<PAGE>


                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

            Annual report under Section 13 or 15(d) of the Securities
                       Exchange Act of 1934 (Fee required)

                  For the fiscal year ended DECEMBER 31, 1999.

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


                        Commission File Number: 0 - 28394

                          MOUNTAIN BANK HOLDING COMPANY
             (exact name of registrant as specified in its charter)

      WASHINGTON                                           91-1602736
(State or other jurisdiction of                           (IRS Employer
incorporation or organization)                       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, $1.00
                                                            PAR VALUE
                                                             (title of class)


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 [ X ]

State the issuer's revenues for its most recent fiscal year:   $7,335,000

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 prices of such stock, as of a specified date within the
past 60 days:   AT JANUARY 31, 2000 - $14,429,268
             -----------------------------------------

Number of shares of common stock outstanding as of January 31, 2000:   924,013
                                                                     -----------

                       DOCUMENTS INCORPORATED BY REFERENCE

The Proxy Statement for the 2000 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
                                                        -----      -----

<PAGE>

                                TABLE OF CONTENTS

                                     Part I
                         (ITEMS 6-11, FORM 1-A, MODEL B)
<TABLE>
<CAPTION>
                                                                                                   Page #
<S>        <C>                                                                                     <C>
ITEM 6.    DESCRIPTION OF BUSINESS ..........................................................         1
                General .....................................................................         1

           DESCRIPTION OF MT. RAINIER NATIONAL BANK .........................................         2
                The Bank ....................................................................         2
                History .....................................................................         2
                Business ....................................................................         2
                Service Area ................................................................         3
                Employees ...................................................................         3
                Competition .................................................................         3
                Products and Services .......................................................         3
                Marketing ...................................................................         4
                Lending Activities ..........................................................         4
                Investment Portfolio ........................................................         5
                Statistical Information About the Company ...................................         6
                    Loan Portfolio ..........................................................         6
                    Loan Loss Experience ....................................................         7
                    Allocation of Loan Loss By Loan Classification ..........................         7
                    Investment Securities Portfolio .........................................         8
                    Deposit Liability Composition ...........................................         8
                    GAP Analysis ............................................................         9
                    Distribution of Average Assets, Liability and Shareholders' Equity ......        10
                    Changes in Interest Income and Expense Volume and Rate Variance .........        10
               Supervision and Regulation ...................................................        11
                     Changes in Banking Laws and Regulations ................................        11
                     The Company ............................................................        11
                     Bank Holding Company Regulation ........................................        12
                     Transactions with Affiliates ...........................................        12
                     Regulation of Management ...............................................        12
                     Tie-In Arrangements ....................................................        13
                     State Law Restrictions .................................................        13
                     Mt. Rainier National Bank ..............................................        13
                     Interstate Banking and Branching .......................................        14
                     Deposit Insurance ......................................................        15
                     Dividends ..............................................................        15
                     Capital Adequacy .......................................................        15
                     Effects of Government Monetary Policy ..................................        16
                Year 2000 ...................................................................        16
                Forward Looking Statements ..................................................        17

ITEM 7.    DESCRIPTION OF PROPERTY ..........................................................        18

ITEM 8.    DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES ..........................        18

ITEM 9.    REMUNERATION OF DIRECTORS AND OFFICERS ...........................................        18
</TABLE>

                                      i


<PAGE>

                                TABLE OF CONTENTS

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

<TABLE>
<CAPTION>
                                                                                                 Page #
<S>         <C>                                                                                  <C>
ITEM 10.    SECURITY OWNERSHIP OF MANAGEMENT AND
            CERTAIN SECURITY HOLDERS ....................................................          18

ITEM 11.    INTEREST OF MANAGEMENT AND OTHERS IN
            CERTAIN TRANSACTIONS ........................................................          19

                                 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 ...............................................          20
                 Cash Dividends .........................................................          20
                 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 ...........................          21

ITEM 6.     REPORTS ON FORM 8-K .........................................................          21


                                                     Part F/S
                                               FINANCIAL STATEMENTS

                                                                                                 Page #
            FINANCIAL STATEMENTS ........................................................          F-1


                                                     Part III
                                                     EXHIBITS

                                                                                                 Page #
            EXHIBITS ....................................................................          E-1


                                                    SIGNATURES

                                                                                                 Page #
            SIGNATURES ..................................................................          S-1
</TABLE>


                                      ii
<PAGE>

                           FORM 10-KSB AMENDMENT NO. 2
                       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 (the "Company") is a Washington
corporation formed in 1993 primarily to hold all of the Common Stock of Mt.
Rainier National Bank (the "Bank"), a National Banking Association organized
under the laws of the United States. The Bank provides personal and
commercial banking and related financial services at its main office located
at 501 Roosevelt Avenue, Enumclaw, Washington, at its branch offices located
in Buckley, Washington, at 29290 Highway 410, and located in Black Diamond,
Washington, at 31329 Third Avenue. and located in Auburn, Washington, at 1436
Auburn Way So. The Company 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. The Company qualifies as a bank holding company because it owns
one hundred percent (100%) of the outstanding securities of the Bank. At
December 31, 1999, the Company reported on a consolidated basis total assets
of $91,741,000, total deposits of $81,246,000, and shareholders' equity of
$10,162,000.

The Company's strategy is to capitalize on its investment in the Bank through
continued growth in the 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 the 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 the Bank's senior
          management, directors, loan officers and commercial customers; and
     -    Focusing on training programs to ensure that management and staff have
          knowledge necessary to serve customers and remain in compliance with
          all legal and regulatory obligations.

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


                                                                             1
<PAGE>

                    DESCRIPTION OF MT. RAINIER NATIONAL BANK
THE BANK

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

HISTORY

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

BUSINESS

         The Bank, through its four branches, offers a full line of
commercial banking services including checking accounts, savings programs,
ATMs, night depository services, customer safe deposit box facilities,
consumer loans, residential loans, commercial loans, real estate and
construction loans and agriculture loans, NOW accounts and certificates of
deposit.

         The principal sources of the Bank's revenues are: (i) interest and
fees on loans; (ii) deposit service charges; (iii) interest on federal funds
sold (funds loaned on a short-term basis to other banks); (iv) gains on
mortgages originated and sold to the secondary market; and (v) interest on
investments. Loans include short-to-medium-term commercial and consumer
loans, including 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. Residential loans are currently sold
into the secondary market. The Bank also offers safe deposit boxes, direct
deposit of payroll and social security checks, automated teller machine
access, and automatic drafts for various accounts. The Bank has a night
depository and an ATM, as well as drive-up services, at each of its offices.

         The 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. The Bank has not used brokered
deposits as a source of funds.

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

         The Company believes that the growth in loans and profitability
achieved by the 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 the Bank's
and the Company's management and Directors, rather than the result of greater
risk-taking or price concessions. In addition, there have been numerous
acquisitions and


                                                                             2
<PAGE>

mergers of banks in the Bank's primary service area which have made the
larger institutions in the market even larger. This has resulted in the Bank
focusing primarily on the needs of the smaller and medium size commercial
customers.

SERVICE AREA

         The primary service area of the Bank is the cities of Enumclaw,
Black Diamond, Buckley, Auburn and surrounding communities.

EMPLOYEES

         As of December 31, 1999, the Company employed a full time President
and CEO and a half time Chief Financial Officer and Administrative Assistant.
As of the same date, the Bank had 50 full time equivalent employees,
including three Executive Officers. None of the Bank's employees is presently
represented by a union or covered by a collective bargaining agreement. The
Bank considers its relationships with its employees to be good.

COMPETITION

         The banking business in the Bank's primary service area is highly
competitive with respect to both loans and deposits. All the major
out-of-state commercial banks which operate in Washington (including Bank of
America, Key Bank, Wells Fargo and U.S. Bank) have a branch or branches
within the 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
the 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 total
shareholder equity accounts), such banks have substantially higher lending
limits than the Bank. The primary service area is also served by savings and
loan associations and credit unions.

         The Bank also competes with a number of non-bank competitors such as
insurance companies, small loan companies, finance companies, mortgage
companies, and other funds providers. Many of the Company's non-bank
competitors are not subject to the extensive federal and state regulations
which govern the Company and, as a result, have a competitive advantage over
the Company in providing certain services.

         The 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. The 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, the Bank has
introduced new products and services to position itself to compete in its
highly competitive market. The Bank's customers demand not only a wide range
of financial products but also efficient and convenient service. In response
to these demands, the Bank has developed a mix of products and services
utilizing newly developed technology available to the banking industry.
Additionally, the 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,


                                                                             3
<PAGE>

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

         The Bank uses to the fullest extent possible the flexibility which
is accorded by its independent status. This includes an emphasis on
specialized services, local promotional activity, and personal contacts by
the Bank's officers, directors and employees. The 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 the Bank's lending limits, the Bank
arranges for such loans on a participation basis with other financial
institutions.

LENDING ACTIVITIES

         The two main areas in which the Bank has directed its lendable funds
are commercial and real estate loans. At December 31, 1999, these categories
accounted for approximately 29% and 61%, respectively, of the Bank's total
loan portfolio. The Bank's major source of income is interest and fees
charged on loans.

         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 nonaccrual 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, the Bank is permitted by law to make loans to single
borrowers in aggregate amounts of up to fifteen percent (15%) of the Bank's
unimpaired capital and unimpaired surplus. The Bank, on occasion, sells
participations in loans when necessary to stay within lending limits or to
otherwise limit the Bank's exposure. The 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, 1999, no such concentration exceeded 10% of
the Bank's loan portfolio, although approximately 5.9% of the Bank's loan
portfolio consisted of agricultural loans and approximately 9.5% of interim
real estate construction loans. The Bank has no loans to foreign countries
and its policy is to lend within Washington State, however the 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. The 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 the bank. Each loan
officer has a defined lending authority. Regardless of lending authority,
individual loans over $250,000 are approved by the Bank's Loan Committee.


                                                                             4
<PAGE>

         The Bank has entered into agreements with other banks to participate
in certain commitments to extend credit to customers.

