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Executives

Carol Nelson - Chief Executive Officer

Lars Johnson - Chief Financial Officer

Rob Disotell - Chief Credit Officer

Analysts

Matthew Clark - KBW

Tim O'Brien - Sandler O'Neill

Kristin Hotti - Howe Barnes Hoefer & Arnett Inc

Jerald Karen - Private Investor

Jeffrey Rulis - D. A. Davidson & Co

Sara Hasan - McAdams Wright Ragen

Ross Haberman - Haberman Fund

Cascade Financial Corp. (CASB) Q3 2008 Earnings Call October 22, 2008 2:00 PM ET

Operator

Good afternoon ladies and gentlemen, thank you for standing by. Welcome to the Cascade Financials third quarter earnings conference call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions) This conference is being recorded today Wednesday, October 22, 2008. At this time I would like to turn the conference over to Ms. Carol Nelson, CEO. Please go ahead ma’am.

Carol Nelson

Thank you, Vince. Well good morning everyone and thank you for being on the line. Welcome to the Cascade Financial Corporation third quarter 2008 conference call. As always we appreciate your interest in Cascade and look forward to sharing details about our performance. Of course before we get started I’m going to ask Lars Johnson our Chief Financial Officer to read our required disclosure statements; Lars.

Lars Johnson

Thank you, Carol. This document contains forward-looking statements including but not limited to Cascade’s expectations regarding credit quality and losses and its belief that its allowance for loan losses and leases is adequate given the current market condition.

All forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from those projected. Those factors include but are not limited to Cascade’s expectations or continued strong demand for it’s products and services, the risk inherent in significant construction and real estate mandate, the ability to attract low cost deposits and commercial loan expectations of net interest margins, maintaining asset quality and managements ability to minimize the interest rate risk exposure and the impact of interest rate movements, the ability to attract and retain qualified people, general economic conditions and Cascade’s ability to successfully adopt to any changes in these conditions and other factors.

Any factor described in this news release or this conference call could by itself and together with one or more of the other factors adversely affect Cascade’s business earnings and/or financial condition. For a discussion of these factors that can cause actual results to differ materially, please see the publicly available Securities and Exchange filings, including its Annual Report on Form 10K for the fiscal year ended December 31, 2007.

Carol Nelson

All right, quite a mouthful; thank you Larry. Well, let’s just start by talking a little about the Puget Sound economy. Our Washington state continues to follow national trends and as a result the local economy is falling and slowing. Nevertheless the Puget Sound Region continues to outperform the rest of our state.

Washington’s unemployment rate fell slightly to 5.8% in September, which was down from 6% in August according to the Washington State Employment Security Department and that compares to 4.6% in September of last year. In the Seattle value market however the employment rate was 4.6% and that compares to 3.7% a year ago.

Now if you take a look at those numbers in September, they really haven’t been impacted by the change in ownership at Washington Mutual which is expected to result in layoffs in the Greater Seattle area, as well as recent announcements of foreclosures in our market area; specifically we had a closure of the Milgard manufacturing window in Marysville to the north of us and Meridian Yachts manufacturing plant in Arlington. So those are some recent closures that have been announced.

Additionally our local economy is being impacted by the Boeing Company and today marks day 47 of the Boeing strike with its [Inaudible] and negotiators are said to resume contract costs on Thursday. So we certainly hope that they will able to come to some sort of understanding about how they can move forward and get back to work.

The Everett reports that Boeing delivered 84 commercial jets in the third quarter which was down from 126 jets delivered in the second quarter and 115 in the first quarter. The work stoppage is also delaying Boeing’s new 787 which was 15 months behind schedule when the strike began. That program has one 895 net new aero plane orders to-date. So again we are hoping that the strike can be resolved and indeed get back to work. Anecdotally we are feeling however, that business owners are feeling the pinch of the impact of the strike with lower retail sales.

As the Puget Sound real estate market continues to slow residential inventory levels in Pierce County increased to 11 months in August; that compared to 9.8 months just in June and increased slightly in Snohomish County to a 16 month supply; that compares to 15.5 month supply in June and they were essentially flat in King County at 8.9 months supply.

