**Exhibit
      10.1**


**EMPLOYMENT
      AGREEMENT**




**CAROL
      KOBUKE NELSON**





THIS
      EMPLOYMENT AGREEMENT (“Agreement”) is made this 12th day of July, 2005, by and
      between CASCADE FINANCIAL CORPORATION and CASCADE BANK (hereinafter jointly
      referred to as “Cascade”) and CAROL KOBUKE NELSON (“Nelson”) and will become
      effective upon execution. Cascade and Nelson are sometimes collectively referred
      to herein as “the Parties.”




RECITALS




WHEREAS,
      Nelson currently serves as the President and Chief Executive Officer of Cascade
      under the terms of an Employment Agreement last amended on January 27, 2004;
      and




WHEREAS,
      the Parties wish to replace that Employment Agreement with this
      Agreement;




NOW
      THEREFORE, in consideration of the mutual covenants and agreements contained
      herein, and other good and valuable consideration, the receipt and sufficiency
      of which is hereby acknowledged, the Parties agree as follows:




1.  Term .
      Nelson’s term of employment (“Term”) under this Agreement shall commence on the
      date of execution of this Agreement and continue until terminated as provided
      in
      the Termination provision of this Agreement.




2.  Duties .
      Nelson
      is engaged as President and Chief Executive Officer of Cascade Financial
      Corporation and Cascade Bank, and is responsible for the overall operation
      and
      conduct of Cascade’s business, in accordance with the laws of the State of
      Washington and the federal government and pursuant to the general guidelines
      and
      directions as established from time to time by the Board of Directors of Cascade
      (the “Board”). Subject to any required approval by the shareholders of Cascade,
      the Board of Directors of Cascade Bank and Cascade Financial Corporation shall
      appoint or nominate and recommend Nelson for election as a member of their
      respective Boards of Directors and, if so appointed or elected, Nelson shall
      serve in that capacity as long as she is employed as the President and Chief
      Executive Officer of Cascade Financial Corporation and Cascade
      Bank.




3.  Exclusive
      Services and Best Efforts .
      Nelson
      shall render services solely on behalf of Cascade, and in no event shall she
      render services directly to a customer of Cascade for the individual gain of
      Nelson, without Cascade’s prior written consent. Nelson shall devote her full
      time, attention and energies, during regular business hours, to the business
      of
      Cascade. Nelson further agrees that she shall perform any and all duties to
      the
      best of her abilities. In addition to any other responsibilities which Cascade
      may from time to time require her to perform, Nelson shall:




(a)  Use
      her
      diligent efforts to promote the business and further the goals of
      Cascade;




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(b)  Conduct
      her business and regulate her habits so as to maintain and increase the goodwill
      and reputation of both Cascade and its business and to abide by all codes of
      ethics and other professional duties which are binding upon or applicable to
      general good business practices;




(c)  Not
      render to others, during her employment with Cascade, services of any kind
      or
      promote, participate or engage in any other business activity which would
      interfere with the performance of her duties under this Agreement, including,
      without limitation, providing consulting services or otherwise engaging in
      business with any person or entity which directly or indirectly competes with
      Cascade, unless she first obtains Cascade’s prior written consent to engage in
      such outside activities.




Although
      Nelson is required to devote her entire time, attention and energies to the
      business of Cascade and cannot, during the term of this Agreement, be engaged
      in
      any other business activity which interferes with her duties hereunder, whether
      or not such business activity is pursued for gain, profit or other pecuniary
      advantage, this shall not be construed as preventing Nelson from investing
      her
      assets in such manner as will not require any services on her part in the
      operation of the affairs of the companies in which such investments are made,
      or
      in making other investments which do not interfere with her duties under this
      Agreement.




4.  Compensation .
      Cascade
      shall pay Nelson, as compensation for her full-time services during the Term
      of
      Employment, the following:




(a)  Base
      Compensation .
      Nelson
      will receive a monthly salary, the amount of which will be set annually by
      the
      Board (“Base Compensation”), payable in accordance with Cascade’s regular
      payroll schedule. Base Compensation will be reviewed annually by the
      Compensation Committee. Nelson will receive no additional compensation for
      serving as a member of the Board of Directors of Cascade.




