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



For
the fiscal year ended December 31, 2000.

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, no 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:   $8,439,000

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, 2001 - $18,124,887

Number of shares of common stock
outstanding as of January 31, 2001:1,951,422

DOCUMENTS INCORPORATED BY REFERENCE

The Proxy Statement for the 2001 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
______

TABLE OF CONTENTS

Part I

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

|          |                                                                                            
|--------- | -------------------------------------------------------------------------------------------
|ITEM
  6. | DESCRIPTION
  OF BUSINESS                                                                  
|          | General                                                                                    
|          | Description of Mt. Rainier National Bank                                                   
|          | The Bank                                                                                   
|          | History                                                                                    
|          |                                                                                            
|          | Business                                                                                   
|          | Service Area                                                                               
|          | Employees                                                                                  
|          | Competition                                                                                
|          | Products and
  Services                                                                    
|          | Marketing                                                                                  
|          | Lending Activities                                                                         
|          | Investment
  Portfolio                                                                     
|          | Forward
  Looking Statement Disclosure                                                     
|          | Statistical
  Information About the Company                                                
|          | Loan Portfolio                                                                             
|          | Credit Risk Management and
  Allowance for Credit Losses                                   
|          | Loan Loss Experience                                                                       
|          | Allocation of Loan Loss By Loan Classification                                             
|          | Risk Elements – Non-Accrual,
  Past Due and Restructured Loans                             
|          |                                                                                            
|          | Investment Securities Portfolio                                                            
|          | Deposits                                                                                   
|          | GAP Analysis                                                                               
|          | Distribution of Average
  Assets, Liabilities and Shareholders’ Equity and  Interest Yields
|          | Changes in Interest Income
  and Expense Volume and Rate  Variances                        
|          | Supervision
  and Regulation                                                               
|          | Mountain Bank Holding Company                                                              
|          | Bank Holding Company Regulation                                                            
|          | Transactions with Affiliates                                                               
|          | Regulation of Management                                                                   
|          | Tie-In Arrangements                                                                        
|          | State Law Restrictions                                                                     
|          | Mt. Rainier National Bank                                                                  
|          | Interstate Banking and Branching                                                           
|          | Deposit Insurance                                                                          
|          | Dividends                                                                                  
|          | Capital Adequacy                                                                           
|          |                                                                                            
|          | Financial Services Modernization Act                                                       
|          | Effects of Government Monetary
  Policy                                                    
|          |                                                                                            
|ITEM
  7. | DESCRIPTION
  OF PROPERTY                                                                  
|          |                                                                                            
|ITEM 8.   | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                         



|        |                                       
|------- | --------------------------------------
|ITEM 9. | REMUNERATION OF DIRECTORS AND OFFICERS



|         |                                                          
|-------- | ---------------------------------------------------------
|ITEM 10. | SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SHAREHOLDERS
|         |                                                          
|ITEM 11. | INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS



Part II(ITEMS
1-6, FORM 1-A, MODEL B)



|ITEM 1.   | MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY
|--------- | ---------------------------------------------------------------
|          | Market Information                                             
|          | Number of Equity Holders                                       
|          | Stock
  Dividends                                              
|          | Payment of Dividends                                           
|          |                                                                
|ITEM
  2. | LEGAL
  PROCEEDINGS                                            
|          |                                                                
|ITEM 3.   | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS                  
|          |                                                                
|ITEM 4.   | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS            
|          |                                                                
|ITEM 5.   | COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT              
|          |                                                                
|ITEM
  6. | REPORTS
  ON FORM 8-K                                          



Part F/SFINANCIAL
STATEMENTS

| |                       
| | ----------------------
| | FINANCIAL
  STATEMENTS
| |                       

Part IIIEXHIBITS

| |         
| | --------
| | EXHIBITS

SIGNATURES

| |           
| | ----------
| | SIGNATURES





FORM 10-KSB AMENDMENT NO. 2TRANSITIONAL
SMALL BUSINESS ISSUERDISCLOSURE
PURSUANT TO ALTERNATIVE 2

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

ITEM 6.DESCRIPTION OF BUSINESS

General

Mountain Bank Holding 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. 
Mt. Rainier 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 South.  The Holding 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 Mt. Rainier Bank.  At
December 31, 2000, the Holding Company reported on a consolidated basis total
assets of $102,141,000, total deposits of $89,577,000, and shareholders’ equity
of $12,150,000.

The Holding Company’s strategy is to
capitalize on its investment in Mt. Rainier 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 Mt. Rainier
Bank will achieve these objectives.



DESCRIPTION OF MT. RAINIER NATIONAL BANK

The Bank

Mt. Rainier National Bank is a wholly-owned
subsidiary of the Holding Company. 
While the Holding Company and Mt. Rainier Bank are distinctly different
entities regulated by different regulatory bodies, the income of the Holding
Company presently is almost entirely derived from dividends upstreamed from the
Bank to the Company.  Therefore, the
value of the securities of the Holding Company is, to a large extent, dependent
upon the success of Mt. Rainier 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 deposits in other banks (generally on an overnight basis); (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.  The Bank also offers safe deposit boxes,
direct deposit of payroll and social security checks, automated teller machine
access, debit cards, automatic drafts for various accounts, and telephone
banking.  Mt. Rainier 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.

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

Service Area

Mt. Rainier Bank’s primary service area is
South King County and East Pierce County, including Enumclaw, Buckley, Black
Diamond, Auburn, and surrounding communities. 
Enumclaw’s population is 10,600, having experienced 44% growth since
1990.  Enumclaw is primarily considered
a residential community, with most growth in single family residences.  The local economy is dependent upon the
forest products industry, farming, and tourism.  Buckley has experienced less growth with a population of
4,083.  Buckley is a residential
community with very little business growth in the past few years.  Black Diamond is now experiencing increased
growth, with a population of 3,800, up from 1,760 in 1990.  Auburn is a larger community with a population
of 41,731, up from 35,230 in 1990.  All
of the major regional banks and savings and loans are located in Auburn.

Employees

As of December 31, 2000, the Holding Company
employed a full-time President and CEO and a half-time Chief Financial Officer
and a half-time Administrative Assistant. 
As of the same date, Mt. Rainier Bank had 52 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 Mt. Rainier Bank’s
primary service area is highly competitive with respect to both loans and
deposits.  All the major out-of-state commercial
banks which operate in Washington (including Bank of America, Key Bank,
Washington Mutual, 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 Mt.
Rainier Bank (but are offered indirectly through correspondent institutions);
and, by virtue of their greater total capitalization (legal lending limits to
an individual customer are based upon a percentage of a bank’s total
shareholder equity accounts), such banks have substantially higher lending limits
than the Bank.

Mt. Rainier Bank also competes with a number
of non-bank competitors such as insurance companies, small loan companies,
finance companies, mortgage companies, credit unions, brokerage houses, and
other financial institutions.  Many of
the Holding Company’s non-bank competitors are not subject to the extensive
federal and state regulations which govern the Holding 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.  Mt. Rainier Bank’s strategy, by contrast, is
to remain a middle market lender which maintains close, long-term contact with
its customers.

Products and Services

In conjunction with the growth of its asset
base, Mt. Rainier Bank has introduced new products and services to position
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, Mt. Rainier Bank has developed a
mix of products and services utilizing newly developed technology available to
the banking industry such as telephone banking and automated teller
machines.  Additionally, Mt. Rainier
Bank offers a wide range of commercial and retail banking products and services
to its customers.  Deposit accounts
include certificates of deposit, individual retirement accounts and other time
deposits, checking and other demand deposit accounts, interest-bearing checking
accounts, savings accounts and money market accounts.   Loans include residential real estate, commercial, financial and
real estate construction and development, installment and consumer loans.  Other products and services include: credit
related insurance; ATMs, safe deposit boxes and non-deposit investment
products.

Marketing

Mt. Rainier Bank uses to the fullest extent
possible the flexibility 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.  Mt.
Rainier Bank also seeks to provide special services and programs for
individuals in its primary service area who are employed in the business and
professional fields.  In the event there
are customers whose loan demands exceed the Bank’s lending limits, Mt. Rainier
Bank arranges for such loans on a participation basis with other financial
institutions.

