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


                                     FORM 10-Q


     /x/       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended December 31, 1998

	OR

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

                        Commission file number 0-25286
  
                         CASCADE FINANCIAL CORPORATION
                         -----------------------------
             (Exact name of registrant as specified in its charter)

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


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


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

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

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

           Class                	Outstanding as of December 31, 1998
           -----                 -----------------------------------
 	Common Stock ($.01 par value)             4,328,839


<PAGE>
                      CASCADE FINANCIAL CORPORATION

                               FORM 10-Q
                  for the Quarter Ended December 31, 1998


                                 INDEX
                                 -----

PART I - Financial Information:

  Item 1 - Financial Statements:

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

         - Condensed Consolidated Statements of Operations. . . .4

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

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

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


PART II - Other Information. . . . . . . . . . . . . . . . . . .14

                                      2
<PAGE>
                      PART I -- FINANCIAL INFORMATION

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

                                                  December 31,	     June 30,
                                                  ------------     --------
ASSETS                                                1998            1998
------                                               ------          ------

Cash on hand and in banks                         $  13,391          10,642
Interest-earning deposits in other institutions       1,772           1,324
Securities available for sale                        42,009          27,412
Loans available for sale                             40,554          19,920
Mortgage-backed securities held to maturity 
 (market value of $2,834 and $4,654)                  2,862           4,725
Loans, net                                          373,144         364,814
Premises and equipment, at cost, net                  9,347           8,764
Accrued interest receivable and other assets          6,728           6,554
                                                    -------         -------
  TOTAL ASSETS                                    $ 489,807         444,155
                                                    =======         =======

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Deposits                                         $ 	335,529         312,518
Federal Home Loan Bank advances                     106,916          73,436
Securities sold under agreements to repurchase        1,644          13,391
Advance payments by borrowers for taxes and 
  insurance                                           2,192           1,953
Accrued expenses and other liabilities                8,313           9,836
Deferred income tax                                   1,601           1,603
                                                    -------         -------
  TOTAL LIABILITIES                                 456,195         412,737
                                                    =======         =======

Preferred stock, $.01 par value, 500,000 shares 
  authorized; no shares issued or outstanding            --              --
Common stock, $.01 par value,5,000,000 shares 
  authorized; 4,328,839 and 4,265,624 shares 
  issued and outstanding                                 43              43
Additional paid-in capital                            4,688           4,433
Retained earnings, substantially restricted          28,989          27,046
Cumulative comprehensive income, net (note 4)          (108)           (104)
                                                    -------         -------
  TOTAL STOCKHOLDERS' EQUITY                         33,612          31,418
                                                    -------         -------
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      $ 489,807         444,155
                                                    =======         =======


                 See notes to consolidated financial statements

                                        3

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

                                         Three Months         Six Months
                                      Ended December 31,  Ended December 31,
                                      ------------------  ------------------
                                       1998       1997       1998       1997
                                      ------     ------     ------     ------
Interest income:
  Loans                            $  8,590      7,666	    17,012    	15,149
  Mortgage-backed securities
    held-to-maturity                     39         80         90        162
  Securities available for sale         516        442        889      1,089
  FHLB stock dividends                  110        104        214        207
  Interest-earning deposits              58         74        128        147
                                     ----------------------------------------
    Total interest income             9,313      8,366     18,333     16,754
Interest expense:
  Deposits                            4,034      3,753      8,057      7,705
  Borrowings                          1,361      1,218      2,582      2,465
                                     ----------------------------------------
    Total interest expense            5,395      4,971     10,639     10,170
Net interest income                   3,918      3,395      7,694      6,584
  Provision for loan losses             150         99        300        201
                                     ----------------------------------------
Net interest income after provision 
  for loan losses                     3,768      3,296      7,394      6,383
Other income:
  Gain on sale of loans                 231        125        459         84
  Service charges                       247        300        501        647
  Gain on sale of securities 
    available-for-sale                   12         13         17         94
  Gain on sale of real estate owned      55         --         55          1
  Other                                  62         72        111        145
                                    -----------------------------------------
    Total other income                  607        510      1,143        971
Other expenses:
  Salaries and employee benefits      1,340      1,314      2,816      2,555
  Occupancy                             492        420        926        821
  Advertising                           111        105        218        176
  Data processing                       134         96        276        135
  Other                                 694        645      1,358      1,412
                                    -----------------------------------------
    Total other expenses              2,771      2,580      5,594      5,099
    Income before income taxes        1,604      1,226      2,943      2,255
  Federal income taxes                  545        453      1,000        835
                                    -----------------------------------------