(b)  Bonus .
      Nelson
      shall receive an annual bonus set by the Compensation Committee (“Bonus”). In
      determining the amount of the Bonus, the Compensation Committee shall consider
      earnings, asset quality, factors affecting shareholder value and such other
      factors as the Compensation Committee shall deem appropriate.




(c)  Benefit
      Plans .
      During
      the Term, Nelson shall be entitled to participate in any and all employee
      benefit plans, including, but not be limited to, 401(k) Plan, Stock Option
      Plan,
      Deferred Compensation Plan and employee welfare and health benefit plans,
      established by Cascade from time to time for the benefit of all executives
      of
      Cascade. Nelson shall be required to comply with the conditions attendant to
      coverage by such plans and shall comply with and be entitled to benefits only
      in
      accordance with the terms and conditions of such plans as they may be amended
      from time to time.




5.  Business
      Expenses .
      Cascade
      will pay or reimburse Nelson for reasonable and necessary business expenses
      incurred by Nelson, which are directly related to the performance of her duties
      of employment, including travel, professional memberships and professional
      development, subject to documentation by Nelson and approval of the Chairman
      of
      the Audit Committee. Cascade will pay Nelson’s current monthly club membership
      dues at the Everett Golf and Country Club.




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6.  Automobile .
      Nelson
      shall provide her own automobile, and Cascade shall provide her an automobile
      allowance of $700 per month for use of such automobile incident to her duties
      as
      President and Chief Executive Officer of Cascade. The automobile allowance
      may
      be increased from time to time as deemed appropriate by the Board.




7.  Working
      Facilities .
      Nelson
      shall be furnished with such working facilities as are reasonably required
      by
      Nelson to perform her duties as President and Chief Executive Officer of
      Cascade, which working facilities shall include, but not be limited to, an
      office and secretarial and staff support.




8.  Termination . This
      Agreement may be terminated by Cascade upon written notice to Nelson, and by
      Nelson upon 90 days written notice to Cascade. If
      Nelson resigns from Cascade, except for Good Reason as defined in paragraph 8 (a) or
      Retirement as defined in paragraph 8 (d) hereafter, she will receive only her compensation, benefits earned and expenses
      reimbursable through the date this Agreement is terminated. If Nelson’s
      employment is terminated by Cascade or by Nelson for Good Reason, she shall
      receive the compensation provided hereafter.




(a)  Termination
      Without Cause/For Good Reason .
      If
      Nelson’s employment is terminated by Cascade, except for cause as provided in
      paragraph 8 (b) ,
      or by
      Nelson for Good Reason, Nelson shall receive a severance benefit equal to two
      (2) times her Base Compensation plus Bonus before salary deferrals over the
      twelve (12) months preceding the month of termination, less statutory payroll
      deductions. Such payment shall, at the option of Cascade, be made in a lump
      sum
      or in accordance with Cascade’s regular payroll schedule. For
      purposes of this Agreement, “Good Reason” means any one or more of the
      following: Reduction of Nelson’s Base Compensation during the term of this
      Agreement without Nelson’s consent (other than as part of an overall program
      applied uniformly to all members of senior management of the Bank); the
      assignment to Nelson without her consent of any duties materially inconsistent
      with Nelson’s position as of the date of this Agreement; or a relocation or
      transfer of Nelson’s principal place of employment that would require Nelson to
      commute on a regular basis more than 30 miles each way from Cascade’s main
      office as of the date of this Agreement.




(b)  Termination
      for Cause .
      The
      compensation payable on termination as provided in paragraph 8 (a) shall
      not be payable in the event Nelson’s employment is terminated for cause.
      Termination shall be determined to be for cause only in the event:
      (i) Nelson is convicted of a felony or crime involving moral turpitude,
      or
      charged with a felony or crime involving moral turpitude if the Board, in its
      sole discretion, determines that the adverse publicity/notoriety stemming from
      such charge will make it difficult for Nelson to perform her duties and/or
      Cascade to carry on its normal business activities; or (ii) Nelson fails
      or
      refuses, after written request, to comply with any material policies adopted
      by
      the Board; (iii) Nelson is terminated for fraud, embezzlement, or willful
      misconduct (including, but not limited to, violation of Cascade’s
      anti-discrimination and harassment policies); or (iv) Nelson is removed
      from office by the Board in order to comply with a requirement, request or
      recommendation from the Supervisor of Banking for the State of Washington or
      the
      Federal Deposit Insurance Corporation (“FDIC”).