Lending Activities

The two main areas in which Mt. Rainier Bank
has directed its lendable funds are commercial and real estate loans.  At December 31, 2000, these categories
accounted for approximately 24% and 68%, 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
non-accrual status, all interest previously accrued, but not collected, is
reversed against current period interest income.  Income on such loans is then recognized only to the extent that
cash is received and when the future collection of principal is probable.  Interest accruals are resumed on such loans
only when they are brought current with respect to principal and interest and
when, in the opinion of management, the loans are estimated to be fully
collectible as to both principal and interest.

In general, 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.  Mt. Rainier 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, 2000, no such concentration exceeded 10% of Mt.
Rainier Bank’s loan portfolio, although approximately 3.4% of the Bank’s loan
portfolio consisted of agricultural loans and approximately 8.9% of interim
real estate construction loans.  Mt.
Rainier 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.  Mt. Rainier Bank uses the same
credit policies in making commitments as it does for loans.  Management does not expect that all such
commitments will be fully utilized.

Lending activities are conducted pursuant to
a written Loan Policy which has been adopted by the Board of Directors of the
bank.  Each loan officer has a defined
lending authority.  Regardless of
lending authority, individual loans over $350,000 are approved by the Bank’s
Loan Committee, and individual loans over $250,000 are reviewed by the Bank’s
Loan Committee.



Investment Portfolio

The investment policy of Mt. Rainier 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.  Mt. Rainier Bank stresses
the following attributes for its investments: 
capital protection, liquidity, yield, risk management and
pledgeability.  With its implementation
of Statement of Financial Accounting Standards (SFAS) No. 115, Accounting
for Certain Investments in Debt and Equity Securities,
Mt. Rainier Bank is required to classify its portfolio into three
categories:  Held to Maturity, Trading
Securities, and Available for Sale.

Held to Maturity securities include debt
securities that Mt. Rainier Bank has positive intent and ability to hold to
maturity; these securities are reported at amortized cost.  As of December 31, 2000, Mt. Rainier Bank
held no securities as Held to Maturity.

Trading Securities include debt and equity
securities that are purchased and held solely for the purpose of selling them
in the short-term future for trading profits. 
Trading Securities are reported at fair market value with unrealized
gains and losses included in earnings. 
As of December 31, 2000,  Mt.
Rainier 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, and certain restricted equity securities.  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 Mt. Rainier Bank’s investment securities at December 31, 2000,
were classified as Available for Sale.

As a national bank and member of the Federal
Reserve System, Mt. Rainier Bank is required to have $241,000 invested in Federal
Reserve Bank Stock.  Also, as a member
of the Federal Home Loan Bank, the Bank is required to keep $340,000 in
stock.  This portion of Mt. Rainier
Bank’s investment portfolio is not liquid.

Forward Looking
Statement Disclosure

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

Statistical Information about 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

|                            | December 31, 2000      | December 31, 1999     
|--------------------------- | ---------------------- | ----------------------
|                            | Amounts                | Percent of Total Loans
|                            | (dollars in thousands)
|Commercial and Agricultural | $15,869                | 24.17%                
|Real Estate:                |                        |                       
|Construction                | 5,829                  | 8.88%                 
|Mortgage                    | 38,649                 | 58.88%                
|Consumer                    | 5,295                  | 8.07%                 
|Total
  Loans               | $65,642                | 100.00%               

LOAN PORTFOLIO – MATURITIES AND SENSITIVITIES
ON LOANS

|                            | One Year Or Less | Over One Through Five Years | Maturing After Five Years | TOTAL  
|--------------------------- | ---------------- | --------------------------- | ------------------------- | -------
|                            | (in thousands)  
|                            | Amount           | Fixed                       | Fixed                     |        
|Commercial and Agricultural | $9,113           | $5,741                      | $1,015                    | $15,869
|Real Estate:                | 9,478            | 15,429                      | 19,571                    | 44,478 
|Consumer                    | 1,229            | 3,486                       | 580                       | 5,295  
|Total                       | $19,820          | $24,656                     | $21,166                   | $65,642

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

CREDIT RISK MANAGEMENT AND ALLOWANCE FOR
CREDIT LOSSES

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

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

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

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

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

The allowance for credit losses is viewed by
management as a single, unallocated allowance available for all loans.  Rules and formulas relative to the adequacy
of the allowance, although useful as guidelines to management, are not rigidly
applied.  The allowance for credit
losses at December 31, 2000, was $700,000, or 1.07% of loans outstanding.  The allowance for credit losses at year end
1999 was $607,000 or 1.12% of loans outstanding.  The following table presents data related to Mt. Rainier Bank's
allowance for credit losses for the twelve months ended December 31, 2000 and
1999:

SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION

|                                                                           | Year Ended December 31, 2000 | Year Ended December 31, 1999
|-------------------------------------------------------------------------- | ---------------------------- | ----------------------------
|                                                                           | (dollars in
  thousands)    
|Allowance for loan losses  (beginning of period)                           | $607                         | $618                        
|                                                                           |                              |                             
|Loans charged off:                                                         |                              |                             
|Commercial and
  agricultural                                              | 0                            | 0                           
|Real estate construction                                                   | 0                            | 0                           
|Real estate
  mortgage                                                     | 0                            | 0                           
|Consumer                                                                   | 0                            | (16)                        
|Total                                                                      | 0                            | (16)                        
|                                                                           |                              |                             
|Recoveries of loans previously charged
  off:  Commercial and agricultural | 0                            | 0                           
|Real estate construction                                                   | 0                            | 0                           
|Real estate mortgage                                                       | 0                            | 0                           
|Consumer                                                                   | 0                            | 5                           
|Total                                                                      | 0                            | 5                           
|Net loans charged off                                                      | 0                            | (11)                        
|Provision for possible loan losses                                         | 93                           | 0                           
|Allowance for possible loan losses (end of period)                         | 700                          | 607                         
|Loans outstanding:                                                         |                              |                             
|Average                                                                    | $61,675                      | $48,022                     
|End of period                                                              | 65,642                       | 54,051                      
|Ratio of allowance for loan loss to total
  loans outstanding              |                              |                             
|Average                                                                    | 1.13%                        | 1.26%                       
|End of period                                                              | 1.07%                        | 1.12%                       
|Ratio of net charge-offs to average loans
  outstanding                    |                              |                             
|                                                                           | 0.00%                        | 0.02%                       



ALLOCATION
OF THE ALLOWANCE FOR CREDIT LOSSES BY LOAN
CLASSIFICATION

Management does not normally allocate the
allowance for credit losses to specific loan categories.  An allocation to major categories is made
for presentation purposes only.  This
allocation 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.

The
allocation of the allowance is presented based in part on evaluations of past
history and composition of the loan portfolio. 
Since these factors are subject to change, the current allocation of the
allowance is notnecessarily indicative of the breakdown
of future losses.



|                                                      | December 31, 2000 | December 31, 1999
|----------------------------------------------------- | ----------------- | -----------------
|Percent of categories to total end of
  period loans: |                   |                  
|Commercial and
  agricultural                         | 24.17%            | 29.37%           
|Real estate construction                              | 8.88%             | 9.46%            
|Real estate mortgage                                  | 58.88%            | 52.27%           
|Consumer                                              | 8.07%             | 8.90%            
|Total                                                 | 100.00%           | 100.00%          



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

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



|                            | 2000                    
|--------------------------- | ------------------------
|                            | 90 Days or More Past Due
|                            | (dollars in thousands)  
|Commercial and Agricultural | $0                      
|Real Estate                 | 0                       
|Consumer                    | 0                       
|Total                       | $0                      



|                            | 1999                    
|--------------------------- | ------------------------
|                            | 90 Days or More Past Due
|                            | (dollars in thousands)  
|Commercial and Agricultural | $0                      
|Real Estate                 | 0                       
|Consumer                    | 0                       
|Total                       | $0                      



INVESTMENT SECURITIES PORTFOLIO

The following table presents the composition
and carrying value of Mt. Rainier Bank’s investment portfolio at December 31,
2000 and 1999, and the dollar and percentage changes of each investment
category.