INVESTMENT PORTFOLIO

         The investment policy of the Bank is an integral part of the overall
asset/liability management of the Bank. The 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 the Bank's Board of Directors. The
Bank stresses the following attributes for its investments: safety of
principal, liquidity, yield, price appreciation and pledgeability. With its
implementation of Statement of Financial Accounting Standards (SFAS) No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, the Bank is
required to classify its portfolio into three categories: Held to Maturity,
Trading Securities, and Available for Sale.

         Held to Maturity includes debt securities that the Bank has positive
intent and ability to hold to maturity; these securities are reported at
amortized cost. As of December 31, 1999, the 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, 1999, the Bank held no securities as Trading Securities.

         Available for Sale securities include those which may be sold to
implement the 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 the earnings and reported as a separate component of
shareholders' equity. All of the Bank's investment securities at December 31,
1999, were classified as available for sale.

         As a national bank and member of the Federal Reserve System, the
Bank is required to have $241,100 invested in the Federal Reserve Bank Stock.
Also, as a member of the Federal Home Loan Bank, the Bank is required to keep
$318,300 in stock. This portion of the Bank's investment portfolio is not
liquid.


                                                                             5
<PAGE>

STATISTICAL INFORMATION ABOUT THE COMPANY

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 is summarized as follows:

                       LOAN PORTFOLIO - TYPES OF LOANS

<TABLE>
<CAPTION>
                                           December 31, 1999                   December 31, 1998
                                    -----------------------------------------------------------------
                                                         Percent                            Percent
                                                         of Total                           of Total
                                       Amounts            Loans            Amounts           Loans
                                    -----------------------------------------------------------------
                                                              (in thousands)
<S>                                 <C>                <C>               <C>              <C>
Commercial and Agricultural          $       15,873        29.36%         $     13,449       30.04%
Real Estate:
  Construction                                5,117         9.47%                4,255        9.50%
  Mortgage                                   28,251        52.27%               22,036       49.20%
Consumer                                      4,810         8.90%                5,045       11.26%
                                    -----------------------------------------------------------------
    Total loans                      $       54,051       100.00%         $     44,785      100.00%
                                    =================================================================
</TABLE>

               LOAN PORTFOLIO - MATURITIES AND SENSITIVITIES ON LOANS

<TABLE>
<CAPTION>
                                                ----------------------------------------------------------------------
                                                   One Year                   Over One       Maturing
                                                    Or Less         Through Five Years   After Five Years     TOTAL
                                                ----------------------------------------------------------------------
<S>                                             <C>                 <C>                  <C>               <C>
                                                         Amount                Fixed          Fixed

Commercial and Agricultural                              $9,004               $5,457         $1,412         $15,873

Real Estate                                              $6,497              $13,584        $13,287         $33,368

Consumer                                                 $1,119               $3,440           $251          $4,810

                                                ----------------------------------------------------------------------
                                  Total                 $16,620              $22,481        $14,950         $54,051
</TABLE>


There were no loans longer than one year having variable rates.

The following table summarizes nonperforming assets by category:

             RISK ELEMENTS - NONACCRUAL, PAST DUE AND RESTRUCTERED LOANS

<TABLE>
<CAPTION>
                                                            1999
                                   90 Days or More
                                       Past Due        Nonaccrual    Restructured    Lost Interest
                                   ---------------     ----------    ------------    -------------
<S>                                <C>                 <C>           <C>             <C>
Commercial and Agricultural                     $0             $0              $0          NA

Real Estate                                     $0             $0              $0          NA

Consumer                                        $0             $0              $0          NA

                                   ---------------     ----------    ------------    -------------
                                                $0             $0              $0               $0
</TABLE>



<TABLE>
<CAPTION>
                                                             1998
                                   90 Days or More
                                       Past Due        Nonaccrual    Restructured    Lost Interest
                                   ---------------     ----------    ------------    -------------
<S>                                <C>                 <C>           <C>             <C>
Commercial and Agricultural                     $0             $0              $0               $0

Real Estate                                     $0           $441              $0              $17

Consumer                                        $0             $6              $0               $1

                                   ---------------     ----------    ------------    -------------
                                                $0           $447              $0              $18
</TABLE>


At December 31, 1999, the Bank had no assets that would be considered
nonaccrual, past due or restructured if such assets were loans.

Loans are placed on non accrual status when they become past due 90 days or
more as to principal and interest, unless they are well secured and in the
process of collection.


                                                                              6
<PAGE>

SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION

<TABLE>
<CAPTION>
                                                   Year                Year
                                                   Ended               Ended
                                               December 31,        December 31,
                                                   1999                1998
                                             -----------------------------------
                                                  (dollars in thousands)
<S>                                          <C>                   <C>
Allowance for loan losses
  (beginning of period)                                 $ 618             $ 555

Loans charged off:
  Commercial and agricultural                               -                 -
  Real estate construction
  Real estate mortgage
  Consumer                                                (16)              (15)
                                             -----------------------------------
    Total                                                 (16)              (15)
                                             -----------------------------------

Recoveries of loans previously
  charged off:
  Commercial and agricultural
  Real estate construction
  Real estate mortgage
  Consumer                                                  5
                                             -----------------------------------
    Total                                                   5                 0
                                             -----------------------------------

Net loans charged off                                     (11)              (15)

Provision for possible loan losses                          -                78

Allowance for possible loan losses
                                             ===================================
  (end of period)                                       $ 607             $ 618
                                             ===================================

Loans outstanding:
    Average                                          $ 48,022          $ 43,831
    End of period                                      54,051            44,785
Ratio of allowance for loan loss
  to total loans outstanding
    Average                                             1.26%             1.41%
    End of period                                       1.12%             1.38%
Ratio of net charge-offs to average
  loans outstanding                                     0.02%             0.03%

</TABLE>

Allocation of Loan Loss By Loan Classification

Management does not normally allocate the allowance for loan losses to
specific loan categories. An allocation to major categories is made for
presentation purposes only. This allocation process does not necessarily
measure anticipated future credit losses, rather it seeks to measure
management's current assessment of perceived credit loss exposure and the
impact of current and anticipated economic conditions.

<TABLE>
<CAPTION>
Percent of categories to total end of
  period loans:                                    12/31/99        12/31/98
                                             -------------------------------
<S>                                          <C>                <C>
    Commercial and agricultural                      29.36%          30.04%
    Real estate construction                          9.47%           9.50%
    Real estate mortgage                             52.27%          49.20%
    Consumer                                          8.90%          11.26%
                                             ===============================
       Total loans                                  100.00%         100.00%
                                             ===============================
</TABLE>

Financial Accounting Standards Board Statements No. 114 "Accounting for
Creditors for Impairment of a Loan" and No. 118 "Accounting for Impairment of
a Loan-Income Recognition Disclosure, an amendment to SFAS No. 114" contain
accounting and reporting considerations for impaired loans. The Company
measures impaired loans based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, at the fair market value of the collateral if the loan is
collateral dependent. Certain groups of smaller balance homogeneous loans are
measured collectively for impairment.

Quarterly changes in loan loss reserve allocations were influenced by changes
in loan portfolio category distribution and quality. The loan loss reserve
analysis compared different factors affecting the level of credit risk. We
then segmented the portfolio into different loan types, industries and
concentrations as well as criticized classifications. Loss factors for each
category were reviewed as established based upon changes in industry
averages, peer bank experiences and estimated losses based upon management's
review of all classified credits.

Weight was placed upon nationally reported growth in bankruptcies and
increases in our average loan size. Because of the quality of consumer,
commercial and mortgage loan portfolios, slight changes were made to factors
affecting suggested allocations by category. Overall, no allocations to loan
loss reserves were made in calendar year 1999.

There were no loans considered to be impaired at December 31, 1999. At
December 31, 1998, the Company's recorded investment in certain loans that
were considered to be impaired was $447,000, all of which were classified as
non-accrual. None of these loans required a specific valuation allowance
based on the value of the underlying collateral. The balance of the allowance
for credit losses is available to absorb losses from all loans.


                                                                             7
<PAGE>

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

INVESTMENT SECURITIES PORTFOLIO

<TABLE>
<CAPTION>
                                    December 31,        December 31,          Dollar          Percentage
                                        1999                1998              Change            Change
                                   ------------------------------------------------------------------------
                                           (in thousands)
<S>                                <C>                  <C>                <C>                <C>
US Treasury securities              $            5,646  $        5,508     $           138          2.51%
US Government and agency
    securities                                  13,256          12,618                 638          5.06%
Mortgage Backed Securities                       7,338           5,837               1,501         25.71%
Corporate bonds                                      -             301                (301)         0.00%
Municipal bonds                                    244             296                 (52)       -17.57%
Federal Home Loan Bank and                         559             435                 124         28.51%
   Federal Reserve Stock
                                   ------------------------------------------------------------------------
    Total                           $           27,043  $       24,995     $         2,048          8.19%
                                   ========================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                  December   31,   1999
                                 ---------------------------------------------------------------------------------------------
                                                            Over One                     Over Five
                                    One Year or Less    Through Five Years            Through Ten Years      Over Ten Years
                                 ---------------------------------------------------------------------------------------------
<S>                                <C>         <C>      <C>                   <C>     <C>            <C>     <C>        <C>
                                   Amount      Yield         Amount           Yield      Amount      Yield    Amount    Yield
US Treasury Securities               $3,649      5.98%          $1,997          6.41%         $0                   $0
US Govt. and Agency Securities       $1,484      5.15%         $11,772          5.99%         $0                   $0
Mortgage Backed Securities             $351      6.50%          $6,987          6.82%         $0                   $0
Municipal Bonds  (1)                     $0                       $195          5.56%        $49       5.01%       $0

                                 ---------------------------------------------------------------------------------------------
Total                                $5,484                    $20,951                       $49                   $0

Weighted Average Yield                           5.74%                          6.31%                5.01%

</TABLE>

(1) Yields have not been calculated on a tax equivalent basis.

