<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee required)
For the fiscal year ended DECEMBER 31, 1999.
Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
Commission File Number: 0 - 28394
MOUNTAIN BANK HOLDING COMPANY
(exact name of registrant as specified in its charter)
WASHINGTON 91-1602736
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification Number)
501 ROOSEVELT AVENUE, PO BOX 98, ENUMCLAW, WA 98022
(address of principal executive offices) (zip code)
Registrant's telephone number: (360) 825-0100
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $1.00
PAR VALUE
(title of class)
Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this form 10-KSB [ X ]
State the issuer's revenues for its most recent fiscal year: $7,335,000
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date within the
past 60 days: AT JANUARY 31, 2000 - $14,429,268
-----------------------------------------
Number of shares of common stock outstanding as of January 31, 2000: 924,013
-----------
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the 2000 Annual Meeting of Shareholders is incorporated
by reference into Part I of this Annual Report on Form 10-KSB.
Transitional Small Business Disclosure Format: Yes X No
----- -----
<PAGE>
TABLE OF CONTENTS
Part I
(ITEMS 6-11, FORM 1-A, MODEL B)
<TABLE>
<CAPTION>
Page #
<S> <C> <C>
ITEM 6. DESCRIPTION OF BUSINESS .......................................................... 1
General ..................................................................... 1
DESCRIPTION OF MT. RAINIER NATIONAL BANK ......................................... 2
The Bank .................................................................... 2
History ..................................................................... 2
Business .................................................................... 2
Service Area ................................................................ 3
Employees ................................................................... 3
Competition ................................................................. 3
Products and Services ....................................................... 3
Marketing ................................................................... 4
Lending Activities .......................................................... 4
Investment Portfolio ........................................................ 5
Statistical Information About the Company ................................... 6
Loan Portfolio .......................................................... 6
Loan Loss Experience .................................................... 7
Allocation of Loan Loss By Loan Classification .......................... 7
Investment Securities Portfolio ......................................... 8
Deposit Liability Composition ........................................... 8
GAP Analysis ............................................................ 9
Distribution of Average Assets, Liability and Shareholders' Equity ...... 10
Changes in Interest Income and Expense Volume and Rate Variance ......... 10
Supervision and Regulation ................................................... 11
Changes in Banking Laws and Regulations ................................ 11
The Company ............................................................ 11
Bank Holding Company Regulation ........................................ 12
Transactions with Affiliates ........................................... 12
Regulation of Management ............................................... 12
Tie-In Arrangements .................................................... 13
State Law Restrictions ................................................. 13
Mt. Rainier National Bank .............................................. 13
Interstate Banking and Branching ....................................... 14
Deposit Insurance ...................................................... 15
Dividends .............................................................. 15
Capital Adequacy ....................................................... 15
Effects of Government Monetary Policy .................................. 16
Year 2000 ................................................................... 16
Forward Looking Statements .................................................. 17
ITEM 7. DESCRIPTION OF PROPERTY .......................................................... 18
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES .......................... 18
ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS ........................................... 18
</TABLE>
i
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TABLE OF CONTENTS
Part I
(ITEMS 6-11, FORM 1-A, MODEL B)
(continued)
<TABLE>
<CAPTION>
Page #
<S> <C> <C>
ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN SECURITY HOLDERS .................................................... 18
ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN
CERTAIN TRANSACTIONS ........................................................ 19
Part II
(ITEMS 1-6, FORM 1-A, MODEL B)
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY .................................................. 20
Market Information ..................................................... 20
Number of Equity Holders ............................................... 20
Cash Dividends ......................................................... 20
Payment of Dividends ................................................... 21
ITEM 2. LEGAL PROCEEDINGS ........................................................... 21
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ............................... 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ......................... 21
ITEM 5. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT ........................... 21
ITEM 6. REPORTS ON FORM 8-K ......................................................... 21
Part F/S
FINANCIAL STATEMENTS
Page #
FINANCIAL STATEMENTS ........................................................ F-1
Part III
EXHIBITS
Page #
EXHIBITS .................................................................... E-1
SIGNATURES
Page #
SIGNATURES .................................................................. S-1
</TABLE>
ii
<PAGE>
FORM 10-KSB AMENDMENT NO. 2
TRANSITIONAL SMALL BUSINESS ISSUER
DISCLOSURE PURSUANT TO ALTERNATIVE 2
PART I
(ITEMS 6-11, MODEL B, FORM 1-A)
ITEM 6. DESCRIPTION OF BUSINESS
GENERAL
Mountain Bank Holding Company (the "Company") is a Washington
corporation formed in 1993 primarily to hold all of the Common Stock of Mt.
Rainier National Bank (the "Bank"), a National Banking Association organized
under the laws of the United States. The Bank provides personal and
commercial banking and related financial services at its main office located
at 501 Roosevelt Avenue, Enumclaw, Washington, at its branch offices located
in Buckley, Washington, at 29290 Highway 410, and located in Black Diamond,
Washington, at 31329 Third Avenue. and located in Auburn, Washington, at 1436
Auburn Way So. The Company is regulated by the Federal Reserve Board (the
"FRB") under the Bank Holding Company Act of 1956, as amended. A bank holding
company is generally defined as a company that has direct or indirect control
of a bank. The Company qualifies as a bank holding company because it owns
one hundred percent (100%) of the outstanding securities of the Bank. At
December 31, 1999, the Company reported on a consolidated basis total assets
of $91,741,000, total deposits of $81,246,000, and shareholders' equity of
$10,162,000.
The Company's strategy is to capitalize on its investment in the Bank through
continued growth in the Bank's assets, deposits and earnings, and creation of
long-term value for Company shareholders by pursuing the following:
- Monitoring and improving the credit quality of the Bank's existing
asset base;
- Concentrating on expense control, interest spread maximization and
marketing of fee-based products, as well as maintaining adequate
liquidity and capital levels;
- Emphasizing close working relationships between the Bank's senior
management, directors, loan officers and commercial customers; and
- Focusing on training programs to ensure that management and staff have
knowledge necessary to serve customers and remain in compliance with
all legal and regulatory obligations.
There can be no assurance that the Bank will achieve these objectives.
1
<PAGE>
DESCRIPTION OF MT. RAINIER NATIONAL BANK
THE BANK
Mt. Rainier National Bank is a wholly-owned subsidiary of the
Company. While the Company and the Bank are distinctly different entities
regulated by different regulatory bodies, the income of the Company presently
is entirely derived from dividends upstreamed from the Bank to the Company.
Therefore, the value of the securities of the Company is, to a large extent,
dependent upon the success of the Bank.
HISTORY
The Bank opened on July 2, 1990, in Enumclaw, Washington, and has
been operating since that date.
BUSINESS
The Bank, through its four branches, offers a full line of
commercial banking services including checking accounts, savings programs,
ATMs, night depository services, customer safe deposit box facilities,
consumer loans, residential loans, commercial loans, real estate and
construction loans and agriculture loans, NOW accounts and certificates of
deposit.
The principal sources of the Bank's revenues are: (i) interest and
fees on loans; (ii) deposit service charges; (iii) interest on federal funds
sold (funds loaned on a short-term basis to other banks); (iv) gains on
mortgages originated and sold to the secondary market; and (v) interest on
investments. Loans include short-to-medium-term commercial and consumer
loans, including operating loans and lines, equipment loans, automobile
loans, recreational vehicle and truck loans, personal loans and lines of
credit, home improvement and rehabilitation loans, VISA national credit
cards, and residential mortgage lending. Residential loans are currently sold
into the secondary market. The Bank also offers safe deposit boxes, direct
deposit of payroll and social security checks, automated teller machine
access, and automatic drafts for various accounts. The Bank has a night
depository and an ATM, as well as drive-up services, at each of its offices.
The Bank's core deposit base generally has been enhanced through
advertising and deposit promotions, and focusing on securing the entire
banking relationship of each of its customers. The Bank has not used brokered
deposits as a source of funds.
The Bank's commercial banking activities target high net worth
individuals and their businesses with an emphasis on small to medium size
businesses. The Bank's operating strategy is to offer personal service,
flexibility and timely responsiveness to the needs of its customers. Senior
management of the Bank and the Company maintain close personal contact and
close working relationships with the Bank's commercial customers and their
businesses, and the Bank's and the Company's Board of Directors primarily
include local business people from the Bank's primary service area. Most of
the Bank's new commercial banking business consists of referrals from
existing customers. The Company believes that the Bank's loan portfolio is
appropriately diversified. All floating rate loans are priced at prime or
higher.
The Company believes that the growth in loans and profitability
achieved by the Bank also is attributable in large measure to its strategy of
targeting smaller and medium size businesses in the manner described above
and to the business and personal relationships and experience of the Bank's
and the Company's management and Directors, rather than the result of greater
risk-taking or price concessions. In addition, there have been numerous
acquisitions and
2
<PAGE>
mergers of banks in the Bank's primary service area which have made the
larger institutions in the market even larger. This has resulted in the Bank
focusing primarily on the needs of the smaller and medium size commercial
customers.
SERVICE AREA
The primary service area of the Bank is the cities of Enumclaw,
Black Diamond, Buckley, Auburn and surrounding communities.
EMPLOYEES
As of December 31, 1999, the Company employed a full time President
and CEO and a half time Chief Financial Officer and Administrative Assistant.
As of the same date, the Bank had 50 full time equivalent employees,
including three Executive Officers. None of the Bank's employees is presently
represented by a union or covered by a collective bargaining agreement. The
Bank considers its relationships with its employees to be good.
COMPETITION
The banking business in the Bank's primary service area is highly
competitive with respect to both loans and deposits. All the major
out-of-state commercial banks which operate in Washington (including Bank of
America, Key Bank, Wells Fargo and U.S. Bank) have a branch or branches
within the Bank's primary service area. Among the advantages such major banks
have are their ability to finance wide-ranging advertising campaigns and to
allocate their investment assets to geographic regions of higher yield and
demand. Such banks offer certain services which are not offered directly by
the Bank (but are offered indirectly through correspondent institutions);
and, by virtue of their greater total capitalization (legal lending limits to
an individual customer are based upon a percentage of a bank's total
shareholder equity accounts), such banks have substantially higher lending
limits than the Bank. The primary service area is also served by savings and
loan associations and credit unions.
The Bank also competes with a number of non-bank competitors such as
insurance companies, small loan companies, finance companies, mortgage
companies, and other funds providers. Many of the Company's non-bank
competitors are not subject to the extensive federal and state regulations
which govern the Company and, as a result, have a competitive advantage over
the Company in providing certain services.
The Bank believes its competitive position has been strengthened by
the consolidation in the banking industry which has resulted in a focus by
the larger banks on their larger accounts, with less direct contact between
the officers and their customers. The Bank's strategy, by contrast, is to
remain a middle market lender which maintains close, long-term contact with
its customers.
PRODUCTS AND SERVICES
In conjunction with the growth of its asset base, the Bank has
introduced new products and services to position itself to compete in its
highly competitive market. The Bank's customers demand not only a wide range
of financial products but also efficient and convenient service. In response
to these demands, the Bank has developed a mix of products and services
utilizing newly developed technology available to the banking industry.
Additionally, the bank offers a wide range of commercial and retail banking
products and services to its customers. Deposit accounts include certificates
of deposit, individual retirement accounts and other time deposits, checking
and other demand deposit accounts, interest-bearing checking accounts,
savings accounts and money market accounts. Loans include residential real
estate, commercial,
3
<PAGE>
financial and real estate construction and development, installment and
consumer loans. Other products and services include: credit related
insurance; ATMs, safe deposit boxes and non-deposit investment products.
MARKETING
The Bank uses to the fullest extent possible the flexibility which
is accorded by its independent status. This includes an emphasis on
specialized services, local promotional activity, and personal contacts by
the Bank's officers, directors and employees. The Bank also seeks to provide
special services and programs for individuals in its primary service area who
are employed in the business and professional fields. In the event there are
customers whose loan demands exceed the Bank's lending limits, the Bank
arranges for such loans on a participation basis with other financial
institutions.
LENDING ACTIVITIES
The two main areas in which the Bank has directed its lendable funds
are commercial and real estate loans. At December 31, 1999, these categories
accounted for approximately 29% and 61%, respectively, of the Bank's total
loan portfolio. The Bank's major source of income is interest and fees
charged on loans.
Interest income on loans is recognized based on principal amounts
outstanding, at applicable interest rates. Accrual of interest on impaired
loans is discontinued when reasonable doubt exists as to the full, timely
collection of interest or principal or when payment of principal or interest
is contractually past due 90 days, unless the loan is well secured and in the
process of collection. When a loan is placed on nonaccrual status, all
interest previously accrued, but not collected, is reversed against current
period interest income. Income on such loans is then recognized only to the
extent that cash is received and when the future collection of principal is
probable. Interest accruals are resumed on such loans only when they are
brought current with respect to principal and interest and when, in the
opinion of management, the loans are estimated to be fully collectible as to
both principal and interest.
In general, the Bank is permitted by law to make loans to single
borrowers in aggregate amounts of up to fifteen percent (15%) of the Bank's
unimpaired capital and unimpaired surplus. The Bank, on occasion, sells
participations in loans when necessary to stay within lending limits or to
otherwise limit the Bank's exposure. The Bank's goal is to reduce the risk of
undue concentrations of loans to multiple borrowers engaged in similar
activities that would cause them to be similarly impacted by economic or
other conditions. At December 31, 1999, no such concentration exceeded 10% of
the Bank's loan portfolio, although approximately 5.9% of the Bank's loan
portfolio consisted of agricultural loans and approximately 9.5% of interim
real estate construction loans. The Bank has no loans to foreign countries
and its policy is to lend within Washington State, however the bank does have
some loans to out-of-state borrowers.
In the normal course of business there are various commitments
outstanding and commitments to extend credit which are not reflected in the
financial statements. These commitments generally require the customers to
maintain certain credit standards and have fixed expiration dates or other
termination clauses. The Bank uses the same credit policies in making
commitments as it does for loans. Management does not expect that all such
commitments will be fully utilized.
Lending activities are conducted pursuant to a written Loan Policy
which has been adopted by the Board of Directors of the bank. Each loan
officer has a defined lending authority. Regardless of lending authority,
individual loans over $250,000 are approved by the Bank's Loan Committee.
4
<PAGE>
The Bank has entered into agreements with other banks to participate
in certain commitments to extend credit to customers.
INVESTMENT PORTFOLIO
The investment policy of the Bank is an integral part of the overall
asset/liability management of the Bank. The Bank's investment policy is to
establish a portfolio which will provide liquidity necessary to facilitate
making loans and to cover deposit fluctuations while at the same time
achieving a satisfactory investment return on the funds invested. The
investment policy is reviewed annually by the Bank's Board of Directors. The
Bank stresses the following attributes for its investments: safety of
principal, liquidity, yield, price appreciation and pledgeability. With its
implementation of Statement of Financial Accounting Standards (SFAS) No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, the Bank is
required to classify its portfolio into three categories: Held to Maturity,
Trading Securities, and Available for Sale.
