unable to collect all amounts due according to the contractual
terms.  If it is probable that there has been an adverse change in
estimated cash flows, an other-than-temporary impairment is deemed to exist, and
a corresponding loss shall be recognized in earnings equal to the entire
difference between the investment’s carrying value and its fair value at the
balance sheet date of the reporting period for which the assessment is
made.  This FSP is effective for interim and annual reporting periods
ending after December 15, 2008, and shall be applied prospectively. The impact
of adoption did not have a material impact on the Corporation’s consolidated
financial statements.


9


In
April 2009, the FASB issued the following three FSPs intended to provide
additional application guidance and enhance disclosures regarding fair value
measurements and impairments of securities:




FSP FAS
157-4, “Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly,” provides additional guidance for estimating fair value in
accordance with SFAS No. 157 when the volume and level of activity for the
asset or liability have decreased significantly.  FSP FAS 157-4 also
provides guidance on identifying circumstances that indicate a transaction is
not orderly.  The provisions of FSP FAS 157-4 are effective for the
Corporation’s interim period ending on June 30, 2009.  Management is
currently evaluating the effect that the provisions of FSP FAS 157-4 may have on
the Corporation’s consolidated financial statements.




FSP FAS
107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments,” requires
disclosures about fair value of financial instruments in interim reporting
periods of publicly traded companies that were previously only required to be
disclosed in annual financial statements.  The provisions of FSP FAS 107-1
and APB 28-1 are effective for the Corporation’s interim period ending on
June 30, 2009.  As FSP FAS 107-1 and APB 28-1 amends only the
disclosure requirements about fair value of financial instruments in interim
periods, the adoption of FSP FAS 107-1 and APB 28-1 is not expected to affect
the Corporation’s statement of operations and balance sheet.




FSP FAS
115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments,” amends current other-than-temporary
impairment guidance in GAAP for debt securities to make the guidance more
operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements.  This FSP does not amend existing recognition and measurement
guidance related to other-than-temporary impairments of equity securities. 
The provisions of FSP FAS 115-2 and FAS 124-2 are effective for the
Corporation’s interim period ending on June 30, 2009.  Management is
currently evaluating the effect that the provisions of FSP FAS 115-2 and FAS
124-2 may have on the Corporation’s consolidated financial
statements.





4.  Other
than temporary impairment (OTTI) on investments





At March 31, 2009, the Corporation
owned preferred shares issued by Fannie Mae ($10.2 million par value) and
Freddie Mac ($10.0 million par value). On September 7, 2008, the U.S.
Treasury, the Federal Reserve and the Federal Housing Finance Agency (FHFA)
announced that it was placing Fannie Mae and Freddie Mac under conservatorship
and would eliminate dividends on Fannie Mae and Freddie Mac common and preferred
stock. The Corporation recorded a pre-tax OTTI charge of $17.3 million,
resulting in a charge net of taxes of $11.3 million to third quarter 2008
earnings. As of March 31, 2009, the Corporation adjusted the value of these
securities from $1.3 million to $436,000, which resulted in an additional OTTI
charge of $858,000 taken in the first quarter of 2009.




10







a)
            Earnings
      per Share





The
following table presents the computation of basic and diluted net (loss) income
per common share for the periods indicated:


Three
      Months Ended March 31,(Dollars
      in thousands, except share and per share amounts)
                
                2009
                
                
                2008Numerator:Net
      (loss) income
                
                $
                (4,817
                )
                
                $
                2,614Dividend
      on preferred stock
                
                
                482
                
                
                
                -Net
      (loss) income available for common stockholders
                
                $
                (5,299
                )
                
                $
                2,614Denominator:Denominator
      for basic net income per common share – Weighted average common
      shares
                
                
                12,100,584
                
                
                
                12,035,806Effect
      of dilutive stock options
                
                
                -
                
                
                
                170,568Denominator
      for diluted net income per common share - Weighted average common shares
      and assumed conversion of dilutive stock options
                
                
                12,100,584
                
                
                
                12,206,374Basic
      net (loss) income per common share
                
                $
                (0.44
                )
                
                $
                0.22Diluted
      net (loss) income per common share
                
                $
                (0.44
                )
                
                $
                0.21





For the
quarters ended March 31, 2009 and 2008, there were anti-dilutive options to
purchase shares of 656,883 and 241,266 respectively, excluded from the above
calculation.





b)
            Dividends





On March 26, 2009, the Corporation
announced its twenty-seventh consecutive quarterly cash dividend payment. The
dividend was $0.01 per share and was paid on April 29, 2009, to shareholders of
record as of April 15, 2009. The Corporation entered into an agreement with the
Treasury to participate in the TARP Capital Purchase Program on November 21,
2008.  Prior to that date the Corporation had paid a quarterly
dividend of $0.045.  The Corporation’s ability to increase its
quarterly common dividend above $0.045 in future periods is restricted as long
as the Corporation is a participant in the TARP Capital Purchase
Program.





c)
            Stock-based
      Compensation





Compensation
expense related to stock-based compensation was $63,000 for the three months
ended March 31, 2009, and $51,000 for the three months ended March 31,
2008.




11




Changes
in total options outstanding for the three months ended March 31, 2009, are as
follows:


Options
              
              
              Weighted-
                Average
                Exercise
                Price
      per Share
              
              
              Weighted-
                Average
                Remaining
                Contractual
                Term
                (in
      years)
              
              
              Aggregate
                Intrinsic
                ValueOutstanding
      on December 31, 2008
              
              
              656,883
              
              
              $
              10.41
              
              
              
              5.07
              
              
              $
              153,385Granted
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -Forfeited/Canceled
              
              
              -
              
              
              
              -Outstanding
      on March 31, 2009
              
              
              656,883
              
              
              $
              10.41
              
              
              
              4.82
              
              
              $
              -Exercisable
      on March 31, 2009
              
              
              499,265
              
              
              $
              9.40
              
              
              
              3.81
              
              
              $
              -





The
unrecognized share-based compensation cost on unvested options at March 31,
2009, was $191,760, which will be recognized over the estimated average
requisite service period of the options of approximately five
years.





Options are granted to certain
employees and directors at prices equal to the market value of the stock at the
close of trading on the dates the options are granted. The options granted have
a term of 10 years from the grant date. Incentive stock options granted to
employees vest over a five-year period. Non-qualified options granted to
directors vest over a four-year period. Compensation expense is recorded as if
each vesting portion of the award is a separate award. We have estimated the
fair value of all stock option awards as of the date of the grant by applying a
Black-Scholes option pricing valuation model. The application of this valuation
model involves assumptions that are judgmental and sensitive in the
determination of compensation expense.





The total
options authorized at March 31, 2009, were 1,101,040. No options were granted
nor exercised during the three months ended March 31, 2009.





Historical
information is the primary basis for the selection of the expected volatility,
projected dividend yield and expected lives of the options. The Bank uses
historical information for its key assumptions. The Bank has collected a long
history of option activity and believes that this historical information
presents the best basis for future projections related to expected term. The
risk-free interest rate was selected based upon U.S. Treasury issues with a term
equal to the expected life of the option being valued at the time of the
grant.





SFAS No.
123(R) requires the recognition of stock-based compensation for the number of
awards that are expected to vest. As a result, for most awards, recognized stock
compensation expense was reduced by estimated forfeitures primarily based on
historical forfeiture rates of 6.19%. Estimated forfeitures will be continually
evaluated in subsequent periods and may change based on new facts and
circumstances.





(d)        Emergency
Economic Stabilization Act of 2008 and Troubled Asset Relief
Program




In
response to the financial crises affecting the banking system and financial
markets, the Emergency Economic Stabilization Act of 2008 (the “Act”) was
enacted on October 3, 2008. In conjunction with the Act and the Troubled
Asset Relief Program (TARP), the U.S. Treasury Department announced the
voluntary Capital Purchase Program (CPP) to assist financial institutions and
increase lending to United States businesses and consumers. Pursuant to the
program,
the Treasury was authorized to purchase up to $250 billion of preferred stock
and receive warrants to purchase common stock from qualifying
institutions.


12





On
November 21, 2008, the Corporation completed its $39 million capital raise as a
participant in the U.S. Treasury Department’s Capital Purchase
Program.  Under the terms of the transaction the Corporation issued
38,970 shares of Series A Fixed-Rate Cumulative Perpetual Preferred Stock and a
warrant to purchase 863,442 shares of the Corporation’s common stock at an
exercise price of $6.77 per share.The additional
capital will enhance our capacity to support the communities we serve through
expanded lending activities. This capital will also add flexibility in
considering strategic opportunities that management believes may be available to
us as the financial services industry continues to
consolidate.





The
preferred shares issued under the CPP carry a 5% dividend for the first five
years that increases to 9% thereafter. As a condition for participating in
the CPP, the Corporation has accepted limitations on executive compensation and
benefits. These limitations are explained in greater detail in the Corporation’s
most recent proxy statement filed with the SEC on March 23, 2009.