|                                                   | December 31, 2000      | December 31, 1999 | Dollar Change | Percentage Change
|-------------------------------------------------- | ---------------------- | ----------------- | ------------- | -----------------
|                                                   | (dollars in thousands)
|US Treasury securities                             | $2,018                 | $5,646            | ($3,628)      | -64.26%          
|US Government and agency securities                | 12,488                 | 13,256            | (768)         | -5.79%           
|Mortgage backed securities                         | 5,643                  | 7,338             | (1,695)       | -23.10%          
|Municipal bonds                                    | 297                    | 244               | 53            | 21.72%           
|Federal Home Loan Bank and Federal Reserve
  Stock | 581                    | 559               | 22            | 3.94%            
|Total                                              | $21,027                | $27,043           | ($6,016)      | -22.25%          

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



|                                    | December 31, 2000
|----------------------------------- | -----------------
|                                    | One Year Or Less 
|                                    | Amount           
|US Treasury Securities              | $503             
|US Government and Agency Securities | 5,987            
|Mortgage Backed Securities          | 565              
|Municipal Bonds 1                   | 0                
|Total                               | $7,055           
|Weighted
  Average Yield            |                  

---

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

DEPOSITS

Mt. Rainier Bank’s primary sources of funds
are interest-bearing deposits.  The
following table sets forth the distribution of Mt. Rainier Bank’s deposit
accounts at the date indicated.



|                                      | December 31, 2000      | December 31, 1999
|------------------------------------- | ---------------------- | -----------------
|                                      | Average Amounts        | Average Rate Paid
|                                      | (dollars in thousands)
|Non-interest bearing demand           | $14,377                | 0.00%            
|Interest-bearing demand               | 26,351                 | 3.04%            
|Savings                               | 10,095                 | 2.21%            
|Certificates of deposit               | 23,150                 | 5.68%            
|Certificates of deposit over $100,000 | 9,205                  | 6.13%            
|Total                                 | $83,178                | 4.22%            



At
December 31, 2000, the scheduled maturities of certificates of deposit were:



|                                        | December 31, 2000     
|--------------------------------------- | ----------------------
|                                        | Less Than $100,000    
|Maturity in:                            | (dollars in thousands)
|Three months or less                    | $6,078                
|Over three months through
  six months  | 5,278                 
|Over six months through
  twelve months | 10,477                
|Over twelve months                      | 5,326                 
|Total                                   | $27,159               

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



|                                       | Year Ended December 31,
|-------------------------------------- | -----------------------
|                                       | 2000                   
|Return on Average Assets               | 0.96%                  
|Return on Average Equity               | 8.63%                  
|Dividend Payout Ratio                  | 0%                     
|Average Equity to Average Assets Ratio | 11.17%                 

At December 31, 2000, and December 31, 1999,
neither Mt. Rainier Bank nor the Holding Company had any short-term borrowings.

The matching of assets and liability 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, 2000.

GAP ANALYSIS

|                                     | Total Within One Year  | One Year to Five Years | Over Five Years
|------------------------------------ | ---------------------- | ---------------------- | ---------------
|                                     | (dollars in thousands)
|Rate Sensitive Assets:               |                        |                        |                
|Loans                                | $19,820                | $24,656                | $21,166        
|Investments                          | 7,055                  | 13,353                 | 38             
|Interest Bearing Deposits            | 7,338                  |                        |                
|Total                                | $34,213                | $38,009                | $21,204        
|                                     |                        |                        |                
|Rate Sensitive Liabilities:          |                        |                        |                
|Savings, NOW and Interest
  Checking | $33,858                |                        |                
|Time Deposits                        | 33,533                 | 7,111                  |                
|Total                                | $67,391                | $7,111                 | $0             
|                                     |                        |                        |                
|Interest Sensitive Gap               | ($33,178)              | $30,898                | $21,204        



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

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

The following table sets forth the average
balance sheets of Mountain Bank Holding 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. 
Average non-accrual loans were $21 in 2000 and $65 in 1999.  Loan fees of $357 in 2000 and $350 in 1999
are included in interest income.



|                                           | 2000                   | 1999                    
|------------------------------------------ | ---------------------- | ------------------------
|                                           | Average Balance        | Interest Earned/ Expense
|                                           | (dollars in thousands)
|ASSETS                                     |                        |                         
|Interest earning assets:                   |                        |                         
|Loans                                      | $61,675                | $5,925                  
|Investments                                | 24,083                 | 1,460*                  
|Federal funds sold and
  deposits in banks | 1,760                  | 110                     
|Total
  interest earning assets            | 87,518                 | $7,495                  
|Non-interest earning assets:               |                        |                         
|Cash and due from banks                    | 3,503                  |                         
|Premises and equipment                     | 3,462                  |                         
|Other assets                               | 895                    |                         
|Allowance for possible credit losses       | (642)                  |                         
|TOTAL
  ASSETS                             | $94,736                |                         
|                                           |                        |                         
|LIABILITIES AND SHAREHOLDERS’ EQUITY       |                        |                         
|Interest bearing liabilities:              |                        |                         
|Interest bearing demand
  deposits         | $26,351                | $801                    
|Savings                                    | 10,095                 | 223                     
|Certificates of deposit                    | 23,150                 | 1,315                   
|Certificates of deposit
  over $100,000    | 9,205                  | 564                     
|Total
  interest bearing deposits          | $68,801                | $2,903                  
|                                           |                        |                         
|Federal funds purchased                    | $475                   | $30                     
|Other borrowings                           | 41                     | 3                       
|Total
  interest bearing liabilities       | $69,317                | $2,936                  
|                                           |                        |                         
|Non-interest bearing liabilities:          |                        |                         
|Demand deposits                            | $14,377                |                         
|Other liabilities                          | 464                    |                         
|Shareholders’ equity                       | 10,578                 |                         
|TOTAL
  LIABILITIES AND                    |                        |                         
|SHAREHOLDERS’
  EQUITY                     | $94,736                |                         
|                                           |                        |                         
|Net interest income                        |                        | $4,559                  
|                                           |                        |                         
|Net interest margin                        |                        |                         



*Tax
equivalent basis

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.

|                                      | 2000                   | 1999  
|------------------------------------- | ---------------------- | ------
|Net Change                            | Volume                 | Yield 
|                                      | (dollars in thousands)
|Loans                                 | $1,231                 | $1,313
|Investments                           | (99)                   | (184) 
|Federal Funds Sold                    | (183)                  | (247) 
|Total                                 | $949                   | $882  
|Interest Bearing Demand               | $59                    | ($11) 
|Savings                               | (26)                   | (6)   
|Certificates of deposit               | 359                    | 188   
|Certificates of deposit over $100,000 | 154                    | 68    
|Total                                 | $546                   | $239  
|Fed Funds Purchased                   | $30                    | $30   
|Other Borrowings                      | $0                     | $0    
|Total                                 | $576                   | $269  
|Net Interest Income                   | $373                   | $613  



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.

MOUNTAIN BANK HOLDING COMPANY

General

As
a bank holding company, we are subject to the Bank Holding Company Act of 1956,
as amended, which places us under the supervision of the Board of Governors of
the Federal Reserve.  We must file
annual reports and provide other information to the Federal Reserve, and we are
subject to periodic examination by the Federal Reserve.

BANK HOLDING COMPANY REGULATION

In general, the Bank Holding Company Act
limits bank holding company business to owning or controlling banks and
engaging in other banking-related activities. 
Bank holding companies must obtain the Federal Reserve Board’s approval
before they: (1) acquire control (i.e., 5% or more) of the voting shares of a
bank; (2) merge or consolidate with another bank holding company; or (3)
acquire substantially all of the assets of any additional banks.  Under the Financial Services Modernization
Act of 1999, a bank holding company may apply to the Federal Reserve Board to
become a financial holding company, and thereby engage (directly or through a
subsidiary) in certain activities deemed financial in nature, such as
securities brokerage and insurance underwriting.