Held to Maturity includes debt securities that the Bank has positive
intent and ability to hold to maturity; these securities are reported at
amortized cost. As of December 31, 1999, the Bank held no securities as Held
to Maturity.
Trading Securities include debt and equity securities that are
purchased and held solely for the purpose of selling them in the short-term
future for trading profits. Trading Securities are reported at fair market
value with unrealized gains and losses included in earnings. As of December
31, 1999, the Bank held no securities as Trading Securities.
Available for Sale securities include those which may be sold to
implement the Bank's asset/liability management strategies and in response to
changes in interest rates, prepayment rates and similar factors. These
securities are reported at fair market value with unrealized gains and losses
excluded from the earnings and reported as a separate component of
shareholders' equity. All of the Bank's investment securities at December 31,
1999, were classified as available for sale.
As a national bank and member of the Federal Reserve System, the
Bank is required to have $241,100 invested in the Federal Reserve Bank Stock.
Also, as a member of the Federal Home Loan Bank, the Bank is required to keep
$318,300 in stock. This portion of the Bank's investment portfolio is not
liquid.
5
<PAGE>
STATISTICAL INFORMATION ABOUT THE COMPANY
The following statistical information should be read in conjunction with the
consolidated financial statements and accompanying notes included elsewhere
herein.
The composition of the loan portfolio is summarized as follows:
LOAN PORTFOLIO - TYPES OF LOANS
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-----------------------------------------------------------------
Percent Percent
of Total of Total
Amounts Loans Amounts Loans
-----------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Commercial and Agricultural $ 15,873 29.36% $ 13,449 30.04%
Real Estate:
Construction 5,117 9.47% 4,255 9.50%
Mortgage 28,251 52.27% 22,036 49.20%
Consumer 4,810 8.90% 5,045 11.26%
-----------------------------------------------------------------
Total loans $ 54,051 100.00% $ 44,785 100.00%
=================================================================
</TABLE>
LOAN PORTFOLIO - MATURITIES AND SENSITIVITIES ON LOANS
<TABLE>
<CAPTION>
----------------------------------------------------------------------
One Year Over One Maturing
Or Less Through Five Years After Five Years TOTAL
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Amount Fixed Fixed
Commercial and Agricultural $9,004 $5,457 $1,412 $15,873
Real Estate $6,497 $13,584 $13,287 $33,368
Consumer $1,119 $3,440 $251 $4,810
----------------------------------------------------------------------
Total $16,620 $22,481 $14,950 $54,051
</TABLE>
There were no loans longer than one year having variable rates.
The following table summarizes nonperforming assets by category:
RISK ELEMENTS - NONACCRUAL, PAST DUE AND RESTRUCTERED LOANS
<TABLE>
<CAPTION>
1999
90 Days or More
Past Due Nonaccrual Restructured Lost Interest
--------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Commercial and Agricultural $0 $0 $0 NA
Real Estate $0 $0 $0 NA
Consumer $0 $0 $0 NA
--------------- ---------- ------------ -------------
$0 $0 $0 $0
</TABLE>
<TABLE>
<CAPTION>
1998
90 Days or More
Past Due Nonaccrual Restructured Lost Interest
--------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Commercial and Agricultural $0 $0 $0 $0
Real Estate $0 $441 $0 $17
Consumer $0 $6 $0 $1
--------------- ---------- ------------ -------------
$0 $447 $0 $18
</TABLE>
At December 31, 1999, the Bank had no assets that would be considered
nonaccrual, past due or restructured if such assets were loans.
Loans are placed on non accrual status when they become past due 90 days or
more as to principal and interest, unless they are well secured and in the
process of collection.
6
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SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION
<TABLE>
<CAPTION>
Year Year
Ended Ended
December 31, December 31,
1999 1998
-----------------------------------
(dollars in thousands)
<S> <C> <C>
Allowance for loan losses
(beginning of period) $ 618 $ 555
Loans charged off:
Commercial and agricultural - -
Real estate construction
Real estate mortgage
Consumer (16) (15)
-----------------------------------
Total (16) (15)
-----------------------------------
Recoveries of loans previously
charged off:
Commercial and agricultural
Real estate construction
Real estate mortgage
Consumer 5
-----------------------------------
Total 5 0
-----------------------------------
Net loans charged off (11) (15)
Provision for possible loan losses - 78
Allowance for possible loan losses
===================================
(end of period) $ 607 $ 618
===================================
Loans outstanding:
Average $ 48,022 $ 43,831
End of period 54,051 44,785
Ratio of allowance for loan loss
to total loans outstanding
Average 1.26% 1.41%
End of period 1.12% 1.38%
Ratio of net charge-offs to average
loans outstanding 0.02% 0.03%
</TABLE>
Allocation of Loan Loss By Loan Classification
Management does not normally allocate the allowance for loan losses to
specific loan categories. An allocation to major categories is made for
presentation purposes only. This allocation process does not necessarily
measure anticipated future credit losses, rather it seeks to measure
management's current assessment of perceived credit loss exposure and the
impact of current and anticipated economic conditions.
<TABLE>
<CAPTION>
Percent of categories to total end of
period loans: 12/31/99 12/31/98
-------------------------------
<S> <C> <C>
Commercial and agricultural 29.36% 30.04%
Real estate construction 9.47% 9.50%
Real estate mortgage 52.27% 49.20%
Consumer 8.90% 11.26%
===============================
Total loans 100.00% 100.00%
===============================
</TABLE>
Financial Accounting Standards Board Statements No. 114 "Accounting for
Creditors for Impairment of a Loan" and No. 118 "Accounting for Impairment of
a Loan-Income Recognition Disclosure, an amendment to SFAS No. 114" contain
accounting and reporting considerations for impaired loans. The Company
measures impaired loans based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, at the fair market value of the collateral if the loan is
collateral dependent. Certain groups of smaller balance homogeneous loans are
measured collectively for impairment.
Quarterly changes in loan loss reserve allocations were influenced by changes
in loan portfolio category distribution and quality. The loan loss reserve
analysis compared different factors affecting the level of credit risk. We
then segmented the portfolio into different loan types, industries and
concentrations as well as criticized classifications. Loss factors for each
category were reviewed as established based upon changes in industry
averages, peer bank experiences and estimated losses based upon management's
review of all classified credits.
Weight was placed upon nationally reported growth in bankruptcies and
increases in our average loan size. Because of the quality of consumer,
commercial and mortgage loan portfolios, slight changes were made to factors
affecting suggested allocations by category. Overall, no allocations to loan
loss reserves were made in calendar year 1999.
There were no loans considered to be impaired at December 31, 1999. At
December 31, 1998, the Company's recorded investment in certain loans that
were considered to be impaired was $447,000, all of which were classified as
non-accrual. None of these loans required a specific valuation allowance
based on the value of the underlying collateral. The balance of the allowance
for credit losses is available to absorb losses from all loans.
7
<PAGE>
The carrying value of investment securities and the maturities and yield
information on the investment portfolio is as follows:
INVESTMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
December 31, December 31, Dollar Percentage
1999 1998 Change Change
------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
US Treasury securities $ 5,646 $ 5,508 $ 138 2.51%
US Government and agency
securities 13,256 12,618 638 5.06%
Mortgage Backed Securities 7,338 5,837 1,501 25.71%
Corporate bonds - 301 (301) 0.00%
Municipal bonds 244 296 (52) -17.57%
Federal Home Loan Bank and 559 435 124 28.51%
Federal Reserve Stock
------------------------------------------------------------------------
Total $ 27,043 $ 24,995 $ 2,048 8.19%
========================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------------------------------------------------
Over One Over Five
One Year or Less Through Five Years Through Ten Years Over Ten Years
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amount Yield Amount Yield Amount Yield Amount Yield
US Treasury Securities $3,649 5.98% $1,997 6.41% $0 $0
US Govt. and Agency Securities $1,484 5.15% $11,772 5.99% $0 $0
Mortgage Backed Securities $351 6.50% $6,987 6.82% $0 $0
Municipal Bonds (1) $0 $195 5.56% $49 5.01% $0
---------------------------------------------------------------------------------------------
Total $5,484 $20,951 $49 $0
Weighted Average Yield 5.74% 6.31% 5.01%
</TABLE>
(1) Yields have not been calculated on a tax equivalent basis.
DEPOSITS
The following table set forth the distribution of the Bank's deposit accounts at
the dates indicated:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-----------------------------------------------------------------------
Average Average
Average Rate Average Rate
Amounts Paid Amounts Paid
-----------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Non-interest bearing demand $ 13,140 0.00% $ 10,385 0.00%
Interest-bearing demand 26,759 2.77% 25,598 3.13%
Savings 10,355 2.40% 8,960 2.79%
Certificates of deposit 19,608 4.88% 17,823 5.41%
Certificates of deposit over $100,000 7,991 5.13% 8,333 5.74%
-----------------------------------------------------------------------
Total $ 77,853 3.64% $ 71,099 4.11%
=======================================================================
</TABLE>
At December 31, 1999, the scheduled maturities of certificates of deposit was:
<TABLE>
<CAPTION>
Balances
-------------------------------------------
Less Than $100,000
$100,000 or More
---------------- ---------------
<S> <C> <C>
Maturity in:
Three months or less: $5,328 $1,829
Over three months through six months $4,628 $1,708
Over six months through twelve months $9,348 $4,275
Over twelve months $1,612 $314
-------------------------------------------
TOTAL $20,916 $8,126
===========================================
</TABLE>
8
<PAGE>
The following ratios applicable to the Company are among those commonly used in
analyzing bank holding companies:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998
-------------------------------------
<S> <C> <C>
Return on Average Assets 0.80% 0.97%
Return on Average Equity 7.17% 9.97%
Dividend Payout Ratio 0% 0%
Equity to Assets Ratio 11.13% 9.72%
</TABLE>
At December 31, 1999, and December 31, 1998, neither the Bank nor the Company
had any short term borrowings.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are interest rate sensitive and
by monitoring an institution's interest rate sensitivity "gap." An asset or
liability is interest rate sensitive within a specific time period if it will
reprice within that time period. The interest rate sensitivity gap is defined
as the difference between the amount of interest-bearing assets anticipated,
based upon certain assumptions, to mature or reprice within a specific time
period and the amount of interest-bearing liabilities anticipated, based upon
certain assumptions, to mature or reprice within that time period. A gap is
considered positive when the amount of interest rate sensitive assets maturing
within a specific time frame exceeds the amount of interest sensitive
liabilities maturing within that same time frame. If negative, the reverse is
true.
The following table represents an interest rate sensitivity analysis at
December 31, 1999:
GAP ANALYSIS
<TABLE>
<CAPTION>
----------------------------------------------------
Total Within One Year To Over
One Year Five Years Five Years
----------------------------------------------------
<S> <C> <C> <C>
Rate Sensitive Assets:
Loans $16,620 $22,481 $14,950
Investments $5,484 $20,951 $49
Interest Bearing Deposits $3,563
----------------------------------------------------
TOTAL $25,667 $43,432 $14,999
Rate Sensitive Liabilities:
Savings, Now and Interest Checking $ 37,526
Time Deposits $27,116 $1,926
----------------------------------------------------
TOTAL $64,642 $1,926 $0
Interest Sensitive Gap ($38,975) $41,506 $14,999
====================================================
</TABLE>
Currently, the Bank's interest sensitivity gap is negative within one year.
Assuming that general market interest rate changes affected the repricing of
assets and liabilities in equal magnitudes, this indicates that the effects
of rising interest rates on the Company would be a decrease in the net
interest margin, whereas falling interest rates would cause a corresponding
increase in margin.
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<PAGE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND
INTEREST YIELDS
The following table sets forth the average balance sheets of Mountain Bank
Holding Company for the past two years along with an analysis of net interest
earnings for each major category of interest earning assets and interest
bearing liabilities, the average rate paid in each category, and net yield on
earning assets. There were no non-accrual loans to include at a zero yield.
Loans fees of $350 in 1999 and $340 in 1998 are included in interest income.
<TABLE>
<CAPTION>
Year ended Dec. 31,
---------------------------------------------------------------------------------------
1999 1998
Annualized Annualized
Average Int Earned/ Yield/ Average Int Earned/ Yield/
Balance Expense Rate Balance Expense Rate
----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets:
Loans $ 48,022 $ 4,694 9.77% $ 43,831 $ 4,441 10.13%
Investments 27,182 1,552 5.71% 23,674 1,432 6.05%
Federal funds sold and deposits in banks 5,960 293 4.92% 5,371 296 5.51%
---------------------------------- ----------------------
Total interest earning assets 81,164 6,539 8.06% 72,876 6,169 8.47%
---------------- --------------
Non-interest earning assets:
Cash and due from banks 3,470 3,532
Premises and equipment 3,410 2,855
Other assets 734 996
Reserve for possible loan losses (611) (608)
================== =============
Total assets $ 88,167 $ 79,651
================== =============
Liabilities and shareholders' equity
Interest bearing liabilities:
Interest bearing demand deposits $ 26,759 742 2.77% 25,598 802 3.13%
Savings 10,355 249 2.40% 8,960 250 2.79%
Certificates of deposit 19,608 956 4.88% 17,823 965 5.41%
Certificates of deposit over $100,000 7,991 410 5.13% 8,333 478 5.74%
--------------------------------- --------------------------
Total interest bearing deposits 64,713 2,357 3.64% 60,714 2,495 4.11%
----------------- ------------
Federal funds purchased - - - -
Other borrowings 42 3 7.14% 44 4 9.09%
--------------------------------- --------------------------
Total interest bearing liabilities 64,755 2,360 3.64% 60,758 2,499 4.11%
---------------- --------------
Non-interest bearing liabilities:
Demand deposits 13,140 10,385
Other liabilities 457 767
Shareholders' equity 9,815 7,741
------------------ -------------
$ 88,167 $ 79,651
================== =============
Net interest income $ 4,179 $ 3,670
================ ==============
Net interest margin 5.15% 5.04%
</TABLE>
CHANGES IN INTEREST INCOME AND EXPENSE VOLUME AND RATE VARIANCES
The change in interest due to both volume and yield has been allocated to
volume and yield changes in proportion to the relationship of the absolute
dollar amount of the change in each amount.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
1999 1998
Net Net
Change Volume Yield Change Volume Yield
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $ 253 $ 414 $ (161) $ 367 $ 392 $ (25)
Investments $ 120 $ 204 $ (84) $ 189 $ 292 $ (103)
Federal Funds Sold $ (3) $ 31 $ (34) $ 149 $ 156 $ (7)
-------------------------------------------------------------------------------------
$ 370 $ 649 $ (279) $ 705 $ 840 $ (135)
-------------------------------------------------------------------------------------
Interest Bearing Demand $ (60) $ 35 $ (95) $ 48 $ 94 $ (46)
Savings $ (1) $ 36 $ (37) $ 34 $ 35 $ (1)
Certificates of deposit $ (9) $ 92 $ (101) $ 129 $ 132 $ (3)
Certificates of deposit over $100,000 $ (68) $ (19) $ (49) $ 103 $ 100 $ 3
-------------------------------------------------------------------------------------
$ (138) $ 144 $ (282) $ 314 $ 361 $ (47)
-------------------------------------------------------------------------------------
Other Borrowings $ - $ - $ - $ (1) $ (1) $ -
$ (1) $ - $ (1) $ - $ - $ -
-------------------------------------------------------------------------------------
$ (139) $ 144 $ (283) $ 313 $ 360 $ (47)
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Net Interest Income $ 509 $ 505 $ 4 $ 392 $ 480 $ (88)
-------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
SUPERVISION AND REGULATION
The following generally refers to certain significant statutes and
regulations affecting the banking industry. These references are only
intended to provide brief summaries and, therefore, are not complete and are
qualified by the statutes and regulations referenced. Changes in applicable
laws or regulations may have a material effect on the business and prospects
of the Company. The operations of the Company may also be affected by changes
in the policies of banking and other government regulators. The Company
cannot accurately predict the nature or extent of the effects on its business
and earnings that fiscal or monetary policies, or new federal or state laws,
may have in the future.
