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,
      2008




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 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,
      2008Common
      Stock ($.01 par value)
            12,047,927




1


CASCADE
FINANCIAL CORPORATION





FORM
10-Q


For the Quarter Ended March 31, 2008








INDEX





PAGEPART I — Financial
    Information:Item 1
            —
      Financial Statements:—
      Condensed Consolidated Balance Sheets
            3—
      Condensed Consolidated Statements of Income
            4—
      Consolidated Statements of Comprehensive 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
      Resultsof
      Operations
            12Item 3
            —
      Quantitative and Qualitative Disclosures about Market Risk
            24Item 4
            —
      Controls and Procedures
            25PART II — Other
Information:Item 1
            —
      Legal Proceedings
            26Item 1A
            —
      Risk Factors
            26Item 2
            —
      Unregistered Sales of Equity Securities and Use of
Proceeds
            26Item 3
            —
      Defaults Upon Senior Securities
            26Item 4
            —
      Submission of Matters to a Vote of Security Holders
            26Item 5
            —
      Other Information
            26Item 6
            —
      Exhibits
            26Signatures
            27




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
      31,2008
            
            
            2007ASSETSCash
      on hand and in banks
            
            $
            13,235
            
            
            $
            12,911Interest-earning
      deposits in other institutions
            
            
            9,256
            
            
            
            1,619Securities
      available-for-sale, fair value
            
            
            117,509
            
            
            
            82,860Federal
      Home Loan Bank (FHLB) Stock
            
            
            11,920
            
            
            
            11,920Securities
      held-to-maturity, amortized cost
            
            
            134,574
            
            
            
            137,238Loans,
      net
            
            
            1,136,824
            
            
            
            1,092,776Goodwill
            
            
            24,585
            
            
            
            24,585Core
      deposit intangible, net
            
            
            599
            
            
            
            634Premises
      and equipment, net
            
            
            15,222
            
            
            
            14,160Cash
      surrender value of bank-owned life insurance (BOLI)
            
            
            22,890
            
            
            
            22,658Deferred
      tax asset
            
            
            1,894
            
            
            
            1,574Accrued
      interest receivable and other assets
            
            
            14,624
            
            
            
            14,653TOTAL
      ASSETS
            
            $
            1,503,132
            
            
            $
            1,417,588LIABILITIES AND STOCKHOLDERS’
      EQUITYLiabilities:Deposits
            
            $
            951,475
            
            
            $
            904,896FHLB
      advances
            
            
            249,000
            
            
            
            231,000Securities
      sold under agreements to repurchase
            
            
            120,633
            
            
            
            120,625Federal
      Reserve Term Auction Facility (TAF)
            
            
            20,000
            
            
            
            -Junior
      subordinated debentures payable
            
            
            15,465
            
            
            
            15,465Junior
      subordinated debentures payable, at fair value
            
            
            11,117
            
            
            
            11,422Advance
      payments by borrowers for taxes and insurance
            
            
            715
            
            
            
            502Dividends
      payable
            
            
            1,084
            
            
            
            1,082Accrued
      interest payable, expenses and other liabilities
            
            
            9,933
            
            
            
            10,500TOTAL
      LIABILITIES
            
            
            1,379,422
            
            
            
            1,295,492Stockholders’
      Equity:Preferred
      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 12,047,927 shares at March 31, 2008,and
      12,023,685 shares at December 31, 2007
            
            
            120
            
            
            
            120Additional
      paid-in capital
            
            
            40,471
            
            
            
            40,322Retained
      earnings, substantially restricted
            
            
            83,822
            
            
            
            82,169Accumulated
      other comprehensive (loss), net of tax
            
            
            (703
            )
            
            
            (515
            )TOTAL
      STOCKHOLDERS’ EQUITY
            
            
            123,710
            
            
            
            122,096TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            1,503,132
            
            
            $
            1,417,588








See notes
to condensed consolidated financial statements


3


CASCADE
FINANCIAL CORPORATION AND SUBSIDIARY


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME


(unaudited)





Three
      months ended(Dollars
      in thousands except share and per share amounts)
            
            March
      31,2008
            
            
            2007Interest
      income:Loans
            
            $
            19,308
            
            
            $
            19,708Securities
      held-for-trading
            
            
            -
            
            
            
            753Securities
      available-for-sale
            
            
            1,527
            
            
            
            1,008FHLB
      dividends
            
            
            30
            
            
            
            12Securities
      held-to-maturity
            
            
            2,084
            
            
            
            963Interest-earning
      deposits
            
            
            65
            
            
            
            187Total
      interest income
            
            
            23,014
            
            
            
            22,631Interest
      expense:Deposits
            
            
            7,966
            
            
            
            8,408FHLB
      advances and other borrowings
            
            
            4,043
            
            
            
            3,416Junior
      subordinated debentures
            
            
            530
            
            
            
            530Total
      interest expense
            
            
            12,539
            
            
            
            12,354Net
      interest income
            
            
            10,475
            
            
            
            10,277Provision
      for loan losses
            
            
            2,390
            
            
            
            250Net
      interest income after provision for loan losses
            
            
            8,085
            
            
            
            10,027Other
      income:Checking
      fees
            
            
            1,036
            
            
            
            874Service
      fees
            
            
            231
            
            
            
            254BOLI
            
            
            260
            
            
            
            195Net
      gain on sales/calls of securities
            
            
            464
            
            
            
            -Gain
      on sale of loans
            
            
            37
            
            
            
            88Net
      gain on fair value of financial instruments
            
            
            305
            
            
            
            515Other
            
            
            121
            
            
            
            125Total
      other income
            
            
            2,454
            
            
            
            2,051Other
      expenses:Compensation
      and employee benefits
            
            
            3,641
            
            
            
            3,373Occupancy
            
            
            952
            
            
            
            855Marketing
            
            
            238
            
            
            
            342Other
            
            
            2,104
            
            
            
            1,853Total
      other expenses
            
            
            6,935
            
            
            
            6,423Income
      before provision for federal income taxes
            
            
            3,604
            
            
            
            5,655Provision
      for federal income taxes
            
            
            990
            
            
            
            1,890Net
      income
            
            $
            2,614
            
            
            $
            3,765Net
      income per common share, basic
            
            $
            0.22
            
            
            $
            0.31Weighted
      average number of shares outstanding, basic
            
            
            12,035,806
            
            
            
            12,103,616Net
      income per share, diluted
            
            $
            0.21
            
            
            $
            0.30Weighted
      average number of shares outstanding, diluted
            
            
            12,206,374
            
            
            
            12,388,245Dividends
      declared per share
            
            $
            0.09
            
            
            $
            0.08




See notes
to condensed consolidated financial statements





4


CASCADE
FINANCIAL CORPORATION AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME


(unaudited)




Three
      months ended(Dollars
      in thousands)
              
              March
      31,2008
              
              
              2007Net
      Income
              
              $
              2,614
              
              
              $
              3,765Unrealized
      (loss) gain on securitiesavailable-for-sale, net of tax (benefit)
      expense of $(222) and $876 for the three months ended March 31, 2008, and
      2007, respectively.
              