Year-to-date as of August if we look at the prices, they were down 6% at Pierce County, 13% Snohomish County and just 3% in King County. So those numbers reflect the slowing sales year-to-date and residential sales transaction volumes were down 55% at Snohomish County, 42% in Pierce County and 44% in King County. So with those bright spots there, I’m going to share a few highlights from our third quarter results, then I will turn it over to Rob Disotell, our Chief Credit Officer who’s going to talk about the loan portfolio on our credit quality metrics and then last our CFO will finish with a wrap up on comments on the specifics of our financials.

So let’s just talk a few minutes about the third quarter highlights. Absent the third quarter other than temporary impairment impact from our Fanny and Freddy preferred stock, our third quarter results were strong as loan and deposit balances hit record levels and our credit quality metrics improved significantly.

So let’s just dispose of the OTTI impact first. As previously announced we held $18.6 million in Fanny and Freddy preferred stock. At quarter end the market value of that investment was $1.3 million and so in the third quarter we took an after tax charge of $11.3 million.

Now I’m sure I don’t need to point out to this group; in the September timeframe the Wall Street Journal reported a survey from the American Bankers Association that noted that of the nations 8,500 banks 27% had investments in similar Fanny and Freddy preferred stock, so clearly there are many financial institutions across the country that were impacted by that.

So putting that one time event aside, third quarter net income was $4.7 million, a 23% increase over third quarter of 2007 and year-to-date net income was $10.9 million, a 6% decrease over the first nine months of 2007.

Our income for the third quarter was cautiously impacted by the resolution of loans previously on non-accrual status which added $1 million to interest income during the quarter. We also continued to build our loss for loan losses at a $1.3 million during the third quarter against net charge offs to $43,000 bringing the year-to-date provision to $4.8 million. This compares to $350,000 in the third quarter of 2007 and $850,000 for the nine months ended September 30 2007.

During the quarter we intentionally slowed loan growth to conserve capital and so loans who have a modest 2% over the previous quarter, loans who have 13% compared to this same focal date last year. Similar to last quarter, multifamily construction projects which were completed during the quarter and reached the requisite level of occupancy were reclassified as multifamily. The growth in the real estate construction segment was centered primarily in construction clause on existing projects.

For the third quarter, total deposit grew by $2 million with total checking balances up 4%. Savings and money market account balances dropped by 22% primarily from a decline in our public sector, money market deposits as municipality drew down balances to offset reduced tax revenues, to meet their cash flow requirements and as they consolidated balances in the Washington State Investment Pool.

Year-over-year, total deposits increased by 9% with 57% growth in personal checking balances. If you take a look at that strong growth in personal checking balances, they really came from the initiatives that are talked about in the past which include our annual company wide Springfield Campaign that’s focused on new checking account generation.

The Spring Campaign generated over $6 million in UDDA in just eight weeks and because that was so very successful we actually supplemented by a new Fall Campaign which began on September 15 and so far it’s generated over $10 million in the checking deposits in the past five weeks and that will continue on for another couple of weeks as well. So we’ve had great success with that initiative.

We also have intensified our self management efforts, utilizing enhanced sales reporting tools that have created greater visibility and accountability with our front line staff. We’ve increased the weighting on deposit generation in our incentive plan; we’ve also implemented new recognition programs for excellence in selling new demand deposit account and our growing treasure enhancement department has really helped the front line, supported their growth and it has really helped them to be successful during these campaigns.

Our newest branch in Burlington which opened in May continued to exceed our expectations and experience great success, currently with over $12 million in deposit balances. So we’re excited; it’s definitely been the fastest growth that we’ve had in a new branch opening.

As we turn for just a moment to look at capital management, Cascade remained well capitalized for regulatory purposes with the risk based capital ratio at 10.4% as of the end of September. We are currently analyzing various capital alternatives, including the new capital purchase program announced by the treasury, to position Cascade with flexibility to take advantage of opportunities that may arise in these uncertain times.

Thanks to Rob Disotell our Chief Credit Officer and our very strong credit administration team, we saw significant improvement in our credit metrics during the third quarter, with a reduction in loans on non-accrual status. I don’t want to steal Rob’s thunders, so I’m going to turn it over to him to share some comments on the loan portfolio and credit quality, so Rob why don’t you go ahead and take it away.

