##### Table of Contents

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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB



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|x | Annual report under Section 13 or 15(d) of the SecuritiesExchange Act of 1934
|- | -----------------------------------------------------------------------------



For the fiscal year ended December 31, 2003.



| ̈ | Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934(No fee required)
|- | ---------------------------------------------------------------------------------------------------



Commission File Number: 0 - 28394



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MOUNTAIN BANK HOLDING COMPANY

(exact name of registrant as specified in its
charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|WASHINGTON                                                     |  | 91-1602736                          
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer identification Number)



501 Roosevelt
Avenue, PO Box 98, Enumclaw, WA 98022

(address of principal executive offices) (zip code)



Registrants telephone number: (360) 825-0100



Securities registered pursuant to Section 12(b) of the Act: None



|                                                            |  |                           
|----------------------------------------------------------- |  | --------------------------
|Securities registered pursuant to Section 12(g) of the Act: |  | Common Stock, no par value
|                                                            |  | (title of class)          



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Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 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 ̈



State the issuers revenues for its most recent fiscal year: $10,072,000



State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked price of such stock, as of a specified date within the past 60 days:at January 31, 2004 - $26,048,018



Number of shares of common stock outstanding as of January 31, 2004:2,176,677



DOCUMENTS INCORPORATED BY REFERENCE



The Proxy Statement for the 2004 Annual Meeting of Shareholders is incorporated by reference into Part I of this Annual Report on Form 10-KSB.



Transitional Small Business Disclosure
Format:    Yes  x    No ̈



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##### Table of Contents

TABLE OF CONTENTS

Part I

(ITEMS 6-11, FORM 1-A, MODEL B)



|        |  |                                                                                        |  |       
|------- |  | -------------------------------------------------------------------------------------- |  | ------
|        |  |                                                                                        |  | Page #
|ITEM 6. |  | DESCRIPTION OF BUSINESS                                                                |  | 1     
|        |  | General                                                                                |  | 1     
|        |  |                                                                                       
|        |  | Description of Mt. Rainier National Bank                                               |  | 1     
|        |  | Mt. Rainier Bank                                                                       |  | 1     
|        |  | History                                                                                |  | 1     
|        |  | Business                                                                               |  | 2     
|        |  | Service Area                                                                           |  | 2     
|        |  | Employees                                                                              |  | 2     
|        |  | Competition                                                                            |  | 3     
|        |  | Products and Services                                                                  |  | 3     
|        |  | Marketing                                                                              |  | 3     
|        |  | Lending Activities                                                                     |  | 3     
|        |  | Investment Portfolio                                                                   |  | 4     
|        |  | Forward Looking Statement Disclosure                                                   |  | 5     
|        |  | Statistical Information About Mountain Bank Holding                                    |  | 5     
|        |  | Loan Portfolio                                                                         |  | 5     
|        |  | Credit Risk Management and Allowance for Credit Losses                                 |  | 6     
|        |  | Loan Loss Experience                                                                   |  | 8     
|        |  | Allocation of the Allowance for Credit Losses By Loan Classification                   |  | 8     
|        |  | Risk Elements  Non-Accrual, Past Due and Restructured Loans                           |  | 9     
|        |  | Investment Securities Portfolio                                                        |  | 10    
|        |  | Deposits                                                                               |  | 10    
|        |  | GAP Analysis                                                                           |  | 12    
|        |  | Distribution of Average Assets, Liabilities and Shareholders Equity & Interest Yields |  | 12    
|        |  | Changes in Interest Income and Expense Volume and Rate Variances                       |  | 13    
|        |  | Supervision and Regulation                                                             |  | 14    
|        |  | Significant Changes in Banking Laws and Regulations                                    |  | 14    
|        |  | Mountain Bank Holding Company                                                          |  | 15    
|        |  | Bank Holding Company Regulation                                                        |  | 15    
|        |  | Transactions with Affiliates                                                           |  | 16    
|        |  | Tie-In Arrangements                                                                    |  | 16    
|        |  | State Law Restrictions                                                                 |  | 16    
|        |  | Mt. Rainier National Bank                                                              |  | 16    
|        |  | Interstate Banking and Branching                                                       |  | 17    
|        |  | Deposit Insurance                                                                      |  | 17    
|        |  | Dividends                                                                              |  | 17    
|        |  | Capital Adequacy                                                                       |  | 17    
|        |  | Effects of Government Monetary Policy                                                  |  | 18    
|        |  |                                                                                       
|ITEM 7. |  | DESCRIPTION OF PROPERTY                                                                |  | 19    
|        |  |                                                                                       
|ITEM 8. |  | DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES OF THE REGISTRANT             |  | 19    
|        |  |                                                                                       
|ITEM 9. |  | REMUNERATION OF DIRECTORS AND OFFICERS                                                 |  | 19    



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##### Table of Contents

TABLE OF CONTENTS

Part I

(ITEMS 6-11, FORM 1-A, MODEL B)

(continued)



|                                       |  |                                                                 |  |       
|-------------------------------------- |  | --------------------------------------------------------------- |  | ------
|                                       |  |                                                                 |  | Page #
|ITEM 10.                               |  | SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SHAREHOLDERS       |  | 20    
|                                       |  |                                                                
|ITEM 11.                               |  | INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS       |  | 20    
|                                       | 
|Part II (ITEMS 1-6, FORM 1-A, MODEL B) |  |                                                                
|                                       |  |                                                                
|ITEM 1.                                |  | MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY |  | 20    
|                                       |  | Market Information.                                             |  | 20    
|                                       |  | Number of Equity Holders                                        |  | 21    
|                                       |  | Stock Dividends                                                 |  | 21    
|                                       |  | Payment of Dividends                                            |  | 21    
|                                       |  |                                                                
|ITEM 2.                                |  | LEGAL PROCEEDINGS                                               |  | 21    
|                                       |  |                                                                
|ITEM 3.                                |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS                   |  | 21    
|                                       |  |                                                                
|ITEM 4.                                |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS             |  | 21    
|                                       |  |                                                                
|ITEM 5.                                |  | COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT               |  | 22    
|                                       |  |                                                                
|ITEM 6.                                |  | REPORTS ON FORM 8-K                                             |  | 22    
|                                       |  |                                                                
|ITEM 7.                                |  | CONTROLS AND PROCEDURES                                         |  | 22    
|                                       |  |                                                                
|ITEM 8.                                |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                          |  | 22    
|                                       | 
|Part F/S FINANCIAL STATEMENTS          |  |                                                                
|                                       |  |                                                                 |  | Page #
|                                       |  | FINANCIAL STATEMENTS                                            |  | F-1   
|                                       | 
|Part III EXHIBITS                      |  |                                                                
|                                       |  |                                                                 |  | Page #
|                                       |  | EXHIBITS                                                        |  | E-1   
|                                       | 
|SIGNATURES                             |  |                                                                
|                                       |  |                                                                 |  | Page #
|                                       |  | SIGNATURES                                                      |  | S-1   
|                                       | 
|CERTIFICATIONS                         |  |                                                                
|                                       |  |                                                                 |  | Page #
|                                       |  | CERTIFICATIONS                                                  |  | C-1   



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FORM 10-KSB

TRANSITIONAL SMALL BUSINESS ISSUER

DISCLOSURE PURSUANT TO ALTERNATIVE 2



PART I

(ITEMS 6-11, MODEL B, FORM 1-A)



ITEM 6. DESCRIPTION OF BUSINESS



General



Mountain Bank Holding
Company (Mountain Bank Holding) is a Washington corporation formed in 1993 primarily to hold all of the Common Stock of Mt. Rainier National Bank (Mt. Rainier Bank), a National Banking Association organized under the laws of
the United States. Mt. Rainier Bank provides personal and commercial banking and related financial services at its main office located in Enumclaw, Washington, and from five branch offices located in Buckley, Black Diamond, Auburn, Maple Valley, and
Sumner Washington. Mountain Bank Holding is regulated by the Federal Reserve Board (the FRB) under the Bank Holding Company Act of 1956, as amended. A bank holding company is generally defined as a company that has direct or indirect
control of a bank. Mountain Bank Holding qualifies as a bank holding company because it owns one hundred percent (100%) of the outstanding securities of Mt. Rainier Bank. At December 31, 2003, Mountain Bank Holding reported on a consolidated basis
total assets of $156,276,000, total deposits of $138,775,000, and shareholders equity of $16,895,000.



Mountain Bank Holdings strategy is to capitalize on its investment in Mt. Rainier Bank through continued growth in Mt. Rainier Banks assets,
deposits and earnings, and creation of long-term value for Company shareholders by pursuing the following:



| |  | Monitoring and improving the credit quality of Mt. Rainier Banks existing asset base;
| | - | --------------------------------------------------------------------------------------



| |  | Concentrating on expense control, interest spread maximization and marketing of fee-based products, as well as maintaining adequate liquidity and capital levels;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Emphasizing close working relationships between Mt. Rainier Banks senior management, directors, loan officers and commercial customers; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| |  | Focusing on training programs to ensure that management and staff has knowledge necessary to serve customers and remain in compliance with all legal and regulatory obligations.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



There can be no assurance that Mt. Rainier Bank
will achieve these objectives.



DESCRIPTION OF MT. RAINIER NATIONAL BANK



Mt. Rainier Bank



Mt. Rainier
National Bank is a wholly owned subsidiary of Mountain Bank Holding. While Mountain Bank Holding and Mt. Rainier Bank are distinctly different entities regulated by different regulatory bodies, the income of Mountain Bank Holding presently is almost
entirely derived from dividends upstreamed from Mt. Rainier Bank to Mountain Bank Holding. Therefore, the value of the securities of Mountain Bank Holding is, to a large extent, dependent upon the success of Mt. Rainier Bank.



History



Mt. Rainier Bank opened
on July 2, 1990, in Enumclaw, Washington, and has been operating since that date.



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Business



Mt. Rainier Bank,
through its main office and five branches, offers a full line of commercial banking services.



The principal sources of Mt. Rainier Banks revenues are: (i) interest and fees on loans; (ii) deposit service charges; (iii) interest on deposits in other banks (generally on an overnight basis); (iv) gains on
mortgages originated and sold to the secondary market; (v) interest on investments, and (vi) fees from sales of non-deposit investment products. Loans include short-to-medium-term commercial and consumer loans, including real estate loans, operating
loans and lines, equipment loans, automobile loans, recreational vehicle and truck loans, personal loans and lines of credit, home improvement and rehabilitation loans, VISA national credit cards, and residential mortgage lending. Mt. Rainier Bank
also offers safe deposit boxes, direct deposit of payroll and social security checks, automated teller machine access, debit cards, automatic drafts for various accounts, telephone banking, Internet banking and bill payment services. Mt. Rainier
Bank has a night depository and an ATM, as well as drive-up services, at each of its offices.



Mt. Rainier Banks core deposit base generally has been enhanced through advertising and deposit promotions, and focusing on securing the entire banking relationship of each of its customers. Deposit products
include checking accounts, savings programs, NOW accounts and certificates of deposit. Mt. Rainier Bank has not used brokered deposits as a source of funds.



Mt. Rainier Banks commercial banking activities target high net worth individuals and their businesses with an emphasis on small to medium size
businesses. Mt. Rainier Banks operating strategy is to offer personal service, flexibility and timely responsiveness to the needs of its customers. Senior management of Mt. Rainier Bank and Mountain Bank Holding maintain close personal contact
and close working relationships with Mt. Rainier Banks commercial customers and their businesses, and Mt. Rainier Banks and the Companys Boards of Directors primarily include local business people from Mt. Rainier Banks
primary service area. Most of Mt. Rainier Banks new commercial banking business consists of referrals from existing customers. Mountain Bank Holding believes that Mt. Rainier Banks loan portfolio is appropriately diversified. All
floating rate loans are priced at prime or higher.



Mountain
Bank Holding believes that the growth in loans and profitability achieved by Mt. Rainier Bank also is attributable in large measure to its strategy of targeting smaller and medium size businesses in the manner described above and to the business and
personal relationships and experience of Mt. Rainier Banks and Mountain Bank Holdings management and Directors, rather than the result of greater risk-taking or price concessions. In addition, there have been numerous acquisitions and
mergers of banks in Mt. Rainier Banks primary service area, which have made the larger institutions in the market even larger. This has resulted in Mt. Rainier Bank focusing primarily on the needs of the smaller and medium size commercial
customers.



Service Area



Mt. Rainier
Banks primary service area is South King County and East Pierce County, including Enumclaw, Buckley, Black Diamond, Auburn, Maple Valley, Sumner and surrounding communities. Enumclaws population is 11,195, having experienced 46% growth
since 1990. Enumclaw is primarily considered a residential community, with most growth in single-family residences. The local economy is dependent upon the forest products industry, farming, and tourism. Buckley has experienced less growth with a
population of 4,505. Buckley is a residential community with very little business growth in the past few years. Black Diamond has a current population of 3,995, up from 1,760 in 1990. Auburn is a larger community with a population of 45,355, up from
35,230 in 1990. Maple Valley has current population of 15,730, up from 10,500 in 1997 when it became a city. Sumners population is 8,900.



Employees



As of December 31,
2003, Mountain Bank Holding employed a full-time President and CEO and a half-time Chief Financial Officer. As of the same date, Mt. Rainier Bank had 65 full-time-equivalent employees, including three Executive Officers. None of Mt. Rainier
Banks employees is presently represented by a union or covered by a collective bargaining agreement. Mt. Rainier Bank considers its relationships with its employees to be good.



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Competition



The banking business
in Mt. Rainier Banks primary service area is highly competitive with respect to both loans and deposits. All the major out-of-state commercial banks that operate in Washington (including Bank of America, Key Bank, Washington Mutual, Wells
Fargo and U.S. Bank) have a branch or branches within Mt. Rainier Banks primary service area. Among the advantages such major banks have are their ability to finance wide-ranging advertising campaigns and to allocate their investment assets to
geographic regions of higher yield and demand. Such banks offer certain services which are not offered directly by Mt. Rainier Bank (but are offered indirectly through correspondent institutions); and, by virtue of their greater total capitalization
(legal lending limits to an individual customer are based upon a percentage of a banks shareholder equity accounts), such banks have substantially higher lending limits than Mt. Rainier Bank.



Mt. Rainier Bank also competes with a number of non-bank competitors such as
insurance companies, small loan companies, finance companies, mortgage companies, credit unions, brokerage houses, and other financial institutions. Many of Mountain Bank Holdings non-bank competitors are not subject to the extensive federal
and state regulations, which govern Mountain Bank Holding and, as a result, have a competitive advantage over the Company in providing certain services.



Mt. Rainier Bank believes its competitive position has been strengthened by the consolidation in the banking industry, which has resulted in a focus by
the larger banks on their larger accounts, with less direct contact between the officers and their customers. Mt. Rainier Banks strategy, by contrast, is to remain a middle market lender, which maintains close, long-term contact with its
customers.



Products and Services



In
conjunction with the growth of its asset base, Mt. Rainier Bank has introduced new products and services to position it to better compete in its highly competitive market. Mt. Rainier Banks customers demand not only a wide range of financial
products but also efficient and convenient service. In response to these demands, Mt. Rainier Bank has developed a mix of products and services utilizing technology available to the banking industry such as telephone banking, internet banking, bill
payment services and automated teller machines. Additionally, Mt. Rainier Bank offers a wide range of commercial and retail banking products and services to its customers. Deposit accounts include certificates of deposit, individual retirement
accounts and other time deposits, checking and other demand deposit accounts, interest-bearing checking accounts, savings accounts and money market accounts. Loans include residential real estate, commercial, financial and real estate construction
and development, installment and consumer loans. Other products and services include: credit related insurance, ATMs, safe deposit boxes and non-deposit investment products.



Marketing



Mt. Rainier Bank uses,
to the fullest extent possible the flexibility accorded by its independent status to improve its market share. This includes an emphasis on specialized services, local promotional activity, and personal contacts by Mt. Rainier Banks officers,
directors and employees. Mt. Rainier Bank also seeks to provide special services and programs for individuals in its primary service area who are employed in the business and professional fields. In the event there are customers whose loan demands
exceed Mt. Rainier Banks lending limits, Mt. Rainier Bank arranges for such loans on a participation basis with other financial institutions.



Lending Activities



The two main
areas in which Mt. Rainier Bank has directed its lendable funds are real estate and commercial loans. At December 31, 2003, these categories accounted for approximately 72% and 22%, respectively, of Mt. Rainier Banks total loan portfolio. Mt.
Rainier Banks major source of income is interest and fees charged on loans.



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Interest income on loans is recognized based on principal amounts outstanding, at applicable interest
rates. Accrual of interest on impaired loans is discontinued when reasonable doubt exists as to the full, timely collection of interest or principal or when payment of principal or interest is contractually past due 90 days, unless the loan is well
secured and in the process of collection. When a loan is placed on non-accrual status, all interest previously accrued, but not collected, is reversed against current period interest income. Income on such loans is then recognized only to the extent
that cash is received and when the future collection of principal is probable. Interest accruals are resumed on such loans only when they are brought current with respect to principal and interest and when, in the opinion of management, the loans
are estimated to be fully collectible as to both principal and interest.



In general, Mt. Rainier Bank is permitted by law to make loans to single borrowers in aggregate amounts of up to fifteen percent (15%) of Mt. Rainier Banks unimpaired capital and unimpaired surplus. Mt. Rainier
Bank, on occasion, sells participations in loans when necessary to stay within lending limits or to otherwise limit Mt. Rainier Banks exposure. Mt. Rainier Banks goal is to reduce the risk of undue concentrations of loans to multiple
borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2003, no such concentration exceeded 10% of Mt. Rainier Banks loan portfolio, except for interim real
estate construction loans, which totaled approximately 11% of loans. These construction loans are to a number of small contractors, with the largest of such loans totaling approximately $1,897 at December 31, 2003. Mt. Rainier Bank has no loans to
customers in foreign countries. Its policy generally is to lend within Washington State, however Mt. Rainier Bank does have some loans to out-of-state borrowers.



In the normal course of business there are various commitments outstanding and commitments to extend credit, which are not
reflected in the financial statements. These commitments generally require the customers to maintain certain credit standards and have fixed expiration dates or other termination clauses. Mt. Rainier Bank uses the same credit policies in making
commitments as it does for loans. Management does not expect that all such commitments will be fully utilized.



Lending activities are conducted pursuant to a written Loan Policy, which has been adopted by the Board of Directors of Mt. Rainier Bank. Each loan
officer has a defined lending authority. Regardless of lending authority, aggregate loans over $350,000 are approved by Mt. Rainier Banks Loan Committee, made up of the President and Credit Administrator of Mt. Rainier Bank and three directors
and aggregate loans over $250,000 are reviewed by that committee.



The banks mortgage activity consists of originating residential loans wherein the closing of each loan is preceded by its negotiated sale on the secondary market. Primarily, these loans are funded by the bank and promptly sold. The
bank also makes residential construction loans wherein a take-out is negotiated on the secondary market. Bank guidelines for loan-to-value ratios are closely adhered to.



Investment Portfolio



The
investment policy of Mt. Rainier Bank is an integral part of the overall asset/liability management of Mt. Rainier Bank. Mt. Rainier Banks investment policy is to establish a portfolio, which will provide liquidity necessary to facilitate
making loans and to cover deposit fluctuations while at the same time achieving a satisfactory investment return on the funds invested. The investment policy is reviewed annually by Mt. Rainier Banks Board of Directors. Mt. Rainier Bank
stresses the following attributes for its investments: capital protection, liquidity, yield, risk management and pledgeability. Under Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for CertainInvestments in Debt
and Equity Securities, Mt. Rainier Bank is required to classify its portfolio into three categories: Held to Maturity, Trading Securities, and Available for Sale.



