Cascade Financial Reports Record Second Quarter With Profits Up 59%: Net Income Increased to $2.0 Million and EPS of $0.30.

Business Editors

EVERETT, Wash.--(BUSINESS WIRE)--July 22, 2002

Cascade Financial Corporation (Nasdaq:CASB), parent company of Cascade Bank, today reported record profits for the second quarter and first half of 2002, fueled by strong deposit growth, improving margins and growing efficiencies. For the second quarter ended June 30, 2002, profits increased 59% to $2.0 million, or $0.30 per diluted share, compared to $1.3 million, or $0.20 per diluted share in the second quarter of 2001. For the first six months, Cascade's profits increased 56% to $3.9 million, or $0.59 per diluted share, compared to $2.5 million, or $0.38 per diluted share, in the like period a year ago.

"Steady improvement in returns on equity and assets, increased net interest margin, and a lower efficiency ratio are indicators of our successful transition to a commercial bank," said Carol K. Nelson, President and CEO. "Our strategy, which emphasizes building strong relationships with both businesses and consumers through efficient, high-quality service, has contributed to our seventh consecutive record quarter."

Financial Highlights as of and for the quarter ended 06/30/02

compared to 06/30/01

-- Return on average equity increased to 15.95%, compared to 11.64%.

-- Return on average assets grew to 1.06% from 0.71%.

-- Net interest income increased 28% to $6.6 million, compared to $5.2 million.

-- Revenues increased 27% to $7.5 million, from $5.9 million.

-- The efficiency ratio improved to 55% from 63%.

-- Business loans grew to 23% of the total loan portfolio, compared to 20%.

-- Asset quality remained strong with nonperforming loans at 0.51% of total loans.

-- Allowance for loan losses grew to 1.17% of total loans, compared to 0.99%.

-- Net income increased 59% to $2.0 million, or $0.30 per diluted share.

"With an exceptional first half, we have exceeded our long-term target of 15% earnings growth for the first two quarters of the year. We recognize performance at this level is not sustainable over the long term and we believe our growth rate for the second half of 2002 will be in the range of 20% to 25% compared to 2001. EPS growth is targeted at 10 - 15% or better for the next five years. We are committed to building a strong franchise to enhance shareholder value over the long term," said Nelson.

                         2005        2000        2001        YTD 2002
FINANCIAL TARGETS        Target  Performance  Performance  Performance
----------------------------------------------------------------------
Return on Average
 Equity                  > 15%       10.2%        12.6%         15.7%
----------------------------------------------------------------------
Annual Growth in EPS   10 -15%         -8%          45%           53%
----------------------------------------------------------------------
NPL/Loans              < 1.00%       0.42%        0.32%         0.51%
----------------------------------------------------------------------
Efficiency ratio         < 60%         69%          60%           54%
----------------------------------------------------------------------

Operating Results

"Our success in generating additional deposits from customers facilitated a shift in our funding, allowing us to repay older, high-coupon Federal Home Loan Bank advances," said Lars Johnson, Chief Financial Officer. "We were also able to offset the prepayment costs associated with retirement of the FHLB advances by realizing some of the appreciation in our securities portfolio. Consequently, both operating income and operating expenses increased this quarter."

Revenue growth was fueled primarily by the expansion in net interest margin to 3.53%, from 2.94% in the second quarter of 2001. Revenues (net interest income before provision for loan losses plus non-interest income) grew 27% to $7.5 million in the second quarter of 2002, compared to $5.9 million in the June quarter a year ago. Revenues for the six-month period improved 27% to $14.9 million, from $11.7 million for the same period of 2001. Net interest income increased 28% to $6.6 million for the quarter ended June 30, 2002, compared to $5.2 million in the like quarter a year ago. For the first half of 2002, net interest income increased 28% to $13.0 million, compared to $10.2 million in the first six months of last year. The provision for loan losses was $420,000 for the second quarter 2002, compared to $270,000 for the same quarter 2001.