Robert Disotell

Okay, thanks Carol. Yes, third quarter, certainly we had some successes, some of which you already knew about when we announced the recovery in July, but we continued to have some success in our non-accruals dropping them down to about $15.7 million, about 129 basis points, so about cut in half from the end of second quarter, so that was good. It also allowed us to recover some back interests as well as about $750,000 of our previously charged off loans. So we did have some recovery which really served to reduce our net charge offs, of about $43,000, so we were very happy with that.

Delinquencies, if you look outside of the non-accruals, anything over 30 to 89 days, all of our 90-days are in non-accrual, so looking at the 31 and 89 days a lot of hard work and effort, but that basically came down to four small heloc loans and two consumer loans totaling $171,000. All other loan portfolios were current, so we were happy with that. Those were the credit metrics.

So as of 9:30 it was a lot of cheering, as of 10:01, it was no more cheering and rolling up the shirt sleeves and getting back to work, because there is no question, there’s still challenges in our market, not only just the general slowing economy but certainly the housing market. I don’t know if it’s gotten weaker, but it certainly hasn’t gotten any better and so sales are still slow; the sales of lots are pretty much non existent and so we’re heading into our winter months too, which is certainly a challenge and so we continue to see some challenges in the market.

Internally we are seeing some migration in credit risk ratings, establishment of reserves, specific reserves for certain loans and so we certainly didn’t count third quarter to trend, but it’s certainly nice to start from a low base and work through your problems with a very low base of those type of issues.

I will point out if you remember; we went through a fairly rigorous reappraisal process of our development loans and our construction loans, end of the fourth quarter ‘07 and into the first quarter ’08. We feel that’s a process that needs to happen again, not necessarily with all of our credits as we see how they performed in this market, but certainly selected loans, loans that are at a higher risk; we are going through that process this quarter, reappraising those properties and reevaluating the values there. So, we think that’s appropriate to be doing that at this time.

So I guess with that, those are kind of the basics. I know you’ll have more questions and I’ll just leave it for questions later.

Carol Nelson

All right great, thank you Rob and we’ll turn it over to Lars.

Lars Johnson

Just a brief look at the balance sheet and the income statement. In terms of our investment portfolios, Carol mentioned there’s not really a lot of change. Other than the write down of the Fanny and Freddie preferred, we did have one other sale that generated a modest loss. We sold some Wells Fargo trust preferred, not because we are particularly worried about Well Fargo, but just to make sure that everything in our portfolio now as of September 30 is legitimate AAA rated security.

We’ve already discussed the loan portfolio; again modest growth. The construction portfolio as Carol mentioned is really primarily due to construction draws. Our loan processed $20 million during the quarter and is about $80 million year-to-date. In terms of the rest of the balance sheet items, really not any major changes, just our current patterns moving forward.

On the liability side, she’s already discussed the major changes. For us it’s a real challenge in this market place and in terms of the deposits, some of our local competitors, even without Washington Mutual are offering very high rates, relative to what we can get in the whole sale market and certainly that has an impact as we decide whether we should welcome the home loan bank brought from the FED to the broker deposit or go into the retail market. The retail market around here is relatively much more expensive, but that said we haven’t been using CD’s and brokerage CD’s to offset the decline. The municipal and some other brokered money market account costs us slightly more, but cheaper than some of the other alternatives.

In terms of the income statement, again a solid improvement on net interest income. We did gain the $1 million from the recapture of the loans that have been previously put on non-accrual. We also lost about $150,000 from not receiving a Freddie Mac dividend at the end of the quarter. So, those are some what offset each other and as we mentioned in the press release we expected our margin would be right about 325 to 330 in a normal run rate.

Certainly looking at the margin, FED rate cuts now are going to definitely be a challenge for us. A 50 basis point rate cut costs us about $2 million in terms of interest income, not net interest income but interest income, even though we have about $400 million worth of time based loans. In the past we could tell you that it’s just a matter of catch up or replace our liabilities downward. We are getting to the point after the last FED rate cut a couple of weeks ago, actually liability costs are flat to up again given the issues of what’s going on in the credit market and in the CD market, so that will be a challenge.

In terms of our loan loss reserves, Rob mentioned that we put in $1.2 million, just under $5 million year-to-date with charge offs of only $43,000 for the quarter and about $2 million year-to-date, our loan loss reserve as a percentage of loans and absolutely has grown during this time frame.