Held to Maturity securities include debt securities that Mt. Rainier Bank has positive intent and ability to hold to
maturity; these securities are reported at amortized cost. As of December 31, 2003, Mt. Rainier Bank held no securities as Held to Maturity.



Trading Securities include debt and equity securities that are purchased and held solely for the purpose of selling them in the short-term future for
trading profits. Trading Securities are reported at fair market value with unrealized gains and losses included in earnings. As of December 31, 2003, Mt. Rainier Bank held no securities as Trading Securities.



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Available for Sale securities include those which may be sold to implement Mt. Rainier Banks
asset/liability management strategies and in response to changes in interest rates, prepayment rates and similar factors. These securities are reported at fair market value with unrealized gains and losses excluded from earnings and reported as a
separate component of shareholders equity. All of Mt. Rainier Banks investment securities at December 31, 2003, were classified as Available for Sale.



As a national bank and member of the Federal Reserve System, Mt. Rainier Bank is required to have $284,000 invested in
Federal Reserve Bank Stock. Also, as a member of the Federal Home Loan Bank of Seattle, Mt. Rainier Bank is required to keep $409,000 in stock. This portion of Mt. Rainier Banks investment portfolio is not liquid.



Forward Looking Statement Disclosure



In addition to historical information, this report may contain certain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). This statement is included for the express
purpose of availing Mountain Bank Holding of the protections of the safe harbor provisions of the PSLRA. The forward-looking statements contained in this report are subject to factors, risks, and uncertainties that may cause actual results to differ
materially from those projected. Important factors that might cause such a material difference include, but are not limited to, those discussed in this report. Such items that could cause actual results to differ materially from the forward looking
statements in this report are: general economic conditions, world and national events that could impact the economy and interest rates, including their impact on capital expenditures; business conditions in the banking industry; the regulatory
environment; new legislation; vendor quality and efficiency; employee retention factors; rapidly changing technology and evolving banking industry standards; competitive standards; competitive factors, including increased competition with community,
regional, and national financial institutions; fluctuating interest rate environments; and similar matters. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect managements analysis only as of
the date of the statement. Mountain Bank Holding undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report. Readers should carefully review the
risk factors described in this and other documents we file from time to time with the Securities and Exchange Commission.



Statistical Information about Mountain Bank Holding



The following statistical information should be read in conjunction with the consolidated financial statements and accompanying notes included elsewhere herein.



The composition of the loan portfolio (excluding loans held for sale, which
are normally held only for a short period) is summarized as follows:



LOAN PORTFOLIO  TYPES OF LOANS



|                            |  |                        |        |                        |                   |   |         |   |                        |  |        |  
|--------------------------- |  | ---------------------- | ------ | ---------------------- | ----------------- | - | ------- | - | ---------------------- |  | ------ | -
|                            |  | December 31, 2003      |        |                        | December 31, 2002 |  
|                            |  | Amounts                |        | Percent of Total Loans |                   |   | Amounts |   | Percent of Total Loans | 
|                            |  | (dollars in thousands) |       
|Commercial and Agricultural |  | $                      | 21,526 |                        | 21.80             | % |         | $ | 20,510                 |  | 24.93  | %
|Real Estate:                |  |                        |        |                        |                   |   |         |   |                        |  |        |  
|Construction                |  |                        | 10,833 |                        | 10.97             | % |         |   | 5,602                  |  | 6.81   | %
|Mortgage                    |  |                        | 60,509 |                        | 61.28             | % |         |   | 50,391                 |  | 61.26  | %
|Consumer                    |  |                        | 5,876  |                        | 5.95              | % |         |   | 5,758                  |  | 7.00   | %
|                            |  |                        |        |                        |                   |   |         |   |                        |  |        |  
|Total Loans                 |  | $                      | 98,744 |                        | 100.00            | % |         | $ | 82,261                 |  | 100.00 | %
|                            |  |                        |        |                        |                   |   |         |   |                        |  |        |  



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LOAN PORTFOLIO  MATURITIES AND SENSITIVITIES ON LOANS



|                            |  |                 |        |                            |   |                          |  |       |        |          |   |        |  |   |       |  |   |       
|--------------------------- |  | --------------- | ------ | -------------------------- | - | ------------------------ |  | ----- | ------ | -------- | - | ------ |  | - | ----- |  | - | ------
|                            |  | One Year orLess |        | Over OneThrough Five Years |   | MaturingAfter Five Years |  | Total
|                            |  | Amount          |        | Fixed                      |   | Variable                 |  | Fixed |        | Variable |   |       
|Commercial and agricultural |  | $               | 12,740 |                            | $ | 4,749                    |  | $     | 2,238  |          | $ | 1,799  |  | $ | 0     |  | $ | 21,526
|Real Estate:                |  |                 |        |                            |   |                          |  |       |        |          |   |        |  |   |       |  |   |       
|Construction                |  |                 | 7,795  |                            |   | 81                       |  |       | 406    |          |   | 2,551  |  |   | 0     |  |   | 10,833
|Mortgage                    |  |                 | 10,609 |                            |   | 11,737                   |  |       | 25,589 |          |   | 9,837  |  |   | 2,737 |  |   | 60,509
|Consumer                    |  |                 | 1,484  |                            |   | 3,610                    |  |       | 0      |          |   | 642    |  |   | 140   |  |   | 5,876 
|                            |  |                 |        |                            |   |                          |  |       |        |          |   |        |  |   |       |  |   |       
|Total                       |  | $               | 32,628 |                            | $ | 20,177                   |  | $     | 28,233 |          | $ | 14,829 |  | $ | 2,877 |  | $ | 98,744



CREDIT RISK MANAGEMENT AND ALLOWANCE FOR CREDIT LOSSES



Credit risk and exposure to loss are inherent parts of the banking business. Management seeks to manage and minimize these risks through its loan and investment policies and loan review procedures. Management
establishes and continually reviews lending and investment criteria and approval procedures that it believes reflect the risk sensitive nature of Mt. Rainier Banks operations. The loan review procedures are designed to monitor adherence to
established criteria and to ensure that on a continuing basis such standards are enforced and maintained.



Managements objective in establishing lending and investment standards is to manage the risk of loss and provide for income generation through
pricing policies. To effectuate this policy, we have established specific terms and maturity schedules for each loan type, such as commercial, real estate, consumer, etc.



Applicable regulations require that each insured institution review and classify its assets on a regular basis. In addition,
in connection with examinations of insured institutions, regulatory examiners have authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and
loss. Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset
classified as loss is considered uncollectable and of such little value that continuance as an asset of the institution is not warranted. When an insured institution classifies problem assets as either substandard or doubtful, it is required to
establish general allowances for loan losses in an amount deemed prudent by management. These allowances represent loss allowances, which have been established to recognize the inherent risk associated with lending activities and the risks
associated with particular problem assets. When an insured institution classifies problem assets as loss, it charges off the balance of the asset against the allowance for credit losses. Assets, which do not currently expose the insured institution
to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses, are required to be designated as special mention. The Banks determination as to the classification of its assets is subject to review
by the OCC during periodic examinations.



The loan portfolio is
regularly reviewed and management determines the amount of loans to be charged off. In addition, such factors as Mt. Rainier Banks previous loan loss experience, prevailing economic conditions, industry concentrations and the overall quality
of the loan portfolio are considered. While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the allowance may be necessary based on changes in economic conditions. In addition, the
OCC, as part of its examination process, periodically reviews the allowances for credit losses and foreclosed real estate. The OCC may require Mt. Rainier Bank to recognize additions to the allowance based on its judgments about information
available at the time of examination. In addition, any loan or portion of a loan that is classified as a loss by regulatory examiners is charged-off.



6



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##### Table of Contents

The allowance for credit losses is maintained at a level management considers adequate to provide for
probable losses based on evaluating known and inherent risks in the loan portfolio. The allowance is reduced by loans charged off and increased by provisions charged to earnings and recoveries on loans previously charged off. The allowance is based
on managements periodic evaluation of factors underlying the quality of the loan portfolio, including changes in the size and composition of the loan portfolio, actual loan loss experience, current economic conditions, and detailed analysis of
individual loans for which full collectibility may not be assured. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.



When information confirms that specific loans or portions of loans are
uncollectible, these amounts are charged off against the allowance for credit losses. The existence of some or all of the following criteria will generally confirm that a loss has been incurred: the loan is significantly delinquent and the borrower
has not evidenced the ability or intent to bring the loan current; Mt. Rainier Bank has no recourse to the borrower, or if it does, the borrower has insufficient assets to pay the debt; the estimated fair value of the collateral is significantly
below the current loan balance, and there is little or no near-term prospect for improvement.



7



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The allowance for credit losses is estimated by management based on historical loss experience and known
changes within the loan portfolio at the measurement date. The provision that is charged to income is the amount needed to maintain an adequate allowance for credit losses. The allowance for credit losses at December 31, 2003 was $1,101,000 or 1.12%
of loans outstanding. The allowance for credit losses at year-end 2002 was $852,000 or 1.04% of loans outstanding. The following table presents data related to Mt. Rainier Banks allowance for credit losses for the years ended December 31, 2003
and 2002:



SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION



|                                                            |  |                             |        |   |                             |   |        |  
|----------------------------------------------------------- |  | --------------------------- | ------ | - | --------------------------- | - | ------ | -
|                                                            |  | Year Ended December 31,2003 |        |   | Year Ended December 31,2002 |  
|                                                            |  | (dollars in thousands)      |       
|Allowance for credit losses (beginning of period)           |  | $                           | 852    |   |                             | $ | 753    |  
|                                                            |  |                             |        |   |                             |   |        |  
|Loans charged off:                                          |  |                             |        |   |                             |   |        |  
|Commercial and agricultural                                 |  |                             | 101    |   |                             |   | 10     |  
|Real estate construction                                    |  |                             | 0      |   |                             |   | 0      |  
|Real estate mortgage                                        |  |                             | 0      |   |                             |   | 221    |  
|Consumer                                                    |  |                             | 41     |   |                             |   | 47     |  
|                                                            |  |                             |        |   |                             |   |        |  
|Total                                                       |  |                             | 142    |   |                             |   | 278    |  
|                                                            |  |                            
|Recoveries of loans previously charged off:                 |  |                             |        |   |                             |   |        |  
|Commercial and agricultural                                 |  |                             | 3      |   |                             |   | 10     |  
|Real estate construction                                    |  |                             | 0      |   |                             |   | 0      |  
|Real estate mortgage                                        |  |                             | 0      |   |                             |   | 0      |  
|Consumer                                                    |  |                             | 3      |   |                             |   | 7      |  
|                                                            |  |                             |        |   |                             |   |        |  
|Total                                                       |  |                             | 6      |   |                             |   | 17     |  
|                                                            |  |                             |        |   |                             |   |        |  
|Net loans charged off                                       |  |                             | 136    |   |                             |   | 261    |  
|                                                            |  |                             |        |   |                             |   |        |  
|Provision for credit losses                                 |  |                             | 385    |   |                             |   | 360    |  
|                                                            |  |                             |        |   |                             |   |        |  
|Allowance for credit losses (end of period)                 |  | $                           | 1,101  |   |                             | $ | 852    |  
|                                                            |  |                             |        |   |                             |   |        |  
|Loans outstanding:                                          |  |                             |        |   |                             |   |        |  
|Average                                                     |  | $                           | 91,351 |   |                             | $ | 74,940 |  
|End of period                                               |  |                             | 98,744 |   |                             |   | 82,261 |  
|Ratio of allowance for loan loss to total loans outstanding |  |                             |        |   |                             |   |        |  
|Average                                                     |  |                             | 1.21   | % |                             |   | 1.14   | %
|End of period                                               |  |                             | 1.12   | % |                             |   | 1.04   | %
|Ratio of net charge-offs to average loans outstanding       |  |                             | 0.15   | % |                             |   | 0.35   | %



ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES BY LOAN CLASSIFICATION



The allowance for credit losses, in managements judgement, is allocated as follows to cover probable loan losses:



|                           |  |                                         |       |                          |                   |   |                                         |   |                          |  |        |  
|-------------------------- |  | --------------------------------------- | ----- | ------------------------ | ----------------- | - | --------------------------------------- | - | ------------------------ |  | ------ | -
|                           |  | December 31, 2003                       |       |                          | December 31, 2002 |  
|                           |  | Allocation ofallowance forcredit losses |       | % of loans tototal loans |                   |   | Allocation ofallowance forcredit losses |   | % of loans tototal loans | 
|Commercial and agriculture |  | $                                       | 413   |                          | 21.80             | % |                                         | $ | 395                      |  | 24.93  | %
|Real estate construction   |  |                                         | 98    |                          | 10.97             | % |                                         |   | 41                       |  | 6.81   | %
|Real estate mortgage       |  |                                         | 467   |                          | 61.28             | % |                                         |   | 272                      |  | 61.26  | %
|Consumer                   |  |                                         | 123   |                          | 5.95              | % |                                         |   | 144                      |  | 7.00   | %
|                           |  |                                         |       |                          |                   |   |                                         |   |                          |  |        |  
|Total                      |  | $                                       | 1,101 |                          | 100.00            | % |                                         | $ | 852                      |  | 100.00 | %



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The foregoing conditions and adjustments reflect managements best estimate of items recognized when
adjusting the loss percentage for each pool of loans, and adjustments to historical experience. These factors affect our assessment of low and high estimates of losses in our portfolio. The determination of the amounts of the provisions for credit
losses is based on managements current judgment and the quality of the loan portfolio, and considers all known, relevant internal and external factors that affect loan collectibility. These include regional economic indicators such as
employment; retail sales; real estate trends and specific areas of concentration for our market including the forest and dairy/agricultural industries.



During 2003, the loan loss allocations by category were adjusted to reflect the overall changes as they affect percentages in each pool of loans
categorized by the banks Loan Loss Reserve Analysis. By this method, consumer loans, as a percentage of overall loans decreased from 7.00% to 5.95% as of December 31, 2003. During this same period, commercial and agriculture loans decreased from
24.93% to 21.80% as loan demand repositioned itself toward less risky Real Estate secured loans, that changed from 68.07% to 72.25% of the bank portfolio. The fundamental process for calculating the banks loan loss allocation requirements remained
unchanged during this accounting period.



Loan quality, as
measured by changes in the loan portfolio, as well as those identified as criticized/classified affect loan loss reserve allocations. Loan quality remained satisfactory with $435,000 in past due loans as of December 31, 2003. Likewise, loans
identified as criticized/classified loans ended the year at $760,000, as compared to $463,000 as of the prior year-end as shown in the following summary:



|                |  |                   |     |                   |   |    
|--------------- |  | ----------------- | --- | ----------------- | - | ---
|                |  | December 31, 2003 |     | December 31, 2002
|Special mention |  | $                 | 873 |                   | $ | 687
|Substandard     |  | $                 | 760 |                   | $ | 463
|Doubtful        |  |                   | -0- |                   |   | -0-



Other than the loans
included in the table above, we are not aware of any loans at December 31, 2003 that cause management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms.



RISK ELEMENTS  NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS



The following table sets forth information regarding non-performing loans of Mt. Rainier Bank on the dates indicated. Accrual of interest is discontinued when there is reasonable doubt as to the full, timely
collection of interest or principal. When a loan becomes contractually past due 90 days with respect to interest or principal, it is reviewed and a determination is made as to whether it should be placed on non-accrual status. When a loan is placed
on non-accrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of
principal is probable. Interest accruals are resumed on such loans only when they are brought fully current with respect to principal and interest and when, in the judgment of management, the loans are estimated to be fully collectible as to
principal and interest. Restructured loans are those loans on which concessions in terms have been granted because of a borrowers financial difficulty. Interest is generally accrued on such loans in accordance with the new terms.



|                            |  |                                        |   |             |   |              |  |              |   |  |   |    
|--------------------------- |  | -------------------------------------- | - | ----------- | - | ------------ |  | ------------ | - |  | - | ---
|                            |  | 2003                                  
|                            |  | Accruing Loans 90 Days orMore Past Due |   | Non-accrual |   | Restructured |  | LostInterest
|                            |  | (dollars in thousands)                
|Commercial and Agricultural |  | $                                      | 0 |             | $ | 88           |  | $            | 0 |  |   | -0-
|Real Estate                 |  |                                        | 0 |             |   | 0            |  |              | 0 |  |   | N/A
|Consumer                    |  |                                        | 0 |             | $ | 16           |  |              | 0 |  | $ | 1  
|                            |  |                                        |   |             |   |              |  |              |   |  |   |    
|Total                       |  | $                                      | 0 |             | $ | 104          |  | $            | 0 |  | $ | 1  
|                            |  |                                        |   |             |   |              |  |              |   |  |   |    



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|                            |  |                                        |   |             |   |              |  |              |   |  |   |    
|--------------------------- |  | -------------------------------------- | - | ----------- | - | ------------ |  | ------------ | - |  | - | ---
|                            |  | 2002                                  
|                            |  | Accruing loans 90 Days orMore Past Due |   | Non-accrual |   | Restructured |  | LostInterest
|                            |  | (dollars in thousands)                
|Commercial and Agricultural |  | $                                      | 0 |             | $ | 88           |  | $            | 0 |  | $ | 3  
|Real Estate                 |  |                                        | 0 |             |   | 0            |  |              | 0 |  |   | N/A
|Consumer                    |  |                                        | 0 |             |   | 0            |  |              | 0 |  |   | N/A
|                            |  |                                        |   |             |   |              |  |              |   |  |   |    
|Total                       |  | $                                      | 0 |             | $ | 88           |  | $            | 0 |  | $ | 3  
|                            |  |                                        |   |             |   |              |  |              |   |  |   |    



INVESTMENT SECURITIES PORTFOLIO



The
following table presents the composition and carrying value of Mt. Rainier Banks investment portfolio at December 31, 2003 and 2002 and the dollar and percentage changes of each investment category.



|                                    |  |                        |        |                  |   |              |  |   |                  |   |  |        |  
|----------------------------------- |  | ---------------------- | ------ | ---------------- | - | ------------ |  | - | ---------------- | - |  | ------ | -
|                                    |  | December 31,2003       |        | December 31,2002 |   | DollarChange |  |   | PercentageChange |  
|                                    |  | (dollars in thousands) |       
|US Treasury securities              |  | $                      | 3,624  |                  | $ | 3,141        |  | $ | 483              |   |  | 15.38  | %
|US Government and agency securities |  |                        | 11,628 |                  |   | 7,573        |  |   | 4,055            |   |  | 53.55  | %
|Mortgage backed securities          |  |                        | 11,813 |                  |   | 12,330       |  |   | (517             | ) |  | -4.19  | %
|Municipal bonds                     |  |                        | 221    |                  |   | 400          |  |   | (179             | ) |  | -44.75 | %
|Corporate bonds                     |  |                        | 4,944  |                  |   | 6,058        |  |   | (1,114           | ) |  | -18.39 | %
|Equity securities                   |  |                        | 60     |                  |   | 60           |  |   | 0                |   |  | 0      | %
|                                    |  |                        |        |                  |   |              |  |   |                  |   |  |        |  
|Total                               |  | $                      | 32,290 |                  | $ | 29,562       |  | $ | 2,728            |   |  | 9.23   | %
|                                    |  |                        |        |                  |   |              |  |   |                  |   |  |        |  



The fair value of debt
investment securities and the maturities and yield information on the investment portfolio is as follows:



|                                |  |                   |       |       |                           |   |        |                           |        |  |                |        |  |       |       |  |        |   |       |   |   |  |   |  
|------------------------------- |  | ----------------- | ----- | ----- | ------------------------- | - | ------ | ------------------------- | ------ |  | -------------- | ------ |  | ----- | ----- |  | ------ | - | ----- | - | - |  | - | -
|                                |  | December 31, 2003 |      
|                                |  | One YearOr Less   |       |       | Over OneThroughFive Years |   |        | Over FiveThroughTen Years |        |  | Over Ten Years |       
|                                |  | Amount            |       | Yield |                           |   | Amount |                           | Yield  |  |                | Amount |  | Yield |       |  | Amount |   | Yield |  
|US Treasury Securities          |  | $                 | 502   |       | 4.75                      | % |        | $                         | 3,122  |  | 4.73           | %      |  | $     | 0     |  |        |   |       | $ | 0 |  | 0 | %
|US Government Agency Securities |  | $                 | 3,036 |       | 4.58                      | % |        | $                         | 8,592  |  | 3.37           | %      |  | $     | 0     |  |        |   |       |   | 0 |  | 0 | %
|Mortgage Backed Securities      |  | $                 | 106   |       | 6.96                      | % |        | $                         | 9,767  |  | 4.81           | %      |  | $     | 1,940 |  | 4.98   | % |       |   | 0 |  | 0 | %
|Corporate Bonds                 |  | $                 | 2,573 |       | 6.03                      | % |        | $                         | 2,371  |  | 5.69           | %      |  | $     | 0     |  |        |   |       |   | 0 |  | 0 | %
|Municipal Bonds (1)             |  | $                 | 82    |       | 4.60                      | % |        | $                         | 8      |  | 5.50           | %      |  | $     | 131   |  | 4.50   | % |       |   | 0 |  | 0 | %
|                                |  |                   |       |       |                           |   |        |                           |        |  |                |        |  |       |       |  |        |   |       |   |   |  |   |  
|Total                           |  | $                 | 6,299 |       |                           |   |        | $                         | 23,860 |  |                |        |  | $     | 2,071 |  |        |   |       | $ | 0 |  |   |  
|Weighted Average Yield          |  |                   |       |       | 5.23                      | % |        |                           |        |  | 4.37           | %      |  |       |       |  | 4.95   | % |       |   |   |  | 0 | %

---

|(1) | Yield on municipal bonds is not calculated on a tax equivalent basis
|--- | --------------------------------------------------------------------



DEPOSITS



Mt. Rainier Banks
primary sources of funds are interest-bearing deposits. The following table sets forth the average amount of and average rates paid on Mt. Rainier Banks deposit accounts for the years ended.