6.
            Non-Qualified
      Deferred Compensation Plan





The
Corporation has adopted the Cascade Bank Non-Qualified Deferred Compensation
Plan (the “Plan”) dated February 1, 2008.  The Plan is an unfunded,
non-qualified deferred compensation plan designed to provide directors and a
select group of management and highly compensated employees of the Bank an
opportunity to defer a portion of their salary and incentives. The Bank may
also, in its sole discretion, make contributions to accounts on behalf of any
and all eligible persons. For the quarter ended March 31, 2009, eligible
participants contributed $16,000 to the Plan. There have been no contributions
made by Cascade Bank as of March 31, 2009.





7.
            Fair
      Value Measurements





SFAS
No. 157, Fair Value
Measurements, defines fair value, establishes a framework for measuring
fair value, establishes a three-level valuation hierarchy for disclosure of fair
value measurement and enhances disclosure requirements for fair value
measurements. The valuation hierarchy is based upon the transparency of inputs
to the valuation of an asset or liability as of the measurement date. The three
levels are defined as follows:





•  Level 1
      - Inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active markets.•  Level 2
      - Inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial instrument.•  Level 3
      - Inputs to the valuation methodology are unobservable and significant to
      the fair value measurement.







13




Determination
of fair market values:




Available-for-sale
securities are priced using quoted prices (unadjusted) for identical assets in
active markets (Level 1) or through matrix pricing based on securities’
relationship to other benchmark quoted prices (Level 2).





The
Corporation has issued $10 million (of the $25 million outstanding) of junior
subordinated debentures payable that are subject to fair value accounting. These
debentures are priced using discounted cash flows to the expected redemption
date on the date of valuation based on the current yield on similar securities
of a bank holding company and are considered a Level 3 measurement.





Fair
value adjustments to impaired collateral dependent loans are sometimes recorded
to reflect partial write-downs based on the current appraised value of the
collateral or internally developed models which contain management’s assumptions
concerning the amount and timing of the cash flows associated with that
loan.





Fair
value adjustments to real estate owned (REO) and other repossessed assets are
recorded at the lower of carrying amount of the loan or fair value less selling
costs.  Any write-downs based on the asset’s fair value at the date of
acquisition are charged to the allowance for loan losses.  After
foreclosure, management periodically performs valuations such that the real
estate is carried at the lower of its new cost basis or fair value, net of
estimated costs to sell. Those adjustments are categorized as a loss on real
estate owned.





The
following table presents the balances of assets and liabilities measured at fair
value on a recurring basis at March 31, 2009, and the total gains from these
fair value adjustments for the three months ended March 31, 2009.


(Dollars
      in thousands)
                
                Fair
      Value at March 31, 2009
                
                
                Three
      months ended March 31, 2009Assets
                
                Level 1
                
                
                Level 2
                
                
                Level 3
                
                
                Total
                
                
                Total
      GainsAvailable-for-sale
      securities
                
                $
                436
                
                
                $
                195,955
                
                
                $
                -
                
                
                $
                196,391
                
                
                $
                -LiabilitiesJunior
      subordinated debentures payable
                
                $
                -
                
                
                $
                -
                
                
                $
                8,720
                
                
                $
                8,720
                
                
                $
                1,790





The
change in fair market value of the junior subordinated debentures payable is
recorded as a component of other income. For the quarter ended March 31, 2009,
the Corporation opted to use a different reference bond to determine the fair
value for Capital Trust I.  Previously, the Corporation had used another
reference security to determine a fair value for Capital Trust I.  The
institution previously used has recently had a number of issues that impacted
its credit worthiness and rendered this security as an inappropriate
reference.





The
following table presents the fair value adjustments for the junior subordinated
debentures payable which use significant unobservable inputs (Level 3) for the
quarter ended March 31, 2009.


(Dollars
      in thousands)
                    
                    Fair
      value measurements using significant unobservable inputs
                      (Level
      3)Beginning
      balance
                    
                    $
                    10,510Total
      gains recognized
                    
                    
                    1,790Ending
      balance
                    
                    $
                    8,720





14


The
following table presents the balance of assets measured at fair value on a
nonrecurring basis at March 31, 2009, and the total impairment resulting from
these fair value adjustments for the three months ended March 31,
2009.





The
Corporation conducts an impairment analysis on any loan exceeding $1.0 million
when their ability to make all contractual payments on a timely basis is in
question. At March 31, 2009, $180.4 million were subjected to impairment
analysis and the estimated impairment was $886,000. No impairment charges were
taken and/or reserves established for $150.4 million of the analyzed loans.
However, according to FAS114, the Bank is still required to report these loans
as impaired since an impairment analysis was performed.





(Dollars
      in thousands)
                
                Fair
      Value at March 31, 2009
                
                
                Three
      months ended March 31, 2009Description
                
                Level 1
                
                
                Level 2
                
                
                Level 3
                
                
                Total
                
                
                Total
      ImpairmentImpaired
      loans
                
                $
                -
                
                
                $
                -
                
                
                $
                179,486
                
                
                $
                179,486
                
                
                $
                4,768REO
      and other repossessed assets
                
                
                -
                
                
                
                -
                
                
                
                9,082
                
                
                
                9,082
                
                
                
                54Total
                
                $
                -
                
                
                $
                -
                
                
                $
                188,568
                
                
                $
                188,568
                
                
                $
                4,822







Item
2 – Management’s Discussion and Analysis of Financial Condition and Results of
Operations





The
following discussion is intended to assist in understanding the financial
condition and results of the Corporation. The information contained in this
section should be read with the unaudited condensed consolidated financial
statements and accompanying notes included in this Quarterly Report, and the
December 31, 2008 audited consolidated financial statements and accompanying
notes included in our recent Annual Report on Form 10-K.





Forward-Looking
Statements


Certain
of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and subject to the safe harbor created by the Private Securities
Litigation Reform Act of 1995, that are subject to risks and uncertainties that
could cause actual results to differ materially from those
projected.  The Corporation’s actual results may differ materially
from those included in the forward-looking
statements.  Forward-looking statements are typically identified by
words or phrases such as “believe,” “expect,” “intend,” “may increase,” “may
fluctuate,” and similar expressions or future or conditional verbs such as
“will,” “should,” “would,” and “could.”  These forward-looking
statements involve risks and uncertainties including, but not limited to,
economic conditions, portfolio growth, the credit performance of the portfolios,
including bankruptcies, and seasonal factors; changes in general economic
conditions including the performance of financial markets, prevailing inflation
and interest rates, realized gains from sales of investments, gains from asset
sales, and losses on commercial lending activities; results of various
investment activities; the effects of competitors’ pricing policies, of changes
in laws and regulations on competition and of demographic changes on target
market populations’ savings and financial planning needs; industry changes in
information technology systems on which we are highly dependent; failure of
acquisitions to produce revenue enhancements or cost savings at levels or within
the time frames originally anticipated or unforeseen integration difficulties;
the adoption of the Corporation of an FFIEC policy that provides guidance on the
reporting of delinquent consumer loans and the timing of associated credit
charge-offs for financial


15


institution
subsidiaries; and the resolution of legal proceedings and related
matters.  In addition, the banking industry in general is subject to
various monetary and fiscal policies and regulations, which include those
determined by the Federal Reserve Board, the Federal Deposit Insurance
Corporation, and state regulators, whose policies and regulations could affect
the Corporation’s results.  These and other important factors,
including those discussed in our December 31, 2008 Form 10-K, filed with the
Securities and Exchange Commission, under the headings “Risk Factors,”
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and “Business,” and those discussed in this Form 10-Q under Part II,
Item 1A "Risk Factors" below, may cause our actual results, performance or
achievements to differ materially from any future results, performance or
achievements expressed or implied by these forward-looking
statements.  These statements are representative only on the date
hereof, and the Corporation undertakes no obligation to update any
forward-looking statements made.





Cascade
Financial Corporation is a bank holding company incorporated in the state of
Washington. The Corporation’s sole operating subsidiary is Cascade Bank, a
Washington State chartered commercial bank. The Corporation and the Bank are
headquartered in Everett, Washington. The Bank offers loan, deposit, and other
financial services through its twenty-one branches located in Snohomish, King
and Skagit Counties (Washington).





Selected
Financial Data





The
following table sets forth certain selected financial data concerning the
Corporation for the periods indicated:


At
      or for the three months
                  ended
      March 31,2009
                
                
                2008Return
      on average assets (2)
                
                
                (1.20
                )%
                
                
                0.71
                %Return
      on average common equity (2)
                
                
                (17.01
                )
                
                
                8.42Average
      stockholders’ equity to average assets
                
                
                9.87
                
                
                
                8.48Other
      expenses to average assets (2)
                
                
                1.89
                
                
                
                1.88Efficiency
      ratio
                
                
                58.20
                
                
                
                53.64Efficiency
      ratio(1)
                
                
                52.38
                
                
                
                53.64Average
      interest-bearing assets to average interest-bearing
      liabilities
                
                
                107.78
                
                
                
                111.75(1)Excludes
      an $858,000 OTTI charge on investments in Fannie Mae and Freddie Mac
      preferred stock.
                  (2)Annualized.





16


CHANGES
IN FINANCIAL CONDITION





Total
assets increased 1% or $22.0 million to $1.66 billion at March 31, 2009,
compared to $1.64 billion at December 31, 2008. Net loans, i.e. net of deferred
loan fees and the allowance for loan losses, decreased 1% or $15.7 million to
$1.22 billion at March 31, 2009, from $1.24 billion at December 31,
2008.