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(c)  Death
      or Disability .
      This
      Agreement will terminate immediately upon Nelson’s death. If Nelson is unable to
      perform her duties and obligations under this Agreement for an aggregate period
      of ninety (90) days as a result of a physical or mental disability and cannot
      continue to perform her duties with reasonable accommodation, the Board may
      terminate this Agreement. If termination occurs due to Nelson’s death, her
      estate will be entitled to receive only the compensation, benefits earned,
      and
      expenses reimbursable through the date this Agreement is terminated. If
      termination occurs due to Nelson’s disability, she shall continue to receive her
      Salary until payments under Cascade’s long-term disability plan commence, or in
      the event Cascade has no long-term disability plan on the date of disability,
      Nelson’s salary shall continue for a period of six (6) months.




(d)  Retirement .
      If
      Nelson retires from Cascade after attaining age fifty-seven (57), she will
      receive as a severance benefit: (1) payment in an amount equal to two (2) times
      her Base Compensation plus Bonus before salary deferrals over the twelve (12)
      months prior to her retirement, with such amounts payable in twenty-four (24)
      consecutive, equal monthly installments, with the first such payment due on
      the
      first day of the first month following retirement; (2) vesting of all stock
      options; and (3) the following health benefit coverage for her and her
      spouse:




(i)  Cascade
      will pay all premiums for benefits to Nelson and her spouse under and subject
      to
      the term of the Consolidated Omnibus Budget Reconciliation Act
      (“COBRA”);




(ii)  Upon
      expiration of any applicable COBRA coverage period, if Nelson and/or her spouse
      are not then entitled to enroll for Medicare, Cascade shall provide at its
      expense an individual health insurance policy for Nelson and her spouse which
      will provide them with health care benefits as nearly equivalent as possible
      to
      those provided Nelson by Cascade prior to Nelson’s retirement.




(iii)  Upon
      reaching an age when Nelson and her spouse are entitled to receive Medicare,
      but
      in no event after Nelson reaches age 65, this benefit shall
      terminate.




If
      Nelson
      receives benefits under this paragraph, she foregoes any entitlement to receive
      any other benefits under any other provisions of this Agreement, including
      any
      right to receive a “Change of Control” payment.




9.  Change
      of Control .
      If
      there is a Change of Control of Cascade as hereinafter defined, all Nelson’s
      stock options shall become fully vested upon the effective date of the Change
      of
      Control. If Nelson leaves the employment of Cascade, whether voluntarily or
      involuntarily, within twelve (12) months after such Change of Control, Nelson
      shall receive an amount equal to two (2) times her Base Compensation plus Bonus
      before salary deferrals over the twelve (12) month period prior to the Change
      of
      Control. “Change of Control” as used herein will be deemed to have occurred when
      there is:




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(a)  Any
      individual, corporation (other than Cascade or an affiliated entity),
      partnership, trust, association, pool, syndicate or any other entity or any
      group of persons acting in concert becomes the beneficial owner, as that concept
      is defined in Rule 13d-3 promulgated by the Securities and Exchange Commission
      under the Securities Exchange Act of 1934, of securities of Cascade possessing
      fifty percent (50%) or more of the voting power for the election of Directors
      of
      Cascade;




(b)  There
      shall be consummated any consolidation, merger or other business combination
      involving Cascade or the securities of Cascade in which holders of voting
      securities of Cascade immediately prior to such consummation own, as a group,
      immediately after such consummation, voting securities of Cascade (or, if
      Cascade does not survive such transaction, voting securities of the corporation
      surviving such transaction) having less than sixty percent (60%) of the total
      voting power in an election of Directors of Cascade (or such other surviving
      corporation);




(c)  There
      shall be consummated any sale, lease, exchange or other transfer (in one
      transaction or a series of related transactions) of all, or substantially all,
      of the assets of Cascade (on a consolidated basis) to a party which is not
      controlled by or under common control with Cascade; or




(d)  Nelson
      shall, under no circumstances, receive a payment under 8(d) and a
      Change of Control payment.