CHANGES IN BANKING LAWS AND REGULATIONS
The laws and regulations that affect banks and bank holding
companies have recently undergone significant changes. On November 12, 1999,
the President signed into law the Financial Services Modernization Act of
1999. Generally, the act (i) repeals the historical restrictions on
preventing banks from affiliating with securities firms, (ii) provides a
uniform framework for the activities of banks, savings institutions and their
holding companies, (iii) broadens the activities that may be conducted by
national banks and banking subsidiaries of bank holding companies, (iv)
provides an enhanced framework for protecting the privacy of consumers'
information and (v) addresses a variety of other legal and regulatory issues
affecting both day-to-day operations and long-term activities of financial
institutions.
Bank holding companies are permitted to engage in a wider variety of
financial activities than permitted under previous law, particularly with
respect to insurance and securities activities. In addition, in a change from
previous law, bank holding companies will be in a position to be owned,
controlled or acquired by any company engaged in financially related
activities, so long as such company meets certain regulatory requirements.
The act also permits national banks (and, in states with wildcard statutes,
certain state banks), either directly or through operating subsidiaries, to
engage in certain non-banking financial activities.
The Company does not believe that the act will negatively affect the
operations of it or the Bank. However, to the extent the legislation permits
banks, securities firms and insurance companies to affiliate, the financial
services industry may experience further consolidation. This consolidation
could result in a growing number of larger financial institutions that offer
a wider variety of financial services than the Company currently offers and
that can aggressively compete in the markets currently served by the Company
and the Bank.
THE COMPANY
GENERAL
As a bank holding company, the Company is subject to the Bank
Holding Company Act of 1956 ("BHCA"), as amended, which places the Company
under the supervision of the Board of Governors of the Federal Reserve. The
Company must file annual reports with the Federal Reserve and must provide it
with such additional information as it may require. In addition, the Federal
Reserve periodically examines the Company and its subsidiary Bank.
11
<PAGE>
BANK HOLDING COMPANY REGULATION
In general, the BHCA limits bank holding company business to owning
or controlling banks and engaging in other banking-related activities. Bank
holding companies must obtain the FRB's approval before they: (1) acquire
direct or indirect ownership or control of any voting shares of any bank that
results in total ownership or control, directly or indirectly, of more than
5% of the voting shares of such bank; (2) merge or consolidate with another
bank holding company; or (3) acquire substantially all of the assets of any
additional banks. Subject to certain state laws, such as age and contingency
laws, a bank holding company that is adequately capitalized and adequately
managed may acquire the assets of both in-state and out-of-state banks. Under
the Financial Modernization Act of 1999, a bank holding company may apply to
the FRB to become a financial holding company, and thereby engage (directly
or through a subsidiary) in certain activities deemed financial in nature,
such as securities brokerage and insurance underwriting.
CONTROL OF NONBANKS. With certain exceptions, the BHCA prohibits
bank holding companies from acquiring direct or indirect ownership or control
of voting shares in any company that is not a bank or a bank holding company
unless the FRB determines that the activities of such company are incidental
or closely related to the business of banking. If a bank holding company is
well-capitalized and meets certain criteria specified by the FRB, it may
engage de novo in certain permissible nonbanking activities without prior FRB
approval.
CONTROL TRANSACTIONS. The Change in Bank Control Act of 1978, as
amended, requires a person (or group of persons acting in concert) acquiring
"control" of a bank holding company to provide the FRB with 60 days' prior
written notice of the proposed acquisition. Following receipt of this notice,
the FRB has 60 days within which to issue a notice disapproving the proposed
acquisition, but the FRB may extend this time period for up to another 30
days. An acquisition may be completed before expiration of the disapproval
period if the FRB issues written notice of its intent not to disapprove the
transaction. In addition, any "company" must obtain the FRB's approval before
acquiring 25% (5% if the "company" is a bank holding company) or more of the
outstanding shares or otherwise obtaining control over the Company.
TRANSACTIONS WITH AFFILIATES
The Company and the Bank are deemed affiliates within the meaning of
the Federal Reserve Act, and transactions between affiliates are subject to
certain restrictions. Accordingly, the Company and the Bank must comply with
Sections 23A and 23B of the Federal Reserve Act. Generally, Sections 23A and
23B (1) limit the extent to which a financial institution or its subsidiaries
may engage in "covered transactions" with an affiliate, as defined, to an
amount equal to 10% of such institution's capital and surplus and an
aggregate limit on all such transactions with all affiliates to an amount
equal to 20% of such capital and surplus, and (2) require all transactions
with an affiliate, whether or not "covered transactions," to be on terms
substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate. The term "covered
transaction" includes the making of loans, purchase of assets, issuance of a
guarantee and other similar types of transactions.
REGULATION OF MANAGEMENT
Federal law (1) sets forth the circumstances under which officers or
directors of a financial institution may be removed by the institution's
federal supervisory agency; (2) places restraints on
12
<PAGE>
lending by an institution to its executive officers, directors, principal
stockholders, and their related interests; and (3) prohibits management
personnel from serving as a director or in other management positions with
another financial institution which has assets exceeding a specified amount
or which has an office within a specified geographic area.
TIE-IN ARRANGEMENTS
The Company and the Bank cannot engage in certain tie-in
arrangements in connection with any extension of credit, sale or lease of
property or furnishing of services. For example, with certain exceptions,
neither the Company nor the Bank may condition an extension of credit on
either (1) a requirement that the customer obtain additional services
provided by it or (2) an agreement by the customer to refrain from obtaining
other services from a competitor.
The FRB has adopted significant amendments to its anti-tying rules
that: (1) removed FRB-imposed anti-tying restrictions on bank holding
companies and their non-bank subsidiaries; (2) allow banks greater
flexibility to package products with their affiliates; and (3) establish a
safe harbor from the tying restrictions for certain foreign transactions.
These amendments were designed to enhance competition in banking and
nonbanking products and to allow banks and their affiliates to provide more
efficient, lower cost service to their customers. However, the impact of the
amendments on the Company and the Bank is unclear at this time.
STATE LAW RESTRICTIONS
As a Washington business corporation, the Company may be subject to
certain limitations and restrictions as provided under applicable Washington
corporate law. In addition, although the Bank is a national bank and
therefore primarily regulated by the Office of the Comptroller of the
Currency ("OCC"), Washington banking law may restrict certain activities of
the Bank.
MT. RAINIER NATIONAL BANK
GENERAL
The Bank, as a national banking association, is subject to
regulation and examination by the OCC. The federal laws that apply to the
Bank regulate, among other things, the scope of its business, its
investments, its reserves against deposits, the timing of the availability of
deposited funds and the nature and amount of and collateral for loans. The
laws and regulations governing the Bank generally have been promulgated to
protect depositors and not to protect stockholders of the bank or its holding
company.
CRA. The Community Reinvestment Act (the "CRA") requires that, in
connection with examinations of financial institutions within their
jurisdiction, the OCC evaluates the record of the financial institutions in
meeting the credit needs of their local communities, including low and
moderate income neighborhoods, consistent with the safe and sound operation
of those banks. These factors are also considered in evaluating mergers,
acquisitions, and applications to open a branch or facility.
INSIDER CREDIT TRANSACTIONS. Banks are also subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to
executive officers, directors, principal shareholders, or any related
interests of such persons. Extensions of credit (i) must be made on
13
<PAGE>
substantially the same terms, including interest rates and collateral, and
follow credit underwriting procedures that are not less stringent than those
prevailing at the time for comparable transactions with persons not covered
above and who are not employees; and (ii) must not involve more than the
normal risk of repayment or present other unfavorable features. Banks are
also subject to certain lending limits and restrictions on overdrafts to such
persons. A violation of these restrictions may result in the assessment of
substantial civil monetary penalties on the affected bank or any officer,
director, employee, agent, or other person participating in the conduct of
the affairs of that bank, the imposition of a cease and desist order, and
other regulatory sanctions.
FDICIA. Under the Federal Deposit Insurance Corporation Improvement
Act of 1991 (the "FDICIA"), each federal banking agency has prescribed, by
regulation, noncapital safety and soundness standards for institutions under
its authority. These standards cover internal controls, information systems,
and internal audit systems, loan documentation, credit underwriting, interest
rate exposure, asset growth, compensation, fees and benefits, such other
operational and managerial standards as the agency determines to be
appropriate, and standards for asset quality, earnings and stock valuation.
An institution which fails to meet these standards must develop a plan
acceptable to the agency, specifying the steps that the institution will take
to meet the standards. Failure to submit or implement such a plan may subject
the institution to regulatory sanctions. Management of the Company believes
that the Bank meets all such standards, and therefore, does not believe that
these regulatory standards materially affect the Company's business
operations.
INTERSTATE BANKING AND BRANCHING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Act") permits nationwide interstate banking and
branching under certain circumstances. This legislation generally authorizes
interstate branching and relaxes federal law restrictions on interstate
banking. Currently, bank holding companies may purchase banks in any state,
and states may not prohibit such purchases. Additionally, banks are permitted
to merge with banks in other states as long as the home state of neither
merging bank has "opted out." The Interstate Act requires regulators to
consult with community organizations before permitting an interstate
institution to close a branch in a low-income area.
Under recent FDIC regulations, banks are prohibited from using their
interstate branches primarily for deposit production. The FDIC has
accordingly implemented a loan-to-deposit ratio screen to ensure compliance
with this prohibition.
With regard to interstate bank mergers, Washington has "opted in" to
the Interstate Act and allows in-state banks to merge with out-of-state banks
subject to certain aging requirements. Washington law generally authorizes
the acquisition of an in-state bank by an out-of-state bank through merger
with a Washington financial institution that has been in existence for at
least 5 years prior to the acquisition. With regard to interstate bank
branching, out-of-state banks that do not already operate a branch in
Washington may not establish de novo branches in Washington or establish and
operate a branch by acquiring a branch in Washington.
14
<PAGE>
DEPOSIT INSURANCE
The deposits of the Bank are currently insured to a maximum of
$100,000 per depositor through the Bank Insurance Fund ("BIF") administered
by the FDIC. All insured banks are required to pay semi-annual deposit
insurance premium assessments to the FDIC.
The FDICIA included provisions to reform the Federal Deposit
Insurance System, including the implementation of risk-based deposit
insurance premiums. The FDICIA also permits the FDIC to make special
assessments on insured depository institutions in amounts determined by the
FDIC to be necessary to give it adequate assessment income to repay amounts
borrowed from the U.S. Treasury and other sources, or for any other purpose
the FDIC deems necessary. The FDIC has implemented a risk-based insurance
premium system under which banks are assessed insurance premiums based on how
much risk they present to the BIF. Banks with higher levels of capital and a
low degree of supervisory concern are assessed lower premiums than banks with
lower levels of capital or a higher degree of supervisory concern.
DIVIDENDS
The principal source of the Company's cash revenues is dividends
received from the Bank. The payment of dividends is subject to government
regulation, in that regulatory authorities may prohibit banks and bank
holding companies from paying dividends which would constitute an unsafe or
unsound banking practice. In addition, a bank may not pay cash dividends if
that payment could reduce the amount of its capital below that necessary to
meet minimum applicable regulatory capital requirements. Other than the laws
and regulations noted above, which apply to all banks and bank holding
companies, neither the Company nor the Bank is currently subject to any
regulatory restrictions on its dividends.
CAPITAL ADEQUACY
Federal bank regulatory agencies use capital adequacy guidelines in
the examination and regulation of bank holding companies and banks. If
capital falls below minimum guideline levels, the holding company or bank may
be denied approval to acquire or establish additional banks or nonbank
businesses or to open new facilities.
The FDIC and Federal Reserve use risk-based capital guidelines for
banks and bank holding companies. These are designed to make such capital
requirements more sensitive to differences in risk profiles among banks and
bank holding companies, to account for off-balance sheet exposure and to
minimize disincentives for holding liquid assets. Assets and off-balance
sheet items are assigned to broad risk categories, each with appropriate
weights. The resulting capital ratios represent capital as a percentage of
total risk-weighted assets and off-balance sheet items. The guidelines are
minimums, and the Federal Reserve has noted that bank holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain ratios well in excess of
the minimum. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital
ratio equal to 8%, of which at least 4% must be Tier I capital. Tier I
capital for bank holding companies includes common shareholders' equity,
certain qualifying perpetual preferred stock and minority interests in equity
accounts of consolidated subsidiaries, less intangibles except as described
above.
15
<PAGE>
The Federal Reserve also employs a leverage ratio, which is Tier I
capital as a percentage of total assets less intangibles, to be used as a
supplement to risk-based guidelines. The principal objective of the leverage
ratio is to constrain the maximum degree to which a bank holding company may
leverage its equity capital base. The Federal Reserve requires a minimum
leverage ratio of 3%. However, for all but the most highly rated bank holding
companies and for bank holding companies seeking to expand, the Federal
Reserve expects an additional cushion of at least 1% to 2%.
FDICIA created a statutory framework of supervisory actions indexed
to the capital level of the individual institution. Under regulations adopted
by the FDIC, an institution is assigned to one of five capital categories
depending on its total risk-based capital ratio, Tier I risk-based capital
ratio, and leverage ratio, together with certain subjective factors.
Institutions which are deemed to be "undercapitalized" depending on the
category to which they are assigned are subject to certain mandatory
supervisory corrective actions. The Company does not believe that these
regulations have any material effect on their operations.
EFFECTS OF GOVERNMENT MONETARY POLICY
The earnings and growth of the Company are affected not only by
general economic conditions, but also by the fiscal and monetary policies of
the federal government, particularly the Federal Reserve. The Federal Reserve
can and does implement national monetary policy for such purposes as curbing
inflation and combating recession, but its open market operations in U.S.
government securities, control of the discount rate applicable to borrowings
from the Federal Reserve, and establishment of reserve requirements against
certain deposits, influence the growth of bank loans, investments and
deposits, and also affect interest rates charged on loans or paid on
deposits. The nature and impact of future changes in monetary policies and
their impact on the Company and the Bank cannot be predicted with certainty.