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

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 Federal Reserve Board with 60 days’ prior written notice of the
proposed acquisition.  Following receipt
of this notice, the Federal Reserve Board has 60 days (or up to 90 days if
extended) within which to issue a notice disapproving the proposed
acquisition.  In addition, any
"company" must obtain the Federal Reserve Board’s approval before
acquiring 25% (5% if the "company" is a bank holding company) or more
of the outstanding shares or otherwise obtaining control over Mountain Bank
Holding.

TRANSACTIONS WITH AFFILIATES

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

REGULATION OF MANAGEMENT

Federal
law sets forth the circumstances under which officers or directors of a
financial institution may be removed by the institution’s federal supervisory
agency; places restraints on lending by an institution to its executive
officers, directors, principal stockholders, and their related interests; and
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

Mountain
Holding Company and Mt. Rainier Bank cannot participate 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 a requirement that the customer
obtain additional services provided by either of us or an agreement by the
customer to refrain from obtaining other services from a competitor.

STATE LAW RESTRICTIONS

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

MT. RAINIER NATIONAL BANK

General

Mt. Rainier Bank, as a national banking
association, is subject to regulation and examination by the Office of the
Comptroller of the Currency.  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
Mt. Rainier Bank generally have been promulgated to protect depositors and not
to protect stockholders of Mountain Bank Holding Company or Mt. Rainier
National Bank.

Community
Reinvestment

The
Community Reinvestment Act requires the Comptroller to evaluate a financial
institution’s record in meeting the credit needs of its local community,
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 insidersexecutive officers, directors, principal
shareholders, and their related interests. 
Extensions of credit to insiders must be made on substantially the same
terms, including interest rates and collateral, and follow credit underwriting
procedures that are not less stringent than those prevailing at the time for
comparable transactions with non-insiders. 
Also, extensions of credit to insiders must not involve more than the
normal risk of repayment or present other unfavorable features.

Safety and Soundness Standards

Under
the Federal Deposit Insurance Corporation Improvement Act of 1991, each federal
banking agency has prescribed 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. 
We believe that Mt. Rainier Bank meets all such standards, and
therefore, do not believe that these regulatory standards materially affect our
business operations.

INTERSTATE BANKING AND BRANCHING

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

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

Washington has "opted in" to the Interstate Act
and allows in-state banks to merge with out-of-state banks subject to certain
aging requirements.  With regard to
interstate bank branching, out-of-state banks that do not already operate a
branch in Washington may not establish de novo branches in Washington or
establish and operate a branch by acquiring a branch in Washington.

DEPOSIT INSURANCE

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

The
Federal Deposit Insurance Corporation has implemented a risk-based insurance
premium system under which banks are assessed insurance premiums based on how
much risk they present to the Bank Insurance Funds.  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 Mountain Bank Holding Company’s cash revenues is dividends
received from Mt. Rainier Bank.  The
payment of dividends is subject to government regulation, in that regulatory
authorities may prohibit banks and bank holding companies from paying dividends
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 Holding
Company nor Mt. Rainier 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
Federal Deposit Insurance Corporation and the 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.

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%.

Financial
institutions are assigned to one of five regulatory capital categories.  The category assigned depends on their 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" are
subject to certain mandatory supervisory corrective actions.  We do not believe that these regulations have
any material effect on our operations.

FINANCIAL SERVICES MODERNIZATION

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

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

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

EFFECTS OF GOVERNMENT MONETARY POLICY

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

ITEM 7.   DESCRIPTION OF PROPERTY

Mt. Rainier Bank’s main office is in an
office building 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, safe deposit boxes, signs and alarm equipment.

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

On January 26, 1998, Mt. Rainier Bank opened
its Black Diamond Branch located at 31329 Third Avenue, Black Diamond,
Washington.  The facility has 3,100
square feet, a two-lane driveup, an ATM and a night depository.

On November 16, 1998, Mt. Rainier Bank opened
its Auburn Branch located at 1436 Auburn Way So, Auburn, Washington.  The facility has approximately 2,624 square
feet, a two-lane driveup, and includes an ATM and a night depository.

Mt. Rainier Bank owns all of the facilities
described above.

Mt. Rainier Bank also owns approximately
20,246 square feet of commercial property located south of the intersection of
Maple Valley-Black Diamond Road and 225th Avenue SE in Maple Valley,
Washington.  This property is intended
for a Mt. Rainier National Bank branch which is expected to open in late 2001
or early 2002.

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 2001 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”.

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”.

PART II

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

Market Information

No broker makes a market in the Holding
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 shares.  The following data
includes trades between individual investors. 
It does not include new issuances of stock, the exercise of stock options
or shares issued under the Employee Stock Purchase Plan.

|Period | # of Shares | Price          
|------ | ----------- | ---------------
|       | Traded      | Range1         
|1999   | 41,628      | $8.75 to $9.00 
|2000   | 44,930      | $9.00 to $11.00

---

1.  Adjusted to reflect a two-for-one stock
split effective April 24, 2000.

On November 9, 2000, the Company offered for
sale 75,000 shares of no par value common stock at a subscription price of
$11.00 per share.  The offering was
successfully completed on January 12, 2001.

At December 31, 2000, stock options for
233,000 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, 2001, there were 1,004
holders of record of the Company’s common stock.

Stock Dividends

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

Payment of Dividends

The principal source of the Holding Company’s
cash revenues is dividends received from Mt. Rainier Bank.  The payment of dividends is subject to
government regulation, in that regulatory authorities may prohibit banks and
bank holding companies from paying dividends that would constitute an unsafe or
unsound banking practice.  In addition,
a bank 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 we nor Mt. Rainier Bank are currently subject to any regulatory
restrictions on our dividends.

Item 2.  Legal Proceedings

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

Item 3.  Changes in and Disagreements
with Accountants

There 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, 2000, 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 2000.

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, 2000

Mountain

Bank

Holding

Company

And

Subsidiary



Consolidated

Financial

Report



December 31

2000



Contents



Independent
Auditors’ Report

Consolidated Financial Statements

Consolidated
Balance Sheets

Consolidated
Statements of Income

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements



Supplementary Information

Average Balances and Net Interest Income



Independent Auditors’
Report



Board of DirectorsMountain
Bank Holding Company
Enumclaw, Washington

We have audited the accompanying consolidated
balance sheets of Mountain Bank Holding Company and Subsidiary
as of December 31, 2000 and 1999, 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, 2000 and 1999, 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 & Gregory PLLC
|-------------------------------
|                               
|Tacoma,
  Washington           
|January 15, 2001               





Consolidated

Financial

Statements



Consolidated Balance Sheets

---

(Dollars in
Thousands)

Mountain Bank Holding Company and Subsidiary
December 31, 2000 and 1999

|                                                                            | 2000     | 1999   
|--------------------------------------------------------------------------- | -------- | -------
|Assets                                                                      |          |        
|Cash
  and due from banks                                                   | $3,947   | $3,240 
|Interest
  bearing deposits in banks                                        | 7,338    | 3,563  
|Securities
  available for sale                                             | 21,027   | 27,043 
|Loans
  held for sale                                                       | 536      | 294    
|Loans                                                                       | 65,642   | 54,051 
|Allowance
  for credit losses                                               | 700      | 607    
|Net
  loans                                                                 | 64,942   | 53,444 
|Premises
  and equipment                                                    | 3,544    | 3,345  
|Accrued
  interest receivable                                               | 623      | 536    
|Other
  assets                                                              | 184      | 276    
|Total
  assets                                                              | $102,141 | $91,741
|                                                                            |          |        
|Liabilities                                                                 |          |        
|Deposits:                                                                   |          |        
|Demand                                                                      | $15,075  | $14,678
|Savings
  and interest-bearing demand                                       | 33,858   | 37,526 
|Time                                                                        | 40,644   | 29,042 
|Total
  deposits                                                            | 89,577   | 81,246 
|                                                                            |          |        
|Accrued
  interest payable                                                  | 306      | 194    
|Note
  payable                                                              | 40       | 42     
|Other
  liabilities                                                         | 68       | 97     
|                                                                            |          |        
|Total
  liabilities                                                         | 89,991   | 81,579 
|                                                                            |          |        
|Commitments and
  Contingencies                                             | - -      | - -    
|                                                                            |          |        
|Shareholders’
  Equity                                                      |          |        
|Common stock (no par
  value); authorized 10,000,000 shares;                |          |        
|issued
  and outstanding:  2000 - 1,945,136
  shares; 1999 - 924,013 shares | 973      | 924    
|Paid-in
  capital                                                           | 7,543    | 6,785  
|Retained
  earnings                                                         | 3,616    | 2,703  
|Accumulated
  other comprehensive income (loss)                             | 18       | (250)  
|Total
  shareholders’ equity                                                | 12,150   | 10,162 
|                                                                            |          |        
|Total
  liabilities and shareholders’ equity                                | $102,141 | $91,741



See notes to consolidated financial
statements.



