Cascade Financial Corp · 10-K405 · For 6/30/96

Filed On 9/27/96   ·   SEC File 0-25286   ·   Accession Number 939057-96-67

Annual Report -- [X] Reg. S-K Item 405   ·   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Cascade Financial Corporation Form 10-K               79    372K 
 2: EX-27       Financial Data Schedule                                2±     7K 

10-K405   ·   Cascade Financial Corporation Form 10-K
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UNITED STATES         
SECURITIES AND EXCHANGE COMMISSION          
Washington, D.C.  20549         

FORM 10-K         

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES           
EXCHANGE ACT OF 1934                                                

For the Fiscal Year Ended June 30, 1996                                         
OR          

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES       
EXCHANGE ACT OF 1934                                                

Commission file number 0-25286          

CASCADE FINANCIAL CORPORATION         
(Exact name of registrant as specified in its charter)            

Delaware                              91-0167790            
(State or other jurisdiction                  (IRS Employer                     
of incorporation or organization)             I.D. Number)                    

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

Registrant's telephone number, including area code: (206) 339-5500              

Securities registered pursuant to Section 12(b) of the Act: None                

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par   
value $0.01 per share                                                           

 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of   
1934 during the preceding twelve months (or for such shorter period that the    
registrant was required to file such reports), and (2) has been subject to      
such filing requirements for the past 90 days.  YES  X       NO                 

Indicate by check mark no disclosure of delinquent filers pursuant to 
Item 405 of Regulation  K is not contained herein, and will not be contained,   
to the best of registrant's knowledge, in definitive proxy or information       
statements incorporated by reference in Part III of this Form 10-K or any       
amendment to this Form 10-K.    [ X ]                                           

As of September 20, 1996, there were issued and outstanding 2,050,581 
shares of the registrant's Common Stock.  The registrant's voting stock is      
traded over-the-counter and is listed on the Nasdaq Smallcap Market under the   
symbol "CASB."  Based on the average of the bid and asked prices for the        
Common Stock on September 20, 1996, the aggregate value of the Common Stock     
outstanding held by nonaffiliates of the registrant was $33.6 million           
(2,050,581 shares at $16.375 per share).  For purposes of this calculation,     
officers and directors of the registrant are not considered nonaffiliates of    
the registrant.                                                                 

DOCUMENTS INCORPORATED BY REFERENCE         

 1.  Portions of Annual Report to Stockholders for the Fiscal Year Ended
June 30, 1996 (the "Annual Report") (Parts I and II).                           

2.  Portions of registrant's Definitive Proxy Statement for the 1996  
Annual Meeting of Stockholders (Part III).                                      

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PART I              

Item 1.  Description of Business                                                

General                                                                         

Cascade Savings Bank, FSB ("Cascade" or the "Savings Bank") was       
organized in 1916 as a mutual savings and loan association, and since 1957      
its deposits have been federally insured.  On September 15, 1992, the Savings   
Bank completed its conversion from a federal mutual to a federal stock          
savings bank.  Cascade Financial Corporation ("Corporation"), a Delaware        
corporation, was organized on August 18, 1994 for the purpose of becoming the   
holding company for Cascade.  On October 23, 1994, the stockholders of the      
Savings Bank approved a plan to reorganize the Savings Bank into the holding    
company form of ownership.  The reorganization was completed on November 30,    
1994, on which date the Savings Bank became the wholly-owned subsidiary of      
the Corporation, and the stockholders of the Savings Bank became stockholders   
of the Corporation.  Prior to completion of the reorganization, the             
Corporation had no material assets or liabilities and engaged in no business    
activities.  Subsequent to the acquisition of Cascade, the Corporation has      
engaged in no significant activity other than holding the stock of the          
Savings Bank.  Accordingly, the information set forth in this report,           
including financial statements and related data, relates primarily to the       
Savings Bank.  The executive offices of the Corporation are located at 2828     
Colby Avenue, Everett, Washington, and the telephone number is (206)            
339-5500.                                                                       

At June 30, 1996, the Corporation had total assets of $334.4 million, 
total deposits of $218.0 million and stockholders' equity of $20.8 million.     
The savings deposits of the Savings Bank are insured by the Federal Deposit     
Insurance Corporation ("FDIC") under the Savings Association Insurance Fund     
("SAIF").                                                                       

Regulatory Issues                                                               

Prior to March 1990, the Savings Bank was for many years managed by a 
chief executive officer who was subsequently charged by the Office of Thrift    
Supervision ("OTS") with illegal actions.  The OTS issued an order which        
required the former chief executive to pay restitution to the Savings Bank of   
$1.0 million. See "Item 3 -- Legal Proceedings -- Former Management."  There    
has been, and is likely to continue to be intense scrutiny of the Savings       
Bank, its affairs and past transactions by regulators, and possibly by          
others, with a view toward asserting claims of some type against the Savings    
Bank.  Exposure of the Corporation to claims and possible litigation may        
continue until the completion of the restructuring of the balance sheet, the    
improvement of the Corporation's capital position and its core earnings.        

Current Business Strategy                                                       

The Corporation's principal business activity is the acquisition of   
deposits which are used to originate and service one-to-four family             
residential, multi-family, and commercial real estate loans.  The Corporation   
also sells a portion of the long-term fixed rate residential loans it           
originates.  As a result of  planned asset growth, total assets at June 30,     
1996 increased by $23.5 million or 7.6% from June 30, 1995.  The Corporation    
seeks to control its interest rate risk by generally retaining in its           
portfolio adjustable rate and balloon loans that are funded with a              
combination of Federal Home Loan Bank of Seattle ("FHLB-Seattle") advances      
and deposits from the local market area.                                        

Market Area                                                                     

 Headquartered in Everett, Washington, the Corporation conducts business
from six full service offices, four in Snohomish County, and two in King        
County.  The Corporation has two mortgage origination offices, one each in      
Skagit and Whatcom counties.  The Corporation serves the savings and            
borrowing needs of the diverse geographic communities in which it operates.     

Located in the center of the western Washington region, Snohomish and 
King counties have experienced significant growth in recent years.  Much of     
this growth can be attributed to the computer software and import/export        
businesses in the region.  Snohomish County is a fast growing county and the    
significant migration of people to the area has supported growth in all types   
of businesses.  The Boeing Corporation employs approximately 80,000 people in   
the Puget Sound region.  Everett was selected as a "home port" for a United     
States Navy Nuclear Carrier battle group.  Construction is completed on these   
facilities and the battle group has begun arriving.                             

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Proposed Federal Legislation                                                    

Recapitalization of SAIF and its Impact on SAIF Premiums. Effective   
January 1, 1996, the FDIC substantially reduced deposit insurance premiums      
for well-capitalized, well-managed financial institutions that are members of   
the Bank Insurance Fund ("BIF").  Under the new assessment schedule,            
approximately 92% of BIF members pay the statutory minimum annual assessment    
of $2,000.  With respect to financial institutions that are members of the      
SAIF, the FDIC has retained the existing rate schedule of 23 to 31 basis        
points.  Cascade is a member of the SAIF rather than the BIF.  SAIF premiums    
may not be reduced for several years because the SAIF has lower reserves than   
the BIF.  Because deposit insurance premiums are often a significant            
component of noninterest expense for insured depository institutions, the       
reduction in BIF premiums may place Cascade at a competitive disadvantage       
since BIF-insured institutions (such as most commercial banks) may be able to   
offer more attractive loan rates, deposit rates, or both.                       

  Proposed federal legislation would recapitalize the SAIF and resolve the
current premium disparity by requiring savings institutions like Cascade to     
pay a one-time assessment to increase SAIF's reserves to $1.25 per $100 of      
deposits that is expected to be approximately 80 basis points on the amount     
of deposits held by a SAIF-member institution.  The payment of a one-time fee   
would have the effect of immediately reducing the capital and pre-tax           
earnings of SAIF-member institutions by the amount of the fee.  Based on        
Cascade's assessable deposits of $218.0 million at June 30, 1996, a one-time    
assessment of 80 basis points would equal approximately $1.7 million on a       
pre-tax basis, or $1.2 million after tax.  Management cannot predict whether    
any legislation imposing such a fee will be enacted, or, if enacted, the        
amount or timing of any one-time fee or whether ongoing SAIF premiums will be   
reduced to a level equal to that of BIF premiums.  See "REGULATION."            

  Potential Operational Restrictions Associated with Regulatory Oversight.
Cascade is subject to extensive regulation, supervision and examination by      
the OTS, as its chartering authority and primary federal regulator, and by      
the FDIC, which insures its deposits up to applicable limits.  Cascade is a     
member of the FHLB System and is subject to certain limited regulations         
promulgated by the Board of Governors of the Federal Reserve System ("Federal   
Reserve").  As the holding company of Cascade, the Corporation also is          
subject to regulation and oversight by the OTS.  Such regulation and            
supervision govern the activities in which an institution can engage and is     
intended primarily for the protection of the insurance fund and depositors.     
Regulatory authorities have been granted extensive discretion in connection     
with their supervisory and enforcement activities which are intended to         
strengthen the financial condition of the banking industry, including the       
imposition of restrictions on the operation of an institution, the              
classification of assets by the institution and the adequacy of an              
institution's allowance for loan losses.  Any change in such regulation and     
oversight, whether by the OTS, the FDIC or Congress, could have a material      
impact on the Corporation, Cascade and their respective operations.  See        
"Regulation."  Legislation proposing a comprehensive reform of the banking      
and thrift industries has recently been discussed in the United States          
Congress.  Under such legislation, (i) the BIF and the SAIF would be merged,    
at which time thrifts and banks would pay the same deposit insurance            
premiums, (ii) federal savings associations would be required to convert to a   
national bank or a state-chartered bank or thrift, (iii) all savings and loan   
holding companies would become bank holding companies and (iv) the OTS would    
be merged with the Office of the Comptroller of the Currency.  It is            
uncertain when or if such legislation may be passed and, if passed, in what     
form such legislation may be passed.                                            

Lending Activities                                                              

General.  The Corporation originates mortgage loans primarily through 
its full service office staff and commissioned loan officers.  Loan officers'   
sales efforts are directed toward establishing and maintaining ongoing          
relationships with local real estate brokers, builders, and repeat retail       
customers as sources of loan origination referrals.  The purpose of the loans   
has been primarily for the purchase or refinancing of one-to-four family        
properties, but some loans have been for construction of one-to-four family     
homes, multi-family, and home equity lending.  As of June 30, 1996, $194.8      
million or 83% of the Corporation's gross loan portfolio consisted of loans     
secured by one-to-four family residential properties (permanent and             
construction), $14.7 million or 6% of gross loans consisted of commercial       
real estate and land loans and $37.5 million or 15% consisted of multi-family   
loans.                                                                          

To ensure that the yields on its loan portfolio and investments are   
interest rate sensitive, the Corporation has implemented several measures,      
including  (i)  adoption of a practice under which the Corporation generally    
originates long-term, fixed-rate mortgage loans only when such loans are        
written to specifications promulgated by the Federal Home Loan Mortgage         
Corporation ("FHLMC"), the Federal National Mortgage Association ("FNMA"),      
and the Federal Housing Administration and Veterans Administration              
(collectively "FHA/VA"), and qualify for sale in the secondary market; and      
(ii)  when  market conditions permit, increased emphasis on the retention of    
adjustable rate or balloon mortgages on residential properties.  These          

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lending practices were adopted to shorten the term of the Corporation's         
assets and make the loan portfolio less sensitive to interest rate              
volatility.                                                                     

Quality Control.  The Corporation has implemented a quality control   
process designed to ensure sound lending practices and compliance with the      
guidelines established by FHLMC, FNMA, FHA and VA.  The Corporation's           
Internal Audit Department conducts reviews of completed transactions to         
ensure the Corporation's credit personnel adhere to investors' underwriting     
criteria, regulatory conformance and internal policy compliance.  In            
addition, each operating department performs certain quality control            
procedures.                                                                     

One-to-Four Family Residential Loans.  The Corporation presently      
originates both fixed rate and adjustable rate mortgage ("ARMs") loans          
secured by one-to-four family properties with loan terms of up to 30 years.     
Newly originated ARMs have interest rates that adjust based on the One Year     
United States Treasury Constant Maturity Index or the Twelfth District Cost     
of Funds Index, a lagging index.  Borrower demand for ARMs versus fixed-rate    
mortgage loans is a function of the level of interest rates, the expectations   
of changes in the level of interest rates and the differences between the       
interest rates and loan fees offered for fixed-rate mortgage loans and the      
rates and loan fees for ARMs.                                                   

The Corporation's lending policies generally limit the maximum        
loan-to-value ratio on fixed-rate and adjustable-rate residential one-to-four   
family owner occupied loans to 80% or less of the lesser of the appraised       
value or purchase price of the underlying residential property.  Non-owner      
occupied one-to-four family residential loans are limited to 70% or less, of    
the lesser of the appraised value or purchase price of the underlying           
residential property.  The loan-to-value ratio, maturity and other provisions   
of the loans made by the Corporation are generally reflected in the policy of   
making less than the maximum loan permissible under federal regulations,        
according to established lending practices, market conditions and               
underwriting standards maintained by the Corporation.  Loans originated with    
a loan-to-value ratio above 80% have typically required private mortgage        
insurance.                                                                      

The  following table shows total loans originated, purchased, sold and repaid   
during the periods indicated.                                                   

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                      For the Year Ended
                      June 30,
                       1992        1993       1994        1995      1996
                      (In thousands)

Total gross loans at                                                            
beginning of period     $146,486    129,403     165,916    194,989   227,920  

Loans originated:                                                               
Single-family                                                                 
residential              212,606    255,300     277,949     84,425   78,452 
Multi-family                                                                  
residential                                                                 
and commercial                                                              
real estate                1,000      1,815       2,118      3,928   13,040 
Single-family                                                                 
construction               2,148     11,315      22,601     22,708   31,599 
Home equity and                                                               
installment                  111         --          --         --    8,483 
Total loans                                                             
   originated           215,865    268,430     302,668    111,061  131,574

Loans purchased                 --        515         552        369      821   
Whole loans sold           190,928    202,419     236,703     43,969   57,286   

Loan principal                                                                  
repayments                38,529     33,304      37,840     32,834   54,502 

Other                        3,491     (3,291)       (396)     1,696      729   
Loan activity, net         (17,083)    36,513      29,073     32,931   19,878   

Total gross loans at                                                            
end of period            129,403    165,916     194,989    227,920  247,798 

Loans converted to                                                              
mortgage-backed                                                             
securities:                                                                 
Loans securitized         149,319    108,835      61,148     15,393   32,330  
Mortgage-backed                                                               
securities sold          183,676    110,377      45,049     10,623   32,330 

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                                                        · Enlarge/Download Table
Loan Portfolio Analysis.  The following table sets forth the Corporation's loan portfolio by type of loan  
and by type of security as  of the dates indicated.                                                        

                                                          At June 30,                                      
                          1992              1993              1994             1995              1996      
                     Amount  Percent   Amount  Percent   Amount  Percent  Amount  Percent   Amount  Percent
Type of Loan                                         (Dollars in thousands)                                

                                                                                                           
Residential(1)(2)    $ 95,711  77.44%  125,508  79.96    150,086   81.64  184,800  85.31    201,003  86.04 
FHA and VA              5,820   4.71     7,099   4.52      2,762    1.50    3,458   1.60      3,085   1.32 
Commercial             13,957  11.29    17,721  11.29     18,850   10.25   16,770   7.74     14,739   6.31 
Construction            8,434   6.82    10,337   6.59     17,677    9.62   22,708  10.48     28,277  12.10 
Land                    5,453   4.41     5,251   3.35      5,614    3.05      202    .09        194    .08 
Installment                28    .02        --     --         --      --       --     --        507    .22 
  Total loans         129,403 104.70   165,916 105.71    194,989  106.07  227,938 105.22    247,805 106.07 

Less:                                                                                                      
 Due to borrowers on                                                                                       
  construction loans    1,367   1.11     4,412   2.81      5,980    3.25    6,215   2.87      9,082   3.89 
 Unearned discounts       966    .78     1,454    .93      1,685     .92    2,146   1.00      2,158    .92 
 Allowance for                                                                                             
  possible loan                                                                                            
  losses                3,424   2.77     3,090   1.97      3,485    1.90    2,950   1.35      2,946   1.26 
 Valuation allowance                                                                                       
  on loans held for                                                                                        
  sale                     50    .04        --     --         --      --       18      --         7     -- 
 Total loans, net     123,596 100.00   156,960 100.00    183,839  100.00  216,609  100.00   233,612 100.00 

Type of Security:                                                                                          

Residential real estate                                                                                    
 Single family(2)     $65,535  53.02%  113,439  72.27    146,217   79.54  183,797   84.85   194,825  83.39 
  Multi-family         44,430  35.95    29,505  18.80     24,308   13.22   27,169   12.54    37,540  16.07 
Commercial or                                                                                              
 industrial real                                                                                           
 estate                13,957  11.29    17,721  11.29     18,850   10.25   16,770    7.74    14,739   6.31 
Land                    5,453   4.41     5,251   3.35      5,614    3.05      202     .09       194    .08 
Other                      28    .02        --     --         --       --     --       --       507    .22 

Less:                                                                                                      
 Due to borrowers on                                                                                       
  construction loans   1,367    1.11     4,412   2.81      5,980    3.25    6,215    2.87     9,082   3.89 
 Unearned discounts      966     .78     1,454    .93      1,685     .92    2,146    1.00     2,158    .92 
 Allowance for                                                                                             
 possible loan                                                                                             
 losses                3,424    2.77     3,090   1.97      3,485    1.90    2,950    1.35     2,946   1.26 
 Valuation allowance                                                                                       
  on loans held for                                                                                        
  sale                    50     .04        --      --        --      --       18      --         7     -- 
   Total loans, net  123,596  100.00   156,960  100.00   183,839  100.00  216,609  100.00   233,612 100.00 
____________________                                                                                       
(1)  Includes construction loans converted to permanent loans.                                             
(2)  Includes home equity loans for June 30, 1994 to 1996.                                                 

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 The following table sets forth the estimated repricing or maturity of the
Corporation's loans and mortgage-backed securities for years ended June 30,     
1994, 1995, and 1996 and the dollar amount of such securities and loans at      
the date which are scheduled to mature after one year which have fixed or       
adjustable interest rates.  Demand loans, loans having no stated schedule of    
repayments and no stated maturity and overdraft loans are reported as due in    
one year or less.  Mortgage-backed securities are reported without premiums     
or discounts.                                                                   

                             June 30, 1994
                                                             Mortgage-
                          Mortgage   Installment   Total    Backed
                              (In thousands)

Amount repricing or maturing:                                                   
Within one year                  $  71,693        --      71,693   14,712       
After one year through three                                                    
years                              13,566        --      13,566    5,917      
After three years through                                                       
five years                         21,610        --      21,610   11,146      
After five years                    88,120        --      88,120   16,435       

Total                            194,989        --     194,989   48,210     

Interest rate terms on amounts                                                  
due after one year:                                                           

Fixed                              111,991        --     111,991   33,498       

Adjustable                          62,073        --      62,073   14,712       

                             June 30, 1995
                                                             Mortgage-
                          Mortgage   Installment   Total    Backed
                              (In thousands)

Amount repricing or maturing:                                                   
Within one year                  $  78,894        --      78,894   34,721       
After one year through three                                                    
years                              39,261        --      39,261    6,502      
After three years through                                                       
five years                         46,501        --      46,501   13,193      
After five years                    63,264        --      63,264   14,723       
Total                            227,920        --     227,920   69,139     

Interest rate terms on amounts                                                  
due after one year:                                                           

Fixed                              101,281        --     101,281   34,418       

Adjustable                          103,833       --     103,833   34,721       

                             June 30, 1996
                                                             Mortgage-
                          Mortgage   Installment   Total    Backed
                              (In thousands)

Amount repricing or maturing:                                                   
Within one year                   101,759         10     101,769   15,269       
After one year through three                                                    
years                             42,399        144      42,543    4,854      
After three years through                                                       
five years                        69,867        996       9,966    4,956      
After five years                   33,273        254      33,527   18,609       
Total                           247,298        507     247,805   43,688     

Interest rate terms on amounts                                                  
due after one year:                                                           

Fixed                              87,975         32      88,007   28,419       

Adjustable                        115,525        475     116,000   13,085       

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Loan Maturity and Repricing                                                     

The following table sets forth information at June 30, 1996 regarding 
the dollar amount of loans maturing in the Corporation's portfolio based on     
their contractual terms to maturity, but does not include scheduled payments    
or potential prepayments.  Demand loans, loans having no stated schedule of     
repayments and no stated maturity, and overdrafts are reported as due in one    
year or less.  Mortgage loans that have adjustable rates and balloon            
repayment dates are shown as maturing at their next repricing date.  Loan       
balances do not include unearned discounts, unearned income and allowance for   
loan losses.                                                                    

                                                     Due After
                       Due During                    3 Through
                      the Year Ending                5 Years After
                        June 30,                      June 30,
              1997       1998       1999              1996
          (In thousands)

Real estate mortgage    $  64,735  24,695     15,477            67,844          
Commercial real estate     10,670     428        992             1,044          
Land                           --     113         --                --          
Installment                    --      --         --               507          
Construction - Single-                                                          
family                    26,351     118        576               979         
Total loans             101,756  25,354     17,045            70,374        

Due After        Due After      
         5 Through        10 Through     Due After
            10 Years After  15 Years After  15 Years After
           June 30,         June 30,        June 30,
                        1996             1996            1996        Total
            (In thousands)
Real estate mortgage      7,845            7,033           16,459     204,088   
Commercial real estate    1,179              426               --      14,739   
Land                         81               --               --         194   
Installment                  --               --               --         507   
Construction - Single-                                                          
family                     253               --               --      28,277  
Total loans             9,358            7,459           16,459     247,805 

  The following table sets forth the dollar amount of all loans as of June
30, 1996 due after one year which have fixed interest rates and have floating   
or adjustable interest rates.                                                   

          Fixed      Floating or
            Rates   Adjustable Rates
          (Dollars in thousands)

Real estate mortgage             $ 84,759       110,258                         
Commercial real estate              2,651         4,744                         
Land                                  194            --                         
Installment                           32           475                        
Construction                          371           523                         
Total                            88,007       116,000                       

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  Residential Construction Loans.  The Corporation originates construction
loans on one-to-four family homes either to individual borrowers as custom      
construction loans or to builders as speculative construction loans.            
Construction loans generally have terms of twelve months.  The interest rates   
charged by the Corporation on construction loans are indexed to the prime       
rate and vary depending on the loan.  The Corporation requires personal         
guaranties of payment from the principals of the borrowing entities.  All       
construction loans require approval by various levels of corporate personnel,   
depending on the size of the loan.  At June 30, 1995 and June 30, 1996, the     
percent of the Corporation's gross loan portfolio that consisted of             
one-to-four family construction loans was 10% and 11%, respectively.            
Management has sought to increase the residential construction loan portfolio   
because of its relatively high margins, beneficial asset/liability              
characteristics, and the favorable housing market in the Corporation's market   
area.  The residential construction portfolio is limited by Board of Director   
policy to 15% of assets.                                                        

Construction loans involve further credit risks because loan funds are
advanced upon the security of the project under construction which is of        
uncertain value before completion.  The Corporation's risk of loss on a         
construction loan is dependent largely upon the accuracy of the initial         
estimate of the property's value at completion of construction or development   
and the estimated cost (including interest) of the construction.  If the        
estimate of construction costs proves to be inaccurate, the Corporation may     
be required to advance additional funds to complete the development.  If,       
upon completion of the project the marketability of the property proves to be   
inaccurate, the borrower may be unable to sell the completed project in a       
timely manner or obtain adequate proceeds to repay the loan, and the loan may   
become nonperforming.  Delays may arise from labor problems, material           
shortages may be experienced and other unpredictable contingencies may occur.   
Furthermore, if the estimate of value proves to be inaccurate, the              
Corporation may be confronted with, at, or prior to the maturity of the loan,   
a project with a value that is insufficient to assure full repayment.           

