The following discussion should be read in conjunction with the Company's unaudited condensed consolidated financial statements and the notes thereto as of March 31, 2009 and the operating results for the three months then ended, included elsewhere in this report. This discussion highlights key information as determined by management but may not contain all of the information that is important to you. For a more complete understanding, the following should be read in conjunction with the Company's SEC form 10k; its audited consolidated financial statements and the notes thereto as of December 31, 2008 and 2007 and for each of the years in the three-year period ended December 31, 2008.

Cautionary Information Concerning Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements, which are not historical facts and pertain to our future operating results. These statements include, but are not limited to, our plans, objectives, expectations and intentions and are not statements of historical fact. When used in this report, the word "expects," "believes," "anticipates," "could," "may," "will," "should," "plan," "predicts," "projections," "continue" and other similar expressions constitute forward-looking statements, as do any other statements that expressly or implicitly predict future events, results or performance, and such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain risks and uncertainties and the Company's success in managing such risks and uncertainties may cause actual results to differ materially from those projected, including among others, the risk factors described in this report as well as general business and economic conditions, including conditions in residential and commercial real estate markets; volatility and disruption in financial markets; changes in regulatory conditions or requirements or new legislation; including government intervention in the U.S. financial system; - changes in interest rates including timing or relative degree of change and the interest rate policies of the FRB; competition in the industry, including our ability to attract deposits, changes in the demand for loans and changes in consumer spending, borrowing and savings habits; changes in credit quality and in estimates of future reserve requirements; changes in the level of nonperforming assets and charge-offs; and changes in accounting policies. In addition, these forward-looking statements are subject to assumptions with respect to future business conditions, strategies and decisions, and such assumptions are subject to change.

Results may differ materially from the results discussed due to changes in business and economic conditions that negatively affect credit quality, which may be exacerbated by our concentration of operations in the States of Oregon and Idaho generally, including the Oregon communities of Central Oregon, Northwest Oregon, Southern Oregon, and the greater Boise area, specifically. Likewise, competition or changes in interest rates could negatively affect the net interest margin, as could other factors listed from time to time in the Company's SEC reports. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof. Readers should carefully review all disclosures filed by the Company from time to time with the SEC.

Recent Developments

As previously disclosed, the Company has engaged in discussions to attempt to raise additional capital from a variety of sources. Recently the Company and its largest shareholder have engaged in discussions regarding a possible additional investment in the equity of the Company or the Bank by such shareholder. Although as of the date of this filing there is no understanding or agreement between the Company and such shareholder, the discussions have focused on an investment by such shareholder of approximately $25.0 million which would be conditioned upon the issuance of an as yet to be determined amount of equity securities of the Company to third parties and/or possible issuance of a substantial amount of preferred stock of the Company to the United States Treasury under its Troubled Asset Relief ("TARP") Capital Purchase Program. Any potential investment would also be subject to due diligence and may require the approval of the Company's shareholders. The Company's application for TARP is classified as "pending", however, in the event that the Bank is categorized as "adequately capitalized" upon issuance of a pending regulatory examination report, it is unlikely that the Company would qualify for an investment by the Treasury through TARP. There can be no assurance that the Company will qualify for an investment by the Treasury or that the Company will receive an investment from its largest shareholder or other private investors.

During the first quarter of 2009 the Company was subject to its annual regulatory examination at which time regulators advised us of certain restrictions pending final examination results. The Bank has not yet received its formal examination report, but generally, regulators could continue such restrictions or impose further limits. Among other things they could require management to reduce nonperforming assets, raise and/or improve capital levels, restrict dividend payments, improve liquidity, limit deposit pricing and restrict access to brokered or other volatile wholesale funds. At March 31, 2009, the Company's leverage, tier 1 capital and total risked-based capital ratios were 7.59%, 7.92% and 10.15%, respectively, exceeding the benchmarks for "well capitalized." However, there can be no assurance that the regulators will not downgrade the Bank's capital rating as a result of this exam. The risk based capital category below "well-capitalized" is "adequately capitalized". A failure to remain "well-capitalized" could result in additional regulatory restrictions, potentially including the issuance of a regulatory order by the FDIC, and may cause the Company to be ineligible to receive funds through the TARP Program.

Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that our most critical accounting policies upon which our financial condition depends, and which involve the most complex or subjective decisions or assessments are as follows:

Reserve for Credit Losses: The Company's reserve for credit losses provides for probable losses based upon evaluations of known and inherent risks in the loan portfolio and related loan commitments. Arriving at an estimate of the appropriate level of reserve for credit losses (reserve for loan losses and loan commitments) involves a high degree of judgment and assessment of multiple variables that result in a methodology with relatively complex calculations and analysis. Management uses historical information to assess the adequacy of the reserve for loan losses as well as consideration of the prevailing business environment. On an ongoing basis the Company seeks to refine its methodology such that the reserve is responsive to the effect that qualitative and environmental factors have upon the loan portfolio. However, external factors and changing economic conditions may impact the portfolio and the level of reserves in ways currently unforeseen. The reserve for loan losses is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off. The reserve for loan commitments is increased and decreased through non interest expense. For a full discussion of the Company's methodology of assessing the adequacy of the reserve for credit losses, see "Reserve for Credit Losses" in Management's Discussion and Analysis of Financial Condition and Results of Operation in the Company's Annual Report on Form 10K.

Other Real Estate Owned and Foreclosed Assets: Other real estate owned or other foreclosed assets acquired through loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the reserve for loans losses. Due to the subjective nature of establishing the fair value when the asset is acquired, the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate. If it is determined that fair value declines subsequent to foreclosure, a valuation allowance is recorded through noninterest expense. Operating costs associated with the assets after acquisition are also recorded as noninterest expense. Gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other noninterest expenses.

Mortgage Servicing Rights (MSRs): Determination of the fair value of MSRs requires the estimation of multiple interdependent variables, the most impactful of which is mortgage prepayment speeds. Prepayment speeds are estimates of the pace and magnitude of future mortgage payoff or refinance behavior of customers whose loans are serviced by the Company. Errors in estimation of prepayment speeds or other key servicing variables could subject MSRs to impairment risk. On a quarterly basis, the Company engages a qualified third party to provide an estimate of the fair value of MSRs using a discounted cash flow model with assumptions and estimates based upon observable market-based data and methodology common to the mortgage servicing market. Management believes it applies reasonable assumptions under the circumstances, however, because of possible volatility in the market price of MSRs, and the vagaries of any relatively illiquid market, there can be no assurance that risk management and existing accounting practices will result in the avoidance of possible impairment charges in future periods. See also "Non-Interest Income" below and footnote 5 of the Condensed Consolidated Financial Statements.

Economic Conditions

The Company's business is closely tied to the economies of Idaho and Oregon in general and is particularly affected by the economies of Central, Southern and Northwest Oregon, as well as the Greater Boise, Idaho area. The uncertain depth and duration of the present economic downturn could continue to cause further deterioration of these local economies, resulting in an adverse affect on the Company's financial condition or results of operations. Real estate values have declined and may continue to fall. Unemployment rates have increased significantly and are expected to increase further. Business activity across a wide range of industries and regions is greatly reduced and local governments and many businesses are facing serious challenges due to the lack of consumer spending driven by elevated unemployment and uncertainty.

The Company's financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, is highly dependent upon on the business environment in the markets where the Company operates. The present significant downturn in economic activity and declining real estate values has had a direct and adverse affect on the condition and results of operations for the Company. This is particularly evident in the residential land development and residential construction segments of the Company's loan portfolio. Developers or home builders whose cash flows are dependent on sale of lots or completed residences experienced reduced ability to service their loan obligations and the market value of underlying collateral was adversely effected. The impact on the Company has been an elevated level of impaired loans, an associated increase in provisioning expense and charge-offs for the Company leading to a net loss in the first quarter of 2009. In addition, the Company experienced declining deposits because business and retail customers saw a reduction in overall level of assets and cash available to deposit in the Bank. This decline was offset by increasing secured borrowings and brokered deposit funds with laddered maturities.