              
              (413
              )
              
              
              1,627Reclassification
      adjustment for gains on securitiesincluded in net income, net of
      tax provision of $121 and $0 for the three months ended March 31, 2008,
      and 2007, respectively.
              
              
              225
              
              
              
              -Comprehensive
      Income
              
              $
              2,426
              
              
              $
              5,392


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)
            
            2008
            
            
            2007Cash
      flows from operating activities:Net
      income
            
            $
            2,614
            
            
            $
            3,765Adjustments
      to reconcile net income to net cash provided by (used
      in) operating activities:Depreciation
      and amortization of premises and equipment
            
            
            497
            
            
            
            450Provision
      for losses on loans
            
            
            2,390
            
            
            
            250Increase
      in cash surrender value of bank-owned life insurance
            
            
            (232
            )
            
            
            (165
            )Amortization
      of retained servicing rights
            
            
            11
            
            
            
            -Amortization
      of core deposit intangible
            
            
            35
            
            
            
            35Deferred
      federal income taxes
            
            
            (219
            )
            
            
            99Deferred
      loan fees, net of amortization
            
            
            (2
            )
            
            
            91Gain
      on sale of loans
            
            
            (37
            )
            
            
            (88
            )Stock-based
      compensation
            
            
            51
            
            
            
            68Excess
      tax benefit from stock-based payments
            
            
            -
            
            
            
            (113
            )Net
      change in fair value of financial instruments
            
            
            -
            
            
            
            (515
            )Net
      gain on sales/calls of securities available-for-sale
            
            
            (358
            )
            
            
            -Net
      gain on calls of securities held-to-maturity
            
            
            (106
            )
            
            
            -Net
      change in accrued interest receivable and other assets
            
            
            (91
            )
            
            
            (1,682
            )Net
      change in accrued interest payable, expenses and other
      liabilities
            
            
            (863
            )
            
            
            2,388Net
      cash provided by operating activities
            
            
            3,690
            
            
            
            4,583Cash
      flows from investing activities:Loans
      originated, net of principal repayments
            
            
            (47,064
            )
            
            
            (29,790
            )Net
      purchases of securities available-for-sale
            
            
            (98,951
            )
            
            
            -Proceeds
      from sales/calls of securities available-for-sale
            
            
            63,851
            
            
            
            -Principal
      repayments on securities available-for-sale
            
            
            520
            
            
            
            2,179Net
      purchases of securities held-to-maturity
            
            
            (57,763
            )
            
            
            (5,000
            )Proceeds
      from calls of securities held-to-maturity
            
            
            60,050
            
            
            
            -Principal
      repayments on securities held-to-maturity
            
            
            483
            
            
            
            1,128Purchases
      of premises and equipment
            
            
            (1,559
            )
            
            
            (2,224
            )Net
      increase (decrease) in loan participations sold
            
            
            657
            
            
            
            (714
            )Investment
      in Community Reinvestment Act (CRA) – low income housing
            
            
            108
            
            
            
            -Net
      cash used in investing activities
            
            
            (79,668
            )
            
            
            (34,421
            )Subtotal,
      carried forward
            
            $
            (75,978
            )
            
            $
            (29,838
            )








6


CASCADE
FINANCIAL CORPORATION AND SUBSIDIARY


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(unaudited)


Three
      Months EndedMarch
      31,(Dollars
      in thousands)
            
            2008
            
            
            2007Subtotal,
      brought forward
            
            $
            (75,978
            )
            
            $
            (29,838
            )Cash
      flows from financing activities:Proceeds
      from issuance of common stock
            
            
            221
            
            
            
            197Dividends
      paid
            
            
            (1,082
            )
            
            
            (967
            )Repurchase
      of common stock
            
            
            -
            
            
            
            (274
            )Excess
      tax benefits from stock-based payments
            
            
            -
            
            
            
            113Net
      increase in deposits
            
            
            46,579
            
            
            
            32,910Net
      increase (decrease) in FHLB advances
            
            
            18,000
            
            
            
            (2,000
            )Net
      increase in securities sold under agreements to repurchase
            
            
            8
            
            
            
            9Proceeds
      from Federal Reserve TAF
            
            
            20,000
            
            
            
            -Net
      increase in advance payments by borrowers for taxes and
      insurance
            
            
            213
            
            
            
            118Net
      cash provided by financing activities
            
            
            83,939
            
            
            
            30,106Net
      increase in cash and cash equivalents
            
            
            7,961
            
            
            
            268Cash
      and cash equivalents at beginning of period
            
            
            14,530
            
            
            
            42,879Cash
      and cash equivalents at end of period
            
            $
            22,491
            
            
            $
            43,147Supplemental
      disclosures of cash flow information—cash paid during the period
      for:Interest
            
            $
            13,193
            
            
            $
            11,534Federal
      income taxes
            
            
            200
            
            
            
            -Supplemental
      schedule of noncash investing activities:Change
      in unrealized loss on securities available-for-sale
            
            
            (188
            )
            
            
            (741
            )Dividends
      declared
            
            
            1,084
            
            
            
            969Cumulative
      adjustment to equity on adoption of SFAS No. 159
            
            
            -
            
            
            
            (3,389
            )Loans
      transferred to other repossessed assets
            
            
            154
            
            
            
            -


See notes
to condensed consolidated financial statements


7


CASCADE
FINANCIAL CORPORATION AND SUBSIDIARY


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


March
31, 2008


(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 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, 2008, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2008.





Certain
information and footnote disclosures included in the Corporation’s financial
statements for the year ended December 31, 2007, 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, 2007 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, condemnation proceedings on properties in which
the Bank holds security interests, claims involving the making and servicing of
real property loans and other issues incidental to the Corporation’s and the
Bank’s business. In the opinion of management, no material loss is expected from
any such pending lawsuits.





3.
            Recently
      Issued Accounting Standards





Adoption of SFAS No. 159 and No.
157:  The Corporation elected early adoption of Statement of
Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, and SFAS No. 157, Fair Value Measurements,
effective January 1, 2007. SFAS No. 159, which was issued in February 2007,
generally permits the measurement of selected eligible financial instruments at
fair value at specified election dates. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value under generally accepted
accounting principals (GAAP), and expands disclosures about fair value
measurement. The Corporation made this election to allow more flexibility with
respect to the management of investment securities, wholesale borrowings and
interest rate risk position in future periods (See Note 6).