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##### Table of Contents

|                                      |  |                        |         |                 |                   |   |                |   |                 |  |      |  
|------------------------------------- |  | ---------------------- | ------- | --------------- | ----------------- | - | -------------- | - | --------------- |  | ---- | -
|                                      |  | December 31, 2003      |         |                 | December 31, 2002 |  
|                                      |  | Average Amounts        |         | AverageRatePaid |                   |   | AverageAmounts |   | AverageRatePaid | 
|                                      |  | (dollars in thousands) |        
|Non-interest bearing demand           |  | $                      | 20,890  |                 | 0.00              | % |                | $ | 17,901          |  | 0.00 | %
|Interest-bearing demand               |  |                        | 48,613  |                 | 1.12              | % |                |   | 38,448          |  | 1.60 | %
|Savings                               |  |                        | 14,529  |                 | 0.83              | % |                |   | 12,600          |  | 0.99 | %
|Certificates of deposit               |  |                        | 30,918  |                 | 2.51              | % |                |   | 30,503          |  | 3.75 | %
|Certificates of deposit over $100,000 |  |                        | 16,460  |                 | 2.90              | % |                |   | 16,540          |  | 4.08 | %
|                                      |  |                        |         |                 |                   |   |                |   |                 |  |      |  
|Total                                 |  | $                      | 131,410 |                 | 1.74              | % |                | $ | 115,992         |  | 2.61 | %
|                                      |  |                        |         |                 |                   |   |                |   |                 |  |      |  



At December 31, 2003,
the scheduled maturities of certificates of deposit were:



|                                      |  |                        |        |                  |   |       
|------------------------------------- |  | ---------------------- | ------ | ---------------- | - | ------
|                                      |  | December 31, 2003     
|                                      |  | Less Than$100,000      |        | $100,000 or More
|                                      |  | (dollars in thousands)
|Maturity in:                          |  |                        |        |                  |   |       
|Three months or less                  |  | $                      | 7,854  |                  | $ | 1,967 
|Over three months through six months  |  |                        | 6,824  |                  | $ | 3,038 
|Over six months through twelve months |  |                        | 9,489  |                  | $ | 3,845 
|Over twelve months                    |  |                        | 7,091  |                  | $ | 8,191 
|                                      |  |                        |        |                  |   |       
|Total                                 |  | $                      | 31,258 |                  | $ | 17,041
|                                      |  |                        |        |                  |   |       



The following ratios
applicable to Mountain Bank Holding are among those commonly used in analyzing bank holding companies:



|                                       |  |                        |   |  |       |  
|-------------------------------------- |  | ---------------------- | - |  | ----- | -
|                                       |  | Year EndedDecember 31, |  
|                                       |  | 2003                   |   |  | 2002  |  
|Return on Average Assets               |  | 0.93                   | % |  | 0.88  | %
|Return on Average Equity               |  | 8.51                   | % |  | 8.04  | %
|Dividend Payout Ratio                  |  | 0                      | % |  | 0     | %
|Average Equity to Average Assets Ratio |  | 10.89                  | % |  | 10.96 | %



At December 31, 2003,
and December 31, 2002 and for the years then ended, neither Mt. Rainier Bank nor Mountain Bank Holding had any short-term borrowings.



The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are interest rate sensitive and by
monitoring an institutions interest rate sensitivity gap. An asset or liability is interest rate sensitive within a specific time period if it will reprice within that time period. The interest rate sensitivity gap is defined as
the difference between the amount of interest-bearing assets anticipated, based upon certain assumptions, to mature or reprice within a specific time period and the amount of interest-bearing liabilities anticipated, based upon certain assumptions,
to mature or reprice within that time period. A gap is considered positive when the amount of interest rate sensitive assets maturing within a specific time frame exceeds the amount of interest sensitive liabilities maturing within that same time
frame. If negative, the reverse is true.



11



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##### Table of Contents

The following table represents an interest rate sensitivity analysis at December 31, 2003.



GAP ANALYSIS



|                                                |  |                        |         |   |                       |   |        |                |  |   |        |  
|----------------------------------------------- |  | ---------------------- | ------- | - | --------------------- | - | ------ | -------------- |  | - | ------ | -
|                                                |  | TotalWithin OneYear    |         |   | One Year toFive Years |   |        | Over FiveYears | 
|                                                |  | (dollars in thousands) |        
|Rate Sensitive Assets:                          |  |                        |         |   |                       |   |        |                |  |   |        |  
|Loans, including loans held for sale            |  | $                      | 32,628  |   |                       | $ | 48,410 |                |  | $ | 17,706 |  
|Investments                                     |  |                        | 6,299   |   |                       |   | 23,860 |                |  |   | 2,071  |  
|Interest Bearing Deposits                       |  |                        | 13,919  |   |                       |   | 0      |                |  |   | 0      |  
|                                                |  |                        |         |   |                       |   |        |                |  |   |        |  
|Total                                           |  | $                      | 52,846  |   |                       | $ | 72,270 |                |  | $ | 19,777 |  
|                                                |  |                        |         |   |                       |   |        |                |  |   |        |  
|Rate Sensitive Liabilities:                     |  |                        |         |   |                       |   |        |                |  |   |        |  
|Savings, NOW and Interest Checking              |  | $                      | 66,720  |   |                       |   |        |                |  |   |        |  
|Time Deposits                                   |  |                        | 33,017  |   |                       | $ | 15,282 |                |  |   |        |  
|                                                |  |                        |         |   |                       |   |        |                |  |   |        |  
|Total                                           |  | $                      | 99,737  |   |                       | $ | 15,282 |                |  | $ | 0      |  
|                                                |  |                        |         |   |                       |   |        |                |  |   |        |  
|Interest Sensitive Gap                          |  | $                      | (46,891 | ) |                       | $ | 56,988 |                |  | $ | 19,777 |  
|                                                |  |                        |         |   |                       |   |        |                |  |   |        |  
|Cumulative Gap                                  |  | $                      | (46,891 | ) |                       | $ | 10,097 |                |  | $ | 29,874 |  
|                                                |  |                        |         |   |                       |   |        |                |  |   |        |  
|Cumulative Gap as a % of Average Earning Assets |  |                        | 33.91   | % |                       |   | 7.30   | %              |  |   | 21.60  | %
|                                                |  |                        |         |   |                       |   |        |                |  |   |        |  



Currently, Mt. Rainier
Banks interest sensitivity gap is negative within one year. Assuming that general market interest rate changes affected the repricing of assets and liabilities in equal magnitudes, this indicates that the effect of rising interest rates on
Mountain Bank Holding would be a decrease in the net interest margin, whereas falling interest rates would cause a corresponding increase in margin.



DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS EQUITY

AND INTEREST YIELDS



The following table sets forth the average balance sheets of Mountain Bank
Holding for the past two years along with an analysis of net interest earnings for each major category of interest earning assets and interest bearing liabilities, the average rate paid in each category, and net yield on earning assets. Average
non-accrual loans were $155 in 2003 and $68 in 2002 and are included in average total loans. Loan fees of $922 in 2003 and $789 in 2002 are included in interest income.



|                                           |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|------------------------------------------ |  | ---------------------- | ------- | - | ----------------------- | - | ----- | --------------------- |  | --- | -------------- |  | - | ----------------------- | - |  | --------------------- | ----- | - |  | --- | -
|                                           |  | 2003                   |         |   | 2002                    |  
|                                           |  | Average Balance        |         |   | InterestEarned/ Expense |   |       | AnnualizedYield/ Rate |  |     | AverageBalance |  |   | InterestEarned/ Expense |   |  | AnnualizedYield/ Rate |      
|                                           |  | (dollars in thousands) |        
|ASSETS                                     |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|Interest earning assets:                   |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|Loans                                      |  | $                      | 91,351  |   |                         | $ | 7,275 |                       |  | 8.0 | %              |  | $ | 74,940                  |   |  | $                     | 6,590 |   |  | 8.8 | %
|Investments                                |  |                        | 30,682  |   |                         |   | 1,013 | *                     |  | 3.3 | %              |  |   | 31,676                  |   |  |                       | 1,358 | * |  | 4.3 | %
|Federal funds sold and deposits in banks   |  |                        | 16,247  |   |                         |   | 177   |                       |  | 1.1 | %              |  |   | 15,339                  |   |  |                       | 230   |   |  | 1.5 | %
|                                           |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|Total interest earning assets              |  | $                      | 138,280 |   |                         | $ | 8,465 |                       |  | 6.1 | %              |  | $ | 121,955                 |   |  | $                     | 8,178 |   |  | 6.7 | %
|                                           |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|Non-interest earning assets:               |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|Cash and due from banks                    |  |                        | 1,370   |   |                         |   |       |                       |  |     |                |  |   | 1,192                   |   |  |                       |       |   |  |     |  
|Premises and equipment                     |  |                        | 5,237   |   |                         |   |       |                       |  |     |                |  |   | 4,217                   |   |  |                       |       |   |  |     |  
|Other assets                               |  |                        | 4,505   |   |                         |   |       |                       |  |     |                |  |   | 4,235                   |   |  |                       |       |   |  |     |  
|Allowance for credit losses                |  |                        | (949    | ) |                         |   |       |                       |  |     |                |  |   | (782                    | ) |  |                       |       |   |  |     |  
|                                           |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|TOTAL ASSETS                               |  | $                      | 148,443 |   |                         |   |       |                       |  |     |                |  | $ | 130,817                 |   |  |                       |       |   |  |     |  
|                                           |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|LIABILITIES AND SHAREHOLDERS EQUITY       |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|Interest bearing liabilities:              |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|Interest bearing demand deposits           |  | $                      | 48,613  |   |                         | $ | 547   |                       |  | 1.1 | %              |  | $ | 38,448                  |   |  | $                     | 615   |   |  | 1.6 | %
|Savings                                    |  |                        | 14,529  |   |                         |   | 119   |                       |  | .8  | %              |  |   | 12,600                  |   |  |                       | 125   |   |  | 1.0 | %
|Certificates of deposit                    |  |                        | 30,918  |   |                         |   | 775   |                       |  | 2.5 | %              |  |   | 30,503                  |   |  |                       | 1,145 |   |  | 3.8 | %
|Certificates of deposit over $100,000      |  |                        | 16,460  |   |                         |   | 477   |                       |  | 2.9 | %              |  |   | 16,540                  |   |  |                       | 675   |   |  | 4.1 | %
|                                           |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|Total interest bearing deposits            |  |                        | 110,520 |   |                         |   | 1,918 |                       |  | 1.7 | %              |  | $ | 98,091                  |   |  | $                     | 2,560 |   |  | 2.6 | %
|                                           |  |                        |         |   |                         |  
|Other borrowings                           |  |                        | 35      |   |                         |   | 3     |                       |  | 8.6 | %              |  |   | 37                      |   |  |                       | 3     |   |  | 8.1 | %
|                                           |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|Total interest bearing liabilities         |  | $                      | 110,555 |   |                         | $ | 1,921 |                       |  | 1.7 | %              |  | $ | 98,128                  |   |  | $                     | 2,563 |   |  | 2.6 | %
|                                           |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|Non-interest bearing liabilities:          |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|Demand deposits                            |  | $                      | 20,890  |   |                         |   |       |                       |  |     |                |  | $ | 17,901                  |   |  |                       |       |   |  |     |  
|Other liabilities                          |  |                        | 830     |   |                         |   |       |                       |  |     |                |  |   | 456                     |   |  |                       |       |   |  |     |  
|Shareholders equity                       |  |                        | 16,168  |   |                         |   |       |                       |  |     |                |  |   | 14,332                  |   |  |                       |       |   |  |     |  
|                                           |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |  | $                      | 148,443 |   |                         |   |       |                       |  |     |                |  | $ | 130,817                 |   |  |                       |       |   |  |     |  
|                                           |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|Net interest income                        |  |                        |         |   |                         | $ | 6,544 |                       |  |     |                |  |   |                         |   |  | $                     | 5,615 |   |  |     |  
|                                           |  |                        |         |   |                         |   |       |                       |  |     |                |  |   |                         |   |  |                       |       |   |  |     |  
|Net interest margin                        |  |                        |         |   |                         |   |       |                       |  | 4.7 | %              |  |   |                         |   |  |                       |       |   |  | 4.6 | %

---

|* | Tax equivalent basis @ 34%.
|- | ---------------------------



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CHANGES IN INTEREST INCOME AND EXPENSE VOLUME AND RATE VARIANCES



The change in interest due to both volume and yield has been allocated to volume and yield changes in proportion to the relationship of the absolute dollar amount of the change in each amount.



|                                      |  |                        |      |   |            |   |       |       |  |   |           |   |  |        |      |   |       |   |       |   |  |   |        |  
|------------------------------------- |  | ---------------------- | ---- | - | ---------- | - | ----- | ----- |  | - | --------- | - |  | ------ | ---- | - | ----- | - | ----- | - |  | - | ------ | -
|                                      |  | 2003                   |      |   | 2002       |  
|                                      |  | Net Change             |      |   | Net Change |  
|                                      |  | NetChange              |      |   | Volume     |   |       | Yield |  |   | NetChange |   |  | Volume |      |   | Yield |  
|                                      |  | (dollars in thousands) |     
|Loans                                 |  | $                      | 685  |   |            | $ | 1,348 |       |  | $ | (663      | ) |  | $      | 214  |   |       | $ | 637   |   |  | $ | (423   | )
|Investments                           |  |                        | (345 | ) |            |   | (44   | )     |  |   | (301      | ) |  |        | (86  | ) |       |   | 294   |   |  |   | (380   | )
|Federal Funds Sold                    |  |                        | (53  | ) |            |   | 13    |       |  |   | (66       | ) |  |        | (219 | ) |       |   | 102   |   |  |   | (321   | )
|                                      |  |                        |      |   |            |   |       |       |  |   |           |   |  |        |      |   |       |   |       |   |  |   |        |  
|Total                                 |  | $                      | 287  |   |            | $ | 1,317 |       |  | $ | (1,030    | ) |  | $      | (91  | ) |       | $ | 1,033 |   |  | $ | (1,124 | )
|                                      |  |                        |      |   |            |   |       |       |  |   |           |   |  |        |      |   |       |   |       |   |  |   |        |  
|Interest Bearing Demand               |  |                        | (68  | ) |            |   | 140   |       |  |   | (208      | ) |  |        | (145 | ) |       |   | 203   |   |  |   | (348   | )
|Savings                               |  |                        | (6   | ) |            |   | 18    |       |  |   | (24       | ) |  |        | (58  | ) |       |   | 33    |   |  |   | (91    | )
|Certificates of deposit               |  |                        | (370 | ) |            |   | 15    |       |  |   | (385      | ) |  |        | (594 | ) |       |   | (10   | ) |  |   | (584   | )
|Certificates of deposit over $100,000 |  |                        | (198 | ) |            |   | (3    | )     |  |   | (195      | ) |  |        | (168 | ) |       |   | 124   |   |  |   | (292   | )
|                                      |  |                        |      |   |            |   |       |       |  |   |           |   |  |        |      |   |       |   |       |   |  |   |        |  
|Total                                 |  | $                      | (642 | ) |            | $ | 170   |       |  | $ | (812      | ) |  | $      | (965 | ) |       | $ | 350   |   |  | $ | (1,315 | )
|                                      |  |                        |      |   |            |  
|Other Borrowings                      |  |                        | 0    |   |            |   | 0     |       |  |   | 0         |   |  |        | 0    |   |       |   | 0     |   |  |   | 0      |  
|                                      |  |                        |      |   |            |   |       |       |  |   |           |   |  |        |      |   |       |   |       |   |  |   |        |  
|Total                                 |  | $                      | (642 | ) |            | $ | 170   |       |  | $ | (812      | ) |  | $      | (965 | ) |       | $ | 350   |   |  | $ | (1,315 | )
|                                      |  |                        |      |   |            |   |       |       |  |   |           |   |  |        |      |   |       |   |       |   |  |   |        |  
|Net Interest Income                   |  | $                      | 929  |   |            | $ | 1,147 |       |  | $ | (218      | ) |  | $      | 874  |   |       | $ | 683   |   |  | $ | 191    |  



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SUPERVISION AND REGULATION



The
following discussion is only intended to provide brief summaries of significant statutes and regulations that affect the banking industry and therefore is not complete. Changes in applicable laws or regulations, and in the policies of regulators,
may have a material effect on our business and prospects. We cannot accurately predict the nature or extent of the effects on our business and earnings that fiscal or monetary policies, or new federal or state laws, may have in the future.



Significant Changes in Banking Laws and Regulations



Sarbanes-Oxley Act of 2002. On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002 (the Act) to address corporate and accounting fraud. The Act establishes a new accounting
oversight board that will enforce auditing standards and restricts the scope of services that accounting firms may provide to their public company audit clients. Among other things, it also (I) requires chief executive officers and chief
financial officers to certify to the accuracy of periodic reports filed with the Securities and Exchange Commission (the SEC); (ii) imposes new disclosure requirements regarding internal controls, off-balance-sheet transactions,
and pro forma (non-GAAP) disclosures; (iii) accelerates the time frame for reporting of insider transactions and periodic disclosures by public companies; and (iv) requires companies to disclose whether or not they have adopted a code
of ethics for senior financial officers and whether the audit committee includes at least one audit committee financial expert.