YEAR 2000
The Year 2000 or Y2K problem is a result of the inability of
computer software programs to recognize the year 2000, as most programs and
systems were designed to store calendar years in the 1900s by assuming the
"19" and storing only the last two digits of the year. As the Company has
reported in the past, it has spent considerable effort in preparing for Y2K
in the period leading up to January 1, 2000.
The Company has not experienced any significant Y2K problems and has
not been informed of any material Y2K problems by its customers or vendors.
However, although January 1, 2000 is past, it is possible that some problems
have gone undetected, or that other dates in the future may further affect
computer software and systems, or equipment with embedded chip technology.
The Company will continue to monitor the Y2K compliance of its own
computer systems and equipment with embedded technology, as well as any Y2K
related problems that may be reported to it by third parties with whom it
does business.
As discussed in the Company's Form 10-Q for the fiscal quarter ended
September 30, 1999, the estimated costs of remediation associated with the
Y2K issue were $130,000. The
16
<PAGE>
Company believes, based on its review of such costs to January 31, 2000, that
total remediation costs will not be materially higher than the amount
previously estimated. However, as noted above, it is possible that additional
costs will be incurred in connection with Y2K problems that may still occur
in the future.
FORWARD LOOKING STATEMENTS
The discussion above regarding the Company's Y2K status includes
certain "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "PLSRA"). The Company desires
to take advantage of the "safe harbor" provisions of the PLSRA as they apply
to forward looking statements. The Company's ability to predict the results
of future plans is inherently uncertain, and is subject to factors that may
cause actual results to differ materially from those projected. Factors that
could affect the actual results include the possibility that systems
modifications will not operate as intended, and that the Company or its
significant customers or vendors have not yet detected Y2K problems that have
arisen or will arise in the future.
17
<PAGE>
ITEM 7. DESCRIPTION OF PROPERTY
The Bank's Main Office is located in Enumclaw, Washington, at 501
Roosevelt Avenue, in an office building owned by the Bank. The facility has
10,275 square feet with two drive-up windows, an automated teller machine
(ATM), and a night depository. The premises are fully equipped and include
teller counters, key drawers, safe, lock boxes with keys, signs and alarm
equipment.
On February 6, 1995, the Bank opened its Buckley Branch located at
29290 Highway 410, Buckley, Washington. The facility is owned by the Bank and
has 3,100 square feet, a two-lane drive up, an ATM and a night depository.
On January 26, 1998, the Bank opened its Black Diamond Branch
located at 31329 Third Avenue, Black Diamond, Washington. The facility is
owned by the Bank and has 3,080 square feet, a two lane driveup and a night
depository.
On November 16, 1998, the Bank opened its Auburn Branch located at
1436 Auburn Way So, Auburn, Washington. The facility is owned by the Bank and
has 2,624 square feet, a two lane driveup, an ATM and a night depository.
The Bank has also leased space for an ATM located at 31605 Third
Avenue, Black Diamond, Washington. That ATM was placed in service on March 7,
1995. Customers of the Bank are charged no fee for utilization of the ATM.
ITEM 8. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding "Directors and Executive Officers" of the
Company is incorporated by reference from the Company's 2000 Annual Proxy
Statement ("Proxy Statement") under the captions "INFORMATION WITH RESPECT TO
NOMINEES AND DIRECTORS WHOSE TERMS CONTINUE" and "MANAGEMENT".
ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS
Information regarding "Remuneration of Directors and Officers" of
the Company is incorporated by reference from the Company's Proxy Statement
under the captions "INFORMATION WITH RESPECT TO NOMINEES AND DIRECTORS WHOSE
TERMS CONTINUE - Compensation of Directors" and "EXECUTIVE COMPENSATION".
ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SHAREHOLDERS
Information regarding "Security Ownership of Management and Certain
Shareholders" of the Company is incorporated by reference from the Company's
Proxy Statement under the captions "INFORMATION WITH RESPECT TO NOMINEES AND
DIRECTORS WHOSE TERMS CONTINUE" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT".
18
<PAGE>
ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Information regarding "Interest of Management and Others in Certain
Transactions" of the Company is incorporated by reference from the Company's
Proxy Statement under the caption "TRANSACTIONS WITH MANAGEMENT".
19
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
MARKET INFORMATION
No broker makes a market in the Company's common stock, and trading has not
been extensive. Trades that have occurred cannot be characterized as
amounting to an active market. The stock is traded by individuals on a
personal basis and is not listed on any exchange or traded on the
over-the-counter market. Due to the limited information available, the
following price information may not accurately reflect the actual market
value of the Company's shares. The following data includes trades between
individual investors. It does not include new issuances of stock, the
exercise of stock options or shares issued under the Employee Stock Purchase
Plan.
<TABLE>
<CAPTION>
Period # of Shares Price
Traded Range
<S> <C> <C>
1998 11,466 $12.50 to $17.50
1999 20,814 $17.50 to $18.00
</TABLE>
On October 1, 1998, the Company offered for sale, 100,000 shares of
one-dollar par value common stock at a subscription price of $17.50 per
share. The offering was successfully completed on December 28, 1998.
At December 31, 1999, stock options for 115,582 shares of Mountain Bank
Holding Company common stock were outstanding. See Note 11 of the audited
financial statements for additional information.
NUMBER OF EQUITY HOLDERS
As of January 31, 2000, there were 910 holders of record of the Company's
common stock.
CASH DIVIDENDS
The Company has never paid a cash dividend, and does not anticipate
paying a cash dividend in the foreseeable future. The Company expects to
retain all earnings to provide capital for operation and expansion of its
subsidiary. Dividends, when and if paid, will be subject to determination and
declaration by the Board of Directors, which will take into account the
financial condition of the Bank and the Company, results of operations, tax
considerations, industry standards, economic conditions and other relevant
factors. The ability of the Company to pay dividends in the future will
depend primarily upon the earnings of the Bank and its ability to pay
dividends to the Company.
20
<PAGE>
PAYMENT OF DIVIDENDS
The principal source of the Company's cash revenues is dividends
received from the Bank. The ability of the Bank to pay dividends is governed
by various statutes. These statutes provide that the Board of Directors of
the Bank may declare a dividend of so much of the net profits of the Bank as
they judge expedient, except that until the surplus funds of the Bank shall
equal common capital, no dividend may be declared unless there has been
carried to surplus not less than one-tenth of the net profits of the Bank of
the preceding half year in the case of quarterly or semi-annual dividends, or
not less than one-tenth of its net profits from the two preceding consecutive
half-year periods in the case of annual dividends. In addition, the approval
of the Office of the Comptroller of the Currency is required if the total of
all dividends, including a proposed dividend, declared by a bank in any
calendar year, exceeds the total of such bank's net profits of that year
combined with its retained net profits of the preceding two years.
Pursuant to authority contained in 12 USC 1818 (b), the OCC may
prohibit, by several types of enforcement action including the issuance of a
cease and desist order, those certain actions by the Bank, including payment
of dividends, which are deemed unsafe and unsound business practices.
The payment of dividends by the Bank may also be affected by other
factors, such as the maintenance of adequate capital for the Bank.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any legal actions. From time to time
in the ordinary course of business, the Company or the Bank may be involved
in litigation. Management believes that there are no proceedings threatened
or pending against the Company or the Bank other than routine litigation,
which, if determined adversely, would have a material effect on the business
or the financial position of the Company or the Bank.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There has not been a change in either the Company or the Bank's independent
accountants during the two most recent fiscal years.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 1999, no matters
were submitted to the security holders through the solicitation of proxies or
otherwise.
ITEM 5. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Company has adopted procedures to assist its directors and executive
officers with Section 16(a) of the Securities Exchange Act, which includes
assisting the officer or director in preparing forms for filing with the
Securities Exchange Commission. Based on the review of such forms, the
Company believes that all of its executive officers and directors complied
with all filing requirements applicable to them in 1999.
ITEM 6. REPORTS ON FORM 8-K
There were no reports filed on Form 8-K during the last quarter of the period
ending December 31, 1999.
21
<PAGE>
Mountain
Bank
Holding
Company
And
Subsidiary
CONSOLIDATED
FINANCIAL
REPORT
December 31
1999
<PAGE>
<TABLE>
<CAPTION>
Contents
- ------------------------------------------------------------------------------
<S> <C>
INDEPENDENT AUDITORS' REPORT........................................1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets.........................................2
Consolidated Statements of Income...................................3
Consolidated Statements of Shareholders' Equity.....................4
Consolidated Statements of Cash Flows...............................5
Notes to Consolidated Financial Statements.......................6-23
SUPPLEMENTARY INFORMATION
Average Balances and Net Interest Income...........................24
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
MOUNTAIN BANK HOLDING COMPANY
Enumclaw, Washington
We have audited the accompanying consolidated balance sheets of MOUNTAIN BANK
HOLDING COMPANY AND SUBSIDIARY as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MOUNTAIN
BANK HOLDING COMPANY AND SUBSIDIARY as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplementary
information is presented for purposes of additional analysis and is not a
required part of the basic consolidated financial statements. The
supplementary information has been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and, in
our opinion, is fairly stated in all material respects in relation to the
basic consolidated financial statements taken as a whole.
/s/ Knight Vale and Gregory PLLC
- ----------------------------------------
Tacoma, Washington
January 7, 2000
<PAGE>
CONSOLIDATED
FINANCIAL
STATEMENTS
<PAGE>
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
(Dollars in Thousands)
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,240 $ 3,369
Interest bearing deposits in banks 3,563 10,546
Securities available for sale 27,043 24,995
Loans held for sale 294 675
Loans 54,051 44,785
Allowance for credit losses 607 618
NET LOANS 53,444 44,167
Premises and equipment 3,345 3,323
Accrued interest receivable 536 530
Other assets 276 130
TOTAL ASSETS $91,741 $87,735
LIABILITIES
Deposits:
Demand $14,678 $11,717
Savings and interest-bearing demand 37,526 38,587
Time 29,042 27,289
TOTAL DEPOSITS 81,246 77,593
Accrued interest payable 194 215
Note payable 42 43
Other liabilities 97 193
TOTAL LIABILITIES 81,579 78,044
SHAREHOLDERS' EQUITY
Common stock (par value $1); authorized 5,000,000 shares;
issued and outstanding: 1999 - 924,013 shares; 1998 - 907,482 shares 924 907
Paid-in capital 6,785 6,694
Retained earnings 2,703 1,999
Accumulated other comprehensive income (loss) (250) 91
TOTAL SHAREHOLDERS' EQUITY 10,162 9,691
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $91,741 $87,735
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Amounts)
Mountain Bank Holding Company and Subsidiary
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
INTEREST INCOME
Loans $4,694 $4,441
Deposits in banks 293 296
Investment income:
Taxable 1,538 1,416
Tax-exempt 14 16
TOTAL INTEREST INCOME 6,539 6,169
INTEREST EXPENSE
Deposits 2,357 2,495
Note payable 3 4
TOTAL INTEREST EXPENSE 2,360 2,499
NET INTEREST INCOME 4,179 3,670
PROVISION FOR CREDIT LOSSES - - 78
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 4,179 3,592
NON-INTEREST INCOME
Service charges on deposit accounts 476 416
Origination fees and gains on mortgage loans sold 113 293
Other 207 155
TOTAL NON-INTEREST INCOME 796 864
NON-INTEREST EXPENSES
Salaries 1,780 1,461
Employee benefits 343 252
Occupancy 206 135
Equipment 424 319
Other 1,208 1,124
TOTAL NON-INTEREST EXPENSES 3,961 3,291
INCOME BEFORE INCOME TAXES 1,014 1,165
INCOME TAXES 310 393
NET INCOME $ 704 $ 772
EARNINGS PER SHARE
Basic $.77 $.96
Diluted .73 .90
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
(Dollars in Thousands)
Mountain Bank Holding Company and Subsidiary
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
ACCUMULATED
SHARES OF OTHER
COMMON COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK STOCK CAPITAL EARNINGS INCOME (LOSS) TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 803,374 $803 $5,058 $1,227 $ 63 $ 7,151
Comprehensive income:
Net income - - - - - - 772 - - 772
Other comprehensive income,
net of tax:
Unrealized gain on securities,
net of reclassification
adjustment - - - - - - - - 28 28
COMPREHENSIVE INCOME 800
Sale of common stock under
employee stock purchase plan 1,186 1 14 - - - - 15
Sale of common stock 102,922 103 1,622 - - - - 1,725
BALANCE AT DECEMBER 31, 1998 907,482 907 6,694 1,999 91 9,691
Comprehensive income:
Net income - - - - - - 704 - - 704
Other comprehensive income,
net of tax:
Unrealized loss on securities,
net of reclassification
adjustment - - - - - - - - (341) (341)
COMPREHENSIVE INCOME 363
Sale of common stock under
employee stock purchase plan 1,532 2 18 - - - - 20
Exercise of stock options 14,999 15 64 - - - - 79
Tax benefit from exercise of
stock options - - - - 9 - - - - 9
BALANCE AT DECEMBER 31, 1999 924,013 $924 $6,785 $2,703 ($250) $10,162
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
(Dollars in Thousands)
Mountain Bank Holding Company and Subsidiary
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 704 $ 772
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses - - 78
Depreciation and amortization 466 342
Deferred federal income taxes - - (8)
Gains on loans sold (82) (119)
Originations of loans held for sale (6,639) (13,929)
Proceeds from sales of loans 7,102 13,705
(Increase) decrease in accrued interest receivable (6) 20
Decrease in accrued interest payable (21) (25)
Other - net (25) (176)
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,499 660
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing deposits in banks 6,983 (8,098)
Activity in securities available for sale:
Purchases (13,388) (15,463)
Maturities, prepayments and calls 10,739 13,464
Increase in loans made to customers, net of principal collections (9,277) (2,255)
Additions to premises and equipment (436) (1,129)
NET CASH USED IN INVESTING ACTIVITIES (5,379) (13,481)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 3,653 11,625
Net proceeds from issuance of stock 99 1,740
Repayment of note payable (1) (2)
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,751 13,363
NET CHANGE IN CASH AND DUE FROM BANKS (129) 542
CASH AND DUE FROM BANKS
Beginning of year 3,369 2,827
END OF YEAR $ 3,240 $ 3,369
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $2,381 $2,530
Income taxes paid 466 495
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Unrealized gain (loss) on securities available for sale, net of tax ($341) $28
Tax benefit from exercise of stock options 9 - -
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION AND OPERATIONS
The consolidated financial statements include the accounts of Mountain Bank
Holding Company (the Company) and its wholly owned subsidiary, Mt. Rainier
National Bank (the Bank). All significant intercompany transactions and
balances have been eliminated. The Company is a holding company, which
operates primarily through its major subsidiary, the Bank.
The Bank operates four branches and has a customer base centered in and
around Southeastern King County and Northeastern Pierce County, Washington.
The Bank's primary source of revenue is providing loans to customers, who are
predominantly small and middle-market businesses and middle-income
individuals. Its primary funding source is deposits from businesses and
individuals in its market area.
CONSOLIDATED FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and practices within the banking
industry. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and the disclosure of contingent assets and liabilities, as of
the date of the balance sheet, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
significantly from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the
determination of the allowance for credit losses and the valuation of
deferred tax assets.