Total investment
securities increased $28.3 million to $284.5 million at March 31, 2009, compared
to $256.2 million at December 31, 2008. The investment portfolio is concentrated
in securities issued by Government Sponsored Enterprises (GSEs, i.e. FNMA or
FHLMC) as well as mortgage-backed pass-through securities and collateralized
mortgage obligations backed by pools of single family residential mortgages
(known collectively as MBS). All investment purchases during the three months
ended March 31, 2009, were rated AAA or AA in terms of credit quality by Moody’s
and/or Standard & Poors. All MBS and GSE debt securities in the portfolio as
of March 31, 2009, were also rated AAA.





During
the quarter the available-for-sale portfolio grew by $72.7 million and the
held-to-maturity portfolio declined by $44.4 million. $43.5 million of the
held-to-maturity portfolio decline was a result of calls of agency notes.
Purchases resulting from the proceeds from the calls, in addition to the
incremental purchases, were all designated available-for-sale to increase
flexibility in managing the portfolio.





(Dollars
      in thousands)
                
                March
      31, 2009Amortized
                  cost
                
                
                Gross
                  unrealized
                  gains
                  less
      than
                  1
      year
                
                
                Gross
                  unrealized
                  gains
                  more
      than
                  1
      year
                
                
                Gross
                  unrealized
                  losses
                  less
      than
                  1
      year
                
                
                Gross
                  unrealized
                  losses
                  more
      than
                  1
      year
                
                
                Fair
                  valueSecurities
      available-for-saleMBS
                
                $
                44,988
                
                
                $
                596
                
                
                $
                -
                
                
                $
                (133
                )
                
                $
                (203
                )
                
                $
                45,248Agency
      notes
                
                
                150,033
                
                
                
                1,196
                
                
                
                -
                
                
                
                (522
                )
                
                
                -
                
                
                
                150,707Corporate/other
                
                
                436
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                436Total
                
                $
                195,457
                
                
                $
                1,792
                
                
                $
                -
                
                
                $
                (655
                )
                
                $
                (203
                )
                
                $
                196,391





Amortized
                  cost
                
                
                Gross
                  unrealized
                  gains
                  less
      than
                  1
      year
                
                
                Gross
                  unrealized
                  gains
                  more
      than
                  1
      year
                
                
                Gross
                  unrealized
                  losses
                  less
      than
                  1
      year
                
                
                Gross
                  unrealized
                  losses
                  more
      than
                  1
      year
                
                
                Fair
                  valueSecurities
      held-to-maturityMBS
                
                $
                19,463
                
                
                $
                434
                
                
                $
                20
                
                
                $
                (39
                )
                
                $
                -
                
                
                $
                19,878Agency
      notes
                
                
                55,957
                
                
                
                157
                
                
                
                -
                
                
                
                (20
                )
                
                
                -
                
                
                
                56,094Corporate/other
                
                
                775
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                775Total
                
                $
                76,195
                
                
                $
                591
                
                
                $
                20
                
                
                $
                (59
                )
                
                $
                -
                
                
                $
                76,747





December
      31, 2008Amortized
                  cost
                
                
                Gross
                  unrealized
                  gains
                  less
      than
                  1
      year
                
                
                Gross
                  unrealized
                  gains
                  more
      than
                  1
      year
                
                
                Gross
                  unrealized
                  losses
                  less
      than
                  1
      year
                
                
                Gross
                  unrealized
                  losses
                  more
      than
                  1
      year
                
                
                Fair
                  valueSecurities
      available-for-saleMBS
                
                $
                42,250
                
                
                $
                288
                
                
                $
                -
                
                
                $
                (281
                )
                
                $
                (405
                )
                
                $
                41,852Agency
      notes
                
                
                81,149
                
                
                
                368
                
                
                
                -
                
                
                
                (145
                )
                
                
                -
                
                
                
                81,372Corporate/other
                
                
                1,294
                
                
                
                -
                
                
                
                -
                
                
                
                (840
                )
                
                
                -
                
                
                
                454Total
                
                $
                124,693
                
                
                $
                656
                
                
                $
                -
                
                
                $
                (1,266
                )
                
                $
                (405
                )
                
                $
                123,678






17





(Dollars
      in thousands)
                
                December
      31, 2008Amortized
                  cost
                
                
                Gross
                  unrealized
                  gains
                  less
      than
                  1
      year
                
                
                Gross
                  unrealized
                  gains
                  more
      than
                  1
      year
                
                
                Gross
                  unrealized
                  losses
                  less
      than
                  1
      year
                
                
                Gross
                  unrealized
                  losses
                  more
      than
                  1
      year
                
                
                Fair
                  valueSecurities
      held-to-maturityMBS
                
                $
                20,484
                
                
                $
                195
                
                
                $
                14
                
                
                $
                (139
                )
                
                $
                (9
                )
                
                $
                20,545Agency
      notes
                
                
                99,335
                
                
                
                442
                
                
                
                -
                
                
                
                (396
                )
                
                
                -
                
                
                
                99,381Corporate/other
                
                
                775
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                775Total
                
                $
                120,594
                
                
                $
                637
                
                
                $
                14
                
                
                $
                (535
                )
                
                $
                (9
                )
                
                $
                120,701




As of
March 31, 2009, the Bank held six securities in its available-for-sale portfolio
and none in its held-to-maturity portfolio that have had an unrealized loss for
more than one year. The losses on the available-for-sale securities as of
December 31, 2008, have become unrealized gains due to lower market rates on
agency notes and mortgages. We have the intent and ability to hold the
investments below market value for the period of time management believes to be
sufficient for a market price recovery. We hold no securities that are backed by
sub-prime loans or collateralized debt obligations.





The Bank
owns preferred shares issued by Fannie Mae ($10 million par value) and Freddie
Mac ($10 million par value) with a combined adjusted book value of $1.3 million
as of December 31, 2008. With a fair value of $436,000 as of March 31, 2009, the
Corporation took an additional charge of $858,000 during the first quarter of
2009 to allow for flexibility in managing those securities.





At March
31, 2009, the Bank held FHLB of Seattle stock with a par value of $11.9 million.
The Corporation does not anticipate any impairment charges associated with these
instruments. Thus, according to the AICPA Audit Guide, FHLB stock does not have
readily determinable fair value for purposes of FASB Statement No. 115, Accounting for Certain Investment in
Debt and Equity Securities, and the equity ownership rights are more
limited than would be the case for a public company because of the FHFA’s
oversight role in budgeting and approving dividends. FHLB stock is generally
viewed as a long-term investment and as a restricted investment security, which
is carried at cost. Thus, when evaluating FHLB stock for impairment, its value
should be determined based on the ultimate recoverability of the par value
rather than by recognizing temporary declines in value.





Loan
Portfolio





Virtually
all of the Bank’s loans are to businesses or individuals in the Puget Sound
area. Business loans are made to small and medium sized businesses within that
area for a wide array of purposes. Included in the business loan total are loans
secured by real estate, the majority of which the borrower is the primary tenant
of the property. Real estate construction loans are extended to builders and
developers of residential and commercial real estate. Commercial real estate
loans fund small, non-owner occupied buildings.





Residential
loans, held in the Bank’s portfolio, are generally adjustable rate loans secured
by single family residences. The Bank also originates longer term fixed rate
residential loans, but sells most of those loans into the secondary market on a
best efforts, servicing released basis. Home equity loans are primarily second
mortgages on the borrower’s primary residence. Consumer loans are
non-residential, i.e. automobiles, credit cards or boats.


18


The
following summary reflects the Bank’s loan portfolio as of the dates
indicated:





(Dollars
      in thousands)
                  
                  March 31,
      2009
                  
                  
                  %
      of Portfolio
                  
                  
                  December
      31, 2008
                  
                  
                  %
      of PortfolioBusiness
                  
                  $
                  477,220
                  
                  
                  
                  38.2
                  %
                  
                  $
                  485,060
                  
                  
                  
                  38.6
                  %Real
      estate construction(1)
                  
                  
                  342,796
                  
                  
                  
                  27.4
                  
                  
                  
                  406,505
                  
                  
                  
                  32.3Commercial
      real estate
                  
                  
                  176,356
                  
                  
                  
                  14.1
                  
                  
                  
                  122,951
                  
                  
                  
                  9.8Home
      equity/consumer
                  
                  
                  30,567
                  
                  
                  
                  2.4
                  
                  
                  
                  30,772
                  
                  
                  
                  2.4Residential(2)
                  
                  
                  127,176
                  
                  
                  
                  10.2
                  
                  
                  
                  126,089
                  
                  
                  
                  10.0Multifamily
      real estate
                  
                  
                  96,758
                  
                  
                  
                  7.7
                  
                  
                  
                  86,864
                  
                  
                  
                  6.9Total
      loans
                  
                  $
                  1,250,873
                  
                  
                  
                  100.0
                  %
                  
                  $
                  1,258,241
                  
                  
                  
                  100.0
                  %Deferred
      loan fees
                  
                  
                  (2,774
                  )
                  
                  
                  
                  
                  
                  
                  (3,069
                  )Allowance
      for loan losses
                  
                  
                  (25,020
                  )
                  
                  
                  
                  
                  
                  
                  (16,439
                  )Loans,
      net
                  
                  $
                  1,223,079
                  
                  
                  
                  
                  
                  
                  $
                  1,238,733





(1)
            Real
      estate construction loans exclude loans in
  process.