    Net income                     $  1,059        773      1,943      1,420
                                    =========================================

Earnings per share, basic          $   0.24       0.18       0.45       0.33
Earnings per share, diluted            0.22       0.17       0.41       0.30

Weighted average number of shares
  outstanding:
    Basic                         4,328,839  4,245,749  4,318,674  4,241,822
    Diluted                       4,731,497  4,669,343  4,742,269  4,669,375


                     See notes to consolidated financial statements

                                         4
<PAGE>
                         CASCADE FINANCIAL CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                       (dollars in thousands, unaudited)

                                                 Six Months Ended December 31,
                                                 -----------------------------
                                                       1998             1997
                                                      ------           ------
Cash flows from operating activities:
  Net income                                     $    1,943            1,420
    Adjustments to reconcile net income to
    net cash provided by (used in) operating
    activities:
      Depreciation and amortization of premises
        and equipment                                   352              330
      Amortization of retained servicing rights         231              154
      Provision for losses on:
        Loans                                           300              202
        Mortgage servicing rights                       154               --
      Additions to mortgage servicing rights           (505)            (384)
      Deferred loan fees, net of amortization          (208)              43
      Net change in loans available for sale        (20,634)          (3,975)
      Net loss (gain) on sales of:
      Securities available for sale                     (16)             (94)
      Premises and equipment                             (1)              --
      Real Estate Owned                                  16                8
      Federal Home Loan Bank stock dividend received   (214)            (207)
      Net change in accrued interest receivable
        and other assets over accrued expenses 
          and other liabilities                      (1,595)           2,490
                                                    -------------------------
      Net cash used in operating activities         (20,177)             (13)

Cash flows from investing activities:
  Loans originated, net of principal repayments      (8,784)         (14,287)
  Purchases of mortgage-backed securities 
    held-to-maturity                                   (128)              --
  Principal repayments on securities held-to-
    maturity                                          1,991              779
  Principal repayments on securities available-
    for-sale                                          3,665            2,353
  Purchases of securities available for sale        (24,054)             (64)
  Proceeds from sales of securities available 
    for sale                                          6,016           23,886
  Proceeds from sales of real estate owned              363              546
  Purchases of premises and equipment                  (935)            (762)
                                                    -------------------------
    Net cash used in investing activities           (21,866)          12,451

Subtotal, carried forward                           (42,043)          12,438
                                                    -------------------------


                  See notes to consolidated financial statements

                                       5
<PAGE>
                           CASCADE FINANCIAL CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                       (dollars in thousands, unaudited)

                                                 Six Months Ended December 31,
                                                 -----------------------------
                                                       1998             1997
                                                      ------           ------

Subtotal, brought forward                        $  (42,043)          12,438

Cash flows from financing activities:
  Proceeds from issuance of common stock                256               86
  Net increase (decrease) in deposits                23,011           (4,111)
  Proceeds from Federal Home Loan Bank advances     364,950          125,300
  Repayment of Federal Home Loan Bank advances     (331,470)        (132,503)
  Net decrease in securities sold under
    agreements to repurchase                        (11,747)          (4,917)
  Net decrease in advance payments by borrowers
    for taxes and insurance                             239              432
                                                    -------------------------
    Net cash provided by (used in) financing
      activities                                     45,239          (15,713)
                                                    -------------------------

    Net increase (decrease) in cash and cash 
      equivalents                                     3,196           (3,275)
Cash and cash equivalents at beginning of period     11,967           14,311
                                                    -------------------------
Cash and cash equivalents at end of period       $   15,163           11,036
                                                    =========================

Supplemental disclosures of cash flow information-
  cash paid during the period for:
    Interest                                     $   10,752           10,116
    Federal income taxes                              1,361              500

Supplemental schedule of noncash investing 
  activities:
    Mortgage loans securitized into mortgage 
      backed securities and held-for-trading 
      and sold                                       13,072           18,345
    Net mortgage loans transferred to real 
      estate owned                                      363              226


                 See notes to consolidated financial statements.