Certain prior year amounts have been reclassified to conform to the 1999
presentation. All dollar amounts, except per share information, are stated in
thousands.
SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of debt securities, which may be sold
to implement the Bank's asset/liability management strategies and in response
to changes in interest rates and similar factors, and certain equity
securities. Securities available for sale are reported at fair value.
Unrealized gains and losses, net of the related deferred tax effect, are
reported as a net amount in a separate component of shareholders' equity
entitled "accumulated other comprehensive income (loss)." Realized gains and
losses on securities available for sale, determined using the specific
identification method, are included in earnings. Amortization of premiums and
accretion of discounts are recognized in interest income over the period to
maturity.
Declines in the fair value of individual securities available for sale below
their cost that are other than temporary result in write-downs of the
individual securities to their fair value. Such write-downs are included in
earnings as realized losses.
(continued)
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS HELD FOR SALE
Mortgage loans originated for sale in the secondary market are carried at the
lower of cost or estimated market value. Net unrealized losses are recognized
through a valuation allowance established by charges to income.
LOANS
Loans are stated at the amount of unpaid principal, reduced by allowance for
credit losses. Interest on loans is accrued daily based on the principal
amount outstanding.
Generally the accrual of interest on loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due or when they are past due 90 days as to either principal or
interest, unless they are well secured and in the process of collection. When
interest accrual is discontinued, all unpaid accrued interest is reversed
against current income. If management determines that the ultimate
collectibility of principal is in doubt, cash receipts on nonaccrual loans
are applied to reduce the principal balance.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at a level considered adequate
to provide for losses that can be reasonably anticipated. The allowance is
increased by provisions charged to operations and reduced by loans charged
off, net of recoveries. The allowance is based on management's periodic
evaluation of potential losses in the loan portfolio after consideration of
historical loss experience, adverse situations that may affect the borrowers'
ability to repay, the estimated value of any underlying collateral, economic
conditions, the results of examination of individual loans, the evaluation of
the overall portfolio by senior credit personnel and federal and state
regulatory agencies, and other risks inherent in the portfolio. This
evaluation requires the use of current estimates, which may vary from the
ultimate collectibility experienced in the future. The estimates used are
reviewed periodically and, as adjustments become necessary, they are charged
to operations in the period in which they become known.
When management determines that it is possible that a borrower will be unable
to repay all amounts due according to the terms of the loan agreement,
including scheduled interest payments, the loan is considered impaired. Loans
that experience insignificant payment delays and payment shortfalls are
generally not classified as impaired. Management determines the significance
of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower's
prior payment record, and the amount of shortfall in relation to the
principal and interest owed. The amount of impairment is measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate or, when the primary source of repayment is provided
by real estate collateral, at the fair value of the collateral less estimated
selling costs. The amount of impairment and any subsequent charges are
recorded through the provision for credit losses as an adjustment to the
allowance for credit losses.
(CONTINUED)
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREMISES AND EQUIPMENT
Land is carried at cost. Premises and equipment are stated at cost less
accumulated depreciation, which is computed on the straight-line method over
the estimated useful lives of the assets. Gains or losses on dispositions are
reflected in earnings.
TRANSFERS OF FINANCIAL ASSETS
Transfers of financial assets are accounted for as sales when control over
the assets has been surrendered. Control over transferred assets is deemed to
be surrendered when (1) the assets have been isolated from the Bank, (2) the
transferee obtains the right (free of conditions that constrain it from
taking advantage of that right) to pledge or exchange the transferred assets,
and (3) the Bank does not maintain effective control over the transferred
assets through an agreement to repurchase them before their maturity.
INCOME TAXES
Deferred tax assets and liabilities result from differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities, and are reflected at currently enacted income tax rates
applicable to the period in which the deferred tax assets or liabilities are
expected to be realized or settled. The deferred tax provision represents the
difference between the net deferred tax asset/liability at the beginning and
end of the year. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income taxes.
The Bank provides for income taxes on a separate return basis and remits to
the Company amounts currently payable.
CASH AND CASH EQUIVALENTS
For purposes of presentation in the consolidated statements of cash flows,
cash and cash equivalents are defined as those amounts included in the
balance sheet caption "Cash and due from banks." The Bank maintains its cash
in depository institution accounts which, at times, may exceed federally
insured limits. The Bank has not experienced any losses in such accounts.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method, in accordance with APB No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. Accordingly, no compensation expense has been recognized in the
financial statements for employee stock arrangements. However, the required
pro forma disclosures of the effects of all options granted on or after
January 1, 1995, have been provided in accordance with SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION.
EARNINGS PER SHARE
Basic earnings per share exclude dilution and are computed by dividing net
income by the weighted average number of common shares outstanding. Diluted
earnings per share reflect the potential dilution that could occur if common
shares were issued pursuant to the exercise of options under the Company's
stock option plans.
(CONTINUED)
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in its balance sheet and measure those instruments at fair value.
Under this statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use
for assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods
must be consistent with the entity's approach to managing risk. This
statement is effective for all fiscal years beginning after June 15, 2000.
The Bank had no derivatives as of December 31, 1999, nor does the Bank engage
in any hedging activities. The Bank does not anticipate that the adoption of
SFAS No. 133 will have a material effect on its financial position or results
of operations.
NOTE 2 - RESTRICTED ASSETS
Federal Reserve Board regulations require maintenance of minimum reserve
balances with the Federal Reserve Bank. The amounts of such balances for the
years ended December 31, 1999 and 1998 was $300 annually.
NOTE 3 - DEBT AND EQUITY SECURITIES
Debt and equity securities have been classified according to management's
intent.
The carrying amounts of securities and their approximate fair values are as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1999
U.S. Treasury securities $ 5,668 $ 3 $ 25 $ 5,646
U.S. Government and agency securities 13,499 - - 243 13,256
Mortgage-backed securities 7,453 1 116 7,338
Municipal bonds 244 - - - - 244
Federal Home Loan Bank and
Federal Reserve Bank stock 559 - - - - 559
$27,423 $ 4 $384 $27,043
</TABLE>
(CONTINUED)
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 3 - DEBT AND EQUITY SECURITIES (CONCLUDED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1998
U.S. Treasury securities $ 5,425 $ 83 $ - - $ 5,508
U.S. Government and agency securities 12,554 76 12 12,618
Mortgage-backed securities 5,850 8 21 5,837
Municipal bonds 291 5 - - 296
Corporate bonds 302 - - 1 301
Federal Home Loan Bank and
Federal Reserve Bank stock 435 - - - - 435
$24,857 $172 $34 $24,995
</TABLE>
The carrying amount and approximate market value of debt securities at
December 31, 1999, by contractual maturity are shown below. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations, with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Due in one year or less $ 5,511 $ 5,484
Due in one to five years 21,304 20,951
Due in five years or more 49 49
$26,864 $26,484
</TABLE>
Securities with a carrying value of $1,003 and $1,008 at December 31, 1999
and 1998, respectively, were assigned or pledged to secure public deposits,
certain short-term borrowings, and for other purposes as required by law.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 4 - LOANS
Loans at December 31 consist of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Commercial and agricultural $15,873 $13,449
Real estate:
Residential 1-4 family 14,379 13,752
Commercial 13,872 8,284
Construction 5,117 4,255
Consumer 4,810 5,045
$54,051 $44,785
</TABLE>
Changes in the allowance for credit losses for the years ended December 31,
1999 and 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Balance at beginning of year $618 $555
Provision for credit losses -- 78
Charge-offs (16) (15)
Recoveries 5 --
NET CHARGE-OFFS (11) (15)
BALANCE AT END OF YEAR $607 $618
</TABLE>
Following is a summary of information pertaining to impaired loans:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
DECEMBER 31
Impaired loans without a valuation allowance $-- $447
Impaired loans with a valuation allowance -- --
TOTAL IMPAIRED LOANS $-- $447
VALUATION ALLOWANCE RELATED TO IMPAIRED LOANS $-- $--
YEARS ENDED DECEMBER 31
Average investment in impaired loans $65 $230
Interest income recognized on a cash basis on impaired loans 14 35
</TABLE>
(CONTINUED)
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 4 - LOANS (CONCLUDED)
At December 31, 1999, there were no commitments to lend additional funds to
borrowers whose loans have been modified. There were no loans 90 days and
over past due still accruing interest at December 31, 1999 or 1998.
At December 31, 1999 and 1998, certain officers and directors, or companies
in which they have 10% or more beneficial interest, were indebted to the Bank
in the aggregate amount of $2,976 and $1,705, respectively. During 1999
advances of $3,006 were made, and repayments totaled $1,735.
NOTE 5 - PREMISES AND EQUIPMENT
The components of premises and equipment at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Land $ 832 $ 821
Buildings 2,491 2,395
Equipment, furniture and fixtures 1,873 1,550
Construction in progress - - 7
TOTAL COST 5,196 4,773
Less accumulated depreciation 1,851 1,450
$3,345 $3,323
</TABLE>
NOTE 6 - DEPOSITS
The aggregate amount of certificates of deposit with a minimum denomination
of one hundred thousand dollars is approximately $8,126 and $8,559 at
December 31, 1999 and 1998, respectively.
At December 31, 1999, the scheduled maturities of certificates of deposit are
as follows:
<TABLE>
<S> <C>
2000 $27,117
2001 1,114
2002 354
2003 353
2004 and thereafter 104
$29,042
</TABLE>
NOTE 7 - NOTE PAYABLE
The note payable is secured by land, and is payable at $1 monthly, including
interest of 8%. Future principal maturities are $2 annually through 2004, and
$32 thereafter.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 8 - INCOME TAXES
The components of the provision for income taxes are as follows at December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current $310 $401
Deferred benefit -- (8)
INCOME TAXES $310 $393
The effect of temporary differences that give rise to significant portions of
deferred tax assets and liabilities at December 31 follows:
1999 1998
DEFERRED TAX ASSETS
Allowance for credit losses $187 $187
Deferred compensation 11 9
Accumulated depreciation 32 --
Unrealized loss on securities available for sale 129 --
Other 1 6
TOTAL DEFERRED TAX ASSETS 360 202
DEFERRED TAX LIABILITIES
Cash basis tax accounting 78 98
Deferred income 166 117
Unrealized gain on securities available for sale -- 47
Total deferred tax liabilities 244 262
NET DEFERRED TAX ASSETS (LIABILITIES) $116 ($ 60)
</TABLE>
The following is a reconciliation between the statutory and effective federal
income tax rates for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998
PERCENT OF PERCENT OF
PRE-TAX PRE-TAX
AMOUNT INCOME AMOUNT INCOME
<S> <C> <C> <C> <C>
Income tax at statutory rate $345 34.0% $396 34.0%
Increase (decrease) resulting from:
Tax-exempt income (8) (.8) (6) (.5)
Other (27) (2.6) 3 .2
TOTAL INCOME TAX EXPENSE $310 30.6% $393 33.7%
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 9 - COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. The
financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the consolidated balance
sheets.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. A
summary of the Bank's commitments is as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Commercial and agriculture $4,787 $3,227
Real estate 2,163 2,296
Credit cards 2,381 2,436
$9,331 $7,959
</TABLE>
Outstanding commitments under letters of credit totaled $653 and $113 at
December 31, 1999 and 1998, respectively.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since
many of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Bank's experience has been that approximately 53% of loan
commitments are drawn upon by customers. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the party. Collateral held varies, but may
include accounts receivable, inventory, property and equipment, residential
real estate, and income-producing commercial properties.
Letters of credit are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held
varies as specified above, and is required in instances where the Bank deems
necessary.
The Bank has agreements with commercial banks for lines of credit totaling
approximately $3,700, and a credit line with the Federal Home Loan Bank
totaling 10% of assets. The Bank has entered into a blanket pledge agreement
with the Federal Home Loan Bank to secure this credit line. These lines were
not drawn upon in 1999 or 1998.
On February 13, 1997, the Company entered into a settlement agreement with
the Bank's former president whereby the Company agreed to pay $155 for a
three-year noncompete agreement and other benefits. In addition, the
executive agreed to forfeit stock options for 20,000 fully vested shares at
an option price of $5 per share. Amortization of this non-compete agreement
totaled $52 annually for the years ended December 31, 1999 and 1998.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 10 - CONCENTRATION OF CREDIT RISK
The Bank has credit risk exposure, including off-balance-sheet credit risk
exposure, as disclosed in Notes 4 and 9. The ultimate collectibility of a
substantial portion of the loan portfolio is susceptible to changes in
economic and market conditions in the region. The Bank generally requires
collateral on all real estate loans and typically maintains loan-to-value
ratios of no greater than 75%. Loans are generally limited, by federal and
state banking regulations, to 15% of the Bank's shareholders' equity,
excluding accumulated other comprehensive income (loss). The Bank, as a
matter of practice, generally does not extend credit to any single borrower
or group of related borrowers in excess of $800.
The contractual amounts of credit related financial instruments such as
commitments to extend credit, credit card arrangements, and letters of credit
represent the amounts of potential accounting loss should the contract be
fully drawn upon, the customer default, and the value of any existing
collateral become worthless.
Investments in state and municipal securities involve governmental entities
within the Bank's market area. Letters of credit were granted primarily to
commercial borrowers.
NOTE 11 - STOCK OPTION PLANS
DIRECTOR PLANS
The 1990 Director Stock Option Plan grants a director an option to purchase
6,000 shares of common stock upon initial election to the Board of Directors
at an exercise price equal to the fair market value of the common stock at
the date of grant. Options are exercisable on a cumulative basis in annual
installments of one-third each on the third, fourth and fifth anniversary of
the date of grant. A total of 60,000 shares of the Company's common stock
were reserved for option under this plan, of which 54,000 options at $5 per
share were granted on June 13, 1990, to expire on June 13, 2005. All options
granted are fully vested at December 31, 1999.
The 1999 Director Stock Option Plan grants a director an option to purchase
shares of common stock at an exercise price which must be no less than the
greater of the fair market value of the common stock or the net book value of
the common stock at the time of grant. A total of 20,000 shares of the
Company's common stock were reserved for option under this plan; none had
been granted as of December 31, 1999.
EMPLOYEE PLANS
In 1990 and 1999, the Company adopted plans providing for granting certain
key employees options to purchase common stock. Under the terms of the plans,
options are incentive stock options (as defined in the Internal Revenue
Code). The option price will be fair market value at the date of grant or a
price determined by the Board of Directors, but not less than fair value.
Options are exercisable on a cumulative basis in annual installments of
one-third each on the third, fourth and fifth anniversary of the date of
grant. Pursuant to these plans, 100,000 shares are reserved for option as of
December 31, 1999, of which 79,249 shares have been granted.