(2)
            Loans
      held-for-sale are included in residential loans, and at less than 1% of
      total loans, are not considered
material.





Net loans
decreased by $15.6 million to $1.22 billion as of March 31, 2009, compared to
$1.24 billion at December 31, 2008. Total originations exceeded payoffs by $5.6
million. However, the transfer from the loan portfolio of $7.7 million (which
has been adjusted for a $1.3 million write-off that has been captured in the net
charge-offs of $5.3 million for the quarter) to real estate owned and a
provision for loan losses, which grew the allowance for loan losses by a net of
$8.6 million, resulted in the lower net loan total.





Within
the portfolio, reclassification from the construction portfolio to commercial
real estate ($49.0 million), multifamily ($9.0 million) and residential
($714,000) reduced the construction portfolio by $58.8 million. In those cases,
the reclassified loans were secured by projects that had been completed and
began to generate sufficient cash flow to justify the move.





(Dollars
      in thousands)
                  
                  Loans
                
                Balance
      at
                  March
      31,
                  2009
                
                
                Net
      new loans - payments
                
                
                Reclassifi-cations
                
                
                Transfers
                  to REO(1)
                
                
                Charge-offs
                
                
                Balance
      at December 31, 2008
                
                
                ChangeBusiness
                
                $
                477,220
                
                
                $
                (7,408
                )
                
                $
                -
                
                
                $
                -
                
                
                $
                (432
                )
                
                $
                485,060
                
                
                
                -2
                %R/E
      construction
                
                
                342,796
                
                
                
                7,574
                
                
                
                (58,801
                )
                
                
                (7,690
                )
                
                
                (4,792
                )
                
                
                406,505
                
                
                
                -16
                %Commercial
      real estate
                
                
                176,356
                
                
                
                4,364
                
                
                
                49,041
                
                
                
                -
                
                
                
                -
                
                
                
                122,951
                
                
                
                43
                %Multifamily
                
                
                96,758
                
                
                
                848
                
                
                
                9,046
                
                
                
                -
                
                
                
                -
                
                
                
                86,864
                
                
                
                11
                %Home
      equity/consumer
                
                
                30,567
                
                
                
                (109
                )
                
                
                -
                
                
                
                -
                
                
                
                (96
                )
                
                
                30,772
                
                
                
                -1
                %Residential
                
                
                127,176
                
                
                
                373
                
                
                
                714
                
                
                
                -
                
                
                
                -
                
                
                
                126,089
                
                
                
                1
                %Total
      loans
                
                $
                1,250,873
                
                
                $
                5,642
                
                
                $
                -
                
                
                $
                (7,690
                )
                
                $
                (5,320
                )
                
                $
                1,258,241
                
                
                
                -1
                %Deferred
      loan fees
                
                
                (2,774
                )
                
                
                274
                
                
                
                -
                
                
                
                -
                
                
                
                21
                
                
                
                (3,069
                )
                
                
                -10
                %Allowance
      for loan losses
                
                
                (25,020
                )
                
                
                (13,875
                )
                
                
                (5
                )
                
                
                -
                
                
                
                5,299
                
                
                
                (16,439
                )
                
                
                52
                %Loans,
      net
                
                $
                1,223,079
                
                
                $
                (7,959
                )
                
                $
                (5
                )
                
                $
                (7,690
                )
                
                $
                -
                
                
                $
                1,238,733
                
                
                
                -1
                %





(1)
            Total
      loans transferred to REO were $9.0 million as of December 31, 2008, with
      $7.7 million transferred to REO and $1.3 million included in charged-off
      loans.





Deposits,
Other Borrowings, and Stockholders’ Equity





Total
deposits increased by $8.6 million to $1.0 billion at March 31, 2009. Savings
and money market accounts (MMDA) decreased $68.1 million as municipalities
reduced their balances by $69.0 million as the Bank sought to reduce and realign
its level of public deposits in light of the assessment to cover the uninsured
deposits associated with the failure of the Bank of Clark County. CDs decreased
$9.4 million to $606.5 million.


19





Checking account deposits
increased as the Bank continued to focus its sales activities on deposit
generation in general and checking/transaction accounts in particular. Total
checking account balances increased by $86.1 million between December 31, 2008
and March 31, 2009. Of that increase, approximately $40.0 million represented
the migration of municipal deposits to FDIC insured accounts from CDs and
MMDAs.





The
following table reflects the Bank’s deposit mix as of the dates
indicated:





(Dollars
      in thousands)
                  
                  March
      31, 2009
                  
                  
                  %
      of Deposits
                  
                  
                  December
      31, 2008
                  
                  
                  %
      of DepositsChecking
      accounts
                  
                  $
                  272,979
                  
                  
                  
                  26.9
                  %
                  
                  $
                  186,843
                  
                  
                  
                  18.5
                  %Savings
      & MMDA
                  
                  
                  135,917
                  
                  
                  
                  13.4
                  
                  
                  
                  204,035
                  
                  
                  
                  20.3CDs
                  
                  
                  606,467
                  
                  
                  
                  59.7
                  
                  
                  
                  615,904
                  
                  
                  
                  61.2Total
                  
                  $
                  1,015,363
                  
                  
                  
                  100.0
                  %
                  
                  $
                  1,006,782
                  
                  
                  
                  100.0
                  %





FHLB
advances were $249.0 million at December 31, 2008 and March 31, 2009. Securities
sold under agreements to repurchase were $146.4 million at December 31, 2008,
and $146.5 at March 31, 2009. Cascade participates in the Federal Reserve’s term
auction facility (TAF) and had a balance of $40.0 million at December 31, 2008
and $60.0 million at March 31, 2009. The Bank uses FHLB advances and repurchase
agreements tomeet the
cash flow and interest rate risk management needs of the Bank.





Total
stockholders’ equity decreased $3.9 million from $160.1 million at December 31,
2008, to $156.2 million at March 31, 2009. The decrease in equity was due to the
net loss for the period that was partially offset by the $1.3 million gain in
accumulated other comprehensive income. The quarterly loss was primarily due to
the $13.9 million loan loss provision that the Bank recorded during the period.
During the three months ended March 31, 2009, no Cascade common stock was
repurchased under the Board approved stock repurchase plan. Accumulated other
comprehensive income increased to $606,000 compared to a $660,000 loss at
December 31, 2008 as a result of unrealized gains on available-for-sale
securities.





Asset
Quality


Non-performing
assets (non-performing loans, real estate owned and other repossessed property)
totaled $59.7 million and $41.8 million at March 31, 2009, and December 31,
2008, respectively. Non-performing loans (NPLs) increased to $50.6 million at
March 31, 2009, compared to $40.3 million at December 31, 2008. NPLs consist of
loans on non-accrual, which includes most loans that are ninety days past due,
and loans that management otherwise has serious reservations about the
collectibility of all principal and interest owed within the time frame of the
underlying notes. Of the $50.6 million, $49.7 million were real estate
construction and land development loans, four were business loans totaling
$730,000, one was a residential loan totaling $155,000 and one was an
installment loan totaling $4,000. The Bank had one loan which was 90 days or
more past due and still accruing, totaling $1.9 million at March 31, 2009. This
loan is secured by real estate and well supported by current appraised values.
There was $9.1 million of real estate owned (REO) at March 31, 2009 compared to
$1.4 million at December 31, 2008. The REO consists of three completed new
houses and 112 developed single family lots.





20





On
      loans designated NPLs as of 12/31/08(Dollars
      in thousands)
                  
                  Nonperforming
      Loans
                
                Balance
      at
                  March
      31,
                  2009
                
                
                Additions
                  during
                  quarter
                
                
                Paydowns
                  during
                  quarter
                
                
                Charge-offs
      during
                  quarter
                
                
                Transfers
                  to REO(1)
                
                
                Balance
      at December 31, 2008Business
                
                $
                730
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (420
                )
                
                $
                -
                
                
                $
                1,150Real
      estate constructionSpec
      construction
                
                
                24,915
                
                
                
                19,690
                
                
                
                (2,071
                )
                
                
                (252
                )
                
                
                (4,187
                )
                
                
                11,735Land
      acquisition and development
                
                
                16,475
                
                
                
                601
                
                
                
                (490
                )
                
                
                (1,630
                )
                
                
                (4,805
                )
                
                
                22,799Land
                
                
                8,323
                
                
                
                3,886
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4,437Total
      real estate constuction
                
                
                49,713
                
                
                
                24,177
                
                
                
                (2,561
                )
                
                
                (1,882
                )
                
                
                (8,992
                )
                
                
                38,971Commercial
      real estate
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Consumer
                
                
                4
                
                
                
                4
                
                
                
                -
                
                
                
                (2
                )
                
                
                -
                
                
                
                2Residential
                
                
                155
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                155Multifamily
      real estate
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
                
                $
                50,602
                
                
                $
                24,181
                
                
                $
                (2,561
                )
                
                $
                (2,304
                )
                
                $
                (8,992
                )
                
                $
                40,278





(1)
            Balance
      on loans as of 12/31/08. A $1.3 million write-down was taken at the time
      of foreclosure and the underlying properties were transferred to
      REO.





