US SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March, 31, 2000
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 March 31, 2000
----- --------------------------------
Common Stock ($.01 par value) 5,526,662
<PAGE>
CASCADE FINANCIAL CORPORATION
FORM 10-Q/A
for the Quarter Ended March 31, 2000
INDEX
PART I Financial Information:
Item 1 Financial Statements:
--Condensed Consolidated Balance Sheets. . . . . . . . . . .3
--Condensed Consolidated Statements of Operations. . . . . .4
--Consolidated Statements of Comprehensive Income. . . . . .5
--Condensed Consolidated Statements of Cash Flows. . . . . .6
--Notes to Consolidated Financial Statements . . . . . . . .8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . .9
PART II Other Information. . . . . . . . . . . . . . . . . . 16
<PAGE>
PART I -- FINANCIAL INFORMATION
-------------------------------
CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
March 31, June 30,
--------- --------
ASSETS 2000 1999
------- ---- ----
(unaudited)
Cash on hand and in banks $ 12,060 9,804
Interest-earning deposits in other institutions 225 350
Securities available for sale 72,654 72,719
Loans available for sale 8,963 22,428
Mortgage-backed securities held to maturity (market value
of $7,436 and $1,699) 8,095 1,738
Loans, net 525,184 433,308
Premises and equipment, at cost, net 9,274 9,433
Accrued interest receivable and other assets 9,190 7,306
--------------------
TOTAL ASSETS $ 645,645 557,086
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits $ 428,391 361,786
Federal Home Loan Bank advances 155,372 141,996
Securities sold under agreements to repurchase 6,917 5,951
Trust Preferred Securities 10,310 --
Advance payments by borrowers for taxes and insurance 1,470 1,947
Accrued expenses and other liabilities 5,954 10,743
Deferred income tax 538 424
--------------------
TOTAL LIABILITIES 608,952 522,847
Preferred stock, $.01 par value, 500,000 shares authorized;
no shares issued or outstanding
Common stock, $.01 par value,
8,000,000 shares authorized;
5,526,662 and 5,430,155 shares issued and outstanding 55 55
Additional paid-in capital 5,034 4,790
Retained earnings, substantially restricted 33,983 31,150
Cumulative comprehensive loss, net (2,379) (1,756)
--------------------
TOTAL STOCKHOLDERS' EQUITY 36,693 34,239
--------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 645,645 557,086
====================
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 Ended Nine Months Ended
------------------ -----------------
March 31, March 31,
--------- ---------
2000 1999 2000 1999
---- ---- ---- ----
Interest income:
Loans $ 11,000 8,723 31,631 25,735
Mortgage-backed securities held-
to-maturity 138 29 176 120
Securities available for sale 423 650 1,251 1,538
FHLB stock dividends 149 111 460 325
Interest-earning deposits 676 99 1,938 227
-----------------------------------------
Total interest income 12,386 9,612 35,456 27,945
Interest expense:
Deposits 5,517 4,122 14,814 12,179
Borrowings 2,202 1,276 6,619 3,858
-----------------------------------------
Total interest expense 7,719 5,398 21,433 16,037
Net interest income 4,667 4,214 14,023 11,908
Provision for loan losses 210 127 560 427
-----------------------------------------
Net interest income after provision
for loan losses 4,457 4,087 13,463 11,481
Other income:
Gain on sale of loans 87 212 324 671
Gain on sale of servicing rights 583 35 583
Service charges 464 304 1,103 805
Gain on sale of securities
available-for-sale 17
Net gain on sale of real estate owned 2 41
Other 45 47 150 157
-----------------------------------------
Total other income 596 1,148 1,612 2,274
Other expenses:
Salaries and employee benefits 2,076 1,720 5,907 4,536
Occupancy 683 625 2,109 1,551
Advertising 152 114 390 332
Data processing 61 36 210 312
Other 803 716 2,168 2,058
-----------------------------------------
Total other expenses 3,775 3,211 10,784 8,789
-----------------------------------------
Income before income taxes 1,278 2,024 4,291 4,966
Federal income taxes 433 691 1,456 1,691
-----------------------------------------
Net income $ 845 1,333 2,835 3,275
=========================================
Earnings per share:
Basic $ 0.15 0.25 0.52 0.61
Diluted 0.14 0.23 0.48 0.55
Weighted average number of shares
outstanding:
Basic 5,505,334 5,430,155 5,482,125 5,408,946
Diluted 5,918,994 5,959,414 5,942,004 5,938,363
See notes to consolidated financial statements.