Other operating income increased 25% to $893,000 in the second quarter, which includes $354,000 in gain on sale of securities. Other income for the first half grew 24% to $1.9 million, from $1.5 million in the first half of last year. For both the second quarter and the first half, gain on sale of loans was relatively flat, while gain on sale of securities and real estate was largely responsible for the 25% and 24% growth in other income respectively. Operating expenses increased 12% to $4.1 million, compared to $3.7 million for the second quarter in the previous year; operating expenses were $8.1 million in the first half, a 10% increase from the $7.4 million in the prior year, $305,000 or 43% of that increase represented prepayment fees on FHLB advances, which were $325,000 in the current period, compared to $20,000 for the six months ended June 30, 2001.

Since Cascade carries no intangible assets on its balance sheet; the recently implemented Financial Accounting Standard 142 regarding amortization of goodwill had no impact on 2002 expense levels.

Cascade's efficiency ratio improved to 55% in the quarter, compared to 63% in the quarter a year ago. Return on average equity improved to 15.95% for the quarter from 11.64%. Return on assets rose to 1.06%, compared to 0.71% for the like quarter in the previous year. For the first half, the efficiency ratio was 54%, compared to last year's 63%, while return on average equity improved 36% to 15.65%, from 11.54% for the first 6 months a year ago.

Asset Management

Total assets increased 5% to $770 million at the end of the second quarter, compared to $733 as of June 30, 2001. Investment securities increased 19% to $161 million, from $136 million a year ago. Deposits increased to $464 million from $402 million a year ago. The growth in the investment portfolio offset the reduction in the residential loan portfolio, increasing liquidity and more effectively leveraging capital.

"Our loan portfolio continues to reflect the transition to a commercial bank with growth in business and construction loans and a reduction in residential lending," said Johnson. The business loan portfolio increased by 13% to $129 million from June 30 2001. Construction loans were up 17%, while residential loans were off by approximately 19% and multi-family down 4%. Total loan levels were relatively flat at $566 million. "The refinancing wave was the primary cause for the net pay-downs in our residential and multifamily loan balances."

The following summary reflects Cascade's success in growing its business and construction loans and diversifying its loan portfolio:

Types of Loans             06/30/02   % of        06/30/01   % of
                                      Portfolio              Portfolio
----------------------------------------------------------------------
($ in thousands)
----------------------------------------------------------------------
Business                 $  128.6       23%        $  113.7       20%
----------------------------------------------------------------------
Real Estate
 Construction (net)          81.9       14%            69.9       12%
----------------------------------------------------------------------
Commercial Real Estate       62.2       11%            56.9       10%
----------------------------------------------------------------------
Home Equity and
 Consumer                    56.9       10%            60.4       10%
----------------------------------------------------------------------
Residential                 134.0       24%           165.0       29%
----------------------------------------------------------------------
Multifamily                 102.6       18%           107.4       19%
----------------------------------------------------------------------
Total Loans              $  566.2      100%        $  573.3      100%
----------------------------------------------------------------------

Credit Quality

The bank's ratio of nonperforming loans to total loans was 0.51% and allowances for loan losses to total loans was 1.17% at the end of the quarter. "Net charge offs this quarter were $302,000, compared to $99,000 for the same quarter in 2001. Of this total, more than half the charge off was attributable to a specific reserve identified in prior periods. Moreover, we have no remaining loans for which specific reserves have been established," said Johnson. "Given the effects of the economic downturn, management is closely monitoring credit quality. We continue to establish reserves to adequately reflect the inherent increased risk in our loan portfolio from our commercial loan balance," added Johnson.