Management
remains concerned about the residential housing slowdown and the effect it has
had on credit quality. Inventories of unsold homes and building lots continue to
increase in Snohomish, King and Pierce counties during the first quarter of
2009. The trend towards slowing of the overall economy only increases our
concerns. Management has increased monitoring of construction and land
acquisition loans and has reduced originations in these portfolios.





At March
31, 2009, the Bank’s allowance for loan losses was $25.0 million compared to
$16.4 million at December 31, 2008. Additionally, at March 31, 2009, $88,000 was
recorded in a general valuation allowance allocated to off-balances sheet
commitments, i.e. lines of credit and construction loans in process. This
reserve is recorded as an “other liability” on the Corporation’s balance sheet.
During the quarter ended March 31, 2009, this account was reduced by $5,000 to
$88,000 compared to $93,000 at December 31, 2008. Total allowance for loan
losses, which includes the allowance for off-balance sheet commitments, was
2.01% of total loans outstanding at March 31, 2009, compared to 1.31% at
December 31, 2008. Total allowance for loan losses was 50% of non-performing
loans at March 31, 2009, compared to 41% at December 31, 2008. As a result of
FASB Statement No. 114, Accounting by Creditors for
Impairment of a Loan, management has performed extensive analyses on the
impaired loans, including obtaining and evaluating updated appraisals, to
determine the adequacy of the allowance for loan losses, as well as recording
appropriate charge-offs.





The
economy in our market area is dependent to a significant degree on real estate
and related industries (i.e. construction, housing).  Although we
maintain a reasonably diversified loan portfolio, the present downturn in real
estate including construction has had an adverse effect on borrowers’ ability to
repay loans and has affected our results of operations and financial condition,
and these changes are taken into account when we evaluate our allowance for loan
losses.  We frequently review and update our underwriting guidelines
and monitor our delinquency levels for any negative or adverse trends and adjust
projected loan concentration limits and credit standards when
necessary.





21




The
allowance for loan losses is maintained at a level sufficient to provide for
losses based on management’s evaluation of known and inherent risks in the
portfolio. This evaluation includes analysis of the financial condition of the
borrower, the value of the collateral securing


selected
loans, consideration of potential loss experience and management’s projection of
trends affecting credit quality. The increase in the dollar amount of the
allowance and the percentage of the allowance is primarily attributable to
increases in adversely classified loans and NPLs. The allowance for loan losses
represents management’s best estimate of the probable credit losses inherent in
the loan portfolio and management believes it will be adequate to provide for
losses that may be incurred. Because future events affecting borrowers and
collateral as well as the rate of deterioration cannot be predicted with
certainty, there can be no assurance that the existing allowance for loan losses
is adequate or that substantial increases will not be necessary should the
quality of any loans deteriorate as a result of the factors discussed
above.





During
the quarter ended March 31, 2009, loan charge-offs equaled $5.3 million while
recoveries were $24,000 resulting in net charge-offs of $5.3 million or 42 basis
points of total loans. Of the loans charged-off, $2.4 million came from the
partial write-off of land acquisition and development loans, $2.3 million came
from the partial write-off of construction loans and $12,000 came from the
write-off of a business loan. The balance of the write downs came from consumer
and deposit related charge-offs, i.e. overdrafts.





The
following table provides summary information concerning asset quality as of and
for the quarters ended March 31, 2009, and December 31, 2008,
respectively:





March
      31, 2009
                      
                      
                      December
      31, 2008Non-performing
      loans to total assets
                      
                      
                      3.05
                      %
                      
                      
                      2.46
                      %Non-performing
      loans to total loans outstanding
                      
                      
                      4.05
                      
                      
                      
                      3.20Non-performing
      assets to total assets
                      
                      
                      3.60
                      
                      
                      
                      2.55Total
      allowance for loan losses to non-performing loans(1)
                      
                      
                      50.00
                      
                      
                      
                      41.00Total
      allowance for loan losses to total loans(1)
                      
                      
                      2.01
                      
                      
                      
                      1.31Net
      charge-offs to total loans (annualized)
                      
                      
                      1.68
                      
                      
                      
                      .80(1)
      Total allowance for loan losses includes off-balance sheet loan
      commitments of $88,000 at March 31, 2009, and $93,000 at December 31,
      2008.






22


Average
Balances and an Analysis of Average Rates Earned and Paid





The
following table shows average balances and interest income or interest expense,
with the resulting average yield or rate by category or average earning asset or
interest-bearing liability.


FOR
      THE QUARTER ENDED MARCH 31,2009
                
                
                2008(Dollars
      in thousands)
                
                AVERAGE
                  BALANCE
                
                
                INTEREST
                  AND
                  DIVIDEND
                
                
                YIELD/
                  COST
                
                
                AVERAGE
                  BALANCE
                
                
                INTEREST
                  AND
      DIVIDEND
                
                
                YIELD/
                  COSTASSETSInterest-earning assetsResidential loans
                
                $
                126,952
                
                
                $
                1,857
                
                
                
                5.85
                %
                
                $
                98,991
                
                
                $
                1,495
                
                
                
                6.04
                %Multifamily loans
                
                
                87,798
                
                
                
                1,356
                
                
                
                6.26
                
                
                
                17,415
                
                
                
                304
                
                
                
                7.00Commercial real estate
      loans
                
                
                137,857
                
                
                
                2,294
                
                
                
                6.75
                
                
                
                117,292
                
                
                
                1,959
                
                
                
                6.70Construction loans
                
                
                347,648
                
                
                
                4,374
                
                
                
                5.10
                
                
                
                398,696
                
                
                
                6,640
                
                
                
                6.68Consumer loans
                
                
                30,887
                
                
                
                501
                
                
                
                6.58
                
                
                
                27,915
                
                
                
                482
                
                
                
                6.93Business banking
    loans
                
                
                478,227
                
                
                
                7,833
                
                
                
                6.64
                
                
                
                469,703
                
                
                
                8,428
                
                
                
                7.20Total loans(1)
                
                
                1,209,369
                
                
                
                18,215
                
                
                
                6.11
                
                
                
                1,130,012
                
                
                
                19,308
                
                
                
                6.85Securities
      available-for-sale
                
                
                155,281
                
                
                
                1,875
                
                
                
                4.90
                
                
                
                112,961
                
                
                
                1,557
                
                
                
                5.53Securities
      held-to-maturity
                
                
                97,024
                
                
                
                1,310
                
                
                
                5.47
                
                
                
                145,999
                
                
                
                2,084
                
                
                
                5.72Daily interest-earning
      deposits
                
                
                29,024
                
                
                
                10
                
                
                
                0.15
                
                
                
                8,208
                
                
                
                65
                
                
                
                3.20Total securities and
      interest-earning deposits
                
                
                281,329
                
                
                
                3,195
                
                
                
                4.61
                
                
                
                267,168
                
                
                
                3,706
                
                
                
                5.56Total interest-earning
      assets
                
                
                1,490,698
                
                
                
                21,410
                
                
                
                5.82
                
                
                
                1,397,180
                
                
                
                23,014
                
                
                
                6.62Noninterest-earning assetsOffice properties and equipment,
      net
                
                
                15,569
                
                
                
                
                
                
                
                
                
                
                
                14,726Real estate owned,
    net
                
                
                1,502
                
                
                
                
                
                
                
                
                
                
                
                -Other noninterest-earning
      assets
                
                
                126,545
                
                
                
                
                
                
                
                
                
                
                
                60,181Total assets
                
                $
                1,634,314
                
                
                
                
                
                
                
                
                
                
                $
                1,472,087LIABILITIES
      AND EQUITYInterest-bearing
liabilitiesSavings accounts
                
                $
                10,247
                
                
                $
                6
                
                
                
                0.25
                %
                
                $
                11,153
                
                
                $
                14
                
                
                
                0.50
                %Checking accounts
                
                
                129,015
                
                
                
                452
                
                
                
                1.42
                
                
                
                53,266
                
                
                
                192
                
                
                
                1.45Money market
    accounts
                
                
                173,749
                
                
                
                489
                
                
                
                1.14
                
                
                
                334,035
                
                
                
                2,780
                
                
                
                3.34Certificates of
      deposit
                
                
                577,649
                
                
                
                4,009
                
                
                
                2.81
                
                
                
                442,590
                
                
                
                4,980
                
                
                
                4.51Total interest-bearing
      deposits
                
                
                890,660
                
                
                
                4,956
                
                
                
                2.26
                
                
                
                841,044
                
                
                
                7,966
                
                
                
                3.80Other interest-bearing
      liabilitiesFHLB advances
                
                
                249,000
                
                
                
                2,656
                
                
                
                4.33
                
                
                
                257,467
                
                
                
                2,740
                
                
                
                4.27Securities sold under agreements
      to repurchase
                
                
                148,312
                
                
                
                2,103
                
                
                
                5.74
                
                
                
                120,632
                
                
                
                1,265
                
                
                
                4.22Junior subordinated debentures
      payable
                
                
                25,955
                
                
                
                530
                
                
                
                8.28
                
                
                
                26,854
                
                
                
                530
                
                
                
                7.94Other borrowings
                
                
                69,223
                
                
                
                46
                
                
                
                0.28
                
                
                