The Act requires the SEC, based on certain enumerated factors, to regularly and systematically review corporate filings. To deter wrongdoing, the Act;
(I) subjects bonuses issued to top executives to disgorgement if a restatement of a companys financial statements was due to corporate misconduct; (ii) prohibits an officer or director misleading or coercing an auditor;
(iii) prohibits insider trades during pension fund blackout periods; (iv) imposes new criminal penalties for fraud and other wrongful acts; and (v) extends the period during which certain securities fraud lawsuits
can be brought against a company or its officers.



As a
publicly reporting company, we are subject to the requirements of the Act and related rules and regulations issued by the SEC. At the present time, we anticipate that we will incur additional expense as a result of the Act, be we do not expect that
such compliance will have a material impact on our business.



USA Patriot Act of 2001. On October 26, 2001, President Bush signed the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act) of 2001. Among other
things, the USA Patriot Act (i)prohibits banks from providing correspondent accounts directly to foreign shell banks; (ii)imposes due diligence requirements on banks opening or holding accounts for foreign financial institutions or
wealthy foreign individuals; (iii) requires financial institutions to establish an anti-money-laundering compliance program; and (iv) eliminates civil liability for persons who file suspicious activity reports. The USA Patriot Act also
increases governmental powers to investigate terrorism, including expanded government access to account records. The Department of the Treasury is empowered to administer and make rules to implement the USA Patriot Act. While we believe the USA
Patriot Act may, to some degree, affect our record keeping and reporting expenses, we do not believe that it will have a material adverse effect on our business and operations.



Financial Services Modernization. The laws and regulations that affect banks and bank holding companies recently
underwent significant changes as a result of the Financial Services Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act of 1999. Generally, the act (i) repealed the historical restrictions on preventing banks from affiliating
with securities firms, (ii) provided a uniform framework for the activities of banks, savings institutions and their holding companies, (iii) broadened the activities that may be conducted by national banks and banking subsidiaries of
bank holding companies, (iv)provided an enhanced framework for protecting the privacy of consumers information and (v)addressed a variety of other legal and regulatory issues affecting both day-to-day operations and long-term
activities of financial institutions.



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Bank holding companies may now engage in a wider variety of financial activities than permitted under
previous law, particularly insurance and securities activities. In addition, in a change from previous law, a bank holding company may be owned, controlled or acquired by any company engaged in financially related activities, so long as such company
meets certain regulatory requirements. The act also permits national banks (and certain state banks), either directly or through operating subsidiaries, to engage in certain non-banking financial activities.



We do not believe that the act will negatively affect our operations.
However, to the extent the act permits banks, securities firms and insurance companies to affiliate, the financial services industry may experience further consolidation. This consolidation could result in a growing number of larger financial
institutions that offer a wider variety of financial services than we currently offer and that can aggressively compete in the markets we currently serve.



Mountain Bank Holding



General



As a bank holding company, we are subject to the Bank
Holding Company Act of 1956, which places us under the supervision of the Board of Governors of the Federal Reserve. We must file annual reports with the Federal Reserve and must provide it with such additional information as it may require. In
addition, the Federal Reserve periodically examines us and Mt. Rainier Bank.



Bank Holding Company Regulation



In general, the Bank Holding Company Act limits bank holding company business to owning or controlling banks and engaging in other banking-related activities. Bank holding companies must obtain the Federal Reserve Boards approval
before they:



| |  | acquire direct or indirect ownership or control of any voting shares of any bank that results in total ownership or control, directly or indirectly, of more than 5% of the voting
shares of such bank;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | merge or consolidate with another bank holding company; or
| | - | ----------------------------------------------------------



| |  | acquire substantially all of the assets of any additional banks.
| | - | ----------------------------------------------------------------



Subject to certain state laws, a bank holding company that is adequately capitalized and adequately managed may acquire the assets of both in-state and
out-of-state banks. Under the Gramm-Leach-Bliley Act, a bank holding company meeting certain qualifications may apply to the Federal Reserve Board to become a financial holding company, and thereby engage (directly or through a subsidiary) in
certain activities deemed financial in nature, such as securities brokerage and insurance underwriting.



Control of Nonbanks. With certain exceptions, the Bank Holding Company Act prohibits bank holding companies from acquiring direct or indirect
ownership or control of voting shares in any company that is not a bank or a bank holding company unless the Federal Reserve Board determines such activities are incidental or closely related to the business of banking.



Control Transactions. The Change in Bank Control Act of 1978 requires
a person (or group of persons acting in concert) acquiring control of a bank holding company to provide the Federal Reserve Board with 60 days prior written notice of the proposed acquisition. Following receipt of this notice, the
Federal Reserve Board has 60 days (or up to 90 days if extended) within which to issue a notice disapproving the proposed acquisition. In addition, any company must obtain the Federal Reserve Boards approval before acquiring 25%
(5% if the company is a bank holding company) or more of the outstanding shares or otherwise obtaining control over Mountain Bank Holding.



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Transactions with Affiliates



Mountain Bank Holding and Mt. Rainier Bank are deemed affiliates within the meaning of the Federal Reserve Act, and transactions between affiliates are subject to certain restrictions. Generally, the Federal Reserve Act limits the extent to
which a financial institution or its subsidiaries may engage in covered transactions with an affiliate. It also requires all transactions with an affiliate, whether or not covered transactions, to be on terms substantially
the same, or at least as favorable to the institution or subsidiary, as those provided to a non-affiliate. The term covered transaction includes the making of loans, purchase of assets, issuance of a guarantee and other similar types of
transactions.



Tie-In Arrangements



Mountain
Bank Holding and Mt. Rainier Bank cannot engage in certain tie-in arrangements in connection with any extension of credit, sale or lease of property or furnishing of services. For example, with certain exceptions, neither we nor Mt. Rainier Bank may
condition an extension of credit on either a requirement that the customer obtain additional services provided by either of us, or an agreement by the customer to refrain from obtaining other services from a competitor.



The Federal Reserve Board has adopted exceptions to its anti-tying rules that
allow banks greater flexibility to package products with their affiliates. These exceptions were designed to enhance competition in banking and non-banking products and to allow banks and their affiliates to provide more efficient, lower cost
service to their customers.



State Law Restrictions



As a
Washington business corporation, we may be subject to certain limitations and restrictions under applicable Washington corporate law. In addition, although Mt. Rainier Bank is a national bank and therefore primarily regulated by the Office of the
Comptroller of the Currency, Washington law may affect certain activities of Mt. Rainier Bank.



Mt. Rainier National Bank



General



Mt. Rainier Bank, as a national banking association, is
subject to regulation and examination by the OCC. The federal laws that apply to Mt. Rainier Bank regulate, among other things, the scope of its business, its investments, its reserves against deposits, the timing of the availability of deposited
funds and the nature and amount of and collateral for loans. The laws and regulations governing Mt. Rainier Bank generally have been promulgated to protect depositors and not to protect stockholders of Mountain Bank Holding or Mt. Rainier Bank.



Community Reinvestment Act.The Community Reinvestment
Act requires that, in connection with examinations of financial institutions within their jurisdiction, the Office of the Comptroller of the Currency evaluate the record of the financial institutions in meeting the credit needs of their local
communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those banks. These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility.



Insider Credit Transactions.Banks are also subject to
certain restrictions imposed by the Federal Reserve Act on extensions of credit to executive officers, directors, principal shareholders, or any related interests of such persons. Extensions of credit must be made on substantially the same terms,
including interest rates and collateral, and follow credit underwriting procedures that are not less stringent than those prevailing at the time for comparable transactions with persons not covered above and who are not employees. Also, such
extensions of credit must not involve more than the normal risk of repayment or present other unfavorable features.



Federal Deposit Insurance Corporation Improvement Act.Under the Federal Deposit Insurance Corporation Improvement Act of 1991 each federal banking
agency has prescribed, by regulation, noncapital safety and soundness standards for institutions under its authority. These standards cover internal controls, information systems, and internal audit systems, loan documentation, credit underwriting,



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interest rate exposure, asset growth, compensation, fees and benefits, such other operational and managerial standards as
the agency determines to be appropriate, and standards for asset quality, earnings and stock valuation. We believe that Mt. Rainier Bank meets all such standards and do not believe that these regulatory standards materially affect our business
operations.



Interstate Banking and Branching



The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 permits nationwide interstate banking and branching under certain circumstances. This legislation generally authorizes interstate branching and relaxes federal law
restrictions on interstate banking. Currently, bank holding companies may purchase banks in any state, and states may not prohibit such purchases. Additionally, banks are permitted to merge with banks in other states as long as the home state of
neither merging bank has opted out. The Interstate Act requires regulators to consult with community organizations before permitting an interstate institution to close a branch in a low-income area.



Under recent Federal Deposit Insurance Corporation regulations, banks are
prohibited from using their interstate branches primarily for deposit production. The Federal Deposit Insurance Corporation has accordingly implemented a loan-to-deposit ratio screen to ensure compliance with this prohibition.



Washington has opted in to the Interstate Act and allows in-state
banks to merge with out-of-state banks subject to certain aging requirements. Washington law generally authorizes the acquisition of an in-state bank by an out-of-state bank by merger with a Washington financial institution that has been in
existence for at least 5 years prior to the acquisition. With regard to interstate bank branching, out-of-state banks that do not already operate a branch in Washington may not establish de novo branches in Washington or establish and operate a
branch by acquiring a branch in Washington.



Deposit Insurance



The deposits
of Mt. Rainier Bank are currently insured to a maximum of $100,000 per depositor through the Bank Insurance Fund administered by the Federal Deposit Insurance Corporation. All insured banks are required to pay semi-annual deposit insurance premium
assessments to the Federal Deposit Insurance Corporation.



Dividends



The principal source
of Mountain Bank Holdings cash revenues is dividends received from Mt. Rainier Bank. The payment of dividends is subject to certain restrictions. For example, a national bank generally can pay dividends out of its undivided profits. However, a
national bank cannot pay dividends unless the banks capital surplus equals or exceeds its capital stock. There are two exceptions to that restriction. First, a national bank can pay an annual dividend if the bank first transfers ten percent of
its net income for the preceding four quarters to capital surplus. Second, a national bank can declare quarterly or semiannual dividends if the bank transfers ten percent or more of its net income for the preceding two quarters to capital surplus.
Overlaying these restrictions is an additional restriction that limits the payment of dividends during any calendar year to the extent of the banks retained net income for the previous two years, unless approved by the Office of the
Comptroller of the Currency. Other than the laws and regulations noted above, which apply to all national banks and bank holding companies, neither we nor Mt. Rainier Bank are currently subject to any regulatory restrictions on our dividends.



Capital Adequacy



Federal bank
regulatory agencies use capital adequacy guidelines in the examination and regulation of bank holding companies and banks. If capital falls below minimum guideline levels, the holding company or bank may be denied approval to acquire or establish
additional banks or nonbank businesses or to open new facilities.



The Federal Deposit Insurance Corporation and Federal Reserve use risk-based capital guidelines for banks and bank holding companies. These are designed to make such capital requirements more sensitive to differences in risk profiles among
banks and bank holding companies, to



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account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Assets and off-balance
sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. The guidelines are minimums, and the Federal
Reserve has noted that bank holding companies contemplating significant expansion programs should not allow expansion to diminish their capital ratios and should maintain ratios well in excess of the minimum. The current guidelines require all bank
holding companies and federally-regulated banks to maintain a minimum risk-based total capital ratio equal to 8%, of which at least 4% must be Tier I capital. Tier I capital for bank holding companies includes common shareholders equity,
certain qualifying perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less intangibles except as described above.



The Federal Reserve also employs a leverage ratio, which is Tier I capital as a percentage of total assets less intangibles, to be used as a supplement
to risk-based guidelines. The principal objective of the leverage ratio is to constrain the maximum degree to which a bank holding company may leverage its equity capital base. The Federal Reserve requires a minimum leverage ratio of 3%. However,
for all but the most highly rated bank holding companies and for bank holding companies seeking to expand, the Federal Reserve expects an additional cushion of at least 1% to 2%.



The Federal Deposit Insurance Corporation Improvement Act created a statutory framework of supervisory actions indexed to
the capital level of the individual institution. Under regulations adopted by the Federal Deposit Insurance Corporation, an institution is assigned to one of five capital categories depending on its total risk-based capital ratio, Tier I risk-based
capital ratio, and leverage ratio, together with certain subjective factors. Institutions which are deemed to be undercapitalized depending on the category to which they are assigned are subject to certain mandatory supervisory
corrective actions. We do not believe that these regulations have any material effect on our operations.



Effects of Government Monetary Policy



Our earnings and growth are affected not only by general economic conditions, but also by the fiscal and monetary policies of the federal government, particularly the Federal Reserve. The Federal Reserve implements national monetary policy
for such purposes as curbing inflation and combating recession, but its open market operations in U.S. government securities, control of the discount rate applicable to borrowings from the Federal Reserve, and establishment of reserve requirements
against certain deposits, influence the growth of bank loans, investments and deposits, and also affect interest rates charged on loans or paid on deposits. We cannot predict with certainty the nature and impact of future changes in monetary
policies and their impact on Mountain Bank Holding and Mt. Rainier Bank.



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ITEM 7. DESCRIPTION OF PROPERTY



Mt. Rainier Banks main office is in Enumclaw, Washington, at 501 Roosevelt Avenue, in an office building owned by Mt. Rainier Bank. The facility has 10,275 square feet.



On February 6, 1995, Mt. Rainier Bank opened its Buckley Branch located at 29290 Highway 410, Buckley, Washington. The
facility has 3,100 square feet.



On January 26, 1998, Mt.
Rainier Bank opened its Black Diamond Branch located at 31329 Third Avenue, Black Diamond, Washington. The facility has 3,100 square feet.



On November 16, 1998, Mt. Rainier Bank opened its Auburn Branch located at 1436 Auburn Way So, Auburn, Washington. The facility has approximately 2,624
square feet.



On April 5, 2002, Mt. Rainier Bank opened its
Maple Valley Branch located at 23924 225thWay SE in Maple Valley, Washington. The facility has approximately 3,287.



On March 26, 2003, Mt. Rainier Bank opened its Sumner Branch
located at 15104 E. Main St. in Sumner, Washington. The facility has approximately 3,768.



Mt. Rainier Bank owns all of the facilities described above. Management believes that the facilities are of sound construction, in good operating condition, are appropriately insured and are adequately equipped for
carrying on the business of the Company.



On March 27, 2003,
Mountain Bank Holding purchased a vacant lot located at 1409 3rdStreet along with a building located at 1445
3rdStreet, Enumclaw, Washington. The building is approximately 2,880 square feet and will be used primarily as a
storage facility. The vacant lot will be used for future expansion.



ITEM 8. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE REGISTRANT



Information regarding Directors and Executive Officers of Mountain Bank Holding is incorporated by reference from Mountain Bank Holdings
2004 Annual Proxy Statement (Proxy Statement) under the captions BUSINESS OF THE MEETING-Election of Directors, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.



Information regarding our code of ethics applicable to our principal
executive officer and our principal financial officer appears under INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES-Corporate Governance section of our Proxy Statement and is incorporated by reference. Our Code of Ethics
is also filed as Exhibit 99 to our Report. Information regarding Mountain Bank Holdings audit committee financial expert appears under the INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES-Certain Committees of the Board of
Directors-Audit Committee section of our Proxy Statement and is incorporated by reference.



ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS



Information regarding Remuneration of Directors and Officers of Mountain Bank Holding is incorporated by reference from Mountain Bank Holdings Proxy Statement under the captions INFORMATION
REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEESCompensation of Directors and EXECUTIVE COMPENSATION.



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##### Table of Contents

ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SHAREHOLDERS



Information regarding Security Ownership of Management and Certain Shareholders of Mountain Bank Holding is incorporated by reference from
Mountain Bank Holdings Proxy Statement under the caption SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.



Information regarding Equity Compensation Plan Information is incorporated by reference from Mountain Bank Holdings Proxy Statement
under the caption EXECUTIVE COMPENSATION.



ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS



Information regarding Interest of Management and Others in Certain Transactions of Mountain Bank Holding is incorporated by reference from
Mountain Bank Holdings Proxy Statement under the caption TRANSACTIONS WITH MANAGEMENT.



PART II



Item 1. Market Price of and Dividends on the Registrants Common Equity



Market Information



No broker
makes a market in Mountain Bank Holdings common stock, and trading has not been extensive. Trades that have occurred cannot be characterized as amounting to an active market. The stock is traded by individuals on a personal basis and is not
listed on any exchange or traded on the over-the-counter market. Due to the limited information available, the following price information may not accurately reflect the actual market value of the shares. The following data includes trades between
individual investors. It does not include new issuances of stock, the exercise of stock options or shares issued under the Employee Stock Purchase Plan.



|           |  |                    |  |                 
|---------- |  | ------------------ |  | ----------------
|Period     |  | # of Shares Traded |  | Price Range     
|2003       |  |                    |  |                 
|1stQuarter |  | 13,533             |  | $13.50 to $14.00
|2ndQuarter |  | 2,895              |  | $14.00          
|3rdQuarter |  | 20,264             |  | $14.00 to $14.50
|4thQuarter |  | 12,724             |  | $14.25 to $15.00
|           |  |                   
|2002       |  |                    |  |                 
|1stQuarter |  | 4,949              |  | $11.00 to $12.00
|2ndQuarter |  | 9,730              |  | $12.00 to $13.50
|3rdQuarter |  | 7,563              |  | $13.50          
|4thQuarter |  | 8,551              |  | $13.50 to $14.00



The price information was obtained
from Mt. Rainier Bank acting as transfer agent for Mountain Bank Holding.



On April 10, 2002, Mountain Bank Holding offered for sale 60,000 shares of no par value common stock at a subscription price of $12.50 per share. The offering was successfully completed on April 23, 2002.



On January 20, 2003, the Board of Directors approved an offering of 60,000
shares of no par value common stock at a subscription price of $15.00 per share. This offering will commence on or about the first of April, 2004. The net proceeds of approximately $850,000 will replenish funds used to purchase and construct the
Sumner branch location.



As of December 31, 2003, there were
2,176,677 shares of Mountain Bank Holding Company common stock issued and outstanding.



20



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##### Table of Contents

At December 31, 2003, stock options for 201,325 shares of Mountain Bank Holding Company common stock were
outstanding. See Note 11 of the audited financial statements for additional information.



Number of Equity Holders



As of January 31, 2003, there were 1,094 holders of record of Mountain Bank Holdings common stock.



Stock Dividends



Dividends, when
and if paid, will be subject to determination and declaration by the Board of Directors, which will take into account the financial condition of Mt. Rainier Bank and Mountain Bank Holding, results of operations, tax considerations, industry
standards, economic conditions and other relevant factors. The ability of Mountain Bank Holding to pay dividends in the future will depend primarily upon the earnings of Mt. Rainier Bank and its ability to pay dividends to Mountain Bank Holding.



Payment of Dividends



The
principal source of Mountain Bank Holdings cash revenues is dividends received from Mt. Rainier Bank. The payment of dividends is subject to government regulation, in that regulatory authorities may prohibit banks and bank holding companies
from paying dividends that would constitute an unsafe or unsound banking practice. In addition, a bank has certain restrictions on the payment of dividends and also may not pay cash dividends if that payment could reduce the amount of its capital
below that necessary to meet minimum applicable regulatory capital requirements. See SUPERVISION AND REGULATION  MT. RAINIER NATIONAL BANK contained elsewhere in this Annual Report. Other than the laws and regulations noted above,
which apply to all banks and bank holding companies, neither Mt. Rainier Bank nor we are currently subject to any regulatory restrictions on our dividends.



On January 20, 2004, the Board of Directors approved a dividend in the amount of $.10 per share to be paid on or about March 1, 2004 to shareholders of
record as of February 20, 2004.