Consolidated
Statements of Income

---

(Dollars in Thousands, Except Per Share
Amounts)

Mountain Bank Holding Company and Subsidiary
Years Ended December 31, 2000 and 1999

|                                                        | 2000   | 1999  
|------------------------------------------------------- | ------ | ------
|Interest Income                                         |        |       
|Loans                                                   | $5,927 | $4,694
|Deposits
  in banks                                     | 110    | 293   
|Investment
  income:                                    |        |       
|Taxable                                                 | 1,442  | 1,538 
|Tax-exempt                                              | 12     | 14    
|Total
  interest income                                 | 7,491  | 6,539 
|                                                        |        |       
|Interest Expense                                        |        |       
|Deposits                                                | 2,903  | 2,357 
|Federal
  funds purchased                               | 31     | - -   
|Note
  payable                                          | 3      | 3     
|Total
  interest expense                                | 2,937  | 2,360 
|                                                        |        |       
|Net
  interest income                                   | 4,554  | 4,179 
|                                                        |        |       
|Provision for
  Credit Losses                           | 93     | - -   
|                                                        |        |       
|Net
  interest income after provision for credit losses | 4,461  | 4,179 
|                                                        |        |       
|Non-Interest Income                                     |        |       
|Service charges on
  deposit accounts                   | 529    | 476   
|Origination
  fees and gains on mortgage loans sold     | 187    | 113   
|Loss
  on sale of securities available for sale         | (3)    | - -   
|Other                                                   | 235    | 207   
|Total
  non-interest income                             | 948    | 796   
|                                                        |        |       
|Non-Interest Expenses                                   |        |       
|Salaries                                                | 1,903  | 1,780 
|Employee
  benefits                                     | 321    | 343   
|Occupancy                                               | 248    | 206   
|Equipment                                               | 355    | 424   
|Other                                                   | 1,205  | 1,208 
|Total
  non-interest expenses                           | 4,032  | 3,961 
|                                                        |        |       
|Income
  before income taxes                            | 1,377  | 1,014 
|                                                        |        |       
|Income Taxes                                            | 464    | 310   
|                                                        |        |       
|Net
  income                                            | $913   | $704  
|                                                        |        |       
|Earnings Per Share                                      |        |       
|Basic                                                   | $.49   | $.39  
|Diluted                                                 | .47    | .36   



See notes to consolidated financial
statements.

Consolidated Statements of Shareholders’ Equity

---

(Dollars in Thousands)

Mountain Bank Holding Company and Subsidiary
Years Ended December 31, 2000 and 1999

|                                          |           |        |         |          | Accumulated   |        
|----------------------------------------- | --------- | ------ | ------- | -------- | ------------- | -------
|                                          | Shares of |        |         |          | Other         |        
|                                          | Common    | Common | Paid-in | Retained | Comprehensive |        
|                                          | Stock     | Stock  | Capital | Earnings | Income (Loss) | Total  
|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 
|                                          |           |        |         |          |               |        
|Comprehensive income:                     |           |        |         |          |               |        
|Net income                                | -
  -     | -
  -  | -
  -   | 913      | -
  -         | 913    
|Other comprehensive
  income,             |           |        |         |          |               |        
|net of
  tax:                             |           |        |         |          |               |        
|Unrealized
  gain on securities,          |           |        |         |          |               |        
|net
  of reclassification                 |           |        |         |          |               |        
|Adjustment                                | -
  -     | -
  -  | -
  -   | -
  -    | 268           | 268    
|Comprehensive income                      |           |        |         |          |               | 1,181  
|                                          |           |        |         |          |               |        
|2-for-1 stock split                       | 924,013   | -
  -  | -
  -   | -
  -    | -
  -         | -
  -  
|Sale of common stock under                |           |        |         |          |               |        
|employee stock purchase
  plan            | 1,732     | 1      | 14      | -
  -    | -
  -         | 15     
|Exercise of stock options                 | 26,664    | 13     | 54      | -
  -    | -
  -         | 67     
|Sale of common stock                      | 68,714    | 35     | 678     | -
  -    | -
  -         | 713    
|Tax benefit from exercise of              |           |        |         |          |               |        
|stock options                             | -
  -     | -
  -  | 12      | -
  -    | -
  -         | 12     
|                                          |           |        |         |          |               |        
|Balance
  at December 31, 2000            | 1,945,136 | $973   | $7,543  | $3,616   | $18           | $12,150



See notes to consolidated financial statements.

Consolidated Statements of Cash Flows

---

(Dollars in Thousands)

Mountain Bank Holding Company and Subsidiary
Years Ended December 31, 2000 and 1999

|                                                                          | 2000     | 1999    
|------------------------------------------------------------------------- | -------- | --------
|Cash Flows from
  Operating Activities                                    |          |         
|Net income                                                                | $913     | $704    
|Adjustments to reconcile
  net income to net cash                         |          |         
|provided
  by operating activities:                                       |          |         
|Provision
  for credit losses                                             | 93       | - -     
|Depreciation
  and amortization                                           | 342      | 466     
|Deferred
  federal income tax benefit                                     | (24)     | - -     
|Loss
  on sales of securities available for sale                          | 3        | - -     
|Gains
  on loans sold                                                     | (109)    | (82)    
|Originations
  of loans held for sale                                     | (9,339)  | (6,639) 
|Proceeds
  from sales of loans                                            | 9,206    | 7,102   
|(Increase)
  decrease in accrued interest receivable                      | (87)     | (6)     
|Decrease
  in accrued interest payable                                    | 112      | (21)    
|Other
  – net                                                             | (27)     | (25)    
|Net
  cash provided by operating activities                               | 1,083    | 1,499   
|                                                                          |          |         
|Cash Flows from
  Investing Activities                                    |          |         
|Net
  (increase) decrease in interest-bearing deposits in banks           | (3,775)  | 6,983   
|Activity in securities
  available for sale:                              |          |         
|Purchases                                                                 | (1,071)  | (13,388)
|Maturities,
  prepayments and calls                                       | 6,475    | 10,739  
|Sales                                                                     | 999      | - -     
|Increase
  in loans made to customers, net of principal collections       | (11,591) | (9,277) 
|Additions
  to premises and equipment                                     | (537)    | (436)   
|Net
  cash used in investing activities                                   | (9,500)  | (5,379) 
|                                                                          |          |         
|Cash Flows from
  Financing Activities                                    |          |         
|Net
  increase in deposits                                                | 8,331    | 3,653   
|Net
  proceeds from issuance of stock                                     | 795      | 99      
|Repayment
  of note payable                                               | (2)      | (1)     
|Net
  cash provided by financing activities                               | 9,124    | 3,751   
|                                                                          |          |         
|Net
  change in cash and due from banks                                   | 707      | (129)   
|                                                                          |          |         
|Cash and Due from
  Banks                                                 |          |         
|Beginning
  of year                                                       | 3,240    | 3,369   
|                                                                          |          |         
|End
  of year                                                             | $3,947   | $3,240  
|                                                                          |          |         
|Supplemental
  Disclosures of Cash Flow Information                       |          |         
|Interest
  paid                                                           | $2,824   | $2,381  
|Income
  taxes paid                                                       | 440      | 466     
|                                                                          |          |         
|Supplemental
  Disclosures of Non-Cash Investing and Financing Activities |          |         
|Unrealized gain (loss) on
  securities available for sale, net of tax     | $268     | ($341)  
|Tax benefit from exercise
  of stock options                              | 12       | 9       



See notes to consolidated financial statements.