DEPOSITS

The following table set forth the distribution of the Bank's deposit accounts at
the dates indicated:

<TABLE>
<CAPTION>
                                                   December 31, 1999                     December 31, 1998
                                             -----------------------------------------------------------------------
                                                                    Average                             Average
                                                Average              Rate             Average             Rate
                                                Amounts              Paid             Amounts             Paid
                                             -----------------------------------------------------------------------
                                                                  (dollars in thousands)
<S>                                          <C>                    <C>               <C>               <C>
Non-interest bearing demand                            $ 13,140           0.00%             $ 10,385          0.00%
Interest-bearing demand                                  26,759           2.77%               25,598          3.13%
Savings                                                  10,355           2.40%                8,960          2.79%
Certificates of deposit                                  19,608           4.88%               17,823          5.41%
Certificates of deposit over $100,000                     7,991           5.13%                8,333          5.74%
                                             -----------------------------------------------------------------------
    Total                                              $ 77,853           3.64%             $ 71,099          4.11%
                                             =======================================================================
</TABLE>

At December 31, 1999, the scheduled maturities of certificates of deposit was:

<TABLE>
<CAPTION>
                                                                    Balances
                                                    -------------------------------------------
                                                       Less Than                   $100,000
                                                       $100,000                    or More
                                                    ----------------            ---------------
<S>                                                 <C>                         <C>
Maturity in:

  Three months or less:                                      $5,328                     $1,829

  Over three months through six months                       $4,628                     $1,708

  Over six months through twelve months                      $9,348                     $4,275

  Over twelve months                                         $1,612                       $314
                                                    -------------------------------------------

                      TOTAL                                 $20,916                     $8,126
                                                    ===========================================
</TABLE>


                                                                             8


<PAGE>


The following ratios applicable to the Company are among those commonly used in
analyzing bank holding companies:

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                  -------------------------------------
                                                       1999               1998
                                                  -------------------------------------
<S>                                               <C>                   <C>

Return on Average Assets                                    0.80%                0.97%

Return on Average Equity                                    7.17%                9.97%

Dividend Payout Ratio                                          0%                   0%

Equity to Assets Ratio                                     11.13%                9.72%

</TABLE>

At December 31, 1999, and December 31, 1998, neither the Bank nor the Company
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.

The following table represents an interest rate sensitivity analysis at
December 31, 1999:

                                              GAP ANALYSIS

<TABLE>
<CAPTION>
                                              ----------------------------------------------------
                                               Total Within       One Year To           Over
                                                 One Year          Five Years        Five Years
                                              ----------------------------------------------------
<S>                                           <C>                 <C>                <C>
Rate Sensitive Assets:

Loans                                                 $16,620              $22,481        $14,950
Investments                                            $5,484              $20,951            $49
Interest Bearing Deposits                              $3,563
                                              ----------------------------------------------------

          TOTAL                                       $25,667              $43,432        $14,999

Rate Sensitive Liabilities:

Savings, Now and Interest Checking                   $ 37,526
Time Deposits                                         $27,116               $1,926
                                              ----------------------------------------------------

          TOTAL                                       $64,642               $1,926             $0

Interest Sensitive Gap                               ($38,975)             $41,506        $14,999
                                              ====================================================
</TABLE>

Currently, the 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 effects
of rising interest rates on the Company would be a decrease in the net
interest margin, whereas falling interest rates would cause a corresponding
increase in margin.


                                                                              9


<PAGE>


DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND
INTEREST YIELDS

The following table sets forth the average balance sheets of Mountain Bank
Holding Company 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. There were no non-accrual loans to include at a zero yield.
Loans fees of $350 in 1999 and $340 in 1998 are included in interest income.

<TABLE>
<CAPTION>
                                                                                 Year ended Dec. 31,
                                          ---------------------------------------------------------------------------------------
                                                                  1999                                       1998
                                                                              Annualized                                Annualized
                                             Average           Int Earned/      Yield/        Average     Int Earned/     Yield/
                                             Balance             Expense         Rate         Balance       Expense        Rate
                                          ----------------------------------------------------------------------------------------
                                                                            (in thousands)
<S>                                       <C>                  <C>            <C>             <C>         <C>           <C>
Assets
Interest earning assets:
Loans                                              $ 48,022         $ 4,694            9.77%    $ 43,831       $ 4,441     10.13%
Investments                                          27,182           1,552            5.71%      23,674         1,432      6.05%
Federal funds sold and deposits in banks              5,960             293            4.92%       5,371           296      5.51%
                                          ----------------------------------                    ----------------------
    Total interest earning assets                    81,164           6,539            8.06%      72,876         6,169      8.47%
                                                            ----------------                             --------------

Non-interest earning assets:
Cash and due from banks                               3,470                                        3,532
Premises and equipment                                3,410                                        2,855
Other assets                                            734                                          996
Reserve for possible loan losses                       (611)                                        (608)
                                          ==================                                =============
    Total assets                                   $ 88,167                                     $ 79,651
                                          ==================                                =============

Liabilities and shareholders' equity
Interest bearing liabilities:
Interest bearing demand deposits                   $ 26,759             742            2.77%      25,598           802      3.13%
Savings                                              10,355             249            2.40%       8,960           250      2.79%
Certificates of deposit                              19,608             956            4.88%      17,823           965      5.41%
Certificates of deposit over $100,000                 7,991             410            5.13%       8,333           478      5.74%
                                          ---------------------------------                 --------------------------
  Total interest bearing deposits                    64,713           2,357            3.64%      60,714         2,495      4.11%
                                          -----------------                                 ------------
Federal funds purchased                                   -               -                            -             -
Other borrowings                                         42               3            7.14%          44             4      9.09%
                                          ---------------------------------                 --------------------------
   Total interest bearing liabilities                64,755           2,360            3.64%      60,758         2,499      4.11%
                                                            ----------------                             --------------

Non-interest bearing liabilities:
Demand deposits                                      13,140                                       10,385
Other liabilities                                       457                                          767
Shareholders' equity                                  9,815                                        7,741
                                          ------------------                                -------------
                                                   $ 88,167                                     $ 79,651
                                          ==================                                =============

Net interest income                                                 $ 4,179                                    $ 3,670
                                                            ================                             ==============

Net interest margin                                                                    5.15%                                5.04%
</TABLE>

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.

<TABLE>
<CAPTION>
                                             -------------------------------------------------------------------------------------
                                                                    1999                                       1998
                                                   Net                                             Net
                                                 Change            Volume         Yield           Change      Volume     Yield
                                             -------------------------------------------------------------------------------------
<S>                                          <C>                   <C>            <C>             <C>         <C>        <C>
Loans                                                      $ 253         $ 414           $ (161)       $ 367       $ 392    $ (25)
Investments                                                $ 120         $ 204            $ (84)       $ 189       $ 292   $ (103)
Federal Funds Sold                                          $ (3)         $ 31            $ (34)       $ 149       $ 156     $ (7)
                                             -------------------------------------------------------------------------------------
                                                           $ 370         $ 649           $ (279)       $ 705       $ 840   $ (135)
                                             -------------------------------------------------------------------------------------

Interest Bearing Demand                                    $ (60)         $ 35            $ (95)        $ 48        $ 94    $ (46)
Savings                                                     $ (1)         $ 36            $ (37)        $ 34        $ 35     $ (1)
Certificates of deposit                                     $ (9)         $ 92           $ (101)       $ 129       $ 132     $ (3)
Certificates of deposit over $100,000                      $ (68)        $ (19)           $ (49)       $ 103       $ 100      $ 3
                                             -------------------------------------------------------------------------------------
                                                          $ (138)        $ 144           $ (282)       $ 314       $ 361    $ (47)
                                             -------------------------------------------------------------------------------------

Other Borrowings                                             $ -           $ -              $ -         $ (1)       $ (1)     $ -
                                                            $ (1)          $ -             $ (1)         $ -         $ -      $ -
                                             -------------------------------------------------------------------------------------
                                                          $ (139)        $ 144           $ (283)       $ 313       $ 360    $ (47)
                                             -------------------------------------------------------------------------------------

                                             -------------------------------------------------------------------------------------
Net Interest Income                                        $ 509         $ 505              $ 4        $ 392       $ 480    $ (88)
                                             -------------------------------------------------------------------------------------
</TABLE>


                                                                             10
<PAGE>

                           SUPERVISION AND REGULATION

         The following generally refers to certain significant statutes and
regulations affecting the banking industry. These references are only
intended to provide brief summaries and, therefore, are not complete and are
qualified by the statutes and regulations referenced. Changes in applicable
laws or regulations may have a material effect on the business and prospects
of the Company. The operations of the Company may also be affected by changes
in the policies of banking and other government regulators. The Company
cannot accurately predict the nature or extent of the effects on its business
and earnings that fiscal or monetary policies, or new federal or state laws,
may have in the future.

                     CHANGES IN BANKING LAWS AND REGULATIONS

         The laws and regulations that affect banks and bank holding
companies have recently undergone significant changes. On November 12, 1999,
the President signed into law the Financial Services Modernization Act of
1999. Generally, the act (i) repeals the historical restrictions on
preventing banks from affiliating with securities firms, (ii) provides a
uniform framework for the activities of banks, savings institutions and their
holding companies, (iii) broadens the activities that may be conducted by
national banks and banking subsidiaries of bank holding companies, (iv)
provides an enhanced framework for protecting the privacy of consumers'
information and (v) addresses a variety of other legal and regulatory issues
affecting both day-to-day operations and long-term activities of financial
institutions.

         Bank holding companies are permitted to engage in a wider variety of
financial activities than permitted under previous law, particularly with
respect to insurance and securities activities. In addition, in a change from
previous law, bank holding companies will be in a position to 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, in states with wildcard statutes,
certain state banks), either directly or through operating subsidiaries, to
engage in certain non-banking financial activities.

         The Company does not believe that the act will negatively affect the
operations of it or the Bank. However, to the extent the legislation 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 the Company currently offers and
that can aggressively compete in the markets currently served by the Company
and the Bank.

                                   THE COMPANY

GENERAL

         As a bank holding company, the Company is subject to the Bank
Holding Company Act of 1956 ("BHCA"), as amended, which places the Company
under the supervision of the Board of Governors of the Federal Reserve. The
Company 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 the Company and its subsidiary Bank.