In terms of other income, our non interest income, again there is a solid growth in checking fees which are up strongly 32% year-over-year and 15% on an annualized basis; something that we can are quite proud of. When we compare some of the stuff 2007, especially on the nine month window in terms of our net income, that was impacted at that pace of adoption of FAS 159, so some of those comparisons are skewed, but certainly in terms of the growth and checking fees and service fees, those are definitely our core businesses.

I guess one other thing I’d point to during the quarter, we did have a slightly larger gain in terms of FAS 159 on our $10 million in trust preferred. That said we still put a relatively or a very conservative mark on that in terms of what we could actually buy it for if we could buy it for in the secondary market.

So in terms of our non-interest expenses again, relatively modest growth. A primary driver of the increase in expenses is our increase in FDIC insurance premiums, which are up $310,000 in the first nine months of this year compared to last year. Last year we were actually getting some credits from previously paid premiums that went away. This year and obviously for 2009 we are racing for even larger FDIC insurance premiums.

The other aspect of our non-interest expense that is impacting us is running our Boeing branch which hasn’t been very successful with the expenses associated with that for running it for a full year. So in terms of looking at that margin going forward I mentioned there’ll be challenges, if this had continues to cut rates which I guess the futures market is assuming for the October 29 meeting and if and when we do anything with the top, actually the margin can expand slightly and if the dividends paid on preferred stock are not considered interest expense.

So with that I will turn it back to Carol.

Carol Nelson

Okay great, thank you Rob. So in some summery we believe that the addition that we’ve made to the allowance for loan losses this year appropriately recognizes the risk in our loan portfolio as we know it today. Our approach to managing credit quality has been conservative and quite proactive. Our core business performance for the quarter was strong and we believe that Cascade is well positioned to pursue its strategies over the long term.

So this really concludes our prepared remarks for today’s conference call and I would now like to ask Vince to open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Matthew Clark – KBW.

Matthew Clark - KBW

Can you give us the total regulatory capital at the Bank ratios there and then maybe like I guess I can follow up with you in terms of the dollar numbers at the holding company?

Robert Disotell

Well at the holding company its 10.40 and at the Bank its 10.36 I think.

Matthew Clark - KBW

And in terms of the margin outlook you have given some guidance before. Do you want to --?

Robert Disotell

Well in the press release we did give a range, but I guess it’s one of these that we do that with fear in trepidation always, but in this environment it’s even more. In the press release we talked about 310 to 335.

Matthew Clark - KBW

Right okay and then lastly obviously a very nominal amount of delinquencies; is there anything that changed subsequent to the third quarter here or that had made any change in those numbers or not, just curious?

Carol Nelson

In the past 20 days, I don’t think so.

Operator

Your next question comes from Tim O’Brian - Sandler O’Neill.

Tim O'Brien - Sandler O'Neill

It seems like a relevant process you’re going forward could possibly be migration from either multifamily construction or condo construction until more permanent loans structure. Of your portfolio loans, first of all how much are mini firm that are multi, because you eluted to some of that being the case that these loans that are multifamily construction loans also have a permanent piece on the end or they’re structured that way at the start is that correct?

Robert Disotell

That’s correct, yes.

Tim O'Brien - Sandler O'Neill

Okay so all of them pretty much structured that way?

Robert Disotell

No right now we have kind of a mix and I wouldn’t have those numbers. I think most of the ones we’ve done lately would have some sort of a mini firm to it, but we do have some portfolio that are older that are on regular full term 10 year loans, that sort of thing, but right now we have as I said $34 million in multifamily permit and there’s about 16 million in multifamily construction that we have right now.

Tim O'Brien - Sandler O'Neill

Okay and when you migrate alone from multifamily construction to permanent, is it re-underwritten at that time or --?

Robert Disotell

Yes, we don’t migrate it until it is stabilized occupancy in a DCR that’s a well stabilized occupancy. So even if it’s done but not leased up, we don’t migrate it over, we wait till it’s leased up and then we have reversal and income and expense statement.

Tim O'Brien - Sandler O'Neill

And what is the LTV term, the maximum LTV on that multi family piece when you underwrite it?