The
Corporation adopted Financial Interpretation Number (FIN) 48, Accounting for Uncertainty in Income
Taxes,on January 1, 2007. FIN 48 is an interpretation of SFAS No. 109,
Accounting for Income
Taxes, and it seeks to reduce the diversity in practice associated with
certain aspects of measurement and recognition in accounting for income taxes.
In


8
 addition,
FIN 48 provides guidance on derecognition, classification, interest and
penalties, and accounting in interim periods and requires expanded disclosure
with respect to uncertainty in income taxes. As a result of the implementation
of FIN 48, the Company recognized no material adjustments in the asset for
unrecognized income tax benefits, all of which would affect the Company’s
effective income tax rate if recognized.





In
December 2007, FASB issued SFAS No. 141 (revised), Business Combinations. SFAS
No. 141R 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. 141R 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.
Accordingly, we will apply SFAS No. 141(R) to business combinations
occurring on or after January 1, 2009.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB
No. 51.  SFAS No.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
controlling financial interest in its subsidiary be accounted for consistently.
SFAS No.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 No. 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 No. 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 No. 160 must be applied prospectively as of the
beginning of the fiscal year in which SFAS No. 160 is initially applied,
except for the presentation and disclosure requirements. The presentation and
disclosure requirements are applied retrospectively for all periods
presented.  We do not have a noncontrolling interest in one or more
subsidiaries. Accordingly, we do not anticipate that the initial application of
SFAS No. 160 will have an impact on our financial
statements.


9


4.           Stockholders’
Equity





a)
            Earnings
      per Share





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





(Dollars
      in thousands, except share and per share amounts)
            
            Three
      Months Ended March 31,2008
            
            
            2007Numerator:Net
      income
            
            $
            2,614
            
            
            $
            3,765Denominator:Denominator
      for basic net income per share - Weighted average shares
            
            
            12,035,806
            
            
            
            12,103,616Effect
      of dilutive securities:Stock
      options
            
            
            170,568
            
            
            
            284,629Denominator
      for diluted net income per share-Weighted
      average shares and assumed conversion of dilutive stock
      options
            
            
            12,206,374
            
            
            
            12,388,245Basic
      net income per share
            
            $
            0.22
            
            
            $
            0.31Diluted
      net income per share
            
            $
            0.21
            
            
            $
            0.30





For the
quarters ended March 31, 2008 and 2007, there were anti-dilutive options to
purchase shares of 241,266 and 105,866 respectively, excluded from the above
calculation.





b)
            Dividends





On March 26, 2008, the Corporation
announced its twenty-third consecutive quarterly cash dividend payment. The
dividend was $0.09 per share and was paid on April 23, 2008, to shareholders of
record as of April 9, 2008.





c)
            Stock-based
      Compensation





Compensation
expense related to stock-based compensation was approximately $51,000 for the
three months ended March 31, 2008, and $68,000 for the three months ended March
31, 2007.




Changes
in total options outstanding for the three months ended March 31, 2008, are as
follows:


Options
            
            
            Weighted-
              Average
              Exercise
              Price
              per
      Share
            
            
            Weighted-
              Average
              Remaining
              Contractual
              Term
              (in
      years)
            
            
            Aggregate
              Intrinsic
              ValueOutstanding
      on December 31, 2007
            
            
            595,567
            
            
            $
            9.87
            
            
            
            5.13
            
            
            $
            2,580,240Granted
            
            
            96,382
            
            
            
            12.63Exercised
            
            
            (12,890
            )
            
            
            6.93Forfeited/Canceled
            
            
            (4,375
            )
            
            
            15.12Outstanding
      on March 31, 2008
            
            
            674,684
            
            
            $
            10.29
            
            
            
            5.69
            
            
            $
            2,006,654Exercisable
      on March 31, 2008
            
            
            426,158
            
            
            $
            8.41
            
            
            
            4.24
            
            
            $
            1,943,375




10


The
unrecognized share-based compensation cost on unvested options at March 31,
2008, was $371,547, which will be recognized over the estimated average life 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 pricing valuation model. The application of this
valuation model involves assumptions that are judgmental and sensitive in the
determination of compensation expense. Key assumptions used in determining the
fair value of options granted during the three months ended March 31, 2008, were
as follows:





Expected
      price volatility
            24
            %Risk-free
      interest rate
            2.46
            %Dividend
      yield on underlying stock
            2.90
            %Weighted-average
      expected life in years
            5.69





The total
options authorized at March 31, 2008, were 1,180,244. Options granted in this
period were 96,382 with a fair value of $2.61 per option. The total intrinsic
value of options exercised during the three months ended March 31, 2008, was
$87,291. The total intrinsic value of options exercised during the three months
ended March 31, 2007, was $329,057.





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. 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.





5.
            Non-Qualified
      Deferred Compensation Plan





The
Company 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 a select group of
non-employee directors, management and highly compensated employees of Cascade
Bank, and its affiliates, an opportunity to defer a portion of their salary and
bonus. Cascade 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, 2008, only two eligible participants contributed $9,562 to the
plan.


11




6.
            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.





Determination of fair market
values:





Junior
subordinated debentures payable are priced using discounted cash flows to the
next available redemption date on the date of valuation based on recent
issuances or quotations from brokers for comparable bank holding companies and
are considered a Level 2 input method. Securities available-for-sale are priced
using current market pricing provided through a third party investment services
provider using identical or very similar securities and are considered a
Level 2 input method.





Fair Value of Financial Assets and
      Liabilities(Dollars
      in thousands)
              
              Liabilities
            
            Fair
      MarketValue at

                March
      31, 2008

                  (Level 2)
            
            
            Change
      in Fair
                Market Value for the
                Three Months ended
                March
      31, 2008
                (Level
      2)Junior
      subordinated debentures payable
            
            $
            11,117
            
            
            $
            305Total
      adjustment gain to net income before provision for taxes
            
            
            
            
            
            $
            305





The
change in fair market value of the junior subordinated debentures payable is
recorded as a component of non-operating income.





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, 2007 audited consolidated financial statements and accompanying
notes included in our recent Annual Report on Form 10-K.





This
section contains 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


12


results
to differ materially from those projected. Those factors include, but are not
limited to: the impact of national and regional economic trends on small
business loan demand in the Puget Sound area; loan delinquency rates; the Bank’s
ability to continue to attract quality commercial business; interest rate
movements; changes in the demographic make-up of the Bank’s market area;
fluctuation in demand for the Bank’s products and services; the Corporation’s
ability to attract and retain qualified people; the risks inherent in
significant construction and commercial real estate lending; the ability to
attract low-cost deposits and commercial loans; expectations for the net
interest margin; maintaining asset quality; management’s ability to minimize
interest rate exposure and the impact of interest rate movements; the health of
the local real estate market; general economic conditions and ability of the
Corporation and the Bank to successfully adjust to any changes in these
conditions and other factors. These factors should be considered in evaluating
the forward-looking statements and undue reliance should not be placed on such
statements. The Corporation shall not be responsible to update any such
forward-looking statements. For a discussion of factors that could cause actual
results to differ, and for certain mandated SEC Guide 3 information that has not
materially changed since the audited statements, please see the Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2007, including but
not limited to the “Risk Factors” section and Part II, Item 1A of this Form
10-Q.





