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 DECEMBER 31, 1997
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 checkS 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, 1997
----- -----------------------------------
Common Stock ($.01 par value) 3,394,894
<PAGE>
CASCADE FINANCIAL CORPORATION
FORM 10-Q
for the Quarter Ended December 31, 1997
INDEX
PART I -- Financial Information:
Item 1 -- Financial Statements (unaudited):
-- Consolidated Balance Sheets . . . . . . . . . . . . . . . . . .1
-- Consolidated Statements of Operations . . . . . . . . . . . . .2
-- Consolidated Statements of Cash Flows . . . . . . . . . . . . .3
-- Notes to Consolidated Financial Statements. . . . . . . . . . .5
Item 2 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . .7
PART II -- Other Information. . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
PART I - FINANCIAL INFORMATION
CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, unaudited)
December 31, June 30,
ASSETS 1997 1997
------ ------
Cash on hand and in banks $ 10,688 $ 8,577
Interest-earning deposits in other institutions 348 5,734
Securities available-for-sale 32,736 58,225
Loans available for sale, net 15,104 11,133
Securities held to maturity (market value
of $5,904 and $6,637) 5,998 6,777
Loans, net 343,964 330,147
Real estate owned, net 750
Premises and equipment, at cost, net 7,839 7,859
Accrued interest receivable and other assets 5,853 4,960
------- -------
TOTAL ASSETS $ 422,530 $ 434,162
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 300,095 $ 304,205
Federal Home Loan Bank advances 67,456 74,659
Securities sold under agreements to repurchase 14,566 19,483
Advance payments by borrowers for taxes and insurance 1,908 1,477
Principal and interest payable on loans serviced for
others 415 200
Accrued expenses and other liabilities 7,168 5,351
Deferred income tax 1,618 1,240
------- -------
TOTAL LIABILITIES 393,226 406,615
Preferred stock, $.01 par value, 500,000 shares
authorized; no shares issued or outstanding 0 0
Common stock, $.01 par value,
5,000,000 shares authorized;
3,394,894 and 3,373,716 shares issued and
outstanding 34 34
Additional paid-in capital 4,393 4,306
Retained earnings, substantially restricted 24,940 23,521
Unrealized loss on securities available-for-sale (63) (314)
------- -------
TOTAL STOCKHOLDERS' EQUITY 29,304 27,547
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 422,530 $ 434,162
======= =======
See notes to consolidated financial statements
1
<PAGE>
CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
1997 1996 1997 1996
------ ------ ------ ------
Interest income:
Loans $ 7,666 $ 6,317 $ 15,149 $ 12,330
Mortgage-backed securities held-to-
maturity 80 148 162 275
Securities available-for-sale 442 1,352 1,089 2,667
FHLB stock dividends 104 82 207 191
Interest-bearing deposits 74 10 147 11
----- ----- ------ ------
Total interest income 8,366 7,909 16,754 15,474
Interest expense:
Deposits 3,753 3,573 7,705 7,154
Borrowed funds 1,218 1,412 2,465 2,689
----- ----- ------ -----
Total interest expense 4,971 4,985 10,170 9,843
Net interest income 3,395 2,924 6,584 5,631
Provision for loan losses 99 163 201 429
----- ----- ----- -----
Net interest income after provision
for loan losses 3,296 2,761 6,383 5,202
Other income:
Gain on sale of loans 125 55 84 163
Service charges 300 270 647 500
Gain (loss) on sale of securities
available-for-sale 13 (16) 94 (15)
Gain on sale of real estate owned 0 2 1 3
Other 72 120 145 229
----- ----- ----- -----
Total other income 510 431 971 880
Other expenses:
Salaries and employee benefits 1,314 1,211 2,555 2,365
Occupancy 420 417 821 815
Federal deposit insurance premiums 39 104 81 225
Advertising 105 81 176 158
Data processing 96 83 135 155
SAIF Special Assessment 0 0 0 1,224
Other 606 472 1,331 937
----- ----- ----- -----
Total other expenses 2,580 2,368 5,099 5,879
Income before federal income
taxes 1,226 824 2,255 203
Federal income taxes 453 318 835 152
----- ----- ----- -----
Net income $ 773 $ 506 $ 1,420 $ 51
===== ===== ===== =====
Earnings per share, basic (note 4) $ .23 $ .15 $ .42 $ .02
Earnings per share, diluted (note 4) .21 .14 .38 .01
Weighted average number of share
outstanding:
basic (note 4) 3,394,894 3,361,410 3,390,126 3,359,941
diluted (note 4) 3,737,475 3,714,309 3,734,927 3,710,711
See notes to consolidated financial statements
<PAGE> 2
CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands, unaudited)
Six Months Ended
December 31,
------------------
1997 1996
------ ------
Cash flows from operating activities:
Net income $ 1,420 $ 51
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization of premises
and equipment 330 337
Other 0 6
Amortization of retained servicing rights 154 87
Provision for loss on loans 202 429
Additions to mortgage servicing rights (384) (88)
Deferred loan fees, net of amortization 43 193
Origination of loans held-for-sale and mortgage-
backed securities held for trading (77,770) (16,284)
Proceeds from sale of loans held-for-sale and
mortgage-backed securities held for trading 73,795 22,139
Net loss (gain) on sales of:
Securities available-for-sale (94) 11
Real estate owned 8 0
Federal Home Loan Bank stock dividend received (207) (191)
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 2,490 (225)
------ ------
Total adjustments (1,433) 6,414
------ ------
Net cash provided by (used in) operating
activities (13) 6,465
Cash flows from investing activities:
Loans originated, net of principal repayments (14,292) (34,593)
Loans securitized for portfolio investments 5 0
Principal repayments on securities held-to maturity 779 716
Principal repayments on securities available-for-sale 2,353 3,726
Purchases of securities available-for-sale (64) (17,662)
Proceeds from sales of securities available-for-sale 23,886 16,075
Proceeds from maturities of securities and interest-
bearing deposits 0 2,683
Proceeds from sales of real estate owned 546 108
Purchases of premises and equipment (763) (334)
Proceeds from sales of premises and equipment, and
other assets 1 4
------ ------
Net cash provided by (used) in investing activities 12,451 (29,277)
Cash flows from financing activities:
Proceeds from issuance of common stock 86 49
Net increase in deposits (4,111) 12,307
Proceeds from Federal Home Loan Bank advances 125,300 75,150
Repayment of Federal Home Loan Bank advances (132,503) (71,533)
Cash effect of Common Stock Dividend 0 (2)
Net increase (decrease) in securities sold under
agreements to repurchase (4,917) 1,532
Net decrease in advance payments by borrowers for
taxes and insurance 432 231
------ ------
Net cash provided (used in) by financing activities (15,713) 17,734
------ ------
Net decrease in cash and cash equivalents (3,273) (5,078)
Cash and cash equivalents at beginning of period 14,311 15,184
------ ------
Cash and cash equivalents at end of period $ 11,036 $ 10,106
====== ======
Supplemental disclosures of cash flow information
cash paid during the period for:
Interest $ 10,116 $ 9,893
Federal income taxes 500 1,052
------ ------
Supplemental schedule of noncash investing
activities:
Mortgage loans securitized into Federal Home Loan
Mortgage Corporation participation certificates
and held-for-trading and sold $ 18,345 $ 3,859
Mortgage loans securitized into Federal Home Loan
Mortgage Corporation participation certificates
and held-for-investment 5 0
Net mortgage loans transferred to real estate
owned 226 0
See notes to consolidated financial statements.
<PAGE>
CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(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, 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 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. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," was issued in June 1996 and established,
among other things, new criteria for determining whether a transfer of financial
assets in exchange for cash or other consideration should be accounted for as a
sale or as a pledge of collateral in a secured borrowing. As issued, SFAS No.
125 is effective for all transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. In December
1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of SFAS No. 125," that, in general, defers for one year the effective
date of SFAS No. 125 provisions relating to secured borrowings and collateral.
The adoption of SFAS No. 125 did not have a material impact on the results of
operations or financial position of the Corporation.
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 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 Bank is currently evaluating the effects of these statements but does not
expect their adoption to have a material impact on the results of operations or
financial position of the Corporation.
5. Year 2000 Issues
Cascade's Management is committed to have tested and conformed all data
processing services and all other systems for a smooth transition through the
Year 2000 changeover. Assessment of critical applications is undergoing and
status reports have been reviewed by senior management and the board of
directors.