Notes to Consolidated Financial Statements

---

Mountain Bank Holding Company and Subsidiary
December 31, 2000 and 1999



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 2000
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.

Loans Held for Sale

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

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

When
management determines that it is probable 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.  Factors considered by management in
determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when
due.  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.

A
provision for credit losses, which is a charge against income, is added to the
allowance for credit losses based on quarterly assessments of the loan
portfolio. While management has attributed the allowance for credit losses to
various loan portfolio segments, the allowance is general in nature and is
available for the loan portfolio in its entirety.

The ultimate recovery of all loans is
susceptible to future market factors beyond the Company's control.  These factors may result in losses or
recoveries differing significantly from those provided for in the financial
statements.

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.  The 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.

Comprehensive Income

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

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, 2000, 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, 2000 and 1999 were $344 and
300, respectively.

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:

|                                        |           | Gross      | Gross      |        
|--------------------------------------- | --------- | ---------- | ---------- | -------
|                                        | Amortized | Unrealized | Unrealized | Fair   
|                                        | Cost      | Gains      | Losses     | Value  
|Securities Available for Sale           |           |            |            |        
|                                        |           |            |            |        
|December 31, 2000                       |           |            |            |        
|U.S. Treasury securities                | $2,008    | $10        | $-
  -     | $2,018 
|U.S.
  Government and agency securities | 12,499    | 20         | 31         | 12,488 
|Mortgage-backed
  securities            | 5,617     | 31         | 5          | 5,643  
|Municipal
  bonds                       | 295       | 2          | - -        | 297    
|Federal
  Home Loan Bank and            |           |            |            |        
|Federal
  Reserve Bank stock            | 581       | - -        | - -        | 581    
|                                        | $21,000   | $63        | $36        | $21,027
|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



The carrying amount and approximate
market value of debt securities at December 31, 2000 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.

|                           | Amortized | Fair   
|-------------------------- | --------- | -------
|                           | Cost      | Value  
|Due in one year or less    | $7,064    | $7,055 
|Due in
  one to five years | 13,317    | 13,353 
|Due in five years or more  | 38        | 38     
|                           | $20,419   | $20,446



Securities with a carrying value of $1,001
and $1,003 at December 31, 2000 and 1999, respectively, were assigned or
pledged to secure public deposits, certain short-term borrowings, and for other
purposes as required by law.

Note 4 - Loans

Loans at December 31 consist of the
following:

|                            | 2000    | 1999   
|--------------------------- | ------- | -------
|Commercial and agricultural | $15,869 | $15,873
|Real estate:                |         |        
|Residential 1-4 family      | 16,395  | 14,379 
|Commercial                  | 22,254  | 13,872 
|Construction                | 5,829   | 5,117  
|Consumer                    | 5,295   | 4,810  
|                            | $65,642 | $54,051



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

|                             | 2000  | 1999 
|---------------------------- | ----- | -----
|Balance at beginning of year | $607  | $618 
|Provision for credit losses  | 93    | -
  -
|Charge-offs                  | -
  - | (16) 
|Recoveries                   | -
  - | 5    
|Net charge-offs              | - -   | (11) 
|                             |       |      
|Balance at end of year       | $700  | $607 



Following
is a summary of information pertaining to impaired loans:

|                                                               | 2000  | 1999  
|-------------------------------------------------------------- | ----- | ------
|December 31                                                    |       |       
|Impaired loans without a
  valuation allowance                 | $17   | $-
  -
|Impaired loans with a
  valuation allowance                    | -
  - | -
  - 
|                                                               |       |       
|Total
  impaired loans                                         | $17   | $- -  
|                                                               |       |       
|Valuation
  allowance related to impaired loans                | $- -  | $- -  
|                                                               |       |       
|Years Ended December 31                                        |       |       
|Average investment in
  impaired loans                         | $21   | $65   
|Interest income
  recognized on a cash basis on impaired loans | -
  - | 14    



Note 4 - Loans(concluded)

At December 31, 2000, 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, 2000 or 1999.

At December 31, 2000 and 1999, 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 $4,074 and
$2,976, respectively.  During 2000
advances of $1,895 were made, and repayments totaled $797.

Note 5 - Premises and Equipment

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

|                                    | 2000   | 1999  
|----------------------------------- | ------ | ------
|Land                                | $1,111 | $832  
|Buildings                           | 2,494  | 2,491 
|Equipment,
  furniture and fixtures | 1,835  | 1,873 
|Total
  cost                        | 5,440  | 5,196 
|Less
  accumulated depreciation     | 1,896  | 1,851 
|                                    | $3,544 | $3,345



Note 6 - Deposits

The aggregate amount of certificates of
deposit with a minimum denomination of one hundred thousand dollars is
approximately $13,485 and $8,126 at December 31, 2000 and 1999, respectively.

At December 31, 2000, the scheduled
maturities of certificates of deposit are as follows:

|2001                | $33,532
|------------------- | -------
|2002                | 6,405  
|2003                | 256    
|2004                | 97     
|2005 and thereafter | 354    
|                    | $40,644



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 2005, and $30
thereafter.



Note 8 - Income Taxes

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

|                   | 2000 | 1999
|------------------ | ---- | ----
|Current            | $488 | $310
|Deferred
  benefit | (24) | - - 
|Income
  taxes     | $464 | $310



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

|                                                   | 2000 | 1999
|-------------------------------------------------- | ---- | ----
|Deferred Tax Assets                                |      |     
|Allowance
  for credit losses                      | $219 | $187
|Deferred
  compensation                            | 12   | 11  
|Accumulated
  depreciation                         | 27   | 32  
|Unrealized
  loss on securities available for sale | - -  | 129 
|Other                                              | 4    | 1   
|Total
  deferred tax assets                        | 262  | 360 
|                                                   |      |     
|Deferred Tax
  Liabilities                         |      |     
|Cash
  basis tax accounting                        | 52   | 78  
|Deferred
  income                                  | 201  | 166 
|Unrealized
  gain on securities available for sale | 9    | - - 
|Total
  deferred tax liabilities                   | 262  | 244 
|                                                   |      |     
|Net
  deferred tax assets                          | $- - | $116



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

|                                      | 2000   |            | 1999   |           
|------------------------------------- | ------ | ---------- | ------ | ----------
|                                      |        | Percent of |        | Percent of
|                                      |        | Pre-tax    |        | Pre-tax   
|                                      | Amount | Income     | Amount | Income    
|Income
  tax at statutory rate        | $469   | 34.0%      | $345   | 34.0%     
|Increase
  (decrease) resulting from: |        |            |        |           
|Tax-exempt
  income                   | (4)    | (.2)       | (8)    | (.8)      
|Other                                 | (1)    | (.1)       | (27)   | (2.6)     
|                                      |        |            |        |           
|Total
  income tax expense            | $464   | 33.7%      | $310   | 30.6%     



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:

|                             | 2000    | 1999  
|---------------------------- | ------- | ------
|Commercial
  and agriculture | $6,750  | $4,787
|Real
  estate                | 2,959   | 2,163 
|Credit
  cards               | 3,200   | 2,381 
|                             | $12,909 | $9,331



Outstanding
commitments under letters of credit totaled $627 and $653 at December 31, 2000
and 1999, 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 80% 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 $3,800, and a credit line with the Federal Home Loan Bank
totaling 10% of assets.  The Bank has
entered into a blanket pledge agreement with the Federal Home Loan Bank to
secure this credit line.  These lines
were not drawn upon at December 31, 
2000 or 1999.

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 otherbenefits.  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 $4 and $52 for the years ended December 31, 2000 and 1999, respectively.

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 $1,250.

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 12,000 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 120,000 shares of the Company’s common stock were reserved for option
under this plan, of which 108,000 options at $2.50 per share were granted on
June 13, 1990, to expire on June 13, 2005. 
All of these options granted are fully vested at December 31, 2000.

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 40,000 shares of the Company’s
common stock were reserved for option under this plan, of which 32,000 options
at $11.00 per share were granted November 21, 2000, expiring on November 21,
2015; none of these options granted are vested at December 31, 2000.

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, 200,000 shares are
reserved for option as of December 31, 2000, of which 43,000 shares are
available for future grant.