                                       6
<PAGE>
                   CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              December 31, 1998
                                 (unaudited)

1.  Presentation of Financial Information

    The accompanying financial information is unaudited and has been prepared 
from the books and records of Cascade Financial Corporation, (the 
"Corporation").  The Corporation's sole subsidiary is Cascade Bank, ("Cascade" 
or the "Bank").  In the opinion of management, the financial information 
reflects all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of the financial condition, results of operations, and cash 
flows in conformity with generally accepted accounting principles.

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

2.  Commitments and Contingencies

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

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

3.  Financial Statement Reclassification

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

4.  New Accounting Pronouncements

    Effective January 1, 1998, the Corporation adopted SFAS No. 130, "Reporting 
Comprehensive Income".  Comprehensive income for the three months ended December
31, 1998 and 1997, was $921 and $946, respectively.  Comprehensive income for 
the six months ended December 31, 1998 and 1997 was $1,939 and $1,671, 
respectively.  Comprehensive income consists of net income and the change in the
unrealized gain on investments.

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

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

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

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

    THIS SECTION CONTAINS FORWARD-LOOKING STATEMENTS THAT HAVE BEEN PREPARED ON 
THE BASIS ON THE CORPORATION'S BEST JUDGMENTS AND CURRENTLY AVAILABLE 
INFORMATION.  THESE FORWARD-LOOKING STATEMENTS ARE INHERENTLY SUBJECT TO 
SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, 
MANY OF WHICH ARE BEYOND THE CONTROL OF THE CORPORATION.  IN ADDITION, THESE 
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO ASSUMPTIONS WITH RESPECT TO FUTURE 
BUSINESS STRATEGIES AND DECISIONS THAT ARE SUBJECT TO CHANGES.  ACCORDINGLY, 
THERE CAN BE NO ASSURANCE THAT MANY OF THESE STRATEGIES WILL BE IMPLEMENTED, OR 
IF IMPLEMENTED, ACHIEVE THE AMOUNTS DESCRIBED OR WITHIN THE TIME PERIODS 
CURRENTLY ESTIMATED.

                                        MERGER

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

                           ASSET/LIABILITY MANAGEMENT

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

    Cascade uses a simulation model to measure its interest rate risk and the 
effects on net interest income resulting from changes in market interest rates.
Based on this model (which includes a number of significant assumptions and 
estimates), a 200-basis point increase in general interest rates would reduce 
Cascade's annual net interest income by 5% at September 30, 1998.  Cascade 
manages interest rate risk by retaining in its portfolio permanent and 
construction adjustable rate loans with repricing periods that generally do not 
exceed seven years.  Principally all new fifteen and thirty year fixed rate 
loans are sold.  Cascade extends the maturity of its liabilities by offering 
deposit products to long-term, less rate sensitive customers, and by 
periodically obtaining longer term Federal Home Loan Bank-Seattle ("FHLB") 
advances.  Cascade also uses interest rate swap and interest rate cap and floor 
agreements to effectively extend the repricing of short-term deposit accounts.

                                        8
<PAGE>
    Cascade uses mandatory and optional forward commitments from investment 
banking firms to mitigate the interest rate risk from its mortgage banking 
operation.

                         CHANGES IN FINANCIAL CONDITION

    Total assets increased to $489.8 million at December 31, 1998, compared with
$444.2 million at June 30, 1998.  Loans available for sale, net increased $20.6 
million to $40.6 million at December 31, 1998.  Refinance activity increased 
dramatically as mortgage interest rates continued to decline.  Loans, net 
increased by $8.3 million, and securities available for sale increased $14.7 
million.  Increases in assets were funded by a $23.0 million increase in 
deposits and a $33.5 million increase in FHLB-Seattle advances.

ASSET QUALITY

    Nonperforming assets totaled $1.0 million and $2.0 at December 31, 1998 and 
June 30, 1998, respectively.  Assets classified as substandard totaled $2.9 
million at December 31, 1998, and $4.4 million at June 30, 1998.  The decreases
in non performing and substandard assets resulted from the foreclosure of real
and personal property from one borrower totaling $745,000.  The Bank loss less
than $4,000 on the sale of these repossessed properties.