                                                                            11
<PAGE>

BANK HOLDING COMPANY REGULATION

         In general, the BHCA limits bank holding company business to owning
or controlling banks and engaging in other banking-related activities. Bank
holding companies must obtain the FRB's approval before they: (1) 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; (2) merge or consolidate with another
bank holding company; or (3) acquire substantially all of the assets of any
additional banks. Subject to certain state laws, such as age and contingency
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 Financial Modernization Act of 1999, a bank holding company may apply to
the FRB 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 BHCA 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 FRB determines that the activities of such company are incidental
or closely related to the business of banking. If a bank holding company is
well-capitalized and meets certain criteria specified by the FRB, it may
engage de novo in certain permissible nonbanking activities without prior FRB
approval.

         CONTROL TRANSACTIONS. The Change in Bank Control Act of 1978, as
amended, requires a person (or group of persons acting in concert) acquiring
"control" of a bank holding company to provide the FRB with 60 days' prior
written notice of the proposed acquisition. Following receipt of this notice,
the FRB has 60 days within which to issue a notice disapproving the proposed
acquisition, but the FRB may extend this time period for up to another 30
days. An acquisition may be completed before expiration of the disapproval
period if the FRB issues written notice of its intent not to disapprove the
transaction. In addition, any "company" must obtain the FRB'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 the Company.

TRANSACTIONS WITH AFFILIATES

         The Company and the Bank are deemed affiliates within the meaning of
the Federal Reserve Act, and transactions between affiliates are subject to
certain restrictions. Accordingly, the Company and the Bank must comply with
Sections 23A and 23B of the Federal Reserve Act. Generally, Sections 23A and
23B (1) limit the extent to which a financial institution or its subsidiaries
may engage in "covered transactions" with an affiliate, as defined, to an
amount equal to 10% of such institution's capital and surplus and an
aggregate limit on all such transactions with all affiliates to an amount
equal to 20% of such capital and surplus, and (2) require 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.

REGULATION OF MANAGEMENT

         Federal law (1) sets forth the circumstances under which officers or
directors of a financial institution may be removed by the institution's
federal supervisory agency; (2) places restraints on


                                                                            12
<PAGE>

lending by an institution to its executive officers, directors, principal
stockholders, and their related interests; and (3) prohibits management
personnel from serving as a director or in other management positions with
another financial institution which has assets exceeding a specified amount
or which has an office within a specified geographic area.

TIE-IN ARRANGEMENTS

         The Company and the 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 the Company nor the Bank may condition an extension of credit on
either (1) a requirement that the customer obtain additional services
provided by it or (2) an agreement by the customer to refrain from obtaining
other services from a competitor.

         The FRB has adopted significant amendments to its anti-tying rules
that: (1) removed FRB-imposed anti-tying restrictions on bank holding
companies and their non-bank subsidiaries; (2) allow banks greater
flexibility to package products with their affiliates; and (3) establish a
safe harbor from the tying restrictions for certain foreign transactions.
These amendments were designed to enhance competition in banking and
nonbanking products and to allow banks and their affiliates to provide more
efficient, lower cost service to their customers. However, the impact of the
amendments on the Company and the Bank is unclear at this time.

STATE LAW RESTRICTIONS

         As a Washington business corporation, the Company may be subject to
certain limitations and restrictions as provided under applicable Washington
corporate law. In addition, although the Bank is a national bank and
therefore primarily regulated by the Office of the Comptroller of the
Currency ("OCC"), Washington banking law may restrict certain activities of
the Bank.

                            MT. RAINIER NATIONAL BANK

GENERAL

         The Bank, as a national banking association, is subject to
regulation and examination by the OCC. The federal laws that apply to the
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 the Bank generally have been promulgated to
protect depositors and not to protect stockholders of the bank or its holding
company.

         CRA. The Community Reinvestment Act (the "CRA") requires that, in
connection with examinations of financial institutions within their
jurisdiction, the OCC evaluates 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 (i) must be made on


                                                                            13


<PAGE>


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; and (ii) must not involve more than the
normal risk of repayment or present other unfavorable features. Banks are
also subject to certain lending limits and restrictions on overdrafts to such
persons. A violation of these restrictions may result in the assessment of
substantial civil monetary penalties on the affected bank or any officer,
director, employee, agent, or other person participating in the conduct of
the affairs of that bank, the imposition of a cease and desist order, and
other regulatory sanctions.

         FDICIA. Under the Federal Deposit Insurance Corporation Improvement
Act of 1991 (the "FDICIA"), 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, 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.
An institution which fails to meet these standards must develop a plan
acceptable to the agency, specifying the steps that the institution will take
to meet the standards. Failure to submit or implement such a plan may subject
the institution to regulatory sanctions. Management of the Company believes
that the Bank meets all such standards, and therefore, does not believe that
these regulatory standards materially affect the Company's business
operations.

INTERSTATE BANKING AND BRANCHING

         The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Act") 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 FDIC regulations, banks are prohibited from using their
interstate branches primarily for deposit production. The FDIC has
accordingly implemented a loan-to-deposit ratio screen to ensure compliance
with this prohibition.

         With regard to interstate bank mergers, 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 through 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.


                                                                            14


<PAGE>


DEPOSIT INSURANCE

         The deposits of the Bank are currently insured to a maximum of
$100,000 per depositor through the Bank Insurance Fund ("BIF") administered
by the FDIC. All insured banks are required to pay semi-annual deposit
insurance premium assessments to the FDIC.

         The FDICIA included provisions to reform the Federal Deposit
Insurance System, including the implementation of risk-based deposit
insurance premiums. The FDICIA also permits the FDIC to make special
assessments on insured depository institutions in amounts determined by the
FDIC to be necessary to give it adequate assessment income to repay amounts
borrowed from the U.S. Treasury and other sources, or for any other purpose
the FDIC deems necessary. The FDIC has implemented a risk-based insurance
premium system under which banks are assessed insurance premiums based on how
much risk they present to the BIF. Banks with higher levels of capital and a
low degree of supervisory concern are assessed lower premiums than banks with
lower levels of capital or a higher degree of supervisory concern.

DIVIDENDS

         The principal source of the Company's cash revenues is dividends
received from the Bank. The payment of dividends is subject to government
regulation, in that regulatory authorities may prohibit banks and bank
holding companies from paying dividends which would constitute an unsafe or
unsound banking practice. In addition, a bank 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. Other than the laws
and regulations noted above, which apply to all banks and bank holding
companies, neither the Company nor the Bank is currently subject to any
regulatory restrictions on its 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 FDIC 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 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.


                                                                            15




<PAGE>


         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%.

         FDICIA created a statutory framework of supervisory actions indexed
to the capital level of the individual institution. Under regulations adopted
by the FDIC, 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. The Company does not believe that these
regulations have any material effect on their operations.

EFFECTS OF GOVERNMENT MONETARY POLICY

         The earnings and growth of the Company 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
can and does implement 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. The nature and impact of future changes in monetary policies and
their impact on the Company and the Bank cannot be predicted with certainty.

                                    YEAR 2000

         The Year 2000 or Y2K problem is a result of the inability of
computer software programs to recognize the year 2000, as most programs and
systems were designed to store calendar years in the 1900s by assuming the
"19" and storing only the last two digits of the year. As the Company has
reported in the past, it has spent considerable effort in preparing for Y2K
in the period leading up to January 1, 2000.

         The Company has not experienced any significant Y2K problems and has
not been informed of any material Y2K problems by its customers or vendors.
However, although January 1, 2000 is past, it is possible that some problems
have gone undetected, or that other dates in the future may further affect
computer software and systems, or equipment with embedded chip technology.

           The Company will continue to monitor the Y2K compliance of its own
computer systems and equipment with embedded technology, as well as any Y2K
related problems that may be reported to it by third parties with whom it
does business.

         As discussed in the Company's Form 10-Q for the fiscal quarter ended
September 30, 1999, the estimated costs of remediation associated with the
Y2K issue were $130,000. The


                                                                            16


<PAGE>


Company believes, based on its review of such costs to January 31, 2000, that
total remediation costs will not be materially higher than the amount
previously estimated. However, as noted above, it is possible that additional
costs will be incurred in connection with Y2K problems that may still occur
in the future.

         FORWARD LOOKING STATEMENTS

         The discussion above regarding the Company's Y2K status includes
certain "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "PLSRA"). The Company desires
to take advantage of the "safe harbor" provisions of the PLSRA as they apply
to forward looking statements. The Company's ability to predict the results
of future plans is inherently uncertain, and is subject to factors that may
cause actual results to differ materially from those projected. Factors that
could affect the actual results include the possibility that systems
modifications will not operate as intended, and that the Company or its
significant customers or vendors have not yet detected Y2K problems that have
arisen or will arise in the future.


                                                                            17


<PAGE>


ITEM 7.  DESCRIPTION OF PROPERTY

         The Bank's Main Office is located in Enumclaw, Washington, at 501
Roosevelt Avenue, in an office building owned by the Bank. The facility has
10,275 square feet with two drive-up windows, an automated teller machine
(ATM), and a night depository. The premises are fully equipped and include
teller counters, key drawers, safe, lock boxes with keys, signs and alarm
equipment.

         On February 6, 1995, the Bank opened its Buckley Branch located at
29290 Highway 410, Buckley, Washington. The facility is owned by the Bank and
has 3,100 square feet, a two-lane drive up, an ATM and a night depository.

         On January 26, 1998, the Bank opened its Black Diamond Branch
located at 31329 Third Avenue, Black Diamond, Washington. The facility is
owned by the Bank and has 3,080 square feet, a two lane driveup and a night
depository.

         On November 16, 1998, the Bank opened its Auburn Branch located at
1436 Auburn Way So, Auburn, Washington. The facility is owned by the Bank and
has 2,624 square feet, a two lane driveup, an ATM and a night depository.

         The Bank has also leased space for an ATM located at 31605 Third
Avenue, Black Diamond, Washington. That ATM was placed in service on March 7,
1995. Customers of the Bank are charged no fee for utilization of the ATM.

