<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB/A
                                (Amendment No. 1)

                     ANNUAL REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

  For the fiscal year ended December 31, 2001     Commission File No. 000-32547
                                                                     -----------

                       MOUNTAINBANK FINANCIAL CORPORATION
          -----------------------------------------------------------
                 (Name of small business issuer in its charter)


             North Carolina                                 56-2237240
 ----------------------------------------          -----------------------------
    (State or other jurisdiction of                       (I.R.S. Employer
     incorporation or organization)                       Identification No.)


            201 Wren Drive
     Hendersonville, North Carolina                              28792
-----------------------------------------          -----------------------------
 (Address of principal executive offices)                     (Zip Code)

                                 (828) 693-7376
             ------------------------------------------------------
               Registrant's telephone number, including area code

Securities registered under Section 12(b) of the Act:        None
                                                      --------------------------

Securities registered under Section 12(g) of the Act:

         Common Stock, $4.00 par value per share
       -------------------------------------------
                    (Title of class)


         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 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   ____________________
               ---------------------

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [____]

         Registrant's revenues for its most recent fiscal year were:$32,900,772.
                                                                     ----------

         On March 15, 2002, the aggregate market value of the voting and
non-voting common equity held by nonaffiliates was approximately: $57,705,462.
                                                                  -----------

         On March 15, 2002, the number of outstanding shares of Registrant's
common stock was 3,112,699.
                 ---------

         Documents incorporated by reference:            None
                                               ------------------------

         Transitional Small Business Disclosure Format:

         Yes   _________________                     No          X
                                                          --------------------

<PAGE>

                                EXPLANATORY NOTE

         This Amendment No. 1 on Form 10-KSB/A amends the Registrant's 2001
Annual Report on Form 10-KSB to revise certain of the information in the table
under the caption "Selected Financial Data" in Item 6 of the original filing,
and to delete Items 9, 10, 11 and 12 of the original filing in their entirety
and, in their place, to insert new Items 9, 10, 11 and 12 as appear below which
contain the information required by these Items.

                                     PART II

Item 6.   Management's Discussion and Analysis or Plan of Operation.

Selected Financial Data

The following table sets forth certain selected financial data for the
twelve-month periods ended December 31, 2001, 2000, 1999 and 1998 and the period
of June 26 to December 31, 1997, the Bank's first five periods of operations.
Dollar amount totals, except per share data, are presented in thousands (periods
prior to 2001 reflect MountainBank's operations only).

<TABLE>
<CAPTION>
                                                       December 31,
                               ------------------------------------------------------
                                 2001        2000        1999        1998      1997
                               --------    --------    --------    -------    -------
<S>                            <C>         <C>         <C>         <C>        <C>
Summary of Operations
Interest income                $ 29,906    $ 15,821    $  6,752    $ 3,479    $   677
Interest expense                 16,621       9,016       3,561      1,765        249
                               --------    --------    --------    -------    -------
         Net interest income     13,285       6,805       3,191      1,714        428
Provision for credit losses       3,347       1,905         827        471        281
Other income (losses)             2,994       1,318         782        469        103
Other expense                     9,206       4,578       2,820      1,582        579
Income taxes                      1,216         583           0          0          0
                               --------    --------    --------    -------    -------
         Net income (loss)     $  2,510    $  1,057    $    326    $   130    $  (329)
                               ========    ========    ========    =======    =======

Per Share Data*

Basic earnings (loss)          $   1.11    $    .52    $   0.22    $  0.10    $ (0.25)
Book value                        11.55        9.73        7.09       5.62       5.49
Tangible Book Value               11.18        9.73        7.09       5.62       5.49
Cash dividends declared             n/a         n/a         n/a        n/a        n/a

Balance Sheet

Loans, net                     $483,872    $197,373    $ 88,498    $47,608    $ 7,798
Investment securities            45,388      35,869      18,755      6,171        503
Total assets                    561,123     259,109     127,211     58,634     23,754
Deposits                        467,507     233,338     113,886     50,360     16,779
Stockholders' equity             37,015      18,210      10,222      6,177      5,975
Interest-earning assets         536,898     249,137     121,330     54,851     22,151
Interest-bearing liabilities    476,178     221,712     109,152     47,075     16,087

Selected Ratios

Return on average assets           0.66%       0.57%       0.37%      0.30%     (3.68)%
Return on average equity          12.71%       7.14%       3.93%      2.13%    (10.60)%
Dividends declared                  n/a         n/a         n/a        n/a        n/a
</TABLE>

* - Per share data reflects all stock dividends through April 2002

                                        2

<PAGE>

Management's Discussion and Analysis of Operations

Management's Discussion and Analysis is provided to assist in the understanding
and evaluation of the Bank's financial condition and its results of operations.
The following discussion should be read in conjunction with the Bank's financial
statements and related notes.

Table 1.  Net Interest Income and Average Balances (dollars in thousands)

<TABLE>
<CAPTION>
                                              Year Ended                      Year Ended                   Year Ended
                                           December 31, 2001              December 31, 2000             December 31, 1999
                                    -----------------------------   ----------------------------   ----------------------------
                                    Average    Interest   Yield/    Average    Interest   Yield/   Average    Interest   Yield/
                                    Balance    Inc/Exp     Cost     Balance     Inc/Exp    Cost    Balance    Inc/Exp     Cost
                                    --------   -------   --------   --------   --------   ------   -------    -------    ------
<S>                                 <C>        <C>           <C>    <C>        <C>         <C>     <C>            <C>     <C>
Interest earning assets:
   Interest bearing  deposits
     with other depositories        $  5,018   $   242     4.82%    $  8,144   $    505    6.20%   $ 4,778        258     5.39%
   Investment Securities              40,634     2,272     5.59%      27,436      1,865    6.80%     9,178        513     5.59%
   Federal funds sold                  7,801       286     3.67%       3,944        241    6.11%     6,473        331     5.11%
   Loans                             315,378    27,106     8.59%     136,846     13,210    9.65%    63,396      5,650     8.91%
                                    --------   -------              --------   --------    ----    -------    -------     ----
     Total interest-earning
       assets                        368,831    29,906               176,370     15,821             83,825      6,752
                                    --------   -------               -------   --------             ------    -------
     Yield on average interest-
       earning assets                                      8.11%                           8.97%                          8.05%
                                                           ====                            ====                           ====
Noninterest-earning assets:
   Cash and due from banks             4,939                           5,024                         2,993
   Property and equipment              3,071                           1,886                         1,336
   Interest receivable and other       3,605                           1,839                           729
                                    --------                        --------                       -------
     Total noninterest-earning
      assets                          11,615                           8,749                         5,058
                                    --------                        --------                       -------
     Total assets                   $380,446                        $185,119                       $88,883
                                    ========                        ========                       =======
Interest-bearing liabilities:
   Demand deposits                  $ 18,433       206     1.12%    $ 11,174        152    1.36%   $ 6,324        111     1.76%
   Savings deposits                   49,112     1,672     3.40%      38,241      1,750    4.58%    27,927      1,274     4.56%
   Time deposits                     234,739    13,404     5.71%     104,427      6,894    6.60%    36,822      2,059     5.59%
   Obligation under capital lease        749        56     7.48%         776         68    8.76%       794         62     7.81%
   FHLB advances                      18,823       864     4.59%          --         --      --         --         --       --
   Notes payable                       5,502       223     4.05%          --         --      --         --         --       --
   Fed funds purchased/
      Repurchase agreements            4,999       196     3.92%       2,586        152    5.88%     1,444         55     3.81%
                                    --------   -------     ----     --------   --------    ----    -------    -------     ----
      Total interest-bearing
      liabilities                    332,357    16,621               157,204      9,016             73,311      3,561
                                    --------   -------              --------   --------            -------    -------
     Cost on average interest-
       bearing liabilities                                 5.00%                           5.74%                          4.86%
                                                           ====                            ====                           ====
Noninterest bearing liabilities:
   Demand deposits                    23,241                          11,079                         5,629
   Interest payable and other          5,096                           2,036                         1,654
                                    --------                        --------                       -------
     Total noninterest-bearing
       liabilities                    28,337                          13,115                         7,283
                                    --------                        --------                       -------
     Total liabilities               360,694                         170,319                        80,594
Stockholders' equity                  19,752                          14,800                         8,289
                                    --------                        --------                       -------
     Total liabilities and
     stockholders' equity           $380,446                        $185,119                       $88,883
                                    ========                        ========                       =======
Net interest income                            $13,285                         $  6,805                       $ 3,191
                                               =======                         ========                       =======
Net yield on interest-
   earning assets                                          3.60%                           3.86%                          3.81%
                                                           ====                            ====                           ====
</TABLE>