                             RESULTS OF OPERATIONS

      Comparison of the Three and Six Months Ended December 31, 1998 and 1997

General

    Net income for the three months ended December 31, 1998, increased to $1.1 
million compared with $773,000 in 1997.  The principal reason for the increase 
in the three months earnings was an increase in net interest income of $472,000 
after provisions for loan losses.  The three month net interest income increase 
was partially offset by an increase of $191,000 in other expenses, principally 
due to an increase of $72,000 in occupancy and an increase of $38,000 in data 
processing expenses.  Net income for the six months ended December 31, 1998, 
increased to $1.9 million from $1.4 million in 1997.  The principal reason for 
the increase in the six months earnings was an increase in net interest income 
of $1.0 million after provisions for loan losses.  Part of the increase in net 
interest income for the six month period was offset by an increase in other 
expenses, principally due to an increase of $261,000 in salaries and benefits 
expenses and $141,000 in data processing expenses.  Both increases can be 
attributed to the in-house data processing system conversion and an increase in 
personnel.  

Net Interest Income

    Net interest income increased $523,000 to $3.9 million for the three months 
ended December 31, 1998 compared with the $3.4 million for the quarter ended 
December 31, 1997.  Net interest income increased by $1.1 million to $7.7 
million for the six months ended December 31, 1998 compared with the $6.6 
million for the six months ended December 31, 1997. The Bank's net interest 
margin increased 8 basis points to 3.53% for the most recent quarter and 21 
basis points to 3.46% for the six months ended December 31, 1998.  Average 
interest earning assets increased $51.8 million to $456.8 for the quarter ended 
December 31, 1998 and $40.1 million for the six months ended December 31, 1998 
as compared to the same periods in 1997.  Average loans increased $56.1 million 
and average securities decreased $338,000 during the most recent quarter as 
compared with the same quarter in 1997.  Average loans increased $50.9 million 
and average securities decreased $8.7 million during the six months ended 
December 31, 1998 compared with the six months ended December 31, 1997.  The 
increase in average loans, which provide higher yields than investments, coupled
with a decrease of 29 basis points in the Bank's cost of funds, which decreased
to 4.93% for the quarter ended December 31, 1998, were the primary factors 
leading to the increase in net interest margin. 

                                         9
<PAGE>
    Cascade is focusing on adding commercial businesses, nonconforming one-to-
four family loans, multi-family loans, home equity lines of credit, and one-to-
four family construction loans to its portfolio.  Nonconforming loans generally 
include loans where the borrower has a debt level or other financial 
consideration that makes the loan unsaleable to government agencies such as 
FHLMC and FNMA.  Management believes these products provide the best returns for
Cascade and can be underwritten conservatively to ensure low delinquency, absent
unforeseen changes in local or national economic conditions.  Additionally, 
these loan types are typically variable rate loans and are not effected as much 
by refinance activity as conforming fixed rate loans.  This should help to lower
Cascade's overall origination and servicing costs in the future.

Provision for Loan Losses

    Cascade's provision for loan losses was $150,000 for the three months ended 
December 31, 1998, as compared with $99,000 for the 1997 period.  Provisions 
were $300,000 and $201,000 for the respective six months.  At December 31, 1998,
and June 30, 1998, the Bank's loan loss allowance totaled $4.2 million and $4.0 
million, respectively, and the loan loss allowance as a percent of net loans 
outstanding was 1.1% at each date.  Nonperforming loans decreased $929,000 to 
$992,000 at December 31, 1998, as compared to the period ending June 30, 1998.  
Substandard loans decreased $1.5 million to $2.9 million during the same period.
The provision for loan losses reflects management's quarterly evaluation of the 
adequacy of the allowance for losses on loans.  In determining adequacy, 
management considers changes in the size and composition of the loan portfolio, 
actual loan loss experience, current and anticipated economic conditions and 
other factors.  Management intends to grow the commercial, nonconforming, 
construction and income property portfolios.  These loans typically have a 
higher credit risk that will require additions to the reserve in future periods.
Management monitors these loans at an increased level to maintain credit quality
and adequate reserve levels.