Robert Disotell

75%, but with cap rates being still fairly low its hard to underwrite it at 75%; so realistically they are lower than that in order to meet our DCR requires but our policy is 75%.

Tim O'Brien - Sandler O'Neill

But there is still good demand for that product right not, your still making those loans, it seems like in the third quarter?

Robert Disotell

Yes, I mean there is certainly a demand as people sit on the lines not buying homes. As Carol mentioned before, we have a real controlled growth outlook and I think it’s again not something you want to jump in real actively with. What we are also seeing in the other part of the market is a lot of condominium projects going back to rentals; you’re seeing single family housings, builders turning them into rentals. So we fell that the might be some pressures there going forward, so we are not being real, real aggressive on it, but for now your right; the multi family and the CRE market is pretty strong up here.

Tim O'Brien - Sandler O'Neill

So at the end of the second quarter, it looks like you had about 57.5 million in condo, spec condo loans. Do you happen to have that third quarter number?

Robert Disotell

Yes I do. Our balance today is just a little over $57 million.

Tim O'Brien - Sandler O'Neill

So about the same, and so if a spec condo loan reaches maturity and the project is completed, what your saying is that that project could be underwritten for a permanent mortgage loan, kind of a multifamily loan or it could be converted to a rental property. Is that correct, you’re seeing a little bit of that or there’s interest in that and you guys are considering it?

Robert Disotell

Well I’m just saying generally in the market place the reports we get from our from the CB Richard Alice and all the others, that they are seeing more of the condo project being reentered into the rental market. We really only have two projects right now that start out as condos that are really being rented up as rentals and they are not typically going to underwrite at that same loan amount with a positive DCR, simply because they were purchased at a higher basis for the condominium so.

Tim O'Brien - Sandler O'Neill

And so you guys are going to require additional equity. So they are underwritten differently is what you are saying?

Robert Disotell

Well yes, like when you re-enter it as a multifamily, the DCR is simply is not going to be as strong as it would be if there was original purchased of the multifamily. So, yes it would require additional pay down of the loan.

Tim O'Brien - Sandler O'Neill

And as far as that PCO portfolio is concerned, do you consider that to be a viable alternative for getting paid off on your loan or continuing to carry that loan in a different form?

Robert Disotell

I think the viable alternative for this is as long as the developer has this secondary source of repayment for a potential short fall in the leases that he collects, so it’s certainly better to have them lease it out and have the $5000 month negative rents than a $20,000 month negative rents, but again it’s something that we really don’t look at it if they have the ability to carry that shortfall; have the liquidity and other sources of income to do that.

Operator

Your next question comes from Kristin Hotti - Howe Barnes Hoefer & Arnett.

Kristin Hotti - Howe Barnes Hoefer & Arnett Inc

This is a question I assert it’s for Rob; you had mentioned the downgrading of eternal risk ratings on some specific credits and increase in specific reserves; could you give us a little more color on what types of loans these might be and then also I was wondering with respect to the significant portion of the business loans that are retail, if you’re seeing any recent trends in credit quality there?

Robert Disotell

Okay, well in terms of our risk rating, our monitoring of it and being really proactive and making sure the quick classifications are correct, really the areas that we are seeing is obviously is land loans and spec construction loans. That’s where we are seeing most of our grading activity going on right now, so does that answer your question?

Kristin Hotti - Howe Barnes Hoefer & Arnett Inc

Yes, so it’s pretty much still in the land and residential construction piece.

Robert Disotell

Yes definitely. As far as the C&I business, we do monitor, because obviously any C&I loan and it’s line of credit gets looked at annually. We also look at any C&I loans that are term loans over half a million dollars, with the relationships over half a million dollars, we also look at those annually also, because obviously they are not coming up to a annual renewal, so you have to proactively do what we call a term loan review.

What we are seeing at least with some of the most recent financials is it may be a little less than in net income year-over-year as we compare it, but overall our C&I portfolio has held up very well and again as we said, we had no delinquencies at the end of the quarter. So that’s something we are certainly keen on though, particularly as we mentioned retail; I think that’s where it’s going to hit first and so we are looking at that, but right now I don’t see any real changes in those profiles or those customers.