Equity Compensation Plans



Information about our equity compensation plans is incorporated by
reference from Mountain Bank Holdings Proxy Statement under the caption EXECUTIVE COMPENSATION-EQUITY COMPENSATION PLAN INFORMATION.



Item 2. Legal Proceedings



There
are no material pending legal proceedings to which we or Mt. Rainier Bank are a party or of which any of our properties are subject; nor are there material proceedings known to us to be contemplated by any governmental authority; nor are there
material proceedings known to us, pending or contemplated, in which any director, officer or affiliate or any principal security holder, or any associate of any of the foregoing, is a party or has an interest adverse to us or Mt. Rainier Bank.



Item 3. Changes in and Disagreements with Accountants



There were no changes or disagreements with accountants in 2003.



Item 4. Submission of Matters to a Vote of Security Holders



During the fourth quarter of the year ended December 31, 2003, no matters were submitted to the security holders through the solicitation of proxies or otherwise.



21



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##### Table of Contents

Item 5. Compliance with Section 16(a) of the Exchange Act



Mountain Bank Holding has adopted procedures to assist its directors and executive officers with Section 16(a) of the Securities Exchange Act, which includes assisting the officer or director in preparing forms for
filing with the Securities Exchange Commission. Based on the review of such forms, Mountain Bank Holding believes that all of its executive officers and directors complied with all filing requirements applicable to them in 2003.



Item 6. Reports on Form 8-K



There were no
reports filed on Form 8-K during the last quarter of the period ending December 31, 2003.



Item 7. Controls and Procedures



Evaluation of
Disclosure Controls and Procedures



(a) Evaluation of
Disclosure Controls and Procedures. An evaluation was carried out under the supervision and with the participation of the Companys management, including the Chief Executive Officer (CEO) and Chief Financial Officer
(CFO), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that as of the end of the period covered by this report, our disclosure controls and procedures are effective
to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and timely reported as provided in the SECs rules
and forms.



(b) Changes in Internal Controls. No changes
occurred during the quarter ended December 31, 2003 in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



Item 8. Principal Accountant Fees and Services



Information regarding Principal Accountant Fees and Services is incorporated by reference from Mountain Bank Holdings Proxy Statement under the caption AUDITORS-FEES PAID TO INDEPENDENT
AUDITORS



22



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##### Table of Contents



Mountain Bank Holding Company
and Subsidiary



Consolidated Financial Report



December 31, 2003



---

##### Table of Contents

Contents



|                                                |  |       
|----------------------------------------------- |  | ------
|Independent Auditors Report                    |  | F-3   
|                                                | 
|Consolidated Financial Statements               |  |       
|                                                | 
|Consolidated Balance Sheets                     |  | F-5   
|                                                | 
|Consolidated Statements of Income               |  | F-6   
|                                                | 
|Consolidated Statements of Shareholders Equity |  | F-7   
|                                                | 
|Consolidated Statements of Cash Flows           |  | F-8   
|                                                | 
|Notes to Consolidated Financial Statements      |  | F-9-28



---

##### Table of Contents

LOGO



Independent Auditors Report



Board of
Directors

Mountain Bank Holding Company

Enumclaw,
Washington



We have audited the accompanying consolidated balance sheets of
Mountain Bank Holding Company and Subsidiary as of December 31, 2003 and 2002, and the related consolidated statements of income, shareholders equity and cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mountain Bank Holding Company and Subsidiary as of December 31, 2003 and 2002, and the results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of America.



LOGO



Tacoma, Washington

January 15, 2004



McGladrey & Pullen, LLP is a member firm of RSM International 

an affiliation of separate and independent legal
entities.



---

##### Table of Contents

Consolidated Financial Statements



---

##### Table of Contents

Consolidated Balance Sheets

(Dollars in Thousands)



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



|                                                                                                                                    |  |      |         |      |   |        
|----------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                                                                                                                    |  | 2003 |         | 2002
|Assets                                                                                                                              |  |      |         |      |   |        
|Cash and due from banks                                                                                                             |  | $    | 1,641   |      | $ | 1,522  
|Interest bearing deposits at other financial institutions                                                                           |  |      | 13,920  |      |   | 17,886 
|Securities available for sale                                                                                                       |  |      | 32,290  |      |   | 29,562 
|Federal Home Loan Bank and Federal Reserve Bank stock, at cost                                                                      |  |      | 693     |      |   | 671    
|Loans held for sale                                                                                                                 |  |      |        |      |   | 2,871  
|                                                                                                                                    |  |     
|Loans                                                                                                                               |  |      | 98,744  |      |   | 82,261 
|Allowance for credit losses                                                                                                         |  |      | 1,101   |      |   | 852    
|Net loans                                                                                                                           |  |      | 97,643  |      |   | 81,409 
|                                                                                                                                    |  |     
|Premises and equipment                                                                                                              |  |      | 5,586   |      |   | 4,890  
|Foreclosed real estate                                                                                                              |  |      | 140     |      |   | 151    
|Accrued interest receivable                                                                                                         |  |      | 656     |      |   | 601    
|Bank owned life insurance                                                                                                           |  |      | 3,358   |      |   | 3,205  
|Other assets                                                                                                                        |  |      | 349     |      |   | 406    
|                                                                                                                                    |  |     
|Total assets                                                                                                                        |  | $    | 156,276 |      | $ | 143,174
|                                                                                                                                    |  |     
|Liabilities                                                                                                                         |  |      |         |      |   |        
|Deposits:                                                                                                                           |  |      |         |      |   |        
|Demand, non-interest bearing                                                                                                        |  | $    | 23,756  |      | $ | 19,819 
|Savings and interest-bearing demand                                                                                                 |  |      | 66,720  |      |   | 60,361 
|Time                                                                                                                                |  |      | 48,299  |      |   | 46,831 
|Total deposits                                                                                                                      |  |      | 138,775 |      |   | 127,011
|                                                                                                                                    |  |     
|Accrued interest payable                                                                                                            |  |      | 159     |      |   | 205    
|Note payable                                                                                                                        |  |      | 34      |      |   | 36     
|Other liabilities                                                                                                                   |  |      | 413     |      |   | 381    
|                                                                                                                                    |  |     
|Total liabilities                                                                                                                   |  |      | 139,381 |      |   | 127,633
|                                                                                                                                    |  |     
|Commitments and Contingencies                                                                                                       |  |      |        |      |   |       
|                                                                                                                                    |  |     
|Shareholders Equity                                                                                                                |  |      |         |      |   |        
|Common stock (no par value); authorized 10,000,000 shares; issued and outstanding: 2003 - 2,176,677 shares; 2002 - 2,146,813
shares |  |      | 1,088   |      |   | 1,073  
|Additional paid-in capital                                                                                                          |  |      | 9,655   |      |   | 9,472  
|Retained earnings                                                                                                                   |  |      | 6,002   |      |   | 4,626  
|Accumulated other comprehensive income                                                                                              |  |      | 150     |      |   | 370    
|Total shareholders equity                                                                                                          |  |      | 16,895  |      |   | 15,541 
|                                                                                                                                    |  |     
|Total liabilities and shareholders equity                                                                                          |  | $    | 156,276 |      | $ | 143,174



See notes to consolidated
financial statements.



F-2



---

##### Table of Contents

Consolidated Statements of Income

(Dollars in Thousands, Except Per Share Amounts)



Mountain Bank Holding Company and Subsidiary

Years Ended December 31, 2003 and 2002



|                                                      |  |      |       |      |   |      
|----------------------------------------------------- |  | ---- | ----- | ---- | - | -----
|                                                      |  | 2003 |       | 2002
|Interest Income                                       |  |      |       |      |   |      
|Loans                                                 |  | $    | 7,275 |      | $ | 6,590
|Deposits in banks                                     |  |      | 177   |      |   | 230  
|Investment income:                                    |  |      |       |      |   |      
|Taxable                                               |  |      | 940   |      |   | 1,307
|Tax-exempt                                            |  |      | 16    |      |   | 18   
|Dividends on stock                                    |  |      | 49    |      |   | 24   
|Total interest income                                 |  |      | 8,457 |      |   | 8,169
|                                                      |  |     
|Interest Expense                                      |  |      |       |      |   |      
|Deposits                                              |  |      | 1,918 |      |   | 2,560
|Note payable                                          |  |      | 3     |      |   | 3    
|Total interest expense                                |  |      | 1,921 |      |   | 2,563
|                                                      |  |     
|Net interest income                                   |  |      | 6,536 |      |   | 5,606
|                                                      |  |     
|Provision for Credit Losses                           |  |      | 385   |      |   | 360  
|                                                      |  |     
|Net interest income after provision for credit losses |  |      | 6,151 |      |   | 5,246
|                                                      |  |     
|Non-Interest Income                                   |  |      |       |      |   |      
|Service charges on deposit accounts                   |  |      | 572   |      |   | 552  
|Gains on mortgage loans sold                          |  |      | 614   |      |   | 340  
|Gains on sale of securities available for salenet    |  |      |      |      |   | 29   
|Bank owned life insurance income                      |  |      | 153   |      |   | 174  
|Other                                                 |  |      | 276   |      |   | 256  
|Total non-interest income                             |  |      | 1,615 |      |   | 1,351
|                                                      |  |     
|Non-Interest Expenses                                 |  |      |       |      |   |      
|Salaries and employee benefits                        |  |      | 3,395 |      |   | 2,869
|Occupancy                                             |  |      | 330   |      |   | 256  
|Equipment                                             |  |      | 535   |      |   | 434  
|Other                                                 |  |      | 1,507 |      |   | 1,390
|Total non-interest expenses                           |  |      | 5,767 |      |   | 4,949
|                                                      |  |     
|Income before income taxes                            |  |      | 1,999 |      |   | 1,648
|                                                      |  |     
|Income Taxes                                          |  |      | 623   |      |   | 496  
|                                                      |  |     
|Net income                                            |  | $    | 1,376 |      | $ | 1,152
|                                                      |  |     
|Earnings Per Share                                    |  |      |       |      |   |      
|Basic                                                 |  | $    | .64   |      | $ | .55  
|Diluted                                               |  |      | .61   |      |   | .52  



See notes to consolidated financial
statements.



F-3



---

##### Table of Contents

Consolidated Statements of Shareholders Equity

(Dollars in Thousands)



Mountain Bank Holding Company and Subsidiary

Years Ended December 31, 2003 and 2002



|                                                        |  |                      |  |             |       |                          |   |                  |  |                                     |       |  |       |      |   |  |   |        |  
|------------------------------------------------------- |  | -------------------- |  | ----------- | ----- | ------------------------ | - | ---------------- |  | ----------------------------------- | ----- |  | ----- | ---- | - |  | - | ------ | -
|                                                        |  | Shares ofCommonStock |  | CommonStock |       | AdditionalPaid-inCapital |   | RetainedEarnings |  | AccumulatedOtherComprehensiveIncome |       |  | Total |     
|Balance at December 31, 2001                            |  | 2,067,401            |  | $           | 1,034 |                          | $ | 8,698            |  | $                                   | 3,474 |  | $     | 97   |   |  | $ | 13,303 |  
|                                                        |  |                      |  |             |       |                         
|Comprehensive income:                                   |  |                      |  |             |       |                          |   |                  |  |                                     |       |  |       |      |   |  |   |        |  
|Net income                                              |  |                     |  |             |      |                          |   |                 |  |                                     | 1,152 |  |       |     |   |  |   | 1,152  |  
|Other comprehensive income, net of tax:                 |  |                      |  |             |       |                          |   |                  |  |                                     |       |  |       |      |   |  |   |        |  
|Change in fair value of securities available for sale   |  |                     |  |             |      |                          |   |                 |  |                                     |      |  |       | 273  |   |  |   | 273    |  
|Comprehensive income                                    |  |                      |  |             |       |                          |   |                  |  |                                     |       |  |       |      |   |  |   | 1,425  |  
|                                                        |  |                      |  |             |       |                         
|Sale of common stock under employee stock purchase plan |  | 1,762                |  |             | 1     |                          |   | 19               |  |                                     |      |  |       |     |   |  |   | 20     |  
|Exercise of stock options                               |  | 17,650               |  |             | 8     |                          |   | 58               |  |                                     |      |  |       |     |   |  |   | 66     |  
|Sale of common stock                                    |  | 60,000               |  |             | 30    |                          |   | 668              |  |                                     |      |  |       |     |   |  |   | 698    |  
|Tax benefit from exercise of stock options              |  |                     |  |             |      |                          |   | 29               |  |                                     |      |  |       |     |   |  |   | 29     |  
|                                                        |  |                      |  |             |       |                         
|Balance at December 31, 2002                            |  | 2,146,813            |  |             | 1,073 |                          |   | 9,472            |  |                                     | 4,626 |  |       | 370  |   |  |   | 15,541 |  
|                                                        |  |                      |  |             |       |                         
|Comprehensive income:                                   |  |                      |  |             |       |                          |   |                  |  |                                     |       |  |       |      |   |  |   |        |  
|Net income                                              |  |                     |  |             |      |                          |   |                 |  |                                     | 1,376 |  |       |     |   |  |   | 1,376  |  
|Other comprehensive income, net of tax:                 |  |                      |  |             |       |                          |   |                  |  |                                     |       |  |       |      |   |  |   |        |  
|Change in fair value of securities available for sale   |  |                     |  |             |      |                          |   |                 |  |                                     |      |  |       | (220 | ) |  |   | (220   | )
|Comprehensive income                                    |  |                      |  |             |       |                          |   |                  |  |                                     |       |  |       |      |   |  |   | 1,156  |  
|                                                        |  |                      |  |             |       |                         
|Sale of common stock under employee stock purchase plan |  | 1,464                |  |             | 1     |                          |   | 17               |  |                                     |      |  |       |     |   |  |   | 18     |  
|Exercise of stock options                               |  | 28,400               |  |             | 14    |                          |   | 66               |  |                                     |      |  |       |     |   |  |   | 80     |  
|Tax benefit from exercise of stock options              |  |                     |  |             |      |                          |   | 100              |  |                                     |      |  |       |     |   |  |   | 100    |  
|                                                        |  |                      |  |             |       |                         
|Balance at December 31, 2003                            |  | 2,176,677            |  | $           | 1,088 |                          | $ | 9,655            |  | $                                   | 6,002 |  | $     | 150  |   |  | $ | 16,895 |  



See notes to consolidated financial
statements.



F-4



---

##### Table of Contents

Consolidated Statements of Cash Flows

(Dollars in Thousands)



Mountain Bank Holding Company and Subsidiary

Years Ended December 31, 2003 and 2002



|                                                                                   |  |      |         |   |      |   |         |  
|---------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                   |  | 2003 |         |   | 2002 |  
|Cash Flows from Operating Activities                                               |  |      |         |   |      |   |         |  
|Net income                                                                         |  | $    | 1,376   |   |      | $ | 1,152   |  
|Adjustments to reconcile net income to net cash provided by operating activities:  |  |      |         |   |      |   |         |  
|Provision for credit losses                                                        |  |      | 385     |   |      |   | 360     |  
|Depreciation and amortization                                                      |  |      | 526     |   |      |   | 401     |  
|Deferred federal income tax expense                                                |  |      | 28      |   |      |   | 22      |  
|Net amortization and accretion of bond premiums and discounts                      |  |      | 443     |   |      |   | 313     |  
|Gain on sales of securities available for sale                                     |  |      |        |   |      |   | (29     | )
|Stock dividends received                                                           |  |      | (23     | ) |      |   | (16     | )
|Gains on loans sold                                                                |  |      | (614    | ) |      |   | (340    | )
|Originations of loans held for sale                                                |  |      | (40,072 | ) |      |   | (33,720 | )
|Proceeds from sales of loans                                                       |  |      | 43,557  |   |      |   | 32,282  |  
|Bank owned life insurance income                                                   |  |      | (153    | ) |      |   | (174    | )
|(Increase) decrease in accrued interest receivable                                 |  |      | (55     | ) |      |   | 49      |  
|Decrease in accrued interest payable                                               |  |      | (46     | ) |      |   | (87     | )
|Other - net                                                                        |  |      | 285     |   |      |   | (188    | )
|Net cash provided by operating activities                                          |  |      | 5,637   |   |      |   | 25      |  
|                                                                                   |  |     
|Cash Flows from Investing Activities                                               |  |      |         |   |      |   |         |  
|Net increase (decrease) in interest-bearing deposits in banks                      |  |      | 3,966   |   |      |   | (4,431  | )
|Activity in securities available for sale and Federal Reserve Bank and FHLB stock: |  |      |         |   |      |   |         |  
|Purchases                                                                          |  |      | (20,502 | ) |      |   | (15,731 | )
|Maturities, prepayments and calls                                                  |  |      | 6,521   |   |      |   | 15,489  |  
|Sales                                                                              |  |      | 10,478  |   |      |   | 2,400   |  
|Increase in loans made to customers, net of principal collections                  |  |      | (16,619 | ) |      |   | (13,786 | )
|Additions to premises and equipment                                                |  |      | (1,222  | ) |      |   | (1,746  | )
|Net cash used in investing activities                                              |  |      | (17,378 | ) |      |   | (17,805 | )
|                                                                                   |  |     
|Cash Flows from Financing Activities                                               |  |      |         |   |      |   |         |  
|Net increase in deposits                                                           |  |      | 11,764  |   |      |   | 14,900  |  
|Net proceeds from issuance of stock                                                |  |      | 98      |   |      |   | 784     |  
|Repayment of note payable                                                          |  |      | (2      | ) |      |   | (2      | )
|Net cash provided by financing activities                                          |  |      | 11,860  |   |      |   | 15,682  |  
|                                                                                   |  |     
|Net change in cash and due from banks                                              |  |      | 119     |   |      |   | (2,098  | )
|                                                                                   |  |     
|Cash and Due from Banks                                                            |  |      |         |   |      |   |         |  
|Beginning of year                                                                  |  |      | 1,522   |   |      |   | 3,620   |  
|                                                                                   |  |     
|End of year                                                                        |  | $    | 1,641   |   |      | $ | 1,522   |  
|                                                                                   |  |     
|Supplemental Disclosures of Cash Flow Information                                  |  |      |         |   |      |   |         |  
|Interest paid                                                                      |  | $    | 1,967   |   |      | $ | 2,650   |  
|Income taxes paid                                                                  |  |      | 435     |   |      |   | 547     |  
|                                                                                   |  |     
|Supplemental Disclosures of Non-Cash Investing and Financing Activities            |  |      |         |   |      |   |         |  
|Unrealized gain (loss) on securities available for sale, net of tax                |  | $    | (220    | ) |      | $ | 273     |  
|Foreclosed real estate acquired in settlement of loans, net                        |  |      |        |   |      |   | (151    | )



See notes to consolidated financial
statements.



F-5



---

##### Table of Contents

Notes to Consolidated Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 1 - Summary of Significant Accounting Policies



Basis of Consolidation and Operations



The consolidated financial statements include the accounts of Mountain Bank Holding Company (the Company) and its wholly owned subsidiary, Mt. Rainier National Bank (the
Bank). All significant intercompany transactions and balances have been eliminated. The Company is a holding company, which operates primarily through its major subsidiary, the Bank.



The Bank operates a main office and five branches, and has a customer base centered in and around southeastern King County and northeastern
Pierce County, Washington. The Bank provides loan and deposit services to customers, who are predominantly small- and middle-market businesses and middle-income individuals in western Washington. Its primary funding source is deposits from
businesses and individuals in its market area.



Consolidated Financial
Statement Presentation



The consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America and practices within the banking industry. The preparation of financial statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, as of the date of the balance sheet, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses and the valuation of foreclosed real estate and deferred
tax assets.



Certain prior year amounts have been reclassified, with no effect
on net income or shareholders equity, to conform to the 2003 presentation. All dollar amounts, except per share information, are stated in thousands.