(CONTINUED)
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 11 - STOCK OPTION PLANS (CONTINUED)
EMPLOYEE PLANS (CONCLUDED)
The Company has adopted the disclosure-only provisions of SFAS No. 123, but
applies APB Opinion No. 25 in accounting for its plans. If the Company had
elected to recognize compensation cost for stock options issued subsequent to
December 31, 1994, based on the fair value at the grant dates, consistent
with the method prescribed by SFAS No. 123, net income and earnings per share
would have been changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net income:
As reported $704 $772
Pro forma 638 732
Earnings per share:
Basic:
As reported $.77 $.96
Pro forma .70 .91
Diluted:
As reported .73 .90
Pro forma .67 .86
</TABLE>
The fair value of each option grant is estimated on the date of grant, based
on the Black-Scholes option-pricing model and using the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Dividend yield --% --%
Expected life 10 years 8 years
Risk-free interest rate 6.16% 5.07%
</TABLE>
The weighted average fair value of options granted during 1999 and 1998 was
$8.01 and $5.32, respectively.
(CONTINUED)
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 11 - STOCK OPTION PLANS (CONCLUDED)
A summary of the status of the Company's stock option plan as of December 31,
1999 and 1998, and changes during the years ending on those dates, is
presented below:
<TABLE>
<CAPTION>
1999 1998
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C>
Outstanding at beginning of year 109,332 $ 7.30 103,832 $ 6.83
Granted 26,750 17.63 5,500 16.27
Exercised 14,999 5.36 -- --
Forfeited 5,501 12.62 -- --
OUTSTANDING AT END OF YEAR 115,582 9.70 109,332 7.30
Options exercisable at year-end 64,332 79,332
</TABLE>
The following information summarizes information about stock options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$5.00 - $6.25 63,332 4.1 $ 5.04 63,332 $ 5.04
$11.00 - $13.00 22,500 7.5 12.33 1,000 11.00
$17.50 - $18.00 29,750 9.5 17.61 -- --
</TABLE>
NOTE 12 - PROFIT SHARING PLAN
The Bank's defined contribution profit sharing plan covers substantially all
employees who have completed one year or more of service. Employees are
eligible to defer up to 15% of their gross salary, with employer
contributions to the Plan made at the discretion of the Board of Directors.
The Bank's contributions for the years ended December 31, 1999 and 1998,
totaled $31 annually.
F-17
<PAGE>
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 13 - DEFERRED COMPENSATION AGREEMENT
In 1993 the Bank established a deferred compensation agreement with a
director under which the director will defer his director fees. At retirement
he will receive a benefit of $1 per month for 120 months. The accrued
liability related to this agreement totaled $31 and $26 at December 31, 1999
and 1998, respectively. Expenses associated with this plan were $5 annually
in 1999 and 1998. The Bank has also purchased a whole-life insurance policy
on the director, which may be used to fund benefits under the deferred
compensation agreement.
NOTE 14 - EMPLOYEE STOCK PURCHASE PLAN
Effective July 1, 1995, the Company adopted an employee stock purchase plan
whereby eligible employees can purchase common stock at the lesser of the
stock's fair market value at the beginning or the end of the plan year. The
aggregate number of shares reserved under this plan is 19,270. No employee
can purchase more than 200 shares of common stock valued at more than $25 in
any plan year; 1,532 and 1,186 shares were issued at a price of $12.50 per
share for the years ended December 31, 1999 and 1998, respectively.
NOTE 15 - REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by federal banking agencies. Failure to meet
minimum capital requirements can cause certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken, could
have a direct material effect on the Company's and the Bank's financial
statements. Under capital adequacy guidelines of the regulatory framework for
prompt corrective action, the Company and the Bank must meet specific capital
adequacy guidelines that involve quantitative measures of the Company's and
the Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company's and the
Bank's capital classifications are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of Tier 1 capital (as defined in the regulations)
to total average assets (as defined), and minimum ratios of Tier 1 and total
capital (as defined) to risk-weighted assets (as defined).
As of December 31, 1999, the most recent notification from the Bank's
regulator categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table. There are
no conditions or events since that notification that management believes have
changed the institution's category.
(CONTINUED)
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 15 - REGULATORY MATTERS (CONCLUDED)
The Company's and the Bank's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
UNDER PROMPT
CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1999
TIER 1 CAPITAL (TO AVERAGE ASSETS):
Consolidated $10,408 11.80% $3,527 4.00% N/A N/A
Bank 10,273 11.65 3,527 4.00 $4,408 5.00%
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS):
Consolidated 10,408 17.93 2,322 4.00 N/A N/A
Bank 10,273 17.69 2,322 4.00 3,483 6.00
TOTAL CAPITAL:
Consolidated 11,015 18.97 4,645 8.00 N/A N/A
Bank 10,881 18.74 4,645 8.00 5,806 10.00
DECEMBER 31, 1998
TIER 1 CAPITAL (TO AVERAGE ASSETS):
Consolidated $ 9,600 11.39% $3,371 4.00% N/A N/A
Bank 9,441 11.21 3,369 4.00 $4,211 5.00%
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS):
Consolidated 9,600 18.79 2,044 4.00 N/A N/A
Bank 9,441 18.47 2,044 4.00 3,066 6.00
TOTAL CAPITAL:
Consolidated 10,218 19.99 4,089 8.00 N/A N/A
Bank 10,059 19.68 4,089 8.00 5,111 10.00
</TABLE>
Management believes, as of December 31, 1999, that the Company and the Bank
meet all capital requirements to which they are subject.
RESTRICTIONS ON RETAINED EARNINGS
National banks can initiate dividend payments in a given year, without prior
regulatory approval, equal to net profits, as defined, for that year plus
retained net profits for the preceding two years. The Bank can distribute as
dividends to the parent company approximately $1,623 as of December 31, 1999,
without regulatory approval.
F-19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 16 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
CONDENSED BALANCE SHEETS - DECEMBER 31
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
Cash $ 31 $ 73
Investment in the Bank 10,022 9,532
Due from subsidiary 37 127
Other assets 72 56
TOTAL ASSETS $10,162 $9,788
LIABILITIES AND SHAREHOLDERS' EQUITY
Federal income taxes payable $ -- $ 97
Shareholders' equity 10,162 9,691
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,162 $9,788
CONDENSED STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31
OPERATING INCOME/BANK
Dividend from subsidiary $ -- $500
OPERATING EXPENSES (192) (70)
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY
IN UNDISTRIBUTED INCOME OF SUBSIDIARY (192) 430
INCOME TAX BENEFIT (65) (26)
INCOME (LOSS) BEFORE EQUITY IN
UNDISTRIBUTED INCOME OF SUBSIDIARY (127) 456
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY 831 316
NET INCOME $704 $772
</TABLE>
(CONTINUED)
F-20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 16 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONCLUDED)
CONDENSED STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $704 $ 772
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of organization costs -- 1
Amortization of covenant not to compete 52 52
Equity in undistributed income of subsidiary (831) (316)
Decrease in receivable from subsidiary 90 68
Decrease in federal income taxes payable (156) (94)
Decrease in other liabilities -- (80)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (141) 403
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiaries -- (2,750)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 99 1,740
NET CHANGE IN CASH (42) (607)
CASH
Beginning of year 73 680
END OF YEAR $ 31 $ 73
</TABLE>
NOTE 17 - OTHER EXPENSES
Other expenses include the following amounts which are in excess of 1% of the
total of interest income and non-interest income for the years ended December
31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Professional fees $ 87 $ 76
Data processing 402 347
Office supplies and expenses 110 119
Business taxes 81 79
</TABLE>
F-21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 18 - EARNINGS PER SHARE DISCLOSURES
Following is information regarding the calculation of basic and diluted earnings
per share for the years indicated:
<TABLE>
<CAPTION>
NET INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Basic earnings per share:
Net income $704 913,748 $.77
Effect of dilutive securities:
Options -- 52,446 (.04)
Diluted earnings per share:
NET INCOME $704 966,194 $.73
YEAR ENDED DECEMBER 31, 1998
Basic earnings per share:
Net income $772 807,732 $.96
Effect of dilutive securities:
Options -- 51,240 (.06)
Diluted earnings per share:
NET INCOME $772 858,972 $.90
</TABLE>
The number of shares shown for "options" is the number of incremental shares
that would result from exercise of options and use of the proceeds to
repurchase shares at the average market price during the year.
NOTE 19 - CAPITAL OFFERING
On October 1, 1998, the Company offered for sale 100,000 shares of one-dollar
par value common stock at a subscription price of $17.50 per share. The
offering was to the general public and was concluded on December 28, 1998.
F-22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Mountain Bank Holding Company and Subsidiary
December 31, 1999 and 1998
NOTE 20 - COMPREHENSIVE INCOME
Net unrealized gains and losses include, net of tax, $340 of unrealized
losses arising during 1999 and $43 of unrealized gains arising during 1998,
less reclassification adjustments of $1 and $15 for gains included in net
income in 1999 and 1998, respectively, as follows:
<TABLE>
<CAPTION>
BEFORE- TAX
TAX BENEFIT NET-OF-TAX
AMOUNT (EXPENSE) AMOUNT
<S> <C> <C> <C>
1999
Unrealized holding losses arising during the year ($517) $177 ($340)
Reclassification adjustments for gains realized in net income (1) -- (1)
NET UNREALIZED LOSSES ($518) $177 ($341)
1998
Unrealized holding gains arising during the year $64 $21 $43
Reclassification adjustments for gains realized in net income (23) (8) (15)
NET UNREALIZED GAINS $41 $13 $28
</TABLE>
F-23
<PAGE>
SUPPLEMENTARY
INFORMATION
<PAGE>
AVERAGE BALANCES AND NET INTEREST INCOME
- --------------------------------------------------------------------------------
(Dollars in Thousands)
Mt. Rainier National Bank
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE (EXPENSES) RATE BALANCE (EXPENSES) RATE
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans $48,022 $4,694 9.8% $43,831 $4,441 10.1%
Investment securities:
Taxable 26,895 1,538 5.7 23,342 1,416 6.1
Tax-exempt 287 21* 7.3 332 25* 7.5
TOTAL INVESTMENT SECURITIES 27,182 1,559 5.7 23,674 1,441 6.1
Federal funds sold and interest
bearing deposits in banks 5,960 293 4.9 5,371 296 5.5
TOTAL INTEREST EARNING ASSETS/
INTEREST INCOME 81,164 6,546 8.1% 72,876 6,178 8.5%
Cash and due from banks 3,470 3,532
Premises and equipment - net 3,410 1,606
Other assets 734 813
Allowance for credit losses (611) (608)
TOTAL ASSETS $88,167 $78,219
INTEREST BEARING LIABILITIES
Deposits:
Savings and interest bearing
demand $37,114 (991) 2.7% $34,558 (1,052) 3.0%
Time 27,599 (1,366) 4.9 26,157 (1,443) 5.5
TOTAL DEPOSITS 64,713 (2,357) 3.6 60,715 (2,495) 4.1
Other borrowings 42 (3) 7.1 45 (4) 8.9
TOTAL INTEREST BEARING LIABILITIES
INTEREST EXPENSE 64,755 (2,360) 3.6% 60,760 (2,499) 4.1%
Demand deposits 13,140 10,869
Other liabilities 457 485
Shareholders' equity 9,815 6,105
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $88,167 $78,219
NET INTEREST INCOME $4,186 $3,679
NET INTEREST INCOME AS A PERCENTAGE
OF AVERAGE EARNING ASSETS
Interest income 8.1% 8.5%
Interest expense 2.9 3.5
NET INTEREST INCOME 5.2% 5.0%
</TABLE>
* TAX EQUIVALENT BASIS
F-24
<PAGE>
PART III
EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Articles of Incorporation and Amendment, of the registrant (1)
2.2 By-laws of the registrant, currently in effect (1)
6.2 Mt. Rainier National Bank 1990 Employee Stock Option Plan (1)
6.3 Mt. Rainier National Bank 1990 Director Stock Option Plan (1)
6.4 Mt. Rainier National Bank 1995 Employee Stock Purchase Plan (1)
6.5 Mt. Rainier National Bank 1999 Employee Stock Option Plan
6.6 Forms of 1999 Employee Stock Option Plan
6.7 Mt. Rainier National Bank 1999 Director Stock Option Plan
6.8 Form of 1999 Director Stock Option Plan
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the Company's registration statement on Form
SB-1 (File No. 333-36647).
E-1
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
MOUNTAIN BANK HOLDING COMPANY
Date: February 28, 2000
By: /s/ Roy T. Brooks
-------------------------------------------
Roy T. Brooks, Chairman of the Board & CEO
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By: /s/ Roy T. Brooks Date: February 28, 2000
-------------------------------------------
Roy T. Brooks, Chairman of the Board & CEO
(Principal Executive Officer)
By: /s/ Sheila M. Brumley Date: February 28, 2000
-------------------------------------------
Sheila M. Brumley, CFO & Secretary to the Board
(Principal Accounting Officer)
By: /s/ Susan K. Bowen-Hahto By: /s/ Brian W. Gallagher
----------------------------------- -------------------------------
Susan K. Bowen-Hahto, Director Brian W. Gallagher, Director
Date: February 28, 2000 Date: February 28, 2000
By: /s/ Michael K. Jones By: /s/ Hans Rudy Zurcher
----------------------------------- -------------------------------
Michael K. Jones, Director Hans Rudy Zurcher, Director
Date: February 28, 2000 Date: February 28, 2000
By: /s/ Barry C. Kombol By: /s/ John W. Raeder
----------------------------------- -------------------------------
Barry C. Kombol, Director John W. Raeder, Director
Date: February 28, 2000 Date: February 28, 2000
By: /s/ Garrett S. Van Beek By: /s/ Steve W. Moergeli
----------------------------------- -------------------------------
Garrett S. Van Beek, Director Steve W. Moergeli, Director
Date: February 28, 2000 Date: February 28, 2000
S-1
<PAGE>
EXHIBIT 6.5
MOUNTAIN BANK HOLDING COMPANY
EMPLOYEE STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. The purpose of this Employee Stock Option Plan
("Plan") is to secure for MOUNTAIN BANK HOLDING COMPANY ("Holding
Company") and its shareholders the benefits which flow from providing key
employees of Holding Company with incentive inherent in common stock
ownership. It is generally recognized that stock options plans aid in
retaining competent employees, furnish a device to attract employees of
exceptional ability, and provide incentive to employees to make the
Holding Company successful. Holding Company intends that Options issued
pursuant to this Plan shall constitute either Incentive Stock Options
within the meaning of Section 422 of the Code or Nonqualified Stock
Options.