  Home Equity/Line of Credit Lending.  Loans are made either independently
through the Corporation's retail offices or in connection with the closing of   
a residential mortgage loan.  Management views these loans as important in      
building the Corporation's orientation toward consumer financial services,      
and anticipates this portfolio to grow rapidly in the future, subject to        
mutual conditions.  At June 30, 1995 and 1996, the total amount of              
outstanding commitments was $2.5 million and $5.9 million, respectively, and    
the principal amount outstanding was $3.6 million and $6.8 million,             
respectively.                                                                   

  Multi-family Loans.   Multi-family loans totaled $37.3 million or 15% of
the gross loan portfolio at June 30, 1996.  Management has reentered the        
multi-family  market since the general credit quality and of the multi-family   
portfolio has been far superior to the commercial real estate portfolio.  The   
multi-family portfolio is limited, by policy, to 20% of assets.  New loans      
originations are all in the Puget Sound region with adjustable rates.  The      
multi-family portfolio is principally comprised of small to medium-size         
apartment projects ($2.5 million in loan amount or less) with loan-to-value     
ratios in the 70% to 80% range.  Total multi-family originations for the        
years ended June 30, 1995 and 1996 totaled $3.9 million and $11.5 million,      
respectively.                                                                   

 Commercial Real Estate and Land Loans.  Commercial real estate and land
loans totaled 6% of the Corporation's gross loan portfolio at June 30, 1996.    
All commercial real estate and land loans are secured by properties in the      
western Washington area, mainly in the Puget Sound region.  The Corporation's   
commercial real estate loans are secured by improved property such as office    
buildings and small commercial business properties such as strip shopping       
centers.  At June 30, 1996, the largest commercial real estate and land loan    
in the Corporation's portfolio was $4.1 million, which was performing           
according to its terms at that date.                                            

Installment Loans.  During 1996, an installment loan program was      
initiated and Management anticipates, subject to mutual conditions, an          
increase in installment lending on collateral such as boats, automobiles, and   
recreational vehicles, as well as a limited amount of unsecured personal        
loans.  At June 30, 1996, the Corporation's portfolio of installment loans      
was $507,000.                                                                   

Asset Quality                                                                   

OTS regulations require that each insured institution review and      
classify its assets regularly.  In addition, in connection with examinations    
of insured institutions, OTS examiners have authority to identify problem       
assets and, if appropriate, require them to be classified.  There are three     
classifications for problem assets:  substandard, doubtful and loss.            
Substandard assets must                                                         

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have one or more defined weaknesses and are characterized by the distinct       
possibility that the insured institution will sustain some loss if the          
deficiencies are not corrected.  Doubtful assets have the weaknesses of         
substandard assets with the additional characteristic that the weaknesses       
make collection or liquidation in full based on currently existing facts,       
conditions and values questionable, and there is a high possibility of loss.    
An asset classified loss is considered uncollectible and of such little value   
that its continuance as an asset of the institution is not warranted.  Assets   
classified as substandard or doubtful require the institution to establish      
general allowances for loan losses.  If an asset or portion thereof is          
classified loss, the insured institution must either establish specific         
allowances for loan losses in the amount of 100% of the portion of the asset    
classified loss or charge off such amounts.                                     

Delinquencies.  A report containing delinquencies of all loans is     
reviewed monthly by the Management Committee and periodically by the Board of   
Directors.  Procedures taken with respect to delinquent loans differ            
depending on the particular circumstances of the loan.  The Corporation's       
general procedures provide that when a loan becomes delinquent, the borrower    
is contacted, usually by phone, within 15 to 30 days.  When the loan is over    
30 days delinquent, the borrower is contacted in writing.  Typically, the       
Corporation will initiate foreclosure action against the borrower when          
principal and interest become 90 days or more delinquent.  In any event,        
interest income is reduced by the full amount of accrued and uncollected        
interest on loans once they become 90 days delinquent, go into foreclosure or   
are otherwise determined to be uncollectible. Once interest has been paid to    
date or management considers the loan fully collectable, it is returned to      
accrual status.  An allowance for loss is established when, in the opinion of   
management, the fair value less sales costs of the property collateralizing     
the loan is less than the outstanding principal and the collectability of the   
loan's principal becomes uncertain.  It is intended that the Corporation's      
allowance for loan losses be adequate to cover known potential and reasonably   
estimated unknown losses.  As of June 30, 1995 and 1996, the Corporation had    
$597,000 and $373,000, respectively, of loans accounted for on a nonaccrual     
basis (i.e., loans upon which management believes the future collectability     
of interest is uncertain).                                                      

  The aggregate amounts of the Corporation's classified assets, and of the
Corporation's general and specific loss allowances and charge-offs for the      
period then ended, were as follows:                                             

           At June 30,
         1993    1994    1995   1996
  (In thousands)

Substandard                  $14,930  12,693   8,165  2,527                     
General loss allowances        2,890   3,185   2,650  2,646                     
Specific loss allowances         200     300     300    300                     
Charge-offs                      434     100     200      4                     

Allowances for Loan Losses                                                      

 It is management's policy to maintain adequate allowances for estimated
losses on known and inherent risks in the loan portfolio.  Generally, the       
allowances are based on, among other things, the size and composition of the    
loan portfolio, historical loan loss experience, evaluation of economic         
conditions, and in various sectors of the Corporation's customer base,          
detailed analysis of individual loans for which collectibility may not be       
assured and determination of the existence and realizable value of the          
collateral and guarantees securing the loan.  Management has allocated the      
allowance to various portfolio segments; however, the allowance is applicable   
to the loan portfolio in its entirety.                                          

  While the Corporation believes it has established its existing allowance
for loan losses in accordance with generally accepted accounting principles     
("GAAP") at June 30, 1996, there can be no assurance that regulators, when      
reviewing the Corporation's loan portfolio in the future, will not require      
the Corporation to increase its allowance for loan losses, thereby adversely    
affecting the Corporation's financial condition and earnings.                   

The Corporation did not record any provisions for losses on loans for 
the year ended June 30, 1996 and  recorded a reversal of loan loss provisions   

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for the year ended June 30, 1995 of $335,000.  The principal reason for the     
recovery in fiscal 1995 was the payoff of a $5.1 million land loan, and         
continued improvements in the Corporation's asset quality.  At June 30, 1995    
and 1996, the Corporation had an allowance for loan losses of $3.0 million      
and $2.9 million, respectively.                                                 

The following table sets forth information with respect to the        
Corporation's nonperforming assets at the dates indicated.                      

             At  June  30,
            1992      1993      1994      1995      1996
              (Dollars in thousands)
Loans accounted for on                                                          
nonaccrual basis:                                                             
Real estate --                                                                
Residential        $   540       214       357       597       373          
Commercial           1,252     1,251     1,272        --        --          
Land                 4,608     4,608     5,082        --        --          
Total               6,400     6,073     6,711       597       373         

Accruing loans which                                                            
are contractually                                                             
past due 90 days                                                              
or more:                                                                      
Real estate --                                                                
Residential             --        --        --        --        --          
Commercial              --        --        --     1,219        --          
Total                  --        --        --     1,219        --         

Total of nonaccrual                                                             
and 90 days                                                                   
past due loans        6,400     6,073     6,711     1,816       373           
Real estate owned     6,341     2,381       150     1,643       747           
Other nonperforming                                                           
assets                  --        --        --        --        --          
Total nonperforming                                                         
assets             12,741     8,454     6,861     3,459     1,120         

Total loans delinquent                                                          
90 days or more to                                                            
net loans              5.18%     3.87      3.65      0.84      0.16           

Total loans delinquent                                                          
90 days or more to                                                            
total assets           3.72      2.73      2.60      0.58      0.11           

Total nonperforming                                                             
assets to total                                                               
assets                 7.41      3.80      2.66      1.11      0.36           

Certain loans meet the criteria of troubled debt restructurings as    
defined in SFAS 114 and 118, Accounting by  Creditors for Impairment of a       
Loan, and Accounting by Creditors for Impairment of a Loan-Income Recognition   
and Disclosures, respectively.  See Note 3 of the Notes to the Consolidated     
Financial Statements contained in the Annual Report for information             
concerning troubled debt restructurings.                                        

             At June 30,
            1992      1993      1994      1995      1996
              (Dollars in thousands)

Restructured loans   $6,311     6,287     4,186     4,168     4,150           
Interest foregone                                                               
on restructured                                                               
loans                   166       198       192       148        97           

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The following table sets forth the breakdown of the allowance for loan
losses by loan category and the percentage by category as of the dates          
indicated.                                                                      

                         At June 30,
                          1992           1993           1994
                     Amount    %    Amount    %    Amount    %
                        (Dollars in thousands)
Real estate - mortgage:                                                         
Residential                 $  360   0.35       --   0.00      --   0.00      
Commercial                     200   1.45      200   1.13     300   1.59      
Real estate - construction       --   0.00       --   0.00      --   0.00       
Consumer                         --   0.00       --   0.00      --   0.00       
Land acquisition &                                                              
development                     --   0.00       --   0.00      --   0.00      
Unallocated                   2,864    n/a    2,890   n/a    3,185    n/a       
Total allowance for                                                         
loan losses to                                                          
net loans                 3,424   2.70    3,090   1.93   3,485   1.86   

           At June 30,
       1995           1996
      Amount    %    Amount    %
      (Dollars in thousands)

Real estate - mortgage:                                                         
Residential                     --   0.00       --   0.00                     
Commercial                     300   1.79      300   2.04                     
Real estate - construction       --   0.00       --   0.00                      
Consumer                         --   0.00       --   0.00                      
Land acquisition &                                                              
development                     --   0.00       --   0.00                     
Unallocated                   2,650    n/a    2,646    n/a                      
Total allowance for                                                         
loan losses to                                                          
net loans                 2,950   1.36    2,946   1.26                  

The following table sets forth an allocation of the unallocated       
allowance by loan category as of the dates indicated.  The unallocated          
allowance is however applicable to the loan portfolio in its entirety.          

           At June 30,
           1992   1993   1994  1995   1996
          (Dollars in thousands)
Real estate - mortgage:                                                         
Single-family residential    $  100    210    320   390    290                
Multi-family                  1,410    520    330   270    380                
Commercial                      650  1,090  1,120   910    410                
Real estate - construction       110    160    150   220    260                 
Land acquisition and                                                            
development                      20     20    900    --     --                
Unallocated                      574    890    365   860  1,306                 
Unallocated allowance for                                                     
loan losses to net                                                          
loans                        2,864  2,890  3,185 2,650  2,646               

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The following table sets forth an analysis of the Corporation's       
allowance for possible loan losses for the periods indicated.                   

                                    For the Year
                                    Ended June 30,
                                1992     1993   1994    1995    1996
                                    (Dollars in thousands)

Allowance at beginning of period     $3,219   3,424   3,090   3,485   2,950     
Provision for loan losses             1,364     100     495    (335)     --     

Charge offs:                                                                    
Residential real estate                180     400     --      --      --     
Commercial real estate                 843      --    100     200      --     
Real estate construction               136       9     --      --      --     
Consumer                                --      --     --      --       4     
Land                                    --      25     --      --      --     
Total charge offs                  1,159     434    100     200       4   
Net charge offs                    1,159     434    100    (535)      4   
Balance at end of period          3,424   3,090  3,485   2,950   2,946  

Ratio of allowance to net loans                                                 
outstanding at the end of                                                     
the period                            2.70%   1.93   1.86    1.36    1.26     
Ratio of net charge offs to                                                     
average loans outstanding                                                     
during the period                     0.84    0.35   0.06    0.27      --     
Ratio of loan loss allowance to                                                 
nonperforming assets                 26.87   36.55  50.79   83.52  263.04     
Ratio of loan and real estate                                                   
owned allowance to                                                            
nonperforming assets                 30.04   41.18  50.79   83.52  263.04     

Asset and Liability Management Activities                                       

  The Corporation may use interest rate exchange agreements ("swaps")  and
interest rate caps to control the amount of its interest rate risk by more      
closely matching the repricing characteristics of its earning assets and        
costing liabilities or to reduce the cost of longer liabilities.  Swaps are     
agreements in which the Corporation and another party, generally the            
FHLB-Seattle, and primary dealers of United States government securities,       
agree to exchange interest payments on a notional principal amount. Caps are    
agreements whereby for a fixed fee, the Corporation will receive cash           
payments if a particular interest rate exceeds the predetermined level.  Caps   
and swaps are one component of the Corporation's asset/liability management     
program.  Depending on customer preferences for loan and deposit products,      
the Corporation may increase its use of interest rate swaps and caps.  The      
Board of Directors reviews the outstanding hedging transactions of the          
Corporation periodically.  At June 30, 1996, the Corporation had $5.0 million   
notional amount of caps outstanding.  See Note 7 of the Notes to the            
Consolidated Financial Statements contained in the Annual Report for            
additional information.                                                         

Investment Activities                                                           

Federally chartered savings institutions have authority to invest in  
various types of liquid assets, including United States Treasury obligations,   
securities of various federal agencies and of state and municipal               
governments, deposits at the FHLB-Seattle, certificates of deposit of           
federally insured institutions, certain bankers' acceptances and federal        
funds.  Subject to various restrictions, such savings institutions may also     
invest part of their assets in commercial paper, corporate debt securities      
and mutual funds, the assets of which conform to the investments that           
federally chartered savings institutions are otherwise authorized to make       
directly.  Savings institutions are also required to maintain liquid assets     
at minimum levels that are set by the OTS.  See "REGULATION -- Federal Home     
Loan Bank System."  The Corporation may decide to increase its liquidity        
above the required levels depending upon the availability of funds and          
comparative yields on investments in relation to return on loans. For the       
month ended June 30, 1996, Cascade's regulatory liquidity was 6.06%.            

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The Board of Directors sets the investment policy of the Corporation. 
This policy dictates that investments will generally be made with the intent    
of holding them available-for-sale and will be made based on the safety of      
the principal amount, interest rate risk, liquidity requirements of the         
Corporation and the return on the investments.  The Corporation's policy does   
not permit investment in noninvestment grade bonds and permits investment in    
various types of liquid assets permissible under OTS regulation, which          
include United States Treasury obligations, securities of various federal       
agencies, mortgage-backed securities ("MBS"), Small Business Administration     
securities ("SBA"), collateralized mortgage obligations ("CMOs"), certain       
certificates of deposits of insured banks, repurchase agreements and federal    
funds.                                                                          

Investment decisions are made by the Management Committee, which meets
at least weekly and consists of three members of the Board of Directors, the    
Chief Financial Officer and other members of senior management.  The            
Management Committee acts within policies established by the Board of           
Directors.  At June 30, 1995 and 1996, the Corporation's securities portfolio   
totaled approximately $77.7 million and $82.0 million, respectively.  For       
further information concerning the Corporation's securities portfolio, see      
Note 2 of the Notes to the Consolidated Financial Statements contained in the   
Annual Report.                                                                  

Subsidiary Activity                                                             

Federal savings associations generally may invest up to 3% of their   
assets in service corporations, provided that at least one-half of any amount   
in excess of 1% is used primarily for community, inner-city and community       
development projects.  Cascade's investment in its service corporations did     
not exceed these limits at June 30, 1996.  At June 30, 1996, Cascade's          
investment in its subsidiaries was $169,000.                                    

On October 1, 1992, the Corporation began marketing annuity products, 
mutual funds and property and casualty insurance to customers and               
noncustomers in its market areas through a subsidiary, Cascade Investment       
Services, Inc.  Management believes offering these product lines increases      
customer awareness and will increase the Corporation's noninterest income.      

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The following table summarizes the carrying value and estimated market
value of the Corporation's portfolio of investment securities at the dates      
indicated.                                                                      

                   At June 30,
                  1992          1993          1994
                       Carrying  Market Carrying  Market  Carrying  Market
                        Value   Value    Value   Value     Value   Value
Investment securities:                      (In thousands)                      
United States government                                                      
agency securities                                                           
and obligations                                                             
SBA                     $    --     --       --       --        --      --
MBS                       8,225  8,250   28,736   29,380    48,946  46,929
CMO                       6,716  6,852    7,983    8,085        --      --
Corporate securities                                                          
and mutual funds               --     --    7,134    7,176    11,315  11,315  
Total investment                                                            
securities               14,941 15,102   43,853   44,641    60,261  58,244

FHLB-Seattle stock           1,764  1,764    2,102    2,102     2,333   2,333   

       At June 30,
       1995             1996
     Carrying  Market Carrying  Market
      Value   Value    Value   Value
Investment securities:              (In thousands)                              
United States government                                                      
agency securities                                                           
and obligations                                                             
SBA                         --      --   13,721   13,721                  
MBS                     69,896  69,360   43,213   42,709                  
CMO                         --      --      --        --                  
Corporate securities                                                          
and mutual funds           4,507   4,507   21,069   21,069                    
Total investment                                                            
securities              74,403  73,867   78,003   77,499                  

FHLB-Seattle stock          3,319   3,319    4,014    4,014                     

  The following table sets forth the Corporation's securities portfolio at
carrying value at the dates indicated.                                          

             At June 30,
            1992                 1993                 1994
            Carrying  Percent of  Carrying  Percent of Carrying Percent of
              Value   Portfolio    Value    Portfolio   Value    Portfolio
United States                           (In thousands)                          
government                                                                    
securities                                                                    
SBA           $    --      0.00         --       0.00        --       0.00    
MBS             8,225     55.05     28,736      65.53    48,946      81.22    
CMO             6,716     44.95      7,983      18.20        --       0.00    
Corporate                                                                       
securities and                                                                
mutual funds       --      0.00      7,134      16.27    11,315      18.78    
Total         14,941    100.00     43,853     100.00    60,261     100.00   

At June 30,         
1995                 1996         
Carrying  Percent of  Carrying  Percent of        
Value   Portfolio    Value    Portfolio       
United States                           (In thousands)                          
government                                                                    
securities                                                                    
SBA                --      0.00      13,721     17.59                         
MBS            69,896     93.94      43,213     55.40                         
CMO                --      0.00          --      0.00                         
Corporate                                                                       
securities and                                                                
mutual funds    4,507      6.06      21,069     27.01                         
Total         74,403    100.00      78,003    100.00                        

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Deposit Activities and Other Sources of Funds                                   

General.  The Corporation's primary sources of funds are deposits,    
proceeds from principal and interest payments on loans and mortgage-backed      
securities, proceeds from loan sales, FHLB-Seattle advances and reverse         
repurchase agreements.  Deposits and loan repayments are the major source of    
Cascade's funds for lending and other investment purposes.  Loan repayments     
are a relatively stable source of funds, while deposit inflows and outflows     
and loan prepayments are significantly influenced by general interest rates     
and money market conditions.  Borrowings may be used on a short-term basis to   
compensate for reductions in the availability of funds from other sources, or   
on a longer term basis for general business purposes.                           

 Deposit Accounts.  The Corporation offers a variety of deposit accounts
having a range of interest rates and terms.  The Corporation's deposits         
consist of passbook, negotiable order of withdrawal ("NOW"), money market,      
and certificate accounts.  The flow of deposits is influenced significantly     
by general economic conditions, changes in the money market and prevailing      
interest rates, and competition.  The Corporation's deposits are obtained       
primarily from the areas in which its branches are located.  The Corporation    
relies primarily on customer service and longstanding relationships with        
customers to attract and retain these deposits.  Individual certificate         
accounts in excess of $100,000 are not actively solicited by the Corporation    
but are accepted at rates at or below other funding sources.  The Corporation   
does not accept accounts by any agent or broker acting on behalf of the         
Corporation.                                                                    

 In the unlikely event Cascade is liquidated, certain depositors will be
entitled to full payment of their deposit accounts prior to any payment being   
made to the shareholders.  Substantially all of Cascade's depositors are        
residents of the State of Washington.                                           

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 The following table sets forth information concerning the Corporation's
deposits at June 30, 1996.  The indicated interest rates are those currently    
being offered at August 27, 1996.                                               

                                                        Percentage
Interest                                       Minimum           of Total       
Rate       Term          Category               Amount  Balance  Deposits       
                                        (In thousands)

1.90%      None          NOW accounts             $100   $8,038    3.60%        
3.00       None          Regular savings           100    7,922    4.10         
3.45       None          Money market accounts   2,500   34,982    9.90         
0.00       None          Non-interest checking     100    1,555     .40         

Certificates of Deposit       
4.37       0 - 3 mos.    Fixed term, fixed rate  1,000    1,469    1.51         
5.02       4 - 6 mos.    Fixed term, fixed rate  1,000   11,182    5.51         
5.17       7 - 12 mos.   Fixed term, fixed rate  1,000   54,811   24.19         
5.27       13 - 24 mos.  Fixed term, fixed rate  1,000   23,725    8.45         
5.12       25 - 48 mos.  Fixed term, fixed rate  1,000   11,009    7.82         
5.22       49 - 120 mos. Fixed term, fixed rate  1,000   28,002   11.40         
4.99       Various       Variable rate           1,000      462     .08         
5.14       Various       Jumbo certificates    100,000   34,906   15.66         
                              218,063   100.00

The following table indicates the amount of the Corporation's jumbo     
certificates of deposit by time remaining until maturity as of June 30, 1996.   
Jumbo certificates of deposit require minimum deposits of $100,000 and rates    
paid on such accounts are negotiable.                                           

Jumbo               
Certificates          
Maturity Period              of Deposits                                        
(In thousands)                                    

Three months or less          $ 11,000                                          
Three through six months         6,266                                          
Six through twelve months       10,597                                          
Over twelve months               7,043                                          

Total                           34,906                                          

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Borrowings.  Savings deposits are the primary source of funds for     
Cascade's lending and investment activities and for its general business        
purposes.  The Corporation has in the past, however, relied upon advances       
from the FHLB-Seattle to supplement its supply of lendable funds and to meet    
deposit withdrawal requirements.  Advances from the FHLB-Seattle are            
typically secured by the Corporation's first mortgage loans, and stock issued   
by the FHLB-Seattle.  At June 30, 1995 and 1996, the Corporation had $61.2      
million and $68.5 million, respectively, in advances from the FHLB-Seattle.     
The Corporation's current credit limit with the FHLB-Seattle is 30% of total    
assets.                                                                         

The Corporation enters into reverse repurchase agreements with        
nationally recognized primary securities dealers.  Reverse repurchase           
agreements are accounted for as borrowings by the Corporation and are secured   
by designated investments, and mortgage-backed securities.  The proceeds of     
these transactions are used to meet the cash flow needs of the Corporation.     
At June 30, 1995 and 1996, the Corporation had $23.3 million and $20.4          
million, respectively, in outstanding reverse repurchase agreements.            

The Corporation has an unused commitment of $2.0  million from a      
regional commercial bank to purchase Fed funds on an unsecured basis.           

 The following table sets forth certain information regarding borrowings
by the Corporation at the end of and during the periods indicated:              

               At June 30,
               1994      1995       1996
Weighted average rate paid on:                                                  
Securities sold under                                                     
agreements to repurchase      4.30%      6.12       5.44                
FHLB advances                  5.03       6.44       5.86                 

                For the Year
                Ended June 30,
              1994      1995      1996
Maximum amount of borrowings            (In thousands)                          
outstanding at any month end:                                               
Securities sold under                                                     
agreements to repurchase   $  19,327   36,313    24,593               
FHLB advances            40,334   62,459    78,792          

                    For the Year
                    Ended June 30,
              1994      1995      1996
Approximate average short-term     (Dollars in thousands)                     
borrowings outstanding                                                    
with respect to:                                                            
Securities sold under                                                     
agreements to repurchase    $ 3,814    26,418    21,432               
FHLB advances                  28,310    53,281    64,104                 

Approximate weighted average                                                    
rate paid on:(1)                                                            
Securities sold under                                                     
agreements to repurchase      4.31%     5.72       5.76               
FHLB advances                   4.45      5.99       6.14                 
_______________                                                                 
(1) Computed using the weighted rates of each individual transaction.           

