US SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 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)
(425) 339-5500
--------------
(Registrant's telephone number, including area code)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of April 30, 1998
Common Stock ($.01 par value) 3,399,255
<PAGE>
CASCADE FINANCIAL CORPORATION
FORM 10-Q
for the Quarter Ended March 31, 1998
INDEX
PART I -- Financial Information:
Item 1 -- Condensed Financial Statements (unaudited):
-- Condensed Consolidated Balance Sheets . . . . . . . . . . . . .1
-- Condensed Consolidated Statements of Operations . . . . . . . .2
-- Condensed Consolidated Statements of Cash Flows . . . . . . . .3
-- Notes to Condensed Consolidated Financial Statements. . . . . .5
Item 2 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . .6
PART II -- Other Information. . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
PART I - FINANCIAL INFORMATION
CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
<S> <C> <C>
ASSETS
Cash on hand and in banks $ 11,108 $ 8,577
Interest-earning deposits in other institutions 444 5,734
Investment securities available-for-sale 30,100 58,225
Loans held for sale, net 29,108 11,133
Investment securities held to maturity (market value
of $5,079 and $6,637) 5,158 6,777
Loans, net 344,773 330,147
Real estate owned, net 0 749
Premises and equipment, at cost, net 8,320 7,859
Accrued interest receivable and other assets 5,686 4,961
------- -------
TOTAL ASSETS $ 434,697 $ 434,162
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 301,504 $ 304,205
Federal Home Loan Bank advances 72,946 74,659
Securities sold under agreements to repurchase 14,115 19,483
Advance payments by borrowers for taxes and insurance 2,994 1,476
Principal and interest payable on loans serviced
for others 1,888 200
Accrued expenses and other liabilities 9,314 5,353
Deferred income tax 1,583 1,239
------- -------
TOTAL LIABILITIES 404,344 406,615
Preferred stock, $.01 par value, 500,000
shares authorized; no shares issued or outstanding
Common stock, $.01 par value,
5,000,000 shares authorized;
3,399,255 and 3,373,716 shares issued and
outstanding 34 34
Additional paid-in capital 4,403 4,306
Retained earnings, substantially restricted 26,046 23,521
Unrealized loss on investment securities
available-for-sale (130) (314)
------- -------
TOTAL STOCKHOLDERS' EQUITY 30,353 27,547
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 434,697 $ 434,162
======= =======
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $7,758 $6,782 $22,907 $19,112
Mortgage-backed securities held-
to-maturity 70 99 231 428
Investment securities available-
for-sale 329 687 1,008 3,620
FHLB stock dividends 101 75 308 278
Interest-earning deposits 115 349 673 28
----- ----- ------ ------
Total interest income 8,373 7,992 25,127 23,466
Interest expense:
Deposits 3,699 3,662 11,405 10,816
Borrowed funds 1,189 1,326 3,653 4,015
----- ----- ------ ------
Total interest expense 4,888 4,988 15,058 14,831
Net interest income 3,485 3,004 10,069 8,635
Provision for loan losses 0 188 202 617
----- ----- ------ ------
Net interest income after provision
for loan losses 3,485 2,816 9,867 8,018
Other income:
Gain on sale of loans 244 74 329 237
Service charges 328 275 975 776
Gain (loss) on sale of investment
securities available-for-sale (2) 16 93 5
Other 165 143 309 370
----- ----- ------ ------
Total other income 735 508 1,706 1,388
Other expenses:
Salaries and employee benefits 1,409 1,313 3,964 3,678
Occupancy 449 419 1,270 1,235
Federal deposit insurance premiums 47 35 129 260
Advertising 97 98 273 256
Data processing 84 89 220 244
SAIF Special Assessment 0 0 0 1,224
Other 622 525 1,951 1,461
----- ----- ------ ------
Total other expenses 2,708 2,479 7,807 8,358
Income before income taxes 1,512 845 3,766 1,048
----- ----- ------ ------
Federal income taxes 406 193 1,241 345
----- ----- ------ ------
Net income $ 1,106 $ 652 $ 2,525 $ 703
===== ===== ====== ======
Earnings per share, basic (note 4) .33 .16 .74 .21
Earnings per share, diluted (note 4) .29 .14 .68 .19
Weighted average number of shares
outstanding:
basic (note 4) 3,399,255 3,363,186 3,393,169 3,360,533
diluted (note 4) 3,750,664 3,754,307 3,738,962 3,724,754
See notes to condensed consolidated financial statements
<PAGE>
CASCADE FIANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands, unaudited)
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,525 $ 703
------- ------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization of premises
and equipment 500 511
Other 0 6
Amortization of retained servicing rights 251 141
Provision for loss on loans 202 617