                                        3

<PAGE>

Table 2.  Rate/Volume Variance Analysis (dollars in thousands)

<TABLE>
<CAPTION>
                                          2001 Compared to 2000         2000 Compared to 1999
                                       ----------------------------   -------------------------
                                       Interest                       Interest
                                       Income/                        Income/
                                       Interest       Variance        Interest      Variance
                                       Expense     Attributable To    Expense    Attributable To
                                       Variance    Rate     Volume    Variance   Rate     Volume
                                       --------  --------   -------   --------  ------    ------
<S>                                    <C>        <C>       <C>        <C>      <C>       <C>
Interest-earning assets:
  Interest bearing deposits in other
        Depositories                   $  (263)   $   (69)  $  (194)   $  247   $   66    $  181
Investments securities                     407       (492)      899     1,352      332     1,020
  Federal funds sold                        45       (190)      235       (90)      39      (129)
  Loans                                 13,896     (3,343)   17,239     7,560    1,013     6,547
                                       -------    -------   -------    ------   ------   -------
     Total                              14,085     (4,094)   18,179     9,069    1,450     7,619
                                       -------    -------   -------    ------   ------   -------

Interest-bearing liabilities:
  Demand deposits                           54        (44)       98        41      (45)       86
  Savings deposits                         (78)      (578)      500       476        8       468
  Time deposits                          6,510     (2,089)    8,599     4,835    1,055     3,780
  Obligation under capital lease           (12)       (10)       (2)        6        7        (1)
  Federal funds purchased/Repurchase
      agreements                            44        (98)      142        97       54        43
  FHLB advances                            864         --       864        --       --        --
  Notes payable                            223         --       223        --       --        --
                                       -------    -------   -------    ------   ------    ------
   Total                                 7,605     (2,819)   10,424     5,455    1,079     4,376
                                       -------    -------   -------    ------   ------    ------
   Net interest income                 $ 6,480    $(1,275)  $ 7,755    $3,614   $  371    $3,243
                                       =======    =======   =======    ======   ======    ======
</TABLE>

Analysis of Financial Condition

Average earning assets have increased 105.5% from 2000 to 2001. Average earning
assets represented 96.9% of total average assets at December 31, 2001 compared
to 95.3% at the end of 2000. With the exception of interest bearing deposits in
other depositories, all categories of average assets increased during 2001.
Average loans increased $178.5 million or 130.5% over 2000. The following table
illustrates the growth of various balance sheet components.

Table 3.  Average Asset Mix (dollars in thousands)

<TABLE>
<CAPTION>
                                                For the Year Ended   For the Year Ended
                                                December 31, 2001    December 31, 2000
                                                ------------------   ------------------
                                                Average              Average
                                                Balance      %       Balance       %
                                                --------   ------    --------   ------
<S>                                             <C>         <C>      <C>         <C>
Earning assets:
  Loans, net                                    $315,378    82.90%   $136,846    73.92%
  Investment securities                           40,634    10.68%     27,436    14.82%
  Federal funds sold                               7,801     2.05%      3,944     2.13%
  Interest bearing deposits with depositories      5,018     1.32%      8,144     4.40%
                                                --------   ------    --------   ------
       Total earning assets                      368,831    96.95%    176,370    95.27%
                                                --------   ------    --------   ------

Non-earning assets:
  Cash and due from banks                          4,939     1.29%      5,024     2.72%
  Property and equipment                           3,071     0.81%      1,886     1.02%
  Other assets                                     3,605     0.95%      1,839     0.99%
                                                --------   ------    --------   ------
      Total non-earning assets                    11,615     3.05%      8,749     4.73%
                                                --------   ------    --------   ------
      Total assets                              $380,446   100.00%   $185,119   100.00%
                                                ========   ======    ========   ======
</TABLE>

                                        4

<PAGE>

During 2001, average net loans represented 82.90% of total average assets
compared to 73.92% for fiscal 2000. Loan production continued at a rapid pace
during 2001 and as a result, loan assets comprised a larger percentage of the
total asset base for the year. It is management's continued intent to grow the
Bank's balance sheet by first growing its loan portfolio, rather than growing
its liability base first and investing in lower yielding assets until loans can
be produced. Management believes this to be the most cost effective strategy for
profitable growth. Management does expect internally generated loan growth to
moderate in 2002 as credit standards and underwriting criteria are tightened
somewhat, in light of current economic conditions. However, as the Bank's
geographic market area continues to expand, access to high quality loans is
expected to continue to drive overall growth.

Net Interest Income

The Company's primary source of income is net interest income. It is defined as
the difference between income generated by the earning assets less expense
incurred on its interest bearing liabilities. Table 1 summarizes the major
components of net interest income for the years ended December 31, 2001, 2000
and 1999. Compared with 2000, net interest income nearly doubled during 2001,
increasing 95.2% or $6.5 million, principally as a result of overall growth of
the Company's balance sheet. During 2001, net interest income increased
primarily as a result of overall increases in balance volume. During the period,
both asset yields and liability costs declined along with the general decline
experienced in interest rates over the course of the year. Asset yields fell 86
basis points while liability costs declined 74 basis points resulting in a
decrease in the Company's net interest margin of 26 basis points. The decline in
net interest margin was considered by management to be more correlated to
liability pricing than asset pricing. With interest rates at their lowest point
in decades, deposit rates became increasingly difficult to lower during the year
and still retain these deposits. Accordingly, deposit rates declined less than
asset yields and adversely impacted margins. This was mitigated to some degree
by adjusting the Bank's asset mix and increasing the percentage of earning
assets comprised of the highest yielding asset class, loans. During 2001, 82.9%
of the Bank's average assets were invested in loan assets as compared with 73.9%
on average during 2000. Management began to diversify the Bank's funding sources
during 2001. In addition to retail deposits generated through its branch
network, management added wholesale deposits and FHLB advances to the Bank's
menu of funding sources. These wholesale sources of funding allow for greater
flexibility in managing the Bank's liability structure as well as providing
additional tools for interest rate management.