Securities Available for Sale



Securities available for sale consist of debt securities that the Bank intends to hold for an indefinite period, but not necessarily to maturity, and certain equity
securities. Such securities may be sold to implement the Banks asset/liability management strategies and in response to changes in interest rates and similar factors, and certain equity securities. Securities available for sale are reported at
fair value. Unrealized gains and losses, net of the related deferred tax effect, are reported as a net amount in a separate component of shareholders equity entitled accumulated other comprehensive income. Realized gains and losses
on securities available for sale, determined using the specific identification method, are included in earnings. Amortization of premiums and accretion of discounts are recognized in interest income over the period to maturity.



Declines in the fair value of individual securities available for sale below their cost that
are other than temporary result in write-downs of the individual securities to their fair value. Such write-downs are included in earnings as realized losses.



(continued)



F-6



---

##### Table of Contents

Notes to Consolidated Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 1 - Summary of Significant
Accounting Policies(continued)



Federal Home Loan Bank
and Federal Reserve Bank Stocks



The Bank, as a member of the Federal Home
Loan Bank (FHLB) system, is required to maintain an investment in capital stock of the FHLB in an amount equal to the greater of 1% of its outstanding home loans or 5% of advances from the FHLB. The recorded amount of FHLB stock equals its fair
value because the shares can only be redeemed by the FHLB at the $100 per share par value.



As a national bank, the Bank is required to own stock in the Federal Reserve Bank (FRB) in an amount based on its capital. The recorded amount of the FRB stock equals its fair value because the shares can only be
redeemed by the FRB at their par value.



Loans Held for Sale



Mortgage loans originated for sale in the foreseeable future in the secondary market are
carried at the lower of aggregate cost or estimated market value. Gains and losses on sales of loans are recognized at settlement date and are determined by the difference between the sales proceeds and the carrying value of the loans. All sales are
made without recourse.Net unrealized losses are recognized through a valuation allowance established by charges to income. All such loans are sold on a servicing released basis.



Loans



Loans are stated at the amount of unpaid principal, reduced by allowance for credit losses. Interest on loans is accrued daily based on the principal amount outstanding.



Generally the accrual of interest on loans is discontinued when, in
managements opinion, the borrower may be unable to meet payments as they become due or when they are past due 90 days as to either principal or interest, unless they are well secured and in the process of collection. When interest accrual is
discontinued, all unpaid accrued interest is reversed against current income. If management determines that the ultimate collectibility of principal is in doubt, cash receipts on nonaccrual loans are applied to reduce the principal balance on a
cash-basis method, until the loans qualify for return to accrual status. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.



(continued)



F-7



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##### Table of Contents

Notes to Consolidated Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 1 - Summary of Significant
Accounting Policies(continued)



Allowance for Credit
Losses



The allowance for credit losses is maintained at a level
sufficient to provide for probable credit losses based on evaluating known and inherent risks in the loan portfolio. The allowance is provided based upon managements continuing analysis of the pertinent factors underlying the quality of the
loan portfolio. These factors include changes in the size and composition of the loan portfolio, delinquency levels, actual loan loss experience, current economic conditions, and detailed analysis of individual loans for which full collectibility
may not be assured. The detailed analysis includes techniques to estimate the fair value of loan collateral and the existence of potential alternative sources of repayment. The allowance consists of specific, general and unallocated components. The
specific component relates to loans that are classified as either doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or
observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is
maintained to cover uncertainties that could affect managements estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for
estimating specific and general losses in the portfolio. The appropriateness of the allowance for credit losses is estimated based upon these factors and trends identified by management at the time consolidated financial statements are prepared.



When available information confirms that specific loans or portions thereof
are uncollectible, identified amounts are charged against the allowance for credit losses. The existence of some or all of the following criteria will generally confirm that a loss has been incurred: the loan is significantly delinquent and the
borrower has not demonstrated the ability or intent to bring the loan current; the Bank has no recourse to the borrower, or if it does, the borrower has insufficient assets to pay the debt; the estimated fair value of the loan collateral is
significantly below the current loan balance, and there is little or no near-term prospect for improvement.



In accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan, and SFAS No. 118, an amendment of SFAS No. 114, a loan is considered impaired when it is probable that a creditor will be
unable to collect all amounts (principal and interest) due according to the contractual terms of the loan agreement. Smaller balance homogenous loans, such as residential mortgage loans and consumer loans, are collectively evaluated for potential
loss. When a loan has been identified as being impaired, the amount of the impairment is measured by using discounted cash flows, except when, as a practical expedient, the current fair value of the collateral, reduced by costs to sell, is used.
When the measurement of the impaired loan is less than the recorded investment in the loan (including accrued interest and net deferred loan fees or costs), an impairment is recognized by creating or adjusting an allocation of the allowance for loan
losses. Uncollected accrued interest is reversed against interest income. If ultimate collection of principal is in doubt, all cash receipts on impaired loans are applied to reduce the principal balance.



A provision for credit losses is charged against income and is added to the allowance for
credit losses based on quarterly assessments of the loan portfolio. The allowance for credit losses is allocated to certain loan categories based on the relative risk characteristics, asset classifications and actual loss experience of the loan
portfolio. While management has allocated the allowance for credit losses to various loan portfolio segments, the allowance is general in nature and is available for the loan portfolio in its entirety.



The ultimate recovery of all loans is susceptible to future market factors beyond the
Banks control. These factors may result in losses or recoveries differing significantly from those provided in the consolidated financial statements. In addition, regulatory agencies, as an integral part of their examination process,
periodically review the Banks allowance for credit losses, and may require the Bank to make additions to the allowance based on their judgment about information available to them at the time of their examinations.



(continued)



F-8



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##### Table of Contents

Notes to Consolidated Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 1 - Summary of Significant
Accounting Policies(continued)



Premises and Equipment



Land is carried at cost. Premises and equipment are stated at cost less
accumulated depreciation, which is computed on the straight-line method over the estimated useful lives of the assets. Gains or losses on dispositions are reflected in earnings.



Foreclosed Real Estate



Real estate properties acquired through, or in lieu of, foreclosure are to be sold and are initially recorded at the lower of cost or fair value of the properties less
estimated costs of disposal. Any write-down to fair value at the time of transfer to foreclosed real estate is charged to the allowance for credit losses. Properties are evaluated regularly to ensure that the recorded amounts are supported by their
current fair values. Any subsequent reductions in carrying values and revenue and expense from the operations of properties are charged to non-interest income.



Transfers of Financial Assets



Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered
when (1) the assets have been isolated from the Bank, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain
effective control over the transferred assets through an agreement to repurchase them before their maturity.



Income Taxes



Deferred tax assets and
liabilities result from differences between the financial statement carrying amounts and the tax bases of assets and liabilities, and are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. The deferred tax provision represents the difference between the net deferred tax asset/liability at the beginning and end of the year. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income taxes.



The Bank provides for income taxes on a separate return basis and remits to the Company amounts currently payable.



Cash and Cash Equivalents



For purposes of presentation on the consolidated statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption
Cash and due from banks. The Bank maintains its cash in depository institution accounts which, at times, may exceed federally insured limits. The Bank has not experienced any losses in such accounts.



(continued)



F-9



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##### Table of Contents

Notes to Consolidated Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 1 - Summary of Significant
Accounting Policies(continued)



Stock-Based Compensation



At December 31, 2003, the Company has four stock-based employee and
director compensation plans, which are described more fully in Note 11, and an employee stock purchase plan, which is described in Note 14. The Company accounts for those plans under the recognition and measurement principles of APB No. 25,
Accounting for Stock Issued to Employees, and related interpretations. Accordingly, no stock-based compensation cost is reflected in net income as all options granted under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation to
stock-based compensation awards for the effects of all options granted on or after January 1, 1995 for the years ended December 31:



|                                                                                                                                     |  |      |       |   |      |   |       |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | -
|                                                                                                                                     |  | 2003 |       |   | 2002 |  
|Net income, as reported                                                                                                              |  | $    | 1,376 |   |      | $ | 1,152 |  
|Less total stock-based compensation expense determined under fair value method for all qualifying awards, net of related tax
effects |  |      | (125  | ) |      |   | (143  | )
|                                                                                                                                     |  |     
|Pro forma net income                                                                                                                 |  | $    | 1,251 |   |      | $ | 1,009 |  
|                                                                                                                                     |  |     
|Earnings Per Share                                                                                                                   |  |      |       |   |      |   |       |  
|Basic:                                                                                                                               |  |      |       |   |      |   |       |  
|As reported                                                                                                                          |  | $    | .64   |   |      | $ | .55   |  
|Pro forma                                                                                                                            |  |      | 58    |   |      |   | 48    |  
|Diluted:                                                                                                                             |  |      |       |   |      |   |       |  
|As reported                                                                                                                          |  |      | 61    |   |      |   | 52    |  
|Pro forma                                                                                                                            |  |      | 56    |   |      |   | 46    |  



Fair Values of Financial
Instruments



The following methods and assumptions were used by the
Company in estimating the fair values of financial instruments disclosed in these consolidated financial statements:



Cash and Due from Banks and Interest Bearing Deposits at Other Financial Institutions

The carrying amounts of cash and due from banks and interest bearing deposits at other financial institutions approximate their fair value.



Securities Available for Sale



Fair values for securities are based on quoted market prices.



(continued)



F-10



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##### Table of Contents

Notes to Consolidated Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 1 - Summary of Significant
Accounting Policies(continued)



Fair Values of Financial
Instruments(concluded)



Federal Home
Loan Bank and Federal Reserve Bank Stock

The carrying value of Federal Home Loan Bank and Federal Reserve Bank stocks approximates
their fair values.



Loans

For variable rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for
fixed rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values of loans held for sale are based on their estimated
market prices. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.



Deposit Liabilities

The fair value of
deposits with no stated maturity date is included at the amount payable on demand. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation based on interest rates currently offered on similar
certificates.



Note Payable

The fair value of the note payable is estimated using discounted cash flow analyses based on the Companys current incremental borrowing rates for
similar types of borrowing arrangements.



Accrued Interest

The carrying amounts of accrued interest approximate their fair values.



Off-Balance-Sheet Instruments

The fair value of commitments to extend credit and standby letters of credit was estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the customers. Since the majority of the Banks off-balance-sheet instruments consist of non-fee producing, variable-rate commitments, the Bank has determined they do not have a distinguishable fair value.



Earnings Per Share



Basic earnings per share exclude dilution and are computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share reflect the potential dilution that could occur if common shares were issued pursuant to the exercise of options under the Companys stock option plans.



(continued)



F-11



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##### Table of Contents

Notes to Consolidated Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 1 - Summary of Significant
Accounting Policies(concluded)



Comprehensive Income



The Company applies Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income (SFAS No. 130), which requires that an entity report and display comprehensive income in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income is
defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners
and distributions to owners. With regard to the Company, comprehensive income includes the net income reported on the consolidated statements of income and any changes in fair value of securities available for sale, reported as a component of
shareholders equity.



Recent Accounting Pronouncements



The Financial Accounting Standards Board has issued Statement 149, Amendments of
Statement 133 on Derivative Instruments and Hedging. This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging
activities under Statement 133. The Statement was effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. Implementation of the Statement on July 1, 2003 did not have a
significant impact on the consolidated financial statements.



The Financial
Accounting Standards Board has issued Statement 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity, and requires that certain freestanding financial instruments be reported as liabilities on the consolidated balance sheets. For the Company, the Statement was effective July
1, 2003 and implementation had no significant impact on the consolidated financial statements



Note 2 - Restricted Assets



Federal
Reserve Board regulations require maintenance of minimum reserve balances either in cash or on deposit with the Federal Reserve Bank, based on a percentage of deposits. The amounts of such balances for the years ended December 31, 2003 and 2002 were
$1,227 and $951, respectively.



F-12



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##### Table of Contents

Notes to Consolidated Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 3 - Securities Available for Sale



Debt and equity securities have been classified according to
managements intent.



The carrying amounts of securities and their
approximate fair values are as follows:



|                                                 |  |               |        |                      |   |                       |  |           |     |  |   |       
|------------------------------------------------ |  | ------------- | ------ | -------------------- | - | --------------------- |  | --------- | --- |  | - | ------
|                                                 |  | AmortizedCost |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | FairValue
|Securities Available for Sale                    |  |               |        |                      |   |                       |  |           |     |  |   |       
|                                                 |  |               |        |                     
|December 31, 2003                                |  |               |        |                      |   |                       |  |           |     |  |   |       
|U.S. Treasury securities                         |  | $             | 3,654  |                      | $ | 9                     |  | $         | 39  |  | $ | 3,624 
|U.S. Government and agency securities            |  |               | 11,501 |                      |   | 142                   |  |           | 15  |  |   | 11,628
|Mortgage-backed securities                       |  |               | 11,793 |                      |   | 74                    |  |           | 54  |  |   | 11,813
|Obligations of states and political subdivisions |  |               | 217    |                      |   | 4                     |  |           |    |  |   | 221   
|Corporate securities                             |  |               | 4,838  |                      |   | 106                   |  |           |    |  |   | 4,944 
|Equity securities                                |  |               | 60     |                      |   |                      |  |           |    |  |   | 60    
|                                                 |  |               |        |                     
|                                                 |  | $             | 32,063 |                      | $ | 335                   |  | $         | 108 |  | $ | 32,290
|                                                 |  |               |        |                     
|December 31, 2002                                |  |               |        |                      |   |                       |  |           |     |  |   |       
|U.S. Treasury securities                         |  | $             | 3,075  |                      | $ | 66                    |  | $         |    |  | $ | 3,141 
|U.S. Government and agency securities            |  |               | 7,318  |                      |   | 255                   |  |           |    |  |   | 7,573 
|Mortgage-backed securities                       |  |               | 12,162 |                      |   | 176                   |  |           | 8   |  |   | 12,330
|Obligations of states and political subdivisions |  |               | 391    |                      |   | 9                     |  |           |    |  |   | 400   
|Corporate securities                             |  |               | 5,996  |                      |   | 97                    |  |           | 35  |  |   | 6,058 
|Equity securities                                |  |               | 60     |                      |   |                      |  |           |    |  |   | 60    
|                                                 |  |               |        |                     
|                                                 |  | $             | 29,002 |                      | $ | 603                   |  | $         | 43  |  | $ | 29,562



All of the unrealized losses shown
above at December 31, 2003 arose during 2003. The unrealized losses are generally due to changes in interest rates and, as such, are considered by the Company to be temporary,



Gross gains and losses on the sales of securities were $33 and $4, respectively, in 2002.



(continued)



F-13



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##### Table of Contents

Notes to Consolidated Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 3 - Securities Available for Sale(concluded)



The carrying amount and approximate market
value of debt securities at December 31, 2003 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment
penalties.



|                          |  |               |        |           |   |       
|------------------------- |  | ------------- | ------ | --------- | - | ------
|                          |  | AmortizedCost |        | FairValue
|Due in one year or less   |  | $             | 6,242  |           | $ | 6,299 
|Due in one to five years  |  |               | 24,694 |           |   | 23,860
|Due in five years or more |  |               | 2,066  |           |   | 2,071 
|                          |  |              
|                          |  | $             | 33,002 |           | $ | 32,230



Securities with a carrying value of
$1,815 and $1,000 at December 31, 2003 and 2002, respectively, were assigned or pledged to secure public deposits, and for other purposes as required by law.



Note 4 - Loans



Loans at December 31 consist of the following:



|                            |  |      |        |      |   |       
|--------------------------- |  | ---- | ------ | ---- | - | ------
|                            |  | 2003 |        | 2002
|Commercial and agricultural |  | $    | 21,526 |      | $ | 20,510
|Real estate:                |  |      |        |      |   |       
|Residential 1-4 family      |  |      | 12,243 |      |   | 13,516
|Commercial                  |  |      | 48,266 |      |   | 36,875
|Construction                |  |      | 10,833 |      |   | 5,602 
|Consumer                    |  |      | 5,876  |      |   | 5,758 
|                            |  |     
|Total loans                 |  | $    | 98,744 |      | $ | 82,261



Changes in the
allowance for credit losses for the years ended December 31 are as follows:



|                             |  |      |       |   |      |   |      |  
|---------------------------- |  | ---- | ----- | - | ---- | - | ---- | -
|                             |  | 2003 |       |   | 2002 |  
|Balance at beginning of year |  | $    | 852   |   |      | $ | 753  |  
|Provision for credit losses  |  |      | 385   |   |      |   | 360  |  
|                             |  |     
|Charge-offs                  |  |      | (142  | ) |      |   | (278 | )
|Recoveries                   |  |      | 6     |   |      |   | 17   |  
|Net charge-offs              |  |      | (136  | ) |      |   | (261 | )
|                             |  |     
|Balance at end of year       |  | $    | 1,101 |   |      | $ | 852  |  



(continued)



F-14



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##### Table of Contents

Notes to Consolidated Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 4 - Loans(concluded)



Following is a summary of information
pertaining to impaired loans:



|                                                             |  |      |     |      |   |   
|------------------------------------------------------------ |  | ---- | --- | ---- | - | --
|                                                             |  | 2003 |     | 2002
|December 31                                                  |  |      |     |      |   |   
|Impaired loans without a valuation allowance                 |  | $    |    |      | $ | 88
|Impaired loans with a valuation allowance                    |  |      | 104 |      |   |  
|                                                             |  |     
|Total impaired loans                                         |  | $    | 104 |      | $ | 88
|                                                             |  |     
|Valuation allowance related to impaired loans                |  | $    | 15  |      | $ |  
|                                                             |  |     
|Years Ended December 31                                      |  |      |     |      |   |   
|Average investment in impaired loans                         |  | $    | 155 |      | $ | 89
|Interest income recognized on a cash basis on impaired loans |  |      | 7   |      |   | 2 



At December 31, 2003, there were no
commitments to lend additional funds to borrowers whose loans have been modified. There were no loans 90 days and over past due still accruing interest at December 31, 2003 or 2002.



At December 31, 2003 and 2002, certain officers and directors, or companies in which they have 10% or more beneficial interest, were
indebted to the Bank in the aggregate amount of $2,492 and $2,598, respectively. During 2003 advances of $1,642 were made, and repayments totaled $1,748.



Note 5 - Premises and Equipment



The components of premises and equipment at December 31 are as follows:



|                                  |  |      |       |      |   |      
|--------------------------------- |  | ---- | ----- | ---- | - | -----
|                                  |  | 2003 |       | 2002
|Land                              |  | $    | 1,771 |      | $ | 1,601
|Buildings                         |  |      | 3,990 |      |   | 3,081
|Equipment, furniture and fixtures |  |      | 2,585 |      |   | 2,512
|Construction in process           |  |      |      |      |   | 311  
|                                  |  |      | 8,346 |      |   | 7,505
|Less accumulated depreciation     |  |      | 2,760 |      |   | 2,615
|                                  |  |     
|Total premises and equipment      |  | $    | 5,586 |      | $ | 4,890



F-15



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##### Table of Contents

Notes to Consolidated Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 6 - Deposits



The composition of deposits at December 31 is as follows:



|                                      |  |      |         |      |   |        
|------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                      |  | 2003 |         | 2002
|Demand deposits, non-interest bearing |  | $    | 23,756  |      | $ | 19,819 
|NOW and money market accounts         |  |      | 51,043  |      |   | 47,073 
|Savings deposits                      |  |      | 15,677  |      |   | 13,288 
|Time certificates, $100,000 or more   |  |      | 17,041  |      |   | 16,711 
|Other time certificates               |  |      | 31,258  |      |   | 30,120 
|                                      |  |     
|Total                                 |  | $    | 138,775 |      | $ | 127,011



Scheduled maturities of certificates
of deposit for future years ending December 31 are as follows:



|     |  |   |       
|---- |  | - | ------
|2004 |  | $ | 33,017
|2005 |  |   | 9,067 
|2006 |  |   | 1,183 
|2007 |  |   | 1,691 
|2008 |  |   | 3,341 
|     | 
|     |  | $ | 48,299



Note 7 - Note Payable



The note payable is secured by land, and is payable at $.5 monthly,
including interest of 8%. Future principal maturities are $2 annually through 2004, $3 annually 2005 through 2008 and $20 thereafter.