                4,280
                
                
                
                38
                
                
                
                3.57Total interest-bearing
      liabilities
                
                
                1,383,150
                
                
                
                10,291
                
                
                
                3.03
                
                
                
                1,250,277
                
                
                
                12,539
                
                
                
                4.03Other liabilities
                
                
                89,911
                
                
                
                
                
                
                
                
                
                
                
                97,040Total
    liabilities
                
                
                1,473,061
                
                
                
                
                
                
                
                
                
                
                
                1,347,317Stockholders’
    equity
                
                
                161,253
                
                
                
                
                
                
                
                
                
                
                
                124,771Total liabilities and
      stockholders’ equity
                
                $
                1,634,314
                
                
                
                
                
                
                
                
                
                
                $
                1,472,087Net
      interest income (2)
                
                
                
                
                
                $
                11,119
                
                
                
                
                
                
                
                
                
                
                $
                10,475Interest
      rate spread (3)
                
                
                
                
                
                
                
                
                
                
                2.80
                %
                
                
                
                
                
                
                
                
                
                
                2.59
                %Net
      interest margin (4)
                
                
                
                
                
                
                3.03
                %
                
                
                
                
                
                
                
                
                
                
                3.02
                %Average
      interest-earning assets to average
                  interest-bearing
      liabilities
                
                
                107.78
                %
                
                
                
                
                
                
                
                
                
                
                111.75
                %





(1)  Does
not include interest or balances on loans 90 days or more past due that are
classified as nonaccruing.


(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.


23


Rate/Volume
Analysis





The
following table sets forth the effects of changing rates and volumes on net
interest income of the Corporation. Information is provided with respect to (i)
effects on interest income attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) effects on interest income attributable to
changes in rate (changes in rate multiplied by prior volume); and (iii) changes
in rate/volume mix (change in rate multiplied by change in volume).





(Dollars
      in thousands)
                            
                            Quarter
      Ended March 31, 2009
                              Compared
      to Quarter Ended
                              March
      31, 2008
                              Increase
      (Decrease) Due toRate
                            
                            
                            Volume
                            
                            
                            Mix
                            
                            
                            NetInterest-earning assetsResidential
      loans
                            
                            $
                            (47
                            )
                            
                            $
                            422
                            
                            
                            $
                            (13
                            )
                            
                            $
                            362Multifamily
      loans
                            
                            
                            (33
                            )
                            
                            
                            1,236
                            
                            
                            
                            (151
                            )
                            
                            
                            1,052Commercial
      real estate
                            
                            
                            9
                            
                            
                            
                            345
                            
                            
                            
                            (19
                            )
                            
                            
                            335Construction
      loans
                            
                            
                            (1,590
                            )
                            
                            
                            (855
                            )
                            
                            
                            180
                            
                            
                            
                            (2,265
                            )Consumer
      loans
                            
                            
                            (26
                            )
                            
                            
                            52
                            
                            
                            
                            (7
                            )
                            
                            
                            19Business
      banking loans
                            
                            
                            (675
                            )
                            
                            
                            154
                            
                            
                            
                            (75
                            )
                            
                            
                            (596
                            )Total loans
                            
                            
                            (2,362
                            )
                            
                            
                            1,354
                            
                            
                            
                            (85
                            )
                            
                            
                            (1,093
                            )Securities
      available-for-sale
                            
                            
                            (182
                            )
                            
                            
                            586
                            
                            
                            
                            (86
                            )
                            
                            
                            318Securities
      held-to-maturity
                            
                            
                            (97
                            )
                            
                            
                            (703
                            )
                            
                            
                            26
                            
                            
                            
                            (774
                            )Daily
      interest-earning deposits
                            
                            
                            (63
                            )
                            
                            
                            167
                            
                            
                            
                            (159
                            )
                            
                            
                            (55
                            )Total
      net change in income on interest-earning assets
                            
                            $
                            (2,704
                            )
                            
                            $
                            1,404
                            
                            
                            $
                            (304
                            )
                            
                            $
                            (1,604
                            )Interest-bearing
liabilitiesInterest-bearing
      depositsSavings
accounts
                            
                            $
                            (7
                            )
                            
                            $
                            (1
                            )
                            
                            $
                            -
                            
                            
                            $
                            (8
                            )Checking
    accounts
                            
                            
                            (4
                            )
                            
                            
                            274
                            
                            
                            
                            (10
                            )
                            
                            
                            260Money market
      accounts
                            
                            
                            (1,843
                            )
                            
                            
                            (1,341
                            )
                            
                            
                            893
                            
                            
                            
                            (2,291
                            )Certificates of
      Deposit
                            
                            
                            (1,894
                            )
                            
                            
                            1,528
                            
                            
                            
                            (605
                            )
                            
                            
                            (971
                            )Total deposits
                            
                            
                            (3,748
                            )
                            
                            
                            460
                            
                            
                            
                            278
                            
                            
                            
                            (3,010
                            )FHLB advances
                            
                            
                            9
                            
                            
                            
                            (72
                            )
                            
                            
                            (21
                            )
                            
                            
                            (84
                            )Securities sold under agreements
      to repurchase
                            
                            
                            461
                            
                            
                            
                            292
                            
                            
                            
                            85
                            
                            
                            
                            838Junior subordinated debentures
      payable
                            
                            
                            23
                            
                            
                            
                            (18
                            )
                            
                            
                            (5
                            )
                            
                            
                            -Other borrowings
                            
                            
                            (36
                            )
                            
                            
                            588
                            
                            
                            
                            (544
                            )
                            
                            
                            8Total
      net change in expenses on interest-bearing liabilities
                            
                            $
                            (3,291
                            )
                            
                            $
                            1,250
                            
                            
                            $
                            (207
                            )
                            
                            $
                            (2,248
                            )Net
      increase in net interest income
                            
                            $
                            587
                            
                            
                            $
                            154
                            
                            
                            $
                            (97
                            )
                            
                            $
                            644








RESULTS
OF OPERATIONS





Comparison
of the Three Months Ended March 31, 2009 and 2008





General





Net
income decreased to ($4.8) million for the three months ended March 31, 2009,
compared to $2.6 million during the comparable period in 2008. A $13.9 million
loan loss provision accounted for most of the difference in earnings. The Bank
reversed approximately $473,000 in interest on loans placed on non-accrual
status during the quarter. Income per diluted share available for common
stockholders was $(0.44) for the quarter ended March 31, 2009, and $0.21 per
share for the quarter ended March 31, 2008, a decrease of 304%. Net


24


interest
income before provision for loan losses increased to $11.1 million for the
quarter ended March 31, 2009. Total other income increased by $1.2 million to
$3.6 million for the quarter ended March 31, 2009. Total other expenses
increased $1.6 million to $8.6 million for the quarter ended March 31, 2009, as
compared to the quarter ended March 31, 2008.





Income
available for common shareholders, which adjusts for the dividends on preferred
stock paid to the U. S. Treasury, was a loss of $5.3 million or ($0.44) per
diluted share compared to earnings of $2.6 million, or $0.21 per diluted share,
in the first quarter of 2008.





Net
Interest Income





Net
interest income, before provision for loan losses, increased 6.2% or $644,000 to
$11.1 million for the three months ended March 31, 2009, compared to $10.5
million for the three months ended March 31, 2008. Average interest-earning
assets increased $93.5 million or 6.7% to $1.49 billion for the three months
ended March 31, 2009, compared to the same period in 2008. Average total
interest-earning loans increased $79.4 million to $1.21 billion and average
investment securities decreased $6.7 million to $252.3 million for the three
months ended March 31, 2009, compared to the same quarter of the prior
year.





At
      or for the
                  three
      months ended
                  March
      31,(Dollars in
      millions)
                
                2009
                
                
                2008Average
      interest-earning
      assets
                
                $
                1,491
                
                
                $
                1,397Average
      interest-bearing liabilities
                
                
                1,383
                
                
                
                1,250Yield
      on interest-earning
      assets
                
                
                5.82
                %
                
                
                6.62
                %Cost of
      interest-bearing liabilities
                
                
                3.03
                
                
                
                4.03Net
      interest spread
                
                
                2.80
                
                
                
                2.59Net
      interest margin
                
                
                3.03
                
                
                
                3.02





The net
interest margin increased 1 basis point to 3.03% for the three months ended
March 31, 2009, compared to the same quarter the prior year. The yield on
interest-earning assets decreased 80 basis points to 5.82 % for the three months
ended March 31, 2009, compared to 6.62% for the three months ended March 31,
2008. Interest income, yield on interest-earning assets and net interest margin,
were impacted by 3 basis points by the reversal of approximately $473,000 in
interest income related to loans that were placed on non-accrual. In addition,
Fed rate cuts totaling 300 basis points in the past fifteen months has reduced
the yield on approximately $400.0 million of prime based loans. To mitigate the
impact of this drop in rates, the Corporation is instituting interest rate
floors on most of its new and renewed prime based loans. The cost of
interest-bearing liabilities decreased 100 basis points to 3.03% for the three
months ended March 31, 2009, compared to 4.03% for the same period in 2008,
primarily due to decreased costs for deposits.