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 31,2008
            
            
            2007Return
      on average assets
            
            
            0.71
            %
            
            
            1.13
            %Return
      on average stockholders’ equity
            
            
            8.42
            
            
            
            13.31Average
      stockholders’ equity to average assets
            
            
            8.48
            
            
            
            8.49Other
      expenses to average assets
            
            
            1.88
            
            
            
            1.90Efficiency
      ratio
            
            
            53.64
            
            
            
            51.91Average
      interest-bearing assets to average interest-bearing
      liabilities
            
            
            111.75
            
            
            
            111.96








CHANGES
IN FINANCIAL CONDITION





Total
assets increased 6.0% or $85.5 million to $1.50 billion at March 31, 2008,
compared to $1.42 billion at December 31, 2007. Net loans, e.g. net of deferred
loan fees and the allowance for loan losses, increased 4.0% or $44.0 million to
$1.14 billion at March 31, 2008, from $1.09 billion at December 31,
2007.


13


Total investment
securities increased $32.0 million to $264.0 million at March 31, 2008, compared
to $232.0 million at December 31, 2007. The investment portfolio is concentrated
in securities issued by Government Sponsored Enterprises (GSEs, e.g. 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, 2008, were rated AAA or AA in terms of credit quality by
Moody’s and/or Standard & Poors. All MBS and GSE securities in the portfolio
as of March 31, 2008, were also rated AAA.





(Dollars
      in thousands)
            
            MARCH
      31, 2008Securities
    available-for-sale
            
            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
              ValueMBS
            
            $
            31,771
            
            
            $
            152
            
            
            $
            5
            
            
            $
            (156
            )
            
            $
            (296
            )
            
            $
            31,476Agency
      notes
            
            
            66,152
            
            
            
            418
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            66,570Corporate/other
            
            
            20,667
            
            
            
            15
            
            
            
            -
            
            
            
            (1,219
            )
            
            
            -
            
            
            
            19,463Total
            
            $
            118,590
            
            
            $
            585
            
            
            $
            5
            
            
            $
            (1,375
            )
            
            $
            (296
            )
            
            $
            117,509Securities held-to-maturity
            
            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
              ValueMBS
            
            $
            22,071
            
            
            $
            226
            
            
            $
            -
            
            
            $
            (62
            )
            
            $
            (85
            )
            
            $
            22,150Agency
      notes
            
            
            111,728
            
            
            
            427
            
            
            
            -
            
            
            
            (358
            )
            
            
            -
            
            
            
            111,797Corporate/other
            
            
            775
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            775Total
            
            $
            134,574
            
            
            $
            653
            
            
            $
            -
            
            
            $
            (420
            )
            
            $
            (85
            )
            
            $
            134,722





(Dollars
      in thousands)
            
            DECEMBER
      31, 2007Securities
    available-for-sale
            
            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
              ValueMBS
            
            $
            26,286
            
            
            $
            2
            
            
            $
            5
            
            
            $
            (71
            )
            
            $
            (795
            )
            
            $
            25,427Agency
      notes
            
            
            57,366
            
            
            
            67
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            57,433Total
            
            $
            83,652
            
            
            $
            69
            
            
            $
            5
            
            
            $
            (71
            )
            
            $
            (795
            )
            
            $
            82,860Securities held-to-maturity
            
            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
              ValueMBS
            
            $
            22,556
            
            
            $
            28
            
            
            $
            -
            
            
            $
            -
            
            
            $
            (643
            )
            
            $
            21,941Agency
      notes
            
            
            113,907
            
            
            
            67
            
            
            
            -
            
            
            
            (246
            )
            
            
            (149
            )
            
            
            113,579Corporate/other
            
            
            775
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            775Total
            
            $
            137,238
            
            
            $
            95
            
            
            $
            -
            
            
            $
            (246
            )
            
            $
            (792
            )
            
            $
            136,295





As of
March 31, 2008, we held seven securities in our available-for-sale portfolio and
two in our held-to-maturity portfolio that have had an unrealized loss for more
than one year. The losses on these securities have decreased significantly since
December 31, 2007, and are not related to credit deterioration. We have the
ability to hold the investments for a


14
 period of
time management believes to be sufficient for a market price recovery. We hold
no securities that are backed by sub-prime loans. Therefore, we do not consider
any portion of these investments to be other-than-temporarily
impaired.





At March
31, 2008, the Bank held FHLB stock of $11.9 million. On February 4, 2008, the
FHLB declared a $0.25 per share cash dividend payable on February 25, 2008. The
dividend payment was $29,801.





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. The majority of these
projects focus on entry-level homes and/or first trade-up homes. Commercial real
estate loans fund small, non-owner occupied buildings.





Retail
loans consist of residential, home equity and consumer loans. 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, e.g. automobiles, credit cards or boats.





Net loans
increased by $44.0 million to $1.14 billion as of March 31, 2008, compared to
$1.09 billion at December 31, 2007. In keeping with the Bank’s evolution to a
commercial bank, loans more closely associated with a commercial bank, e.g.
business, real estate construction, and commercial real estate loans, grew $25.5
million to $996.2 million as of March 31, 2008, compared to $970.7 million as of
December 31, 2007.





Retail
loans increased $3.8 million to $130.0 million as consumer loans increased
$454,000 to $28.1 million and residential loans increased by $3.4 million to
$101.8 million. Multifamily loans increased $15.6 million to $27.0
million.





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





(Dollars
      in thousands)Types of Loans
            
            March
      31, 2008
            
            
            %
      of Portfolio
            
            
            December
      31, 2007
            
            
            %
      of PortfolioBusiness
            
            $
            469,940
            
            
            
            40.7
            %
            
            $
            468,453
            
            
            
            42.3
            %Real
      estate construction(1)
            
            
            411,189
            
            
            
            35.7
            
            
            
            381,810
            
            
            
            34.4Commercial
      real estate
            
            
            115,087
            
            
            
            10.0
            
            
            
            120,421
            
            
            
            10.9Retail(2)
            
            
            129,910
            
            
            
            11.3
            
            
            
            126,072
            
            
            
            11.4Multifamily
      real estate
            
            
            26,964
            
            
            
            2.3
            
            
            
            11,397
            
            
            
            1.0Total
      loans
            
            $
            1,153,090
            
            
            
            100.0
            %
            
            $
            1,108,153
            
            
            
            100.0
            %Deferred
      loan fees
            
            
            (3,722
            )
            
            
            
            
            
            
            (3,724
            )Allowance
      for loan losses
            
            
            (12,544
            )
            
            
            
            
            
            
            (11,653
            )Loans,
      net
            
            $
            1,136,824
            
            
            
            
            
            
            $
            1,092,776





(1)
            Real
      estate construction loans are net of loans in
  process.