Competition                                                                     

The Corporation competes for both loans and deposits.  The Puget Sound
metropolitan area has a high density of financial institutions, some of which   
are larger and have greater financial resources than the Corporation, and all   
of which are competitors of the Corporation to varying degrees.  The            
Corporation's competition for loans comes principally from savings and loan     
associations, corporations, mortgage banking companies, insurance companies,    
and commercial banks.  Its most direct competition for deposits has             
historically come from savings and loan associations, corporations,             
commercial banks, and credit unions.  The Corporation faces additional          
competition for deposits from short-term money market funds and other           
corporate and government securities.                                            

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Personnel                                                                       

As of June 30, 1996, the Corporation had 87 full-time equivalent      
employees.  The Corporation believes that employees play a vital role in the    
success of a service company and that the Corporation's relationship with its   
employees is good.  The employees are not represented by a collective           
bargaining unit.                                                                

REGULATION            
General                                                                         

The Savings Bank is subject to extensive regulation, examination and  
supervision by the OTS as its chartering agency, and the FDIC, as the insurer   
of its deposits.  The activities of federal savings institutions are governed   
by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain           
respects, the Federal Deposit Insurance Act ("FDIA") and the regulations        
issued by the OTS and the FDIC to implement these statutes.  These laws and     
regulation delineate the nature and extent of the activities in which federal   
savings associations may engage.  Lending activities and other investments      
must comply with various statutory and regulatory capital requirements.  In     
addition, the Savings Bank's relationship with its depositors and borrowers     
is also regulated to a great extent, especially in such matters as the          
ownership of deposit accounts and the form and content of the Savings Bank's    
mortgage documents.  The Savings Bank must file reports with the OTS and the    
FDIC concerning its activities and financial condition in addition to           
obtaining regulatory approvals prior to entering into certain transactions      
such as mergers with, or acquisitions of, other financial institutions.         
There are periodic examinations by the OTS and the FDIC to review the Savings   
Bank's compliance with various regulatory requirements.  The regulatory         
structure also gives the regulatory authorities extensive discretion in         
connection with their supervisory and enforcement activities and examination    
policies, including policies with respect to the classification of assets and   
the establishment of adequate loan loss reserves for regulatory purposes.       
Any change in such policies, whether by the OTS, the FDIC or Congress, could    
have a material adverse impact on the Corporation, the Savings Bank and their   
operations.  The Corporation, as a savings and loan holding company, is also    
required to file certain reports with, and otherwise comply with the rules      
and regulations of, the OTS.                                                    

Federal Regulation of Savings Banks                                             

Office  of Thrift Supervision                                                   

The OTS is an office in the Department of the Treasury subject to the 
general oversight of the Secretary of the Treasury.  The OTS possesses the      
supervisory and regulatory duties and responsibilities formerly vested in the   
FHLBB.  Among other functions, the OTS issues and enforces regulations          
affecting federally-insured savings associations and regularly examines these   
institutions.                                                                   

Federal Deposit Insurance Corporation                                           

The FDIC is an independent federal agency established originally to   
insure the deposits, up to prescribed statutory limits, of federally insured    
banks and to preserve the safety and soundness of the banking industry.  Upon   
the enactment of FIRREA on August 9, 1989, the FDIC also became the insurer,    
up to the prescribed limits, of the deposit accounts held at federally          
insured savings associations and established two separate funds that are        
maintained and administered by the FDIC:  the BIF and the SAIF.  As such, the   
FDIC has examination, supervisory and enforcement authority over all savings    
associations.                                                                   

 Cascade's accounts are insured by  the SAIF.  The FDIC insures deposits
at Cascade to the maximum extent permitted by law.  Cascade currently pays      
deposit insurance premiums to the FDIC based on a risk-based assessment         
system established by the FDIC for all SAIF-member institutions.  Under         
applicable regulations, institutions are assigned to one of three capital       
groups which are based solely on the level of an institution's capital --       
"well capitalized," "adequately capitalized," and "undercapitalized" -- which   
are defined in the same manner as the regulations establishing the prompt       
corrective action system under Section 38 of the FDIA, as discussed below.      
These three groups are then divided into three subgroups which reflect          
varying levels of supervisory concern, from those which are considered to be    
healthy to those which are considered to be of substantial supervisory          
concern.  The matrix so created results in nine assessment risk                 
classifications, with rates currently ranging from 0.23% of insured deposits    
for well capitalized, financially sound institutions with only a few minor      
weaknesses to 0.31% of insured deposits for undercapitalized institutions       
that pose a substantial risk of loss to the SAIF unless effective corrective    
action is taken.  Until the second half of 1995, the same amounts applied to    
BIF member institutions.  The FDIC is authorized to raise assessment rates in   
certain circumstances.  Cascade's assessments expensed for the year ended       
June 30, 1996, equaled $515,000.                                                

Effective January 1, 1996, the FDIC substantially reduced deposit     
insurance premiums for well-capitalized, well-managed financial institutions    

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that are members of the BIF.  Under the new assessment schedule,                
approximately 92% of BIF members pay the statutory minimum annual assessment    
of $2,000.  With respect to SAIF member institutions, the FDIC has retained     
the existing rate schedule of 0.23% to 0.31% of insured deposits.  Cascade      
is, and after the Conversion will remain, a member of the SAIF rather than      
the BIF.                                                                        

The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged   
or is engaging in unsafe or unsound practices, is in an unsafe or unsound       
condition to continue operations, or has violated any applicable law,           
regulation, order or any condition imposed by an agreement with the FDIC.  It   
also may suspend deposit insurance temporarily during the hearing process for   
the permanent termination of insurance, if the institution has no tangible      
capital.  If insurance of accounts is terminated, the accounts at the           
institution at the time of termination, less subsequent withdrawals, shall      
continue to be insured for a period of six months to two years, as determined   
by the FDIC.  Management is aware of no existing circumstances which could      
result in termination of the deposit insurance of Cascade.                      

Federal Home Loan Bank System                                                   

The FHLB System, consisting of 12 FHLBs, now is under the jurisdiction
of the Federal Housing Finance Board ("FHFB").  The designated duties of the    
FHFB are to:  supervise the FHLBs; ensure that the FHLBs carry out their        
housing finance mission; ensure that the FHLBs remain adequately capitalized    
and able to raise funds in the capital market; and ensure that the FHLBs        
operate in a safe and sound manner.                                             

Cascade, as a member of the FHLB-Seattle, is required to acquire and  
hold shares of capital stock in the FHLB-Seattle equal to the greater of (i)    
1.0% of the aggregate outstanding principal amount of residential mortgage      
loans, home purchase contracts and similar obligations at the beginning of      
each year, or (ii) 1/20 of its advances (borrowings) from the FHLB-Seattle.     
Cascade complied with this requirement with an investment in FHLB-Seattle       
stock of $4.0 million at June 30, 1996.                                         

Among other benefits, the FHLB provides a central credit facility     
primarily for member institutions.  It is funded primarily from proceeds        
derived from the sale of consolidated obligations of the FHLB System.  It       
makes advances to members in accordance with policies and procedures            
established by the FHFB and the Board of Directors of the FHLB-Seattle.  At     
June 30, 1996, Cascade had $68.5 million in advances from the FHLB-Seattle.     

Liquidity                                                                       

Under OTS  regulations, each savings institution  is required to      
maintain an average daily balance of liquid assets (cash, certain time          
deposits and savings accounts, bankers' acceptances, and specified U.S.         
government, state or federal agency obligations and certain other               
investments) equal to a monthly average of not less than a specified            
percentage (currently 5%) of its net withdrawable accounts plus short-term      
borrowings.  OTS regulations also require each  savings institution  to         
maintain an average daily balance of short-term liquid assets at a specified    
percentage (currently 1.0%) of the total of its net withdrawable savings        
accounts and borrowings payable in one year or less.  Monetary penalties may    
be imposed for failure to meet liquidity requirements.  The liquidity ratio     
of Cascade for the month ended June 30, 1996 was 6.1%.                          

Prompt Corrective Action                                                        

 Under Section 38 of the FDIA, as added by the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), each federal banking agency     
is required to implement a system of prompt corrective action for               
institutions which it regulates.  The federal banking agencies have             
promulgated substantially similar regulations intended to implement this        
system of prompt corrective action.  Under the regulations, an institution      
shall be deemed to be (i) "well capitalized" if it has a total risk-based       
capital ratio of 10.0% or more, has a Tier I risk-based capital ratio of 6.0%   
or more, has a leverage ratio of 5.0% or more and is not subject to specified   
requirements to meet and maintain a specific capital level for any capital      
measure, (ii) "adequately capitalized" if it has a total risk-based capital     
ratio of 8.0% or more, a Tier I risk-based capital ratio of 4.0% or more and    
a leverage ratio  of 4.0% or more (3.0% under certain circumstances) and does   
not meet the definition of "well capitalized;" (iii) "undercapitalized" if it   
has a total risk-based capital ratio that is less than 8.0%, a Tier I           
risk-based capital ratio that is less than 4.0% or a leverage ratio that is     
less than 4.0% (3.0% under certain circumstances); (iv) "significantly          
undercapitalized" if it has a total risk-based capital ratio that is less       
than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a        
leverage ratio that is less than 3.0%; and (v) "critically undercapitalized"    

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if it has a ratio of tangible equity to total assets that is equal to or less   
than 2.0%.                                                                      

Section 38 of the FDIA and the implementing regulations also provide  
that a federal banking agency may, after notice and an opportunity for a        
hearing, reclassify a well capitalized institution as adequately capitalized    
and may require an adequately capitalized institution or an undercapitalized    
institution to comply with supervisory actions as if it were in the next        
lower category if the institution is in an unsafe or unsound condition or has   
received in its most recent examination, and has not corrected, a less than     
satisfactory rating for asset quality, management, earnings or liquidity.       
(The OTS may not, however, reclassify a significantly undercapitalized          
institution as critically undercapitalized.)                                    

An institution generally must file a written capital restoration plan 
which meets specified requirements, as well as a performance guaranty by each   
company that controls the institution, with the appropriate federal banking     
agency within 45 days of the date that the institution receives notice or is    
deemed to have notice that it is undercapitalized, significantly                
undercapitalized or critically undercapitalized.  Immediately upon becoming     
undercapitalized, an institution shall become subject to the provisions of      
Section 38 of the FDIA, which sets forth various mandatory and discretionary    
restrictions on its operations.                                                 

  At June 30, 1996, Cascade was a "well capitalized" institution under the
prompt corrective action regulations of the OTS.                                

Standards for Safety and Soundness.  Federal law requires the federal 
banking regulatory agencies to prescribe, by regulation or guideline,           
standards for all insured depository institutions and depository institution    
holding companies relating to:  (i) internal controls, information systems      
and internal audit systems; (ii) loan documentation; (iii) credit               
underwriting; (iv) interest rate risk exposure; (v) asset growth; and (vi)      
compensation, fees and benefits.  The federal banking agencies recently         
adopted final regulations and Interagency Guidelines Prescribing Standards      
for Safety and Soundness ("Guidelines") to implement safety and soundness       
standards required by the FDIA.  The Guidelines set forth the safety and        
soundness standards that the federal banking agencies use to identify and       
address problems at insured depository institutions before capital becomes      
impaired.  The agencies also proposed asset quality and earnings standards      
which, if adopted in final, would be added to the Guidelines.  Under the        
final regulations, if the OTS determines that Cascade fails to meet any         
standard prescribed by the Guidelines, the agency may require Cascade to        
submit to the agency an acceptable plan to achieve compliance with the          
standard, as required by the FDIA.  The final regulations establish deadlines   
for the submission and review of such safety and soundness compliance plans.    

Qualified Thrift Lender Test                                                    

All savings associations are required to meet a QTL test set forth in 
the HOLA and regulations of the OTS thereunder to avoid certain restrictions    
on their operations.  A savings institution that fails to become or remain a    
QTL shall either become a national bank or be subject to the following          
restrictions on its operations:  (1) the association may not make any new       
investment or engaging in activities that would not be permissible for          
national banks; (2) the association may not establish any new branch office     
where a national bank located in the savings institution's home state would     
not be able to establish a branch office; (3) the association shall not be      
eligible to obtain new advances from any FHLB; and (4) the payment of           
dividends by the association shall be subject to the rules regarding the        
statutory and regulatory dividend restrictions applicable to national banks.    
Also, beginning three years after the date on which the savings institution     
ceases to be a qualified thrift lender, the savings institution would be        
prohibited from retaining any investment or engaging in any activity not        
permissible for a national bank and would be required to repay any              
outstanding advances to any FHLB.  In addition, within one year of the date     
on which a savings association controlled by a company ceases to be a QTL,      
the company must register as a bank holding company and becomes subject to      
the rules applicable to such companies.  A savings institution may requalify    
as a qualified thrift lender if it thereafter complies with the QTL test.       

  Currently, the QTL test requires that 65% of an institution's "portfolio
assets" (as defined) consist of certain housing and consumer-related assets     
on a monthly average basis in nine out of every 12 months.  Assets that         
qualify without limit for inclusion as part of the 65% requirement are loans    
made to purchase, refinance, construct, improve or repair domestic              
residential housing and manufactured housing; home equity loans;                
mortgage-backed securities (where the mortgages are secured by domestic         
residential housing or manufactured housing); FHLB stock; and direct or         
indirect obligations of the FDIC.  In addition, the following assets, among     
others, may be included in meeting the test subject to an overall limit of      
20% of the savings institution's portfolio assets:  50% of residential          
mortgage loans originated and sold within 90 days of origination; 100% of       

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consumer and educational loans (limited to 10% of total portfolio assets);      
and stock issued by the Federal Home Loan Mortgage Corporation or the Federal   
National Mortgage Association.  Portfolio assets consist of total assets        
minus the sum of (i) goodwill and other intangible assets, (ii) property used   
by the savings institution to conduct its business, and (iii) liquid assets     
up to 20% of the institution's total assets.  At June 30, 1996, the qualified   
thrift investments of Cascade were approximately 89% of the its portfolio       
assets.                                                                         

Capital Requirements                                                            

Under OTS regulations a savings association must satisfy three minimum
capital requirements: core capital, tangible capital and risk-based capital.    
Savings associations must meet all of the standards to comply with the          
capital requirements.                                                           

OTS capital regulations establish a 3% core capital ratio (defined as 
the ratio of core capital to adjusted total assets).  Core capital is defined   
to include common stockholders' equity, noncumulative perpetual preferred       
stock and any related surplus, and minority interests in equity accounts of     
consolidated subsidiaries, less (i) any intangible assets, except for certain   
qualifying intangible assets; (ii) certain mortgage servicing rights; and       
(iii) equity and debt investments in subsidiaries that are not "includable      
subsidiaries," which is defined as subsidiaries engaged solely in activities    
not impermissible for a national bank, engaged in activities impermissible      
for a national bank but only as an agent for its customers, or engaged solely   
in mortgage-banking activities.  In calculating adjusted total assets,          
adjustments are made to total assets to give effect to the exclusion of         
certain assets from capital and to appropriately account for the investments    
in and assets of both includable and nonincludable subsidiaries.                
Institutions that fail to meet the core capital requirement would be required   
to file with the OTS a capital plan that details the steps they will take to    
reach compliance.  In addition, the OTS prompt corrective action regulation     
provides that a savings institution that has a core capital leverage ratio of   
less than 4% (3% for institutions receiving the highest CAMEL examination       
rating) will be deemed to be "undercapitalized" and may be subject to certain   
restrictions.  See "-- Prompt Corrective Action."                               

As required by federal law, the OTS has proposed a rule revising its  
minimum core capital requirement to be no less stringent than that imposed on   
national banks.  The OTS has proposed that only those savings associations      
rated a composite one (the highest rating) under the CAMEL rating system for    
savings associations will be permitted to operate at or near the regulatory     
minimum leverage ratio of 3%.  All other savings associations will be           
required to maintain a minimum leverage ratio of 4% to 5%.  The OTS will        
assess each individual savings association through the supervisory process on   
a case-by-case basis to determine the applicable requirement.  No assurance     
can be given as to the final form of any such regulation, the date of its       
effectiveness or the requirement applicable to Cascade.                         

  Savings associations also must maintain "tangible capital" not less than
1.5% of adjusted total assets. "Tangible capital" is defined, generally, as     
core capital minus any "intangible assets," other than purchased mortgage       
servicing rights.                                                               

Each savings institution must maintain total capital equal to at least
8% of risk-weighted assets.  Total capital consists of the sum of core and      
supplementary capital, provided that supplementary capital cannot exceed core   
capital, as previously defined.  Supplementary capital includes (i) permanent   
capital instruments such as cumulative perpetual preferred stock, perpetual     
subordinated debt, and mandatory convertible subordinated debt, (ii) maturing   
capital instruments such as subordinated debt, intermediate-term preferred      
stock and mandatory convertible subordinated debt, and (iii) general            
valuation loan and lease loss allowances up to 1.25% of risk-weighted assets.   

 The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of four risk categories based on the amount     
of credit risk associated with that particular class of assets.  Assets not     
included for purposes of calculating capital are not included in calculating    
risk-weighted assets.  The categories range from 0% for cash and securities     
that are backed by the full faith and credit of the U.S. Government to 100%     
for repossessed assets or assets more than 90 days past due.  Qualifying        
residential mortgage loans (including multi-family mortgage loans) are          
assigned a 50% risk weight.  Consumer, commercial, home equity and              
residential construction loans are assigned a 100% risk weight, as are          
nonqualifying residential mortgage loans and that portion of land loans and     
nonresidential construction loans which do not exceed an 80% loan-to-value      
ratio.  The book value of assets in each category is multiplied by the          
weighing factor (from 0% to 100%) assigned of that category.  These products    
are then totalled to arrive at total risk-weighted assets.  Off-balance sheet   
items are included in risk-weighted assets by converting them to an             
approximate balance sheet "credit equivalent amount" based on a conversion      
schedule.  These credit equivalent amounts are then assigned to risk            

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categories in the same manner as balance sheet assets and included              
risk-weighted assets.                                                           

The OTS has incorporated an interest rate risk component into its     
regulatory capital rule.  Under the rule, savings associations with "above      
normal" interest rate risk exposure would be subject to a deduction from        
total capital for purposes of calculating their risk-based capital              
requirements.  A savings association's interest rate risk is measured by the    
decline in the net portfolio value of its assets (i.e., the difference          
between incoming and outgoing discounted cash flows from assets, liabilities    
and off-balance sheet contracts) that would result from a hypothetical 200      
basis point increase or decrease in market interest rates divided by the        
estimated economic value of the association's assets, as calculated in          
accordance with guidelines set forth by the OTS.  A savings association whose   
measured interest rate risk exposure exceeds 2% must deduct an interest rate    
component in calculating its total capital under the risk-based capital rule.   
The interest rate risk component is an amount equal to one-half of the          
difference between the institution's measured interest rate risk and 2%,        
multiplied by the estimated economic value of the association's assets.  That   
dollar amount is deducted from an association's total capital in calculating    
compliance with its risk-based capital requirement.  Under the rule, there is   
a two quarter lag between the reporting date of an institution's financial      
data and the effective date for the new capital requirement based on that       
data.  The rule also provides that the Director of the OTS may waive or defer   
an association's interest rate risk component on a case-by-case basis. Under    
certain circumstances, a savings association may request an adjustment to its   
interest rate risk component if it believes that the OTS-calculated interest    
rate risk component overstates its interest rate risk exposure.  In addition,   
certain "well-capitalized" institutions may obtain authorization to use their   
own interest rate risk model to calculate their interest rate risk component    
in lieu of the OTS-calculated amount.  The OTS has postponed the date that      
the component will first be deducted from an institution's total capital        
until savings associations become familiar with the process for requesting an   
adjustment to its interest rate risk component.                                 

The following table summarizes the capital requirements and the       
Corporation's capital position at June 30, 1996:                                

At June 30, 1996            
(Dollars in thousands)            
Percent of        
Amount    Assets                    

Tangible capital      $21,530    6.42%                                          
Tangible capital                                                                
requirement            5,027    1.50                                          
Excess                 16,503    4.92                                           

Core capital           21,530    6.42                                           
Core capital                                                                    
requirement           10,055    3.00                                          
Excess                 11,475    3.42                                           

Risk-based capital(a)  23,700   13.70                                           
Risk-based capital                                                              
requirement(a)        13,843    8.00                                          
Excess                  9,857    5.70                                           

(a)  Based on total risk-weighted assets.                                       

Limitations on  Capital Distributions                                           

  OTS regulations impose uniform limitations on the ability of all savings
associations to engage in various distributions of capital such as dividends,   
stock repurchases and cash-out mergers.  In addition, OTS regulations require   
Cascade to give the OTS 30 days' advance notice of any proposed declaration     
of dividends, and the OTS has the authority under its supervisory powers to     
prohibit the payment of dividends.  The regulation utilizes a three-tiered      
approach which permits various levels of distributions based primarily upon a   
savings association's capital level.                                            

A Tier 1 savings association has capital in excess of its fully       
phased-in capital requirement (both before and after the proposed capital       
distribution).  A Tier 1 savings association may make (without application      
but upon prior notice to, and no objection made by, the OTS) capital            

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distributions during a calendar year up to 100% of its net income to date       
during the calendar year plus one-half its surplus capital ratio (i.e., the     
amount of capital in excess of its fully phased-in requirement) at the          
beginning of the calendar year or the amount authorized for a Tier 2            
association.  Capital distributions in excess of such amount require advance    
notice to the OTS.  A Tier 2 savings association has capital equal to or in     
excess of its minimum capital requirement but below its fully phased-in         
capital requirement (both before and after the proposed capital                 
distribution).  Such an association may make (without application) capital      
distributions up to an amount equal to 75% of its net income during the         
previous four quarters depending on how close the association is to meeting     
its fully phased-in capital requirement.  Capital distributions exceeding       
this amount require prior OTS approval.  Tier 3 associations are savings        
associations with capital below the minimum capital requirement (either         
before or after the proposed capital distribution).  Tier 3 associations may    
not make any capital distributions without prior approval from the OTS.         

Cascade is currently meeting the criteria to be designated a Tier 1   
association and, consequently, could at its option (after prior notice to,      
and no objection made by, the OTS) distribute up to 100% of its net income      
during                                                                          
the calendar year plus 50% of its surplus capital ratio at the beginning of     
the calendar year less any distributions previously paid during the year.       

Loans to One Borrower                                                           

Under the HOLA, savings institutions are generally subject to the     
national bank limit on loans to one borrower.  Generally, this limit is 15%     
of Cascade's unimpaired capital and surplus, plus an additional 10% of          
unimpaired capital and surplus, if such loan is secured by readily-marketable   
collateral, which is defined to include certain financial instruments and       
bullion.  The OTS by regulation has amended the loans-to-one-borrower rule to   
permit savings associations meeting certain requirements, including capital     
requirements, to extend loans to one borrower in additional amounts under       
circumstances limited essentially to loans to develop or complete residential   
housing units.                                                                  

At June 30, 1996, the Corporation had three borrowers with balances in  
excess of current loans-to-one borrower limits, which total $13.9 million and   
represent 6.0% of net loans receivable.  These loans range in amount from       
$4.2 million to $5.3 million.  Not included in the above is one loan that the   
OTS has determined was originated violating the limits imposed by FIRREA.       
The OTS has not required divestiture of this loan that now totals $2.0          
million, and represents 0.9% of net loans receivable.  Additional loans to      
these borrowers will not be permitted until the balance of the borrower's       
outstanding loan is below the August 9, 1989 loans-to-one borrower limit.       
The Corporation is required to make every effort to bring this loan into        
conformance when possible.                                                      

Activities of Savings Associations and Their Subsidiaries                       

When a savings association establishes or acquires a subsidiary or    
elects to conduct any new activity through a subsidiary that the association    
controls, the savings association shall notify the FDIC and the OTS 30 days     
in advance and provide the information each agency may, by regulation,          
require.  Savings associations also must conduct the activities of              
subsidiaries in accordance with existing regulations and orders.                

 The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes    
a serious risk to the safety, soundness or stability of the association or is   
inconsistent with sound banking practices or with the purposes of the FDIA.     
Based upon that determination, the FDIC or the OTS has the authority to order   
the savings association to divest itself of control of the subsidiary.  The     
FDIC also may determine by regulation or order that any specific activity       
poses a serious threat to the SAIF.  If so, it may require that no SAIF         
member engage in that activity directly.                                        

Transactions with Affiliates                                                    

Savings associations must comply with Sections 23A and 23B of the     
Federal Reserve Act ("Sections 23A and 23B") relative to transactions with      
affiliates in the same manner and to the same extent as if the savings          
association were a Federal Reserve member bank. A savings and loan holding      
company, its subsidiaries and any other company under common control are        
considered affiliates of the subsidiary savings association under the HOLA.     
Generally, Sections 23A and 23B:  (i) limit the extent to which the insured     
association or its subsidiaries may engage in certain covered transactions      
with an affiliate to an amount equal to 10% of such institution's capital and   
surplus and place an aggregate limit on all such transactions with affiliates   
to an amount equal to 20% of such capital and surplus, and (ii) require that    
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favorable to the institution or subsidiary, as those provided to a              
non-affiliate.  The term "covered transaction" includes the making of loans,    
purchase of assets, issuance of a guaranty and similar other types of           
transactions.                                                                   

Three additional rules apply to savings associations:  (i) a savings  
association may not make any loan or other extension of credit to an            
affiliate unless that affiliate is engaged only in activities permissible for   
bank holding companies; (ii) a savings association may not purchase or invest   
in securities issued by an affiliate (other than securities of a subsidiary);   
and (iii) the OTS may, for reasons of safety and soundness, impose more         
stringent restrictions on savings associations but may not exempt               
transactions from or otherwise abridge Section 23A or 23B.  Exemptions from     
Section 23A or 23B may be granted only by the Federal Reserve Board, as is      
currently the case with respect to all FDIC-insured banks.  Cascade has not     
been significantly affected by the rules regarding transactions with            
affiliates and is in compliance with such requirements.                         

Cascade's authority to extend credit to executive officers, directors 
and 10% shareholders, as well as entities controlled by such persons, is        
currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,      
and Regulation O thereunder.  Among other things, these regulations require     
that such loans be made on terms and conditions substantially the same as       
those offered to unaffiliated individuals and not involve more than the         
normal risk of repayment.  Regulation O also places individual and aggregate    
limits on the amount of loans Cascade may make to such persons based, in        
part, on Cascade's capital position, and requires certain board approval        
procedures to be followed.  The OTS regulations, with certain minor             
variances, apply Regulation O to savings institutions.                          