Provision
for Loan Losses





Cascade’s
provision for loan losses was $13.9 million for the three months ended March 31,
2009, and $2.4 million for the three months ended March 31, 2008. The increase
in the provision was due to an increase in non-performing and adversely
classified loans, as well as a general slowdown in the local real estate market.
The provision for loan losses is


25


based on
the size, composition and growth of the portfolio, and management’s evaluation
of known and inherent risks in the portfolio, as well as Cascade’s loss
experience. See "Asset Quality" above for further discussion of the
Corporation's provision for loan losses.





Other
Income





Total
other income increased $1.2 million or 47% to $3.6 million for the three months
ended March 31, 2009, as compared to $2.5 million for the three months ended
March 31, 2008. For the three months ended March 31, 2009, checking service fees
increased to $1.1 million compared to $1.0 million for the same period in the
prior year. Gain on sale of loans increased $2,000 from $37,000 to $39,000 for
the three months ended March 31, 2009, compared to the same quarter in the prior
year.





Other
income was positively impacted by the FAS 159 gain on our junior subordinated
debentures of $1.8 million. This large fair value gain was the result of a
change to our approach to applying a fair value to this liability. Previously,
we had valued the junior subordinated debentures as if the Corporation was going
to call the bonds on March 1, 2010 at a call price of 105.5%. However, under the
TARP agreement, we are precluded from calling an instrument that is considered
Tier 1 Capital for at least three years. Therefore, the expected life of the
junior subordinated debentures increased significantly. The extension of the
effective maturity and the increasing interest rates on Bank debt securities
lowered the value.





Gains on
called securities in the held-to-maturity portfolio were $118,000 for the
quarter ended March 31, 2009, compared to $105,000 for the same quarter last
year. Gains on sales/calls of securities available-for-sale were $0 for the
quarter ended March 31, 2009 and $359,000 in the prior year. All gains ascribed
to the held-to-maturity portfolio in each quarter were due to calls of agency
notes at par that the Corporation had carried on its books at a
discount.





Other
Expense





Total
other expenses were $8.6 million for the three months ended March 31, 2009,
compared to $6.9 million for the three months ended March 31, 2008.





Compensation
and employee benefit expenses decreased $36,000 to $3.6 million during the three
months ended March 31, 2009, compared to the same quarter last year. The
decreased compensation and personnel expense was primarily due to the reduction
of employee incentive payments. The remaining other expense categories totaled
$5.0 million for the three months ended March 31, 2009, and $3.3 million for the
three months ended March 31, 2008. Increased FDIC insurance assessments of
$365,000, the Washington Public Deposit Protection Commission assessment for
public deposits of $368,000 arising from the failure of the Bank of Clark
County, and the $858,000 OTTI mark to market of Fannie Mae and Freddie Mac stock
accounted for the difference.





The
provision for federal income taxes decreased $3.9 million to a tax benefit of
$2.9 million as a result of the quarterly loss. The effective tax rate for the
first quarter of 2009 was 38% compared to a tax rate of 27% the prior
year.




26


Segment
Results





The
Corporation and the Bank are managed by a legal entity and not by lines of
business. The Bank’s operations include commercial banking services, such as
lending activities, business services, deposit products and other services. The
performance of the Bank as a whole is reviewed by the Board of Directors and
Management Committee.





The
Management Committee, which is the senior decision making group of the Bank, is
comprised of six members including the President/CEO. Segment information is not
necessary to be presented in the notes to the consolidated financial statements
because operating decisions are made based on the performance of the Corporation
as a whole.





Liquidity
and Sources of Funds





The Bank
monitors its liquidity position to assure that it will have adequate resources
to meet its customers’ needs. Potential uses of funds are new loan originations;
the disbursement of construction loans in process; draws on unused business
lines of credit and unused consumer lines of credit; the purchase of investment
securities; deposit withdrawals; and repayment of other borrowings. In terms of
commitments, as of March 31, 2009, Cascade had $47.0 million of construction
loans in process, $82.2 million in unused business lines of credit and future
business commitments, $39.3 million in unused consumer lines of credit including
credit cards, and $18.0 million in other undisbursed commitments. Recent history
indicates construction lines will be funded at 81% of commitments at any point
in time. Historically, the Bank’s business customers use approximately 51% of
their credit lines at any given time. About 49% of the home equity lines of
credit are drawn upon at any point in time. Cash flows from operations
contribute to liquidity as well as proceeds from maturities of securities and
incremental customer deposits. As indicated on the Corporation’s Condensed
Consolidated Statement of Cash Flows, net cash from operating activities for the
three months ended March 31, 2009, contributed $4.0 million to liquidity
compared to $3.7 million for the three months ended March 31, 2008.





Funding
needs are met through existing liquidity balances, deposit growth, FHLB advances
and other borrowings including the Federal Reserve Bank (FRB), as well as the
repayment of existing loans and the sale of loans. Cascade maintains balances in
FHLB and FRB deposits, which equaled $42.1 million as of March 31, 2009, and
$9.3 million at March 31, 2008.





Subject
to the availability of eligible collateral and certain requirements, the Bank’s
credit line with the FHLB-Seattle is 35% of total assets or up to approximately
$580.8 million at current asset levels. At March 31, 2009, the Bank had $249.0
million in advances, an $85.0 million Letter of Credit that is being used to
secure public funds, and an unused line of credit from the FHLB-Seattle of
approximately $47.0 million subject to the ability to pledge eligible
collateral. The Bank also uses reverse repurchase agreements (securities sold
under agreements to repurchase) to provide a source of funding. At March 31,
2009, the Bank had $146.5 million in reverse repurchase agreements outstanding.
Securities that could be pledged to secure additional funding at the
FHLB-Seattle or in the repurchase market were $47.2 million at the end of the
quarter and $11.0 million as of December 31, 2008. Loans secured by commercial
real estate totaling $294.5 million and home equity and second lien residential
loans totaling $29.2 million are being used as a source of collateral at the
FHLB. The Bank also has a total of $35.0 million in Fed funds lines with three
correspondent banks.  Cascade did not draw on
these lines during the quarter. The Bank also has a $182.1 million line


27


of credit at the Federal
Reserve Bank of San Francisco and did borrow overnight during the
quarter.As of
March 31, 2009, there was an outstanding balance of $60.0 million in short-term
borrowings with the Federal Reserve under the Term Auction Facility (TAF)
program.





Capital
Resources





The
Corporation’s main source of capital is typically the retention of its net
income that is not paid in dividends. The Corporation also receives capital
through the exercise of stock options granted to employees and directors. The
Corporation permits employees and directors to tender shares of Cascade’s stock,
which they have held for a minimum of six months, to exercise
options.





The Board
of Directors authorized a stock repurchase program of up to 300,000 shares of
the Corporation’s stock at its May 2008 meeting. The repurchase program does not
obligate the Corporation to acquire any specific number of shares. The main
focus of the program is to attempt to offset the dilution created by the
exercise of stock options and other stock grants; see Part II – Other
Information, Item 2 – Unregistered Sales of Equity Securities and Use of
Proceeds. Given the restrictions of the U.S. Treasury’s Capital Purchase
Program, which precludes share repurchases by participants, the program will not
be reauthorized when it expires on May 31, 2009.





On March
30, 2006, Cascade Capital Trust III issued $10 million in par value junior
subordinated debentures payable (Trust Preferred Securities). These securities
have a fixed rate of 6.65% for the first 5 years and then float at 3-month LIBOR
plus 1.40% for the remaining 25 years. Cascade Capital Trust III is a statutory
business trust created for the exclusive purposes of issuing and selling capital
securities and utilizing sale proceeds to acquire junior subordinated debt
issued by Cascade Financial Corporation. Accordingly, the junior subordinated
debentures are the sole assets of the Trust, and payments under the junior
subordinated debentures will be the sole revenues of the Trust. All of the
common securities of the Trust are owned by the Corporation.





On
December 15, 2004, Cascade Capital Trust II issued $5 million in par value
junior subordinated debentures payable. These securities have a fixed rate of
5.82% for the first 5 years and then float at 3-month LIBOR plus 1.90% for the
remaining 25 years. The structure of Cascade Capital Trust II is identical to
Cascade Capital Trust III.





On March
1, 2000, Cascade Capital Trust I issued $10 million par value junior
subordinated debentures payable. These securities have a fixed rate of 11% and
mature on March 1, 2030, but are callable at a premium beginning March 1, 2010
and semi-annually thereafter. The structure of Cascade Capital Trust I is
identical to Cascade Capital Trust III.





In
keeping with the adoption of FIN 46R, the Corporation’s balance sheet has
replaced the title of “trust preferred securities” with “junior subordinated
debentures payable,” although there have been no changes in terms of the
underlying obligations. The Trust has been deconsolidated upon adoption of FIN
46R.