Other Income

    Other income increased $97,000 to $607,000 for the three months ended 
December 31, 1998 as compared with the three months ended December 31, 1997.  
For the six months ended December 31, 1998, other income increased $172,000 to 
$1.1 million as compared with the six months ended December 31, 1997.  These 
increases were the result of increases in gain on sale of loans of $106,000 and 
$375,000 for the three and six month periods, respectively.  These gains were 
offset by decreases in service charges of $53,000 and $146,000 for the same 
periods.

Other Expenses

    Other expenses increased to $2.8 million for the three months ended December
31, 1998 compared with $2.6 million for the three months ended December 31, 
1997.  This increase is due primarily to increases in occupancy of $72,000 and 
an increase in data processing costs of $38,000 resulting from the Corporation's
expansion of products and services.  For the six month period ended December 31,
1998 other expenses totaled $5.6 million, a $495,000 increase from the December 
31, 1997 total.  Increases in salaries, employee benefits and information 
service costs related to development of new products and services were the cause
of this increase.

                                      10
<PAGE>
Liquidity and Sources of Funds

    Cascade maintains liquidity balances in FHLB deposits and short-term 
securities at levels in accordance with regulatory guidelines.  The Bank held 
average liquid assets of $34.2 million in December 1998, which were in excess of
the required liquidity level of $15.9 million.

    Loan commitments outstanding at December 31, 1998, were $36.1 million and 
will be funded through sales of loans, existing liquidity balances, FHLB-Seattle
advances, and other borrowings.  Outstanding commitments to sell loans totaled 
$40.6 million at December 31, 1998.

    At December 31, 1998, the Bank had an unused line of credit from the FHLB-
Seattle of $65 million. The Bank's credit line with the FHLB-Seattle is 35% of 
total assets or up to approximately $172 million.  The Bank also had $1.6 
million of reverse repurchase agreements outstanding, a decrease of $11.8 
million from June 30, 1998.

Capital Resources

    Cascade Bank is in full compliance with all capital requirements established
by the Office of Thrift Supervision ("OTS") at December 31, 1998.  Cascade's 
regulatory capital requirements and related excess capital amounts as of 
December 31, 1998 are presented in the following table:

            Core capital                  Amount    Percentage
            ------------                  ------    ----------
            Tier 1 (Core) capital        $33,118       6.78%
            Less:  Minimum requirement    19,548       4.00
                                          ------      -----
            Excess                       $13,570       2.78%
                                          ======      =====

            Risk-based capital            Amount    Percentage
            ------------------            ------    ----------
            Risk-based capital           $36,661      11.56%
            Less: Minimum requirement(1)  25,371       8.00
                                          ------      -----
            Excess                       $11,290       3.56%
                                          ======      =====

            (1)  Based on risk-weighted assets.

    The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
was signed into law on December 19, 1991.  Among other things, the FDICIA 
provides the OTS, effective December 19, 1992, with broad powers to take "prompt
corrective action" to resolve problems of insured depository institutions.  The 
actions the OTS can take depend upon whether the institution in question is 
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized."  The OTS has advised the 
Corporation that at December 31, 1998, Cascade Bank is a "well capitalized" 
institution.

    The OTS issued a final rule on December 1, 1998, that provides comprehensive
guidance to management and examiners covering among other things, interest rate 
risk, investment securities, and the use of financial derivatives.  The guidance
provides guidelines for examiners to use in evaluating the effectiveness of a 
financial institution's risk management practices and identifies a set of "sound
practices" management should consider to improve their own risk management 
practices.  The rule describes the qualitative and quantitative guidelines 
examiners will use to rate an institution's exposure to interest rate risk.

    Management does not believe the rule will materially adversely the current 
business strategy.

                                    11
<PAGE>
                            YEAR 2000 DISCLOSURE

    In the past, computer software commonly condensed a century date to just two
digits to conserve computer storage space.  Thus, computers may interpret "00" 
as "1900" rather than "2000.  This could result in the inability of the software
application to properly process transactions with the dates in the Year 2000 or 
thereafter.   The Year 2000 problem is of particular concern to Cascade and 
other financial institutions because most financial transactions, such as 
interest accruals and payments, are date sensitive and there is much interaction
with numerous customers, vendors and third party service providers whom must 
also address the century date change issue.