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





15


Deposits,
Other Borrowings, and Stockholders’ Equity





Checking account deposits
increased as the Bank continued to focus its branch and sales activities
on deposit generation in general and checking/transaction accounts in
particular. In May 2005, the Bank launched its High Performance Checking (HPC)
program to accelerate deposit growth. As of March 31, 2008, HPC accounts held
$­­­­­67.0 million of checking deposits. In January 2007,
the Bank launched its Business High Performance Checking (BHPC) program in an
effort to continue to improve our funding mix. As of March 31, 2008, BHPC
accounts held $­20.3 million of checking deposits. Total deposits increased
by $46.5 million from $905.0 million at December 31, 2007, to $­951.5
million at March 31, 2008. The majority of the increase occurred in savings and
money market accounts (MMDA), as the Bank received deposits via several accounts
from other financial services providers including securities brokers and other
banks.





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





(Dollars
      in thousands)
            
            March
      31,
            
            
            %
      of
            
            
            December
      31,
            
            
            %
      of2008
            
            
            Deposits
            
            
            2007
            
            
            DepositsChecking
      accounts
            
            $
            149,074
            
            
            
            15.7
            %
            
            $
            138,190
            
            
            
            15.3
            %Savings
      & MMDA
            
            
            358,646
            
            
            
            37.7
            
            
            
            327,264
            
            
            
            36.2CDs
            
            
            443,755
            
            
            
            46.6
            
            
            
            439,442
            
            
            
            48.5$
            951,475
            
            
            
            100.0
            %
            
            $
            904,896
            
            
            
            100.0
            %





FHLB
advances increased by $18.0 million from $231.0 million at December 31, 2007, to
$249.0 million at March 31, 2008. Securities sold under agreements to repurchase
remained unchanged at $120.6 million at December 31, 2007, and at March 31,
2008. Other borrowings increased from $0 at December 31, 2007 to $20 million for
the three months ended March 31, 2008. The other borrowing is a short-term
advance from the Federal Reserve Bank.  The Bank uses structured
advances and repurchase agreements to obtain lower rates.





Total
stockholders’ equity increased $1.6 million from $122.1 million at December 31,
2007, to $123.7 million at March 31, 2008. The increase to equity was primarily
due to the retention of net income above the cash dividend paid to shareholders.
The Corporation’s twenty-third consecutive cash dividend, which was declared
March 26, 2008, reduced total stockholders’ equity by $1.1 million. During the
three months ended March 31, 2008, no stock was repurchased under the Board
approved stock repurchase plan. Accumulated other comprehensive loss increased
by $188,000 due to an increase in the fair value loss on available-for-sale
securities.





Asset
Quality




Non-performing
assets (non-performing loans, real estate owned and other repossessed property)
totaled $17.4 million and $1.5 million at March 31, 2008, and December 31, 2007,
respectively. Non-performing loans, which are those on non-accrual, those that
are ninety days past due, and those that management otherwise has serious
reservations about their collectibility, increased to $17.3 million at March 31,
2008, compared to $1.5 million at December 31, 2007. Of the $17.3 million, $16.9
million were real estate construction loans,


16
 including
$11.6 million in one lending relationship for land, acquisition and development,
and $5.3 million in another lending relationship for residential construction.
The other non-performing loans were business and construction loans of $293,000
and $112,000 in retail (consumer) loans. There was $154,000 in other repossessed
assets as of March 31, 2008, and $0 at December 31, 2007. There was no real
estate owned (REO) at March 31, 2008 or at December 31, 2007.





At March
31, 2008, the Bank’s allowance for loan losses was $12.5 million compared to
$11.7 million at December 31, 2007. Additionally, at March 31, 2008, $135,000
was recorded in a general valuation allowance allocated to off-balances sheet
commitments, e.g. letters of credit and construction loans in process. This
account was recorded as an “other liability” on the Corporation’s balance sheet.
During the quarter this account was reduced by $7,000 to $135,000 compared to
$142,000 at December 31, 2007. Total allowance for loan losses, which includes
the allowance for off-balance sheet commitments, was 1.10% of total loans
outstanding at March 31, 2008, compared to 1.06% at December 31, 2007. Due to
the addition of $15.9 million of loans in the quarter, total allowance for loan
losses was 73% of non-performing loans at March 31, 2008, compared to 774% at
December 31, 2007.





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
historical 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 an increase in
non-performing loans and a general slowdown in the housing market. Growth in
loans outstanding, specifically in business and construction loans, also
contributed to the increase in the allowance. Management believes that the
allowance for loan losses is adequate to provide for losses that may be incurred
on non-performing loans.





During
the quarter ended March 31, 2008, loan charge-offs equaled $1.53 million while
recoveries were $24,000 resulting in net charge-offs of $1.50 million or 13
basis points of total loans. Of the loans charged-off, $1.0 million was on a
line of credit and $450,000 against a real estate construction
loan.





The
following table provides summary information concerning asset quality as of and
for the quarters ended March 31, 2008, and December 31, 2007,
respectively:





March
      31, 2008
            
            
            December
      31, 2007Non-performing
      loans to total assets
            
            
            1.15
            %
            
            
            0.11
            %Non-performing
      loans to total loans outstanding
            
            
            1.50
            
            
            
            0.14Non-performing
      assets to total assets
            
            
            1.16
            
            
            
            0.11Total
      allowance for loan losses to non-performing loans(1)
            
            
            73
            
            
            
            774Total
      allowance for loan losses to total loans(1)
            
            
            1.10
            
            
            
            1.06Net
      charge-offs to total loans
            
            
            0.13
            
            
            
            0.01(1)
      Total allowance for loan losses includes off-balance sheet loan
      commitments of $135,000 at March 31, 2008, and $142,000 at December 31,
      2007.