2. DEFINITIONS. As used in this Plan, the following definitions apply:
a. "Board" means the Board of Directors of Holding Company.
b. "Code" means the Internal Revenue Code of 1986, as amended.
c. "Common Stock" means Holding Company's common stock, currently
with a par value of $1.00 per share.
d. "Committee" has the meaning set forth in subparagraph 4(a) of
this Plan.
e. "Continuous Status as Employee" means the absence of any
interruption or termination of service as an Employee. Continuous
Status as an Employee shall not be considered interrupted in the
case of sick leave, military leave or any other approved leave of
absence.
f. "Date of Grant" of an Option means the date on which the Committee
makes the determination granting such Option, or such later date
as the Committee may designate. The Date of Grant shall be
specified in the Option agreement.
g. "Employee" means any person employed by Holding Company, or a
Subsidiary of Holding Company which is currently in existence or
is hereafter organized or is acquired by Holding Company.
h. "Exercise Price" has the meaning set forth in subparagraph 4(b)(2)
of this Plan.
i. "Holding Company" has the meaning set forth in paragraph 1 of this
Plan.
j. "Option" means a stock option granted under this Plan. Options
shall include both Incentive Stock Options as defined under
Section 422 of the Code and
1
<PAGE>
Nonqualified Stock Options, which refer to all stock options
other than Incentive Stock Options.
k. "Optionee" means an Employee who receives an Option.
l. "Plan" has the meaning set forth in paragraph 1 of this Plan.
m. "Parent" means any corporation owning at least eighty percent
(80%) of the total voting power of the issued and outstanding
stock of Holding Company, and eighty percent (80%) of the total
value of the issued and outstanding stock of Holding Company.
n. "Shareholder-Employee" means an Employee who owns stock
representing more than ten percent (10%) of the total combined
voting power of all classes of stock of Holding Company or of any
Subsidiary or parent company. For this purpose, the attribution
of stock ownership rules provided in Section 424(d) of the Code
shall apply.
o. "Subsidiary" means any corporation of which not less than fifty
percent (50%) of the voting shares are held by Holding Company or
a Subsidiary, whether or not such corporation now exists or is
hereafter organized or acquired by Holding Company or a
Subsidiary.
3. STOCK SUBJECT TO OPTIONS.
a. NUMBER OF SHARES RESERVED. The maximum number of shares which may
be optioned and sold under this Plan is 40,000 shares of the
Common Stock of Holding Company (subject to adjustment as provided
in subparagraph 6(j) of this Plan). During the term of this Plan,
Holding Company will at all times reserve and keep available a
sufficient number of shares of its Common Stock to satisfy the
requirements of this Plan.
b. EXPIRED OPTIONS. If any outstanding Option expires or becomes
unexercisable for any reason without having been exercised in
full, the shares of Common Stock allocable to the unexercised
portion of such Option will again become available for other
Options.
4. ADMINISTRATION OF THE PLAN.
a. THE COMMITTEE. The Board will administer this Plan directly,
acting as a Committee of the whole, or if the Board elects, by a
separate Committee appointed by the Board for that purpose and
consisting of at least two non-employee Board members. All
references in the Plan to the "Committee" refers to this separate
Committee, if any is established, or if none is then in existence,
refers to the Board as a whole. Once appointed, any Committee
will continue to serve until otherwise directed by the Board.
From time to time, the Board may
2
<PAGE>
increase the size of the Committee and appoint additional
members, remove members (with or without cause), appoint new
members in substitution, and fill vacancies however caused.
The Committee will select one of its members as chairman, and
will hold meetings at such times and places as the chairman or
a majority of the Committee may determine. At all times, the
Board will have the power to remove all members of the Committee
and thereafter to directly administer this Plan as a Committee
of the whole.
(1) Members of the Committee who are eligible for Options or
who have been granted Options will be counted for all
purposes in determining the existence of a quorum at any
meeting of the Committee and will be eligible to vote on
all matters before the Committee respecting the granting of
Options or administration of this Plan.
(2) At least annually, the Committee must present a written
report to the Board indicating the persons to whom Options
have been granted since the date of the last such report,
and in each case the Date of Grant, the number of shares
optioned, and the per-share Exercise Price.
b. POWERS OF THE COMMITTEE. All actions of the Committee must be
either (i) by a majority vote of the members of the full Committee
at a meeting of the Committee, or (ii) by unanimous written
consent of all members of the full Committee without a meeting.
All decisions, determinations and interpretations of the Committee
will be final and binding on all persons, including all Optionees
and any other holders or persons interested in any Options, unless
otherwise expressly determined by a vote of the majority of the
entire Board. No member of the Committee or of the Board will be
liable for any action or determination made in good faith with
respect to the Plan or any Option. Subject to all provisions and
limitations of the Plan, the Committee will have the authority and
discretion:
(1) to determine the persons to whom Options are to be granted,
the Dates of Grant, and the number of shares to be
represented by each Option;
(2) to determine the price at which shares of Common Stock are
to be issued under an Option, subject to subparagraph 6(b)
of this Plan ("Exercise Price");
(3) to determine all other terms and conditions of each Option
granted under this Plan (including specification of the
dates upon which Options become exercisable, and whether
conditioned on performance standards, periods of service or
otherwise), which terms and conditions can vary between
Options;
(4) to modify or amend the terms of any Option previously
granted, or to grant substitute Options, subject to
subparagraphs 6(l) and 6(m) of this Plan;
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<PAGE>
(5) to authorize any person or persons to execute and deliver
Option agreements or to take any other actions deemed by
the Committee to be necessary or appropriate to effect the
grant of Options by the Committee;
(6) to interpret this Plan and to make all other determinations
and take all other actions which the Committee deems
necessary or appropriate to administer this Plan in
accordance with its terms and conditions.
5. ELIGIBILITY. Options may be granted only to Employees. Granting of
Options under this Plan will be entirely discretionary with the
Committee. Adoption of this Plan will not confer on any Employee any
right to receive any Option or Options under this Plan unless and until
said Options are granted by the Committee in its sole discretion.
Neither the adoption of this Plan nor the granting of any Options under
this Plan will confer upon any Employee or Optionee any right with
respect to continuation of employment, nor will the same interfere in any
way with his or her right or with the right of the shareholders of
Holding Company or any Subsidiary to terminate his or her employment at
any time.
6. TERMS AND CONDITIONS OF OPTIONS. All Options granted under this Plan
must be authorized by the Committee, and must be documented in written
Option agreements in such form as the Committee will approve from time to
time, which agreements must comply with and be subject to all of the
following terms and conditions:
a. NUMBER OF SHARES; ANNUAL LIMITATION. Each Option agreement must
state whether the Option is intended to be an Incentive Stock
Option or a Nonqualified Stock Option and the number of shares
subject to Option. Any number of Options may be granted to an
Employee at any time; except that, in the case of Incentive Stock
Options, the aggregate fair market value (determined as of each
Date of Grant) of all shares of Common Stock with respect to which
Incentive Stock Options become exercisable for the first time by
such Employee during any one calendar year (under all incentive
stock option plans of the Company and all of its Subsidiaries
taken together) shall not exceed $100,000. Any portion of an
Option in excess of the $100,000 limitation shall be treated as a
Nonqualified Stock Option.
b. EXERCISE PRICE AND CONSIDERATION. The Exercise Price shall be the
price determined by the Committee, subject to subparagraphs (1)
and (2) below.
(1) In the case of Incentive Stock Options, the Exercise Price
shall in no event be less than the fair market value of the
Common Stock on the Date of Grant. In the case of an
Incentive Stock Option granted to a Employee who,
immediately before the grant of such Incentive Stock
Option, is a Shareholder-Employee, the Exercise Price shall
be at least 110% of the fair market value of the Common
Stock on the Date of Grant.
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(2) In all cases, the Exercise Price shall be no less than the
greater of (i) the fair market value of the Common Stock or
(ii) the net book value of the Common Stock at the time of
grant, as is determined by the Committee.
(3) In all cases, the Exercise Price shall be payable either
(i) in United States dollars upon exercise of the Option,
or (ii) if approved by the Board, other consideration
including without limitation Common Stock of Holding
Company, services, debt instruments or other property.
c. TERM OF OPTION. No Option shall in any event be exercisable after
the expiration of ten (10) years from the Date of Grant. Further,
no Incentive Stock Option granted to a Employee who, immediately
before such Incentive Stock Option is granted, is a
Shareholder-Employee shall be exercisable after the expiration of
five (5) years from the Date of Grant. Subject to the foregoing
and other applicable provisions of the Plan including but not
limited to subparagraphs 6(g), 6(h) and 6(i), the term of each
Option will be determined by the Committee in its discretion.
d. NON-TRANSFERABILITY OF OPTIONS. No Option may be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and
may be exercised, during the lifetime of the Optionee, only by the
Optionee.
e. MANNER OF EXERCISE. An Option will be deemed to be exercised when
written notice of exercise has been given to Holding Company in
accordance with the terms of the Option by the person entitled to
exercise the Option, together with full payment for the shares of
Common Stock subject to said notice.
f. RIGHTS AS SHAREHOLDER. An Optionee shall have none of the rights
of a shareholder with respect to any shares covered by his or her
Option unless and until the Optionee has exercised such Option and
submitted full payment for the shares.
g. DEATH OF OPTIONEE. An Option shall be exercisable at any time
prior to termination under subparagraphs (1) or (2), below, by the
Optionee's estate or by such person or persons who have acquired
the right to exercise the Option by bequest or by inheritance or
by reason of the death of the Optionee. In the event of the death
of an Holder,
(1) an Incentive Stock Option shall terminate no later than the
earliest of (i) one year after the date of death of the
Optionee if the Optionee had been in Continuous Status as
an Employee since the Date of Grant of the Option, or
(ii) the date specified under subparagraph 6(i) of this
Plan if the Optionee's status as an Employee was terminated
prior to his or her death, or (iii) the expiration date
otherwise provided in the applicable Option agreement; and
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(2) a Nonqualified Stock Option shall terminate no later than
the earlier of (i) one year after the date of death of the
Optionee, or (ii) the expiration date otherwise provided in
the Option agreement, except that if the expiration date of
a Nonqualified Stock Option should occur during the 180-day
period immediately following the Optionee's death, such
Option shall terminate at the end of such 180-day period.
h. DISABILITY OF OPTIONEE. If an Optionee's status as an Employee is
terminated at any time during the Option period by reason of a
disability (within the meaning of Section 22(e)(3) of the Code)
and if said Optionee had been in Continuous Status as an Employee
at all times between the date of grant of the Option and the
termination of his or her status as an Employee, his or her Option
shall terminate no later than the earlier of (i) one year after
the date of termination of his or her status as an Employee, or
(ii) the expiration date otherwise provided in his or her Option
agreement.
i. TERMINATION OF STATUS AS AN EMPLOYEE.
(1) If an Optionee's status as an Employee is terminated at any
time after the grant of an Option to such Employee for any
reason other than death or disability (as described in
subparagraphs 6(g) and 6(h) above) and not for cause, as
provided in subparagraph (2) below, then such Option shall
terminate no later than the earlier of (i) the same day of
the third month after the date of termination of his or her
status as an Employee, or (ii) the expiration date
otherwise provided in his or her Option agreement.
(2) If an Optionee's status as an Employee is terminated for
cause at any time after the grant of an Option to such
Employee, then such Option shall terminate at the end of
the day on the date of termination of his or her status as
an Employee. For this purpose, "cause" includes fraud or
willful misconduct or any other conduct which the Board
reasonably believes will cause or has caused Holding
Company substantial injury as a result of gross negligence
or dishonesty.
j. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any
required action by the shareholders of Holding Company, the number
of shares of Common Stock covered by each outstanding Option, the
number of shares of Common Stock available for grant of additional
Options, and the per-share Exercise Price in each outstanding
Option, will be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting
from any stock split or other subdivision or consolidation of
shares, the payment of any stock dividend (but only on the Common
Stock) or any other increase or decrease in the number of such
shares of Common Stock effected without receipt of consideration
by Holding Company; PROVIDED, however, that conversion of any
convertible securities of Holding Company will not be deemed to
have been "effected without
6
<PAGE>
receipt of consideration." Such adjustment will be made by the
Committee, whose determination in that respect will be final,
binding and conclusive.
(1) Except as otherwise expressly provided in this subparagraph
6(j), no Optionee will have any rights by reason of any
stock split or the payment of any stock dividend or any
other increase or decrease in the number of shares of
Common Stock, and no issuance by Holding Company of shares
of stock of any class, or securities convertible into
shares of stock of any class, will affect the number of
shares or Exercise Price subject to any Options, and no
adjustments in Options will be made by reason thereof. The
grant of an Option under this Plan will not affect in any
way the right or power of Holding Company to make
adjustments, reclassifications, reorganizations or changes
of its capital or business structure.
k. CONDITIONS UPON ISSUANCE OF SHARES. Shares of Common Stock will
not be issued with respect to an Option granted under this Plan
unless the exercise of such Option and the issuance and delivery
of such shares pursuant thereto will comply with all applicable
provisions of law, including applicable federal and state
securities laws. As a condition to the exercise of an Option,
Holding Company may require the person exercising such Option to
represent and warrant at the time of exercise that the shares of
Common Stock are being purchased only for investment and without
any present intention to sell or distribute such Common Stock if,
in the opinion of counsel for Holding Company, such a
representation is required by any of the aforementioned relevant
provisions of law.
l. CORPORATE SALE TRANSACTIONS. In the event of the merger or
reorganization of Holding Company with or into any other
corporation, the sale of substantially all of the assets of
Holding Company, or a dissolution or liquidation of Holding
Company (collectively, "Sale Transaction"), (1) all outstanding
Options that are not then fully exercisable will become
exercisable upon the date of closing of any sale transaction or
such earlier date as the Committee may fix; and (2) the Committee
may, in the exercise of its sole discretion, terminate all
outstanding Options as of a date fixed by the Committee. In such
event, however, the Committee must notify each Optionee of such
action in writing not less than sixty (60) days prior to the
termination date fixed by the Committee, and each Optionee must
have the right to exercise his or her Option prior to said
termination date.
m. SUBSTITUTE STOCK OPTIONS. In connection with an internal
reorganization of Holding Company, the Committee is authorized, in
its discretion, to substitute for any unexercised Option, a new
option for shares of the resulting entity's stock.
n. TAX COMPLIANCE. Holding Company, in its sole discretion, may take
actions reasonably believed by it to be required to comply with
any local, state, or federal tax laws relating to the reporting or
withholding of taxes attributable to the grant or exercise of any
Option or the disposition of any shares of Common Stock
7
<PAGE>
issued upon exercise of an Option, including, but not limited to
(i) withholding from any Optionee exercising an Option a number
of shares of Common Stock having a fair market value equal to the
amount required to be withheld by Holding Company under applicable
tax laws, and (ii) withholding from any form of compensation or
other amount due an Optionee, or holder, of shares of Common Stock
issued upon exercise of an Option any amount required to be
withheld by Holding Company under applicable tax laws.
Withholding or reporting will be considered required for purposes
of this subparagraph if the Committee, in its sole discretion, so
determines.
o. HOLDING PERIOD FOR INCENTIVE STOCK OPTIONS. With regard to shares
of Common Stock issued pursuant to an Incentive Stock Option
granted under the Plan, if the Optionee (or such other person who
may exercise the Option pursuant to subparagraph 6(g) of this
Plan) makes a disposition of such shares within two years from the
Date of Grant of such Option, or within one year from the date of
issuance of such shares to the Optionee upon the exercise of such
Option, then the Optionee must notify the Company in writing of
such disposition and must cooperate with the Company in any tax
compliance relating to such disposition.
p. OTHER PROVISIONS. Option agreements executed under this Plan may
contain such other provisions as the Committee will deem
advisable.