10.  Federal
      Regulatory Provisions .




(a)  If
      Nelson
      is suspended and/or temporarily prohibited from participating in the conduct
      of
      Cascade's affairs by a notice served under section 8 (e)(3) or (g)(1) of Federal
      Deposit Insurance Act (12 U.S.C. 1818 (e)(3) and (g)(1)) Cascade’s obligations
      under this Agreement shall be suspended as of the date of service unless stayed
      by appropriate proceedings. If the charges in the notice are dismissed, Cascade
      may in its discretion (i) pay Nelson all or part of the compensation withheld
      while its obligations under this Agreement were suspended, and (ii) reinstate
      (in whole or in part) any of its obligations which were suspended.




(b)  If
      Nelson
      is removed and/or permanently prohibited from participating in the conduct
      of
      Cascade’s affairs by an order issued under section 8 (e)(4) or (g)(1) of the
      U.S.C. 1818 (e)(4) or (g)(1)), all obligations of Cascade under this Agreement
      shall terminate as of the effective date of the order, but vested rights of
      the
      Parties shall not be affected.




(c)  If
      Cascade is in default (as defined in section 3(x)(1) of the Federal Deposit
      Insurance Act), all obligations under this Agreement shall terminate as of
      the
      date of default, but this paragraph (c) shall not affect any vested rights
      of
      the Parties.




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(d)  All
      obligations under this Agreement shall be terminated, except to the extent
      determined that continuation of this Agreement is necessary to the continued
      operation of Cascade:




(i)  By
      the
      Director of the Federal Deposit Insurance Corporation ("Director") or his or
      her
      designee, at the time the Federal Deposit Insurance Corporation enters into
      an
      agreement to provide assistance to or on behalf of Cascade under the authority
      contained in 13(c) of the Federal Deposit Insurance Act; or




(ii)  By
      the
      Director or his or her designee, at the time the Director or his or her designee
      approves a supervisory merger to resolve problems related to operation of
      Cascade or when Cascade is determined by the Director to be in an unsafe or
      unsound condition.




11.  Confidentiality .
      Nelson
      acknowledges that she will have access to certain proprietary and confidential
      information of Cascade and its clients. Nelson will not, after signing this
      Agreement, including during and after its Term, use for her own purposes or
      disclose to any other person or entity any confidential information concerning
      Cascade or its business operations or customers, unless: (i) Cascade consents
      to
      the use or disclosure of said confidential information, (ii) the use or
      disclosure is consistent with Nelson’s duties under this Agreement, or (iii)
      disclosure is required by law or court order.




12.  Competition
      Restriction .
      During
      the Term and for twenty-four (24) months thereafter, if Nelson receives
      compensation under paragraph 8(d) ,
      she
      shall not become or serve as an officer, director, founder or employee of any
      financial institution with its main office in King, Snohomish or Pierce
      Counties, or any other financial institution which, in the judgment of the
      Board, is in substantial competition with Cascade, unless Nelson has first
      obtained the Board’s written consent. In the event Nelson breaches this
      condition, which breach is not corrected within fifteen (15) days of notice
      to
      Nelson of such breach, Nelson shall forfeit all right to receive all benefits
      or
      other payments remaining unpaid on the date of any such breach, and shall refund
      any payments received pursuant to paragraph 8(d) hereof,
      and all unexercised stock options which will be forfeited.




13.  No
      Solicitation .
      During
      the Term and for twenty-four (24) months thereafter, if Nelson receives
      compensation under paragraphs 8(d) or 9 ,
      she
      will not, directly or indirectly, solicit or attempt to solicit: (i) any
      employees of Cascade to leave their employment, or (ii) any customers of Cascade
      to remove their business from Cascade to participate in any manner in a
      competing business (“Competing Business”). “Competing Business” means any
      financial institution or trust company that competes with or will compete with
      Cascade in King, Snohomish or Pierce County, or any start-up or other financial
      institution or trust company in King, Snohomish or Pierce County.