Provision for Credit Losses and Asset Quality

As a result of the continued rapid growth of MountainBank's loan portfolio, the
Bank's provision for loan losses remains one of its largest ongoing expenses.
During 2001, the Bank provided $3.3 million for possible loan losses. This
compares with $1.9 million provided during 2000 and $826 thousand provided in
1999. These provisions, made to the Bank's allowance for credit losses to
provide for possible future losses are charged directly against the Bank's
current earnings. On at least a quarterly basis, management and the Board of
Directors evaluates the allowance for loan losses to determine its adequacy to
meet any known or anticipated future losses based on current and projected
conditions. Factors considered in determining the adequacy of the allowance
include the estimated collectability of past due loans, the volume of new loans,
composition of the loan portfolio, industry standards and current as well as
projected economic conditions. Specific reserves for individual loans are
established in addition to the basic reserve as deemed necessary based on
evaluation of individual credits. The Bank's loan portfolio is beginning to
become more seasoned and historical trends are beginning to provide more
pertinent data for evaluation. However, with continued growth and expansion into
new markets, estimates of future portfolio performance remain quite subjective.
Therefore, while it is the opinion of management and the Board of Directors that
the Bank's allowance for loan losses is adequate to absorb any anticipated loan
losses as of the report date, no assurances can be made that any future losses
may not be significant and may require additional provisions. At December 31,
2001, 2000 and 1999, the Bank's allowance for loan losses totaled $7.1 million,
$3.0 million and $1.2 million, respectively, representing 1.45%, 1.50% and 1.39%
of gross loans. Excluding sold mortgage loans and government guaranteed loans in
the portfolio at December 31, 2001, the Bank's allowance totaled 1.50% of loans.

                                        5

<PAGE>

During 2001, the Bank experienced limited, but increased loan losses as compared
to prior years. Total loans charged off or charged down amounted to $490
thousand, comprised of $287 thousand in consumer loans, $104 thousand in
commercial loans and $99 thousand in real estate loans. Recoveries for the year
amounted to $15 thousand, resulting in net charge-offs of $475 thousand for the
year. The most significant charge-offs experienced during the year were two
credits to two separate borrowers, each in the amount of $30 thousand that were
written off. At December 31, 2001, no credit relationships were identified as
having significant risk for material loss. While the Bank has experienced
limited credit losses to date, the rapid growth of it's loan portfolio, unknown
future economic conditions and industry standards indicate future credit losses
are to be expected in the normal course of business. It is management's intent
to control and limit such losses through adherence to current policies and
procedures which are intended to maintain a high level of credit quality.

Other Income

In addition to net interest income, the Bank derives revenues from a variety of
financial products and services offered to its customer base. The majority of
noninterest income results from origination fees and released service rights on
sold mortgage loans, from service charges on deposit accounts including charges
for insufficient funds, check sales, and fees charged for nondeposit services
and from premiums generated through the sale of credit related insurance
products. Additionally, the Bank may sell various assets from time to time
including loans or securities which may produce either gains or losses when
sold. During 2001, these transactions resulted in non-recurring gains totaling
$286 thousand, as compared with $151 thousand recorded as a result of similar
transactions during 2000. Table 4 describes non-interest income for the years
ended December 31, 2001, 2000 and 1999.

Table 4. Sources of Noninterest Income (dollars in thousands)

                                           For the periods ended December 31,
                                           ----------------------------------
                                            2001           2000          1999
                                           ------         ------         ----
Service charges on deposit accounts        $  940         $  461         $231
Fees on mortgage loans sold                 1,435            499          493
Gains on sale of assets                       286            151           --
Other service charges and fees                128             60           35
Other income                                  205            147           23
                                           ------         ------         ----
                                           $2,994         $1,318         $782
                                           ======         ======         ====
Non-interest Expense

The major components of non-interest expense for the years ended December 31,
2001, 2000 and 1999 are as follows:

Table 5.  Sources of Noninterest Expense (dollars in thousands)

                                           For the periods ended December 31,
                                           ----------------------------------
                                            2001           2000        1999
                                           ------         ------      ------
Salary and benefits                        $4,793         $2,417      $1,397
Occupancy expenses                            571            316         210
Furniture/equipment expenses                  662            349         196
Professional service fees                     658            148         145
Data and credit card processing fees          521            298         206
Advertising and business promotion            416            222         117
Printing and related supplies                 301            108          95
Other expenses                              1,284            721         454
                                           ------         ------      ------
                                           $9,206         $4,579      $2,820
                                           ======         ======      ======

                                        6

<PAGE>

Management calculates the Bank's overhead efficiency ratio as noninterest
expense divided by adjusted total revenue (net interest income before provision
for loan losses plus noninterest income). Management places significant
importance on this ratio, as it is the primary measurement used to determine the
efficiency of the Bank's overall operation. During 2001, this ratio increased
fractionally to 56.55% as compared with 56.37% in 2000. Additional costs
associated with the opening of new offices, acquiring MountainBanc Mortgage,
Inc. and costs associated with the acquisition of First Western Bank adversely
impacted this ratio. Management believes this ratio can be reduced further,
however, reductions are expected to be more difficult over the near term due to
continued growth expectations and other possible business combinations.

Loans

Average net loans totaled $315.4 million during the year ended December 31,
2001, representing an increase of 130.5% as compared with 2000. Management
intends to continue the growth of high quality loan assets to the extent
possible as dictated by the Company's capital. With continued expansion of the
Bank's geographic market area, aggressive marketing efforts and the strong
acceptance of the Bank within the communities it serves, management expects loan
growth, and consequently, the Bank's overall growth, to continue at a relatively
rapid rate yet somewhat slower than in prior years.

The majority of growth in the Bank's loan portfolio has been centered in real
estate and commercial loans. These loans comprised approximately 92% of the
total loan portfolio at December 31, 2001. The amount of loans outstanding by
type at December 31, 2001 and December 31, 2000 and the maturity distribution
for variable and fixed rate loans as of December 31, 2001 are presented in
Tables 6 and 7, respectively.

Table 6.  Loan Portfolio Summary (dollars in thousand)

<TABLE>
<CAPTION>
                                           December 31, 2001    December 31, 2000
                                           ----------------    ------------------
                                            Amount      %       Amount       %
                                           --------   -----    --------   -------
<S>                                        <C>        <C>      <C>          <C>
Construction and development               $ 89,587   18.25%   $ 32,602     16.27%
1-4 family residential                       99,227   20.21%     36,963     18.45%
Farmland                                      1,959    0.40%        385      0.19%
Nonfarm, nonresidential                     177,319   36.11%     78,489     39.17%
Multifamily residential                       4,326    0.88%        596      0.30%
                                           --------   -----    --------   -------
     Total real estate                      372,418   75.85%    149,035     74.38%

Loans to finance agricultural production        403    0.08%        996      0.50%
Commercial and industrial                    81,388   16.58%     29,381     14.66%
Consumer                                     31,005    6.31%     20,968     10.46%
Other                                         5,771    1.18%         --         -%
                                           --------   -----    --------   -------
     Total                                 $490,985   100.0%   $200,380    100.00%
                                           ========   =====    ========   =======
</TABLE>

                                        7

<PAGE>

Table 7.  Maturity and Repricing Schedule of Loans (dollars in thousands)

<TABLE>
<CAPTION>
                             Commercial     Residential                   Total
                            Financial and      Real                 -----------------
                            Agricultural      Estate       Others    Amount       %
                            -------------   -----------   -------   --------   ------
<S>                           <C>             <C>         <C>        <C>        <C>
Fixed rate loans:

 Three months or less          $ 10,829        $ 2,573    $ 3,128   $ 16,530    3.37%
 Over three months to
   twelve months                 40,127          3,101      2,651     45,879    9.34%
 Over one year to five
   years                        159,359         27,211     21,299    207,869   42.34%
 Over five years                 40,497         29,632      2,588     72,717   14.81%
                               --------        -------    -------   --------   -----
    Total fixed rate loans     $250,812        $62,517    $29,666   $342,995   69.86%
                               --------        -------    -------   --------   -----
</TABLE>

<TABLE>
<CAPTION>
                             Commercial     Residential                    Total
                            Financial and      Real                 -----------------
                            Agricultural      Estate       Others    Amount       %
                            -------------   -----------   -------   --------   ------
<S>                            <C>            <C>         <C>       <C>         <C>
Variable rate loans:

   Three months or less        $107,918       $26,112     $ 2,802   $136,832    27.87%
   Over three months to
     twelve months                   15         1,649          --      1,664     0.34%
   Over one year to
     five years                     545         8,949          --      9,494     1.93%
   Over five years                   --            --          --         --       --
                               --------       -------     -------   --------   ------
     Total variable rate
        loans                  $108,478       $36,710     $ 2,802   $147,990    30.14%
                               --------       -------     -------   --------   ------
Total loans:

   Three months or less        $118,747       $28,685     $ 5,930   $153,362    31.24%
   Over three months to
     twelve months               40,142         4,750       2,651     47,543     9.68%
   Over one year to
      five years                159,904        36,160      21,299    217,363    44.27%
   Over five years               40,497        29,632       2,588     72,717    14.81%
                               --------       -------     -------   --------   ------
          Total loans          $359,290       $99,227     $32,468   $490,985   100.00%
                               ========       =======     =======   ========   ======
</TABLE>

Interest rates charged on loans vary with the degree of risk, maturity and
amount of the loan. Competitive pressures, money market rates, availability of
funds, and government regulation also influence interest rates. On average, the
Bank's loan portfolio yielded 8.59% during 2001 as compared to an average yield
of 9.65% during 2000.