17
 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 31,2008
            
            
            2007(Dollars
      in thousands)
            
            AVERAGE
              BALANCE
            
            
            INTEREST
              AND
              DIVIDEND
            
            
            YIELD/
              COST
            
            
            AVERAGE
              BALANCE
            
            
            INTEREST
              AND
      DIVIDEND
            
            
            YIELD/
              COSTASSETSInterest-earning
      assets (1)Residential loans
            
            $
            98,991
            
            
            $
            1,495
            
            
            
            6.04
            %
            
            $
            97,180
            
            
            $
            1,446
            
            
            
            5.95
            %Multifamily loans
            
            
            17,415
            
            
            
            304
            
            
            
            7.00
            
            
            
            32,868
            
            
            
            582
            
            
            
            7.18Commercial real estate
      loans
            
            
            117,292
            
            
            
            1,959
            
            
            
            6.70
            
            
            
            119,519
            
            
            
            2,075
            
            
            
            7.04Construction loans
            
            
            398,696
            
            
            
            6,640
            
            
            
            6.68
            
            
            
            306,561
            
            
            
            6,966
            
            
            
            9.21Consumer loans
            
            
            27,915
            
            
            
            482
            
            
            
            6.93
            
            
            
            27,511
            
            
            
            531
            
            
            
            7.83Business banking
    loans
            
            
            469,703
            
            
            
            8,428
            
            
            
            7.20
            
            
            
            443,488
            
            
            
            8,109
            
            
            
            7.42Total loans
            
            
            1,130,012
            
            
            
            19,308
            
            
            
            6.85
            
            
            
            1,027,127
            
            
            
            19,709
            
            
            
            7.78Securities
      available-for-sale
            
            
            112,961
            
            
            
            1,557
            
            
            
            5.53
            
            
            
            89,782
            
            
            
            1,019
            
            
            
            4.60Securities
      held-to-maturity
            
            
            145,999
            
            
            
            2,084
            
            
            
            5.72
            
            
            
            80,679
            
            
            
            963
            
            
            
            4.84Securities
      held-for-trading
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            67,300
            
            
            
            753
            
            
            
            4.54Daily interest-earning
      deposits
            
            
            8,208
            
            
            
            65
            
            
            
            3.20
            
            
            
            14,701
            
            
            
            187
            
            
            
            5.15Total securities and interest-earning
      deposits
            
            
            267,168
            
            
            
            3,706
            
            
            
            5.56
            
            
            
            252,462
            
            
            
            2,922
            
            
            
            4.69Total interest-earning
    assets
            
            
            1,397,180
            
            
            
            23,014
            
            
            
            6.62
            
            
            
            1,279,589
            
            
            
            22,631
            
            
            
            7.17Noninterest-earning
      assetsOffice properties and equipment,
      net
            
            
            14,726
            
            
            
            
            
            
            
            
            
            
            
            12,895Real estate, net
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            -Other noninterest-earning
      assets
            
            
            60,181
            
            
            
            
            
            
            
            
            
            
            
            59,422Total assets
            
            
            1,472,087
            
            
            
            
            
            
            
            
            
            
            
            1,351,906LIABILITIES
      AND EQUITYInterest-bearing
liabilitiesSavings accounts
            
            $
            11,153
            
            
            $
            14
            
            
            
            0.50
            %
            
            $
            14,429
            
            
            $
            18
            
            
            
            0.50
            %Checking accounts
            
            
            53,266
            
            
            
            192
            
            
            
            1.45
            
            
            
            47,862
            
            
            
            173
            
            
            
            1.47Money market
    accounts
            
            
            334,035
            
            
            
            2,780
            
            
            
            3.34
            
            
            
            261,553
            
            
            
            2,774
            
            
            
            4.30Certificates of
      deposit
            
            
            442,590
            
            
            
            4,981
            
            
            
            4.51
            
            
            
            447,890
            
            
            
            5,443
            
            
            
            4.93Total interest-bearing
      deposits
            
            
            841,044
            
            
            
            7,966
            
            
            
            3.80
            %
            
            
            771,731
            
            
            
            8,408
            
            
            
            4.42Other interest-bearing
      liabilitiesFHLB advances
            
            
            257,467
            
            
            
            2,740
            
            
            
            4.27
            
            
            
            249,503
            
            
            
            2,961
            
            
            
            4.81Securities sold under agreements
      to repurchase
            
            
            120,632
            
            
            
            1,265
            
            
            
            4.22
            
            
            
            95,775
            
            
            
            455
            
            
            
            1.93Junior subordinated debentures
      payable
            
            
            26,854
            
            
            
            530
            
            
            
            7.94
            
            
            
            27,495
            
            
            
            530
            
            
            
            7.82Other borrowings
            
            
            4,280
            
            
            
            38
            
            
            
            3.57
            
            
            
            -
            
            
            
            -
            
            
            
            -Total interest-bearing
      liabilities
            
            
            1,250,277
            
            
            
            12,539
            
            
            
            4.03
            
            
            
            1,144,504
            
            
            
            12,354
            
            
            
            4.38Other liabilities
            
            
            97,040
            
            
            
            
            
            
            
            
            
            
            
            92,674Total liabilities
            
            
            1,347,317
            
            
            
            
            
            
            
            
            
            
            
            1,237,178Stockholders’
    equity
            
            
            124,771
            
            
            
            
            
            
            
            
            
            
            
            114,728Total liabilities and stockholders’
      equity
            
            
            1,472,088
            
            
            
            
            
            
            
            
            
            
            
            1,351,906Net
      interest income (2)
            
            
            
            
            
            $
            10,475
            
            
            
            
            
            
            
            
            
            
            $
            10,277Interest
      rate spread (3)
            
            
            
            
            
            
            
            
            
            
            2.59
            
            
            
            
            
            
            
            
            
            
            
            2.79Net
      interest margin (4)
            
            
            
            
            
            
            3.02
            
            
            
            
            
            
            
            
            
            
            
            3.26Average
      interest-earning assets to average
              interest-bearing
      liabilities
            
            
            111.75
            %
            
            
            
            
            
            
            
            
            
            
            111.96
            %





(1)  Does
not include interest on loans 90 days or more past due.


(2)  Interest
and dividends on total interest-earning assets less interest on total
interest-bearing liabilities.


(3)  Total
interest-earning assets yield less total interest-bearing liabilities
cost.


(4)  Net
interest income as an annualized percentage of total interest-earning
assets.