14.  Return
      of Bank Property .
      If and
      when Nelson ceases, for any reason, to be employed by Cascade, Nelson must
      return to Cascade all keys, pass cards, identification cards and any other
      property of Cascade. At the same time, Nelson also must return to Cascade all
      originals and copies (whether in hard copy, electronic or other form) of any
      documents, drawings, notes, memoranda, designs, devices, diskettes, tapes,
      manuals, and specifications which constitute proprietary information or material
      of Cascade. The obligations in this paragraph include the return of documents
      and other materials which may be in Nelson’s desk at work, in Nelson’s car or
      place of residence, or in any other location under Nelson’s
      control.




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15.  Enforcement
      of Confidentiality and Non-Competition Covenants .
      Cascade
      and Nelson stipulate that, in light of all of the facts and circumstances of
      the
      relationship between them, the covenants referred to in paragraphs 10 , 12 , 13 ,
      and 14 above,
      including, without limitation, their scope, duration and geographic extent,
      are
      fair and reasonably necessary for the protection of Cascade’s confidential
      information, goodwill and other protectable interests. If a court of competent
      jurisdiction should decline to enforce any of those covenants and agreements,
      Nelson and Cascade request the court to reform these provisions to restrict
      Nelson’s use of confidential information and Nelson’s ability to compete with
      Cascade, to the maximum extent, in time, scope of activities, and geography,
      as
      the court finds enforceable.




Nelson
      acknowledges that Cascade will suffer immediate and irreparable harm that will
      not be compensable by damages alone, if Nelson repudiates or breaches any of
      the
      provisions in paragraphs 10 , 12 , 13 ,
      and 14 above or
      threatens or attempts to do so. For this reason, under these circumstances,
      Cascade, in addition to and without limitation of any other rights, remedies
      or
      damages available to it at law or in equity, will be entitled to obtain
      temporary, preliminary and permanent injunctions in order to prevent or restrain
      the breach, and Cascade will not be required to post a bond as a condition
      for
      the granting of this relief.




16.  Adequate
      Consideration .
      Nelson
      specifically acknowledges the receipt of adequate consideration for the
      covenants contained in paragraphs 10 , 12 , 13 ,
      and 14 above
      and that Cascade is entitled to require her to comply with these paragraphs.
      These paragraphs will survive termination of this Agreement. Nelson represents
      that if her employment is terminated, whether voluntarily or involuntarily,
      she
      has the experience and capabilities sufficient to enable her to obtain
      employment in areas which do not violate this Agreement and that Cascade’s
      enforcement of a remedy by way of injunction will not prevent Nelson from
      earning a livelihood.




17.  No
      Employee Contract Rights .
      Nothing
      contained in this Agreement shall be construed to abrogate, limit or affect
      the
      powers, rights and privileges of the Board to remove Nelson as President or
      Chief Executive Officer of Cascade, with or without the cause.




18.  Regulatory
      Agencies .
      The
      Parties fully acknowledge and recognize that Cascade and Nelson (insofar as
      she
      conducts Cascade’s business) are regulated and governed by the Division of Banks
      for the State of Washington and the FDIC. In the event the Division of Banks,
      the FDIC or any other governmental agency with authority to regulate Cascade
      objects to, and requires modification of, any of the terms of this Agreement,
      the Parties agree that they shall abide by and modify the terms of this
      Agreement to comply with any and all requirements of that governmental
      agency.




19.  Dispute
      Resolution .
      The
      Parties agree to attempt to resolve all disputes arising out of this Agreement
      by mediation. Any party desiring mediation may begin the process by giving
      the
      other party a written Request to Mediate, describing the issues involved and
      inviting the other party to join with the calling party to name a mutually
      agreeable mediator and a timeframe for the mediation meeting. The Parties and
      mediator may adopt any procedural format that seems appropriate for the
      particular dispute. The contents of all discussions during the mediation shall
      be confidential and non-discoverable in subsequent arbitration or litigation,
      if
      any. If the Parties can, through the mediation process, resolve the dispute(s),
      the agreement reached by the Parties shall be reduced to writing, signed by
      the
      Parties, and the dispute shall be at an end.