ITEM 8.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information regarding "Directors and Executive Officers" of the
Company is incorporated by reference from the Company's 2000 Annual Proxy
Statement ("Proxy Statement") under the captions "INFORMATION WITH RESPECT TO
NOMINEES AND DIRECTORS WHOSE TERMS CONTINUE" and "MANAGEMENT".

ITEM 9.  REMUNERATION OF DIRECTORS AND OFFICERS

         Information regarding "Remuneration of Directors and Officers" of
the Company is incorporated by reference from the Company's Proxy Statement
under the captions "INFORMATION WITH RESPECT TO NOMINEES AND DIRECTORS WHOSE
TERMS CONTINUE - Compensation of Directors" and "EXECUTIVE COMPENSATION".

ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SHAREHOLDERS

         Information regarding "Security Ownership of Management and Certain
Shareholders" of the Company is incorporated by reference from the Company's
Proxy Statement under the captions "INFORMATION WITH RESPECT TO NOMINEES AND
DIRECTORS WHOSE TERMS CONTINUE" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT".


                                                                            18


<PAGE>


ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS

         Information regarding "Interest of Management and Others in Certain
Transactions" of the Company is incorporated by reference from the Company's
Proxy Statement under the caption "TRANSACTIONS WITH MANAGEMENT".







                                                                            19


<PAGE>


                                     PART II

ITEM 1.  MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY

MARKET INFORMATION

No broker makes a market in the Company'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 Company's 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.

<TABLE>
<CAPTION>

Period                     # of Shares                        Price
                           Traded                             Range
<S>                        <C>                       <C>

1998                       11,466                    $12.50 to $17.50

1999                       20,814                    $17.50 to $18.00

</TABLE>

On October 1, 1998, the Company offered for sale, 100,000 shares of
one-dollar par value common stock at a subscription price of $17.50 per
share. The offering was successfully completed on December 28, 1998.

At December 31, 1999, stock options for 115,582 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, 2000, there were 910 holders of record of the Company's
common stock.

CASH DIVIDENDS

         The Company has never paid a cash dividend, and does not anticipate
paying a cash dividend in the foreseeable future. The Company expects to
retain all earnings to provide capital for operation and expansion of its
subsidiary. 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 the Bank and the Company, results of operations, tax
considerations, industry standards, economic conditions and other relevant
factors. The ability of the Company to pay dividends in the future will
depend primarily upon the earnings of the Bank and its ability to pay
dividends to the Company.


                                                                            20


<PAGE>


PAYMENT OF DIVIDENDS

         The principal source of the Company's cash revenues is dividends
received from the Bank. The ability of the Bank to pay dividends is governed
by various statutes. These statutes provide that the Board of Directors of
the Bank may declare a dividend of so much of the net profits of the Bank as
they judge expedient, except that until the surplus funds of the Bank shall
equal common capital, no dividend may be declared unless there has been
carried to surplus not less than one-tenth of the net profits of the Bank of
the preceding half year in the case of quarterly or semi-annual dividends, or
not less than one-tenth of its net profits from the two preceding consecutive
half-year periods in the case of annual dividends. In addition, the approval
of the Office of the Comptroller of the Currency is required if the total of
all dividends, including a proposed dividend, declared by a bank in any
calendar year, exceeds the total of such bank's net profits of that year
combined with its retained net profits of the preceding two years.

         Pursuant to authority contained in 12 USC 1818 (b), the OCC may
prohibit, by several types of enforcement action including the issuance of a
cease and desist order, those certain actions by the Bank, including payment
of dividends, which are deemed unsafe and unsound business practices.

         The payment of dividends by the Bank may also be affected by other
factors, such as the maintenance of adequate capital for the Bank.

ITEM 2.  LEGAL PROCEEDINGS

         The Company is not a party to any legal actions. From time to time
in the ordinary course of business, the Company or the Bank may be involved
in litigation. Management believes that there are no proceedings threatened
or pending against the Company or the Bank other than routine litigation,
which, if determined adversely, would have a material effect on the business
or the financial position of the Company or the Bank.

ITEM 3.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

There has not been a change in either the Company or the Bank's independent
accountants during the two most recent fiscal years.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the year ended December 31, 1999, no matters
were submitted to the security holders through the solicitation of proxies or
otherwise.

ITEM 5.  COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The Company 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, the
Company believes that all of its executive officers and directors complied
with all filing requirements applicable to them in 1999.

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, 1999.


                                                                            21


<PAGE>


                                                                   Mountain

                                                                       Bank

                                                                    Holding

                                                                    Company

                                                                        And

                                                                 Subsidiary



                                                               CONSOLIDATED

                                                                  FINANCIAL

                                                                     REPORT



                                                                December 31

                                                                       1999



<PAGE>


<TABLE>
<CAPTION>
Contents
------------------------------------------------------------------------------
<S>                                                              <C>
INDEPENDENT AUDITORS' REPORT........................................1


CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets.........................................2

Consolidated Statements of Income...................................3

Consolidated Statements of Shareholders' Equity.....................4

Consolidated Statements of Cash Flows...............................5

Notes to Consolidated Financial Statements.......................6-23


SUPPLEMENTARY INFORMATION

Average Balances and Net Interest Income...........................24
</TABLE>

<PAGE>

                          INDEPENDENT AUDITORS' 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, 1999 and 1998, 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 generally accepted auditing
standards. 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, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplementary
information is presented for purposes of additional analysis and is not a
required part of the basic consolidated financial statements. The
supplementary information has been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and, in
our opinion, is fairly stated in all material respects in relation to the
basic consolidated financial statements taken as a whole.




/s/ Knight Vale and Gregory PLLC
----------------------------------------

Tacoma, Washington
January 7, 2000


<PAGE>




                                                            CONSOLIDATED

                                                               FINANCIAL

                                                              STATEMENTS


<PAGE>


CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------
(Dollars in Thousands)

Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                       1999           1998
<S>                                                                                <C>             <C>
ASSETS
     Cash and due from banks                                                          $  3,240        $  3,369
     Interest bearing deposits in banks                                                  3,563          10,546
     Securities available for sale                                                      27,043          24,995
     Loans held for sale                                                                   294             675

     Loans                                                                              54,051          44,785
     Allowance for credit losses                                                           607             618
     NET LOANS                                                                          53,444          44,167

     Premises and equipment                                                              3,345           3,323
     Accrued interest receivable                                                           536             530
     Other assets                                                                          276             130

     TOTAL ASSETS                                                                      $91,741         $87,735


LIABILITIES
     Deposits:
       Demand                                                                          $14,678         $11,717
       Savings and interest-bearing demand                                              37,526          38,587
       Time                                                                             29,042          27,289
     TOTAL DEPOSITS                                                                     81,246          77,593

     Accrued interest payable                                                              194             215
     Note payable                                                                           42              43
     Other liabilities                                                                      97             193

     TOTAL LIABILITIES                                                                  81,579          78,044

SHAREHOLDERS' EQUITY
     Common stock (par value $1); authorized 5,000,000 shares;
       issued and outstanding:  1999 - 924,013 shares; 1998 - 907,482 shares               924             907
     Paid-in capital                                                                     6,785           6,694
     Retained earnings                                                                   2,703           1,999
     Accumulated other comprehensive income (loss)                                        (250)             91
     TOTAL SHAREHOLDERS' EQUITY                                                         10,162           9,691

     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                        $91,741         $87,735
</TABLE>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       F-2


<PAGE>


CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Amounts)

Mountain Bank Holding Company and Subsidiary
Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                            1999            1998
<S>                                                                      <C>              <C>

INTEREST INCOME
     Loans                                                                  $4,694          $4,441
     Deposits in banks                                                         293             296
     Investment income:
       Taxable                                                               1,538           1,416
       Tax-exempt                                                               14              16
     TOTAL INTEREST INCOME                                                   6,539           6,169

INTEREST EXPENSE
     Deposits                                                                2,357           2,495
     Note payable                                                                3               4
     TOTAL INTEREST EXPENSE                                                  2,360           2,499

     NET INTEREST INCOME                                                     4,179           3,670

PROVISION FOR CREDIT LOSSES                                                    - -              78

     NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES                   4,179           3,592

NON-INTEREST INCOME
     Service charges on deposit accounts                                       476             416
     Origination fees and gains on mortgage loans sold                         113             293
     Other                                                                     207             155
     TOTAL NON-INTEREST INCOME                                                 796             864

NON-INTEREST EXPENSES
     Salaries                                                                1,780           1,461
     Employee benefits                                                         343             252
     Occupancy                                                                 206             135
     Equipment                                                                 424             319
     Other                                                                   1,208           1,124
     TOTAL NON-INTEREST EXPENSES                                             3,961           3,291

     INCOME BEFORE INCOME TAXES                                              1,014           1,165

INCOME TAXES                                                                   310             393

     NET INCOME                                                             $  704          $  772

EARNINGS PER SHARE
     Basic                                                                    $.77            $.96
     Diluted                                                                   .73             .90

</TABLE>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       F-3
<PAGE>

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------
(Dollars in Thousands)

Mountain Bank Holding Company and Subsidiary
Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                                 ACCUMULATED
                                            SHARES OF                                            OTHER
                                            COMMON         COMMON       PAID-IN     RETAINED     COMPREHENSIVE
                                            STOCK          STOCK        CAPITAL     EARNINGS     INCOME (LOSS)     TOTAL
<S>                                         <C>            <C>          <C>         <C>         <C>              <C>

Balance at December 31, 1997                 803,374       $803         $5,058      $1,227      $  63             $  7,151

Comprehensive income:
     Net income                                  - -        - -            - -         772        - -                  772
     Other comprehensive income,
       net of tax:
          Unrealized gain on securities,
             net of reclassification
             adjustment                          - -        - -            - -         - -         28                   28
     COMPREHENSIVE INCOME                                                                                              800

Sale of common stock under
     employee stock purchase plan              1,186          1             14         - -        - -                   15
Sale of common stock                         102,922        103          1,622         - -        - -                1,725

     BALANCE AT DECEMBER 31, 1998            907,482        907          6,694       1,999         91                9,691

Comprehensive income:
     Net income                                  - -        - -            - -         704        - -                  704
     Other comprehensive income,
       net of tax:
          Unrealized loss on securities,
             net of reclassification
             adjustment                          - -        - -            - -         - -       (341)                (341)
     COMPREHENSIVE INCOME                                                                                              363

