THIRD QUARTER REPORT TO SHAREHOLDERS
October 29, 2009

DEAR CASCADE SHAREHOLDERS,
During these challenging economic times, it is very rewarding to be able to report that Cascade Financial was profitable for third quarter 2009, with net income of $1.6 million.

Cascade’s third quarter profits were the result of a lot of hard work by a dedicated team of bankers, focused on achieving our mission. Record checking deposit growth, controlled operating costs and a stable net interest margin helped to produce these results. Lower loan charge-offs were reported in third quarter, after aggressively writing down the value of loans and building loan loss reserves during the first half of 2009. Also, the pace of nonperforming loan growth slowed, as asset quality trends started to stabilize. We have dedicated resources in place working to aggressively execute our strategies to reduce nonperforming loans and mitigate risk.

Important things to know about Cascade:

• Cascade returned to profitability with net income of $1.6 million, with income available to common shareholders of $1.0 million, or $0.09 per common share.
  
  
• Total checking account balances increased by $154 million or 89% year over year, and up $41 million over last quarter.
  
  
• Our loan portfolio mix improved with a 29% reduction in real estate construction loans.
  
  
• Good expense control with a 6% reduction in compensation expense compared to the prior quarter, even with one new branch. Year over year compensation expense is down 11%.
  
  
• Cascade remains well capitalized for regulatory purposes with a Risk Based Capital Ratio of 13.01% at the end of third quarter.

In addition to Cascade’s strength as a well capitalized community bank, your deposits are FDIC insured up to $250,000. Cascade Bank also participates in the FDIC’s Transaction Account Guarantee Program, which provides unlimited insurance for all noninterest-bearing accounts.

To learn more visit: http://www.cascadebank.com/corporateinfo/FDIC_TAGR.cfm

Many economists predict that the recovery from the current national economic recession will be slow, and economic growth in 2010 will be muted. Nevertheless, I am confident that our employees represent the best possible team to address these challenges. There is still much work to be done on reducing nonperforming loans and improving credit quality. We continue to remain intently focused on our mission of enhancing shareholder value.

One final piece of good news. This week Cascade Bank was named Favorite Snohomish County Company in the NW Jobs 2009 Peoples Pick contest. This recognition is a testament to our commitment to provide a warm and positive environment for all Cascade employees, where hard work and personal contribution to the Bank’s success is recognized and valued.

We appreciate your continued support
of Cascade Bank.

If you have any additional questions, please feel free to email me directly at cnelson@cascadebank.com.

Sincerely,
Carol K. Nelson, President and CEO