Investment Securities

MountainBank uses its investment portfolio as a tool to provide liquidity,
manage interest rate risk and provide supplemental earnings. During the later
half of 2001, management was able to begin increasing the percentage of floating
rate loans within the Bank's loan portfolio. By the end of 2001, this ratio had
been successfully increased from approximately 32% of total loans to
approximately 40%. Management began this process in anticipation of a
stabilizing interest rate environment and projected increases in rates over the
next four to six quarters. Management has continued to focus on maintaining the
majority of its investment securities in floating rate instruments to aid in
mitigating interest rate risk associated with the fixed rate component of the
Bank's loan portfolio, and accordingly, has been willing to accept somewhat
lower investment yields for shorter duration within the investment portfolio.

                                        8

<PAGE>

With the Bank's rapid growth since its inception and with continuing growth
expected by management, the need to manage liquidity through the investment
portfolio has been acknowledged by classifying all of its investment securities
as available for sale. Accordingly, these securities may be sold from time to
time to increase liquidity or re-balance the interest rate sensitivity profile
of the Bank's balance sheet as deemed necessary. Table 8 presents the investment
portfolio at December 31, 2001 by major type of investments and maturity ranges.
At December 31, 2001, the market value of the investment portfolio was $45.4
million, representing market appreciation of $96 thousand as compared to book
value at that date. At December 31, 2000 the market value of the investment
portfolio was $35.9 million.

Table 8.  Investment Securities (dollars in thousands)

December 31, 2001, Available for Sale

<TABLE>
<CAPTION>
                                                             One Year   After Five
                               In One Year   Through Five    Through     After Ten             Market
                                 or Less         Years      Ten Years      Years      Total     Value
                               -----------   ------------   ---------   ----------   -------   -------
<S>                              <C>           <C>            <C>        <C>         <C>       <C>
Investment securities:
U.S. Government agencies         $3,628         $3,549        $   --      $    --    $ 7,177   $ 7,162
U.S. Government agency
   pools (MBS)                       --            188         1,584       21,860     23,632    23,709
Municipals                          597          3,124            --           --      3,721     3,755
U.S. Government agency
   Preferred stock                   --             --            --        7,830      7,830     7,830
Restricted equity securities         --             --            --        2,931      2,931     2,931
                                 ------         ------        ------      -------    -------   -------
       Total                     $4,225         $6,861        $1,584      $32,621    $45,291   $45,387
                                 ======         ======        ======      ========   ========  =======

Weighted average yields:
U.S. Government agencies           6.84%          5.72%           --%          --%      6.29%
U.S. Government agencies
    pools (MBS)                      --%          5.94%         6.34%        5.63%      5.68%
Municipals (tax equivalent)        4.86%          5.24%           --%          --%      5.18%
U.S. Government agencies
  Preferred Stock                    --%            --%           --%        2.74%      2.74%
Restricted equity securities         --%            --%           --%        5.57%      5.57%
                                 -------        ------        ------      -------    -------
       Consolidated                4.08%          5.51%         6.34%        4.93%      5.22%
                                 =======        ======        ======      =======    =======
</TABLE>

December 31, 2000, Available for Sale

<TABLE>
<CAPTION>
                                                            One Year    After Five
                               In One Year   Through Five    Through     After Ten             Market
                                 or Less         Years      Ten Years      Years      Total     Value
                               -----------   ------------   ---------   ----------   -------   -------
<S>                               <C>           <C>           <C>         <C>        <C>       <C>
Investment securities:
U.S. Government agencies          $ --          $  --         $ --        $ 9,385    $ 9,385   $ 9,344
U.S. Government agency
   pools (MBS)                      --             --           --         25,006     25,006    25,260
Municipals                          --            814           --             --        814       812
Restricted equity securities        --             --           --            453        453       453
                                  ----          -----         ----        -------    -------   -------
       Total                      $ --          $ 814         $ --        $34,844    $35,658   $35,869
                                  ====          =====         ====        =======    =======   =======

Weighted average yields:
U. S. Treasury Note                 --%            --%          --%            --%        --%
U.S. Government agencies            --%            --%          --%          6.86%      6.86%
Municipals (tax equivalent)         --%            --%          --%          6.64%      6.64%
U.S. Government agencies            --%          7.32%          --%            --%      7.32%
    pools (MBS)                     --%            --%          --%          5.57%      5.57%
                                  ----          -----         ----        -------    -------
       Consolidated                 --%          7.32%          --%          6.69%      6.70%
                                  ====          =====         ====        ========   ========
</TABLE>

                                        9

<PAGE>

Average overnight investments totaled $12.8 million or 3.37% of average assets
for the year ended December 31, 2001. At December 31, 2000, overnight
investments totaled $12.1 million. Federal funds sold and interest bearing
deposits with banks represent the most liquid portion of the Bank's invested
funds and generally the lowest yielding portion of earning assets. Management
expects to maintain overnight and other short term investments at levels
sufficient to meet liquidity demands, but at relatively low levels so as to
maximize the Company's earning potential.

Deposits

The primary goal of the Bank's expansion of its geographic market area is the
ability to attract and access additional deposits. Retail deposits gathered
through the Bank's branch network continues to be its principal source of
funding, although during fiscal 2000 wholesale funding sources were added to the
Bank's funding mix. Management considers acquisition of core deposits as one of
the most fundamental sources of increased franchise value and intends to
continue to expand both the Bank's geographic markets and further penetrate its
current markets. Management believes that generation of quality loan assets can
be materially impacted by the level of service provided to the customer, but
that a significant portion of depositors are viewed as more rate sensitive than
service oriented. Therefore, the Bank's primary advertising and mass media
marketing efforts are geared toward attracting deposits and it remains the
Bank's primary deposit gathering strategy to provide these customers with both
competitive rates and exceptional service.

Due to the popularity of the Bank's primary market area as a favored retirement
destination, a higher percentage of its certificates of deposit are concentrated
in CDs over $100 thousand as compared to peer institutions. Due to the market
demographics within the Bank's primary area of operations, management generally
differentiates little between jumbo CDs and smaller denomination certificates in
projecting retention rates for certificates. During 2001, certificates of
deposit comprised 72.1% of the Bank's average deposit base as compared with
63.3% during 2000. One of management's stated goals for fiscal 2002 is to
increase the volume of non-CD deposits as a ratio of total deposits. Management
expects to substantially increase the actual dollar amount of these deposits
during the next year, however, depending on the funding requirements dictated by
net loan growth, a reduction in non-CD deposits to total deposits may be nominal
until total balance sheet growth moderates further.