Highlights and Summary of Performance - First Quarter of 2009

· First Quarter Net Loss Per Share: at ($0.14) or ($3.9 million) compared to year ago earnings per share of $0.22 and net income of $6.0 million, respectively.

· Credit Quality: Reserve for credit losses at 2.61% of total loans.

· Credit Quality: Non-performing assets (NPA's) at $231.1 million; largely residential development and construction related credits particularly hard hit by the economic downturn.

· Total Risk Based Capital Ratio: at 10.27% compared to 11.42% a year-ago.

· Total Deposits: up 10.7% compared to a year-ago.

· Total Loans: down 5.1% compared to a year-ago.

· Net Interest Margin: 3.86% vs. 4.68% for the year-ago quarter.

Cascade reported first quarter 2009 diluted loss (EPS-diluted) of ($0.14) per share compared to earnings of $0.22 per share for the year ago quarter due to decreased net interest income and elevated loan loss provision expense. The decrease in net interest income during the first quarter 2009 was primarily due to a decrease in interest and fee income on loans, resulting from lower interest rates in general and interest reversals and interest foregone on NPA's. First quarter 2009 provision for loan losses totaled $15.0 million (pre-tax) and net loan charge-offs of $12.8 million (pre-tax). Non-performing assets increased to $231.1 million a majority of which relates to the residential development and construction portfolio.

Loans fell 5.1% from the year-ago period primarily due to charge-off activity coupled with management's actions to reduce loans under the present adverse economic conditions. Total deposits at March 31, 2009, were $1.8 billion, up 10.7% compared to a year-ago mainly as a result of increased time and brokered deposits. The net interest margin was 3.86%, below year ago levels in part due to elevated non-performing assets that do not earn interest income, resulting in lower net interest income for the current quarter. Non interest income declined $0.5 million from the year-ago level while non interest expense was lower by $0.8 million due mainly to reduced staffing expense in the current period.

Loan portfolio and credit quality

At March 31, 2009, Cascade's loan portfolio was approximately $1.9 billion, down $103.0 million and $21.0 million compared to a year-ago and on a linked-quarter basis, respectively. Management believes it is prudent to reduce loan balances where possible until such time as the economic downturn runs its course.

Broadly, credit quality challenges continue to be centered in residential land development portfolio, but the wider economic recession is having some impact on commercial construction, Commercial and Industrial ("C&I") and Commercial Real Estate ("CRE") as well. The land development portfolio represents approximately 10% of the Bank's overall loan portfolio but nearly 50% of total NPA's. Another 37% of that portfolio is adversely risk rated with appropriate special reserves. Meanwhile CRE and C&I portfolio together represent approximately two-thirds of the Bank's total loans. NPA's levels in CRE and C&I are approximately 4% and 5% of the respective portfolios. While the level of non-performing assets in its CRE and C&I portfolios are higher than historical norms, the Company believes that these portfolios will not be as negatively impacted as was the land development and construction loans because of the smaller loan size and borrower diversity within the CRE and C&I portfolios where average loan sizes are about $0.6 million and $0.2 million respectively.

Non performing assets (NPA's) include non-accrual loans and non-performing OREO. A majority of the increase in NPA's during the first quarter is related to residential land development and construction portfolios. NPA's increased to $217.3 million, or 9.4% of total assets compared to $159.4 million or 7.0% of total assets for the linked-quarter. Because of the uncertain real estate market, forward assurances cannot be given as to the timing of ultimate disposition of such assets or that selling price will be at or above carrying fair value. The orderly resolution of non-performing loans and OREO properties is a priority for management.