18


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 31,2008
              Compared
      to Quarter Ended
              March
      31, 2007
              Increase
      (Decrease) Due toRate
            
            
            Volume
            
            
            Mix
            
            
            NetInterest-earning
      assetsResidential
      loans
            
            $
            22
            
            
            $
            27
            
            
            $
            -
            
            
            $
            49Multifamily
      loans
            
            
            (14
            )
            
            
            (277
            )
            
            
            13
            
            
            
            (278
            )Commercial
      real estate
            
            
            (102
            )
            
            
            (39
            )
            
            
            25
            
            
            
            (116
            )Construction
      loans
            
            
            (1,943
            )
            
            
            2,122
            
            
            
            (505
            )
            
            
            (326
            )Consumer
      loans
            
            
            (61
            )
            
            
            8
            
            
            
            4
            
            
            
            (49
            )Business
      banking loans
            
            
            (242
            )
            
            
            486
            
            
            
            75
            
            
            
            319Total loans
            
            
            (2,340
            )
            
            
            2,327
            
            
            
            (388
            )
            
            
            (401
            )Securities
      held-for-trading
            
            
            -
            
            
            
            (764
            )
            
            
            11
            
            
            
            (753
            )Securities
      available-for-sale
            
            
            207
            
            
            
            267
            
            
            
            64
            
            
            
            538Securities
      held-to-maturity
            
            
            178
            
            
            
            791
            
            
            
            152
            
            
            
            1,121Daily
      interest-earning deposits
            
            
            (72
            )
            
            
            (83
            )
            
            
            33
            
            
            
            (122
            )Total
      net change in income on interest-earning assets
            
            $
            (2,027
            )
            
            $
            2,538
            
            
            $
            (128
            )
            
            $
            383Interest-bearing
      liabilitiesInterest-bearing
      depositsSavings
accounts
            
            $
            -
            
            
            $
            (4
            )
            
            $
            -
            
            
            $
            (4
            )Checking
    accounts
            
            
            (3
            )
            
            
            20
            
            
            
            2
            
            
            
            19Money market
      accounts
            
            
            (630
            )
            
            
            779
            
            
            
            (144
            )
            
            
            5Certificates of
      Deposit
            
            
            (464
            )
            
            
            (65
            )
            
            
            67
            
            
            
            (462
            )FHLB advances
            
            
            (332
            )
            
            
            103
            
            
            
            8
            
            
            
            (221
            )Securities sold under agreements
      to repurchase
            
            
            545
            
            
            
            120
            
            
            
            145
            
            
            
            810Junior subordinated debentures
      payable
            
            
            7
            
            
            
            (12
            )
            
            
            5
            
            
            
            -Other borrowings
            
            
            -
            
            
            
            38
            
            
            
            -
            
            
            
            38Total
      net change in expenses on  interest-bearing
      liabilities
            
            $
            (877
            )
            
            $
            979
            
            
            $
            83
            
            
            $
            185Net
      increase in net interest  income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            198








RESULTS
OF OPERATIONS





Comparison
of the Three Months Ended March 31, 2008 and 2007





General





Net
income decreased 30.6% to $2.6 million for the three months ended March 31,
2008, compared to $3.8 million during the comparable period in 2007. A $2.4
million loan loss provision accounted for the difference in earnings. The Bank
reversed approximately $700,000 in interest on loans placed on non-accrual
status during the quarter but this amount was partially offset by a $403,000
increase in other income. Net income per diluted share was $0.21 for the quarter
ended March 31, 2008, and $0.30 per share for the quarter ended March 31,


19
 2007, a
decrease of 30.0%. Net interest income before provision for loan losses
increased $198,000 to $10.5 million for the quarter ended March 31, 2008. Total
other income increased by $403,000 to $2.5 million for the quarter ended March
31, 2008. Total other expenses increased $512,000 to $6.9 million for the
quarter ended March 31, 2008, as compared to the quarter ended March 31,
2007.





Net
Interest Income





Net
interest income, before provision for loan losses, increased 1.9% or $198,000 to
$10.5 million for the three months ended March 31, 2008, compared to $10.3
million for the three months ended March 31, 2007. Average interest-earning
assets increased $117.6 million or 9.2% to $1.4 billion for the three months
ended March 31, 2008, compared to the same period in 2007. Average total loans
increased $102.9 million to $1.1 billion and average investment securities
increased $21.3 million to $239.0 million for the three months ended March 31,
2008, compared to the same quarter of the prior year.


At
      or for thethree
      months endedMarch
      31,(Dollars in
      millions)
            
            2008
            
            
            2007Average
      interest-earning
      assets
            
            $
            1,397
            
            
            $
            1,280Average
      interest-bearing liabilities
            
            
            1,250
            
            
            
            1,143Yield
      on interest-earning
      assets
            
            
            6.62
            %
            
            
            7.17
            %Cost of
      interest-bearing liabilities
            
            
            4.03
            
            
            
            4.38Net
      interest spread
            
            
            2.59
            
            
            
            2.79Net
      interest margin
            
            
            3.02
            
            
            
            3.26





The net
interest margin decreased 24 basis points to 3.02% for the three months ended
March 31, 2008, compared to the same quarter the prior year. The yield on
interest-earning assets decreased 55 basis points to 6.62% for the three months
ended March 31, 2008, compared to 7.17% for the three months ended March 31,
2007. Interest income, yield on interest-earning assets and net interest margin
were impacted by the reversal of approximately $700,000 in interest income
related to loans that were placed on non-accrual. This reversal was responsible
for about 20 basis points of the overall margin compression. In addition, Fed
rate cuts, totaling 300 basis points in the past year, reduced the yield on
approximately $400.0 million of prime based loans. The cost of interest-bearing
liabilities decreased 35 basis points to 4.03% for the three months ended March
31, 2008, compared to 4.38% for the same period in 2007, primarily due to
decreased costs for deposits and FHLB advances.





Provision
for Loan Losses





Cascade’s
provision for loan losses was $2.4 million for the three months ended March 31,
2008 and $250,000 for the three months ended March 31, 2007. The increase in the
provision was due to an increase in non-performing loans and a general slowdown
in the real estate market. The provision for loan losses is 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.


20


Other
Income





Total
other income increased $403,000 or 19.6% to $2.5 million for the three months
ended March 31, 2008, as compared to $2.1 million for the three months ended
March 31, 2007, including $464,000 in gain on sale of securities. For the three
months ended March 31, 2008, checking service fees increased to $1.0 million
compared to $874,000 for the same period in the prior year. Gain on sale of
loans decreased $51,000 from $88,000 to $37,000 for the three months ended March
31, 2008, compared to the same quarter in the prior year. Other service fees
decreased $23,000 to $231,000 for the quarter.





Other
Expense





Total
other expenses were $6.9 million for the three months ended March 31, 2008,
compared to $6.4 million for the three months ended March 31, 2007.





Compensation
and employee benefit expenses increased $268,000 to $3.6 million during the
three months ended March 31, 2008, compared to the same quarter last year. The
increased compensation and personnel expense was primarily due to increased
staffing levels from the opening of our Shoreline branch and our Burlington loan
production office. The remaining other expense categories (occupancy, marketing
and other) totaled $3.3 million for the three months ended March 31, 2008, and
$3.1 million for the three months ended March 31, 2007. In addition, Washington
State Business and Occupational tax was up $35,000 for the quarter.





The
provision for federal income taxes decreased $900,000 to $990,000, a decrease of
48%.  The decrease in net income before income taxes accounted for
approximately $700,000 of this difference.  The tax rate for the first
quarter of 2008 is 27% compared to a tax rate of 33% the prior year. The
difference in the tax rates were due to tax credits generated by CRA investments
in low-income housing, a 70% income exclusion on FNMA and FHLMC investments and
an increase in tax exempt BOLI income.