Average deposits for the year ended December 31, 2001 totaled $325.5 million as
compared with $164.9 million for the same period in 2000. The Bank's percentage
of interest bearing deposits decreased slightly to 92.9% from 93.3% in 2000.
Management desires to decrease this ratio further as additional emphasis is
placed on the cross-selling of demand deposit accounts and increasing the Bank's
account per customer ratio. Demand deposits are generally considered the most
difficult deposit accounts to acquire, however, management remains intent on
emphasizing acquisition of demand deposits as one of MountainBank's primary
goals. Therefore, it is anticipated that the percentage of interest bearing
deposits will continue to trend downward slowly. Average deposits for the
periods ended December 31, 2001 and December 31, 2000 are summarized in Table 9
below.

Table 9.  Deposit Mix (dollars in thousands)

                                        December 31, 2001   December 31, 2000
                                        -----------------   -----------------
                                         Average             Average
                                         Balance      %      Balance      %
                                        --------   ------   --------   ------
Interest-bearing deposits:
  NOW Accounts                          $ 18,433     5.66%  $ 11,174     6.78%
  Money Market                            45,651    14.02%    36,221    21.96%
  Savings                                  3,461     1.06%     2,020     1.22%
  Certificates of deposit                234,739    72.12%   104,427    63.32%
                                        --------   ------   --------   ------
      Total interest-bearing deposits    302,284    92.86%   153,842    93.28%
Noninterest-bearing deposits              23,241     7.14%    11,079     6.72%
                                        --------   ------   --------   ------
      Total deposits                    $325,525   100.00%  $164,921   100.00%
                                        ========   ======   ========   ======

                                       10

<PAGE>

At December 31, 2001, certificates of deposit denominated in amounts of $100
thousand or more totaled $120.5 million as compared with $66.4 million at
December 31, 2000. This represents an increase of $54.1 million. The percentage
of total deposits represented by these certificates decreased to 25.8% at
December 31, 2001 as compared with 28.5% at December 31, 2000. Table 10 provides
maturity information relating to Certificates of Deposit of $100,000 or more at
December 31, 2001 and 2000.

Table 10.  Large time deposit maturities

Analysis of time deposits of $100,000 or more at December 31, 2001 and 2000
(dollars in thousands):

                                                        2001       2000
                                                      --------   -------

Remaining maturity of three months or less            $ 49,645   $23,220
Remaining maturity over three through twelve months     65,848    38,379
Remaining maturity over twelve months                    5,019     4,788
                                                      --------   -------
    Total time deposits of $100,000 or more           $120,512   $66,387
                                                      ========   =======

Capital Adequacy

With the Company's rapid growth, capital acquisition has become one of its
primary challenges and constraints during 2001. Capital was increased during
2001 by $18.9 million or 104.0% primarily through retention of earnings,
acquisition of First Western Bank and through the issuance of Preferred Stock.
At December 31, 2001, approximately $2.2 million in Preferred Stock had been
issued which represented stock sold in the first two weeks of the offering. Upon
closing this Preferred Stock offering in early March 2002, nearly $9.0 million
had been generated from this offering.

Regulatory guidelines relating to capital adequacy provide minimum risk-based
ratios which assess capital adequacy while encompassing all credit risks,
including those related to off-balance sheet activities. Capital ratios under
these guidelines are computed by weighing the relative risk of each asset
category to derive risk-adjusted assets. For the Company, risk-based capital
guidelines require minimum ratios of core (Tier 1) capital (common stockholders'
equity) to risk-weighted assets of 4.0% and total regulatory capital (core
capital plus allowance for loan losses up to 1.25% of risk-weighted assets) to
risk-weighted assets of 8.0%. As of December 31, 2001 the Company's Tier 1
risk-weighted capital ratio and total capital ratio were 6.75% and 8.01%,
respectively. With the inclusion of the Preferred Stock sold during the first
quarter of 2002, these two ratios would have increased to 8.10% and 9.35%,
respectively for the Company.

MountainBank also has capital ratio constraints with which to comply. These
ratios are slightly different than those required at the parent company level.
At December 31, 2001, MountainBank's capital ratios were as follows. Tier I
leverage ratio, 8.43%, Tier I risk-based capital ratio, 7.62% and total
risk-based ratio, 8.87%. These capital ratios were sufficient at December 31,
2001 to classify the Bank as "adequately capitalized" in accordance with the
FDIC's regulatory capital rules. To be classified as well capitalized on the
same measurement date, the Bank's total risk based capital ratio would have had
to be 10% or greater. At December 31, 2001 the Bank had 3,112,699 shares of
common stock outstanding that were held by approximately 2,800 stockholders.

Nonperforming and Problem Assets

Certain credit risks are inherent in making loans, particularly commercial and
consumer loans. Management's intent with regard to maintaining a high level of
credit quality is to identify, quantify and assess these risks and to manage
them effectively. The Bank's internal credit underwriting policies and
procedures are designed to provide a high level of credit quality while allowing
the lending function to be responsive to the needs of its customers. These
policies and procedures include officer and customer limits, periodic loan
documentation review, on-going credit review and follow up on exceptions to
credit policies.

                                       11

<PAGE>

Nonperforming assets at December 31, 2001 and 2000 are analyzed in Table 11.

Table 11.  Nonperforming Assets (dollars in thousands)

                                                               December 31,
                                                             --------------
                                                              2001     2000
                                                             ------    ----
Nonaccrual loans                                             $1,528    $266
Loans past due 90 days or more and still accruing interest       --      --
Other real estate owned                                          --      --
                                                             ------    ----
                                                             $1,528    $266
                                                             ======    ====

Nonaccrual loans comprised .31% and .13% of outstanding gross loans at December
31, 2001 and 2000, respectively.

Liquidity and Interest Rate Sensitivity

Liquidity is defined as the Company's ability to meet all short-term demands for
funds on a timely basis. Such demands include funding of loans and other asset
purchases or originations, reduction or liquidation of deposit accounts by
customers and principal and interest payments on debt of both the Bank and its
parent company. Liquidity at the Bank level is provided by cash flows from
maturing investments, loan payments and maturities, federal funds sold, and
unpledged investment securities. Liquidity may also be provided through
accumulation of core deposits, increasing large denomination certificates from
both retail and wholesale sources, federal fund lines from correspondent banks,
borrowings from the Federal Home Loan Bank as well as the Federal Reserve Bank
and also the ability to generate funds through the issuance of long-term debt
and equity. With the proportional increase in loans, the Bank's liquidity ratio
was reduced during 2001. However, management has established additional upstream
lines of credit and believes that current liquidity levels are satisfactory to
meet known and anticipated liquidity needs.

The Company strives to limit the effect of changes in interest rates on both the
Company's net interest income as well as the market value of its assets and
liabilities while maximizing net interest income under these constraints.
Interest rate risk management aims to manage the pricing and duration of assets
and liabilities so that the effects of interest rate changes do not result in
wide fluctuations of either the Bank's net interest income or the market values
of assets and liabilities. Next to credit risk, interest rate risk is considered
one of the more significant risks requiring on-going monitoring and management.
Interest rate risk is defined as the effect that changes in interest rates would
have on net interest income as interest-sensitive assets and liabilities either
reprice or mature. Management attempts to correlate the repricing of the Bank's
portfolios of earning assets and interest-bearing liabilities so as to afford
protection from significant erosion of net interest margin resulting from
changes in interest rates. Table 12 shows the sensitivity of the Bank's balance
sheet at December 31, 2001 and is not necessarily indicative of the position on
other dates. On that date, the Bank appeared to be cumulatively asset-sensitive
(earning assets subject to interest rate changes exceeding interest-bearing
liabilities subject to changes in interest rates).