Kristin Hotti - Howe Barnes Hoefer & Arnett Inc

And what percentage of the C&I is retail; its well over 40% is that right?

Robert Disotell

I don’t have that number in front of me. I have a report for that, but I don’t have it in front of me here, so I could get that to you, but that’s probably about right yes. We have a lot of our C&I’s as professional services and medical, that also constitutes a very significant amount of our C&I portfolio.

Operator

Your next question comes from Jerald Karen - Private Investor.

Jerald Karen – Private Investor

I’ve observed a different kind of a question for you. I believe I have seen that the board has authorized the repurchase of 50,000 shares and I just wanted to see first if my memory is correct and then also if that’s the case what the philosophy is with regard to that authorization?

Carol Nelson

All right, thank you for your question. Yes, we do have a repurchase program that has been approved by the board and on an annual basis we have renewed that, although it has been quite inactive in the current period as we look at capital requirement and in the current times it needs a considered capital. So, it is one of the capital management tools that we feel is appropriate to keep available to us, but it is not something that is active at this time.

Operator

(Operator Instructions) Your next question comes from Jeff Rulis - D. A. Davidson.

Jeffrey Rulis - D. A. Davidson & Co

What is your if you can remind me again the current trust preferred holdings in dollar amount if any?

Robert Disotell

Our holdings on the loans side we have none. On the issuance side we have $25 million in three different trenches.

Jeffrey Rulis - D. A. Davidson & Co

Okay and then it’s kind of a two part capital question; one would you have any reason to believe you would not be eligible for the TUB option and then two, I guess if you could talk about any ideas on building capital outside of any offering, whether that be changing your risk weighted assets mix or other?

Carol Nelson

Well there is no reason to believe that Cascade would not qualify to be able to participate in the capital purchase program and it is one of the many options that are boarded and currently in the process of analyzing. There are certainly other options available to us as well and it’s just a matter of looking at the pros and cons of each and the relative costs of each. So that is certainly part of our process as we speak.

Operator

Your next question comes from Sara Hasan - McAdams Wright Ragen.

Sara Hasan - McAdams Wright Ragen

So there’s an opportunity cost to kind of throw in the loan growth and I’m wondering what are the biggest missed opportunities that you are seeing? Where are you seeing demand that really interest you?

Carol Nelson

Well there certainly is a cost approving loan growth and we have taken a look at loan opportunities that we might have passed on, both on the business banking side as well as the commercial real estate side. I think it is certainly a combination in fact that we are looking really hard and underwriting credits very diligently and so if they are not passing our screens, then they are not proceeding any further.

We are also looking at loan growth that supports our existing client base. So as Jeff had asked previously about have alternative, we certainly want to take a look at what those are forecasting, so that we might have the opportunity to supplement our capital and grow our loans a little bit more significantly and I think that Rob has the response to the question that Kristin had earlier on the retail side.

Robert Disotell

And who has a better memory than I do. Our retail trade in our business banking is 43% of the portfolio and then professional services in Dows included together is about 22%.

Operator

Your next question comes from Ross Haberman - Haberman Fund.

Ross Haberman – Haberman Fund

This is my question. how much in the construction segment are the interest rate subsidies running off over the next year or so and what’s your thought about that?

Carol Nelson

Okay, so your question really is around interest reserves.

Ross Haberman – Haberman Fund

Sorry, sorry yes interest reserves on the construction loans.

Carol Nelson

Okay, I’m going to let Rob respond to that because he is the one that monitors that for us.

Robert Disotell

Okay and that is something we look at really very closely every month and we look at every one of our projects that either have or had a interest reserve or is a construction project and we have right now 60% of our loans in those categories, have no reserves or did not have any reserves set up to begin with so it’s actually relationship that has separately loans and there’s 48 that do not have any reserves. So I look at it as kind of a good news and bad news.

The good news is that the low delinquency numbers weren’t a result of just having them all on interest reserves and when they went out we had problems. So they’ve been able to establish the ability to make payments to their other cash flows, but again as I mentioned earlier that the longer the market stays the way it is, that’s going to have more and more pressures even on those people that have been able to make payments out of pocket, but I think overall I take the balances as a positive. The majority of our construction projects do not have interest reserves, yes the 60%.