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:

|                    | 2000 | 1999
|------------------- | ---- | ----
|Net income:         |      |     
|As reported         | $913 | $704
|Pro forma           | 817  | 638 
|Earnings per share: |      |     
|Basic:              |      |     
|As
  reported       | $.49 | $.39
|Pro
  forma         | .44  | .35 
|Diluted:            |      |     
|As reported         | .47  | .36 
|Pro
  forma         | .43  | .33 



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:

|                        | 2000           | 1999    
|----------------------- | -------------- | --------
|Dividend yield          | - -%           | - -%    
|Expected life           | 10 to 15 years | 10 years
|Risk-free interest rate | 5.91%          | 6.16%   



The weighted average fair value of options
granted during 2000 and 1999 was $4.64 and $4.00, respectively.

A
summary of the status of the Company’s stock option plans as of December31, 2000
and 1999, and changes during the years ending on those dates, is presented
below:

|                                 | 2000     |                               | 1999     |                              
|-------------------------------- | -------- | ----------------------------- | -------- | -----------------------------
|                                 | Shares   | WeightedAverage ExercisePrice | Shares   | WeightedAverage ExercisePrice
|                                 |          |                               |          |                              
|Outstanding at beginning of year | 231,164  | $9.70                         | 218,664  | $3.65                        
|Granted                          | 36,000   | 10.78                         | 53,500   | 8.82                         
|Exercised                        | (26,664) | 2.50                          | (29,998) | 2.68                         
|Forfeited                        | (7,500)  | 8.93                          | (11,002) | 6.31                         
|                                 |          |                               |          |                              
|Outstanding at end of
  year     | 233,000  | $5.90                         | 231,164  | $4.85                        
|                                 |          |                               |          |                              
|Options exercisable at year-end  | 115,998  |                               | 128,664  |                              



The following information summarizes
information about stock options outstanding and exercisable at December 31,
2000:

|                |             | Weighted     |          |             |         
|--------------- | ----------- | ------------ | -------- | ----------- | --------
|                |             | Average      | Weighted |             | Weighted
|Range of        |             | Remaining    | Average  |             | Average 
|Exercise        | Number      | Contractual  | Exercise | Number      | Exercise
|Prices          | Outstanding | Life (Years) | Price    | Exercisable | Price   
|$2.50
  - $3.13 | 100,000     | 3.8          | $2.53    | 100,000     | $2.53   
|5.50
  -6.50    | 45,000      | 6.5          | 6.17     | 15,998      | 6.06    
|8.75
  - 11.00  | 88,000      | 10.8         | 9.60     | -
  -       | -
  -   



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 22% 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, 2000 and 1999 totaled $36 and $31, respectively.

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 $37 and $31 at December 31,
2000 and 1999, respectively.  Expenses
associated with this plan were $6 and $5 in 2000 and 1999, respectively.  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 40,000.  No employee
can purchase more than 200 shares of common stock valued at more than $25 per
share in any plan year; 866 and 1,532 shares were issued at a price of $12.50
per share for the years ended December 31, 2000 and 1999, 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, 2000, the most recent notification from the Bank’s regulator
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action.  To be
categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the institution’s category.

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

|                                            |         |        |                  |       | To be Well CapitalizedUnder
  Prompt Corrective Action
|------------------------------------------- | ------- | ------ | ---------------- | ----- | ------------------------------------------------------
|                                            |         |        |                  |      
|                                            |         |        | Capital Adequacy
|                                            | Actual  |        | Purposes         |       | Provisions                                            
|                                            | Amount  | Ratio  | Amount           | Ratio | Amount                                                
|December 31, 2000                           |         |        |                  |       |                                                       
|Tier 1 capital (to
  average assets):       |         |        |                  |       |                                                       
|Consolidated                                | $12,132 | 12.29% | $3,950           | 4.00% | N/A                                                   
|Bank                                        | 12,050  | 12.20  | 3,950            | 4.00  | $4,937                                                
|Tier 1 capital (to
  risk-weighted assets): |         |        |                  |       |                                                       
|Consolidated                                | 12,132  | 17.53  | 2,768            | 4.00  | N/A                                                   
|Bank                                        | 12,050  | 17.41  | 2,768            | 4.00  | 4,153                                                 
|Total capital:                              |         |        |                  |       |                                                       
|Consolidated                                | 12,832  | 18.54  | 5,537            | 8.00  | N/A                                                   
|Bank                                        | 12,750  | 18.42  | 5,537            | 8.00  | 6,921                                                 
|                                            |         |        |                  |       |                                                       
|December 31, 1999                           |         |        |                  |       |                                                       
|Tier 1 capital (to
  average assets):       |         |        |                  |       |                                                       
|Consolidated                                | $10,408 | 11.80% | $3,527           | 4.00% | N/A                                                   
|Bank                                        | 10,273  | 11.65  | 3,527            | 4.00  | $4,408                                                
|Tier 1 capital (to
  risk-weighted assets): |         |        |                  |       |                                                       
|Consolidated                                | 10,408  | 17.93  | 2,322            | 4.00  | N/A                                                   
|Bank                                        | 10,273  | 17.69  | 2,322            | 4.00  | 3,483                                                 
|Total capital:                              |         |        |                  |       |                                                       
|Consolidated                                | 11,015  | 18.97  | 4,645            | 8.00  | N/A                                                   
|Bank                                        | 10,881  | 18.74  | 4,645            | 8.00  | 5,806                                                 



Management believes, as of December 31, 2000,
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
$2,173 as of December 31, 2000 without regulatory approval.

Note 16 - Condensed Financial
Information - Parent Company Only

Condensed Balance Sheets - December 31

|                                                           | 2000    | 1999   
|---------------------------------------------------------- | ------- | -------
|Assets                                                     |         |        
|Cash                                                       | $82     | $31    
|Investment
  in the Bank                                   | 12,068  | 10,022 
|Due
  from subsidiary                                      | - -     | 37     
|Other
  assets                                             | - -     | 72     
|                                                           |         |        
|Total
  assets                                             | $12,150 | $10,162
|                                                           |         |        
|Shareholders’
  Equity                                     | $12,150 | $10,162
|                                                           |         |        
|Condensed Statements of Income - Years
  Ended December 31 |         |        
|                                                           |         |        
|Operating Expenses                                         | ($163)  | ($192) 
|                                                           |         |        
|Loss before income taxes and equity                        |         |        
|in undistributed income
  of subsidiary                    | (163)   | (192)  
|                                                           |         |        
|Income Tax Benefit                                         | (55)    | (65)   
|                                                           |         |        
|Loss
  before equity in                                    |         |        
|undistributed
  income of subsidiary                       | (108)   | (127)  
|                                                           |         |        
|Equity in
  Undistributed Income of Subsidiary             | 1,021   | 831    
|                                                           |         |        
|Net income                                                 | $913    | $704   



Condensed
Statements of Cash Flows - Years Ended December 31

|                                                      | 2000    | 1999 
|----------------------------------------------------- | ------- | -----
|Cash Flows from
  Operating Activities                |         |      
|Net income                                            | $913    | $704 
|Adjustments
  to reconcile net income to net cash     |         |      
|provided
  by operating activities:                   |         |      
|Amortization
  of covenant not to compete             | 4       | 52   
|Equity
  in undistributed income of subsidiary        | (1,021) | (831)
|Decrease
  in receivable from subsidiary              | 37      | 90   
|Other                                                 | 79      | (156)
|Net
  cash provided by (used in) operating activities | 12      | (141)
|                                                      |         |      
|Cash Flows from Investing Activities                  |         |      
|                                                      |         |      
|Investment in subsidiary                              | (756)   | -
  -
|                                                      |         |      
|Cash Flows from
  Financing Activities                |         |      
|Proceeds
  from issuance of common stock              | 795     | 99   
|                                                      |         |      
|Net
  change in cash                                  | 51      | (42) 
|                                                      |         |      
|Cash                                                  |         |      
|Beginning
  of year                                   | 31      | 73   
|                                                      |         |      
|End
  of year                                         | $82     | $31  