Regulation of the Corporation                                                   

Holding Company Acquisitions.  The HOLA and OTS regulations issued    
thereunder generally prohibit a savings and loan holding company, without       
prior OTS approval, from acquiring more than 5% of the voting stock of any      
other savings association or savings and loan holding company or controlling    
the assets thereof.  They also prohibit, among other things, any director or    
officer of a savings and loan holding company, or any individual who owns or    
controls more than 25% of the voting shares of such holding company, from       
acquiring control of any savings association not a subsidiary of such savings   
and loan holding company, unless the acquisition is approved by the OTS.        

Holding Company Activities.  As a unitary savings and loan holding    
company, the Corporation generally is not subject to activity restrictions.     
If the Corporation acquires control of another savings association as a         
separate subsidiary other than in a supervisory acquisition, it would become    
a multiple savings and loan holding company.  There generally are more          
restrictions on the activities of a multiple savings and loan holding company   
than on those of a unitary savings and loan holding company.  The HOLA          
provides that, among other things, no multiple savings and loan holding         
company or subsidiary thereof which is not an insured association shall         
commence or continue for more than two years after becoming a multiple          
savings and loan association holding company or subsidiary thereof, any         
business activity other than:  (i) furnishing or performing management          
services for a subsidiary insured institution, (ii) conducting an insurance     
agency or escrow business, (iii) holding, managing, or liquidating assets       
owned by or acquired from a subsidiary insured institution, (iv) holding or     
managing properties used or occupied by a subsidiary insured institution, (v)   
acting as trustee under deeds of trust, (vi) those activities previously        
directly authorized by regulation as of March 5, 1987 to be engaged in by       
multiple holding companies or (vii) those activities authorized by the          
Federal Reserve Board as permissible for bank holding companies, unless the     
OTS by regulation, prohibits or limits such activities for savings and loan     
holding companies.  Those activities described in (vii) above also must be      
approved by the OTS prior to being engaged in by a multiple holding company.    

Qualified Thrift Lender Test.  The HOLA requires any savings and loan 
holding company that controls a savings association that fails the QTL test,    
as explained under "-- Federal Regulation of Savings Associations --            
Qualified Thrift Lender Test," must, within one year after the date on which    
the association ceases to be a QTL, register as and be deemed a bank holding    
company subject to all applicable laws and regulations.                         

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TAXATION            

Federal Taxation                                                                

General.  The Corporation and Cascade report their income on a fiscal 
year basis using the accrual method of accounting and will be subject to        
federal income taxation in the same manner as other corporations with some      
exceptions, including particularly Cascade's reserve for bad debts discussed    
below.  The following discussion of tax matters is intended only as a summary   
and does not purport to be a comprehensive description of the tax rules         
applicable to Cascade or the Corporation.                                       

 Tax Bad Debt Reserves.  For taxable years beginning prior to January 1,
1996, savings institutions such as Cascade which met certain definitional       
tests primarily relating to their assets and the nature of their business       
("qualifying thrifts") were permitted to establish a reserve for bad debts      
and to make annual additions thereto, which additions may, within specified     
formula limits, have been deducted in arriving at their taxable income.         
Cascade's deduction with respect to "qualifying loans," which are generally     
loans secured by certain interests in real property, may have been computed     
using an amount based on Cascade's actual loss experience, or a percentage      
equal to 8% of Cascade's taxable income, computed with certain modifications    
and reduced by the amount of any permitted additions to the nonqualifying       
reserve.  Cascade's deduction with respect to nonqualifying loans was           
computed under the experience method, which essentially allows a deduction      
based on Cascade's actual loss experience over a period of several years.       
Each year Cascade selected the most favorable way to calculate the deduction    
attributable to an addition to the tax bad debt reserve.  Cascade used the      
percentage method bad debt deduction for the taxable years ended June 30,       
1994, 1995 and 1996.                                                            

Recently enacted legislation repealed the reserve method of accounting
for bad debt reserves for tax years beginning after December 31, 1995.  As      
result, Cascade will no longer be able to calculate its deduction for bad       
debts using the percentage-of-taxable-income method.  Instead, Cascade will     
be required to compute its deduction based on specific charge-offs during the   
taxable year (Cascade anticipates that this will result in a higher effective   
tax rate).  This legislation also requires savings associations to recapture    
into income over a six-year period their post-1987 additions to their bad       
debt tax reserves, thereby generating additional tax liability.                 

Under prior law, if Cascade failed to satisfy the qualifying thrift   
definitional tests in any taxable year, it would be unable to make additions    
to its bad debt reserve.  Instead, Cascade would be required to deduct bad      
debts as they occur and would additionally be required to recapture its bad     
debt reserve deductions ratably over a multi-year period.  At June 30, 1996,    
Cascade's total bad debt reserve for tax purposes was approximately $473,000.   
Among other things, the qualifying thrift definitional tests required Cascade   
to hold at least 60% of its assets as "qualifying assets."  Qualifying assets   
generally include cash, obligations of the United States or any agency or       
instrumentality thereof, certain obligations of a state or political            
subdivision thereof, loans secured by interests in improved residential real    
property or by savings accounts, student loans and property used by Cascade     
in the conduct of its banking business.  Under current law, a savings           
association will not be required to recapture its pre-1988 bad debt reserves    
if it ceases to meet the qualifying thrift definitional tests.                  

Distributions.  To the extent that Cascade makes "nondividend         
distributions" to the Corporation that are considered as made: (i) from the     
reserve for losses on qualifying real property loans, to the extent the         
reserve for such losses exceeds the amount that would have been allowed under   
the experience method; or (ii) from the supplemental reserve for losses on      
loans ("Excess Distributions"), then an amount based on the amount              
distributed will be included in Cascade's taxable income.  Nondividend          
distributions include distributions in excess of Cascade's current and          
accumulated earnings and profits, distributions in redemption of stock, and     
distributions in partial or complete liquidation.  However, dividends paid      
out of Cascade's current or accumulated earnings and profits, as calculated     
for federal income tax purposes, will not be considered to result in a          
distribution from Cascade's bad debt reserve.  Thus, any dividends to the       
Corporation that would reduce amounts appropriated to Cascade's bad debt        
reserve and deducted for federal income tax purposes would create a tax         
liability for Cascade.  The amount of additional taxable income attributable    
to an Excess Distribution is an amount that, when reduced by the tax            
attributable to the income, is equal to the amount of the distribution.         
Thus, if, after the Conversion, Cascade makes a "nondividend distribution,"     
then approximately one and one-half times the amount so used would be           
includable in gross income for federal income tax purposes, assuming a 35%      
corporate income tax rate (exclusive of state and local taxes).  See            
"REGULATION" for limits on the payment of dividends by Cascade.  Cascade does   
not intend to pay dividends that would result in a recapture of any portion     
of its tax bad debt reserve.                                                    

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Corporate Alternative Minimum Tax.  The Code imposes a tax on         
alternative minimum taxable income ("AMTI") at a rate of 20%.  The excess of    
the tax bad debt reserve deduction using the percentage of taxable income       
method over the deduction that would have been allowable under the experience   
method is treated as a preference item for purposes of computing the AMTI.      
In addition, only 90% of AMTI can be offset by net operating loss carryovers.   
AMTI is increased by an amount equal to 75% of the amount by which Cascade's    
adjusted current earnings exceeds its AMTI (determined without regard to this   
preference and prior to reduction for net operating losses).  For taxable       
years beginning after December 31, 1986, and before January 1, 1996, an         
environmental tax of .12% of the excess of AMTI (with certain modification)     
over $2.0 million is imposed on corporations, including Cascade, whether or     
not an Alternative Minimum Tax ("AMT") is paid.                                 

Dividends-Received Deduction and Other Matters.  The Corporation may  
exclude from its income 100% of dividends received from Cascade as a member     
of the same affiliated group of corporations.  The corporate                    
dividends-received deduction is generally 70% in the case of dividends          
received from unaffiliated corporations with which the Corporation and          
Cascade will not file a consolidated tax return, except that if the             
Corporation or Cascade owns more than 20% of the stock of a corporation         
distributing a dividend, then 80% of any dividends received may be deducted.    

The Savings Bank is subject to a business and occupation tax which is 
imposed under Washington law at the rate of 1.70% of gross receipts; however    
interest received on loans secured by mortgages or deeds of trust on            
residential properties and interest on obligations issued or guaranteed by      
the United States are not presently subject to the tax.  On August 15, 1994,    
the Department of Revenue of the State of Washington began an audit of the      
Corporation records for compliance regarding the business and occupation tax.   
The Corporation had not been audited for seventeen years.  The Department of    
Revenue has issued a tax billing for approximately $270,000 of which the        
Corporation has set aside reserves of $120,000.  The Corporation has filed an   
appeal with the Department of Revenue and believes its appeal will be upheld    
or will challenge the issues in court.                                          

Item 2.  Description of Properties                                              

The Corporation owns five full service branch locations and leases two
full service locations along with two loan origination offices.  Owned          
offices range in size from 3,500 to 52,000 square feet and have a total net     
book value at June 30, 1996, including leasehold improvements, furniture and    
fixtures, of $6.1 million.  The Corporation leases approximately 20% of its     
main office and approximately 50% of its Marysville office to non-affiliated    
parties.  See Note 5 of the Notes to the Consolidated Financial Statements      
contained in the Annual Report.                                                 

Item 3.  Legal Proceedings                                                      

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

Former Management.  On February  21, 1995, the United States Supreme  
Court refused to consider the United States Ninth Circuit Court of Appeals      
ruling upholding an OTS restitution order against the Corporation's former      
Chairman and Chief Executive Officer.  As a result the Corporation recorded     
approximately $400,000 of after-tax income from the restitution order.  The     
OTS  has separately brought an enforcement action in relation to security       
provided by the former executive, and in March 1994, the United States          
District Court for the Western District of Washington entered a judgement       
requiring payment of approximately $280,000 to the Corporation by the former    
executive.  During 1996, $150,000 of this amount was collected.  Ultimate       
collection of the remaining amount will be recorded as income when received.    

On March 30, 1995, the United States District Court granted the       
Corporation's motion for summary judgement in a suit brought by the former      
executive against the Corporation and several current executive officers.       

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

No matters were submitted to a vote of security holders during the    
fourth quarter of the fiscal year ended June 30, 1996.                          

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PART II           

Item 5.  Market for Registrant's Common Equity and Related Stockholder          
Matters                                                       

The information contained under the caption "Common Stock Information"
in the Annual Report is incorporated herein by reference.                       

Item  6.  Selected Financial Data                                               

The following table sets forth selected consolidated financial and other        
data.                                                                           
                As of, or for the year ended, June 30,
               1992      1993      1994      1995     1996

               Dollars in thousands except per share amounts (unaudited)
Financial Condition Data:                                                     
Total assets           $171,995   222,421   258,049   310,943  334,431        
Loans, net              119,212   156,960   183,839   216,609  228,934        
Cash and securities      27,216    23,127    65,794    83,484   90,635        
Deposits                147,363   166,143   181,131   199,938  218,063        
Stockholders'  equity     8,710    14,385    16,381    19,294   20,815        

Operating Data:                                                                 
Interest income          18,893    14,333    16,545    23,378   24,776        
Interest expense         12,928     9,329     9,142    13,933   16,563        
Net interest income       5,965     5,004     7,403     9,445    8,213        

Provision  for (recovery                                                      
of) loan losses          1,140       100       495      (335)      --       

Net interest income                                                         
after provision                                                       
for loan losses       4,825     4,904     6,908     9,780    8,213    

Other income              5,567     6,411     5,135     2,478    2,226        
Other expense             9,597     8,975     9,006     7,879    7,004        

Income before Federal                                                         
income taxes               795     2,340     3,037     4,379    3,435       

Federal income taxes        271       802     1,033     1,489    1,167        

Cumulative effect of                                                          
accounting change        1,001        --        --        --       --       

Net income               1,525     1,538     2,004     2,890     2,268      

Per share earnings                                                            
(fully diluted)            n/a      0.71      0.91      1.28      0.99      

Weighted average number                                                       
of shares outstanding                                                       
(fully diluted)            n/a 2,171,648 2,213,213 2,256,306 2,282,033      

Key operating ratios:                                                           
Return on average assets    0.70%    0.77     0.85       0.98     0.71        

Return on average equity   19.90    12.05    12.98      15.75    11.31        

Net interest margin (1)     3.21     2.81     3.31       3.32     2.68        

Allowance for loan losses                                                     
to total loans              2.70     1.93     1.86       1.36     1.29        

Ratio of nonperforming                                                        
assets to total assets      7.41     3.80     2.66       1.11     0.34        

(1) Margin for 1995 includes recovery of $2.1 million of delinquent interest.   
Margin without this recovery is 2.59%.                                          

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Quarterly Results:                                                              

              Quarter Ended                Quarter Ended
              Sept   Dec    Mar    Jun    Sept   Dec    Mar    Jun
               30,   31,    31,    30,    30,    31,    31,    30,
               1995   1995   1996   1996   1994   1994   1995   1995
                  (dollars in thousands, except per share data, unaudited)
Results of Operations                                                           
Interest income    $5,809  5,922  6,189  6,854  6,704  5,469  5,495  5,709    
Interest expense    4,150  4,108  4,190  4,113  2,733  3,451  3,730  4,019    
Net interest                                                                
income            1,659  1,814  1,999  2,741  3,971  2,018  1,765  1,690  

Provision for loan                                                            
losses                --     --     --     --     --     --   (335)    --   
Other income          548    327    780    571    789    368    735    638    
Other expense       1,716  1,611  1,788  1,888  1,967  1,965  2,219  1,728    
Income before                                                               
income taxes       491    530    991  1,424  2,793    421    616    600 

Provision for                                                                 
income taxes         167    180    337    484    950    143    209    238   

Net income           324    350    654    940  1,843    278    407    362   

Earnings per common                                                           
and common                                                                
equivalent share   0.14   0.15   0.29   0.42   0.82   0.12   0.18   0.16  
Earnings per common                                                           
share, fully                                                              
diluted            0.14   0.15   0.29   0.41   0.82   0.12   0.18   0.16  

Item 7.  Management's Discussion and Analysis of Financial Condition and        
Results of Operations                                         

The information contained in the section captioned "Management's      
Discussion and Analysis of Financial Condition and Results of Operations" in    
the Annual Report is incorporated herein by reference.                          

Item 8.  Financial Statements and Supplementary Data                            

  The financial statements contained in the Annual Report which are listed
under Item 14 herein are incorporated herein by reference.                      

Item 9.  Changes in and Disagreements with Accountants on Accounting and        
Financial Disclosure                                          

Not applicable.                                                             

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PART III            

Item 10.  Directors and Executive Officers of the  Registrant                   

The information contained under the section captioned "Proposal I -   
Election of Directors" contained in the Corporation's Definitive Proxy          
Statement for the Corporation's 1996 Annual Meeting of Stockholders (the        
"Proxy Statement"), is incorporated herein by reference.  Reference is made     
to the cover page of this report for information regarding compliance with      
Section 16(a) of the Exchange Act.                                              

The following table sets forth information with respect to the executive        
officers of the Corporation and the Savings Bank.                               

Name                  Age(a)      Position                                      

Frank M. McCord         66        Chairman and Chief                            
        Executive Officer(b)

C. Fredrick Safstrom    42        President, Chief Operating                    
           Officer and Director(b)

Robert G. Disotell      42        Executive Vice President,                     
             Chief Lending Officer and
Director(b) 

Russell E. Rosendal     37        Executive Vice President,                     
           Chief Financial Officer
              and Secretary/Treasurer(b)

Steven R. Erickson      40        Executive Vice President,                     
             Credit Administration and
        Construction Lending

J. Wesley Cochran       42        Senior Vice President                         
         Chief Savings Officer

(a) As of June 30, 1996.                                                        
(b) Officer of the Corporation and Savings Bank                                 

The principal occupation of each executive officer of the Corporation 
and Savings Bank is set forth below.  All of the officers listed above have     
held positions with or been employed by the Corporation or Savings Bank for     
five years unless otherwise stated.  All executive officers reside in           
Everett, Washington, unless otherwise stated.  There are no family              
relationships among or between the executive officers listed above.             

FRANK M. McCORD, C.P.A. became Chairman of the Board of Directors,    
President and Chief Executive Officer of the Savings Bank in 1990 and           
subsequently the Corporation.  Mr. McCord was the Managing Partner of KPMG      
Peat Marwick, Seattle, Washington office until his retirement in 1986.  In      
addition to his responsibilities to the Corporation, Mr. McCord is a director   
of the  Everett Area Chamber of Commerce and serves as it's Chairman, the       
Everett Performing Arts Association, and Housing Hope, a local housing          
agency.  Mr. McCord also serves as a Director of Horizon/CMS Healthcare         
Corporation a publicly-held company listed on the New York Stock Exchange,      
which is one of the largest diversified health care providers in the United     
States.  Mr. McCord has previously served as President of the Evergreen Area    
Council of Boy Scouts of America, Treasurer of the United Way of King County,   
Trustee of Seattle University, a Fellow of Seattle Pacific University,          
Treasurer of the Washington Society of Certified Public Accountants, and a      
Director of the Seattle Chamber of Commerce.                                    

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C. FREDRICK SAFSTROM joined Cascade in 1976 and has managed several   
areas including branch management, secondary marketing, loan underwriting and   
regulatory compliance.  In June 1990 Mr. Safstrom was elected to the Board of   
Directors and in December 1991 was elected President.  Mr. Safstrom is a        
trustee and the treasurer of the Snohomish County YMCA, a board member of the   
Snohomish County Investment Plan Corporation, a director of the Everett         
Public Schools Foundation, member of the Everett Rotary, and is active in       
various housing related boards and committees.                                  

ROBERT G. DISOTELL has been employed by Cascade for approximately     
nineteen years and has managed all areas of the Loan Division.  He currently    
serves as a Director and an Executive Vice President.  As Chief Lending         
Officer, he is responsible for mortgage loan production, consumer lending,      
and is the Bank's Community Reinvestment Act ("CRA") officer.  Mr. Disotell     
also serves on the Board of Directors for Catholic Community Services of        
Snohomish County.  Mr. Disotell is a resident of Arlington, Washington.         

RUSSELL E. ROSENDAL is the Executive Vice President, Chief Financial  
Officer and Secretary/Treasurer of the Corporation.  Mr. Rosendal joined        
Cascade in September 1983 and was elected Corporate Secretary/Treasurer in      
December 1991.  He has served as President of the Puget Sound chapter of the    
Financial Managers Society and serves on their Asset/Liability Committee.       
Mr. Rosendal is a resident of Mukilteo, Washington.                             

STEVEN R. ERICKSON is the Executive Vice President of the Savings Bank
responsible for managing business, residential construction, and income         
property lending and serves as the Assistant Secretary for the Corporation.     
Mr. Erickson joined Cascade in 1978.  He is a member of the Board of            
Directors of the Boys and Girls Club of Snohomish County.  He is a resident     
of Marysville, Washington.                                                      

J. WESLEY COCHRAN  joined Cascade in 1992 as Chief Savings Officer and
Manager of the Everett Main Office Branch. As Chief Savings Officer, he is      
responsible for management of the bank's full service offices and deposit       
production.  In August 1996 he was elected as a Senior Vice President.  Mr.     
Cochran has a 20 year background in mortgage banking and thrift institution     
branch management.  Mr. Cochran serves on the boards of the Everett Salvation   
Army, American Heart Association, Everett Theater Society and is a member of    
the South Everett/Mukilteo Rotary Club.  He is a resident of Redmond,           
Washington.                                                                     

Item 11.  Executive Compensation                                                

The information contained under the section captioned "Executive      
Compensation" in the Proxy Statement is incorporated herein by reference.       

Item 12.  Security Ownership of Certain Beneficial Owners and Management        

(a)  Security Ownership of Certain Beneficial Owners                        

   Information required by this item is incorporated herein by reference
to the section captioned "Voting Securities and Principal Holders 
Thereof" of the Proxy Statement                                   

(b)  Security Ownership of Management                                       

The information required by this item is incorporated herein by   
 reference to the section captioned "Voting Securities and Principal
Holders Thereof" of the Proxy Statement.                          

(c)  Changes in Control                                                     

    The Corporation is not aware of any arrangements, including any pledge
    by any person of securities of the Corporation, the operation of which
may at a subsequent date result in a change in control of the     
Corporation.                                                      

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Item  13.  Certain Relationships and Related Transactions                       

The information required by this Item is incorporated herein by       
reference to the section captioned "Proposal I -- Election of Directors --      
Certain Transactions with the Corporation" of the Proxy Statement.              

PART IV           

Item 14.  Exhibits  Financial Statement Schedules, and  Reports on Form 8-K     

(a) (1)(2) Independent Auditors' Report                                         
Consolidated Financial Statements                         
(a)  Consolidated Balance Sheets as of June 30, 1995 and June 30, 1996  
(b)  Consolidated Statements of Operations for the Years Ended June 30, 
1994, 1995 and 1996.                                          
(c)  Consolidated Statements of Stockholders' Equity for the Years Ended
June 30,1994, 1995 and 1996.                                  
(d)  Consolidated Statements of Cash Flows for the Years Ended June 30, 
1994, 1995 and 1996.                                          
(e)  Notes to Consolidated Financial Statements                         

All schedules have been omitted as the required information is either 
inapplicable or contained in the Consolidated Financial Statements or related   
Notes contained in the Annual Report to Stockholders.                           

(3) Exhibits                                                            
      2    Agreement and Plan of Reorganization dated July 19, 1994 by and
between Cascade Savings Bank, FSB; Cascade Financial
  Corporation; Cascade Investment Services, a Washington
  corporation; and Cascade Interim Federal Savings Bank*

   3.1    Certificate of Incorporation of Cascade Financial Corporation*

3.2    Bylaws of Cascade Financial Corporation*                   

10.1    Cascade Savings Bank, FSB 1994 Employee Stock Purchase Plan*

10.2    Cascade Savings Bank, FSB 1992 Stock Option and Incentive   
Plan**                                              

10.3    Cascade Savings Bank, FSB Employee Stock Ownership Plan**   

13    Cascade Financial Corporation 1996 Annual Report to       
Stockholders                                        

21    Subsidiaries                                              

23    Consent of Auditors                                       

27    Financial Data Schedule                                   

(b)  Reports on Form 8-K                                                  

No Forms 8-K were filed during the quarter ended June 30, 1996. 
_________________                                                             
* Incorporated by reference to the Corporation's Registration Statement on      
Form S-4 File No. 33-83200.                                                 
**Incorporated by reference to the Corporation's Annual Report on Form 10-KSB   
For June 30, 1995.                                                          

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SIGNATURES            

Pursuant to the requirements of Section 13 or 15(d) 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

Date:  September 27, 1996          By: /s/ Frank M. McCord                      
             Frank M. McCord
                                  Chairman and Chief Executive Officer
                           (Principal Executive Officer)

Pursuant to the requirements of Section 13 or 15(d) of the Securities       
Exchange Act of 1934, this report has been signed below by the following        
persons on behalf of the registrant and in the capacities and on the dates      
indicated.                                                                      

By: /s/ Russell E. Rosendal        By: /s/ D. R. Murphy                         
Russell E. Rosendal                D. R. Murphy                         
Executive Vice President           Director                             
(Chief Financial and                                                    
Accounting Officer)                                                     
Date:  September 27, 1996          Date:  September 27, 1996                    

By: /s/ C. F. Safstrom             By: /s/ Ronald E Thompson                    
C. F. Safstrom                     Ronald E. Thompson                   
President and Director             Director                             
Date:  September 27, 1996          Date: September 27, 1996                     

By: /s/ Robert Disotell            By: /s/ G. Brandt Westover                   
Robert Disotell                    G. Brandt Westover                   
Executive Vice President/          Director                             
Director                                                                
Date:  September 27, 1996           Date: September 27, 1996                    

By: /s/ David W. Duce              By: /s/ Paull Shin                           
David W. Duce                      Paull Shin                           
Director                           Director                             
Date:  September 27, 1996          Date:  September 27, 1996                    

By: /s/ Gary Meisner               By: /s/Joan M. Earl                          
Gary Meisner                       Joan M. Earl                         
Director                           Director                             
Date:  September 27, 1996          Date:  September 27, 1996                    

By: /s/ Dwayne Lane                                                             
Dwayne Lane                                                             
Director                                                                
Date:  September 27, 1996                                                       

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EXHIBIT 13            

1996 Annual Report to Stockholders            

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Logo of                                                                         
CASCADE FINANCIAL CORPORATION                                                   

1996                    
ANNUAL REPORT                   

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Cascade Financial Corporation 1996                                              

Table of Contents                                                               

Message to Stockholders                                    2                    
Financial Highlights                                       3                    
Corporate Profile                                          4                    
Management's Discussion and                                                     
Analysis of Financial Condition                                               
and Results of Operations                                 5                   
Independent Auditors' Report                              16                    
Consolidated Financial Statements                         17                    
Common Stock Information                   Inside Back Cover                    
Corporate Information                             Back Cover                    

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To our Stockholders                                                             

  Cascade Financial Corporation has completed another successful year with
assets now exceeding $334 million. Good progress was made in diversifying our   
financial products, expanding our customer base and reducing expenses.          