Additions to mortgage servicing rights (649) (205)
Deferred loan fees, net of amortization (22) 220
Origination of loans held-for-sale and mortgage-
backed securities held for trading (143,362) (32,148)
Proceeds from sale of loans held-for-sale and
mortgage-backed securities held for trading 125,375 35,031
Net loss (gain) on sales of:
Securities available-for-sale (93) (5)
Real estate owned 8 0
Investment property (101) 0
Federal Home Loan Bank stock dividend received (308) (278)
Net change in accrued interest receivable and
other assets over principal and interest payable
on loans serviced for others and accrued expenses
and other liabilities 5,992 (1,294)
------- -------
Total adjustments (12,207) 2,596
------- -------
Net cash provided by (used in) operating
activities (9,682) 3,299
Cash flows from investing activities:
Loans originated, net of principal repayments (15,032) (50,841)
Principal repayments on securities held-to maturity 1,619 1,284
Principal repayments on securities available-for-sale 3,996 5,370
Purchases of securities available-for-sale (64) (18,763)
Proceeds from sales of securities available-for-sale 24,885 32,904
Proceeds from sales of real estate owned 546 108
Purchases of real estate owned 0 (24)
Proceeds from sales of investment property 555 0
Purchases of premises and equipment (1,414) (467)
Proceeds from sales of premises and equipment, and
other assets 0 5
------- -------
Net cash provided by (used in) investing activities 15,091 (30,424)
Cash flows from financing activities:
Proceeds from issuance of common stock 97 110
Net increase (decrease) in deposits (2,701) 16,562
Proceeds from Federal Home Loan Bank advances 208,400 112,900
Repayment of Federal Home Loan Bank advances (210,113) (108,833)
Cash effect of Common Stock Dividend 0 (2)
Net decrease in securities sold under agreements to
repurchase (5,369) (300)
Net decrease in advance payments by borrowers for
taxes and insurance 1,518 1,237
-------- --------
Net cash provided by (used in) financing activities (8,168) 21,674
-------- --------
Net decrease in cash and cash equivalents (2,759) (5,451)
Cash and cash equivalents at beginning of period 14,311 15,184
-------- --------
Cash and cash equivalents at end of period $ 11,552 $ 9,733
======== ========
Supplemental disclosures of cash flow information
cash paid during the period for:
Interest $ 15,015 $ 14,982
Federal income taxes 1,100 1,182
------ ------
Supplemental schedule of noncash investing
activities:
Mortgage loans securitized into Federal Home
Loan Mortgage Corporation participation
certificates and held-for-trading and sold $ 20,861 $ 11,933
Mortgage loans securitized into Federal Home
Loan Mortgage Corporation participation
certificates and held-for-investment 13 50
Net mortgage loans transferred to real estate owned 226 380
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 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 adjustments) necessary
for a fair presentation of the financial condition, results of operations, and
cash flows of the Corporation as pursuant to the requirements of the SEC for
interim reporting.
Certain information and footnote disclosures included in the Corporation's
financial statements for the year ended June 30, 1997, 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 1997
Annual Report on Form 10-K.
2. Commitments and Contingencies
In the normal course of business there are various commitments to fund
mortgage loans. Management does not anticipate any material loss as a result
of these commitments.
Periodically there have been various claims and lawsuits against the
Corporation or the Bank, such as claims to enforce liens, condemnation
proceedings on properties in which the Bank holds security interests, claims
involving the making and servicing of real property loans and other issues
incidental to the Corporation's and the Bank's business. In the opinion of
management no significant loss is expected from any of such pending lawsuits.
3. Financial Statement Reclassification
Certain amounts in the financial statements for fiscal 1997 have been
reclassified to conform with the financial statement classification for fiscal
1998.
4. New Accounting Pronouncements
SFAS No. 128, "Earnings Per Share," establishes a new standard for
reporting earnings per share and requires companies with complex capital
structures that have publicly held common stock or potential common stock to
present both basic and diluted earnings per share on the face of the statement
of operations. SFAS No. 128 became effective for periods ended after December
15, 1997. The Corporation adopted SFAS No. 128 and has restated previously
reported amounts.