Matching sensitive positions alone does not ensure the Bank has limited interest
rate risk. The repricing characteristics of assets are different from the
repricing characteristics of funding sources. Thus, net interest income can be
impacted by changes in interest rates even if the repricing opportunities of
assets and liabilities are matched.

                                       12

<PAGE>

Table 12. Interest Rate Sensitivity (dollars in thousands)

<TABLE>
<CAPTION>
                               December 31, 2001 Asset and Liability Maturities and Repricings
                               ---------------------------------------------------------------
                                  1 - 3        4 - 12       13 - 60      Over 60
                                  Months       Months        Months       Months       Total
                                 --------     --------     ---------     -------     --------
<S>                              <C>          <C>          <C>           <C>         <C>
Earning assets:
  Loans                          $153,362     $ 47,543     $ 218,662     $72,717     $492,284
  Investments                      14,637        3,476        15,311      11,964       45,388
  Interest bearing deposits
       with banks                     525           --            --          --          525
  Federal Funds Sold                   --           --            --          --           --
                                 --------     --------     ---------     -------     --------
     Total                       $168,524     $ 51,019     $ 233,973     $84,681     $538,197
                                 ========     ========     =========     =======     ========

Interest-bearing deposits:

  NOW accounts                   $ 31,638     $     --     $      --     $    --     $ 31,638
  Money market                     67,201           --            --          --       67,201
  Savings                           7,765           --            --          --        7,765
  Certificates of Deposit         128,767      179,173        10,593       1,182      319,715
  Repurchase agreements/Fed
     funds purchased                5,240           --            --          --        5,240
  Other                             7,750           --            --      36,869       44,619
                                 --------     --------     ---------     -------     --------
     Total                       $248,361     $179,173     $  10,593     $38,051     $476,178
                                 ========     ========     =========     =======     ========

Interest sensitivity gap         $(79,837)   $(128,154)    $ 223,380     $46,630     $ 62,019

Cumulative interest
   sensitivity gap               $(79,837)   $(207,991)    $  15,389     $62,019     $ 62,019

Ratio of sensitive assets to
  sensitive liabilities             67.85%       28.47%     2,208.75%     222.55%      113.02%

Cumulative ratio of
   sensitive assets to
   sensitive liabilities            67.85%       51.35%       103.51%     113.02%      113.02%
</TABLE>

Table 13. Key Financial Ratios.

                           December 31,   December 31,   December 31,
                               2001          2000           1999
                           ------------   ------------   ------------
Return on average assets       0.66%         0.57%          0.37%
Return on average equity      12.71%         7.14%          3.93%
Equity to assets               6.62%         7.03%          8.04%


Forward-Looking Statments

          Certain information contained in this discussion may include
"foward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements are generally identified by phrases
such as "MFC expects," "MFC believes" or words of similar import. The
forward-looking statements involve known and unknown risks including, but not
limited to, changes in general economic and business conditions, interest rate
fluctuations, competition within and from outside the banking industry, new
products and services in the banking industry, risk inherent in making loans
such as repayment risks and fluctuating collateral values, problems with
technology utilized by MFC, changing trends in customer profiles and changes in
laws and regulations applicable to MFC. Although MFC believes that its
expectations with respect to the forward-looking statements are based upon
reliable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that MFC's actual results, performance or
achievements will not differ materially from any future results, performance or
achievements expressed or implied by the forward-looking statements.

                                       13

<PAGE>

                                    PART III

Item 9.           Directors, Executive Officers, Promoters and Control Persons;
                  Compliance with Section 16(a) of the Exchange Act.

 Directors. The following table lists information about MFC's current directors.

<TABLE>
<CAPTION>
                             Position with
                                MFC and           First                        Principal occupation
   Name and age              MountainBank      elected (1)                   and business experience
------------------         ---------------     -----------    -------------------------------------------------
<S>                        <C>                 <C>            <C>
William A. Banks               Director         2002 / 2002   President, BanCo Lumber, Inc. (logging/lumber
         (79)                                                 manufacturing); co-owner, Mountain Air Country Club

William H. Burton III          Director         1997 / 2003   President and Chief Executive Officer,
         (47)                                                 Cafe Enterprises, Inc. (regional restaurant company)

J. W. Davis (2)            President, Chief     1997 / 2004   MFC's and MountainBank's executive officer
         (55)              Executive Officer
                             and Director

Kenneth C. Feagin              Director         1997 / 2002   President, Ken Feagin Truck & Trailer Sales; Partner,
         (47)                                                 Martin-Feagin Ford Lincoln Mercury; formerly, partner and
                                                              owner, Bryan Easler Ford (1980 - 2001) (automobile
                                                              dealerships)

Danny L. Ford                  Director         1999 / 2004   Self-employed cattle rancher; formerly, head football
         (54)                                                 coach, University of Arkansas (1993 - 1997) and Clemson
                                                              University (1978 - 1989)

Boyd L. Hyder                  Chairman         1997 / 2003   President and owner, B&A Hyder Trucking, Inc. (trucking
         (60)                                                 company)

J. Edward Jones                Director         1998 / 2002   President, Sutherland Insurance & Realty Company (general
         (67)                                                 insurance and real estate)

Ronald R. Lamb                 Director         1997 / 2002   Owner, Lamb Fruit Co., Inc. and Ottanola Farms (apple
         (66)                                                 production and sales)

H. Steve McManus               Director         2000 / 2002   President, Beacon Food Services, Inc. (restaurant),
         (60)                                                 McManus Development LLC, and Moon McManus Developers LLC
                                                              (residential real estate developers); formerly, Chief
                                                              Executive Officer, Hardee's Food Systems, Inc. (1995 -
                                                              1997)

Van F. Phillips                Director         2002 / 2002   Vice President, Great Meadows, Inc. (real estate
         (50)                                                 development); general partner, Spruce Pine Shopping
                                                              Center, Ltd.

Catherine H. Schroader         Director         1997 / 2003   Co-owner and manager, Schroader's Honda, Inc. (motorcycle
         (65)                                                 dealership)

Maurice A. Scott               Director         1997 / 2003   Retired; previously, Plant Manager, Monsanto Company
         (57)                                                 (chemical manufacturer) (1981 - 1997)
</TABLE>

_______________________

(1)  "Year first elected" refers to the year in which each individual first took
     office as a director of MFC or, if before MFC's organization during 2001,
     as a director of MountainBank. William A. Banks and Van F. Phillips
     previously served as directors of First Western Bank and were appointed to
     serve as directors of MFC during January 2002 following, and as provided in
     the agreement pertaining to, MFC's acquisition of that bank. Each other
     individual first became a director of MFC during January 2001 at the time
     it was incorporated, and each of them previously served, and continues to
     serve, as a director of MountainBank.

(2)  Mr. Davis' employment agreement with MountainBank provides that he be
     nominated each year for election as a director.

                                       14

<PAGE>

     Executive Officers. MFC's current executive officers are listed below.

     J. W. Davis, age 55, serves as MFC's and MountainBank's President and Chief
Executive Officer. He was first employed by MountainBank's organizers during
1996 to coordinate and direct MountainBank's initial organization, and he was
elected President of MountainBank upon commencement of its operations during
1997. Previously, Mr. Davis was employed for 15 years with NationsBank where he
held various positions, the most recent of which was Senior Vice President and
Regional Executive for that bank's western South Carolina branches. He has a
total of 33 years of banking experience.

     Vincent K. Rees, age 34, has served as MountainBank's Chief Lending Officer
since commencement of its operations in 1997, and he was elected Executive Vice
President of MountainBank during 1999. He previously was employed for seven
years by NationsBank where he served as Vice President and in various positions
in branch management, credit analysis, and consumer and commercial lending. Mr.
Rees has a total of 13 years of banking experience.