4
<PAGE>
CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
(unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
March 31, March 31,
--------- ---------
2000 1999 2000 1999
---- ---- ---- ----
Net Income $ 845 $ 1,333 $ 2,835 $ 3,275
Increase (decrease) in unrealized
Gains (losses) on securities
available for sale, net of tax
of $(24) and $(15) for the
three months ended March 31,
and $(321) and $(17) for the
nine months ended March 31. (47) (31) (623) (34)
--------------------------------------
Comprehensive Income $ 798 1,302 $2,212 $3,241
======================================
5
<PAGE>
CASCADE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Nine Months Ended March 31,
--------------------------
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 2,835 3,275
-------------------------
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization of premises
and equipment 1,040 639
Provision for losses on:
Loans 630 427
Mortgage servicing rights (136) 187
Net increase in mortgage servicing rights 109 969
Deferred loan fees, net of amortization 324 (105)
Net change in loans available for sale 13,465 (12,226)
Net gain on sales of:
Securities available for sale -- (17)
Premises and equipment -- (1)
Real estate owned -- (41)
Mortgage servicing rights -- (583)
Federal Home Loan Bank stock dividend received (460) (325)
Deferred Federal Income Taxes 435 --
Net change in accrued interest receivable and
other assets over accrued expenses and other
liabilities (5,426) 63
-------------------------
Net cash provided by operating activities 12,713 (7,738)
Cash flows from investing activities:
Loans originated, net of principal repayments (93,896) (30,100)
Purchases of mortgage-backed securities
held-to-maturity (6,820) (291)
Principal repayments on securities held-to maturity 462 3,137
Principal repayments on securities
available-for-sale 3,604 5,276
Purchases of securities available for sale (4,022) (56,003)
Proceeds from sales of securities available
for sale -- 6,016
Proceeds from sales of real estate owned -- 478
Purchases of premises and equipment (881) (1,294)
Additions to real estate owned (54) --
-------------------------
Net cash (used in) investing activities (101,607) (72,781)
Subtotal, carried forward (88,894) (80,519)
-------------------------
See notes to consolidated financial statements.
6
<PAGE>
CASCADE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands, unaudited)
Nine Months Ended March 31,
--------------------------
2000 1999
---- ----
Subtotal, brought forward $ (88,894) (80,519)
--------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 245 289
Net increase in deposits 66,605 46,360
Net increase in Federal Home Loan Bank advances 13,376 40,470
Net increase (decrease) in securities sold
under agreements to repurchase 966 (6,977)
Proceeds from Trust Preferred Offering 10,310
Net increase (decrease) in advance payments
by borrowers for taxes and insurance (477) 1,472
--------------------------
Net cash provided by financing
activities 91,025 81,614
--------------------------
Net increase in cash and cash equivalents 2,132 1,095
Cash and cash equivalents at beginning of period 10,153 11,967
--------------------------
Cash and cash equivalents at end of period $ 12,285 13,062
==========================
Supplemental disclosures of cash flow information
cash paid during the period for:
Interest $ 21,038 15,997
Federal income taxes 1,150 1,788
--------------------------
Supplemental schedule of non-cash investing
activities:
Mortgage loans securitized into mortgage backed
securities and held-for-trading and sold 8,814 18,092
Mortgage loans securitized into mortgage backed
securities and held-for-investment -- --
Net mortgage loans transferred to real estate
owned 1,067 363
Funds due on sales of mortgage servicing rights -- 1,320
See notes to consolidated financial statements.
7
<PAGE>
CASCADE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(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, 1999, 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 1999 Annual Report, incorporated by reference, on Form 10-K.
2. On March 1, 2000, $10,310,000 of 11 percent Capital Securities was issued
by Cascade Capital Trust I, (the Trust). The Trust is a business trust and
Cascade Financial Corporation owns 100 percent of the common equity of the
Trust.
Cascade is using the proceeds for general corporate purposes including
stock repurchases and investment in the subsidiary banks. The capital
securities are included with borrowings as a separate line item in the
condensed consolidated balance sheet and distributions payable on the capital
securities as interest expense in the condensed consolidated statements of
operations. The capital securities qualify as Tier I capital under the
capital guidelines of the Federal Reserve Board.
3. 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.
4. Financial Statement Reclassification
Certain amounts in the financial statements for fiscal 1999 have been
reclassified to conform with the financial statement classification for fiscal
2000.