In June 1997, the Financial Accounting Standards Board issued two new
Accounting Standards. SFAS No. 130, "Reporting Comprehensive Income,"
establishes standards for reporting comprehensive income and its components in
a full set of financial statements. This statement is effective for the fiscal
year ending June 30, 1999. SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," requires public companies to report
financial and descriptive information about its operating segments. The
adoption of SFAS No. 131 is required for the fiscal year ending June 30, 1999.
The company will adopt SFAS No. 130 in fiscal year 1999.
5. Year 2000 Disclosure
Cascade Bank is committed to providing continuous, secure, quality banking
operations and services as we transition to the twenty-first century. Cascade
Bank has performed an assessment of its year 2000 exposure, and is in the
process of resolving all year 2000 incompatibilities with its current systems
and operations. Most of the software systems used by Cascade Bank are standard
vendor supplied solutions under maintenance contracts. These solutions have
either been certified by the vendors as year 2000 compliant, are being modified
for year 2000 compliance by the vendor, or are being replaced by Cascade Bank
with year 2000 compliant systems.
Cascade Bank has established a year 2000 project that is being managed at
the executive vice president level, with regular status reports provided to
senior management and the board of directors. The project encompasses all
activities associated with achieving year 2000 compliance and minimizing year
2000 risk at Cascade Bank. Examiners from the Office of Thrift Supervision
(OTS), the bank's regulators, have also reviewed the bank's year 2000 progress
and project plans.
The assessment phase of the year 2000 project has been completed, and a
report was provided to the Board of Directors, and the OTS. The report analyzes
readiness from two perspectives. In the first stage a business readiness
assessment was provided in terms of the bank's critical business processes,
significant borrowers, and significant business partners. This was followed
with a technical review of the bank's automated systems. The report provides a
year 2000 project plan with schedules, budget estimates, and contingency plans
based on the business and technical analysis, hardware and software inventories,
vendor provided year 2000 product information, software conversion estimates,
equipment and software upgrades, and contingency plans. The project calls for
all year 2000 testing to be completed by the December 31, 1998.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion and analysis contains certain forward-looking terminology
such as "believes", "anticipates", "will", and "intends", or comparable
terminology. Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected.
Potential purchasers of the company's securities are cautioned not to place
undue reliance on such forward-looking statements which are qualified in their
entirety by the cautions and risks described herein and in other reports filed
by the company with the Securities and Exchange Commission.
MERGER
On February 6, 1997, Cascade Financial Corporation and Cascade Bank entered
into an Agreement and Plan of Merger with AmFirst Bancorporation, the holding
company for American First National Bank, pursuant to which AmFirst would be
merged into the Corporation. On March 31, 1997, Cascade filed with the
Securities and Exchange Commission a current report on Form S-4 describing the
terms of the merger in greater detail. In the transaction, AmFirst shareholders
received 2.412 shares of the Corporation's common stock for each share of
AmFirst common stock. The transaction was completed in August 1997 and was
treated as a pooling-of-interests.
The merger has allowed Cascade to develop and implement a planned
commercial banking division much more quickly than would have been practical
without the merger. With the merger, Cascade was able to offer a full array of
commercial and consumer banking products and services to a larger market. The
product lines of the merged entities were very dissimilar, especially lending
products. Cascade's marketing programs should help Cascade grow faster by
cross-selling Cascade's products to the acquired customers and by cross-selling
commercial and consumer products to Cascade's original customers. More
locations and an increased market presence has helped Cascade to add new
customers faster than the two companies historically have done separately.
Consolidations of corporate, financial, information processing and risk-
management functions, as well as personnel reductions will provide additional
cost savings opportunities in the future as Cascade completes the integration
of the two companies, streamlines operating procedures and begins operating
as a single entity.
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 6%. Cascade manages interest rate risk
by retaining in its portfolio permanent and construction adjustable rate loans
with repricing periods that generally do not exceed five 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 FHLB-Seattle
advances. Cascade also uses interest rate swap and interest rate cap agreements
to effectively extend the repricing of short-term deposit accounts or reduce the
cost of longer-term deposits.
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 $434.7 million at March 31, 1998, compared with
$434.2 million at June 30, 1997. Loans, net increased by $32.6 million. The
loan growth was funded by a decrease in interest-earning deposits of $5.3
million, a decrease of $28.1 million in securities available for sale, and a
$1.6 million decrease in securities held-to-maturity. Securities liquidation
also funded a decrease in deposits of $2.7 million and a $7.1 million decrease
in other borrowings.