At March 31, 2009, loans delinquent >30 days were at 0.90% of total loans compared to 0.33% for the linked-quarter and 0.43% for the year ago quarter. This compares favorably to peer banks whose average delinquency rates were 1.37% at prior quarter end. At March 31, 2009 the delinquency rate in our CRE portfolio and our C&I portfolio was 0.39% and 0.85%, respectively. CRE loans represent the largest portion of Cascade's portfolio at 37% of total loans and the C&I loans represent 30% of total loans.

At March 31, 2009 the total reserve for credit losses was $50.4 million or 2.61% of total loans. Management believes the reserve for credit losses is at an appropriate level based on evaluation and analysis of portfolio credit quality in conjunction with prevailing economic conditions and estimated fair values of collateral supporting non performing loans. With uncertainty as to the depth and duration of the real estate slowdown and its economic effect on the communities within Cascades' banking markets, forward assurances cannot be given that the reserve will be adequate in future periods or that the level of NPA's will subside. Further provisioning and charge-offs may be required before values stabilize. See "Loans - Real Estate Loan Concentration" Below.

Deposits

Total deposit at March 31, 2009, were $1.8 billion, up 10.7% compared to a year-ago and up 2.5% on a linked-quarter basis. Historically, the Bank's winter quarter is seasonally the lowest deposit period of the year. This trend has been exacerbated by the ongoing negative economic conditions in Cascade's markets. While consistent efforts to retain and serve customers have proven successful with total customer numbers remaining steady, average deposit balances have declined. Customer relationship deposits 1 averaged $1.3 billion for the first quarter of 2009, down 5.3% compared to the linked-quarter and down 13.3% from the year earlier period. End of period customer relationship deposits were $1.4 billion at March 31, 2009, down 11.1% compared to a year-ago and down 4.7% on a linked-quarter basis. To supplement deposits the Bank has embarked on a marketing program to attract additional local retail deposits targeted at the more price sensitive consumer market. The Bank has historically prioritized serving business, public and not for profit depository customers. The Company can provide no assurance that this initiative will prove to be successful. To offset reduced relationship deposits the Bank utilized internet listing service time deposits and increased its brokered time deposits. At March 31, 2009 wholesale brokered deposits totaled $249.7 million compared to $147.9 million at December 31, 2008. In addition local, relationship based reciprocal CDARS deposits totaled $130.2 million at March 31, 2009. In February 2009, the FDIC informed the Bank that it was placing a temporary restriction on the Bank's ability to increase brokered deposits, including the Bank's reciprocal CDARS program, and limited pricing on deposits pending final results of the examination.

To provide customer assurances, the Company is participating in the FDIC's temporary 100% guarantee of non-interest bearing checking accounts, including NOW accounts paying less than 0.50%. Additionally, under recent changes from the FDIC, all interest bearing deposit accounts are insured up to $250,000 through December 31, 2009.

RESULTS OF OPERATIONS - Three Months ended March 31, 2009 and 2008

Income Statement

Net Income

Net income decreased $10.0 million (or 136.9%) for the three months ended March 31, 2009 as compared to the same period in 2008, primarily due to a continued elevated level of loan loss provision and a decrease in net interest income. Loan loss provision increased $10.5 million for the quarter ended March 31, 2009. Net interest income decreased $5.3 million for the quarter ended March 31, 2009. Non-interest income and non-interest expenses were both down 8.1% and 4.6%, respectively, for the first quarter of 2009.

Net Interest Income / Net Interest Margin

Yields on earning assets during the first quarter of 2009 were 5.53% compared to 5.77% in the linked-quarter and down from 7.12% in the year ago quarter. The year-over-year and linked-quarter decline in yields were mainly a result of declining market rates as well as the effect of interest forgone and reversed on non-performing loans. The average rate paid on interest bearing liabilities was relatively flat at 2.00% for the current quarter as compared to 2.10% for the linked-quarter and is below the 3.13% for the year ago quarter due to the declining market rates.

At March 31, 2009, the net interest margin was 3.86% compared to 4.09% for the linked-quarter, and 4.68% for the year ago quarter. Meanwhile, the overall cost of funds was down to 1.64% in the current quarter compared to 1.71% for the linked-quarter and down from 2.50% for the year-ago quarter. The lower net interest margin was primarily due to interest reversed and foregone on non-performing loans and lower loan fees. Adjusted for NPA's and interest reversals, NIM would have been 4.08% for the first quarter 2009.