State of Readiness

    Cascade is committed to providing continuous, secure, quality banking 
operations and services as we transition to the twenty-first century.  Cascade 
has established a Year 2000 team (the "Team") which is comprised of employees 
from all significant operational areas of the Bank.  This Team is managed at the
executive vice president level and provides regular status reports to senior 
management and the board of directors.  Examiners from the OTS have also 
reviewed the Bank's Year 2000 progress and project plans. 

    The Year 2000 problem will impact both information technology ("IT") and 
non-IT.  IT includes computer hardware and software, whereas non-IT typically 
includes embedded technology, such as microcontrollers, automated teller 
machines ("ATMs") and elevators.  With this in mind, the Team performed an 
assessment of its Year 2000 exposure and created a business readiness report in 
terms of the Bank's critical business processes (both IT and non-IT), hardware 
and software inventories, significant borrowers, and significant business 
partners.  This assessment was followed with a technical review of the automated
systems of the Bank.  The report provides a Year 2000 project plan with testing 
schedules, budget estimates, and contingency plans.  The Team identified certain
systems as "mission critical" and the project plan calls for all mission 
critical Year 2000 testing be completed by December 31,1998.  Testing for non-
mission critical systems is on going and testing for these systems not tested in
1998 will continue into 1999.

    Most of the software systems used by Cascade Bank are standard vendor-
supplied solutions under maintenance contracts.  These solutions have either 
been certified by the vendors as year 2000 compliant, are being modified for 
Year 2000 compliance by the vendor, or are being replaced by the Bank with Year 
2000 compliant systems.

    Mission critical software was tested in 1998 and this testing has been 
completed.  The hardware for mission critical systems will be tested in 
February.  Cascade intends to participate in the Mortgage Bankers Association 
Year 2000 Inter-System Readiness Test, an industry-wide test of various mortgage
banking software platforms.  This testing is scheduled for the March-to-May 
period and will involve a test of loan origination and loan closing systems.  
Testing of the software and hardware for ATM and debit card systems will be 
conducted in both March and April. 

Costs to address Year 2000 issues

    The Team anticipated the Bank would need to spend approximately $250,000 to 
upgrade computer equipment, test software, purchase software upgrades and hire 
additional temporary staff for Year 200 issues.  As of December 31, 1998, the 
Bank has expensed $68,000 of the budgeted amount.  The Bank added one additional
employee to work on Year 2000 projects, and does not anticipate adding any 
additional employees.  These expenses will be funded through normal cash flows 
from operations.

                                       12
<PAGE>
Risks associated with the Year 2000

    The nature of the Year 2000 problem makes it difficult, if not impossible, 
to determine what the exact risks will be to the Bank.  There are many issues 
beyond the Bank's control, such as electric power and telephone communications.
The Bank interacts with many customers, vendors, and third party service 
providers, who in turn interact with many of the same.  Due to the 
interdependence of computer systems today, it is simply impossible for any one 
party to eliminate the risk related to the Year 2000 problem.  If the computer 
systems of a third party on which Cascade relies are not converted by the Year 
2000, there may be significant costs incurred by Cascade.  The Bank has been in 
contact with its large loan customers, to insure they are aware of the Year 2000
problem and are in the process of addressing the issues.  In the even that these
loan customers are unable to operate due to a Year 2000 problem, there may be a 
loss of revenue for Cascade.

Contingency Plans

    As the nature of the problems that may result from the Year 2000 problem are
extremely varied and vague, it has proven to be quite challenging to create one 
contingency plan.  However, the Team has created a worst case scenario 
contingency plan for each of its mission critical systems.  The Team is 
currently in the stage of writing a manual for all employees and testing of this
plan will occur in early April. 

                                      13
<PAGE>
                          PART II-OTHER INFORMATION

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

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

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

    Not applicable

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

    Not applicable

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

    Not applicable

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

    Not applicable

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

    Not applicable

Signatures
----------

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

                              CASCADE FINANCIAL CORPORATION


    February 12, 1999         /s/  Russell E. Rosendal
                              -------------------------
                              By:  Russell E. Rosendal
                                   Executive Vice President
                                   (Chief Financial Officer)
 
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