Ross Haberman – Haberman Fund

And the 40 which do, I mean you’re losing sleep about them as they are running off here or I should say is Carol losing sleep?

Robert Disotell

I actually sleep like a baby every night. I wake up every two hours crying! So anyway there’s always some, yes. We have a few loans on our radar that I think are and we have done it before and we will continue to do it regards to whether or not there is interest reserves. If we don’t feel that there is the ability of that borrower to continue making payments, and there is a risk that you are not going to collect as I say in the definition or your contractual payments including interests, then you put on a non-accrual and so we are always looking at that very closely and trying to make that decisions as early as possible.

One of the tools that we use that we monitor on all of our loans is that we require a source and uses of cash projection from our developers and our builders and then we look to see how they are going to stay in cash and their ability of staying in cash for say over the next twelve months and then we monitor it to see how they progress against that and it looks like they can’t make interest payments because of the non accruals. So, we make that as early as possible.

Ross Haberman – Haberman Fund

Carol if this Boeing strike goes on for another number of months, what’s your expectation with that scenario regarding loan quality?

Carol Nelson

Well, again I think that where you would begin to see it initially is going to be on the retail sales for local companies as well as then individual consumer loans and their inability to make their payments; we don’t have a large book of individual consumer loans, so I don’t think that’s an area that could significantly harm us.

Our hope is that obviously the strike will be resolved soon than that and I think if you look at the history of how long these strikes have taken, we are kind of getting into the area now where they are typically dissolved.

I was talking with one of my employees yesterday, whose spouse works at Boeing and is one of the strike members and what she was telling me is that her spouse had predicted that they would begin to go back to the bargaining table after day 25 and it had to do with something around contract on Boeing’s plane field which indicate that after a strike had progressed for more than 45 days they did not have to pay penalties for late delivery. So that would remove a bargaining chip from the union side. So not sure if that’s really true, that’s anecdotal information, but it’s interesting that on day 47 talks are resumed.

Ross Haberman – Haberman Fund

Have you reported or given us any guidance on what your direct exposure on the lending side to Boeing suppliers is in dollars?

Carol Nelson

The last time that we looked at it and it has been quite some time, I believe that our exposure was less than 4% in the loan portfolio prior to aerospace related suppliers.

Robert Disotell

When we actually got, the two in particular of our larger credits we’ve got their updated financials, interim financial through the quarter and both were profitable; although down from year-over-year, but both were profitable.

Ross Haberman – Haberman Fund

And against that direct exposure today is still under the 4% number?

Robert Disotell

Yes we haven’t added to that, yes.

Operator

Your final question comes from Tim O'Brien - Sandler O'Neill.

Tim O'Brien - Sandler O'Neill

One other question; in the subsequent event section of last quarter’s earnings announcement you guys hit the language as almost exactly the same, but the numbers a little bit different. Noted $8 million reduction based on two relationships in residential real estate development located in Snohomish, it was $11.6 million; I’m thinking it’s the same loans, can you tell me what the difference is?

Robert Disotell

Yes, the loans that we had that were taken over was the same relationship.

Tim O'Brien - Sandler O'Neill

It was the same?

Robert Disotell

Yes, a different purchase of those properties, but the seller in essence was the same relationship yes.

Tim O'Brien - Sandler O'Neill

So what’s the difference in loan balance reductions I guess? Does that make sense, because you guys said it was --?

Robert Disotell

Oh they are separate properties for development yes. So actually the one in July was roughly two loans for $8 million and this one here was about $3.5 million.

Tim O'Brien - Sandler O'Neill

Completely different?

Robert Disotell

Yes, completely different project, different locations, same underlying borrower that we had, yes.

Operator

Thank you and at this time we have no additional questions. I would like to turn it back to management for any closing remarks.

Carol Nelson

Great, thank you so much. Well again we want to express our appreciation for your continued interest in Cascade Financial Corporation and you topped the questions today. So please feel free to contact us if you have any further questions. Thank you everyone.

Operator

Thank you ladies and gentlemen. If you’d like to listen to a replay of today’s conference please dial 1800 405 2236 OR 303 590 3000, using the access code of 11119713. ACT would like to thank you for your participation. You may now disconnect.

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Source: Cascade Financial Corp Q3 2008 Earnings Call Transcript
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