Credit Quality
Comparisons           06/30/02  3/31/02  12/31/01  09/30/01  06/30/01
                     ------------------------------------------------
Nonperforming
 Loans/Total Loans
   CASB                 0.51%     0.48%     0.34%     0.29%     0.23%
   Washington
    State
    Commercial
    Banks(a)              --      1.34%     1.17%     0.91%     0.84%
   National
    Commercial
    Banks(b)              --      0.98%     0.96%     0.96%     0.87%
Allowance for loan
 losses/
 Nonperforming
 Loans
   CASB                  228%      235%      315%      347%      432%
   Washington
    State
    Commercial
    Banks(a)              --       105%      118%      142%      154%
   National
    Commercial
    Banks(b)              --       158%      162%      158%      176%
Allowance for loan
 losses/Total
 Loans
   CASB                 1.17%     1.15%     1.09%     1.01%     0.99%
   Washington
    State
    Commercial
    Banks(a)              --      1.41%     1.38%     1.30%     1.30%
   National
    Commercial
    Banks(b)              --      1.56%     1.55%     1.52%     1.52%

    (a) All commercial banks in the State of Washington.
    (b) All national commercial banks with assets between $500 million
        and $1 billion.
    --  Most recent comparison data available is as of March 31, 2002.

    Source: www.fdic.gov.

Liabilities and Capital Management

Cascade's deposits increased 15% from a year ago to $464 million, with increases in all deposit categories due to a heightened emphasis on generating core deposits. The success of gathering deposits led to a 15% reduction in Federal Home Loan Bank advances, which were $197.5 million, and typically at a rate higher than deposits, as of June 30, 2002.

Stockholders' equity was $53 million, or $8.24 per share in the second quarter, up 18% from $45 million, or $7.29 per share at June 30, 2001. Capital ratios continue to be above the well-capitalized guidelines established by regulatory agencies. The corporation's capital/asset ratio (including trust preferred securities) at quarter-end was 8.13% compared to 7.45% a year ago.

Established in 1916, Cascade Bank, the only operating subsidiary of Cascade Financial Corporation, is a state chartered commercial bank headquartered in Snohomish County, Washington. The bank has been locally managed for more than 85 years and has an "Outstanding" Community Reinvestment Act rating for serving the credit needs of the local community. Cascade Bank operates 14 full service offices, located in Everett, Lynnwood, Marysville, Mukilteo, Smokey Point, Issaquah, Clearview, Woodinville, Lake Stevens and Bellevue.

This document may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Those factors include, but are not limited to, impact of the current national and regional economic recession on small business loan demand in the Puget Sound area, loan delinquency rates, the bank's ability to continue to attract quality commercial business, interest rate movements, changes in the demographic make-up of the Company's market, fluctuation in demand for the Company's products and services, the Company's ability to attract and retain qualified people, and other factors. For a discussion of factors that could cause actual results to differ, please see the Company's publicly available Securities and Exchange Commission filings, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

                         FINANCIAL HIGHLIGHTS

INCOME STATEMENT

(Dollars in thousands except       Three Months Ended
per share amounts)                30-Jun        30-Jun
(Unaudited)                        2002          2001
                                 ----------------------------------

Net interest income              $ 6,579         5,160           28%
Provision for loan losses            420           270           56%
                                 -------       -------
Net interest income after
 provision for loan losses         6,159         4,890           26%

Other income
   Gain on sale of loans             111           139          -20%
   Gain on sale of
    securities                       354            56          532%
   Service fees                      402           452          -11%
   Gain/(loss) on sale of
    real estate                      (23)           16           nm
   Other                              49            50          -2%
                                 -------       -------
Total other income                   893           713           25%
                                 -------       -------
Total income                       7,052         5,603           26%
Other Expense
  Salary and employee
   benefits                        2,328         1,991           17%
  Other non-interest
   expenses                        1,586         1,671           -5%
  Debt prepayment fees               220            20           nm
                                 -------       -------
Total other expense                4,134         3,682           12%

Net income before tax              2,918         1,921           52%
Income tax expense                   906           653           39%
                                 -------       -------
Net income                       $ 2,012         1,268           59%
                                 =======       =======

EARNINGS PER SHARE INFORMATION
Earnings per share, basic        $  0.31          0.21           48%
Earnings per share, diluted         0.30          0.20           50%

Weighted average number of
 shares outstanding

basic                          6,389,505     6,117,318
diluted                        6,619,322     6,422,429