5. New Accounting Pronouncements
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, 2000. 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.
8
<PAGE>
In March 2000, the SEC issued Staff Accounting Bulletin No. 101A (SAB
101A). SAB 101 provides guidance on revenue recognition and the SEC staff's
views on the application of accounting principles to selected revenue
recognition issues. The Corporation will adopt the provisions of SAB 101 in
the second quarter of 2000 and anticipates that such adoptions will not have a
material impact on the Corporation's consolidated financial statements.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation." Interpretation No. 44 clarifies the application of Accounting
Principles Board Opinion No. 25 ("APB 25") and is effective July 1, 2000.
Interpretation No. 44 clarifies the definition of "employee" for purposes of
applying APB 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and the accounting for
an exchange of stock compensation awards in a business combination. The
Corporation does not expect the adoption of Interpretation No. 44 to have a
material impact on its consolidated financial statements.
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.
Selected Financial Data
The following table sets forth certain selected financial data concerning
the Corporation for the periods indicated (dollars in thousands):
At or for the At or for the
three months ended Nine months ended
March 31, March 31,
-------------- --------------
2000 1999 2000 1999
----- ----- ----- -----
Return on average assets 0.54% 1.05 0.62 0.91
Return on average stockholders' equity 9.33 15.56 10.68 13.20
Average stockholders' equity to assets 5.83 6.94 6.05 7.29
General and administrative expenses
to average assets 2.40 2.55 2.37 2.45
Efficiency ratio 73.32 61.33 71.54 63.96
Net interest spread 2.79 3.21 2.95 3.14
Net interest margin 3.05 3.52 3.19 3.48
Average interest-bearing assets to
average interest-bearing liabilities 105.03 106.76 104.97 107.21
9
<PAGE>
CHANGES IN FINANCIAL CONDITION
Total assets increased to $645.6 million at March 31, 2000, compared with
$557.1 million at June 30, 1999. Loans, net (held to maturity) increased
21.2% or $ 91.9 million to $525.1 million and securities held to maturity
increased to $8.1 million from $1.7 million for the same periods. Funding
this growth was a $66.6 million or 18.4% increase in deposits, a decrease in
loans available for sale, net of $13.5 million, a $13.4 million increase in
Federal Home Loan Bank Advances, and a $10.3 million issue of Trust Preferred
Securities.
Asset Quality
Non-performing assets totaled $1.7 million and $1.2 million at March 31,
2000 and June 30, 1999, respectively. Assets classified as substandard
totaled $4.8 million at March 31, 2000, and $2.1 million at June 30, 1999.
The increases in non-performing assets resulted from several foreclosures. The
increases to substandard assets related primarily to a one million dollar
increase in real estate owned through foreclosure and $1.5 million in business
loans that were slightly delinquent due to cash flow problems. The following
table provides summary information concerning asset quality, (dollars in
thousands).
At March 31,
2000 1999
------ ------
Non-performing loans to total assets 0.11% 0.19%
Non-performing loans to total loans outstanding 0.13 0.23
Non-performing assets to total assets 0.26 0.20
Allowance for loan losses to non-performing loans 670.66 444.69
Allowance for loan losses to total loans outstanding 0.91 1.00
10
<PAGE>
RESULTS OF OPERATIONS
Comparison of the Three and Nine months Ended March 31, 2000 and 1999
General
Net income for the three months ended March 31, 2000, was $845 thousand
compared with $1.3 million in 1999. Diluted net income per share was $0.14
for the quarter ended March 31, 2000 and $0.23 per share for the quarter ended
March 31, 1999. The principal reason for the decrease in the recent three
months was a decrease in gains on the sale of residential mortgage loans and
servicing rights of $708,000. Net income for the nine months ended March 31,
2000, was $2.8 million compared with $3.3 million in 1999. Diluted net income
per share was $0.48 and $0.55 for the nine months ended March 31, 2000 and
1999. The principal reasons for the decrease in the nine months income were
increases in non-interest expense related to the opening of three new branches
and a decrease in mortgage banking revenue.