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:



|                             | 2000 | 1999
|---------------------------- | ---- | ----
|Professional fees            | $86  | $87 
|Data processing              | 442  | 402 
|Office supplies and expenses | 103  | 110 
|Business taxes               | 50   | 81  



Note 18 - Earnings Per Share Disclosures

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

|                                 | Net Income  | Shares        | Per Share
|-------------------------------- | ----------- | ------------- | ---------
|                                 | (Numerator) | (Denominator) | Amount   
|Year Ended December 31, 2000     |             |               |          
|Basic earnings per share:        |             |               |          
|Net
  income                     | $913        | 1,862,398     | $.49     
|Effect of dilutive
  securities: |             |               |          
|Options                          | -
  -       | 84,346        | (.02)    
|Diluted earnings per
  share:    |             |               |          
|Net
  income                     | $913        | 1,946,744     | $.47     
|                                 |             |               |          
|Year Ended December 31, 1999     |             |               |          
|                                 |             |               |          
|Basic earnings per share:        |             |               |          
|Net
  income                     | $704        | 1,827,496     | $.39     
|Effect of dilutive
  securities: |             |               |          
|Options                          | -
  -       | 104,892       | (.02)    
|Diluted earnings per
  share:    |             |               |          
|                                 |             |               |          
|Net
  income                     | $704        | 1,932,388     | $.37     



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
November 7, 2000, the Company offered for sale 75,000 shares of its no par
value common stock at a subscription price of $11.00 per share.  As of December 31, 2000, 68,714 shares had
been sold under this offering.  The
remaining shares offered were sold in early January 2001.

Note 20 - Stock Split

On March 28, 2000, the Board of Directors
announced a two-for-one stock split payable to shareholders of record as of
April 10, 2000.  In connection with the
stock split, the par value of the Company’s common stock was changed from $1.00
per share to no par value and the number of authorized shares was increased
from 5 million to 10 million.  The
average number of common shares outstanding, and the earnings per share
information for the year ended December 31, 1999 have been adjusted to show the
effect of the stock split.  In addition,
the prior period stock option information in Note 11 has likewise been restated
to show the effect of the split.

Note 21 - Comprehensive Income

Net
unrealized gains and losses include, net of tax, $267 of unrealized gains
arising during 2000 and $340 of unrealized losses arising during 1999, less
reclassification adjustments of $3 and $1 for gains included in net income in
2000 and 1999, respectively, as follows:

|                                                                 | Before- | Tax       |           
|---------------------------------------------------------------- | ------- | --------- | ----------
|                                                                 | Tax     | Benefit   | Net-of-Tax
|                                                                 | Amount  | (Expense) | Amount    
|2000                                                             |         |           |           
|Unrealized holding gains
  arising during the year               | $404    | ($137)    | $267      
|Reclassification
  adjustments for losses realized in net income | 3       | (2)       | 1         
|                                                                 |         |           |           
|Net
  unrealized gains                                           | $407    | ($139)    | $268      
|                                                                 |         |           |           
|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)    



Note 22 - Fair Values
of Financial Instruments

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

|                                | 2000     |         | 1999     |        
|------------------------------- | -------- | ------- | -------- | -------
|                                | Carrying | Fair    | Carrying | Fair   
|                                | Amount   | Value   | Amount   | Value  
|Financial Assets                |          |         |          |        
|Cash and due from banks,
  and  |          |         |          |        
|interest
  bearing deposits in  |          |         |          |        
|Banks                           | $11,285  | $11,285 | $6,803   | $6,803 
|Securities available for
  sale | 21,027   | 21,027  | 27,043   | 27,043 
|Loans receivable                | 64,942   | 63,462  | 53,444   | 51,947 
|Loans held for sale             | 536      | 536     | 294      | 294    
|                                | $97,790  | $96,310 | $87,584  | $86,087
|Financial
  Liabilities         |          |         |          |        
|Deposits                        | $89,577  | $89,845 | $81,278  | $81,388
|Long-term borrowings            | 40       | 40      | 42       | 42     
|                                | $89,617  | $89,885 | $81,320  | $81,430



Supplementary

Information



Average Balances and Net Interest Income

---

(Dollars in Thousands)

Mt.
Rainier National Bank
Years Ended December 31, 2000 and 1999

|                                      | 2000     |            |         | 1999    |            |        
|------------------------------------- | -------- | ---------- | ------- | ------- | ---------- | -------
|                                      | Interest | Interest   |         |         |            |        
|                                      | Average  | Income/    | Average | Average | Income/    | Average
|                                      | Balance  | (Expenses) | Rate    | Balance | (Expenses) | Rate   
|Interest Earning
  Assets             |          |            |         |         |            |        
|Loans                                 | $61,675  | $5,925     | 9.6%    | $48,022 | $4,694     | 9.8%   
|Investment
  securities:              |          |            |         |         |            |        
|Taxable                               | 23,839   | 1,442      | 6.0     | 26,895  | 1,538      | 5.7    
|Tax-exempt                            | 244      | 18*        | 7.4     | 287     | 21*        | 7.3    
|Total
  investment securities         | 24,083   | 1,460      | 6.1     | 27,182  | 1,559      | 5.7    
|Federal
  funds sold and interest     |          |            |         |         |            |        
|bearing
  deposits in banks           | 1,760    | 110        | 6.3     | 5,960   | 293        | 4.9    
|Total
  interest earning assets/      |          |            |         |         |            |        
|interest
  income                     | 87,518   | 7,495      | 8.6%    | 81,164  | 6,546      | 8.1%   
|Cash
  and due from banks             | 3,503    |            |         | 3,470   |            |        
|Premises
  and equipment – net        | 3,462    |            |         | 3,410   |            |        
|Other
  assets                        | 895      |            |         | 734     |            |        
|Allowance
  for credit losses         | (642)    |            |         | (611)   |            |        
|Total
  assets                        | $94,736  |            |         | $88,167 |            |        
|                                      |          |            |         |         |            |        
|Interest Bearing
  Liabilities        |          |            |         |         |            |        
|Deposits:                             |          |            |         |         |            |        
|Savings
  and interest bearing        |          |            |         |         |            |        
|Demand                                | $36,446  | (1,024)    | 2.8%    | $37,114 | (991)      | 2.7%   
|Time                                  | 32,355   | (1,879)    | 5.8     | 27,599  | (1,366)    | 4.9    
|Total
  deposits                      | 68,801   | (2,903)    | 4.2     | 64,713  | (2,357)    | 3.6    
|Federal funds purchased               | 475      | (30)       | 6.3     | -
  -   | -
  -      | -
  -  
|Other
  borrowings                    | 41       | (3)        | 7.3     | 42      | (3)        | 7.1    
|Total
  interest bearing liabilities/ |          |            |         |         |            |        
|interest
  expense                    | 69,317   | (2,936)    | 4.2%    | 64,755  | (2,360)    | 3.6%   
|Demand
  deposits                     | 14,377   |            |         | 13,140  |            |        
|Other
  liabilities                   | 464      |            |         | 457     |            |        
|Shareholders’
  equity                | 10,578   |            |         | 9,815   |            |        
|Total
  liabilities and               |          |            |         |         |            |        
|shareholders’
  equity                | $94,736  |            |         | $88,167 |            |        
|Net
  interest income                 |          | $4,559     |         |         | $4,186     |        
|Net Interest Income
  as a Percentage |          |            |         |         |            |        
|of
  Average Earning Assets           |          |            |         |         |            |        
|Interest
  income                     |          |            | 8.6%    |         |            | 8.1%   
|Interest
  expense                    |          |            | 3.4     |         |            | 2.9    
|Net
  interest income                 |          |            | 5.2%    |         |            | 5.2%   

---

*  Tax equivalent basis



PART IIIEXHIBITS



|Exhibit No.Description
|----------------------
|3.1                   
|3.2                   
|3.3                   
|10.1                  
|10.2                  
|10.3                  
|10.4                  
|10.5                  
|10.6                  
|10.7                  
|                      
|                      

.

SIGNATURES

In accordance with Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized on February 20, 2001.

Mountain Bank Holding
Company





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

In accordance with the Exchange Act, this
report has been signed below by the following persons on behalf of the registrant
and in the capacities indicated on the 20th day of February, 2001.

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



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