PERFORMANCE MEASURES
Return on Equity                   15.95%        11.64%          37%
Return on Assets                    1.06%         0.71%          49%
Efficiency Ratio                   55.33%        62.69%         -12%
Net Interest Margin                 3.53%         2.94%          20%



                                   Six Months Ended
                                  30-Jun        30-Jun
                                   2002          2001
                                 ----------------------------------



Net interest income               13,034        10,201           28%
Provision for loan losses          1,120           560          100%
                                 -------       -------
Net interest income after
 provision for loan losses        11,914         9,641           24%

Other income
   Gain on sale of loans             229           228            0%
   Gain on sale of
    securities                       387           136          185%
   Service fees                      804           985          -18%
   Gain/(loss) on sale of
    real estate                      353            62          469%
   Other                              92            94           -2%
                                 -------       -------
Total other income                 1,865         1,505           24%
                                 -------       -------
Total income                      13,779        11,146           24%
Other Expense
  Salary and employee
   benefits                        4,469         4,080           10%
  Other non-interest
   expenses                        3,315         3,303            4%
  Debt prepayment fees               325            20           nm
                                 -------       -------
Total other expense                8,109         7,403           10%

Net income before tax              5,670         3,743           51%
Income tax expense                 1,810         1,276           42%
                                 -------       -------
Net income                         3,860         2,467           56%
                                 =======       =======

EARNINGS PER SHARE INFORMATION
Earnings per share, basic           0.61          0.40           53%
Earnings per share, diluted         0.59          0.38           53%

Weighted average number of
 shares outstanding

basic                          6,340,834     6,093,796
diluted                        6,569,590     6,451,836

PERFORMANCE MEASURES
Return on Equity                   15.65%        11.54%          36%
Return on Assets                    1.02%         0.69%          48%
Efficiency Ratio                   54.43%        63.24%         -14%
Net Interest Margin                 3.50%         2.92%          20%




BALANCE SHEET
dollars in thousands except per
share amounts                           June 30,   Dec. 31,   June 30,
(Unaudited)                               2002       2001       2001
                                       ----------- --------- ---------

Cash and due from banks                 $   8,476     8,535     8,025
Interest bearing deposits                  25,999     3,087     5,855
Investment Securities                     161,482   156,327   135,805
Loans, net                                557,223   576,226   564,869
Premises and equipment                      8,426     8,620     8,977
Other assets                                8,641     9,218     9,536
                                       ----------- --------- ---------
Total assets                            $ 770,247   762,013   733,067
                                       =========== ========= =========

Deposits                                  463,843   419,980   401,915
FHLB advances                             197,500   226,500   232,124
Securities sold under
 agreement to repurchase                   38,132    49,792    36,920
Other liabilities                           8,149     8,064     7,511
                                       ----------- --------- ---------
Total liabilities                         707,624   704,336   678,470
                                       ----------- --------- ---------

Trust preferred securities                 10,000    10,000    10,000

Stockholders' equity
   Common stock and paid in capital        11,110    10,484     5,541
   Treasury stock                          (1,238)     (972)     (723)
   Retained earnings                       41,873    38,012    39,426
   Accumulated comprehensive
    gain/(loss)                               878       153       353
Total stockholders' equity                 52,623    47,677    44,597
                                       ----------- --------- ---------
Total liabilities and equity            $ 770,247   762,013   733,067
                                       =========== ========= =========

Book value per common share             $    8.24      7.71      7.29

ASSET QUALITY
Capital/Asset Ratio                         8.13%     7.45%     7.57%
Net loan charge-offs                         302        89        99
Net charge-offs/total loans                 0.05%     0.02%     0.02%
Non-performing loans/total loans            0.51%     0.34%     0.23%
Allowance for loan losses/non-
 performing loans                            228%      315%      432%
Allowance for loan losses/total loans       1.17%     1.09%     0.99%
Non-performing assets/total assets          0.46%     0.37%     0.23%