Note 8 - Income Taxes



The components of the provision for income taxes are as follows at December 31:



|                 |  |      |     |      |   |    
|---------------- |  | ---- | --- | ---- | - | ---
|                 |  | 2003 |     | 2002
|Current          |  | $    | 595 |      | $ | 474
|Deferred benefit |  |      | 28  |      |   | 22 
|                 |  |     
|Income taxes     |  | $    | 623 |      | $ | 496



(continued)



F-16



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##### Table of Contents

Notes to Consolidated Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 8 - Income Taxes(concluded)



The effect of temporary differences that give
rise to significant portions of deferred tax assets and liabilities at December 31 follows:



|                                                 |  |      |     |   |      |   |      |  
|------------------------------------------------ |  | ---- | --- | - | ---- | - | ---- | -
|                                                 |  | 2003 |     |   | 2002 |  
|Deferred Tax Assets                              |  |      |     |   |      |   |      |  
|Allowance for credit losses                      |  | $    | 340 |   |      | $ | 293  |  
|Deferred compensation                            |  |      | 75  |   |      |   | 47   |  
|Other                                            |  |      |    |   |      |   | 22   |  
|Total deferred tax assets                        |  |      | 415 |   |      |   | 362  |  
|                                                 |  |     
|Deferred Tax Liabilities                         |  |      |     |   |      |   |      |  
|Accumulated depreciation                         |  |      | 54  |   |      |   | 22   |  
|Deferred income                                  |  |      | 351 |   |      |   | 302  |  
|Unrealized gain on securities available for sale |  |      | 77  |   |      |   | 190  |  
|Total deferred tax liabilities                   |  |      | 482 |   |      |   | 514  |  
|                                                 |  |     
|Net deferred tax liabilities                     |  | $    | (67 | ) |      | $ | (152 | )



Deferred tax liabilities are included
with other liabilities in the accompanying consolidated balance sheets.



The
following is a reconciliation between the statutory and effective federal income tax rates for the years ended December 31:



|                                    |  |        |     |   |                         |      |   |        |   |     |                         |  |      |  
|----------------------------------- |  | ------ | --- | - | ----------------------- | ---- | - | ------ | - | --- | ----------------------- |  | ---- | -
|                                    |  | 2003   |     |   | 2002                    |     
|                                    |  | Amount |     |   | Percent ofPre-taxIncome |      |   | Amount |   |     | Percent ofPre-taxIncome | 
|Income tax at statutory rate        |  | $      | 700 |   |                         | 35.0 | % |        | $ | 577 |                         |  | 35.0 | %
|Increase (decrease) resulting from: |  |        |     |   |                         |      |   |        |   |     |                         |  |      |  
|Tax-exempt income                   |  |        | (5  | ) |                         | (.3  | ) |        |   | (6  | )                       |  | (.4  | )
|Bank-owned life insurance income    |  |        | (54 | ) |                         | (2.7 | ) |        |   | (60 | )                       |  | (3.6 | )
|Other                               |  |        | (18 | ) |                         | (.8  | ) |        |   | (15 | )                       |  | (.9  | )
|                                    |  |        |     |  
|Total income tax expense            |  | $      | 623 |   |                         | 31.2 | % |        | $ | 496 |                         |  | 30.1 | %



F-17



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##### Table of Contents

Notes to Consolidated Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 9 - Commitments and Contingencies



The Bank is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers. The financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in
excess of the amount recognized in the consolidated balance sheets.



The
Banks exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. A summary of the Banks commitments is as follows:



|                           |  |      |        |      |   |       
|-------------------------- |  | ---- | ------ | ---- | - | ------
|                           |  | 2003 |        | 2002
|Commercial and agriculture |  | $    | 5,198  |      | $ | 7,973 
|Real estate                |  |      | 7,485  |      |   | 4,554 
|Credit cards               |  |      | 3,011  |      |   | 2,879 
|                           |  |     
|                           |  | $    | 15,694 |      | $ | 15,406



Outstanding commitments under letters
of credit totaled $374 and $566 at December 31, 2003 and 2002, respectively.



Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The Banks experience has been that approximately 75% of loan commitments are drawn upon by customers. The Bank evaluates each customers creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on managements credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory,
property and equipment, residential real estate, and income-producing commercial properties.



Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral held varies as specified above, and is required in instances where the Bank deems necessary.



The Bank has agreements with commercial banks for lines of credit totaling approximately
$7,200, and a credit line with the Federal Home Loan Bank totaling 10% of assets. The Bank has entered into a blanket pledge agreement with the Federal Home Loan Bank to secure this credit line. These lines were not drawn upon at December 31, 2003
or 2002.



The Company has entered into contracts with certain of its executives
and others, which provide for contingent payments subject to future events.



F-18



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##### Table of Contents

Notes to Consolidated Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 10 - Concentration of Credit Risk



The Bank has credit risk exposure, including off-balance-sheet credit
risk exposure, as disclosed in Notes 4 and 9. The ultimate collectibility of a substantial portion of the loan portfolio is susceptible to changes in economic and market conditions in the region. The Bank generally requires collateral on all real
estate loans and typically maintains loan-to-value ratios of no greater than 75% - 80%. Loans are generally limited, by federal and state banking regulations, to 15% of the Banks shareholders equity, excluding accumulated other
comprehensive income. The Bank, as a matter of practice, generally does not extend credit to any single borrower or group of related borrowers in excess of $2,200.



The contractual amounts of credit related financial instruments such as commitments to extend credit, credit card arrangements, and letters
of credit represent the amounts of potential accounting loss should the contract be fully drawn upon, the customer default, and the value of any existing collateral become worthless. Investments in obligations of states and political subdivisions
involve governmental entities within the Banks market area. Letters of credit were granted primarily to commercial borrowers.



Note 11 - Stock Option Plans



Director Plans



The 1990 Director Stock Option Plan grants a director an option to purchase 12,600 shares of common stock upon initial election to the Board of Directors at an exercise price equal to the fair market value of the
common stock at the date of grant. Options are exercisable on a cumulative basis in annual installments of one-third each on the third, fourth and fifth anniversary of the date of grant. A total of 126,000 shares of the Companys common stock
were reserved for option under this plan, of which options for 113,400 shares at $2.38 per share were granted on June 13, 1990, to expire on June 13, 2005 and options for 3,150 shares at $10.48 per share were granted April 24, 2001, to expire April
24, 2016. Options granted in 1990 are fully vested. Options granted in 2001 are not vested at December 31, 2003. Options for 24,200 and 8,550 shares were exercised in 2003 and 2002, respectively, under this director plan. Options for 9,450 shares
remain available under this plan.



The 1999 Director Stock Option Plan grants a
director an option to purchase shares of common stock at an exercise price which must be no less than the greater of the fair market value of the common stock or the net book value of the common stock at the time of grant. A total of 42,000 shares
of the Companys common stock were reserved for option under this plan, of which options for 33,600 shares at $10.48 per share (fair market value) were granted November 21, 2000, expiring on November 21, 2015. In 2003, options for 11,200 shares
were vested under the 1999 plan; none of these options granted are vested at December 31, 2002.



(continued)



F-19



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##### Table of Contents

Notes to Consolidated Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 11 - Stock Option Plans(concluded)



Employee Plans



In 1990 and 1999, the Company adopted plans providing for granting certain key employees
options to purchase common stock. Under the terms of the plans, options are incentive stock options (as defined in the Internal Revenue Code). The option price will be fair market value at the date of grant or a price determined by the Board of
Directors, but not less than fair value. Options are exercisable on a cumulative basis in annual installments of one-third each on the third, fourth and fifth anniversary of the date of grant. Pursuant to these plans, 84,000 shares are reserved for
option as of December 31, 2003, of which 65,025 shares (after forfeitures) have been granted. A total of 18,975 shares remain available for future grant under the 1999 plan at December 31, 2003. No shares remain available for grant under the 1990
plan. In 2003 and 2002, options for 4,200 shares and 9,100 shares, respectively, were exercised under the employee plans.



The fair value of each option granted in 2003 was estimated on the date of grant, based on the Black-Scholes option pricing model and using the following weighted-average
assumptions:



|                                |  |         |  
|------------------------------- |  | ------- | -
|Dividend yield                  |  |        | %
|Expected life                   |  | 9 years |  
|Average risk-free interest rate |  | 3.46    | %
|Expected volatility             |  | 24      | %



The weighted average fair value of
options granted in 2003 was $5.52. There were no options granted during 2002.



The Black-Scholes model used by the Company to calculate option values, as well as other currently accepted option valuation models, were developed to estimate the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Companys stock option awards. These models require highly subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated
values. Accordingly, management believes that this model does not necessarily provide a reliable single measure of the fair value of the Companys option awards.



A summary of the status of the Companys stock option plans as of December 31, 2003 and 2002, and changes during the years ending on
those dates, is presented below:



|                                 |  |         |   |      |                              |       |        |         |   |                              |   |     
|-------------------------------- |  | ------- | - | ---- | ---------------------------- | ----- | ------ | ------- | - | ---------------------------- | - | ----
|                                 |  | 2003    |   | 2002
|                                 |  | Shares  |   |      | WeightedAverageExercisePrice |       | Shares |         |   | WeightedAverageExercisePrice
|Outstanding at beginning of year |  | 207,825 |   |      | $                            | 6.17  |        | 232,550 |   |                              | $ | 6.09
|Granted                          |  | 24,000  |   |      |                              | 14.00 |        |        |   |                              |   |    
|Exercised                        |  | (28,400 | ) |      |                              | 2.80  |        | (17,650 | ) |                              |   | 3.81
|Forfeited                        |  | (2,100  | ) |      |                              | 8.33  |        | (7,075  | ) |                              |   | 9.19
|                                 |  |         |   |     
|Outstanding at end of year       |  | 201,325 |   |      | $                            | 7.58  |        | 207,825 |   |                              | $ | 6.17
|                                 |  |         |   |     
|Options exercisable at year-end  |  | 126,850 |   |      |                              |       |        | 129,275 |   |                              |   |     



(continued)



F-20



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##### Table of Contents

Notes to Consolidated Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 11 - Stock Option Plans(concluded)



The following information summarizes
information about stock options outstanding and exercisable at December 31, 2003:



|                         |  |                   |  |                                                 |  |                              |       |                   |        |                              |   |     
|------------------------ |  | ----------------- |  | ----------------------------------------------- |  | ---------------------------- | ----- | ----------------- | ------ | ---------------------------- | - | ----
|Range of Exercise Prices |  | NumberOutstanding |  | WeightedAverageRemainingContractualLife (Years) |  | WeightedAverageExercisePrice |       | NumberExercisable |        | WeightedAverageExercisePrice
|$  2.38 - $ 2.97         |  | 51,250            |  | 1.5                                             |  | $                            | 2.38  |                   | 51,250 |                              | $ | 2.38
|$  5.24 - $ 6.19         |  | 40,950            |  | 3.7                                             |  |                              | 5.97  |                   | 40,950 |                              |   | 5.97
|$  8.33 - $11.00         |  | 85,125            |  | 8.5                                             |  |                              | 9.67  |                   | 34,650 |                              |   | 9.05
|$14.00                   |  | 24,000            |  | 9.4                                             |  |                              | 14.00 |                   |       |                              |   |    



Note 12 - Profit Sharing Plan



The Banks defined contribution profit sharing plan covers
substantially all employees who have completed one year or more of service. Employees are eligible to defer up to 25% of their gross salary, with employer contributions to the Plan made at the discretion of the Board of Directors. The Banks
contributions for the years ended December 31, 2003 and 2002 totaled $53 and $42, respectively.



Note 13 - Deferred Compensation Agreements



In 1993 the Bank established a deferred compensation agreement with a director under which the director will defer his director fees. At retirement he will receive a benefit of $1 per month for 120 months. The accrued liability related to
this agreement totaled $52 and $47 at December 31, 2003 and 2002, respectively. Expenses associated with this plan were $5 annually in 2003 and 2002. The Bank has also purchased a whole-life insurance policy on the director, with values of $40 and
$36 at December 31 2003 and 2002, respectively, which may be used to fund benefits under the deferred compensation agreement.



In 2002, the Board of Directors approved a supplemental retirement plan covering certain management personnel. The post-retirement benefit provided by the plan is
designed to supplement a participating officers retirement benefits from social security, in order to provide the officer with a certain percentage of final average income at retirement age. Expenses associated with this plan were $89 and $77
for the years ended December 31, 2003 and 2002, respectively.



Benefits to
employees are funded by life insurance policies purchased by the Company, which had cash surrender values of $3,318 and $3,169 at December 31, 2003 and 2002, respectively. Liabilities to employees, which are being accrued over their expected time to
retirement, were $166 at December 31, 2003.



Also in 2002, the Company
purchased long-term care insurance on certain board members and management personnel. Benefits under this plan vest over five years from the date of the plan. Expenses related to this plan in 2003 and 2002 were $48 and $32, respectively.



F-21



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##### Table of Contents

Notes to Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 14 - Employee Stock Purchase Plan



Effective July 1, 1995, the Company adopted an employee stock purchase
plan whereby eligible employees can purchase common stock at the lesser of the stocks fair market value at the beginning or the end of the plan year. The aggregate number of shares reserved under this plan is 42,000. At December 31, 2002,
23,859 shares remain available for purchase under this plan. No employee can purchase more than 420 shares of common stock in any plan year; 1,464 and 1,762 shares were purchased at a price of $12.00 and $11.00 per share for the years ended December
31, 2003 and 2002, respectively.



Note 15 - Regulatory Matters



The Company and the Bank are subject to various regulatory capital
requirements administered by federal banking agencies. Failure to meet minimum capital requirements can cause certain mandatory  and possibly additional discretionary  actions by regulators that, if undertaken, could have a direct
material effect on the Companys and the Banks financial statements. Under capital adequacy guidelines of the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital adequacy guidelines that
involve quantitative measures of the Companys and the Banks assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Companys and the Banks capital classifications are
also subject to qualitative judgments by the regulators about components, risk weightings and other factors.



Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Tier 1 capital (as defined in the
regulations) to total average assets (as defined), and minimum ratios of Tier 1 and total capital (as defined) to risk-weighted assets (as defined).



As of December 31, 2003, the most recent notification from the Banks regulator categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that
management believes have changed the institutions category.



The
Companys and the Banks actual capital amounts and ratios are also presented in the table.



|                                          |  |        |        |       |                           |   |        |                                                               |       |  |      |        |  |       |        |  |       |  
|----------------------------------------- |  | ------ | ------ | ----- | ------------------------- | - | ------ | ------------------------------------------------------------- | ----- |  | ---- | ------ |  | ----- | ------ |  | ----- | -
|                                          |  | Actual |        |       | Capital Adequacy Purposes |   |        | To be WellCapitalized UnderPrompt CorrectiveAction Provisions |      
|                                          |  | Amount |        | Ratio |                           |   | Amount |                                                               | Ratio |  |      | Amount |  | Ratio |       
|December 31, 2003                         |  |        |        |       |                           |   |        |                                                               |       |  |      |        |  |       |        |  |       |  
|Tier 1 capital (to average assets):       |  |        |        |       |                           |   |        |                                                               |       |  |      |        |  |       |        |  |       |  
|Consolidated                              |  | $      | 16,744 |       | 10.86                     | % |        | $                                                             | 6,165 |  | 4.00 | %      |  |       | N/A    |  | N/A   |  
|Bank                                      |  |        | 16,259 |       | 10.57                     |   |        |                                                               | 6,156 |  | 4.00 |        |  | $     | 7,695  |  | 5.00  | %
|Tier 1 capital (to risk-weighted assets): |  |        |        |       |                           |   |        |                                                               |       |  |      |        |  |       |        |  |       |  
|Consolidated                              |  |        | 16,744 |       | 14.34                     |   |        |                                                               | 4,672 |  | 4.00 |        |  |       | N/A    |  | N/A   |  
|Bank                                      |  |        | 16,259 |       | 13.95                     |   |        |                                                               | 4,662 |  | 4.00 |        |  |       | 6,994  |  | 6.00  |  
|Total capital:                            |  |        |        |       |                           |   |        |                                                               |       |  |      |        |  |       |        |  |       |  
|Consolidated                              |  |        | 17,845 |       | 15.28                     |   |        |                                                               | 9,344 |  | 8.00 |        |  |       | N/A    |  | N/A   |  
|Bank                                      |  |        | 17,360 |       | 14.89                     |   |        |                                                               | 9,325 |  | 8.00 |        |  |       | 11,656 |  | 10.00 |  



(continued)



F-22



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##### Table of Contents

Notes to Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 15 - Regulatory Matters(concluded)



|                                          |  |        |        |       |                           |   |        |                                                                |       |  |      |        |  |       |        |  |       |  
|----------------------------------------- |  | ------ | ------ | ----- | ------------------------- | - | ------ | -------------------------------------------------------------- | ----- |  | ---- | ------ |  | ----- | ------ |  | ----- | -
|                                          |  | Actual |        |       | Capital Adequacy Purposes |   |        | To be Well CapitalizedUnder PromptCorrective Action Provisions |      
|                                          |  | Amount |        | Ratio |                           |   | Amount |                                                                | Ratio |  |      | Amount |  | Ratio |       
|December 31, 2002                         |  |        |        |       |                           |   |        |                                                                |       |  |      |        |  |       |        |  |       |  
|Tier 1 capital (to average assets):       |  |        |        |       |                           |   |        |                                                                |       |  |      |        |  |       |        |  |       |  
|Consolidated                              |  | $      | 15,171 |       | 10.78                     | % |        | $                                                              | 5,631 |  | 4.00 | %      |  |       | N/A    |  | N/A   |  
|Bank                                      |  |        | 15,074 |       | 10.71                     |   |        |                                                                | 5,631 |  | 4.00 |        |  | $     | 7,039  |  | 5.00  | %
|Tier 1 capital (to risk-weighted assets): |  |        |        |       |                           |   |        |                                                                |       |  |      |        |  |       |        |  |       |  
|Consolidated                              |  |        | 15,171 |       | 13.00                     |   |        |                                                                | 4,667 |  | 4.00 |        |  |       | N/A    |  | N/A   |  
|Bank                                      |  |        | 15,074 |       | 12.92                     |   |        |                                                                | 4,667 |  | 4.00 |        |  |       | 7,001  |  | 6.00  |  
|Total capital:                            |  |        |        |       |                           |   |        |                                                                |       |  |      |        |  |       |        |  |       |  
|Consolidated                              |  |        | 16,023 |       | 13.73                     |   |        |                                                                | 9,334 |  | 8.00 |        |  |       | N/A    |  | N/A   |  
|Bank                                      |  |        | 15,926 |       | 13.65                     |   |        |                                                                | 9,334 |  | 8.00 |        |  |       | 11,668 |  | 10.00 |  



Management believes, as of December
31, 2003, that the Company and the Bank meet all capital requirements to which they are subject.



Restrictions on Retained Earnings



National banks can initiate dividend payments in a given year, without prior regulatory approval, equal to net profits, as defined, for that year plus retained net profits for the preceding two years. The Bank can distribute as dividends to
the parent company approximately $3,589 as of December 31, 2003 without regulatory approval.