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 seven 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 loans; 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 FHLB advances. In terms of
commitments, as of March 31, 2008, Cascade had $149.0 million of construction
loans in process, $92.1 million in unused business lines of


21
 credit
and future business commitments, $41.6 million in unused consumer lines of
credit including credit cards, and $24.9 million in other undisbursed
commitments. Recent history indicates construction lines will be funded at 68%
of commitments at any point in time. Historically, the Bank’s business customers
use approximately 53% of their credit lines at any given time. About 41.7% 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 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, 2008, contributed $3.7 million to liquidity
compared to $4.7 million for the three months ended March 31,
2007.





Funding
needs are met through existing liquidity balances, deposit growth, FHLB advances
and other borrowings, as well as the repayment of existing loans and the sale of
loans. Cascade maintains balances in FHLB deposits, which equaled $9.3 million
as of March 31, 2008, and $22.5 million at March 31, 2007.





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
$525.6 million at current asset levels. At March 31, 2008, the Bank had $249.0
million in advances and an unused line of credit from the FHLB-Seattle of
approximately $276.6 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 flexible source of funding. At
March 31, 2008, the Bank had $120.6 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 $11.0 million at the end of
the quarter and as of December 31, 2007. Commercial real estate loans totaling
$271.8 million and home equity and second lien residential loans totaling $32.9
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 $58.2 million line of
credit at the Federal Reserve Bank of San Francisco and did borrow overnight
during the quarter.As of March
31, 2008, there was an outstanding balance of $20.0 million in short-term
borrowings with the Federal Reserve under the Term Auction Facility (TAF)
program.





The
recent turmoil in the credit markets did not have an impact on the Bank’s
liquidity management practices. Access to the FHLB, our correspondent banks, and
the Federal Reserve remained open.





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 375,000 shares of
the Corporation’s stock at its May 2007 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.


22


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 at December 31, 2003, and did not have a
significant impact on the Corporation’s financial condition or results of
operations.





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, 2008, for the
purposes of this calculation, the Bank’s average total assets and total
risk-weighted assets were $1.5 billion and $1.3 billion respectively. The
related excess capital amounts as of March 31, 2008, are presented in the
following table:


23




(Dollars
      in thousands)
            
            Adequately
      Capitalized
            
            
            Well
      CapitalizedCore capital
            
            Amount
            
            Percentage
            
            
            Amount
            
            PercentageCascade’s
      Tier 1 (Core) capital
            
            $
            123,248
            
            
            8.53
            %
            
            $
            123,248
            
            
            8.53
            %Minimum
      requirement
            
            
            58,218
            
            
            4.00
            
            
            
            86,727
            
            
            6.00Excess
            
            $
            65,030
            
            
            4.53
            %
            
            $
            36,521
            
            
            2.53
            %Risk-based capital
            
            Amount
            
            Percentage
            
            
            Amount
            
            PercentageCascade’s
      Risk-based capital
            
            $
            135,927
            
            
            10.45
            %
            
            $
            135,927
            
            
            10.45
            %Minimum
      requirement(1)
            
            
            104,041
            
            
            8.00
            
            
            
            130,051
            
            
            10.00Excess
            
            $
            31,886
            
            
            2.45
            %
            
            $
            5,876
            
            
            0.45
            %(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, 2008, 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 also
subject to capital requirements that are similar to those for Cascade Bank. As
of March 31, 2008, the Corporation is “well capitalized” under Federal Reserve
guidelines with a Tier 1 ratio of 8.59% and a risk-based ratio of
10.52%.





Item
3 – Quantitative and Qualitative Disclosures about Market Risk





ASSET/LIABILITY
MANAGEMENT





The Bank,
like other financial institutions, is subject to fluctuations in interest rates
because its interest-bearing liabilities reprice on different terms than its
interest-earning assets. 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 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, 2008, 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, 2008, the
Bank’s fair value of equity increases 9.3% in the up 200 basis point scenario
and decreases 24.9% in the down 200 basis point scenario, within the established
guideline of a maximum 30% decline. Using the same


24
 methodology,
the adjusted capital/asset ratio is 11.1% in the up 200 basis point scenario and
11.0% in the down 200 basis point scenario, both above the 5% minimum
established guideline. The net interest income increases 1.6 % in the up 200
basis point scenario and decreases 9.4% 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. In addition to
selling virtually all 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, 2008.





Type
            Percentage
      of PortfolioVariable
            38%Adjustable
            36%Fixed
            26%





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, 2008,
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.





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 of March 31, 2008. 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, 2008, 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.


25


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 to the risk factors disclosed in Item 1A. - Risk
Factors in our Annual Report on Form 10-K for the period ended December 31,
2007.





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




Issuer
      Purchases of Equity Securities2007 PLANTotal
      Number of Shares Purchased
            
            
            Maximum
              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, 2008
            January
      31, 2008
            
            
            -
            
            
            $
            -
            
            
            
            -
            
            
            
            322,707February
      1, 2008
            February
      29, 2008
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            322,707March
      1, 2008
            March
      31, 2008
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            322,707Total
            
            
            
            -
            
            
            $
            -
            
            
            
            -
            
            
            
            322,707During
      the period presented there were no shares purchased.1) In
      May 2007, the Corporation announced a new stock repurchase plan to
      purchase up to 375,000 shares of the Corporation’s stock. The Plan
      will expire on May 31, 2008.







Item
3.  Defaults upon Senior Securities




Not applicable




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




Not applicable




Item
5.  Other information




Not applicable




Item
6.  Exhibits




(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





26


(b)
            Reports
      on Form 8-K




On
January 16, 2008, the Corporation filed a Form 8-K announcing the adoption of
the Bank’s Non-Qualified Deferred Compensation Plan dated February 1, 2008,
under Items 1.01 and 1.02 of Form 8-K.




On
January 22, 2008, the Corporation filed a Form 8-K reporting an attached press
release announcing earning information for the quarter and year ended December
31, 2007, under Items 2.02 and 9.01 of Form 8-K.




On April
3, 2008, the Corporation filed a Form 8-K reporting an attached press release
announcing it expects to record a larger than normal provision for loan losses
in the first quarter of 2008, under Items 2.02 and 9.01 of Form
8-K.




On April
22, 2008, the Corporation filed a Form 8-K reporting an attached press release
announcing earnings information for the quarter ended March 31, 2008, under
Items 2.02 and 9.01 of Form 8-K.




On April
23, 2009, the Corporation filed a form 8-K/A amending its Form 8-K filed on
April 22, 2008.























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 8, 2008
              /s/
      Lars H. JohnsonBy:     Lars
      H. Johnson,
                Executive Vice
      President
                (Chief Financial
      Officer)
  27