Asset Quality
Nonperforming assets totaled $1.4 million and $1.7 million at March 31, 1998
and June 30, 1997, respectively. Assets classified as substandard decreased
from $3.2 million at June 30, 1997 to $2.3 million at March 31, 1998. The
decrease in substandard assets occurred as assets were reclassified from
substandard to special mention.
RESULTS OF OPERATIONS
Comparison of the Three and Nine months Ended March 31, 1998 and 1997
General
Total net income for the three months ended March 31, 1998 increased to
$1.1 million compared with $652,000 in 1997 due primarily to an increase in net
interest income of $481,000 offset by an increase in operating expenses of
$229,000. Net income for the nine months ended March 31, 1998, increased to
$2.5 million from $703,000 in 1997. The principal reason for the increase in
the nine months earnings was an increase in net interest income of $1.4 million,
a decrease in the provision for loan losses of $415,000 and a decrease in
operating expenses of $552,000.
Net Interest Income
Net interest income increased $481,000 to $3.5 million for the three months
ended March 31, 1998 compared to the quarter ended March 31, 1997. Net interest
income was $10.1 million for the nine months ended March 31, 1998 compared to
$8.6 million for the same period in 1997. Increased net interest margins of 37
basis points for the most recent quarter and 38 basis points for the nine months
ended March 31, 1998, coupled with an increase of $12.8 million in average
interest earning assets over the prior period's balances, accounted for this
increase. The increase in earning assets was primarily in loans which is
consistent with management's policy of increasing Cascade's asset size in a
controlled manner. The increase in the net interest margin for the recent
period is a result of the higher margin loans Cascade is adding, an increase
in yield of adjustable rate loans, and slightly lower funding costs.
Cascade is focusing on adding nonconforming one-to-four family loans,
multi-family loans, home equity lines of credit, consumer installment loans and
one-to-four family construction loans to its portfolio. Nonconforming loans
generally include loans where the borrower has a debt level or other financial
consideration that makes the loan unsaleable to government agencies such as
FHLMC and FNMA. Management believes these products provide the best returns for
Cascade and can be underwritten conservatively to ensure low delinquency, absent
unforeseen changes in local or national economic conditions. Additionally,
these loan types are typically not effected as much by refinance activity as
conforming loans. This should help to lower Cascade's overall origination and
servicing costs in the future.
Provision for Loan Losses
Cascade's provision for loan losses was $0 for the three months ended March
31, 1998 compared with $188,000 in 1997. Provisions were $202,000 and $617,000
for the nine month periods in 1998 and 1997. At March 31, 1998 and June 30,
1997, the Bank's loan loss allowance totaled $4.1 million, and $3.9 million and
the loan loss allowance as a percent of net loans outstanding was 1.10% and
1.14%, respectively. Nonperforming loans increased $470,000 to $1.4 million at
March 31, 1998 as compared to the period ending June 30, 1997. Substandard
loans decreased $500,000 to $2.3 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
which will require additions to the reserve in future periods. Management
monitors these loans at an increased level to maintain credit quality and
adequate reserve levels.
In March 1998, the Office of Thrift Supervision completed an examination
of the Bank. No adjustments were requested in the classification of assets or
loss allowances.
Other Income
Other income increased to $735,000 for the three months ended March 31,
1998 from $508,000 for the three months ended March 31, 1998. This increase was
the result of an increase in gains from the sales of loans of $170,000 and an
increase of $53,000 in other service charges. The decrease in market interest
rates caused a significant increase in the production of loans-for-sale, which
resulted in an increase in gains from sales. For the nine months ended March
31, 1998 other income increased $318,000 to $1.7 million as compared to the nine
months ended March 31, 1997. The increase in other income was due to an
increase in service charges of $200,000, an increase in gains from loans sales
of $92,000, and a $91,000 increase in gains from the sales of securities
compared with the 1997 period. These increases were offset by a $63,000
decrease in other income.
Other Expenses
Other expenses increased $229,000 to $2.7 million for the three months
ended March 31, 1998 compared with $2.5 million for the three months ended March
31, 1997. Increases in salaries and employee benefits of $96,000, in occupancy
of $30,000 and in other expenses of $97,000 resulting from the Corporations
expansion of products and services led to these increases in the period. For
the nine month period ending March 31, 1998 other expenses totaled $7.8 million,
a $551,000 decrease over the March 31, 1997 total of $8.4 million. A decrease
of $131,000 in Federal deposit insurance premiums and a $1.2 million
nonrecurring SAIF special assessment charge in the 1997 period were partially
offset by increases of $286,000 in salaries and employee benefits and $490,000
in other expenses associated with the development of new products and services.