We were especially pleased to declare our fourth consecutive 25% stock
dividend.                                                                       

  With a growing local economy, loan demand has been strong. Good quality,
higher yielding loans have been added to our loan portfolio. These loans        
include residential, home equity, consumer, construction, apartment and         
commercial real estate. Because most of these loans have adjustable rates, our  
exposure to interest fluctuations has been reduced.                             

   The problem loans originated in the 1980s have essentially been resolved.
This results in a stronger balance sheet and a greatly improved core income.    

 While loan demand has been strong, competition for deposits is intense.
However, checking balances increased 18% in fiscal 1996.  Our "Gold Club"       
checking was nationally recognized by the country's leading consumer research   
magazine. We recently added a free checking product and initiated a marketing   
campaign to further increase checking accounts.                                 

We are utilizing both technology and personalized customer service to 
grow our consumer banking activities. In 1996 our second in-store branch was    
opened in Mukilteo. Later this year we will introduce 24-hour telephone         
banking services.                                                               

We are closely following legislation in Congress that could have a    
significant long term benefit to Cascade Savings Bank and result in comparable  
FDIC insurance premiums for the entire banking industry. If such legislation    
had been passed in 1996, net earnings would have increased by $300,000.         

Our most important goal is to create additional stockholder value over
the long term. To date, $1,000 invested at our conversion to a publicly held    
company in September 1992 is worth $7,120.                                      

We are continually grateful for the support of our stockholders,      
directors, employees, and customers. Your referrals of new customers are        
extremely important and greatly appreciated. We look forward to an exciting     
year ahead and invite you to call us with your comments and suggestions.        

/s/ Frank M. McCord                        /s/ Fred Safstrom                    

Frank M. McCord                            Fred Safstrom                        
Chairman and                               President and                        
Chief Executive Officer                    Chief Operating Officer              

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Financial Highlights                                                            

[Dollars in thousands except per share amounts (unaudited)]                     

Years ended                                                                     
June 30,           1992       1993        1994       1995        1996         

Financial                                                                       
Condition                                                                     
Total assets     $171,995     $222,421    $258,049   $310,943    $334,431       
Loans, net        119,212      156,960     183,839    216,609     233,612       
Cash and                                                                        
securities        27,216       23,127      65,794     83,484      90,635      
Deposits          147,363      166,143     181,131    199,938     218,063       
Stockholders'                                                                   
equity             8,710       14,372      16,374     19,287      20,815      
pard                                                                            

Operating Data                                                                  
Interest income   $18,893      $14,333     $16,545    $23,378     $24,776       
Interest expense   12,928        9,329       9,142     13,933      16,563       
Net interest                                                                    
income             5,965        5,004       7,403      9,445       8,213      
Provision for                                                                   
(recovery of)                                                                 
loan losses        1,140          100         495       (335)         --      
Net interest                                                                    
income after                                                                
provision for                                                               
loan losses       4,825        4,904       6,908      9,780       8,213     
Other income        5,567        6,411       5,135      2,478       2,226       
Other expenses      9,597        8,975       9,006      7,879       7,004       
Income before                                                                   
Federal income                                                                
taxes                795        2,340       3,037      4,379       3,435      
Federal income taxes  271          802       1,033      1,489       1,167       
Cumulative effect of                                                            
accounting change  1,001           --          --         --          --      
Net income          1,525        1,538       2,004      2,890       2,268       
Per share earnings                                                              
(fully diluted)       NA          .71         .91       1.28         .99      
Weighted average                                                                
number of shares                                                              
outstanding                                                                   
(fully diluted)       NA    2,171,648   2,213,213  2,256,306   2,282,033      

Operating Ratios                                                                
Return on average                                                               
assets              0.70%         .77%        .85%       .98%        .71%     
Return on average                                                               
equity             19.90        12.05       12.98      15.75       11.31      
Net interest                                                                    
margin              3.21         2.81        3.31       3.32        2.68      
Allowance for                                                                   
loan losses                                                                   
to net loans        2.70         1.93        1.86       1.36        1.29      
Ratio of                                                                        
nonperforming                                                                 
assets to total                                                               
assets              7.41         3.80        2.66       1.11         .34      

* Margin for 1995 includes recovery of $2.1 million of delinquent interest.     
Margin without this recovery is 2.59%.                                      

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Corporate Profile and Business Strategy                                         

Cascade Savings Bank, FSB ("Bank") was organized in 1916 as a mutual  
savings and loan association. On September 15, 1992, Cascade completed its      
conversion to a federal stock savings bank. On November 30, 1994, a             
reorganization into a holding company structure was completed with the Bank     
becoming a wholly  owned subsidiary of the Cascade Financial Corporation (the   
"Corporation").                                                                 

Cascade's Mission is to...                                                      

-- Deliver excellent financial products and services in the Puget Sound region  
-- Diligently serve our local communities                                       
-- Achieve superior financial performance to benefit our stockholders,          
customers and employees                                                   

Business Strategy                                                               

Management's strategy is to increase the portfolio of consumer, multifamily,    
construction and commercial real estate loans which have relatively high        
margins.  This asset growth will be funded by increasing deposit relationships  
with individuals and small businesses. New deposit customers will be attracted  
through additional branches, ATMs, EXCHANGE/ACCEL point-of-sale system,         
Cascade's TELLERPHONE banking system and other marketing activities.            

Cascade Investment Services, Inc., a subsidiary of the Bank, provides           
investment and insurance products to our customers.                             

Business Banking                                                                

Cascade provides loans to developers, builders, owners and investors for        
residential and commercial real estate properties in the Puget Sound region.    

            (Dollars in thousands)
Balances Outstanding at                                                         
June 30,                        1994      1995      1996                      
Construction loans             $17,677    22,708    28,277                      
Multifamily loans               24,308    27,169    37,540                      
Commercial real estate loans    18,850    16,770    14,739                      

Consumer Banking                                                                
One-to-four family home loans  127,794   157,518   159,749                      
Home equity loans                  746     3,553     6,792                      
Consumer loans                      --        --       507                      
Consumer deposits              151,082   166,352   179,381                      

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MANAGEMENT'S DISCUSSION AND ANALYSIS                                            

Asset and Liability Management                                                  

  The Corporation's principal financial objective is to maximize long-term
profitability while limiting exposure to fluctuations in interest rates.        
Minimizing interest rate risk reduces the financial benefits of falling         
interest rates and the adverse consequences of rising interest rates. The       
Corporation intends to reduce risk where appropriate but accept a degree of     
risk when warranted by economic circumstances and internal risk tolerance.      

 Expected interest rate sensitivity of assets and liabilities as of June
30, 1996 is shown on the table on page six. The Corporation's asset and         
liability management strategy has resulted in a negative one-year gap as a      
percent of total assets of 19% at June 30, 1995 and 14% at June 30, 1996.       
There are numerous estimates and assumptions which significantly influence      
this calculation. At June 30, 1996, a 200 basis point increase in rates would   
reduce forecasted net interest income by approximately 7%.                      

The Board of Directors sets guidelines for allowable changes in net   
interest income. Asset maturities are controlled by holding adjustable rate     
and balloon loans and selling fixed rate loans.  By adjusting the pricing on    
savings deposits, differing deposit maturities can be obtained to lengthen or   
shorten the repricing time for liability maturities.                            

   The Bank can also borrow funds from the Federal Home Loan Bank of Seattle
(the "FHLB-Seattle").  At various times instruments such as interest rate       
swaps, interest rate cap agreements, and forward sale commitments are used to   
reduce the negative effect that rising rates could have on net interest         
income, or to lower the cost of long-term liabilities. Management has           
established strict policies and guidelines for the use of these off-balance     
sheet instruments.                                                              

Review of Financial Position                                                    

 Total assets increased to $334 million at June 30, 1996, an 8% increase
over 1995 and 30% over 1994. Total loans increased by $17 million to $234       
million from $217 million at June 30, 1995 and $184 million at June 30, 1994.   
Most of this increase was due to originations of nonconforming residential      
loans, multifamily loans and residential construction loans. Cash and           
securities increased to $91 million in 1996 compared with $83 million in 1995   
and $66 million in 1994. This increase was due to management's desire to        
maintain the Bank's capital ratio near 6%.                                      

  Deposits increased to $218 million at June 30, 1996 compared with $200
million in 1995 and $181 million in 1994. Management has sought to fund asset   
growth through retail deposits. Total borrowings  increased by $5 million in    
1996 and $26 million in 1995 to $89 million at June 30, 1996.                   

Asset Quality                                                                   

At June 30, 1996, non-performing loans totaled $373,000 compared to   
$597,000 in 1995 and $7 million at  June 30, 1994. Loans classified as          
substandard decreased from $13 million at June 30, 1994 to $7 million at June   
30, 1995 and to $1 million at June 30, 1996.                                    

At June 30, 1996, real estate owned (REO) totaled $747,000 compared to
$1.6 million at June 30, 1995 and $150,000 in 1994. The decrease in REO in      
1996 was due to a sale resulting in a $24,000 gain.                             

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The gap between interest-sensitive assets and interest-sensitive liabilities    
at June 30, 1996 is shown in the following table.                               

              Maturity or Repricing Period
         Within       1-3      3-5     5-10    Over 10
                One Year     Years    Years    Years    Years    Total
            (Dollars in thousands)

Interest-Sensitive                                                              
Assets                                                                        

Fixed rate mortgage                                                             
loans               $26,842     38,512    13,737   6,199   7,628    92,918    
Adjustable rate                                                                 
mortgage loans      113,973     13,165    18,660      --      --   145,798    
Mortgage-backed                                                                 
securities           19,837     10,614     4,060   5,247    3,931   43,689    
Investment                                                                      
securities           43,638         --        --      --       --   43,638    
Interest-earning                                                                
assets              204,290     62,291    36,457  11,446   11,559  326,043    
Impact of interest                                                              
rate caps             5,000     (5,000)       --      --       --       --    
Total interest-                                                                 
sensitive assets    209,290     57,291    36,457  11,446   11,559  326,043    
Cash on hand                                                                    
and in banks                                                         3,627    
Other assets                                                          4,761     
Total assets                                                       $334,431     

Interest-Sensitive Liabilities                                                  

Savings and checking                                                            
accounts             15,960         --        --     --       --    15,960    
Money market accounts 34,982         --        --     --       --    34,982     
Certificates of                                                                 
deposit             123,399     23,766    18,293    108       --   165,566    
Other borrowings      81,833      7,000        --    159       --    88,992     
Total interest-                                                                 
sensitive                                                                     
liabilities         256,174     30,766    18,293    267       --  $305,500    
Other liabilities                                                     8,116     
Stockholders' equity                                                 20,815     

Total liabilities and                                                           
stockholders' equity                                              $334,431    
Excess (deficiency) of                                                          
interest-sensitive                                                            
assets over interest-                                                         
sensitive                                                                     
liabilities         (46,884)    26,525   18,164  11,179  11,559    20,543     
Cumulative excess                                                               
(deficiency) of                                                               
interest-sensitive                                                            
assets              (46,884)   (20,359)  (2,195)  8,984  20,543       --      
Ratio of cumulative                                                             
gap to total assets (14.01)%     (6.01)   (0.66)   2.69    6.14       --      

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Average Balance Sheets                                                          

Corporate earnings depend on the amount and yield on interest-earning 
assets (primarily loans and investments) and the expense of interest-bearing    
liabilities (primarily deposit accounts and borrowings). The following table    
sets forth average balances of assets and liabilities, interest income from     
interest-earning assets, interest expense on interest-bearing liabilities,      
percentage yields, interest rate spread, ratio of interest-earning assets to    
interest-bearing liabilities and net interest margin. Average balances have     
been calculated using the month-end balances. Such average balances are         
considered to be representative of the average daily balance for each period    
presented.                                                                      

Assets                                                                          

For the year                    (Dollars in thousands)                          
ended June 30,              1994                        1995                    
          Average  Interest  Yield/   Average  Interest   Yield/
         Balance   Income   Cost     Balance   Income     Cost

Interest-earning                                                                
assets (1)                                                                    

Mortgage loans   $177,059    13,878  7.84    198,568    18,384     9.26         

Home equity                                                                     
and consumer                                                                    
loans                 --        --    --         --        --       --        

Total loans       177,059    13,878  7.84    198,568    18,384     9.26         

Mortgage-backed                                                                 
securities        34,356     1,918  5.58     78,238     4,477     5.72        

Investment and                                                                  
trading                                                                       
securities         8,388       349  4.16      3,135       213     6.79        

Interest-earning                                                                
deposits &                                                                    
FHLB stock         3,988       400 10.03      4,207       304     7.23        

Total interest-                                                                 
earning assets   223,791    16,545  7.39    284,148    23,378     8.23        

Non interest-                                                                   
earning assets                                                                

Office properties                                                               
and equipment,                                                                
net                7,074                      6,471                           

Real estate, net      133                        589                            

Other non-interest-                                                             
earning assets     4,192                      2,789                           

Total assets      235,190                    293,997                            

Assets                                                                          

For the year              (Dollars in thousands)                                
ended June 30,                      1996                                        
Average  Interest  Yield/   
Balance   Income   Cost     
Interest-earning                                                                
assets (1)                                                                    

Mortgage loans           $221,827   19,170   8.64                               

Home equity                                                                     
and consumer                                                                    
loans                      5,438      480   8.83                              

Total loans               227,265   19,650   8.65                               
Mortgage-backed                                                                 
securities                56,670    3,616   6.38                              

Investment and                                                                  
trading                                                                       
securities                17,542    1,098   6.26                              

Interest-earning                                                                
deposits &                                                                    
FHLB stock                 5,286      412   7.79                              

Total interest-                                                                 
earning assets           306,763   24,776   8.08                              

Non interest-                                                                   
earning assets                                                                

Office properties                                                               
and equipment,                                                                
net                        6,206                                              

Real estate, net            1,807                                               

Other non-interest-                                                             
earning assets             4,334                                              

Total assets              319,110                                               

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(table continued on following page)       

        1994                        1995
          Average  Interest  Yield/   Average  Interest   Yield/
         Balance   Income   Cost     Balance   Income     Cost

Liabilities and Equity                                                          

Interest-bearing                                                                
liabilities                                                                   

Passbook accounts $  8,901    275    3.08      8,788      271      3.09         

Checking accounts    8,028    190    2.36      8,205      182      2.22         

Money market                                                                    
accounts           28,715  1,092    3.80     22,542      894      3.97        

Certificates of                                                                 
deposit           130,947  6,151    4.70   145,061     7,786      5.37        

Total deposits     176,591  7,708    4.36   184,596     9,133      4.95         

Other interest-                                                                 
bearing                                                                       
liabilities                                                                   

FHLB advances       29,984  1,270    4.24    55,309     3,196      5.78         

Other interest-                                                                 
bearing                                                                       
liabilities         4,473    164    3.67    28,229     1,604      5.68        

Total interest-                                                                 
bearing                                                                       
liabilities       211,048  9,142    4.33   268,134    13,933      5.20        

Other liabilities    8,705                    7,518                             

Total liabilities  219,753                  275,652                             

Stockholders'                                                                   
equity             15,437                   18,345                            

Total liabilities                                                               
and stockholders'                                                             
equity            235,190                  293,997                            

Net interest                                                                    
income (1)(2)              7,403                       9,445                  

Interest rate                                                                   
spread (1)(3)                       3.06                          3.03        

Net interest                                                                    
margin (1)(4)                       3.31                          3.32        

Average interest-                                                               
earning assets                                                                
to average                                                                    
interest-bearing                                                              
liabilities        106.04                   105.97                            

1996      
Average  Interest  Yield/   
Balance   Income   Cost     

Liabilities and Equity                                                          

Interest-bearing                                                                
liabilities                                                                   

Passbook accounts        $  7,844      253     3.23                             

Checking accounts           9,711      165     1.70                             

Money market                                                                    
accounts                  20,853      896     4.30                            

Certificates of                                                                 
deposit                  167,150   10,077     6.03                            

Total deposits            205,558   11,391     5.54                             

Other interest-                                                                 
bearing                                                                       
liabilities                                                                   

FHLB advances              64,380    3,937     6.12                             

Other interest-                                                                 
bearing                                                                       
liabilities               21,697    1,235     5.69                            

Total interest-                                                                 
bearing                                                                       
liabilities              291,635   16,563     5.68                            

Other liabilities           7,429                                               

Total liabilities         299,064                                               

Stockholders'                                                                   
equity                    20,046                                              

Total liabilities                                                               
and stockholders'                                                             
equity                   319,110                                              

Net interest                                                                    
income (1)(2)                       8,213                                     

Interest rate                                                                   
spread (1)(3)                                 2.40                            

Net interest                                                                    
margin (1)(4)                                 2.68                            

Average interest-                                                               
earning assets                                                                
to average                                                                    
interest-bearing                                                              
liabilities               105.19                                              
--------------------                                                            
(1) Does not include interest on loans 90 days or more past due.  Includes      
recovery of $2.1 million in delinquent interest in 1995.                
(2) Interest on total interest-earning assets less interest on total            
interest-bearing liabilities.                                           
(3) Total interest-earning assets yield less total interest-bearing             
liabilities cost.                                                       
(4) Net interest income as an annualized percentage of total interest-earning   
assets.                                                                 

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Yields Earned and Rates Paid                                                    

The following table sets forth the weighted average yield on assets, the        
weighted average interest rate on liabilities, and the net yield on             
interest-earning assets.                                                        

                               For the Years Ended June 30,      At June 30,
                             1994         1995*       1996          1996

Weighted average yield on                                                       
loan portfolio                 7.84%         9.26       8.65           8.44   

Weighted average yield on                                                       
mortgage-backed securities     5.58          5.72       6.38           6.16   

Weighted average yield on                                                       
securities portfolio and                                                      
cash equivalents               6.05          7.04       6.61           6.33   

Weighted average yield on all                                                   
interest-earning assets        7.39          8.23       8.08           7.87   

Weighted average rate                                                           
paid on deposits               4.36          4.95       5.54           5.33   

Weighted average rate paid on FHLB                                              
advances and other borrowings  4.16          5.75       6.01           5.75   

Weighted average rate paid on                                                   
all interest-bearing                                                          
liabilities                   4.33          5.20       5.68           5.49  

Interest rate spread (spread between                                            
weighted average rate on all                                                  
interest-earning assets and                                                   
all interest-bearing                                                          
liabilities)                  3.06          3.03       2.40           2.38  

Net interest margin (net interest                                               
income as a percentage of average                                             
interest-earning assets)       3.31          3.32       2.68             NA   

*  Reduced for the $2.1 million recovery, the yield on loan portfolio, yield    
on earning assets, spread, and net interest margin are: 8.21%, 7.49%, 2.29%     
and 2.59%, respectively.                                                        

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Rate/Volume Analysis                                                            

                                                        · Enlarge/Download Table
     The following table sets forth the effects of changing rates and volumes on net interest income.      
Information is provided with respect to (i) effects on interest income attributable to changes in volume   
(changes in volume in rate multiplied by prior volume); and (iii) changes in rate/volume (change in rate   
multiplied by change in volume).                                                                           

                 Year Ended June 30, 1994     Year Ended June 30, 1994       Year Ended June 30, 1994      
                  Compared to Year Ended       Compared to Year Ended         Compared to Year Ended       
                       June 30, 1993                 June 30, 1993                  June 30, 1993          
                Increase (Decrease) Due to    Increase (Decrease) Due to     Increase (Decrease) Due to    
                               Rate/                         Rate/                           Rate/         
                Rate  Volume  Volume   Net     Rate  Volume Volume  Net      Rate   Volume  Volume   Net   

                                                (Dollars in thousands)                                     

Interest-                                                                                                  
 earning                                                                                                   
 assets                                                                                                    

Mortgage                                                                                                   
                                                                                                           
 loans (1)   $(1,168)   4,813   (520)   3,125   2,515   1,686  305   4,506   (1,224)   2,154   (144)   786 
Home equity                                                                                                
 & consumer                                                                                                
 loans (1)        (1)      (1)     1       (1)     --      --   --      --       --       --    480    480 
Total                                                                                                      
 loans (1)    (1,169)   4,812   (519)   3,124   2,515   1,686  305   4,506   (1,224)   2,154    336  1,266 
Mortgage-backed                                                                                            
 securities     (181)     233    (23)      29      48   2,449   62   2,559      515   (1,234)  (142)  (861)
Securities      (605)    (851)   355   (1,101)    222    (220)(138)   (136)     (16)     977    (76)   885 
Interest-                                                                                                  
 earning                                                                                                   
 deposits        242      (41)   (41)     160    (112)     22   (6)    (96)      24       78       6   108 
Change in                                                                                                  
 income on                                                                                                 
 interest-                                                                                                 
 earning                                                                                                   
 assets       (1,713)   4,153   (228)   2,212  2,673  3,937  223    6,833    (701)  1,975     124   1,398  

Interest-                                                                                                  
 bearing                                                                                                   
 liabilities                                                                                               

Interest-                                                                                                  
 bearing                                                                                                   
 deposits     (1,578)     971   (181)    (788) 1,029    349   47     1,425  1,096   1,038      124  2,258  
FHLB advances     (9)     617     (7)     601    462  1,074  390     1,926    186     524       31    741  
Other borrowings (18)      20     (2)      --     91    872  477     1,440      3    (371)      (1)  (369) 
Change in expense                                                                                          
 on interest-                                                                                              
 bearing                                                                                                   
 liabilities  (1,605)   1,608   (190)    (187) 1,582  2,295  914     4,791  1,285  1,191      154  2,630   
Increase                                                                                                   
 (decrease)                                                                                                
 net interest                                                                                              
 income                                2,399                         2,042                        (1,232)  

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(1) Does not include interest on loans ninety days or more past due.            
(2) Includes $2.1 million interest recovery.                                    

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OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994              

Interest Income                                                                 

Interest income increased to $24.8 million for the year ended June 30,
1996 compared with $23.4 million in 1995 and $16.5 million in 1994. The         
principal reason for these increases was the higher earning asset balance of    
$306.8 million in 1996 compared to $284.1 million in 1995 and $223.8 million    
in 1994. Additionally, in 1995 the Corporation recovered $2.1 million in        
interest from the payoff of a large delinquent loan. The yield on interest      
earning assets adjusted for the interest recovery increased to 8.08% in 1996    
from 7.49% in 1995 and 7.39% in 1994 due to the increase in yields on           
adjustable rate loans and reinvestment of cash flows at higher interest rates.  
Interest on loans, adjusted for the interest recovery  increased by $3.4        
million in 1996 and $2.4 million in 1995 from $13.9 million in 1994. This       
resulted from an increased average portfolio balance of $227.3 million in       
1996, compared to $198.6 million in 1995 and $177.1 million in 1994 and an      
increase in the yield on loans from 7.84% in 1994 to 8.21% in 1995 and 8.65%    
in 1996. Interest on securities, FHLB-Seattle stock and interest-bearing        
deposits increased to $5.1 million in 1996 from $5.0 million in 1995 and $2.7   
million in 1994.                                                                

Interest Expense                                                                

Interest expense increased by $2.6 million in 1996 and $4.8 million in
1995. These increases were the result of higher market interest rates and       
higher balances of deposits and borrowings to fund the increased earning        
assets. The average cost of all liabilities increased to 5.68% in 1996,         
compared with 5.20% in 1995 and 4.33% in 1994. Interest expense on deposits     
increased by $2.3 million to $11.4 million in 1996 compared to $9.1 million in  
1995 and $7.7 million in 1994. Management has sought to fund asset growth with  
deposits from new and existing customers.  Hedging activities decreased         
interest expense by $49,000 and $42,000 during the years ended June 30, 1996    
and 1995, respectively. This compares to an increase of $54,000 in the 1994     
period. Interest rate swaps and caps are used to reduce interest rate risk or   
cost of longer-term liabilities. At June 30, 1996 $5.0 million in interest      
rate cap agreements were outstanding. At June 30, 1995 $7.5 million in swaps    
were outstanding.                                                               

Net Interest Income                                                             

 Net interest income for the year ended June 30, 1996, decreased by $1.2
million to $8.2 million compared with $9.4 million in 1995 and $7.4 million in  
1994. The decrease in 1996 is the result of the $2.1 million interest recovery  
offset by an increase in earning assets of $22.6 million and an increase in     
the interest rate margin of nine basis points (after adjusting the 1995 margin  
for the interest recovery) to 2.68% in 1996.  The trend towards reduced         
interest margins is occurring throughout the banking industry, especially in    
the state of Washington. Washington financial institutions have one of the      
highest cost of funds in the nation, based on data recently published by the    
federal banking agencies.                                                       

Provisions for Loan Losses                                                      

  No provision for loan losses was considered necessary in 1996. There was
a recovery of $335,000 in 1995 after the repayment of a $5.1 million            
delinquent loan. After the repayment management determined the allowance for    

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loan losses was higher than necessary and was reduced accordingly. The          
provision for losses in 1994 was $495,000.  As the credit quality of the loan   
portfolio continued to improve, additional provisions were not considered       
necessary in 1996.  At June 30, 1996, 1995 and 1994, the loan loss allowance    
totaled $2.9 million, $3.0 million and $3.5 million respectively and was 1.2%,  
1.3% and 1.9% respectively, of net loans. The allowance for loan losses is      
continuously monitored and adjusted as the economic conditions change.          
Although the allowance is maintained at levels considered to be adequate to     
provide for potential losses, there can be no assurance that such losses will   
not exceed the estimated amounts or that additional provisions will not be      
necessary in the future.                                                        

Other Income                                                                    

Other income decreased by $252,000 to $2.2 million in 1996 compared to
1995 and by $2.9 million compared to 1994. The principal reason for the         
reduction in 1996 was a $474,000 decrease in restitution recovery income and    
$238,000 decrease in gains on sales of loan servicing rights.  In 1996 gains    
from sales of loans and mortgage-backed securities increased by $518,000 and    
gains on sales of securities available-for-sale increased to $338,000. The      
reduction in other income from 1994 is principally the result of a $2.5         
million decrease in gains on sales of mortgage servicing rights due to reduced  
mortgage banking activity. Although not assured, management anticipates future  
mortgage banking revenues will remain consistent with the 1995- 1996 period.    