     Gregory L. Gibson, age 45, serves as MFC's and MountainBank's Executive
Vice President and Chief Financial Officer. He became a full-time employee of
MountainBank during 2000, having previously served as Chief Financial Officer on
a part-time basis since 1999. From 1997 until he was employed by MountainBank,
he operated his own public accounting and financial institutions consulting firm
(which was retained by MountainBank to provide it with financial consulting
services) and, from 1994 to 1997, was employed as Senior Vice President of Bank
of Mecklenburg, Charlotte, North Carolina. Mr. Gibson is a certified public
accountant and has 22 years of experience in the banking industry, having served
as an executive officer of six community banks and bank holding companies.

     Section 16(a) Beneficial Ownership Reporting Compliance. Until MFC was
organized and became MountainBank's parent holding company on March 30, 2001,
MFC's directors and executive officers who served in similar positions with
MountainBank were required by federal law to file reports with the Federal
Deposit Insurance Corporation regarding the amount of and changes in their
beneficial ownership of the Bank's equity securities. Since that date, MFC's
directors and executive officers are required to file those reports with the
Securities and Exchange Commission. Based on its review of copies of those
reports, MFC is required to disclose in its proxy statement and Annual Report on
Form 10-KSB each year any failures to report shares beneficially owned or
changes in beneficial ownership, or to timely file required reports, during the
previous year. It has come to MFC's attention that Kenneth C. Feagin, one of its
directors, has not reported a transfer of shares of MFC's Common Stock to him
during 2001 by a family member. A report covering that transfer is in the
process of being filed.

                                       15

<PAGE>

Item 10. Executive Compensation.

Officer Compensation

         Cash Compensation. The following table shows the cash and certain other
compensation received or deferred by MFC's and MountainBank's named executive
officers for the years indicated. MFC's executive officers are compensated by
MountainBank for their services as its officers and employees, and they receive
no additional compensation from MFC.


                           SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                Annual Compensation                       Long term compensation
                                   -------------------------------------------            ----------------------

       Name and                                               Other annual             Securities              All other
 principal position(s)     Year     Salary (1)     Bonus    compensation (2)    underlying options (3)      compensation (4)
-----------------------   -------  ------------  --------- ------------------  -------------------------  -------------------

<S>                         <C>        <C>        <C>               <C>                      <C>                <C>
 J. W. Davis (5)            2001       163,750    135,000           -0-                         -0-             $13,450
   President and Chief
   Executive Officer        2000       144,000     75,000           -0-                      15,000               5,500

                            1999       128,000     25,000           -0-                         -0-               4,100

Vincent K. Rees             2001        94,479     70,000           -0-                         -0-               2,716
   Executive Vice
   President and Chief      2000        78,333     35,000           -0-                       9,000               1,961
   Lending Officer
                            1999        65,625     11,500           -0-                         -0-               1,640

Gregory L. Gibson (6)       2001        90,000     67,500           -0-                         -0-                 -0-
   Executive Vice
   President and Chief      2000        81,667        -0-           -0-                       9,000                 -0-
   Financial Officer
                            1999        59,583        -0-           -0-                       9,000                 -0-
</TABLE>

_____________________

(1)      Includes amounts of salary deferred at each officer's election under
         MountainBank's Section 401(k) plan.
(2)      In addition to compensation paid in cash, MFC's and MountainBank's
         executive officers receive certain personal benefits. The value of
         non-cash benefits received by each named officer during 2001 did not
         exceed 10% of his cash compensation.
(3)      As adjusted for stock dividends and splits since the date the options
         were granted.
(4)      For 2001, consists of, for Mr. Davis, the Bank's $5,250 contribution to
         the Section 401(k) plan for his account and $8,200 in directors' fees,
         and for Mr. Rees, the Bank's contribution to the Section 401(k) plan
         for his account.
(5)      Mr. Davis serves as President and Chief Executive Officer of
         MountainBank pursuant to an employment agreement which provides for a
         term of three years (which, absent notice of non-renewal from either
         party, is extended by one additional year on each anniversary date of
         the agreement), annual base salary, an annual bonus, and certain other
         benefits. In the event there is a "change in control" (as defined in
         the agreement) of MountainBank which is not approved by at least
         two-thirds of its directors who are not affiliated with the acquiring
         person, or if, following any approved change in control, and without
         his consent, Mr. Davis is required to move his residence or principal
         job location more than 50 miles from Hendersonville, his salary or
         benefits are reduced, or his responsibilities or authority are reduced
         below the level associated with his current position, then he may
         terminate his employment and be entitled to continue to receive salary,
         bonuses and employee benefits for a period of three years. The
         agreement may be terminated by MountainBank for "just cause" (as
         defined in the agreement).
(6)      Mr. Gibson was employed by MountainBank on a part-time basis during
         1999.

                                       16

<PAGE>

         Employee Stock Options. Since MountainBank was organized during 1997,
options have been granted to its executive officers pursuant to its 1997
Employee Stock Option Plan which was approved by shareholders during 1998. When
MFC was organized as MountainBank's parent holding company during 2001, MFC
assumed all MountainBank's outstanding options and converted them into options
to purchase MFC's Common Stock. The following table contains information
regarding all options held on December 31, 2001, under the Plan by the executive
officers named in the Summary Compensation Table above.

<TABLE>
<CAPTION>
                                    AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                                           AND FISCAL YEAR END OPTION VALUES
----------------------------------------------------------------------------------------------------------------------

                                                         Number of securities               Value of unexercised
                                                        underlying unexercised                   in-the-money options
                                                   options on December 31, 2001 (2)       on December 31, 2001 (2)(3)
                                                   --------------------------------      ----------------------------

                     Shares acquired      Value
     Name              on exercise      realized     Exercisable     Unexercisable      Exercisable      Unexercisable
-------------      -------------------  --------   -------------     -------------      -----------      -------------

<S>                       <C>           <C>           <C>                <C>              <C>                <C>
J. W. Davis               (1)            -            37,560             20,640           $504,125           $191,731

V. K. Rees                (1)            -            19,080             11,520            253,815            102,873

G.L. Gibson               (1)            -             7,128             13,032             69,834            100,618
</TABLE>

___________________

(1)  No options were exercised during 2001.
(2)  All share and dollar amounts have been adjusted, or calculated based on a
     market value or exercise price that has been adjusted, for the six-for-five
     stock split which was effected in the form of a 20% stock dividend on March
     11, 2002.
(3)  Represents the aggregate fair market value on December 31, 2001, of shares
     underlying options held on that date, minus the aggregate exercise or
     purchase price of those shares. On April 15, 2002, the value of the
     exercisable and unexercisable options, respectively, based on the then
     current last known sales price per shares of MFC's Common Stock, were: Mr.
     Davis - $531,544 and $206,798; Mr. Rees - $267,743 and $111,283; Mr. Gibson
     - $75,037 and $110,132.

Director Compensation

     Director Fees. MFC's directors also serve as directors of MountainBank.
Each director currently receives a monthly retainer of $100 plus a fee of $900
for attendance at each meeting of MFC's or MountainBank's Board of Directors and
$150 for attendance at each meeting of a Board committee. Members of the
Executive Committee receive a monthly retainer of $500 and are not compensated
for attendance at Committee meetings.

     Director Stock Options. Since MountainBank was organized during 1997,
options have been granted to its current non-employee directors under its 1997
Director Stock Option Plan which was approved by MountainBank's shareholders
during 1998. When MFC was organized during 2001 as MountainBank's parent holding
company, MFC assumed those options and the Plan and the options were converted
into options to purchase MFC Common Stock. Additionally, the former directors of
First Western Bank who have become directors of MFC held options previously
granted by that bank under its separate plans which we assumed and converted
into options to purchase MFC's Common Stock in connection with the acquisition.
The numbers of shares of MFC's Common Stock covered by options currently held by
its non-employee directors are as follows: Mr. Banks - 7,860; Mr. Burton -
24,344; Mr. Feagin - 24,698; Mr. Ford - 17,522; Mr. Hyder - 21,110; Mr. Jones -
15,463; Mr. Lamb - 15,260; Mr. McManus - 15,541; Mr. Phillips - 7,860; Ms.
Schroader - 26,704; and Mr. Scott - 7,735.