Net Interest Income
Net interest income increased 10.7% or $453,000 to $4.7 million for the
three months ended March 31, 2000 compared to the $4.2 million for the three
months ended March 31, 1999. Net interest income increased 17.7% or $2.1
million to $14.0 million for the nine months ended March 31, 2000 compared
with the $11.9 million for the nine months ended March 31, 1999. The principal
reason for the increase in net interest income was an increase in average
interest earning assets of 27.4% or $131.2 million to $610,098 for the
quarter ended March 31, 2000 and 28.4% or $129.7 million for the nine months
ended March 31, 2000 as compared to the same periods in 1999. Average total
loans (including loans held for sale) increased 25.5% or $107.8 million and
average securities increased 42.1% or $23.5 million during the most recent
quarter as compared with the same quarter in 1999. Average total loans
increased 24.1% or $98.6 million and average securities increased 66.3% or
$31.2 million during the nine months ended March 31, 2000 compared to the nine
months ended March 31, 2000.
At or for the At or for the
three months ended nine months ended
March 31, March 31,
2000 1999 2000 1999
------ ------ ------ ------
Average interest earning assets $610,098 478,730 586,094 456,404
Average interest bearing liabilities 580,865 448,416 558,324 425,692
Yield on interest earning assets 8.14% 8.09% 8.05% 8.16%
Cost of interest bearing liabilities 5.35% 4.88% 5.10% 5.02%
Net interest spread 2.79% 3.21% 2.95% 3.14%
Net interest margin 3.05% 3.52% 3.19% 3.48%
The net interest margin decreased 47 basis points to 3.05% for the most
recent quarter and 29 basis points to 3.19% for the nine month ended March 31,
2000. This decrease was principally the result of an increase in the cost of
interest bearing liabilities of 46 basis points in the recent three month
period and an increase of eight basis points in the nine month period.
Additionally,the yield on interest earning assets were up five basis points
for the three month period, but down eleven basis points for the nine month
period. The decreased margin has resulted from continuing competition in the
local market for both loans and deposits, and generally higher market interest
rates.
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.
11
<PAGE>
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. Commercial business, income
property, and construction loans outstanding increased by $76.5 million since
June 30, 1999. These loans represented 58.1% of total outstanding loans at
March 31, 2000, compared to 52.2% at June 30, 1999, and 48.5% at March 31,
1999.
Provision for Loan Losses
Cascade's provision for loan losses was $210,000 for the three months
ended March 31, 2000, as compared with $127,000 for the 1999 period.
Provisions were $560,000 and $427,000 for the respective nine months. At
March 31, 2000, and June 30, 1999, the Bank's loan loss allowance totaled $4.9
million and $4.3 million, respectively, and the loan loss allowance as a
percent of total loans outstanding was 0.91% and 0.93%, respectively.
Nonperforming loans, (loans on nonaccrual and ninety days past due) decreased
to $726,000 at March 31, 2000, as compared to $1.2 million at June 30, 1999.
Substandard loans were $4.8 million and $2.1 million at March 31, 2000 and
June 30, 1999, respectively.
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.
Non-Interest Income
Non-interest income decreased $552,000 or 48.1% to $596,000 for the three
months ended March 31, 2000 as compared to the three months ended March 31,
1999. For the nine months ended March 31, 2000, non-interest income decreased
$662,000 or 29.2% to $1.6 million as compared with the nine months ended March
31, 1999. These decreases were principally the result of decreased gains on
sale of loans of $125,000 and $347,000 for the three and nine month periods,
respectively and a $583,000 gain from the sale of mortgage servicing rights in
March of 1999. With increasing interest rates, residential mortgage
origination and sale activity, especially refinancings have significantly
decreased. These decreases were offset by increases in service charges of
$160,000 and $298,000 for the same periods. Service charge income has
increased due to higher levels of consumer transaction deposits and additional
fee income from automated teller machine fees.
Non-interest Expense
Non-interest expense increased 17.6% to $3.7 million for the three months
ended March 31, 2000 compared with $3.2 million for the three months ended
March 31, 1999. This increase is due primarily to increases in salaries and
benefits of $356,000 and occupancy of $58,000. For the nine month period ended
March 31, 2000 non-interest expense totaled $10.8 million, a 23.0% or $2.0
million increase from the March 31, 1999 period. For the nine month period,
salaries and benefits increased $1.4 million, and occupancy increased
$558,000. The opening of three new branches, maintenance of our
mortgage-banking operation, and additional support staff for our increased
product and service offerings were responsible for the increased expenses
described above for both the three and nine month periods.
12
<PAGE>
Segment Results
The following is a summary of selected operating segment information for
the three and nine months ended March 31, 2000 and 1999. The Corporation
manages its operations and prepares management reports with a primary focus on
its various business units. The accounting policies of the individual units
are the same as those of the Corporation. The Corporation allocates centrally
provided services to the business units based upon estimated usage of those
services. All amounts are in thousands.