Sale of common stock under
     employee stock purchase plan              1,532          2             18         - -        - -                   20
Exercise of stock options                     14,999         15             64         - -        - -                   79
Tax benefit from exercise of
     stock options                               - -        - -              9         - -        - -                    9

     BALANCE AT DECEMBER 31, 1999            924,013       $924         $6,785      $2,703      ($250)             $10,162

</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       F-4
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------
(Dollars in Thousands)

Mountain Bank Holding Company and Subsidiary
Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                  1999            1998
<S>                                                                             <C>             <C>

CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                                  $    704        $     772
     Adjustments to reconcile net income to net cash
       provided by operating activities:
          Provision for credit losses                                                 - -               78
          Depreciation and amortization                                               466              342
          Deferred federal income taxes                                               - -               (8)
          Gains on loans sold                                                         (82)            (119)
          Originations of loans held for sale                                      (6,639)         (13,929)
          Proceeds from sales of loans                                              7,102           13,705
          (Increase) decrease in accrued interest receivable                           (6)              20
          Decrease in accrued interest payable                                        (21)             (25)
          Other - net                                                                 (25)            (176)
     NET CASH PROVIDED BY OPERATING ACTIVITIES                                      1,499              660

CASH FLOWS FROM INVESTING ACTIVITIES
     Net (increase) decrease in interest-bearing deposits in banks                  6,983           (8,098)
     Activity in securities available for sale:
       Purchases                                                                  (13,388)         (15,463)
       Maturities, prepayments and calls                                           10,739           13,464
     Increase in loans made to customers, net of principal collections             (9,277)          (2,255)
     Additions to premises and equipment                                             (436)          (1,129)
     NET CASH USED IN INVESTING ACTIVITIES                                         (5,379)         (13,481)

CASH FLOWS FROM FINANCING ACTIVITIES
     Net increase in deposits                                                       3,653           11,625
     Net proceeds from issuance of stock                                               99            1,740
     Repayment of note payable                                                         (1)              (2)
     NET CASH PROVIDED BY FINANCING ACTIVITIES                                      3,751           13,363

     NET CHANGE IN CASH AND DUE FROM BANKS                                           (129)             542

CASH AND DUE FROM BANKS
     Beginning of year                                                              3,369            2,827

     END OF YEAR                                                                 $  3,240         $  3,369


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
     Interest paid                                                                 $2,381           $2,530
     Income taxes paid                                                                466              495

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
     Unrealized gain (loss) on securities available for sale, net of tax            ($341)             $28
     Tax benefit from exercise of stock options                                         9              - -
</TABLE>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       F-5


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


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 four branches and has a customer base centered in and
around Southeastern King County and Northeastern Pierce County, Washington.
The Bank's primary source of revenue is providing loans to customers, who are
predominantly small and middle-market businesses and middle-income
individuals. 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
generally accepted accounting principles and practices within the banking
industry. The preparation of financial statements in conformity with
generally accepted accounting principles 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
deferred tax assets.

Certain prior year amounts have been reclassified to conform to the 1999
presentation. All dollar amounts, except per share information, are stated in
thousands.

SECURITIES AVAILABLE FOR SALE

Securities available for sale consist of debt securities, which 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 (loss)." 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


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

LOANS HELD FOR SALE

Mortgage loans originated for sale in the secondary market are carried at the
lower of cost or estimated market value. Net unrealized losses are recognized
through a valuation allowance established by charges to income.

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.

ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses is maintained at a level considered adequate
to provide for losses that can be reasonably anticipated. The allowance is
increased by provisions charged to operations and reduced by loans charged
off, net of recoveries. The allowance is based on management's periodic
evaluation of potential losses in the loan portfolio after consideration of
historical loss experience, adverse situations that may affect the borrowers'
ability to repay, the estimated value of any underlying collateral, economic
conditions, the results of examination of individual loans, the evaluation of
the overall portfolio by senior credit personnel and federal and state
regulatory agencies, and other risks inherent in the portfolio. This
evaluation requires the use of current estimates, which may vary from the
ultimate collectibility experienced in the future. The estimates used are
reviewed periodically and, as adjustments become necessary, they are charged
to operations in the period in which they become known.

When management determines that it is possible that a borrower will be unable
to repay all amounts due according to the terms of the loan agreement,
including scheduled interest payments, the loan is considered impaired. Loans
that experience insignificant payment delays and payment shortfalls are
generally not classified as impaired. Management determines the significance
of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower's
prior payment record, and the amount of shortfall in relation to the
principal and interest owed. The amount of impairment is measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate or, when the primary source of repayment is provided
by real estate collateral, at the fair value of the collateral less estimated
selling costs. The amount of impairment and any subsequent charges are
recorded through the provision for credit losses as an adjustment to the
allowance for credit losses.

(CONTINUED)


                                       F-7
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


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.

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 in 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.

STOCK-BASED COMPENSATION

The Company accounts for stock-based awards to employees using the intrinsic
value method, in accordance with APB No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. Accordingly, no compensation expense has been recognized in the
financial statements for employee stock arrangements. However, the required
pro forma disclosures of the effects of all options granted on or after
January 1, 1995, have been provided in accordance with SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION.

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-8
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in its balance sheet and measure those instruments at fair value.
Under this statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use
for assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods
must be consistent with the entity's approach to managing risk. This
statement is effective for all fiscal years beginning after June 15, 2000.
The Bank had no derivatives as of December 31, 1999, nor does the Bank engage
in any hedging activities. The Bank does not anticipate that the adoption of
SFAS No. 133 will have a material effect on its financial position or results
of operations.

NOTE 2 - RESTRICTED ASSETS

Federal Reserve Board regulations require maintenance of minimum reserve
balances with the Federal Reserve Bank. The amounts of such balances for the
years ended December 31, 1999 and 1998 was $300 annually.

NOTE 3 - DEBT AND EQUITY SECURITIES

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:

<TABLE>
<CAPTION>
                                                                      GROSS         GROSS
                                                        AMORTIZED     UNREALIZED    UNREALIZED    FAIR
                                                        COST          GAINS         LOSSES        VALUE
<S>                                                     <C>           <C>           <C>           <C>
SECURITIES AVAILABLE FOR SALE

DECEMBER 31, 1999
     U.S. Treasury securities                            $  5,668      $  3         $  25         $  5,646
     U.S. Government and agency securities                 13,499       - -           243           13,256
     Mortgage-backed securities                             7,453         1           116            7,338
     Municipal bonds                                          244       - -           - -              244
     Federal Home Loan Bank and
       Federal Reserve Bank stock                             559       - -           - -              559

                                                          $27,423      $  4          $384          $27,043
</TABLE>


(CONTINUED)


                                       F-9
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


NOTE 3 - DEBT AND EQUITY SECURITIES (CONCLUDED)

<TABLE>
<CAPTION>
                                                                             GROSS              GROSS
                                                          AMORTIZED          UNREALIZED         UNREALIZED      FAIR
                                                          COST               GAINS              LOSSES          VALUE
<S>                                                      <C>                 <C>               <C>              <C>
SECURITIES AVAILABLE FOR SALE

DECEMBER 31, 1998
     U.S. Treasury securities                            $  5,425            $  83             $ - -            $  5,508
     U.S. Government and agency securities                 12,554               76                12              12,618
     Mortgage-backed securities                             5,850                8                21               5,837
     Municipal bonds                                          291                5               - -                 296
     Corporate bonds                                          302              - -                 1                 301
     Federal Home Loan Bank and
       Federal Reserve Bank stock                             435              - -               - -                 435

                                                          $24,857             $172               $34             $24,995
</TABLE>

The carrying amount and approximate market value of debt securities at
December 31, 1999, 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.

<TABLE>
<CAPTION>
                                                           AMORTIZED          FAIR
                                                           COST               VALUE
<S>                                                       <C>                 <C>
Due in one year or less                                   $  5,511            $  5,484
Due in one to five years                                    21,304              20,951
Due in five years or more                                       49                  49

                                                           $26,864             $26,484
</TABLE>

Securities with a carrying value of $1,003 and $1,008 at December 31, 1999
and 1998, respectively, were assigned or pledged to secure public deposits,
certain short-term borrowings, and for other purposes as required by law.


                                      F-10
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


NOTE 4 - LOANS

Loans at December 31 consist of the following:

<TABLE>
<CAPTION>
                                                                             1999                1998
<S>                                                                          <C>                 <C>
Commercial and agricultural                                                  $15,873             $13,449
Real estate:
     Residential 1-4 family                                                   14,379              13,752
     Commercial                                                               13,872               8,284
     Construction                                                              5,117               4,255
Consumer                                                                       4,810               5,045

                                                                             $54,051             $44,785
</TABLE>

Changes in the allowance for credit losses for the years ended December 31,
1999 and 1998, are as follows:

<TABLE>
<CAPTION>
                                                                                1999                1998
<S>                                                                            <C>                 <C>
Balance at beginning of year                                                    $618                $555
Provision for credit losses                                                       --                  78

Charge-offs                                                                      (16)                (15)
Recoveries                                                                         5                  --
     NET CHARGE-OFFS                                                             (11)                (15)

     BALANCE AT END OF YEAR                                                     $607                $618
</TABLE>

Following is a summary of information pertaining to impaired loans:

<TABLE>
<CAPTION>
                                                                                1999                1998
<S>                                                                             <C>                <C>
DECEMBER 31
     Impaired loans without a valuation allowance                                $--                $447
     Impaired loans with a valuation allowance                                    --                  --

     TOTAL IMPAIRED LOANS                                                        $--                $447

     VALUATION ALLOWANCE RELATED TO IMPAIRED LOANS                               $--                 $--

YEARS ENDED DECEMBER 31
     Average investment in impaired loans                                        $65                $230
     Interest income recognized on a cash basis on impaired loans                 14                  35

</TABLE>

(CONTINUED)


                                      F-11
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


NOTE 4 - LOANS (CONCLUDED)

At December 31, 1999, 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, 1999 or 1998.