Note 16 - Condensed Financial Information - Parent Company Only



Condensed Balance Sheets - December 31



|                       |  |      |        |      |   |       
|---------------------- |  | ---- | ------ | ---- | - | ------
|                       |  | 2003 |        | 2002
|Assets                 |  |      |        |      |   |       
|Cash                   |  | $    | 177    |      | $ | 97    
|Investment in the Bank |  |      | 16,410 |      |   | 15,444
|Premises and equipment |  |      | 306    |      |   |      
|Other assets           |  |      | 2      |      |   |      
|                       |  |     
|Total assets           |  | $    | 16,895 |      | $ | 15,541
|                       |  |     
|Shareholders Equity   |  | $    | 16,895 |      | $ | 15,541



(continued)



F-23



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##### Table of Contents

Notes to Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 16 - Condensed Financial
Information - Parent Company Only(concluded)



Condensed
Statements of Income - Years Ended December 31



|                                                                                            |  |      |        |   |      |   |        |  
|------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                                                                            |  | 2003 |        |   | 2002 |  
|Operating Income                                                                            |  |      |        |   |      |   |        |  
|Dividend income from the Bank                                                               |  | $    | 310    |   |      | $ |       |  
|Other income                                                                                |  |      | 2      |   |      |   |       |  
|Total operating income                                                                      |  |      | 312    |   |      |   |       |  
|                                                                                            |  |     
|Operating Expenses                                                                          |  |      | (184   | ) |      |   | (184   | )
|Income (loss) before income taxes and equity in undistributed income of the Bank            |  |      | 128    |   |      |   | (184   | )
|                                                                                            |  |     
|Income Tax Benefit                                                                          |  |      | 63     |   |      |   | 63     |  
|                                                                                            |  |     
|Income (loss) before equity in undistributed income of the Bank                             |  |      | 191    |   |      |   | (121   | )
|                                                                                            |  |     
|Equity in Undistributed Income of the Bank                                                  |  |      | 1,185  |   |      |   | 1,273  |  
|                                                                                            |  |     
|Net income                                                                                  |  | $    | 1,376  |   |      | $ | 1,152  |  
|                                                                                            |  |     
|Condensed Statements of Cash Flows - Years Ended December 31                                |  |      |        |   |      |   |        |  
|                                                                                            |  |     
|Cash Flows from Operating Activities                                                        |  |      |        |   |      |   |        |  
|Net income                                                                                  |  | $    | 1,376  |   |      | $ | 1,152  |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |      |        |   |      |   |        |  
|Equity in undistributed income of subsidiary                                                |  |      | (1,185 | ) |      |   | (1,273 | )
|Depreciation                                                                                |  |      | 3      |   |      |   |       |  
|Decrease in other assets                                                                    |  |      |       |   |      |   | 12     |  
|Other                                                                                       |  |      | (1     | ) |      |   |       |  
|Net cash provided by (used in) operating activities                                         |  |      | 193    |   |      |   | (109   | )
|                                                                                            |  |     
|Cash Flows from Investing Activities                                                        |  |      |        |   |      |   |        |  
|Investment in subsidiary                                                                    |  |      |       |   |      |   | (661   | )
|Additions to premises and equipment                                                         |  |      | (311   | ) |      |   |       |  
|Net cash used in investing activities                                                       |  |      | (311   | ) |      |   | (661   | )
|                                                                                            |  |     
|Cash Flows from Financing Activities                                                        |  |      |        |   |      |   |        |  
|Proceeds from issuance of common stock                                                      |  |      | 98     |   |      |   | 784    |  
|                                                                                            |  |     
|Net change in cash                                                                          |  |      | (20    | ) |      |   | 14     |  
|                                                                                            |  |     
|Cash                                                                                        |  |      |        |   |      |   |        |  
|Beginning of year                                                                           |  |      | 97     |   |      |   | 83     |  
|                                                                                            |  |     
|End of year                                                                                 |  | $    | 77     |   |      | $ | 97     |  



F-24



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##### Table of Contents

Notes to Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 17 - Other Expenses



Other expenses include the following amounts which are in excess of 1% of
the total of interest income and non-interest income for the years ended December 31:



|                             |  |      |     |      |   |    
|---------------------------- |  | ---- | --- | ---- | - | ---
|                             |  | 2003 |     | 2002
|Professional fees            |  | $    | 106 |      | $ | 118
|Data processing              |  |      | 387 |      |   | 365
|Office supplies and expenses |  |      | 114 |      |   | 102
|State taxes                  |  |      | 121 |      |   | 110



Note 18 - Earnings Per Share
Disclosures



Following is information regarding the calculation of basic
and diluted earnings per share for the years indicated:



|                               |  |                       |       |                     |           |                 |   |      |  
|------------------------------ |  | --------------------- | ----- | ------------------- | --------- | --------------- | - | ---- | -
|                               |  | Net Income(Numerator) |       | Shares(Denominator) |           | Per ShareAmount |  
|Year Ended December 31, 2003   |  |                       |       |                     |           |                 |   |      |  
|Basic earnings per share:      |  |                       |       |                     |           |                 |   |      |  
|Net income                     |  | $                     | 1,376 |                     | 2,155,914 |                 | $ | .64  |  
|Effect of dilutive securities: |  |                       |       |                     |           |                 |   |      |  
|Options                        |  |                       |      |                     | 84,523    |                 |   | (.03 | )
|Diluted earnings per share:    |  |                       |       |                     |           |                 |   |      |  
|Net income                     |  | $                     | 1,376 |                     | 2,240,437 |                 | $ | .61  |  
|                               |  |                       |      
|Year Ended December 31, 2002   |  |                       |       |                     |           |                 |   |      |  
|Basic earnings per share:      |  |                       |       |                     |           |                 |   |      |  
|Net income                     |  | $                     | 1,152 |                     | 2,111,819 |                 | $ | .55  |  
|Effect of dilutive securities: |  |                       |       |                     |           |                 |   |      |  
|Options                        |  |                       |      |                     | 83,239    |                 |   | (.03 | )
|Diluted earnings per share:    |  |                       |       |                     |           |                 |   |      |  
|Net income                     |  | $                     | 1,152 |                     | 2,195,058 |                 | $ | .52  |  



The number of shares shown for
options is the number of incremental shares that would result from exercise of options and use of the proceeds to repurchase shares at the average market price during the year.



F-25



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##### Table of Contents

Notes to Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 19 - Comprehensive Income



Net unrealized gains and losses include, net of tax, $220 of unrealized
losses arising during 2003 and $292 of unrealized gains arising during 2002, less reclassification adjustments of $0 and $19 for gains included in net income in 2003 and 2002, respectively, as follows:



|                                                              |  |                  |      |   |                     |   |      |                  |  |   |      |  
|------------------------------------------------------------- |  | ---------------- | ---- | - | ------------------- | - | ---- | ---------------- |  | - | ---- | -
|                                                              |  | Before-TaxAmount |      |   | TaxBenefit(Expense) |   |      | Net-of-TaxAmount | 
|2003                                                          |  |                  |      |   |                     |   |      |                  |  |   |      |  
|Unrealized holding losses arising during the year             |  | $                | (333 | ) |                     | $ | (113 | )                |  | $ | (220 | )
|Reclassification adjustments for gains realized in net income |  |                  |     |   |                     |   |     |                  |  |   |     |  
|                                                              |  |                  |     
|Net unrealized losses                                         |  | $                | (333 | ) |                     | $ | (113 | )                |  | $ | (220 | )
|                                                              |  |                  |     
|2002                                                          |  |                  |      |   |                     |   |      |                  |  |   |      |  
|Unrealized holding gains arising during the year              |  | $                | 442  |   |                     | $ | (150 | )                |  | $ | 292  |  
|Reclassification adjustments for gains realized in net income |  |                  | (29  | ) |                     |   | 10   |                  |  |   | (19  | )
|                                                              |  |                  |     
|Net unrealized gains                                          |  | $                | 413  |   |                     | $ | (140 | )                |  | $ | 273  |  



Note 20 - Fair Values of Financial
Instruments



The estimated fair values of the Banks financial
instruments at December 31 were as follows:



|                                                                |  |                |         |           |   |                |  |           |         |  |   |        
|--------------------------------------------------------------- |  | -------------- | ------- | --------- | - | -------------- |  | --------- | ------- |  | - | -------
|                                                                |  | 2003           |         | 2002     
|                                                                |  | CarryingAmount |         | FairValue |   | CarryingAmount |  | FairValue
|Financial Assets                                                |  |                |         |           |   |                |  |           |         |  |   |        
|Cash and due from banks, and interest bearing deposits in banks |  | $              | 15,561  |           | $ | 15,561         |  | $         | 19,408  |  | $ | 19,408 
|Securities available for sale                                   |  |                | 32,230  |           |   | 32,230         |  |           | 29,502  |  |   | 29,502 
|Federal Home Loan Bank and Federal Reserve Bank stocks          |  |                | 753     |           |   | 753            |  |           | 731     |  |   | 731    
|Loans held for sale                                             |  |                |        |           |   |               |  |           | 2,871   |  |   | 2,871  
|Loans                                                           |  |                | 97,643  |           |   | 97,846         |  |           | 81,409  |  |   | 81,440 
|Accrued interest receivable                                     |  |                | 656     |           |   | 656            |  |           | 601     |  |   | 601    
|                                                                |  |                |         |          
|Financial Liabilities                                           |  |                |         |           |   |                |  |           |         |  |   |        
|Deposits                                                        |  | $              | 138,775 |           | $ | 138,983        |  | $         | 127,011 |  | $ | 127,259
|Note payable                                                    |  |                | 34      |           |   | 34             |  |           | 36      |  |   | 36     
|Accrued interest payable                                        |  |                | 159     |           |   | 159            |  |           | 205     |  |   | 205    



(continued)



F-26



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##### Table of Contents

Notes to Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 20 - Fair Values of Financial
Instruments(concluded)



The Bank assumes interest rate risk
(the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Banks financial instruments will change when interest rate levels change and that change may either be favorable
or unfavorable to the Bank. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate
environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate
environment. Management monitors rates and maturities of assets and liabilities, and attempts to minimize interest rate risk by adjusting terms of new loans, and deposits and by investing in securities with terms that mitigate the Banks
overall interest rate risk.



Note 21 - Subsequent Event



On January 20, 2004, the Board of Directors approved a dividend in the amount of $.10 per
share to be paid on or about March 1, 2004 to shareholders of record as of February 20, 2004. In addition, the Board approved the offering of an additional 60,000 shares of common stock at $15.00 per share. The offering is anticipated to commence in
the second quarter of 2004.



Note 22 - Quarterly Data (Unaudited)



|                             |  |              |       |               |   |              |  |               |       |  |   |      
|---------------------------- |  | ------------ | ----- | ------------- | - | ------------ |  | ------------- | ----- |  | - | -----
|                             |  | FirstQuarter |       | SecondQuarter |   | ThirdQuarter |  | FourthQuarter
|Year Ended December 31, 2003 |  |              |       |               |   |              |  |               |       |  |   |      
|Interest income              |  | $            | 2,043 |               | $ | 2,104        |  | $             | 2,160 |  | $ | 2,150
|Interest expense             |  |              | 517   |               |   | 476          |  |               | 475   |  |   | 453  
|Net interest income          |  |              | 1,526 |               |   | 1,628        |  |               | 1,685 |  |   | 1,697
|                             |  |              |       |              
|Provision for credit losses  |  |              | 58    |               |   | 124          |  |               | 109   |  |   | 94   
|                             |  |              |       |              
|Non-interest income          |  |              | 385   |               |   | 464          |  |               | 466   |  |   | 300  
|                             |  |              |       |              
|Non-interest expenses        |  |              | 1,430 |               |   | 1,433        |  |               | 1,539 |  |   | 1,365
|                             |  |              |       |              
|Income before income taxes   |  |              | 423   |               |   | 535          |  |               | 503   |  |   | 538  
|                             |  |              |       |              
|Income taxes                 |  |              | 127   |               |   | 171          |  |               | 156   |  |   | 169  
|                             |  |              |       |              
|Net income                   |  | $            | 296   |               | $ | 364          |  | $             | 347   |  | $ | 369  
|                             |  |              |       |              
|Earnings per common share:   |  |              |       |               |   |              |  |               |       |  |   |      
|Basic                        |  | $            | .14   |               | $ | .17          |  | $             | .16   |  | $ | .17  
|Diluted                      |  |              | .13   |               |   | .16          |  |               | .15   |  |   | .17  



(continued)



F-27



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##### Table of Contents

Notes to Financial Statements



Mountain Bank Holding Company and Subsidiary

December 31, 2003 and 2002



Note 22 - Quarterly Data (Unaudited)(concluded)



|                             |  |              |       |               |   |              |  |               |       |  |   |      
|---------------------------- |  | ------------ | ----- | ------------- | - | ------------ |  | ------------- | ----- |  | - | -----
|                             |  | FirstQuarter |       | SecondQuarter |   | ThirdQuarter |  | FourthQuarter
|Year Ended December 31, 2002 |  |              |       |               |   |              |  |               |       |  |   |      
|Interest income              |  | $            | 1,991 |               | $ | 1,972        |  | $             | 2,057 |  | $ | 2,149
|Interest expense             |  |              | 690   |               |   | 650          |  |               | 628   |  |   | 595  
|Net interest income          |  |              | 1,301 |               |   | 1,322        |  |               | 1,429 |  |   | 1,554
|                             |  |              |       |              
|Provision for credit losses  |  |              | 41    |               |   | 47           |  |               | 46    |  |   | 226  
|                             |  |              |       |              
|Non-interest income          |  |              | 321   |               |   | 303          |  |               | 322   |  |   | 405  
|                             |  |              |       |              
|Non-interest expenses        |  |              | 1,170 |               |   | 1,188        |  |               | 1,291 |  |   | 1,300
|                             |  |              |       |              
|Income before income taxes   |  |              | 411   |               |   | 390          |  |               | 414   |  |   | 433  
|                             |  |              |       |              
|Income taxes                 |  |              | 137   |               |   | 128          |  |               | 100   |  |   | 131  
|                             |  |              |       |              
|Net income                   |  | $            | 274   |               | $ | 262          |  | $             | 314   |  | $ | 302  
|                             |  |              |       |              
|Earnings per common share:   |  |              |       |               |   |              |  |               |       |  |   |      
|Basic                        |  | $            | .13   |               | $ | .13          |  | $             | .15   |  | $ | .14  
|Diluted                      |  |              | 13    |               |   | 12           |  |               | 14    |  |   | 13   



F-28



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##### Table of Contents

PART III



EXHIBITS



|            |  |                                                                                                                                      
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                          
|2.1         |  | Amended and Restated Articles of Incorporation of the registrant (1)                                                                 
|            | 
|2.2         |  | Amended and Restated By-laws of the registrant (2)                                                                                   
|            | 
|6.1         |  | Mt. Rainier National Bank 1990 Employee Stock Option Plan (3)                                                                        
|            | 
|6.2         |  | Mt. Rainier National Bank 1990 Director Stock Option Plan (4)                                                                        
|            | 
|6.3         |  | Mountain Bank Holding Company 1995 Employee Stock Purchase Plan (3)                                                                  
|            | 
|6.4         |  | Mountain Bank Holding Company 1999 Employee Stock Option Plan (3)                                                                    
|            | 
|6.5         |  | Form of 1999 Employee Stock Option Agreement (5)                                                                                     
|            | 
|6.6         |  | Form of Mountain Bank Holding Company 1999 Director Stock Option Plan (5)                                                            
|            | 
|6.7         |  | Form of 1999 Director Stock Option Agreement (5)                                                                                     
|            | 
|6.8         |  | Form of 2002 Executive Supplemental Compensation Agreements dated January 1, 2002 for Messrs. Moergeli and Franks and Ms. Brumley (6)
|            | 
|6.9         |  | Split Dollar Life Insurance Agreements for Messrs. Moergeli and Franks and Ms. Brumley (6)                                           
|            | 
|6.10        |  | Form of Change in Control Severance Agreement for Steve Moergeli and Sheila Brumley (6)                                              
|            | 
|6.11        |  | Salary Continuation Agreement for Sterlin Franks (6)                                                                                 
|            | 
|6.12        |  | Form of Participant Long Term Care Agreement for directors and Sterlin Franks and Sheila Brumley (6)                                 
|            | 
|12.1        |  | Consent of McGladrey & Pullen LLP                                                                                                    
|            | 
|12.2        |  | Code of Ethics                                                                                                                       
|            | 
|31.1        |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act                                           
|            | 
|31.2        |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act                                           
|            | 
|32          |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act                                                                      

---

|(1) | Incorporated by reference to Exhibit 3.1 of the Registrants quarterly report on Form 10Q-SB for the quarter ended June 30, 2000.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to exhibit 3.2 of the Registrants Annual Report on Form 10K-SB for the fiscal year ended December 31, 2000.
|--- | --------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to exhibits 99.1, 99.2 and 99.3, respectively, included in the Registrants Registration Statement on Form S-8, Registration No. 333-61782
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to exhibits included in the Registrants Registration Statement on Form 10-SB, Registration No. 000-28394
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to exhibits 6.5, 6.6, 6.7 and 6.8, respectively, of the Registrants Annual Report on Form 10K-SB for the fiscal year ended December 31, 1999.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to exhibits 6.8, 6.9, 6.10, 6.11 and 6.12, respectively, of the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|



E-1



---

##### Table of Contents

Signatures



In accordance with
Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized on February 26, 2004.



|                              |  |                                           
|----------------------------- |  | ------------------------------------------
|Mountain Bank Holding Company
|                              | 
|By:                           |  | /s/ Roy T. Brooks                         
|                              |  | Roy T. Brooks, Chairman of the Board & CEO



In accordance with the
Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 26th day of February 2004.



|    |  |                                                 |  |  |  |     |  |                             
|--- |  | ----------------------------------------------- |  |  |  | --- |  | ----------------------------
|By: |  | /s/ Roy T. Brooks                               |  |  |  |     |  |                             
|    |  | Roy T. Brooks, Chairman of the Board & CEO      |  |  |  |     |  |                             
|    |  | (Principal Executive Officer)                   |  |  |  |     |  |                             
|    |  |                                                 |  | 
|By: |  | /s/ Sheila M. Brumley                           |  |  |  |     |  |                             
|    |  | Sheila M. Brumley, CFO & Secretary to the Board |  |  |  |     |  |                             
|    |  | (Principal Accounting Officer)                  |  |  |  |     |  |                             
|    |  |                                                 |  | 
|By: |  | /s/ Susan K. Bowen-Hahto                        |  |  |  | By: |  | /s/ Brian W. Gallagher      
|    |  | Susan K. Bowen-Hahto, Director                  |  |  |  |     |  | Brian W. Gallagher, Director
|    |  |                                                 |  | 
|By: |  | /s/ Michael K. Jones                            |  |  |  | By: |  | /s/ Barry C. Kombol         
|    |  | Michael K. Jones, Director                      |  |  |  |     |  | Barry C. Kombol, Director   
|    |  |                                                 |  | 
|By: |  | /s/ Steve W. Moergeli                           |  |  |  | By: |  | /s/ John W. Raeder          
|    |  | Steve W. Moergeli, Director                     |  |  |  |     |  | John W. Raeder, Director    
|    |  |                                                 |  | 
|By: |  | /s/ Garrett S. Van Beek                         |  |  |  | By: |  | /s/ Hans R. Zurcher         
|    |  | Garrett S. Van Beek, Director                   |  |  |  |     |  | Hans R. Zurcher, Director   
|    |  |                                                 |  | 
|By: |  | /s/ J.B. Rupert                                 |  |  |  |     |  |                             
|    |  | J.B. Rupert, Director                           |  |  |  |     |  |                             





S-1