Management's plan is to complete the assessment in the next six months. A
significant portion of the Bank's systems are software packages that were
purchased from various providers who retain the responsibility for supplying
updates to the packages. Mainframe related processing systems are targeted to
be upgraded to Year 2000 compliance in the third quarter of 1998 with intensive
testing for several months to ensure compliance. Data processing personnel are
reviewing and updating LAN/WAN and all PC-related applications in an orderly
fashion to be Year 2000 compliant by late 1998 or early 1999. Management is
also creating a contingency plan in the event a vendor or project will deliver
a solution late or will not be able to fix their Year 2000 problem. Management
is also reviewing certain borrowers and other business partner's operations, and
will be discussing their Year 2000 assessment and compliance plans. At the
current time, Year 2000 issues are not expected to have a material impact on the
results of operations or financial condition of the Corporation.
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 on August 1, 1997 and was
treated as a pooling-of-interests.
Management believes the merger will provide significant revenue
enhancements and cost savings opportunities that will be realized in future
periods. The current six month period does not adequately reflect the potential
to be realized. Costs associated with the merger approximately $200,000 will
not be incurred in future periods.
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 more aggressive 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 should help Cascade to add new
customers faster than the two companies historically have done separately.
Besides increased growth opportunities, a major portion of AmFirst's investment
securities were liquidated during the quarter and used to pay off borrowings or
were reinvested into higher rate assets such as home equity, consumer, and
commercial real estate loans. Consolidations of corporate, financial,
information processing and risk-management functions, as well as personnel
reductions will also provide cost savings opportunities in the future as Cascade
completes the integration of the two companies and begins operating as a single
entity.
Management's analysis of the merger indicated that Cascade's earnings per
share would increase as a result of the Merger. This analysis is dependent upon
various factors, a number of which are beyond the control of Cascade. Factors
that might cause a difference in actual results include, but are not limited to:
(i) expected cost savings from the Merger cannot be fully realized or realized
within the expected time frame; (ii) revenues following the Merger are lower
than expected; (iii) competitive pressures among depository institutions
increase significantly; (iv) costs or difficulties related to the integration
of the business of Cascade and AmFirst are greater than expected; (v) general
economic conditions, either nationally or locally, are less favorable than
expected; and (vi) legislation or regulatory changes adversely affect the
business in which the combined company would engage. Accordingly, no
assurances can be given with respect to the ultimate impact the Merger will
have on earnings.
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%. Cascade manages interest rate risk
by retaining in its portfolio permanent and construction adjustable rate loans
with repricing periods that generally do not exceed ten years. Cascade also
originates multi-family and commercial real estate loans in its local market
area. 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 and floor agreements to 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 decreased to $422.5 million at December 31, 1997, compared
with $434.2 million at June 30, 1997. Loans, net increased by $17.8 million,
which was funded by a $26.3 million reduction in securities holdings. Other
securities acquired in the merger that yielded below the Corporation's cost of
short-term borrowings were sold to reduce the outstanding borrowings. Deposits
decreased by $4.1 million principally due to the Corporation's desire to reduce
high cost deposits.
Asset Quality
Nonperforming assets totaled $1.7 million and $618,000 at June 30, 1997
and December 31, 1997, respectively. Assets classified as substandard increased
from $3.2 million at June 30, 1997 to $3.5 million at December 31, 1997. The
increase in classified assets is principally the result of the merger. These
loans are in various workout stages and no material impacts from the workouts
are anticipated.
RESULTS OF OPERATIONS
Comparison of the Three and Six Months Ended December 31, 1997 and 1996
General
Net income for the three months ended December 31, 1997 increased to
$773,000 compared with $506,000 in 1996. Net interest income after provisions
for loan losses increased $535,000 offset by a $212,000 increase in other
expenses for the quarter ended December 31, 1997 as compared with the prior
year. Net income for the six months ended December 31, 1997, increased to
$1.4 million from $51,000 in 1996. The principal reason for the increase in
the six months earnings was a $1.2 million increase in net interest income
after provisions for loan losses, and a decrease of $780,000 in other expenses,
principally due to a $1.2 million charge to recapitalize the Savings Association
Insurance Fund ("SAIF") in the 1996 period.
Net Interest Income
Net interest income increased $471,000 to $3.4 million for the three months
ended December 31, 1997 compared with the $2.9 million for the quarter ended
December 31, 1996. Net interest income increased by $953,000 to $6.6 million
for the six months ended December 31, 1997 compared with the $5.6 million for
the six months ended December 31, 1996. Increased interest margins of 45 basis
points to 3.35% for the most recent quarter and 41 basis points to 3.25% for the
six months ended December 31, 1997 were responsible for the increase. There was
also a significant shift within the balance sheet as loans increased to 85% of
assets in the recent quarter from 71% in the year ago period, with a comparable
change in the six month periods. The relative increase in loans is consistent
with management's policy of increasing Cascade's asset size in a controlled
manner by lending within its local markets. The increase in the net interest
margin for the recent period is a result of the shift in asset mix to higher
margin loans and lower funding costs.