Other Expenses                                                                  

  Other expenses decreased by $875,000 to $7.0 million in 1996 compared to
$7.9 million in 1995 and $9.0 million in 1994.  Salary and employee benefits    
expenses decreased by $233,000 in 1996 and $1.1 million in 1995 as a result of  
mortgage banking staff reductions and decreased compensation to loan            
personnel.  A $332,000 restructuring charge was incurred in 1995 to close       
certain loan origination offices. This charge was comprised of $95,000 in       
required lease payments, $201,000 in equipment and leasehold write-offs on      
closed facilities and $36,000 in severance costs.                               

Marketing  expenses decreased $135,000 to $198,000 in 1996 compared to
$330,000 in 1995. Increased expenses for marketing, technology and product      
delivery systems are anticipated.                                               

Congress is currently considering a recapitalization of the FDIC      
insurance fund which would require the Bank to make a one-time, after-tax       
payment of approximately $900,000.  The proposed legislation would decrease     
the Bank's annual insurance premium by approximately $300,000 after taxes.      

  12
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Liquidity & Capital Resources                                                   

Cascade Savings Bank is required to maintain minimum levels of liquid 
assets as defined by Office of Thrift Supervision ("OTS") regulations.  This    
requirement, which may change at the direction of the OTS depending upon        
economic conditions and deposit flows, is based upon a percentage of deposits   
and short-term borrowings. The required ratio is currently 5.0%.  The Bank's    
liquidity ratio was 7.2%, 9.0% and 6.3% at June 30, 1996, 1995 and 1994,        
respectively.                                                                   

The Bank's most liquid assets are cash and cash equivalents, which    
include short-term investments. The levels of these assets are dependent on     
operating, financing and investing activities during any given period. At June  
30, 1996 and 1995, cash and cash equivalents totaled $8.6 million and $5.8      
million, respectively.  The principal sources of funds, exclusive of operating  
activities, include proceeds from principal payments on loans and               
mortgage-backed securities and proceeds from the sale of loans.                 

The Bank has other significant sources of liquidity including         
FHLB-Seattle advances, reverse repurchase agreements, and loan sales.  If       
needed, the Bank has additional borrowing ability with the FHLB-Seattle of      
$31.8 million at June 30, 1996, as well as abilities to borrow from primary     
dealers of United States government securities through reverse repurchase       
agreements. Under these agreements, the Bank collateralizes the borrowings,     
generally with mortgage-backed securities or other investment securities.       
These borrowings are for short time periods, generally no more than sixty       
days. The Bank will utilize a particular source of funds based on comparative   
costs and availability.                                                         

   At June 30, 1996 there were outstanding commitments to originate loans of
$11.3 million. The Bank anticipates that it will have sufficient funds          
available to meet its current commitments principally through sales in the      
secondary market and deposit growth. Certificates of deposit which are          
scheduled to mature in one year or less totaled $123.4 million at June 30,      
1996. Management believes that a significant portion of such deposits will      
remain with the Bank.                                                           

  At June 30, 1996 the Bank was a "well capitalized" institution under the
prompt corrective action regulation of the OTS.  The following table            
summarizes the capital requirements and the Bank's capital position at June     
30, 1996:                                                                       
            At June 30, 1996
                              Percent of
             Amount             Assets
              (Dollars in Thousands)
Tangible capital                  $21,530              6.4%                     

Tangible capital requirement        5,027              1.5                      

Excess                             16,503              4.9                      

Core capital                       21,530              6.4                      

Core capital requirement           10,055              3.0                      

Excess                             11,475              3.4                      

Risk-based capita                 l23,699             13.7                      

Risk-based capital requirement     13,844              8.0                      

Excess                              9,855              5.7                      

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Common Stock Information                                                        

   The common stock of Cascade Financial Corporation is traded on the Nasdaq
Small Cap Market under the symbol "CASB."  As of September 1, 1996, there were  
approximately 1,100 stockholders of record.                                     

   The following table sets forth market prices and dividend information for
the Corporation's common stock.  Information prior to the second quarter of     
fiscal 1995 relates to the common stock of Cascade Savings Bank, FSB.  Prices   
have been adjusted for stock splits.                                            

      High           Low
Fiscal 1996                                                                     
------------                                                                    
First Quarter                   $14.625        $13.625                          

Second Quarter                   14.375         13.000                          

Third Quarter                    13.625         12.750                          

Fourth Quarter                   17.250         12.750                          

Fiscal 1995                                                                     
-------------                                                                   
First Quarter                   $10.875         $9.625                          

Second Quarter                   11.250          9.875                          

Third Quarter                    12.250         10.500                          

Fourth Quarter                   13.625         10.875                          

The Corporation's ability to pay dividends is dependent on the        
dividend payments received from its subsidiary, Cascade Savings Bank, FSB,      
which are subject to regulations and the Savings Bank's continued compliance    
with all regulatory capital requirements.  See Note 11(b) of the Notes to       
Consolidated Financial Statements for information regarding limitations of the  
Savings Bank's ability to pay dividends to the Corporation.                     

In order to retain capital for operations and expansion, the          
Corporation does not expect to declare cash dividends in the near future.       

Board of Directors                                                              

Frank M. McCord                                                                 
Chairman of the Board, Chief Executive Officer(1)                               

David W. Duce                           G. Brandt Westover                      
Vice Chairman                           Account Vice President,                 
Attorney                                Paine Webber, Inc. (1)                  
Duce & Bastian (1)(3)                                                           

C. Fredrick Safstrom                    Ronald E. Thompson                      
Chief Operating Officer                 President, WRE Commercial               
President and Director (1)              & Property Management (1)               

Robert G. Disotell                      Paull H. Shin, Ph.D.                    
Executive Vice President                Professor of History,                   
                           Shoreline Comm. College (3)

Dennis R. Murphy, Ph.D.                 Joan M. Earl                            
Dean and Professor of                   Deputy County Executive,                
Economics,                              Snohomish County (2)                    
Western Wash. Univ. (2)                                                         

Gary L. Meisner                         Dwayne Lane                             
President, Small                        President, Dwayne Lane                  
Business Center, Inc. (2)               Auto Centers (3)                        

(1) Member of the Executive Committee.                                          
(2) Member of the Audit and Risk Management Committee.                          
(3) Member of the Compensation Committee.                                       

Executive Officers                                                              

Frank M. McCord                        C. Fredrick Safstrom                     
Chairman and Chief                     President and                            
Executive Officer                      Chief Operating Officer                  

Robert G. Disotell                     Russell E. Rosendal                      
Executive Vice President               Executive Vice President                 
Chief Lending Officer                  Chief Financial Officer and              
                 Secretary/Treasurer

Steven R. Erickson                     J. Wesley Cochran                        
Executive Vice President               Senior Vice President                    
Credit Administration and              Chief Savings Officer                    
Construction Lending                                                            

  14
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KPMG Peat Marwick LLP                                                           
3100 Two Union Square                                                           
601 Union Street                                                                
Seattle, WA  98101-2327                                                         

INDEPENDENT AUDITORS' REPORT          

The Board of Directors                                                          
Cascade Financial Corporation:                                                  

 We have audited the accompanying consolidated balance sheets of Cascade
Financial Corporation and subsidiary (the Corporation) as of June 30, 1995 and  
1996, and the related consolidated statements of operations, stockholders'      
equity, and cash flows for the years in the three year period ended June 30,    
1996.  These consolidated financial statements are the responsibility of the    
Corporation's management.  Our responsibility is to express an opinion on       
these consolidated financial statements based on our audits.                    

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to       
obtain reasonable assurance about whether the financial statements are free of  
material misstatement.  An audit includes examining, on a test basis, evidence  
supporting the amounts and disclosures in the financial statements.  An audit   
also includes assessing the accounting principles used and significant          
estimates made by management, as well as evaluating the overall financial       
statement presentation.  We believe that our audits provide a reasonable basis  
for our opinion.                                                                

 In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cascade     
Financial Corporation and subsidiary as of June 30, 1996 and 1995, and the      
results of their operations and their cash flows for each of the years in the   
three-year period ended June 30, 1996, in conformity with generally accepted    
accounting principles.                                                          

As discussed in note 1 to the consolidated financial statements,      
effective July 1, 1995, the Corporation changed its method of accounting for    
impaired loans.                                                                 

/s/ KPMG Peat Marwick LLP                                                       

Seattle, Washington                                                             
July 31, 1996                                                                   

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CASCADE FINANCIAL CORPORATION   
AND SUBSIDIARY  

Consolidated Balance Sheets   
June 30, 1995 and 1996    
(Dollars in thousands)    

                          1995                  1996
                         -------------------------------------

Assets                                                    
------                                                    
Cash on hand and in banks               $  5,419              3,627             
Interest-bearing deposits in other                                              
institutions                               343              4,991           
Securities available-for-sale                                                   
(notes 2 and 9)                           7,826             72,076            
Loan held-for-sale, net (note 3)           6,040              4,678             
Securities held-to-maturity                                                     
(fair value of $69, 360 and                                                   
$9,437)(notes 2 and 9)                   69,896              9,941            
Loans, net (notes 3 and 4)               210,569            228,934             
Real estate owned, net (note 4)            1,643                747             
Premises and equipment, at cost,                                                
net (note 5)                              6,359              6,087            
Accrued interest receivable and                                                 
other assets (notes 2, 3 and 12)          2,848              3,350            
                            ----------------------------
                            310,943            334,431

Liabilities and Stockholders' Equity                                          
------------------------------------                                          

Deposits (notes 6 and 7)                 199,938            218,063             
Federal Home Loan Bank                                                          
advances (note 8)                        61,159             68,542            
Securities sold under agreements to                                             
repurchase (note 9)                      23,285             20,450            
Advance payments by borrowers for taxes                                         
and insurance                               874              1,207            
Principal and interest payable on loans                                         
services for others                          35                179            
Accrued expenses and other liabilities                                          
(note 6)                                  4,716              3,584            
Deferred Federal income taxes (note 10)    1,649              1,591             
                             -----------------------------
Total liabilities                    291,656            313,616         

Stockholders' equity (note 11):                                                 
Preferred stock, $.01 par value.                                            
Authorized 500,000 shares; no                                             
shares issued or outstanding              --                   --         
Common stock, $.01 par value.                                               
Authorized 5,000,000 shares; issued                                       
and outstanding 2,029,277 shares in                                       
1995 and 2,045,894 shares in 1996         20                    20        
Additional paid-in capital              4,143                  4,250        
Retained earning, substantially                                             
restricted                            15,142                 17,410       
Unrealized loss on securities                                               
available-for-sale                       (18)                  (865)      

Total stockholders' equity           19,287                 20,815      
                              ----------------------------------
Commitments and contingencies                                                   
(notes 2, 3, 7, 11 and 15)                                                    
                             310,943               334,431

See accompanying notes to consolidated financial statements.                    

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CASCADE FINANCIAL CORPORATION           
AND SUBSIDIARY          

Consolidated Statements of Operations         
Years Ended June 30, 1994, 1995, and 1996         
(Dollars in thousands)          

                                       1994             1995          1996
                                        ------------------------------------

Interest income:                                                                
Loans (note 3)                          $13,878         18,384       19,650 
Securities held-to-maturity               1,918          4,477        3,616 
Securities available-for-sale               349            213        1,098 
FHLB stock dividends                        231            182          264 
Interest-bearing deposits                   169            122          148 

Total interest income                   16,545         23,378       24,776

Interest expense:                                                               
Deposits (notes 6 and 7)                  7,708          9,133       11,391 
FHLB advance                              1,270          3,196        3,937 
Securities sold under agreements                                            
to repurchase (note 9)                     164          1,604        1,235

 Total interest expense                  9,142         13,933       16,563

 Net interest income                     7,403          9,445        8,213
Provision for (recovery of)                                                   
loan losses (note 4)                       495           (335)          --

Net interest income after provision                                     
   for loan losses                       6,908          9,780        8,213

Other income:                                                                   
Gain on sale of loans held-for-sale         796            422          506 
Gain on sale of mortgage-backed                                             
securities held-for-training               584             85          519
Gain on sale of mortgage servicing rights 2,481            238           -- 
Service charges                             861            471          444 
Gain (loss) on sale of securities                                           
available-for-sale (note 2)                (29)          (104)         338
Gain on sale of real estate owned            62            240           24 
Restitution recovery (note 15)              --            624          150
Other                                       380            502          245 

 Total other income                      5,135          2,478        2,226

Other expenses:                                                                 
Salaries and employee benefits            4,884          3,801        3,568 
Occupancy                                 1,395          1,352        1,186 
Federal deposit insurance premiums          432            471          515 
Data processing                             291            252          306 
Marketing                                   343            333          198 
Restructuring charge                         --            332           -- 
Other                                     1,661          1,338        1,231 
 Total other expenses                    9,006          7,879        7,004

 Income before Federal income taxes      3,037          4,379        3,435

Federal income taxes (note 10)              1,033          1,489        1,167   
  Net income                             2,004          2,890        2,268

Net income per common share, primary        $0.91           1.28         1.00   

Net income per common share, fully diluted   0.91           1.28         0.99   

Weighted average number of shares                                               
outstanding, primary                   2,198,519      2,254,697    2,279,098  

Weighted average number of                                                      
shares outstanding, fully diluted     2,213,213      2,256,306    2,282,033 

See accompanying notes to consolidated financial statements.                    
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CASCADE FINANCIAL CORPORATION           
AND SUBSIDIARY          

Consolidated Statements of Stockholders' Equity         
Years Ended June 30, 1994, 1995, and 1996         
(Dollars in thousands)          

                                                        · Enlarge/Download Table
                                                                                 Net                 
                                                                                 Valuation   Total   
                                                             Additional          Reserve     stock-  
                                                    Common   paid-in   Retained  for         holders'
                                        Shares      stock    capital   earnings  Securities  equity  

Balances at June 30, 1994,                                                                           
                                                                                                     
 as previously reported                1,614,498    $  16    4,108     10,248      --       14,372   

Five for four stock split effective                                                                  
 June 10, 1996, including $7                                                                         
 for fractional shares                   408,366        4      (11)        --      --           (7)  

Balances at June 30, 1994, restated    2,022,864       20    4,097     10,248      --       14,365   

Options exercised                           625        --        5         --      --            5   

Net income for the year ended                                                                        
 June 30, 1994                               --        --       --      2,004      --        2,004   

Balances at June 30, 1994, restated   2,023,489        20    4,102     12,252      --       16,374   

Options exercised                         5,788        --       41         --      --           41   

Net income for the year ended                                                                        
 June 30, 1995                               --        --       --      2,890      --        2,890   

Adjustments on available-                                                                            
 for-sale securities                         --        --       --         --      (18)        (18)  

Balances at June 30, 1995, restated   2,029,277        20    4,143     15,142      (18)     19,287   

Options exercised                        16,617        --      107         --       --         107   

Net income for the year ended                                                                        
 June 30, 1996                               --        --       --      2,268       --       2,268   

Adjustments available-for-                                                                           
 sale-securities                             --        --       --         --     (847)       (847)  

Balances at June 30, 1996             2,045,894        20    4,250     17,410     (865)     20,815   

See accompanying notes to consolidated financial statements.                                         

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CASCADE FINANCIAL CORPORATION           
AND SUBSIDIARY          

Consolidated Statements of Cash Flows         
Years Ended June 30, 1994, 1995, and 1996         
(Dollars in thousands)          

                                             1994          1995         1996
                                             -------------------------------
Cash flows from operating activities:                                           
Net income                                    2,004       2,890      2,268  
Adjustments to reconcile net                                                
income to net cash provided by                                            
(used in) operating activities:                                           
Depreciation and amortization                                         
  of premises and equipments                  620         600        553
  Other                                         --         (42)       (11)
Amortization of retained                                              
  servicing rights                             --          64        148
Provision for losses                                                  
(recover on):                                                       
    Loans                                     495        (335)        --
    Real Estate                                --          --         25
    Securities                                197          (2)        --
Additions to mortgage servicing                                       
    rights                                    (508)       (307)      (553)
Deferred loan fees, net of                                            
  amortization                                232         461         13
  Origination of loans held-for-sale      (211,292)    (34,180)   (55,921)
Proceeds from sale of loans                                           
  held-for-sale                           176,352      28,998     25,462
Proceeds from sale of mortgage                                        
  servicing rights                          3,158         241         --
Net loss (gain) on sales of:                                          
     Loans held-for-sale                      (796)       (422)      (506)
Mortgage-backed securities                                      
      held-for-training                       (584)        (85)      (519)
Securities available-                                           
      for-sale                                (168)         26       (338)

  Premises and equipment                       143         201         (5)

  Real estate owned                            (63)       (240)       (24)
 Mortgage loan servicing rights            (2,481)       (238)        --
Federal Home Loan Bank stock                                          
   dividend received                          (231)       (182)      (264)
 Deferred Federal income taxes                 --       1,338        387
Net change in accrued in interest                                     
receivable and other assets over                                    
principal and interest payable on                                   
loans serviced for others and                                       
   accrued expenses and other liabilities     (371)     (1,015)    (1,099)

       Total adjustments                   10,335       5,589        197

Net cash provided by                                      
        operating activities               12,339       8,479      2,465
Cash flows from investing activities:                                           
Loan originated, net of                                                     
principal repayments                       (51,699)    (44,378)   (19,110)
Purchases of mortgage-backed securities                                     
held-to maturity                           (15,086)    (25,740)        -- 
Principal repayments on mortgage-                                           
backed securities held-to-maturity          10,975       9,560      9,452 
Principal repayments on securities                                          
available-for-sale                              --         --       4,846 
Purchases of securities                                                     
available-for-sale                         (11,331)    (5,039)    (51,740)
Proceeds from sales of securities                                           
available-for-sale                          12,448     11,000      32,455 
Proceeds from maturities of securities                                      
and interest-bearing deposits, net           2,656         --          -- 
Proceeds from sales of real estate owned      2,539        755       1,776  
Purchases of real estate owned                   --       (333)       (141) 
Purchases of premises and equipment            (391)      (567)       (257) 
Proceeds from sales of premises and equipment,                              
and other assets                               694         --           5 
Net cash used in investing                                
         activities                        (49,195)   (54,742)    (22,714)
        Subtotal, carried forward          (36,856)   (46,263)    (20,249)

See accompanying notes to consolidated financial statements.                    

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2         

Consolidated Statements of Cash Flows, Continued        

                                             1994          1995         1996
                                             -------------------------------

         Subtotal, brought forward          (36,856)    (46,263)    (20,249)

Cash flows from financing activities:                                           
Proceeds from issuance of common stock            5          37         100 
Net increase in deposits                     14,988      18,807      18,125 
Proceeds from Federal Home Loan                                             
Bank advances                              134,475     100,800      83,133
Payment of Federal Home Loan                                                
 Bank advances                             (128,175)    (74,775)    (75,750)
Net increases in securities sold under                                      
 agreements to repurchase                    12,933       3,958      (2,835)
Net increase (decrease) in advance payments                                 
by borrowers for taxes and insurance           (78)         (2)        332

         Net cash provided by financing     34,148      48,825      23,105

Net increase (decrease) in cash                         
          and cash equivalents              (2,708)      2,562       2,856

Cash and cash equivalents at                                                    
beginning of year                             5,908       3,200       5,762 

Cash and cash equivalents at end of year        3,200       5,762       8,618   

Supplemental disclosures of cash flow                                           
information-cash paid during the year for:                                  

         Interest                            9,370      13,607      16,603
         Federal income taxes                1,037          70         852

Supplemental schedule of noncash                                                
investing activities:                                                         
Mortgage loans securitized into FHLMC                                     
participation certificates and held-for-                                
 trading and sold                            45,048     10,623      32,330
Mortgage loans securitized into FHLMC                                     
participation certificates and held-                                    
 for-investment                              16,100      4,769          --
Securities reclassified from held-to-                                       
maturity to available-for-sale                   --         --      50,503
Net mortgage loans transferred to real                                      
estate owned                                     95      1,675         740

See accompanying notes to consolidated financial statements.                    

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CASCADE FINANCIAL CORPORATION           
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
June 30, 1994, 1995, and 1996         
(Dollars in thousands, except share amounts)        

(1)  Summary of Significant Accounting Policies                                 

The accounting and financial reporting policies of Cascade Financial  
Corporation and subsidiary (the Corporation) conform to generally     
accepted accounting principles and to general practice within the     
financial institutions industry, where applicable.  In preparing the  
consolidated financial statements management makes estimates and      
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expense   
during the reported periods.  Actual results could differ from those  
estimates.                                                            

Material estimates that are particularly susceptible to significant   
  change in the near term relate to the determination of the allowance for
loan losses and the valuation of real estate owned, securities, and   
capitalized mortgage servicing rights.  In connection with the        
determination of the allowances for loans and real estate owned,      
management obtains independent appraisals for significant properties. 

Management believes the allowances for losses on loans and real estate
owned are adequate.  While management uses available information to   
  recognize losses on these assets, future additions to the allowances may
   be necessary based on changes in economic conditions, particularly in the
  western Washington region.  In addition, various regulatory agencies, as
an integral part of their examination process, periodically review the
Corporation's allowances for losses on loans and real estate owned and
the valuation of securities and capitalized mortgage servicing rights.
 Such agencies may require the Corporation to recognize additions to the
allowances, or change valuations, based on their judgments about      
information available to them at the time of their examination.       

   All of the Corporation's loans are located in the Puget Sound region.  At
  June 30, 1996, the Corporation's loans are secured by one-to-four-family
   residences (79%), multifamily residences (15%) and commercial real estate
properties (6%).  Accordingly, the ultimate collectibility of the     
Corporation's loan portfolio is susceptible to changes in the economic
and real estate market conditions in the Puget Sound region.          

 Most loans originated by the Corporation are secured by real estate and
are generally no more than 80% of the lesser of the appraised value or
purchase price of the underlying property.  The Corporation currently 
requires customers to obtain private mortgage insurance on all loans  
above an 80% loan-to-value ratio.                                     

The following is a description of the more significant policies, which
the Corporation follows in preparing and presenting its consolidated  
financial statements.                                                 

(a)  Basis of Presentation                                            

     The consolidated financial statements include the accounts of the
        Corporation, its subsidiary, Cascade Savings Bank, FSB, (the Savings
Bank), and the Savings Bank's subsidiary, Cascade Investment
        Services, Inc.  The par value of common stock and additional paid-in
        capital of the Corporation have been restated to reflect the new par
    value of the holding company which became effective November 30,
       1994.  The formation of the holding company was treated in a manner
similar to pooling-of-interest accounting.                  

(b)  Cash Equivalents                                                 

The Corporation considers all interest-bearing deposits and 
   short-term highly liquid investment securities with an original
maturity of three months or less to be cash equivalents.    