The $490,000 increase in other expenses includes approximately $225,000 in
one-time merger costs incurred as a result of Cascade's merger with AmFirst
Bancorporation.
Liquidity and Sources of Funds
Cascade maintains liquidity balances in Federal Home Loan Bank deposits and
short-term securities at levels in accordance with regulatory guidelines. The
Bank held average liquid assets of $19.7 million in March 1998, which was in
excess of the required liquidity level of $18.8 million.
Loan commitments outstanding at March 31, 1998, were $46.8 million and will
be funded through sales of loans, existing liquidity balances, FHLB-Seattle
advances, and other borrowings. Outstanding commitments to sell loans totaled
$29.7 million at March 31, 1998.
At March 31, 1998, the Bank had $72.9 million in outstanding advances from
the FHLB-Seattle. The Bank's credit line with the FHLB-Seattle is 30% of total
assets up to $130 million. The Bank also had $14.1 million of reverse
repurchase agreements outstanding, a decrease of $5.4 million from June 30,
1997.
Capital Resources
Cascade Bank is in full compliance with all capital requirements
established by the OTS at March 31, 1998. Cascade's regulatory capital, capital
requirements, and related excess capital amounts as of March 31, 1998 are
presented in the following table:
Tangible capital Amount Percentage
---------------- ------- ----------
Tangible capital $30,154 6.94%
Less: Minimum requirement 6,521 1.50
------- ----
Excess $23,633 5.44%
======= ====
Core capital Amount Percentage
------------ ------- ----------
Core capital $30,154 6.94%
Less: Minimum requirement 13,042 3.00
------- ----
Excess $17,112 3.94%
======= ====
Risk-based capital Amount Percentage
------------------ ------- ----------
Risk-based capital $33,254 11.81%
Less: Minimum requirement(1) 22,521 8.00
------- -----
Excess $10,733 3.81%
======= =====
(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 March 31, 1998, Cascade Bank, is a "well
capitalized" institution.
The OTS issued a final rule on August 31, 1993 that incorporates an
interest rate risk component into the OTS's risk-based capital rule. The rule
requires that an institution with an "above normal" level of interest rate risk
hold additional capital against interest rate risk exposure. This additional
capital for interest rate risk exposure would be in excess of the 8% risk-based
capital requirement. Only institutions whose measured interest rate risk
exceeds the above normal level, has risk-based capital below 12%, and assets
exceed $300 million will be required to maintain an interest rate risk
component. The interest rate risk component will be computed quarterly. The
OTS has postponed the date the component will first be deducted from an
institution's total capital until an appeal process is developed for the
measurement of an institution's interest rate risk.
Management currently does not believe the final rule will materially
adversely increase Cascade's regulatory capital requirement nor materially
adversely effect the current business strategy when, or if it is implemented.
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
May 15, 1998
/s/ Russell E. Rosendal
-----------------------
By: Russell E. Rosendal
Executive Vice President
(Chief Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 11108
<INT-BEARING-DEPOSITS> 444
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30100
<INVESTMENTS-CARRYING> 5158
<INVESTMENTS-MARKET> 5079
<LOANS> 377972
<ALLOWANCE> 4091
<TOTAL-ASSETS> 434697
<DEPOSITS> 301504
<SHORT-TERM> 87196
<LIABILITIES-OTHER> 15779
<LONG-TERM> 6946
0
0
<COMMON> 34
<OTHER-SE> 30319
<TOTAL-LIABILITIES-AND-EQUITY> 434697
<INTEREST-LOAN> 22907
<INTEREST-INVEST> 2035
<INTEREST-OTHER> 185
<INTEREST-TOTAL> 25127
<INTEREST-DEPOSIT> 11405
<INTEREST-EXPENSE> 15058
<INTEREST-INCOME-NET> 10069
<LOAN-LOSSES> 202
<SECURITIES-GAINS> 93
<EXPENSE-OTHER> 7807
<INCOME-PRETAX> 3766
<INCOME-PRE-EXTRAORDINARY> 3766
<EXTRAORDINARY> 0
<CHANGES> 0
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</TABLE>