<TABLE>
For the three months ended March 31, 2000
Business Residential Construction Property Consumer Treasury Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Condensed Income Statement
Net Interest after
provision for loan losses $976 1,235 469 1,144 304 329 4,457
Other Income 13 169 0 1 301 112 596
Direct Expense 231 717 91 1 612 66 1,718
Allocated Overhead 244 678 141 540 192 262 2,057
--------------------------------------------------------------------------
Income before Income Tax 514 9 237 604 (199) 113 1,278
Federal Income Taxes 175 2 81 203 (67) 39 433
--------------------------------------------------------------------------
Net Income 339 7 156 401 (132) 74 845
--------------------------------------------------------------------------
</TABLE>
<TABLE>
For the three months ended March 31, 1999
Business Residential Construction Property Consumer Treasury Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Condensed Income Statement
Net Interest after
provision for loan losses $673 1,668 294 939 371 142 4,087
Other Income -35 721 0 -9 167 304 1,148
Direct expense 168 273 70 56 688 83 1,338
Allocated Overhead 151 805 184 337 167 229 1,873
--------------------------------------------------------------------------
Income before Income Tax 319 1,311 40 537 -317 134 2,024
Federal Income Taxes 110 459 13 180 -108 37 691
--------------------------------------------------------------------------
Net Income 209 852 27 357 (209) 97 1,333
--------------------------------------------------------------------------
</TABLE>
<TABLE>
For the nine months ended March 31, 2000
Admin-
Income istration
Business Residential Construction Property Consumer Treasury Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Condensed Income Statement
Net Interest after
provision for loan losses $2,860 3,618 1,393 3,567 1,237 788 13,463
Other Income 31 498 0 5 736 342 1,612
Direct Expense 679 2,177 134 76 1,620 195 4,881
Allocated Overhead 704 1,975 412 1,558 539 715 5,903
----------------------------------------------------------------------------
Income before Income Tax 1,508 (36) 847 1,938 -186 220 4,291
Federal Income Taxes 513 (13) 288 655 -63 76 1,456
----------------------------------------------------------------------------
Net Income 995 (23) 559 1,283 (123) 144 2,835
----------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
For the nine months ended March 31, 1999
Admin-
Income istration
Business Residential Construction Property Consumer Treasury Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Condensed Income Statement
Net Interest after
provision for loan losses $2,054 4,033 1,006 2,530 1,344 514 11,481
Other Income 22 1,339 0 0 529 384 2,274
Direct expense 606 1,613 76 89 1,321 133 3,838
Allocated Overhead 403 2,144 490 898 444 572 4,951
----------------------------------------------------------------------------
Income before Income Tax 1,067 1,615 440 1,543 108 193 4,966
Federal Income Taxes 364 563 149 522 37 56 1,691
----------------------------------------------------------------------------
Net Income 703 1,052 291 1,021 71 137 3,275
----------------------------------------------------------------------------
</TABLE>
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 $23.8 million in March 2000, which were in excess of
the required liquidity level of $18.6 million.
Loan commitments outstanding at March 31, 2000 were $12.9 million and
will be funded through sales of loans, existing liquidity balances,
FHLB-Seattle advances, and other borrowings. Outstanding commitments to sell
loans totaled $4.2 million at March 31, 2000.
At March 31, 2000, the Bank had an unused line of credit from the
FHLB-Seattle of approximately $71 million. The Bank's credit line with the
FHLB-Seattle is 35% of total assets or up to approximately $226 million. The
Bank also had $6.9 million of reverse repurchase agreements outstanding.
Capital Resources
On March 1, 2000 Cascade Financial issued ten million par value Trust
Preferred Securities. These securities are considered core capital for the
purposes of regulatory capital requirements.
Cascade Bank is in full compliance with all capital requirements
established by the Office of Thrift Supervision ("OTS") at March 31, 2000.
Cascade's regulatory capital requirements and related excess capital amounts
as of March 31, 2000 are presented in the following table:
Core capital Amount Percentage
------------ ------ ----------
Tier 1 (Core) capital $ 48,132 7.46%
Less: Minimum requirement 25,803 4.00
-------- -----
Excess $ 22,329 3.46%
======== =====
Tier 1 Risked-Based capital Amount Percentage
---------------------------- ------ ----------
Tier 1 capital $ 48,132 11.00
Less: Minimum requirement 17,504 4.00
-------- -----
Excess $ 30,628 7.00%
======== =====
Risk-based capital Amount Percentage
------------------ ------ ----------
Risk-based capital $ 52,541 12.01%
Less: Minimum requirement(1) 35,009 8.00
-------- -----
Excess $ 17,532 4.01%
======== =====
(1) Based on risk-weighted assets.