Because one of Cascade's strengths is its relatively high proportion of non-interest bearing deposits, lower market interest rates may modestly compress the Company's net interest margin as yields decline against an already low cost of funds. Importantly, this effect should also reverse once the economy rebounds. See cautionary "Forward Looking Statements" below and Risk Factors in Item 2A below for further information on risk factors including interest rate risk.

Components of Net Interest Margin

The following table sets forth for the quarter's ended March 31, 2009 and 2008 information with regard to average balances of assets and liabilities, as well as total dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities, resultant average yields or rates, net interest income, net interest spread and net interest margin for the Company (dollars in thousands):

                                                     Quarter ended                               Quarter ended
                                                    March 31, 2009                              March 31, 2008
                                                        Interest       Average                      Interest       Average
                                          Average        Income/      Yield or        Average        Income/      Yield or
                                          Balance        Expense        Rates         Balance        Expense        Rates
Assets
Taxable securities                      $   106,963     $   1,308          4.96 %   $    77,671     $   1,052          5.43 %
Non-taxable securities (1)                    3,731            53          5.76 %         6,849            82          4.80 %
Interest bearing balances due from
FHLB                                          1,239             1          0.33 %            97             1          4.14 %
Federal funds sold                           16,670             9          0.22 %         1,629            13          3.20 %
Federal Home Loan Bank stock                 10,472             -          0.00 %         8,864            17          0.77 %
Loans (1)(2)(3)(4)                        1,947,231        27,075          5.64 %     2,059,862        37,083          7.22 %
Total earning assets/interest income      2,086,306        28,446          5.53 %     2,154,972        38,248          7.12 %
Reserve for loan losses                     (47,483 )                                   (34,370 )
Cash and due from banks                      54,068                                      48,198
Premises and equipment, net                  39,728                                      38,112
Bank-owned life insurance                    33,584                                      33,419
Accrued interest and other assets           104,865                                     156,675
Total assets                            $ 2,271,068                                 $ 2,397,006

Liabilities and Stockholders' Equity
Interest bearing demand deposits        $   738,031         1,943          1.07 %   $   924,619         5,719          2.48 %
Savings deposits                             34,047            19          0.23 %        36,911            39          0.42 %
Time deposits                               668,181         4,528          2.75 %       310,141         3,114          4.03 %
Other borrowings and F&M Holdback           304,225         2,121          2.83 %       406,244         4,209          4.16 %
Total interest bearing
liabilities/interest expense              1,744,484         8,611          2.00 %     1,677,915        13,081          3.13 %
Demand deposits                             385,780                                     415,636
Other liabilities                             3,524                                      23,363
Total liabilities                         2,133,788                                   2,116,914
Stockholders' equity                        137,280                                     280,092
Total liabilities and stockholders'
equity                                  $ 2,271,068                                 $ 2,397,006

Net interest income                                     $  19,835                                   $  25,167

Net interest spread                                                        3.53 %                                      3.99 %

Net interest income to earning assets                                      3.86 %                                      4.68 %


_____________________

(1) Yields on tax-exempt municipal loans and securities have been stated on a tax-equivalent basis.

(2) Average non-accrual loans included in the computation of average loans was approximately $141.3 million for 2009 and $57.9 million for 2008.

(3) Loan related fees recognized during the period and included in the yield calculation totalled approximately $0.8 million in 2009 and $1.3 million in 2008.

(4) Includes mortgage loans held for sale.

Analysis of Changes in Interest Income and Expense

The following table shows the dollar amount of increase (decrease) in the
Company's consolidated interest income and expense for the quarter ended March
31, 2009, and attributes such variance to "volume" or "rate" changes. Variances
that were immaterial have been allocated equally between rate and volume
categories (dollars in thousands):
. . .