At December 31, 1999 and 1998, 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 $2,976 and $1,705, respectively. During 1999
advances of $3,006 were made, and repayments totaled $1,735.

NOTE 5 - PREMISES AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                 1999                1998
<S>                                                              <C>                 <C>

Land                                                             $  832              $  821
Buildings                                                         2,491               2,395
Equipment, furniture and fixtures                                 1,873               1,550
Construction in progress                                            - -                   7
     TOTAL COST                                                   5,196               4,773
Less accumulated depreciation                                     1,851               1,450

                                                                 $3,345              $3,323
</TABLE>

NOTE 6 - DEPOSITS

The aggregate amount of certificates of deposit with a minimum denomination
of one hundred thousand dollars is approximately $8,126 and $8,559 at
December 31, 1999 and 1998, respectively.

At December 31, 1999, the scheduled maturities of certificates of deposit are
as follows:

<TABLE>
     <S>                                                <C>
     2000                                               $27,117
     2001                                                 1,114
     2002                                                   354
     2003                                                   353
     2004 and thereafter                                    104

                                                        $29,042
</TABLE>

NOTE 7 - NOTE PAYABLE

The note payable is secured by land, and is payable at $1 monthly, including
interest of 8%. Future principal maturities are $2 annually through 2004, and
$32 thereafter.


                                      F-12


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


NOTE 8 - INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                                       1999         1998
<S>                                                                                    <C>          <C>

     Current                                                                            $310         $401
     Deferred benefit                                                                     --           (8)

     INCOME TAXES                                                                       $310         $393

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

                                                                                        1999         1998

DEFERRED TAX ASSETS
     Allowance for credit losses                                                        $187         $187
     Deferred compensation                                                                11            9
     Accumulated depreciation                                                             32           --
     Unrealized loss on securities available for sale                                    129           --
     Other                                                                                 1            6
     TOTAL DEFERRED TAX ASSETS                                                           360          202

DEFERRED TAX LIABILITIES
     Cash basis tax accounting                                                            78           98
     Deferred income                                                                     166          117
     Unrealized gain on securities available for sale                                     --           47
     Total deferred tax liabilities                                                      244          262

     NET DEFERRED TAX ASSETS (LIABILITIES)                                              $116        ($ 60)
</TABLE>

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

<TABLE>
<CAPTION>
                                                    1999                           1998
                                                                PERCENT OF                     PERCENT OF
                                                                PRE-TAX                        PRE-TAX
                                                    AMOUNT      INCOME             AMOUNT      INCOME
<S>                                                 <C>         <C>                <C>         <C>
Income tax at statutory rate                        $345         34.0%             $396        34.0%
Increase (decrease) resulting from:
   Tax-exempt income                                  (8)         (.8)               (6)        (.5)
   Other                                             (27)        (2.6)                3          .2

     TOTAL INCOME TAX EXPENSE                       $310         30.6%             $393        33.7%
</TABLE>


                                      F-13


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


NOTE 9 - COMMITMENTS AND CONTINGENCIES

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

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:

<TABLE>
<CAPTION>
                                                 1999                1998
<S>                                              <C>                 <C>
Commercial and agriculture                       $4,787              $3,227
Real estate                                       2,163               2,296
Credit cards                                      2,381               2,436

                                                 $9,331              $7,959
</TABLE>

Outstanding commitments under letters of credit totaled $653 and $113 at
December 31, 1999 and 1998, 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 53% 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 loan facilities 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 $3,700, 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 in 1999 or 1998.

On February 13, 1997, the Company entered into a settlement agreement with
the Bank's former president whereby the Company agreed to pay $155 for a
three-year noncompete agreement and other benefits. In addition, the
executive agreed to forfeit stock options for 20,000 fully vested shares at
an option price of $5 per share. Amortization of this non-compete agreement
totaled $52 annually for the years ended December 31, 1999 and 1998.


                                      F-14


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


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%. Loans are generally limited, by federal and
state banking regulations, to 15% of the Bank's shareholders' equity,
excluding accumulated other comprehensive income (loss). The Bank, as a
matter of practice, generally does not extend credit to any single borrower
or group of related borrowers in excess of $800.

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 state and municipal securities 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
6,000 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 60,000 shares of the Company's common stock
were reserved for option under this plan, of which 54,000 options at $5 per
share were granted on June 13, 1990, to expire on June 13, 2005. All options
granted are fully vested at December 31, 1999.

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 20,000 shares of the
Company's common stock were reserved for option under this plan; none had
been granted as of December 31, 1999.

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, 100,000 shares are reserved for option as of
December 31, 1999, of which 79,249 shares have been granted.

(CONTINUED)


                                      F-15
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


NOTE 11 - STOCK OPTION PLANS (CONTINUED)

EMPLOYEE PLANS (CONCLUDED)

The Company has adopted the disclosure-only provisions of SFAS No. 123, but
applies APB Opinion No. 25 in accounting for its plans. If the Company had
elected to recognize compensation cost for stock options issued subsequent to
December 31, 1994, based on the fair value at the grant dates, consistent
with the method prescribed by SFAS No. 123, net income and earnings per share
would have been changed to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                1999                 1998
<S>                                             <C>                  <C>
Net income:
    As reported                                  $704                $772
    Pro forma                                     638                 732

Earnings per share:
    Basic:
       As reported                               $.77                 $.96
       Pro forma                                  .70                  .91
    Diluted:
       As reported                                .73                  .90
       Pro forma                                  .67                  .86
</TABLE>

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

<TABLE>
<CAPTION>
                                          1999                 1998
<S>                                       <C>                  <C>
Dividend yield                             --%                 --%
Expected life                             10 years             8 years
Risk-free interest rate                   6.16%                5.07%

</TABLE>

The weighted average fair value of options granted during 1999 and 1998 was
$8.01 and $5.32, respectively.

(CONTINUED)


                                      F-16
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


NOTE 11 - STOCK OPTION PLANS (CONCLUDED)

A summary of the status of the Company's stock option plan as of December 31,
1999 and 1998, and changes during the years ending on those dates, is
presented below:

<TABLE>
<CAPTION>
                                                  1999                              1998
                                                                   WEIGHTED                       WEIGHTED
                                                                   AVERAGE                        AVERAGE
                                                                   EXERCISE                       EXERCISE
                                                  SHARES           PRICE            SHARES        PRICE
<S>                                               <C>             <C>               <C>           <C>
Outstanding at beginning of year                   109,332        $  7.30            103,832      $  6.83
Granted                                             26,750          17.63              5,500        16.27
Exercised                                           14,999           5.36                 --           --
Forfeited                                            5,501          12.62                 --           --

     OUTSTANDING AT END OF YEAR                    115,582           9.70            109,332         7.30

Options exercisable at year-end                     64,332                            79,332

</TABLE>

The following information summarizes information about stock options outstanding
and exercisable at December 31, 1999:

<TABLE>
<CAPTION>
                                                    WEIGHTED
                                                    AVERAGE              WEIGHTED                         WEIGHTED
         RANGE OF                                   REMAINING            AVERAGE                          AVERAGE
         EXERCISE               NUMBER              CONTRACTUAL          EXERCISE       NUMBER            EXERCISE
         PRICES                 OUTSTANDING         LIFE (YEARS)         PRICE          EXERCISABLE       PRICE
         <S>                    <C>                 <C>                 <C>             <C>              <C>
         $5.00 - $6.25            63,332            4.1                 $  5.04          63,332          $  5.04
         $11.00 - $13.00          22,500            7.5                   12.33           1,000            11.00
         $17.50 - $18.00          29,750            9.5                   17.61             --             --
</TABLE>


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 15% 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, 1999 and 1998,
totaled $31 annually.


                                      F-17
<PAGE>

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


NOTE 13 - DEFERRED COMPENSATION AGREEMENT

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 $31 and $26 at December 31, 1999
and 1998, respectively. Expenses associated with this plan were $5 annually
in 1999 and 1998. The Bank has also purchased a whole-life insurance policy
on the director, which may be used to fund benefits under the deferred
compensation agreement.

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 19,270. No employee
can purchase more than 200 shares of common stock valued at more than $25 in
any plan year; 1,532 and 1,186 shares were issued at a price of $12.50 per
share for the years ended December 31, 1999 and 1998, 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, 1999, 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.

(CONTINUED)


                                      F-18
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


NOTE 15 - REGULATORY MATTERS (CONCLUDED)

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

<TABLE>
<CAPTION>
                                                                                                  TO BE WELL CAPITALIZED
                                                                                                  UNDER PROMPT
                                                                          CAPITAL ADEQUACY        CORRECTIVE ACTION
                                                 ACTUAL                   PURPOSES                PROVISIONS
                                                 AMOUNT       RATIO       AMOUNT       RATIO      AMOUNT            RATIO
<S>                                             <C>           <C>         <C>          <C>        <C>               <C>
DECEMBER 31, 1999
     TIER 1 CAPITAL (TO AVERAGE ASSETS):
       Consolidated                             $10,408       11.80%       $3,527      4.00%          N/A             N/A
       Bank                                      10,273       11.65         3,527      4.00        $4,408            5.00%
     TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS):
       Consolidated                              10,408       17.93         2,322      4.00           N/A             N/A
       Bank                                      10,273       17.69         2,322      4.00         3,483            6.00
     TOTAL CAPITAL:
       Consolidated                              11,015       18.97         4,645      8.00           N/A             N/A
       Bank                                      10,881       18.74         4,645      8.00         5,806           10.00

DECEMBER 31, 1998
     TIER 1 CAPITAL (TO AVERAGE ASSETS):
       Consolidated                            $  9,600       11.39%       $3,371      4.00%          N/A             N/A
       Bank                                       9,441       11.21         3,369      4.00        $4,211            5.00%
     TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS):
       Consolidated                               9,600       18.79         2,044      4.00           N/A             N/A
       Bank                                       9,441       18.47         2,044      4.00         3,066            6.00
     TOTAL CAPITAL:
       Consolidated                              10,218       19.99         4,089      8.00           N/A             N/A
       Bank                                      10,059       19.68         4,089      8.00         5,111           10.00

</TABLE>

Management believes, as of December 31, 1999, 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 $1,623 as of December 31, 1999,
without regulatory approval.