(c)  Loans                                                            

      Loans are stated at principal amounts outstanding, net of deferred
loan fees and costs.  Interest is accrued only if deemed    
      collectible.  Accrual of interest income is generally discontinued
     when a loan becomes 90 days past due and accrued interest amounts
    are reversed.  Once interest has been paid to date or management
 considers the loan to be fully collectible, it is returned to
     accrual status.  All loans on which interest is not being accrued
       are referred to as loans on nonaccrual status and are classified as
impaired.                                                   

  Loan origination fees and certain direct origination costs are
     deferred and amortized as an adjustment of the loans' yields over
    their contractual lives using the interest method.  In the event
       loans are sold, the remaining net deferred loan origination fees or
     costs are recognized as a component of the gains or losses on the
sales of loans.                                             

      Loan commitment fees are deferred until loans are funded, at which
   time they are amortized into interest income using the interest
      method.  If the commitment period expires, the fees are recognized
as service charges.                                         

                                                             (Continued)
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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

(d)  Allowance for Loan Losses                                        

        The allowance for loan losses is maintained at a level sufficient to
    provide for losses based on management's evaluation of known and
   inherent risks in the loan portfolio.  This evaluation includes
     analyses of the fair value of collateral securing selected loans,
consideration of historical loss experience and management's
projection of trends effecting credit quality.              

   On July 1, 1995, the Corporation adopted Statement of Financial
      Accounting Standards ("SFAS") No. 114, Accounting by Creditors for
     Impairment of a Loan, and the related SFAS No. 118, Accounting by
Creditors for Impairment of a Loan-Income Recognition and   
        Disclosures.  There was no effect of adopting the Statements on 1996
     results of operations or financial position because the allowance
for losses established under the previous accounting policy 
      continued to be appropriate following the accounting change.  SFAS
114 is applicable to all loans except large groups of       
     smaller-balance homogeneous loans that are collectively evaluated
        for impairment, loans measured at fair value or at the lower of cost
       or fair value, leases, and debt securities.  The Statements require
   disclosures of impaired loans for which it is probable that the
 lender will be unable to collect all amounts due according to
      original contractual terms of the loan agreement, based on current
information and events.                                     

      SFAS 114 requires that the valuation of impaired loans be based on
     the present value of expected future cash flows discounted at the
       loan's effective interest rate, or as a practical expedient, at the
       loan's observable market price, or the fair value of the collateral
       if the loan is collateral dependent.  An impaired loan may not be a
nonaccrual loan.                                            

(e)  Sales of Loans                                                   

Loans Held-for-Sale                                         

       Any loan that management determines will not be held-to-maturity is
  classified as held-for-sale at the time of origination.  Loans
held-for-sale are carried at lower of cost or market value, 
     determined on an aggregate basis.  Market value is determined for
      loan pools with common interest rates using published quotes as of
        the close of business.  Unrealized losses on such loans are included
        in gain on sale for loans held-for-sale.  All loans are sold without
recourse.                                                   

Mortgage-backed securities held-for-trading                 

As part of its mortgage-banking activity, the Corporation   
  securitizes certain loans originated for sale. Mortgage-backed
      securities ("MBS") that the Corporation holds for mortgage-banking
   purposes are accounted for as trading securities at the time of
        origination.  These securities are carried at fair value, determined
   on an aggregate basis.  Fair value is determined for securities
    using published quotes as of the close of business.  Realized or
    unrealized gains or losses on such  MBS are included in  gain on
sale of MBS held-for-trading.                               

     Capitalized Mortgage Loan Servicing Rights, Loan Servicing Income
and Sale of Loan Servicing Rights                           

   In May 1995, the FASB issued SFAS 122, "Accounting for Mortgage
  Servicing Rights, an amendment of SFAS 65".  SFAS 122 requires
       corporations that acquire mortgage servicing rights ("MSR") through
     either the purchase or origination of mortgage loans and sells or
       securitizes those loans with servicing rights retained allocate the
      total cost of the mortgage loans to the MSR and the loans (without
     the MSR) based on their relative fair values.  The Statement also
       requires that corporations assess their MSR for impairment based on
     the fair value of those rights.  The carrying value of the MSR is
    evaluated on a quarterly basis and any  impairment is recognized
 through a valuation allowance for each impaired stratum.  For
        purposes of measuring impairment, the Corporation stratifies its MSR
     by various risk characteristics such as loan type, investor type,
      interest rate and origination date.  The MSR are included in other
assets and are amortized as an offset to service charges in 
        proportion to and over the period of estimated net servicing income.
   Management adopted this Statement effective July 1, 1994.  As a
    result of this adoption net income was increased by $112 for the
year ended June 30, 1995.                                   
                                                             (Continued)

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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

 At the time of loan sales, a gain or loss is recognized and a
    premium (excess mortgage servicing rights or "EMSR") is recorded
based upon the present value of the difference between the  
        contractual interest rates of the loans and the current market rate,
     reduced by normal servicing fees, over the estimated lives of the
       mortgage loans. Amortization of the EMSR is recorded as an addition
        to or reduction of service charges using the level-yield method over
    the contractual lives of such loans, with appropriate prepayment
assumptions.  The carrying value of the ESMR is evaluated as
described above.                                            

     Loan servicing generally consists of collecting mortgage payments
     and certain charges collected from borrowers such as late payment
 fees, maintaining escrow accounts, and disbursing payments to
    investors.  Loan servicing income is recorded when earned and is
     recorded to service charges.  Loan servicing costs are charged to
expense as incurred.                                        

       The Corporation has periodically sold loan servicing rights.  Gains
       and losses from sales of loan servicing rights are calculated using
the specific identification of the related carrying value.  

(f)  Securities                                                       

       Debt and equity securities, including MBS, are classified as either
 trading, available-for-sale, or held-to-maturity.  Securities
   classified as trading are carried at fair value with unrealized
gains and losses reported in earnings.  Securities          
    available-for-sale are carried at fair value.  Realized gains or
   losses on the sales of these  available-for-sale securities are
    recognized using the specific identification method.  Unrealized
    gains and losses are recognized using published quotes as of the
  close of business with unrealized gains and losses reported in
stockholders' equity, net of tax.                           

        Securities and MBS held-to-maturity are carried at amortized cost or
principal balance, adjusted for amortization of premiums and
     accretion of discounts. Amortization of premiums and accretion of
        discounts are calculated using a method which approximates the level
yield method.  The Corporation has the ability, and it is   
   management's intention, to hold such securities until maturity.

     In November 1995, the FASB issued a special report related to the
implementation of SFAS 115 that allowed companies a one-time
       reassessment and related reclassification from the held-to-maturity
category to the available-for-sale category without adverse 
accounting consequences for the remainder of the portfolio. 
   Accordingly, on December 31, 1995, the Corporation reclassified
   securities with an aggregate amortized cost of $50,503 from the
 held-to-maturity category to the available-for-sale category,
        resulting in an increase in gross unrealized gains of $367 and gross
unrealized losses of $294.                                  

(g)  Asset and Liability Management Activities                        

  The Corporation uses off-balance sheet  instruments, including
  interest rate exchange agreements ("swaps"), interest rate cap
   agreements and forward sales to manage interest rate exposures.
       Swap and cap agreements are designated either against specific loan
     portfolios or against short-term deposits.  The fair value of the
       swap and cap agreements are not reported on the balance sheet.  The
        interest differential paid or received on the agreements is recorded
  as an adjustment to interest income or interest expense of the
     related asset or liability.  Premiums paid for interest rate caps
     are deferred and amortized to interest income or expense over the
term of the agreement.                                      

                                                             (Continued)
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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

      The Corporation uses mandatory and optional forward commitments to
hedge loans held-for-sale and a portion of rate locked loan 
     applications.  To the extent the Corporation's hedging techniques
      are not effective, the Corporation may incur mark-to-market losses
     in its loans held-for-sale portfolio, thereby adversely affecting
       its results of operations.  Realized gains or losses and unrealized
    losses on hedging operations are included in gain on sale of MBS
       held-for-trading.  If at any time the off-balance sheet contract no
longer qualifies for hedge accounting treatment, it is      
marked-to-market on a prospective basis.                    

(h)  Real Estate Owned                                                

    Real estate owned includes real estate acquired in settlement of
      loans.  Real estate owned is recorded at the lower of cost or fair
        value less estimated costs to sell.  Any loss recorded at the time a
foreclosure occurs is classified as a charge-off against the
   allowance for loan losses.  Losses that result from the ongoing
       periodic valuation of these properties are established as valuation
        allowances and charged to operations in the period in which they are
identified.                                                 

(i)  Premises and Equipment                                           

Premises and equipment are stated at cost.  Straight-line   
   depreciation is provided over the estimated useful lives of the
     respective assets.  Leasehold improvements are amortized over the
      estimated useful lives of the improvements or terms of the related
leases, whichever is shorter.                               

(j)  Federal Income Taxes                                             

     Deferred tax assets and liabilities are recognized for the future
      tax consequences attributable to differences between the financial
     statement carrying amounts of existing assets and liabilities and
        their respective tax bases.  Deferred tax assets and liabilities are
        measured using enacted tax rates expected to apply to taxable income
        in the years in which those temporary differences are expected to be
   recovered or settled. The effect on the deferred tax assets and
       liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.                    

(k)  Earnings Per Share                                               

        Primary earnings per share is computed based on the weighted average
 number of shares of common stock outstanding and common stock
   equivalents assumed outstanding during the year.  Fully diluted
    shares outstanding includes the maximum dilutive effect of stock
     issuable upon exercise of common stock equivalents.  Common stock
   equivalents consist of common stock options. Earnings per share
figures have been restated to take into effect stock splits.

(l)  Reclassifications                                                

       Certain 1994 and 1995 balances have been reclassified to conform to
the 1996 presentation.                                      

(m)  Unaudited quarterly financial data                               

  Quarterly financial data is included in "Selected Consolidated
    Financial and other Data", in the Corporation's Annual Report on
Form 10-K.                                                  

                                                             (Continued)
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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

(2)  Securities                                                       

A summary of securities at June 30 follows:                           

       1995                       1996
         ------------------------------  -------------------------------

 Amor-   Gross    Gross          Amor-  Gross    Gross
  tized   unreal-   unreal-        tized  unreal-  unreal-
        cost,   ized      ized   Fair    cost,  ized     ized     Fair
         net    gain    losses  value     net    gain    losses  value
        ------------------------------- --------------------------------

Securities                                                                      
available-                                                                  
for-sale:                                                                   
Mutual                                                                        
funds       $4,525     --   18    4,507    21,139   --      70    21,069    
FHLB stock    3,319     --   --    3,319     4,014   --      --     4,014     
FHLMC            --     --   --       --    28,025   --   1,065    29,960     
FNMA             --     --   --       --     6,361   --      49     6,312     
SBA              --     --   --       --    13,849   --     128    13,721     
        ----------------------------------------------------------------
         7,844     --   18    7,826    73,388   --   1,312    72,076

Securities                                                                      
held-to                                                                     
maturity:                                                                   
Mortgage-                                                                     
backed                                                                    
securities                                                                
FHLMC      61,612    268  748   61,132     9,941   --     504     9,437   
FNMA        8,284     --   56    8,228        --   --      --        --   
       -------------------------------------------------------------------
        69,896    268  804   69,360    9,941    --     504     9,437
       -------------------------------------------------------------------
        77,740    268  822   77,186   83,329    --   1,816    81,513

As of June 30, 1995 and 1996, the Corporation was required to maintain 30,580,  
and 34,271 shares respectively, of $100 par value FHLB stock.                   

Accrued interest receivable on securities and interest-bearing deposits was     
$23, and $250 at June 30, 1995, and 1996, respectively.  Accrued interest       
receivable on mortgage-backed securities was  $524, and $278 for the same       
periods.  At June 30, 1995, all mortgage-backed securities are                  
held-to-maturity.                                                               

Mortgage-backed securities are allocated based upon contractual maturity        
dates.  Actual maturities may differ from contractual maturities because the    
borrowers have the right to prepay their obligations.  Held-to-maturity and     
available-for-sale securities pledged as collateral to secure public deposits   
were $881 and $0 in 1995 and $0 and $904 in 1996, respectively.                 

                                                             (Continued)
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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

Proceeds from the sale of securities available-for-sale and gross realized      
gains and losses are summarized as follows:                                     

                             Proceeds          Gains        Losses
                              --------------------------------------
Securities available-                                                           
for-sale:                                                                   
Year ended June 30, 1995                                                      
Equity securities                 $11,000            --             23      
FHLMC-PC's                         12,033            --             81      
                            --------------------------------------
Total                             23,033            --            104     

Year ended June                                                                 
30, 1996                                                                    
FHLMC-PC's                          32,406           360             22       
                            --------------------------------------
Total                             32,406           360             22     

The following table shows the contractual maturities of the Corporation's       
securities held-to-maturity at June 30, 1996:                                   

                       Over five
         Within one   Over one to   to ten      Over ten
                    year       five years     years        years     Total
                   ---------------------------------------------------------
Amortized                                                                       
Cost                                                                          
FHLMC              $2,244         7,697         --          --        9,941 
Total                                                                   
amortized                                                             
  cost             2,244         7,697         --          --        9,941

Fair Value                                                                      
FHLMC               $2,192         7,245         --          --        9,437  
Total                                                                     
fair                                                                    
 value             2,192         7,245         --          --        9,437

The following table shows the contractual maturities of the Corporation's       
securities available-for-sale at June 30, 1996:                                 

                       Over five
         Within one   Over one to   to ten      Over ten
                    year       five years     years        years     Total
                ----------------------------------------------------------
Amortized                                                                       
Cost                                                                          
FHLMC              $    --         2,148        1,582      24,295    28,025 
FNMA                    --            --           --       6,361     6,361 

SBA                     --            --           --      13,849    13,849 
Mutual                                                                    
Funds              21,139            --           --          --    21,139
FHLB Stock           4,014            --           --          --     4,014 
                  ----------------------------------------------------------

Total Amortized cost  25,153         2,148        1,582       44,505   73,388   

                       Over five
         Within one   Over one to   to ten      Over ten
                    year       five years     years        years     Total
                ----------------------------------------------------------
Fair Value                                                                      
FHLMC               $    --         2,030        1,525       23,405   26,960  
FNMA                     --            --           --        6,312    6,312  
SBA                      --            --           --       13,721   13,721  
Mutual                                                                        
Funds               21,069            --           --           --   21,069 
FHLB Stock            4,014            --           --           --    4,014  
                ------------------------------------------------------------
Total fair value    25,083         2,030          1,525     43,438   72,076 
                                                             (Continued)

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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

(3)  Loans                                                            

  A summary of loans and loans held for sale at June 30 follows:

                           1995                 1996
                          ------------------------------
Real estate mortgage:                                                           
One-to-four family                   $157,518              159,749            
Multi-family                           27,169               37,540            
Commercial                             16,770               14,739            
Home equity                             3,553                6,792            
Installment                                --                   --            
Real estate construction:                                                       
One-to-four family                     22,708               28,277            
Land loans                                202                  194            
                         -------------------------------
Total loans                         227,920              247,798          

Loans in process                        (6,215)              (9,082)            
Deferred loan fees, net                 (2,146)              (2,158)            
Allowance for loan losses               (2,950)              (2,946)            
                        --------------------------------
                          216,609              233,612
Loans held for sale                     (6,040)              (4,678)            
Loans, net                          210,569              228,934          
                         ---------------------------------
Loans services for others             $ 46,671             $ 78,210             

    Accrued interest on loans is $1,333 and $1,535, respectively, at
June 30, 1995 and 1996.                                     

  At June 30, 1996, the composition of the loan portfolio was as
follows (in thousands):                                     

                             Fixed Rate    Adjustable Rate
Term to Maturity:                                               
Less than one year             $ 35,000          71,763     
1-3 years                        11,662          29,640     
3-5 years                        44,517          26,273     
5-10 years                        8,676              --     
10-20 years                       7,371              --     
Over 20 years                    12,896              --     

                                                             (Continued)
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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

   Nonaccrual loans totaled $597 and $373, respectively at June 30, 1995 and
  1996.  If interest on these loans had been recognized, such income would
have been $24 and $8, respectively for 1995 and 1996.  In addition, at
June 30, 1995 and 1996, the Corporation had restructured loans        
  aggregating $4,168 and $4,150, respectively.  During 1994, 1995 and 1996
$267, $280 and $330, respectively was recognized in interest income on
  these loans.  Had these loans not been restructured and interest accrued
 at their original rates, the additional interest income would have been
$192, $148 and $97, respectively for 1994, 1995 and 1996.             

   At June 30, 1996, loans totaling $1,599 were impaired of which $1,226 had
   allocated reserves of $300.  The remaining $373 had no reserves allocated
to them since the value of the impaired loans was equal to or exceeded
 the recorded investment.  Of the $1,599 of impaired loans, $373 were on
 nonaccrual status, $0 were under foreclosure and $1,226 were performing
  but judged to be impaired.  The average balance of impaired loans during
the year was $1,680 and the Corporation recognized $156 of related    
 interest income.  Interest income is normally recognized on the accrual
basis, however, if the impaired loan is nonperforming, then interest  
income is recorded on the receipt of cash.  The difference between    
interest income recognized on the accrual basis and cash basis is not 
significant.                                                          

   At June 30, 1995 and 1996, the Corporation had outstanding commitments to
fund loans with fixed interest rates totaling $8,000 and $5,200,      
  respectively and loans with adjustable rates totaling $6,300 and $6,100,
respectively.                                                         

  The Corporation has forward commitments to sell loans into the secondary
market totaling $7,050, and $5,014 respectively, at June 30, 1995 and 
1996.                                                                 

Significant Gain                                                                

   On August 12, 1994, a $5,100 loan was repaid and the Corporation recorded
an after-tax gain of approximately $1,450.  The components of the gain
  included deferred interest and reimbursement of legal expenses and other
costs.                                                                

(4)  Allowance for Losses on Loans Receivable and Real Estate Owned             

   A summary of the allowance for losses on loans receivable and real estate
owned follows:                                                        
                                    Year ended June 30
                                       1994            1995           1996
                                      --------------------------------------
Loans receivable:                                                               
Balances beginning of year             $3,090           3,485         2,950 
Provision for loss                        495              --            -- 
Reversal of prior provision                                                 
for losses                                --            (335)           --
Charge-offs                              (100)           (200)           (4)
                                      --------------------------------------
Balances at end of year                 3,485           2,950         2,946 

Real estate owned:                                                              
Balances at beginning of year             391              --            -- 
Provision for loss                         --              --            -- 
Charge-offs                              (391)             --            -- 
                                       -------------------------------------

Balances at end of year                    --               --            --

                                                             (Continued)

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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

(5)  Premises and Equipment                                                     
A summary of premises and equipment follows:                          
                     Estimated                   June 30
                           useful lives          1995             1996
                          ----------------------------------------------

Land                                                   $   713          713     

Buildings                          40 years              6,397        6,485     
Leasehold improvements            Lease term               394          425     
Furniture and equipment            2-10 years            3,453        3,578     
Automobiles                        3-4 years                19           19     
                                                  ----------------------
                                                   10,976       11,220
Less accumulated depreciation                                                   
and amortization                                       4,617        5,133   
                                                  ------------------------
                                                    6,359        6,087

 The Corporation took a one-time restructuring charge of $332 during the
year ended June 30, 1995 due to a reduction in its mortgage banking   
activity.  This restructuring charge included a write off of          
approximately $200 in premises and equipment.                         

   During 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
 of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".  The
Statement establishes accounting standards for the impairment of      
   long-lived assets that either will be held and used in operations or that
  will be disposed of.  The adoption is not anticipated to have a material
impact on the results of operations or financial condition of the     
Corporation.                                                          

(6)  Deposits                                                                   

A summary of deposits follows:                                        
                       June 30
                       ---------------------------------------------------
                         1995                       1996
                        Amount   Percent    Rate   Amount   Percent   Rate
                        --------------------------------------------------
Checking accounts:                                                              
Noninterest bearing  $   829     0.40%              1,555    0.71           
Interest bearing       7,304     3.60   2.05-2.30%  8,038    3.69  1.70-2.03
Money market deposit                                                        
 accounts             19,740     9.90   2.05-4.45  34,982   16.04  4.18-6.00

                     -------------------------------------------------------
           27,873    13.90              44,575   20.44
                     -------------------------------------------------------
Savings accounts         8,133     4.10       3.00    7,922    3.63     3.08    

Time deposits by                                                                
interest rate:                                                                
3.00-3.99%                367     0.20                  32    0.01            
4.00-4.99%             15,502     7.80               8,648    3.97            
5.00-5.99%             51,561    25.80             117,089   53.70            
6.00-6.99%             91,659    45.80              36,939   16.95            
7.00-7.99%              4,172     2.10               2,389    1.10            
8.00-8.99%                474     0.20                 469    0.21            
9.00 and over             197     0.10                   0    0.00            
          163,932    82.00             165,566   75.93
            ------------------          ------------------
          199,938   100.00             218,063  100.00

                                                             (Continued)
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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

   Deposit
   accounts with
   Weighted         balances in          Accrued
   average interest        excess of      interest payable
 rate on deposits        $100,000          on deposits
   ---------------------------------------------------------

June 30,                                                                        
1995              5.8%              $33,586               524                 
June 30,                                                                        
1995              5.9                38,682               436                 

A summary of interest expense on deposits follows:                    

                  Year ended June 30
                       1994         1995          1996
                      ------------------------------------
Checking accounts                  $1,295        1,076        1,063             
Savings accounts and                                                            
time deposits                     6,413        8,057       10,328           
                       -----------------------------------
                      $7,708        9,133       11,391

Maturities of time                                                              
deposits are as follows:                                                    

                 June 30
                   ---------------------------
                   1995                   1996
                    ----------------------------

Years ending June 30:                                                           
1996                           $118,824                 --            
1997                             17,972            123,400            
1998                              8,055             15,107            
1999                              6,185              8,657            
2000                             12,789             13,130            
2001                                 --              5,164            
Thereafter                          107                108            
                     -----------------------------
                    163,932            165,566

(7)  Asset and Liability Management Activities                                  

The Corporation has entered into interest rate swap and cap agreements
  with primary dealers, the Federal Home Loan Bank of Seattle ("FHLB") and
  other correspondent banks to manage interest rate risk or reduce deposit
  costs.  Swap and cap agreements expose the Corporation to credit risk in
 the event of nonperformance by counterparties to such agreements.  This
  risk consists primarily of the termination value of agreements where the
Corporation is in a favorable position.  The Corporation controls the 
credit risk associated with its swap and cap agreements through       
counterparty credit review and monitoring procedures.  None of the    
Corporation's derivative instruments are what are termed leveraged    
derivative instruments.                                               

During the years ended June 30, 1995 and 1996, the Corporation entered
 into interest rate swaps with notional values totaling $7.5 million and
$0, respectively.  These swaps had the effect of reducing the         
 Corporation's interest expense on deposits.  The net difference between
   the interest received and paid on the interest rate swaps of $54, $42 and
$49, respectively for the years ended June 30, 1994, 1995 and 1996, is
recorded as a decrease to interest expense on deposits.               

On June 28, 1996,  the Corporation entered into interest rate cap     
 agreements with notional values totaling $5,000.  These agreements were
 designated against certain loans.  If three month Libor exceeds 6%, the
   net interest received would be recorded as an increase to interest income
on loans.                                                             

                                                             (Continued)
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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

  Interest rate cap agreements at June 30, 1996 are summarized as follows:

Notional amount                   $5,000          
Weighted average maturity          24 months      
Strike rate                        6.00%          
Three month Libor                  5.56%          
Payment terms                      Quarterly      

(8)  FHLB Advances                                                              
FHLB advances are summarized as follows:                              

           June 30
          ------------------------------------
          1995                            1996
          ----------------------------------------------------------
                         Weighted average             Weighted average
Maturity date       Amount     interest rate      Amount    interest rate       
---------------------------------------------------------------------------     
Year ended June 30:                                                             
1996            $30,000         6.27%            --             --      
1997             21,000         6.74         52,383           5.87      
1998             10,000         6.27         16,000           5.81      
Thereafter          159         7.67            159           7.67      
           ---------------------------------------------------
          $61,159         6.44         68,542           5.86

FHLB advances are collateralized by the investment in FHLB stock and  
otherwise unencumbered one-to-four family permanent mortgages equal to
120% of outstanding advances.                                         

(9)  Securities Sold Under Agreements to Repurchase and Lines of Credit         

The Corporation enters into sales of securities under agreements to   
   repurchase (reverse repurchase agreements) which are treated as financing
   arrangements.  Accordingly, the obligations to repurchase securities sold
  are reflected as a liability in the consolidated balance sheets, and the
 securities underlying the agreements remain in the asset accounts.  The
  securities underlying the agreements are under the Corporation's control
and are held by the Federal Home Loan Mortgage Corporation, nationally
 known government security dealers who are recognized as primary dealers
  by the Federal Reserve Board, or other investment banking firms approved
  by the Corporation's Board of Directors.  Such agreements typically have
maturities ranging from thirty to 270 days.                           