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If
      the
      result of the mediation is a recognition that the dispute cannot be successfully
      mediated, or if either party believes mediation would be unproductive or too
      slow, then either party may seek to resolve the dispute in accordance with
      the
      procedures established by Judicial Arbitration and Mediation Services,
      Inc.




The
      award
      rendered by the arbitrator (whether through Judicial Arbitration and Mediation
      Services, Inc. or otherwise) shall be final, and judgment may be entered upon
      it
      in accordance with applicable law in any court having jurisdiction
      thereof.




The
      arbitrator shall allocate the costs charged by Judicial Arbitration and
      Mediation Services, Inc., or other arbitrator as the case may be, for the
      arbitration between the Parties in a manner which the arbitrator considers
      equitable. It is agreed that the arbitrator shall award to the prevailing or
      substantially prevailing party all fees incurred by such party with regard
      to
      such arbitration, including reasonable legal and accounting fees. If the
      arbitrator determines that there is no prevailing or substantially prevailing
      party, the legal and accounting fees shall be the responsibility of each
      party.




20.  Governing
      Law .
      All
      proceedings will be held at a place designated by the arbitrator in Snohomish
      County, Washington. The arbitrator, in rendering a decision as to any state
      law
      claims, will apply Washington law.




21.  Exception
      to Arbitration .
      Notwithstanding the above, if Nelson violates paragraphs 10 , 12 , 13 ,
      and 14 above,
      Cascade will have the right to initiate the court proceedings described in
      paragraph 15 above,
      in lieu of an arbitration proceeding. Cascade may initiate these proceedings
      wherever appropriate within Washington state, but Nelson will consent to venue
      and jurisdiction in Snohomish County, Washington.




22.  Notice .
      Any
      notice to be delivered under this Agreement shall be given in writing and
      delivered personally or by certified mail, postage prepaid, addressed to Cascade
      or to Nelson at their last known address.




23.  Independent
      Legal Counsel .
      Nelson
      acknowledges that she has had the opportunity to review and consult with her
      own
      personal legal counsel regarding this Agreement.




24.  Non-Waiver .
      No
      delay or failure by either party to exercise any right under this Agreement,
      and
      no partial single exercise of that right, shall constitute a waiver of that
      or
      any other right.




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25.  Severability .
      If any
      provision of this Agreement shall be held by a court of competent jurisdiction
      to be invalid or unenforceable, the remaining provisions shall continue to
      be
      fully effective.




26.  Entire
      Agreement .
      This
      Agreement represents the entire agreement of the Parties. This Agreement
      supersedes any prior oral or written agreement between the Parties on the
      subject matter hereof. This Agreement may be superseded by another written
      agreement entered into between Nelson and Cascade on mutually agreeable terms,
      provided such agreement expressly by its terms supersedes this Agreement. The
      offer by Cascade to enter into any such agreement, or the entering into such
      agreement, shall not be considered to have terminated this Agreement, triggering
      the payment of benefits under paragraph 8 hereof.




27.  Binding
      Effect .
      It is
      agreed that all covenants, terms and conditions of this Agreement shall extend,
      apply to and firmly bind the heirs, executors, administrators, assigns and
      successors in interest of the respective parties hereto as fully as the
      respective parties themselves are bound. It is specifically understood that
      in
      the event of Nelson’s death prior to the full payment of any benefit to which
      she is entitled under this Agreement, such payment(s) shall be made to her
      spouse and/or heirs as the case may be.




IN
      WITNESS WHEREOF, the Parties have signed this Agreement on the day and year
      first above written.




CASCADE
                FINANCIAL CORPORATION
              
              By:
                /s/ Janice Halladay
              Janice
                Halladay
              Title:  
                Chair, Board Compensation and Personnel Committee
            /s/
                Carol Kobuke Nelson
              CAROL
                KOBUKE NELSONCASCADE
                BANK
              
              By:
                  /s/ Janice Halladay
                Janice
                  Halladay
                Title:  
                  Chair, Board Compensation and Personnel Committee




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