                                       17

<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management.

         The following table describes the beneficial ownership of MFC's equity
securities as of April 25, 2002, by its current directors, nominees for election
as directors, and certain of its executive officers, individually, and by all
its current directors and executive officers as a group.

<TABLE>
<CAPTION>
                                                                     Amount and nature of
                                                                  beneficial ownership (1)(2)
                                               ---------------------------------------------------------------------
             Name of                                                 Percent of           Series A        Percent of
         beneficial owner                      Common Stock           class (3)        Preferred Stock     class (3)
-----------------------------------------      -------------       ------------       ---------------    -----------

<S>                                               <C>                <C>                   <C>             <C>
William A. Banks ........................         13,408             .43%                 -0-                -

William H. Burton III ...................         65,574            2.08%               10,500             2.48%

J. W. Davis .............................         69,960            2.21%                  -0-               -

Kenneth C. Feagin .......................         40,057            1.27%                  -0-               -

Danny L. Ford ...........................         46,640            1.48%                5,000             1.18%

Gregory L. Gibson .......................         10,878             .35%                  -0-               -

Boyd L. Hyder ...........................        146,402            4.59%               40,000             9.45%

J. Edward Jones .........................         24,216             .77%                5,000             1.18%

Ronald R. Lamb ..........................         25,741             .82%                  -0-               -

H. Steve McManus ........................        116,420            3.69%               20,000             4.73%

Van F. Phillips .........................         57,856            1.84%                4,000              .95%

Vincent K. Rees .........................         20,160             .64%                  -0-               -

Catherine H. Schroader ..................         83,205            2.64%                5,685             1.34%

Maurice A. Scott ........................         63,382            2.01%               20,000             4.73%

All current directors and executive
    officers as a group (14 people)              783,899           22.71%              110,185            26.04%
</TABLE>

___________________

(1)  Except as otherwise noted, and to the best of MFC's knowledge, the
     individuals named and included in the group exercise sole voting and
     investment power with respect to all listed shares of MFC's Common Stock.
     The listed shares include the following numbers of shares with respect to
     which the individuals named and included in the group have shared voting
     and investment power: Mr. Banks - 2,774; Mr. Burton - 7,566; Mr. Ford -
     18,720; Mr. Hyder - 374; Mr. Lamb - 5,070; Mr. McManus - 12,150; Mr.
     Phillips - 39,355; Mr. Rees - 1,080; Ms. Schroader - 26,352; Mr. Scott -
     300; and all persons included in the group - 113,741. The listed shares
     also include the following numbers of shares that could be acquired by the
     individuals named and included in the group pursuant to currently
     exercisable stock options and with respect to which shares they may be
     deemed to have sole investment power only: Mr. Banks - 7,860; Mr. Burton -
     19,002; Mr. Davis - 37,560; Mr. Feagin - 19,177; Mr. Ford - 10,040; Mr.
     Gibson - 7,128; Mr. Hyder - 13,390; Mr. Jones - 11,154; Mr. Lamb - 10,580;
     Mr. McManus - 5,180; Mr. Phillips - 7,860; Mr. Rees - 19,080; Ms.
     Schroader - 22,239; Mr. Scott - 2,578; and all persons included in the
     group - 192,828. Additionally, the listed shares include the following
     numbers of shares that could be acquired by the individuals named and
     included in the group upon the conversion of shares of MFC's Series A
     Preferred Stock they currently hold and with respect to which shares they
     may be deemed to have sole investment power only: Mr. Burton - 12,600; Mr.
     Ford - 6,000; Mr. Hyder - 48,000; Mr. Jones - 6,000; Mr. McManus - 24,000;
     Mr. Phillips - 4,800; Ms. Schroader - 6,822; Mr. Scott - 24,000; and all
     persons included in the group - 132,222.
(2)  MFC's Series A Preferred Stock is non-voting stock. Except as otherwise
     noted, and to the best of MFC's knowledge, the individuals named and
     included in the group exercise sole investment power with respect to all
     listed shares of Series A Preferred Stock. The listed shares include the
     following numbers of shares with respect to which the individuals named and
     included in the group have shared voting and investment power: Mr. Burton -
     10,500; Ms. Schroader - 5,685; and all persons included in the group -
     16,185.
(3)  In the case of MFC's Common Stock, percentages are calculated based on
     3,126,982 total outstanding shares plus, in the case of each named
     individual and the group, the number of additional shares (if any) that
     could be purchased by that individual or by persons included in the group
     pursuant to currently exercisable stock options and/or upon the conversion
     of outstanding shares of MFC's Series A Preferred Stock that they hold. In
     the case of MFC's Series A Preferred Stock, percentages are calculated
     based on 423,182 total outstanding shares.

                                       18

<PAGE>

Item 12. Certain Relationships and Related Transactions.

     MountainBank has had, and expects to have in the future, banking
transactions in the ordinary course of its business with certain of its and
MFC's current directors, nominees for director, executive officers, and their
associates. All loans included in those transactions were made on substantially
the same terms, including interest rates, repayment terms and collateral, as
those prevailing at the time the loans were made for comparable transactions
with other persons, and those loans do not involve more than the normal risk of
collectibility or present other unfavorable features.

     During 1997, and in connection with MountainBank's initial organization,
MountainBank's Chairman, Boyd L. Hyder, constructed and leased to MountainBank
its main banking and executive offices in Hendersonville, North Carolina.
MountainBank's lease agreement calls for an initial term of 20 years (with two
five-year renewal options) and current rental payments of $6,700 per month (with
rent adjustments each five years based on the consumer price index). Before
entering into the lease arrangement, MountainBank's Board of Directors obtained
an independent estimate of the rental value of the building and compared the
terms of the lease to lease terms on comparable properties. Additionally, during
1998, MountainBank entered into a lease agreement with Mr. Hyder for
approximately 2,400 square feet of space in Four Seasons Shopping Center that is
used as MountainBank's administration/operations facility. The lease agreement
provides for an initial term of five years (with one five-year renewal option)
and rental payments of $1,050 per month. During 2000, the space leased from Mr.
Hyder was increased to approximately 4,800 square feet and, during 2001, the
leased space again was increased to approximately 6,800 square feet. The lease
agreements for that additional space call for initial terms of ten years (with
one five-year renewal option) and aggregate additional rental payments of $4,600
per month. Also during 2001, Mr. Hyder leased a building to MountainBank for use
as a new branch office. The terms of that lease call for an initial term of ten
years (with three five-year renewal options) and current lease payments of
$2,400 per month (with a 15% rent adjustment after the first five years and a
renegotiated rental for each renewal period).

     Van F. Phillips, a director of MFC who formerly served as Chairman of First
Western Bank, is a general partner in a partnership that leased property to
First Western Bank during 1997 for use as a branch office. MountainBank assumed
the lease during 2001 in connection with MFC's acquisition of First Western
Bank. The lease agreement calls for a current remaining term of approximately 18
months (with one three-year renewal option) and rental payments of $3,000 per
month.

                                       19

<PAGE>

                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, Registrant caused this Amendment No. 1 on Form 10-KSB/A to its 2001
Annual Report on Form 10-KSB to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                 MOUNTAINBANK FINANCIAL CORPORATION

Date: April  29 , 2002           By:   /s/ J. W. Davis
            ----                    --------------------------------------------
                                           J. W. Davis
                                           President and Chief Executive Officer


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