                                      F-19


<PAGE>


NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


NOTE 16 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

CONDENSED BALANCE SHEETS - DECEMBER 31

<TABLE>
<CAPTION>
                                                                            1999                  1998
<S>                                                                     <C>                    <C>
ASSETS
     Cash                                                                 $      31             $    73
     Investment in the Bank                                                  10,022               9,532
     Due from subsidiary                                                         37                 127
     Other assets                                                                72                  56

     TOTAL ASSETS                                                           $10,162              $9,788

LIABILITIES AND SHAREHOLDERS' EQUITY
     Federal income taxes payable                                         $      --             $    97
     Shareholders' equity                                                    10,162               9,691

     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                             $10,162              $9,788


CONDENSED STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31

OPERATING INCOME/BANK
     Dividend from subsidiary                                                $   --                $500

OPERATING EXPENSES                                                             (192)                (70)

     INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY
     IN UNDISTRIBUTED INCOME OF SUBSIDIARY                                     (192)                430

INCOME TAX BENEFIT                                                              (65)                (26)

     INCOME (LOSS) BEFORE EQUITY IN
     UNDISTRIBUTED INCOME OF SUBSIDIARY                                        (127)                456

EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY                                    831                 316

     NET INCOME                                                                $704                $772
</TABLE>

(CONTINUED)


                                                           F-20


<PAGE>


NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


NOTE 16 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONCLUDED)

CONDENSED STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31

<TABLE>
<CAPTION>
                                                                            1999               1998
<S>                                                                         <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                              $704             $   772
     Adjustments to reconcile net income to net cash
       provided by operating activities:
          Amortization of organization costs                                   --                   1
          Amortization of covenant not to compete                              52                  52
          Equity in undistributed income of subsidiary                       (831)               (316)
          Decrease in receivable from subsidiary                               90                  68
          Decrease in federal income taxes payable                           (156)                (94)
          Decrease in other liabilities                                        --                 (80)
     NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                     (141)                403

CASH FLOWS FROM INVESTING ACTIVITIES
     Investment in subsidiaries                                                --              (2,750)

CASH FLOWS FROM FINANCING ACTIVITIES
     Proceeds from issuance of common stock                                    99               1,740

     NET CHANGE IN CASH                                                       (42)               (607)

CASH
     Beginning of year                                                         73                 680

     END OF YEAR                                                            $  31             $    73
</TABLE>

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:

<TABLE>
<CAPTION>
                                                                            1999                 1998
<S>                                                                       <C>                  <C>
Professional fees                                                           $  87               $  76
Data processing                                                               402                 347
Office supplies and expenses                                                  110                 119
Business taxes                                                                 81                  79
</TABLE>


                                                           F-21


<PAGE>

NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


NOTE 18 - EARNINGS PER SHARE DISCLOSURES

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

<TABLE>
<CAPTION>
                                                              NET INCOME            SHARES                   PER SHARE
                                                              (NUMERATOR)           (DENOMINATOR)            AMOUNT
<S>                                                           <C>                   <C>                     <C>
YEAR ENDED DECEMBER 31, 1999
     Basic earnings per share:
       Net income                                              $704                   913,748                $.77
     Effect of dilutive securities:
       Options                                                   --                    52,446                (.04)
     Diluted earnings per share:
       NET INCOME                                              $704                   966,194                $.73

YEAR ENDED DECEMBER 31, 1998
     Basic earnings per share:
       Net income                                              $772                   807,732               $.96
     Effect of dilutive securities:
       Options                                                   --                    51,240               (.06)
     Diluted earnings per share:
       NET INCOME                                              $772                   858,972               $.90
</TABLE>

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.

NOTE 19 - CAPITAL OFFERING

On October 1, 1998, the Company offered for sale 100,000 shares of one-dollar
par value common stock at a subscription price of $17.50 per share. The
offering was to the general public and was concluded on December 28, 1998.


                                      F-22


<PAGE>

NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998


NOTE 20 - COMPREHENSIVE INCOME

Net unrealized gains and losses include, net of tax, $340 of unrealized
losses arising during 1999 and $43 of unrealized gains arising during 1998,
less reclassification adjustments of $1 and $15 for gains included in net
income in 1999 and 1998, respectively, as follows:

<TABLE>
<CAPTION>
                                                                           BEFORE-          TAX
                                                                           TAX              BENEFIT          NET-OF-TAX
                                                                           AMOUNT           (EXPENSE)        AMOUNT
<S>                                                                        <C>              <C>              <C>
1999
Unrealized holding losses arising during the year                          ($517)           $177             ($340)
Reclassification adjustments for gains realized in net income                 (1)            --                (1)

     NET UNREALIZED LOSSES                                                 ($518)           $177             ($341)


1998
Unrealized holding gains arising during the year                             $64             $21               $43
Reclassification adjustments for gains realized in net income                (23)             (8)              (15)

     NET UNREALIZED GAINS                                                    $41             $13               $28

</TABLE>


                                      F-23
<PAGE>

                                                                   SUPPLEMENTARY

                                                                     INFORMATION

<PAGE>

AVERAGE BALANCES AND NET INTEREST INCOME
--------------------------------------------------------------------------------
(Dollars in Thousands)

Mt. Rainier National Bank
Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                               1999                                   1998
                                                           INTEREST                               INTEREST
                                               AVERAGE     INCOME/       AVERAGE      AVERAGE     INCOME/      AVERAGE
                                               BALANCE     (EXPENSES)    RATE         BALANCE     (EXPENSES)   RATE
<S>                                            <C>         <C>           <C>          <C>         <C>          <C>
INTEREST EARNING ASSETS
     Loans                                      $48,022     $4,694        9.8%         $43,831     $4,441       10.1%
     Investment securities:
       Taxable                                   26,895      1,538        5.7           23,342      1,416        6.1
       Tax-exempt                                   287         21*       7.3              332         25*       7.5
     TOTAL INVESTMENT SECURITIES                 27,182      1,559        5.7           23,674      1,441        6.1
     Federal funds sold and interest
       bearing deposits in banks                  5,960        293        4.9            5,371        296        5.5
     TOTAL INTEREST EARNING ASSETS/
     INTEREST INCOME                             81,164      6,546        8.1%          72,876      6,178        8.5%

Cash and due from banks                           3,470                                  3,532
Premises and equipment - net                      3,410                                  1,606
Other assets                                        734                                    813
Allowance for credit losses                        (611)                                  (608)

     TOTAL ASSETS                               $88,167                                $78,219


INTEREST BEARING LIABILITIES
     Deposits:
       Savings and interest bearing
          demand                                $37,114       (991)       2.7%         $34,558     (1,052)       3.0%
       Time                                      27,599     (1,366)       4.9           26,157     (1,443)       5.5
     TOTAL DEPOSITS                              64,713     (2,357)       3.6           60,715     (2,495)       4.1
     Other borrowings                                42         (3)       7.1               45         (4)       8.9
     TOTAL INTEREST BEARING LIABILITIES
     INTEREST EXPENSE                            64,755     (2,360)       3.6%          60,760     (2,499)       4.1%

Demand deposits                                  13,140                                 10,869
Other liabilities                                   457                                    485
Shareholders' equity                              9,815                                  6,105

     TOTAL LIABILITIES AND
     SHAREHOLDERS' EQUITY                       $88,167                                $78,219

     NET INTEREST INCOME                                    $4,186                                 $3,679

NET INTEREST INCOME AS A PERCENTAGE
   OF AVERAGE EARNING ASSETS
     Interest income                                                      8.1%                                   8.5%
     Interest expense                                                     2.9                                    3.5

     NET INTEREST INCOME                                                  5.2%                                   5.0%
</TABLE>

* TAX EQUIVALENT BASIS


                                      F-24
<PAGE>

                                    PART III

                                    EXHIBITS

<TABLE>
<CAPTION>
Exhibit No.    Description
-----------    -----------
<S>            <C>

2.1            Articles of Incorporation and Amendment, of the registrant (1)
2.2            By-laws of the registrant, currently in effect (1)
6.2            Mt. Rainier National Bank 1990 Employee Stock Option Plan (1)
6.3            Mt. Rainier National Bank 1990 Director Stock Option Plan (1)
6.4            Mt. Rainier National Bank 1995 Employee Stock Purchase Plan (1)
6.5            Mt. Rainier National Bank 1999 Employee Stock Option Plan
6.6            Forms of 1999 Employee Stock Option Plan
6.7            Mt. Rainier National Bank 1999 Director Stock Option Plan
6.8            Form of 1999 Director Stock Option Plan
27             Financial Data Schedule

</TABLE>


(1) Incorporated by reference to the Company's registration statement on Form
SB-1 (File No. 333-36647).


                                      E-1
<PAGE>

                                   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.

MOUNTAIN BANK HOLDING COMPANY

Date:             February 28, 2000


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 and
on the dates indicated.



By: /s/ Roy T. Brooks                               Date: February 28, 2000
   -------------------------------------------
    Roy T. Brooks, Chairman of the Board & CEO
             (Principal Executive Officer)

By: /s/ Sheila M. Brumley                           Date: February 28, 2000
   -------------------------------------------
    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
Date: February 28, 2000                     Date: February 28, 2000


By: /s/ Michael K. Jones                    By: /s/ Hans Rudy Zurcher
   -----------------------------------         -------------------------------
   Michael K. Jones, Director                  Hans Rudy Zurcher, Director
Date: February 28, 2000                     Date: February 28, 2000


By: /s/ Barry C. Kombol                     By: /s/ John W. Raeder
   -----------------------------------         -------------------------------
   Barry C. Kombol, Director                   John W. Raeder, Director
Date: February 28, 2000                     Date: February 28, 2000


By: /s/ Garrett S. Van Beek                 By: /s/ Steve W. Moergeli
   -----------------------------------         -------------------------------
   Garrett S. Van Beek, Director               Steve W. Moergeli, Director
Date: February 28, 2000                     Date: February 28, 2000



                                      S-1