14
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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,
2000, 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.
On November 2, 1999, the Federal Deposit Insurance Corporation (FDIC)
published a notice indicating it is recommending higher capital requirements
for insured banks and savings associations engaged in subprime lending. In
the release, the FDIC does not define subprime loans as all loans underwritten
using nonconventional credit standards. Loans with a community development
purpose are not considered subprime loans. Affordable housing loans, for
example, often are underwritten using nonconventional underwriting standards,
but are done in a safe and sound manner. Subprime loans are in contrast often
made without regard to the underlying credit risk of the borrower, but are
made based on the underlying collateral only. At this time it is impossible
to assess the impact of this proposal in its current form.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
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 approximately two
percent at December 31, 1999. 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 has also used interest rate
swap and interest rate cap and floor agreements for interest rate risk
management purposes.
Cascade uses mandatory and optional forward commitments from investment
banking firms to mitigate the interest rate risk from its mortgage banking
operation.
15
<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
June 16, 2000 /s/ Lars H. Johnson
------------------------------------
By: Lars H. Johnson,
Executive Vice President
(Chief Financial Officer)
16
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Exhibit 27
Financial Data Schedule
This schedule contains financial information extracted from the consolidated
financial statements of Cascade Financial Corporation for the nine months
ended March 31, 2000 and is qualified in its entirety by reference to such
financial statements.
Financial Data
As of or for the year
Item Number ended March 31, 2000 Item Description
($ in thousands)
9-03 (1) 12,060 Cash and due from Banks
9-03 (2) 225 Interest-bearing deposits
9-03 (3) ___ Federal funds sold - purchased securities
for resale
9-03 (4) ___ Trading account assets
9-03 (6) 56,450 Investment and mortgage backed securities
held for sale
9-03 (6) 24,299 Investment and mortgage backed securities
held to maturity - carrying value
9-03 (6) 7,436 Investment and mortgage backed securities
held to maturity - market value
9-03 (7) 525,184 Loans, net
9-03 (7)(2) 4,869 Allowance for losses
9-03 (11) 645,645 Total assets
9-03 (12) 428,391 Deposits
9-03 (13) 72,382 Short-term borrowings
9-03 (15) 7,962 Other liabilities
9-03 (16) 100,217 Long-term debt
9-03 (19) ___ Preferred stock - mandatory redemption
9-03 (20) ___ Preferred stock - no mandatory redemption
9-03 (21) 55 Common stock
9-03 (22) 36,638 Other stockholders' equity
9-03 (23) 645,645 Total liabilities and stockholders'
equity
9-04 (1) 11,000 Interest and fees on loans
9-04 (2) 710 Interest and dividends on investments
9-04 (4) 99 Other interest income
9-04 (5) 12,386 Total interest income
9-04 (6) 5,517 Interest on deposits
9-04 (9) 7,719 Total interest expense
9-04 (10) 4,667 Net interest income
9-04 (11) 210 Provision for loan losses
9-04 (13)(h) ___ Investment securities gains/(losses)
9-04 (14) 3,775 Other expenses
9-04 (15) 1,278 Income/loss before income tax
9-04 (17) 1,278 Income/loss before extraordinary items
9-04 (18) ___ Extraordinary items, less tax
9-04 (19) ___ Cumulative change in accounting
principles
9-04 (20) 845 Net income or loss
9-04 (21) 0.31 Earnings per share - primary
9-04 (21) 0.28 Earnings per share - fully diluted
I.B. 5 8.05 Net yield - interest earning assets -
actual
III.C.1. (a) 726 Loans on non-accrual
III.C.1. (b) 39 Accruing loans past due 90 days or more
III.C.2. (c) ___ Troubled debt restructuring
III.C.2 2,100 Potential problem loans
IV.A.1 4,254 Allowance for loan loss - beginning of
period
IV.A.2 71 Total chargeoffs
IV.A.3 126 Total recoveries
IV.A.4 4,869 Allowance for loan loss - end of period
IV.B.1 4,869 Loan loss allowance allocated to
domestic loans
IV.B.2 ___ Loan loss allowance allocated to
foreign loans
IV.B.3 ___ Loan loss allowance - unallocated
17
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