Securities sold under agreements to repurchase the same securities    
consist of mortgage-backed securities summarized as follows:          

                               Underlying securities
                                --------------------------
                      Book value
     Weighted        including
  Balance    average interest      accrued        Market
outstanding         rate           interest         value 
 -----------------------------------------------------------

June 30,                                                                        
1995      $23,285          6.12%           25,685          25,100             
June 30,                                                                        
1995       20,450          5.44            21,266          21,120             

                                                             (Continued)
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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

A summary of outstanding agreements' activity follows:                

                          Year ended June 30
                           -------------------
                           1995           1996
                            --------------------
Maximum amount of outstanding                                                   
agreements at any month-end              $36,313         24,261               

Average amount of outstanding                                                   
agreements during the year                26,418         21,432               

The Corporation has a commitment of $2,000 from a regional commercial 
bank to purchase Federal funds on an unsecured basis subject to annual
renewal.                                                              

   On June 28, 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities". 
  This Statement provides accounting and reporting standards for transfers
 and servicing of financial assets and extinguishment of liabilities and
 provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings.  The
 adoption is not anticipated to have a material impact on the results of
operations or financial condition of the Corporation.                 

(10) Federal Income Taxes                                                       

Income tax expense includes the following components:                 

                Year ended June 30
                ------------------------------------
               1994            1995           1996
                ------------------------------------

Current                       $1,033           151            780               
Deferred                          --         1,338            387               
                 -------------------------------------
                1,033         1,489          1,167

Deferred Federal income taxes result from temporary differences in the
  recognition of income and expense for financial statement and income tax
   reporting purposes.  The sources of these temporary differences and their
tax effects follow:                                                   

                          Year ended June 30
                           -------------------
                           1995           1996
                            --------------------

Premises and equipment                      $    --          (12)               
Loan fee income for financial                                                   
statements recognized for tax                                               
purposes as loans are repaid                  207          169              
Differences between provision for                                               
loan and securities losses taken                                            
for financial statements and bad debt                                       
deduction for tax purposes                    863          141              
FHLB stock dividend and redemptions              61           90                
Deductible expenses previously                                                  
recognized for financial statements           212           --              
Accrued expenses and mark-to-market                                             
adjustments                                     8           22              
Prepaid expenses                                (13)         (23)               
                                ----------------------
                              1,338          387

The provision for Federal income tax expense approximates the amount  
computed by applying the "expected" Federal income tax rate of 34% to 
income before Federal income taxes.                                   

  Under provision of the Internal Revenue Code, the Corporation is allowed
   a statutory bad debt deduction (based upon a percentage of taxable income
   before such deduction) for additions to tax bad debt reserves established
   for the purpose of absorbing losses on loans or property acquired through
foreclosure.  SFAS 109 provides that savings banks are not required to

                                                             (Continued)
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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

provide a deferred tax liability for additions to the tax bad debt    
reserve accumulated as of December 31, 1987, which amount for the     
   Corporation is $473.  This amount represents allocations of income to bad
   debt deductions for tax reporting purposes only.  Reduction of amounts so
  allocated for purposes other than tax bad debt losses will create income
for tax reporting purposes only, which will be subject to the then    
current corporate income tax rate.                                    

The following table presents major components of the net deferred tax 
  liability resulting from differences between financial reporting and tax
bases at June 30:                                                     

                                 1995                     1996
                                --------------------------------------

Deferred tax assets:                                                            
Securities available-for-sale          $    --                    446       
Loans                                       90                     --       
                                ----------------------------------------
Gross deferred tax assets                90                    446    

Deferred tax liabilities:                                                       
Loans                                        --                    (51)       
Deferred loan fees                         (824)                  (993)       
Premises and equipment                     (370)                  (358)       
FHLB stock                                 (509)                  (599)       
Other                                       (36)                  (367)       
                               -----------------------------------------
Gross deferred tax liabilities         (1,739)                (2,037)     
                               -----------------------------------------
Net deferred tax liability                (1,649)                (1,591)        

A valuation allowance for deferred tax assets was not considered      
necessary at June 30, 1995 or 1996.                                   

(11) Retained Earnings                                                          

(a)  Stock Conversion                                                 

Concurrent with the 1992 stock conversion, the Savings Bank 
       established a liquidation account equal to its retained earnings as
     reflected in its March 31, 1992 statement of financial condition.
     The liquidation account is maintained for the benefit of eligible
       depositors who maintain eligible accounts in the Savings Bank after
  the conversion.  In the event of a complete liquidation of the
     Savings Bank (and only in such an event), eligible depositors who
       continue to maintain eligible accounts shall be entitled to receive
      a distribution from the liquidation account before any liquidating
distribution may be made with respect to common stock.      

(b)  Restrictions on Dividends                                        

       The Savings Bank's liquidation account does not restrict the use or
       application of net worth except for the repurchase of stock and the
        payment of dividends.  Current regulations allow the Savings Bank to
  pay dividends on its stock if its regulatory capital would not
       thereby be reduced below the amount required for the aforementioned
    liquidation account or statutory capital requirements set by the
Office of Thrift Supervision ("OTS").                       

(c)  Regulatory Capital                                               

       At June 30, 1996 banking regulations require institutions to have a
       minimum regulatory tangible and core (or leverage) capital equal to
       1.5% and 3%, respectively, of adjusted total assets, and Tier 1 and
      total risk-based capital ("RBC") equal to 4% and 8%, respectively,
        of risk-weighted assets.  The OTS has adopted a final rule adding an
interest rate risk component to the RBC requirement although
  implementation of the regulation has been delayed.  Management
currently does not believe the interest rate risk rule will 
      materially affect the Corporation's current business strategy when
it is implemented.                                          

                                                             (Continued)
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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

     The Federal Deposit Insurance Corporation Improvement Act of 1991
     ("FDICIA") instituted a risk-based assessment system that defined
  five capital tiers:  well-capitalized, adequately capitalized,
   undercapitalized, significantly undercapitalized and critically
undercapitalized.  Under the regulations, a well capitalized
    institution must have a Tier 1 RBC ratio of at least 6%, a total
     capital ratio of at least 10% and a leverage ratio of at least 5%
      and not be subject to a capital directive order.  The Savings Bank
       had a tangible capital ratio of 6.4%,  Tier 1 RBC ratio of 12.4%, a
     total capital ratio of 13.7% and a leverage ratio of 6.4% at June
       30, 1996, compared with 6.2%, 12%, 13.2% and 6.2% at June 30, 1995,
       respectively.  At June 30, 1996, the Savings Bank was in compliance
       with the regulatory requirements for well-capitalized institutions.

(12) Mortgage Servicing Rights                                                  

A summary of capitalized mortgage servicing rights and excess mortgage
servicing rights at June 30, 1995 and 1996 follows:                   

                       June 30
         -------------------------------------------------------------------
               1995                           1996
         -------------------------------------------------------------------
                                 Excess                           Excess
             Capitalized         mortgage      Capitalized        mortgage
         mortgage servicing     servicing   mortgage servicing   servicing
              rights             rights          rights           rights
        --------------------------------------------------------------------

Fair value                                                                      
at beginning                                                                  
of year         $    --                  3               169            74    
Additions            222                 85               400           153     
Amortization          53                 11                92            56     
Sales                 --                  3                --            --     
Allowance for                                                                   
losses               --                 --                --            --    
             ---------------------------------------------------------------
Fair value at                                                                   
end of year         169                 74               477           171    

  There was no activity in the allowance for loss for the years ended June
30, 1995 and 1996.                                                    

(13) Fair Value of Financial Instruments                                        

Statement of Financial Accounting Standards No. 107 (SFAS 107),       
Disclosures About Fair Value of Financial Instruments, requires the   
Corporation to disclose estimated fair values for its financial       
instruments.  The fair value estimates, methods and assumptions, set  
  forth below for the Corporation's financial instruments, are made solely
to comply with the requirements of SFAS 107 and should be read in     
 conjunction with the financial statements and footnotes in this report.
  The fair value estimates are subjective in nature, involve uncertainties
 and matters of significant judgment and, therefore, are not necessarily
indicative of the amounts the Corporation could realize in a current  
   market exchange.  The Corporation has not included certain material items
  in its disclosure, such as the value of the long-term relationships with
the Corporation's lending and deposit customers since this is an      
 intangible and not a financial instrument.  Additionally, the estimates
 do not include any tax ramifications.  There may be inherent weaknesses
 in any calculation technique, and changes in the underlying assumptions
  used, including discount rates and estimates of future cash flows, could
   materially affect the results.  For all of these reasons, the aggregation
of the fair value calculations presented herein do not represent, and 
should not be construed to represent, the underlying value of the     
  Corporation. The following table presents a summary of the Corporation's
financial instruments, as defined by SFAS 107:                        

                                                             (Continued)
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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

                 At June 30, 1995           At June 30, 1995
                  ----------------------------------------------------
                 Carrying    Estimated fair   Carrying     Estimated
                    value        value           value      fair value
                   -----------------------------------------------------

Financial assets:                                                               
Cash and short-term                                                           
securities             $5,762        5,762           8,618     8,618        
Securities available-                                                         
for-sale                7,862        7,862           72,07    72,076        

Mortgage-backed                                                               
securities             69,896       69,360           9,941     9,437        
Loans, net             221,705      224,383         238,716   240,205         
Normal servicing rights     169          169             477       540          
Excess servicing rights      74           74             171       194          

Financial liabilities:                                                          
Deposit accounts       199,138      201,651         218,063   218,238         
Borrowings              84,444       84,653          88,992    88,921         
Interest rate swaps/caps 7,500        7,507           5,000     5,000         

Cash and short-term securities                                        

The carrying amount represents fair value.                            

Securities                                                            

Fair values are based on quoted market prices or dealer quotes.       

Mortgage-backed securities                                            

Fair values are based on quoted market prices or dealer quotes.       

Loans, net                                                            

Fair values are estimated using current market interest rates to      
discount future cash flows for each of fifteen different loan         
segments.  Interest rates used to discount the cash flows are based   
on U.S. Treasury yields or other market interest rates with           
appropriate spreads for each segment.  The spread over the treasury   
yields or other market rates is used to account for liquidity,        
credit quality and higher servicing costs.  Prepayment rates are      
based on expected future prepayment rates or where appropriate and    
available, market prepayment rates.                                   

Servicing rights                                                      

Fair values for mortgage servicing rights are based on quoted market  
prices discounted for costs to sell.                                  

Deposit accounts                                                      

SFAS 107 states the fair value of deposits with no stated maturity,   
such as checking accounts, money market deposit accounts and savings  
accounts, equals the amount payable on demand.  The fair value of     
certificates of deposits is calculated based on the discounted value  
of contractual cash flows.  The discount rate is equal to the rate    
currently offered on similar products.                                

Borrowings                                                            

The fair value is calculated based on the discounted cash flow        
method, adjusted for market interest rates and terms to maturity.     

                                                             (Continued)
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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

Off-balance sheet financial instruments                               

Fair values are estimated using market interest rates to discount     
the future cash flows of the held-for-sale commitments, sale          
agreements, interest rate cap agreements and swaps.  Commitments to   
originate portfolio loans are valued consistent with the method       
described above for loans receivable.                                 

LIMITATIONS             

These fair value disclosures are made solely to comply with the       
requirements of SFAS 107.  The calculations represent management's    
best estimates; however, due to the lack of broad markets and the     
 significant items excluded from this disclosure the calculations do not
represent the underlying value of the Corporation at June 30, 1995 and
   1996.  These amounts have not been updated since year-end; therefore, the
valuations may have changed significantly since that point in time.   

(14) Employee Benefit Plans                                                     

(a)  Savings Plan                                                     

 In October 1991, the Corporation adopted a savings plan under
       section 401(k) of the Internal Revenue Code, covering substantially
    all full-time employees after one year of continuous employment.
       Under the plan, employee contributions are partially matched by the
    Corporation.  Such matching becomes vested over a period of five
 years of credited service.  Employees may make investments in
      various stock, fixed income or money market plans, or may purchase
       stock in the Corporation.  The Corporation contributed $24, $27 and
     $24 to the plan for the years ended June 30, 1994, 1995 and 1996,
respectively.                                               

(b)  Employee Stock Ownership Plan                                    

       The Corporation established an employee stock ownership plan (ESOP)
which became effective on July 1, 1992 for employees of the 
       Corporation, the Savings Bank, and its subsidiary who have at least
     one year of continuous service.  The ESOP was initially funded by
     the Corporation for $117 which was used to purchase shares in the
conversion.  The Corporation pays all ESOP expenses.  Shares
       purchased by the ESOP are held in a suspense account for allocation
       among the participants.  Benefits become 20% vested after the third
       year of service with an additional 20% vesting each year thereafter
      until 100% vesting after seven years.  Forfeitures are reallocated
    annually among remaining participating employees.  For the years
   ended June 30, 1994, 1995 and 1996, the Corporation contributed
     $100, $75 and $91, respectively to the ESOP, which is invested in
Cascade Financial Corporation stock.                        

(c)  Employee Stock Purchase Plan                                     

        The Corporation maintains an employee stock purchase plan, under the
     terms of which 78,125 shares of Common Stock have been authorized
    for issuance.  The plan allows employees of the Corporation with
    three months of service the opportunity to purchase common stock
      through accumulated salary deductions during each offering period.
      On the first day of each six month offering period, (January 1 and
     July 1 of each year), eligible employees who elect to participate
  are granted options to purchase a limited number of shares and
 unless the participant withdraws from the plan, the option is
    automatically exercised on the last day of each offering period.
        The aggregate number of shares to be purchased in any given offering
      is determined by dividing the accumulated salary deduction for the
       period by the lower of 85% of the market price of a common share at
the beginning or end of an offering period.                 

(d)  Stock Options                                                    

     The Corporation maintains stock option plans pursuant to which an
aggregate of shares of Common Stock have been authorized for
      issuance to certain key employees and directors of the Corporation
    and it subsidiaries upon exercise of stock options.  The options
  granted under these plans are, in general, exercisable under a
      vesting schedule whereby all options become exercisable over seven
      years, and expire not more than ten years after the date of grant.

       All options granted have limited rights which enable a holder, upon
    a change in control of the Corporation, to elect to receive cash
        equal to the difference between the exercise price of the option and
      the fair market value of the common stock on the date of exercise.

                                                             (Continued)
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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

       At June 30, 1995 and 1996, 54,884 and 111,801 shares, respectively,
     were fully exercisable.  They range in price from $3.07 to $13.60
per share in 1995 and $2.46 to $12.40 per share in 1996.    

During 1995, the FASB issued SFAS No. 123, "Accounting for  
Stock-based Compensation".  The statement requires expanded 
       disclosures of stock-based compensation arrangements with employees
       and encourages (but does not require) application of the fair value
        recognition provision in the statement.  SFAS No. 123 does not alter
    the existing accounting rules for employee stock-based programs.
 Companies may continue to follow rules outlined in Accounting
Principles Board Opinion 25 ("APB 25"), but they will now be
required to disclose the pro forma amounts of net income and
    earnings per share that would have been reported had the company
      elected to follow the fair value recognition provision of SFAS No.
    123.  The adoption of the disclosure requirements of SFAS No.123
will have no material impact on the results of operations or
financial condition of the Corporation.                     

Changes in total options outstanding during 1994, 1995 and 1996 are as          
follows:                                                                        

                                1994
                                 ---------------------------------------
                                Shares Under          Option Price Per
                              Option                   Share
                                  ----------------------------------------

Outstanding at beginning of year         82,656                      $6.00      
Granted during year                      66,100             14.50 to 10.50      
Exercised during year                      (625)                     10.50      
Two Five-for-four stock splits           82,828              14.50 to 6.00      
Forfeited during year                    (2,764)             14.50 to 3.84      
                                  ----------------------------------------
Outstanding at end of year              228,195               9.28 to 3.84      

                                1995
                                 ---------------------------------------
                                Shares Under          Option Price Per
                              Option                   Share
                                  ----------------------------------------

Outstanding at beginning of year         228,195               9.28 to 3.84     
Granted during year                        4,021             17.00 to 10.88     
Exercised during year                     (5,788)             10.88 to 3.84     
Two Five-for-four stock splits            52,947              17.00 to 3.84     
Forfeited during year                    (17,636)              9.28 to 3.84     
                                  ----------------------------------------
Outstanding at end of year               261,739              13.60 to 3.07     

                                1996
                                 ---------------------------------------
                                Shares Under          Option Price Per
                              Option                   Share
                                  ----------------------------------------

Outstanding at beginning of year        261,739              13.60 to 3.07      
Granted during year                      35,789             17.00 to 13.30      
Exercised during year                   (16,617)              7.42 to 3.07      
Two Five-for-four stock splits           66,673              17.00 to 3.07      
Forfeited during year                   (15,346)             17.00 to 3.07      
                                    ----------------------------------------
Outstanding at end of year              332,238              13.60 to 2.46      

                                                             (Continued)
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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

(15) Contingencies                                                              

The Corporation is a defendant in various legal proceedings arising in
 connection with its business.  It is the opinion of management that the
financial position of the Corporation will not be materially adversely
affected by the final outcome of these legal proceedings and that     
adequate provision has been made in the accompanying consolidated     
financial statements.                                                 

At periodic intervals, the OTS and the Federal Deposit Insurance      
Corporation ("FDIC") routinely examine the Corporation's financial    
statements as part of their legally prescribed oversight of the thrift
industry.  Based on these examinations, the regulators can direct that
the Corporation's financial statements be adjusted in accordance with 
  their findings.  A future examination by OTS or the FDIC could include a
review of certain transactions or other amounts reported in the       
Corporation's 1996 financial statements.  In view of the increasingly 
  uncertain regulatory environment in which the  Corporation operates, the
extent, if any, to which a forthcoming regulatory examination may     
  ultimately result in adjustments to the 1996 financial statements cannot
presently be determined.                                              

   On February 21, 1995, the United States Supreme Court refused to consider
  the United States Ninth Circuit Court of Appeals ruling upholding an OTS
restitution order against the Corporation's former Chairman and Chief 
Executive Officer.  As a result the Corporation recorded approximately
$400 of after-tax income from the restitution order. The OTS  has     
   separately brought an enforcement action in relation to security provided
by the former executive, and in March 1994, the United States District
Court for the Western District of Washington entered a judgement      
  requiring payment of approximately $280 to the Corporation by the former
executive.  During 1996, $150 of this amount was collected.  Ultimate 
collection of the remaining amount will be recorded as income when    
received.                                                             

On March 30, 1995, the United States District Court granted the       
Corporation's motion for summary judgement in a suit brought by the   
former executive against the Corporation and several current executive
officers.                                                             

(16) Condensed Financial Information of Cascade Financial Corporation           

Following are the condensed financial statements of Cascade Financial 
  Corporation (Parent only) for the period indicated.  The holding company
was formed on November 30, 1994.                                      

     Balance Sheet
    June 30,

                            1995              1996
                    ------------------------------------------

Assets:                                                                         

Cash                                     --                   40          
Investment in subsidiary              $19,294               21,580            
Other Assets                               --                   63            
                            ------------------------------
                           19,294               21,683

Liabilities and                                                                 
Stockholders' Equity:                                                         

Other Liabilities                         --                    2           
Stockholders' equity                  19,294               21,681           
                            ----------------------------
                           19,294               21,683

                                                             (Continued)
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CASCADE FINANCIAL CORPORATION             
AND SUBSIDIARY          

Notes to Consolidated Financial Statements        
(Dollars in thousands, except share amounts)        

Statement of Operations   
For the periods   
November 30, 1994 to June 30, 1995 and  
July 1, 1995 to June 30, 1996 

                                         1995             1996
                                       -----------------------------

Equity in undistributed net income                                              
of the subsidiary                               $1,088         $2,356       
Operating Expenses                                    --           (135)        
Income before Federal income taxes                 1,088          2,221         
Income tax benefit                                    --             47         
Net income                                         1,088          2,268         

For the periods   
November 30, 1994 to June 30, 1995 and  
July 1, 1995 to June 30, 1996 

                                         1995             1996
                                       -----------------------------

Cash flows from operating activities:                                           
Net income                                       $1,088           2,268       
Adjustments to reconcile net income                                           
to net cash provided by operating                                           
activities:                                                                 
Equity in net income of subsidiary           (1,088)         (2,356)  
Increase in other assets                         --             (63)  
Increase in other liabilities                    --               2   
                                            ------------------------
Net cash used by operating activities          --            (149)

Cash flows from investing activities:                                           
Dividends received from subsidiary                   --              50       
Net cash provided by financing activities        --              50   

Cash flows from financing activities:                                           
Proceeds from issuance of common stock, net          --             139       
Net cash provided by financing activities          --             139     

Net increase in cash and cash equivalents          --              40     

Cash and cash equivalents:                                                      
Beginning of year                                    --              --       

End of year                                          --              40       

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Stock Transfer Agent                     Legal Counsel                          

Chemical Mellon Shareholder Services     Anderson Hunter, PS                    
50 California Street, 10th Floor         P.O. Box 5397                          
San Francisco, California  94111         Everett, Washington 98606              

Auditors                                 Special Counsel                        

KPMG Peat Marwick LLP                    Breyer & Aguggia                       
3100 Two Union Square                    1300 I Street NW                       
601 Union Street                         Suite 470 East                         
Seattle, Washington 98101-2327           Washington, D.C.  20005                

Annual Meeting              

The annual meeting of the stockholders of Cascade Financial Corporation will    
be Saturday, October 26, 1996 at 10:00 a.m. at Cascade Savings Bank located at  
3828 Colby Avenue, Everett, Washington.                                         

Form 10-K               

A copy of the Form 10-K as filed with the Securities and Exchange Commission    
will be furnished to stockholders upon written request to the Secretary,        
Cascade Financial Corporation, 2828 Colby Avenue, Everett, WA  98201.           
Beginning in October 1996, the Corporation's 10-K, 10-Q and other disclosure    
documents filed with the Securities and Exchange Commission can be obtained     
from the SEC home page on the World Wide Web at htt//www.sec.gov                

Full Service Branch Locations                                                   

MAIN 2828 Colby Avenue, Everett, Washington                                     
BELLEVUE 200 108th N.E., Bellevue, Washington                                   
HARBOUR POINTE 11700 Mukilteo Speedway, Mukilteo, Washington                    
ISSAQUAH 305 Front Street, Issaquah, Washington                                 
LYNNWOOD 19419 Highway 99, Lynnwood, Washington                                 
MARYSVILLE 815 State Avenue, Marysville, Washington                             
MT. VERNON 1725 Continental Place, Suite C, Mt. Vernon, Washington              
SMOKEY POINT 3532 172nd St NE, Arlington, Washington                            

Loan Origination Office                                                         

BELLINGHAM 909 Lakeway Drive, Suite 200, Bellingham, Washington                 

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Exhibit 21            
Subsidiaries of the Registrant          

Parent                                                                          

Cascade Financial Corporation                                                   

                          Percentage         Jurisdiction or
Subsidiaries (a)                   of Ownership    State of Incorporation       

Cascade Savings Bank, FSB              100%             United States           

Cascade Investment Services, Inc.(b)   100%             Washington              

(a)  The operation of the Corporation's wholly owned subsidiaries are           
included in the Corporation's Financial Statements contained in the     
Annual Report attached hereto as Exhibit 13.                              

(b)  Wholly-owned subsidiary of Cascade Savings Bank, FSB.                      

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Exhibit 23    
Consent of Auditors   

KPMG Peat Marwick LLP                                                           
3100 Two Union Square                                                           
601 Union Street                                                                
Seattle, WA  98101-2327                                                         

CONSENT OF INDEPENDENT  
CERTIFIED PUBLIC ACCOUNTANTS    

The Board of Directors                                                          
Cascade Financial Corporation and Subsidiary:                                   

We consent to incorporation by reference in the registration statement on Form  
S-8 of Cascade Financial Corporation of our report dated July 31, 1996          
relating to the consolidated balance sheets of Cascade Savings Bank, FSB and    
subsidiary as of June 30, 1995 and 1996, and the related consolidated           
statements of operations, stockholders' equity, and cash flows for the three    
year period ended June 30, 1996, which report appears in the June 30, 1996      
Annual Report on Form 10-K of Cascade Savings Bank, FSB.  Our report refers to  
a change in method of accounting for impaired loans.                            

/s/ KPMG Peat Marwick LLP                                                       

Seattle, Washington                                                             
July 31, 1996                                                                   

PAGE                                                                            

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This 10-K405 Filing		Date		First		Last			Other Filings
		3/31/92		69
		7/1/92		72
		9/15/92		2		39
		10/1/92		14
		6/30/93		45
		6/30/94		6		72
		7/1/94		58
		7/19/94		32
		8/12/94		64
		8/15/94		27
		8/18/94		2
		10/23/94		2
		11/30/94		2		75
		2/21/95		27		74
		3/30/95		27		74
		6/30/95		2		79
		7/1/95		51		75
		12/31/95		26		59
		1/1/96		3		27
		6/10/96		54
		6/28/96		66		68
For The Period Ended		6/30/96		1		79
		7/31/96		51		79
		8/27/96		17
		9/1/96		50
		9/20/96		1
Filed On / Filed As Of		9/27/96		33
		10/26/96		77
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