28


Capital
Requirements





Cascade
Bank is subject to regulatory capital requirements. Cascade Bank is in full
compliance with all capital requirements established by the FDIC and the
Washington State Department of Financial Institutions. The Bank’s regulatory
capital requirements are expressed as a percentage of assets. To be adequately
capitalized, the Bank must hold adjusted capital levels equal to 4% of its
assets and 8% of its risk-weighted assets. As of March 31, 2009, for the
purposes of this calculation, the Bank’s average total assets and total
risk-weighted assets were $1.6 billion and $1.3 billion respectively. The
related excess capital amounts as of March 31, 2009, are presented in the
following table:





(Dollars in
      thousands)
                          
                          Adequately
      Capitalized
                          
                          
                          Well
      CapitalizedCascade Bank core
      capital
                          
                          Amount
                          
                          
                          Percentage
                          
                          
                          Amount
                          
                          
                          PercentageTier
      1 (Core) capital
                          
                          $
                          153,245
                          
                          
                          9.59
                          %
                          
                          $
                          153,245
                          
                          
                          9.59
                          %Minimum
      requirement
                          
                          
                          63,943
                          
                          
                          4.00
                          
                          
                          
                          95,915
                          
                          
                          6.00Excess
                          
                          $
                          89,302
                          
                          
                          5.59
                          %
                          
                          $
                          57,330
                          
                          
                          3.59
                          %Cascade Bank risk-based
      capital
                          
                          Amount
                          
                          
                          Percentage
                          
                          
                          Amount
                          
                          
                          PercentageRisk-based
      capital
                          
                          $
                          169,851
                          
                          
                          12.87
                          %
                          
                          $
                          169,851
                          
                          
                          12.87
                          %Minimum
      requirement(1)
                          
                          
                          105,595
                          
                          
                          8.00
                          
                          
                          
                          131,994
                          
                          
                          10.00Excess
                          
                          $
                          64,256
                          
                          
                          4.87
                          %
                          
                          $
                          37,857
                          
                          
                          2.87
                          %(1)Based on risk-weighted assets.





The
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) provides
the FDIC with broad powers to take “prompt corrective action” to resolve
problems of insured depository institutions. The actions the FDIC can take
depend upon whether the institution in question is “well capitalized,”
“adequately capitalized,” “undercapitalized,” “significantly undercapitalized”
or “critically undercapitalized.” Under FDIC guidelines, Cascade Bank is a “well
capitalized” institution as of March 31, 2009, which requires a core capital to
assets ratio of at least 6% and a risk-based capital to assets ratio of at least
10%.





The
Corporation, as a bank holding company regulated by the Federal Reserve, is
subject to capital requirements that are similar to those for Cascade Bank. As
of March 31, 2009, the Corporation is “well capitalized” under Federal Reserve
guidelines with a Tier 1 ratio of 9.66% and a risk-based ratio of
13.03%.





Item
3 – Quantitative and Qualitative Disclosures about Market Risk





ASSET/LIABILITY
MANAGEMENT





The Bank,
like other financial institutions, is subject to interest rate risk because its
interest-bearing liabilities reprice on different terms than its
interest-earning assets. Management actively monitors the inherent interest rate
risk for the potential impact of changes in rates on the
Bank.





The Bank
uses a simulation model as its primary tool to measure its interest rate risk. A
major focus of the Bank’s asset/liability management process is to preserve and
enhance net interest income in likely interest rate scenarios. Further,
Cascade’s Board of Directors has enacted policies that establish targets for the
maximum negative impact that


29


changes
in interest rates may have on the Bank’s net interest income, the fair value of
equity and adjusted capital/asset ratios under certain interest rate shock
scenarios. Key assumptions are made to evaluate the change to Cascade’s income
and capital to changes in interest rates. These assumptions, while deemed
reasonable by management, are inherently uncertain. As a result, the estimated
effects of changes in interest rates from the simulation model could likely be
different than actual experience.





Using
standard interest rate shock (an instantaneous uniform change in interest rates
at all maturities) methodology, as of March 31, 2009, the Bank is within all the
guidelines established by the Board for the changes in net interest income, fair
value of equity, and adjusted capital/asset ratios. As of March 31, 2009, the
Bank’s fair value of equity decreases 9.1% in the up 200 basis point scenario
and decreases 26.2% in the down 200 basis point scenario, within the established
guideline of a maximum 30% decline. Using the same methodology, the adjusted
capital/asset ratio is 10.5% in the up 200 basis point scenario and 8.2% in the
down 200 basis point scenario, both above the 5% minimum established guideline.
The net interest income increases 1.9% in the up 200 basis point scenario and
0.2% in the down 200 basis point scenario, both within the guideline of a 10%
decline.





The Bank
has sought to manage its interest rate exposure through the structure of its
balance sheet. To limit its interest rate risk, the Bank has sought to emphasize
its loan mix toward prime based business and construction loans with rate
floors. In addition to selling most 15 and 30 year fixed rate residential loans,
it also sells many of its hybrid ARM residential loans. The table below
summarizes the Bank’s loan portfolio by rate type at March 31,
2009.





Type
                    
                    %
      of PortfolioVariable
                    
                    
                    37
                    %Adjustable
                    
                    
                    39
                    %Fixed
                    
                    
                    24
                    %100
                    %





The Bank
extends the maturity of its liabilities by offering long-term deposit products
to customers, and by obtaining longer term FHLB advances. As of March 31, 2009,
the entire portfolio of $249.0 million in long-term advances had original
maturities greater than one year. This portfolio consists entirely of advances
with put provisions that allow the FHLB to convert the advance to a LIBOR based,
adjustable rate borrowing under certain rate conditions and on specific
dates.





In
addition to writing embedded options in some of its liabilities, the Bank
invests in mortgage backed securities and callable GSE (agency) securities. The
Bank receives higher yields in return by writing call options. The Bank models
this optionality in measuring, monitoring, and managing its interest rate
exposure. As of March 31, 2009, the Bank did not use any interest rate swaps,
including caps, floors or collars.





Item
4 - Controls and Procedures





EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES





An
evaluation of the Registrant's disclosure controls and procedures (as defined in
section 13(a) - 14(c) of the Securities Exchange Act of 1934 (the "Act")) was
carried out under the supervision and with the participation of the Registrant's
Chief Executive Officer, Chief Financial Officer, and several other members of
the registrant's senior management as


30


of March
31, 2009. The Registrant's Chief Executive Officer and Chief Financial Officer
concluded that the Registrant's disclosure controls and procedures as then in
effect were effective in ensuring that the information required to be disclosed
by the Registrant in the reports it files or submits under the Act is (i)
accumulated and communicated to the Registrant's management (including the Chief
Executive Officer and Chief Financial Officer) in a timely manner, and (ii)
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms.





CHANGES
IN INTERNAL CONTROLS





In the
quarter ended March 31, 2009, the Registrant did not make any significant
changes in, nor take any corrective actions regarding, its internal controls, or
other factors that have materially affected or are reasonably likely to
materially affect these controls.





PART II––OTHER
INFORMATION





Item
1.  Legal Proceedings




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





Item
1A.  Risk Factors





There have been no material changes in
the risk factors previously disclosed in Part 1, Item 1A. – Risk Factors of our
Annual Report on Form 10-K for the year ended December 31,
2008.





Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds




Issuer
      Purchases of Equity Securities2008 PLAN
                  
                  
                  Total
      Number
                  
                  
                  Maximumof Shares
      Purchased
                  
                  
                  Number
      of
                    Shares
      thatPeriod
                  
                  Total
                    Number
                  
                  
                  Average
                    Price
                  
                  
                  as
      Part of Publicly
                  
                  
                  May
      Yet be PurchasedBeginning
                  Ending
                  
                  of Shares
      Purchased
                  
                  
                  Paid
      per
                    Share
                  
                  
                  Announced
                    Plan
                  
                  
                  Under
      the
                    Plan
      (1)January
      1, 2009
                  January
      31, 2009
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  
                  300,000February
      1, 2009
                  February
      29, 2009
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  300,000March
      1, 2009
                  March
      31, 2009
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  300,000Total
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  
                  300,000During
      the period presented there were no shares purchased.1) In
      May 2008, the Corporation announced a new stock repurchase plan to
      purchase up to 300,000 shares of the Corporation’s stock. The Plan
      will expire on May 31, 2009. Given the restrictions of the U.S. Treasury’s
      Capital Purchase Program, which precludes share repurchases by
      participants, the program will not be reauthorized when it expires on May
      31, 2009.


31


Item
2.  Unregistered Sales of Equity Securities and Use of Proceeds
(continued)




The
Corporation entered into an agreement with the Treasury to participate in the
TARP Capital Purchase Program on November 21, 2008.  Prior to that
date the Corporation had paid a quarterly dividend of $0.045.  The
Corporation’s ability to increase its quarterly common dividend above $0.045 in
future periods is restricted as long as the Corporation is a participant in the
TARP Capital Purchase Program.





Item
3.  Defaults upon Senior Securities




None




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




Not applicable




Item
5.  Other information




Not applicable




Item
6.  Exhibits




(a)  Exhibits




31.1
            Certifications
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act


31.2
              Certifications
      of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act32
              Certification
      pursuant to Section 906 of the Sarbanes-Oxley
Act





(b)
            Reports
      on Form 8-K




On April
21, 2009, the Corporation filed a Form 8-K reporting an attached press release
announcing earnings information for the quarter ended March 31, 2009, under
Items 2.02 and 9.01 of Form 8-K.




32


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 CORPORATIONMay
      1, 2009
            /s/
      Carol K. NelsonBy:     Carol
      K. Nelson,
              President and Chief Executive
      OfficerMay
      1, 2009
            /s/
      Lars H. JohnsonBy:     Lars
      H. Johnson,
              EVP and Chief Financial
      Officer


33