Cascade is focusing on adding 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 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 $99,000 for the three months ended
December 31, 1997 as compared with $163,000 for the 1996 period. Provisions
were $201,000 and $429,000 for the respective six months. Management intends
to grow the commercial, nonconforming, construction and income property
portfolios. These loans typically have a higher credit risk. Management
monitors these loans at an increased level to maintain credit quality and
adequate reserve levels. At December 31, 1997 and June 30, 1997, the
Corporation'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 1.14% at
each date. Nonperforming loans decreased $293,000 to $618,000 at December 31,
1997 as compared with the period ended June 3, 1997. Substandard loans
increased $1.0 million to $3.5 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.
Other Income
Other income increased $79,000 to $510,000 for the three months ended
December 31, 1997 as compared with the three months ended December 31, 1996.
The principal reason for the increase in other income was a $70,000 increase in
gains on sales of loans and a $29,000 increase in gains on sales of securities
held-for-sale. For the six months ended December 31, 1997, other income
increased $91,000 to $971,000 as compared with the six months ended December
31, 1996. For the six-month period, gains from securities sales increased by
$109,000 and service charges increased by $147,000. These increases were
offset by a $79,000 decrease in gains on sales of loans.
Other Expenses
Other expenses increased to $2.6 million for the three months ended
December 31, 1997 compared with $2.4 million for the three months ended
December 31, 1996. Increases in salaries and employee benefits of $103,000
coupled with increases in advertising and data processing costs accounted for
this increase. Offsetting these increases was a $65,000 decrease in Federal
deposit insurance premiums. For the six month period ended December 31, 1997
other expenses totaled $5.1 million, a $780,000 decrease from the December 31,
1996 total. Federal deposit insurance premiums and special SAIF assessments
decreased $1.4 million, as a result of the SAIF recapitalization charge in 1996.
Offsetting that decrease was approximately $225,000 in one-time merger costs
recorded in the six months ended December 31, 1997. Increases in salaries,
employee benefits and increased advertising costs related to development of
new products and services also offset the decreased deposit insurance premiums.
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
Corporation held average liquid assets of $19.4 million in December 1997, which
were in excess of the required liquidity level of $18.8 million.
Loan commitments outstanding at December 31, 1997, were $27.5 million and
will be funded through sales of loans, existing liquidity balances, FHLB-Seattle
advances, and other borrowings.
At December 31, 1997, the Corporation had $67.5 million in outstanding
advances from the FHLB-Seattle. The Corporation's credit line with the FHLB-
Seattle is 30% of total assets or up to approximately $127 million. The
Corporation also had $14.6 million of reverse repurchase agreements outstanding,
a decrease of $5.3 million from June 30, 1997.
Capital Resources
Cascade Bank is in full compliance with all capital requirements
established by the OTS at December 31, 1997. Cascade's regulatory capital
requirements and related excess capital amounts as of December 31, 1997
are presented in the following table:
Tangible capital Amount Percentage
---------------- ------ ----------
Tangible capital $29,036 6.88%
Less: Minimum requirement 6,333 1.50
------ ----
Excess $22,703 5.38%
====== ====
Core capital Amount Percentage
------------ ------ ----------
Core capital $29,036 6.88%
Less: Minimum requirement 12,666 3.00
------ ----
Excess $16,370 3.88%
====== ====
Risk-based capital Amount Percentage
------------------ ------ ----------
Risk-based capital $31,453 11.96%
Less: Minimum requirement(1) 21,035 8.00
------ -----
Excess $10,418 3.96%
====== =====
___________________
(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, 1997, 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, with risk-based capital below 12%, and assets
exceeding $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.
<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 material
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 17, 1998 /s/ Russell E. Rosendal
-----------------------
By: Russell E. Rosendal
Executive Vice President
(Chief Financial Officer)
12
<TABLE> <S> <C>
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<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 10688
<INT-BEARING-DEPOSITS> 348
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32736
<INVESTMENTS-CARRYING> 5998
<INVESTMENTS-MARKET> 5904
<LOANS> 359068
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0
0
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</TABLE>