7. TERM OF THE PLAN. This Plan will become effective and Options may be
granted upon the Plan's approval by the Board, subject to shareholder
approval. Unless sooner terminated as provided in subparagraph 7(a) of
this Plan, this Plan will terminate on the tenth (10th) anniversary of
its effective date. Options may be granted at any time after the
effective date and prior to the date of termination of this Plan.
a. AMENDMENT OR EARLY TERMINATION OF THE PLAN. The Board may
terminate this Plan at any time. The Board may amend this Plan at
any time and from time to time in such respects as the Board may
deem advisable, except that, without approval of the shareholders,
no revision or amendment will increase the number of shares of
Common Stock subject to this Plan other than in connection with an
adjustment under subparagraph 6(j) of this Plan.
b. EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination
of this Plan will affect Options granted prior to such amendment
or termination, and all such Options will remain in full force and
effect notwithstanding such amendment or termination.
8. SHAREHOLDER APPROVAL. Adoption of this Plan will be subject to
ratification by affirmative vote of shareholders owning at least a
majority of the outstanding Common Stock of Holding Company at a duly
convened meeting. If such shareholder approval is not obtained within
twelve (12) months after the date of the Board's adoption of this Plan,
then this Plan shall terminate subject to subparagraph 7(b) of the Plan
except that
8
<PAGE>
any Incentive Stock Options previously granted under the Plan shall
become Nonqualified Stock Options, and no further Options shall be
granted under the Plan.
* * * * *
9
<PAGE>
CERTIFICATE OF ADOPTION
I certify that the foregoing Employee Stock Option Plan was approved
by the Board of Directors of Mountain Bank Holding Company on February 18,
1999.
I further certify that the foregoing Employee Stock Option Plan was
approved by the shareholders of Mountain Bank Holding Company on April 13,
1999.
/s/ Sheila Marie Brumley
---------------------------------------
Sheila Marie Brumley, Secretary
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<PAGE>
EXHIBIT 6.6
MOUNTAIN BANK HOLDING COMPANY
EMPLOYEE INCENTIVE STOCK OPTION AGREEMENT
This Employee Incentive Stock Option Agreement ("Agreement") is entered into
by and between MOUNTAIN BANK HOLDING COMPANY, a Washington corporation (the
"Holding Company") and the Employee, named below.
1. Pursuant to Holding Company's Employee Stock Option Plan (the "Plan") and
subject to the terms of this Agreement, Holding Company hereby grants the
following irrevocable incentive stock option ("Option"):
Employee:_____________________________________________________________
Option Shares:____________________ Exercise Price:__________________
Date of Grant:____________________ Date of Termination:_____________
Vesting Schedule: This Option will become exercisable as to __________
Shares on each of the first ____ anniversary dates from the Date of
Grant.
2. Pursuant to this Option, the Employee has the option to purchase the stated
number of Option Shares of the common stock of Holding Company at the
Exercise Price, payable on the date of exercise. This Option is granted as
of the Date of Grant, and shall terminate on the Date of Termination unless
sooner terminated by reason of death, disability or other termination of
status as an employee as provided in the Plan.
3. This Option shall become exercisable according to the Vesting Schedule.
Option Shares as to which this Option becomes exercisable are called
"Vested Shares". This Option shall be exercisable as to Vested Shares in
whole or in part at any time between the Date of Grant and the Date of
Termination of this Option. Notwithstanding the foregoing, if the
Optionee's status as an employee with Holding Company terminates, then this
Option will cease to vest and will not become exercisable as to any
additional shares, as of the date on which the Optionee's employment
terminates. In such case, this Option will be limited to the Vested Shares
as of such date of the termination of employment.
4. This Option must be exercised by actual delivery to Holding Company of a
written notice of exercise signed by Employee specifying the number of
shares with respect to which this Option is being exercised and the
per-share Exercise Price, accompanied by payment of the full amount of the
Exercise Price for the number of shares being purchased.
5. All terms and conditions of the Plan are hereby incorporated by this
reference as a part of this Agreement, including but not limited to the
"Terms and Conditions of Options" provided in the
<PAGE>
Plan. Holding Company reserves the right, without the consent of Employee,
to amend the Plan and/or this Agreement at any time prior to the exercise
of the Option granted hereunder to cause this Option to qualify as an
"incentive stock option" within the scope and meaning of Section 422 of
the Internal Revenue Code ("Code"), or any successor provision of the Code.
EMPLOYEE: MOUNTAIN BANK HOLDING COMPANY,
a Washington corporation
________________________________ By:________________________________
Print Name:_____________________ Title:_____________________________
I hereby acknowledge that I have received a copy of the Plan, incorporated by
reference above.
________________________________
Employee
<PAGE>
EXHIBIT 6.6
MOUNTAIN BANK HOLDING COMPANY
EMPLOYEE NONQUALIFIED STOCK OPTION AGREEMENT
This Employee Nonqualified Stock Option Agreement ("Agreement") is entered into
by and between MOUNTAIN BANK HOLDING COMPANY, a Washington corporation (the
"Holding Company") and the Employee, named below.
1. Pursuant to Holding Company's Employee Stock Option Plan (the "Plan") and
subject to the terms of this Agreement, Holding Company hereby grants the
following irrevocable nonqualified stock option ("Option"):
Employee:_________________________________________________________________
Option Shares:__________________ Exercise Price:_________________________
Date of Grant:__________________ Date of Termination:____________________
Vesting Schedule: This Option will become exercisable as to __________
Shares on each of the first ____ anniversary dates from the Date of Grant.
2. Pursuant to this Option, the Employee has the option to purchase the stated
number of Option Shares of the common stock of Holding Company at the
Exercise Price, payable on the date of exercise. This Option is granted as
of the Date of Grant, and shall terminate on the Date of Termination unless
sooner terminated by reason of death, disability or other termination of
status as an employee as provided in the Plan.
3. This Option shall become exercisable according to the Vesting Schedule.
Option Shares as to which this Option becomes exercisable are called
"Vested Shares". This Option shall be exercisable as to Vested Shares in
whole or in part at any time between the Date of Grant and the Date of
Termination of this Option. Notwithstanding the foregoing, if the
Optionee's status as an employee with Holding Company terminates, then this
Option will cease to vest and will not become exercisable as to any
additional shares, as of the date on which the Optionee's employment
terminates. In such case, this Option will be limited to the Vested Shares
as of such date of the termination of employment.
4. This Option must be exercised by actual delivery to Holding Company of a
written notice of exercise signed by Employee specifying the number of
shares with respect to which this Option is being exercised and the
per-share Exercise Price, accompanied by payment of the full amount of the
Exercise Price for the number of shares being purchased.
<PAGE>
5. All terms and conditions of the Plan are hereby incorporated by this
reference as a part of this Agreement, including but not limited to the
"Terms and Conditions of Options" provided in the Plan.
EMPLOYEE: MOUNTAIN BANK HOLDING COMPANY,
a Washington corporation
________________________________ By:________________________________
Print Name:_____________________ Title:_____________________________
I hereby acknowledge that I have received a copy of the Plan, incorporated by
reference above.
________________________________
Employee
<PAGE>
EXHIBIT 6.7
MOUNTAIN BANK HOLDING COMPANY
DIRECTOR STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. The purpose of this Director Stock Option Plan
("Plan") is to secure for MOUNTAIN BANK HOLDING COMPANY ("Holding
Company") and its shareholders the benefits which flow from providing
Directors of the Holding Company with incentive inherent in common stock
ownership. It is generally recognized that stock options plans aid in
retaining competent directors, furnish a device to attract directors of
exceptional ability, and provide incentive to Directors to make the
Holding Company successful. Holding Company intends that Options issued
under this Plan will constitute nonqualified stock options.
2. DEFINITIONS. As used in this Plan, the following definitions apply:
a. "Board" means the Board of Directors of Holding Company.
b. "Common Stock" means Holding Company's common stock, currently
with a par value of $1.00 per share.
c. "Committee" has the meaning set forth in subparagraph 4(a) of this
Plan.
d. "Continuous Status as a Director" means the absence of any
interruption or termination of service as a Director.
e. "Date of Grant" of an Option means the date on which the Committee
makes the determination granting such Option, or such later date
as the Committee may designate. The Date of Grant shall be
specified in the Option agreement.
f. "Director" means any person serving as a member of the Board of
Holding Company or a Subsidiary of Holding Company which is
currently in existence or is hereafter organized or is acquired by
Holding Company.
g. "Exercise Price" has the meaning set forth in subparagraph 4(b)(2)
of this Plan.
h. "Holding Company" has the meaning set forth in paragraph 1 of this
Plan.
i. "Option" means a stock option granted under this Plan, which
constitutes a Nonqualified Stock Option.
j. "Optionee" means a Director who receives an Option.
k. "Plan" has the meaning set forth in paragraph 1 of this Plan.
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<PAGE>
l. "Parent" means any corporation owning at least eighty percent
(80%) of the total voting power of the issued and outstanding
stock of Holding Company, and eighty percent (80%) of the total
value of the issued and outstanding stock of Holding Company.
m. "Subsidiary" means any bank or other corporation of which not less
than fifty percent (50%) of the voting shares are held by Holding
Company or a Subsidiary, whether or not such corporation now
exists or is hereafter organized or acquired by Holding Company or
a Subsidiary.
3. STOCK SUBJECT TO OPTIONS.
a. NUMBER OF SHARES RESERVED. The maximum number of shares which may
be optioned and sold under this Plan is 20,000 shares of the
Common Stock of Holding Company (subject to adjustment as provided
in subparagraph 6(j) of this Plan). During the term of this Plan,
Holding Company will at all times reserve and keep available a
sufficient number of shares of its Common Stock to satisfy the
requirements of this Plan.
b. EXPIRED OPTIONS. If any outstanding Option expires or becomes
unexercisable for any reason without having been exercised in
full, the shares of Common Stock allocable to the unexercised
portion of such Option will again become available for other
Options.
4. ADMINISTRATION OF THE PLAN.
a. THE COMMITTEE. The Board will administer this Plan directly,
acting as a Committee of the whole, or if the Board elects, by a
separate Committee appointed by the Board for that purpose and
consisting of at least two non-employee Board members. All
references in the Plan to the "Committee" refers to this separate
Committee, if any is established, or if none is then in existence,
refers to the Board as a whole. Once appointed, any Committee
will continue to serve until otherwise directed by the Board.
From time to time, the Board may increase the size of the
Committee and appoint additional members, remove members (with or
without cause), appoint new members in substitution, and fill
vacancies however caused. The Committee will select one of its
members as chairman, and will hold meetings at such times and
places as the chairman or a majority of the Committee may
determine. At all times, the Board will have the power to remove
all members of the Committee and thereafter to directly administer
this Plan as a Committee of the whole.
(1) Members of the Committee who are eligible for Options or
who have been granted Options will be counted for all
purposes in determining the existence of a quorum at any
meeting of the Committee and will be eligible to vote on
all matters before the Committee respecting the granting of
Options or administration of this Plan.
2
<PAGE>
(2) At least annually, the Committee must present a written
report to the Board indicating the Directors to whom
Options have been granted since the date of the last such
report, and in each case the Date of Grant, the number of
shares optioned, and the per-share Exercise Price.
b. POWERS OF THE COMMITTEE. All actions of the Committee must be
either (i) by a majority vote of the members of the full Committee
at a meeting of the Committee, or (ii) by unanimous written
consent of all members of the full Committee without a meeting.
All decisions, determinations and interpretations of the Committee
will be final and binding on all persons, including all Optionees
and any other holders or persons interested in any Options, unless
otherwise expressly determined by a vote of the majority of the
entire Board. No member of the Committee or of the Board will be
liable for any action or determination made in good faith with
respect to the Plan or any Option. Subject to all provisions and
limitations of the Plan, the Committee will have the authority and
discretion:
(1) to determine the Directors to whom Options are to be
granted, the Dates of Grant, and the number of shares to be
represented by each Option;
(2) to determine the price at which shares of Common Stock are
to be issued under an Option, subject to subparagraph 6(b)
of this Plan ("Exercise Price");
(3) to determine all other terms and conditions of each Option
granted under this Plan (including specification of the
dates upon which Options become exercisable, and whether
conditioned on performance standards, periods of service or
otherwise), which terms and conditions can vary between
Options;
(4) to modify or amend the terms of any Option previously
granted, or to grant substitute Options, subject to
subparagraphs 6(l) and 6(m) of this Plan;
(5) to authorize any person or persons to execute and deliver
Option agreements or to take any other actions deemed by
the Committee to be necessary or appropriate to effect the
grant of Options by the Committee;
(6) to interpret this Plan and to make all other determinations
and take all other actions which the Committee deems
necessary or appropriate to administer this Plan in
accordance with its terms and conditions.
5. ELIGIBILITY. Options may be granted only to Directors. Granting of
Options under this Plan will be entirely discretionary with the
Committee. Adoption of this Plan will not confer on any Director any
right to receive any Option or Options under this Plan unless and until
said Options are granted by the Committee, in its sole discretion.
Neither the adoption of this Plan nor the granting of any Options under
this Plan will confer upon any
3
<PAGE>
Director or Optionee any right with respect to continuation of status
as a Director, nor will the same interfere in any way with his or her
right or with the right of the shareholders of Holding Company or any
Subsidiary to terminate his or her status as a Director at any time.
6. TERMS AND CONDITIONS OF OPTIONS. All Options granted under this Plan
must be authorized by the Committee, and must be documented in written
Option agreements in such form as the Committee will approve from time to
time, which agreements must comply with and be subject to all of the
following terms and conditions:
a. NUMBER OF SHARES. Each Option agreement must state the number of
shares subject to Option. Any number of Options may be granted to
a single eligible Director at any time and from time to time.
b. EXERCISE PRICE AND CONSIDERATION. Each option agreement must
state the Exercise Price for the shares of Common Stock to be
issued under the Option, which price must be not less than the
greater of (1) the fair market value of the Common Stock or (2)
the net book value of the Common Stock at the time of grant, as is
determined by the Committee. The Exercise Price is payable either
(i) in United States dollars upon exercise of the Options, or (ii)
if approved by the Board or Committee, other consideration
including without limitation Common Stock of Holding Company,
services, or other property.
c. TERM OF OPTION. Subject to other applicable provisions of this
Plan including but not limited to subparagraphs 6(g), 6(h) and
6(i), the term of each Option will be determined by the Committee
in its discretion.
d. NON-TRANSFERABILITY OF OPTIONS. No Option may be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and
may be exercised, during the lifetime of the Optionee, only by the
Optionee.
e. MANNER OF EXERCISE. An Option will be deemed to be exercised when
written notice of exercise has been given to Holding Company in
accordance with the terms of the Option by the person entitled to
exercise the Option, together with full payment for the shares of
Common Stock subject to said notice.
f. RIGHTS AS SHAREHOLDER. An Optionee shall have none of the rights
of a shareholder with respect to any shares covered by his or her
Option unless and until the Optionee has exercised such Option and
submitted full payment for the shares.
g. DEATH OF OPTIONEE. In the event of the death of an Optionee who
at the time of his or her death was a Director and who had been in
Continuous Status as a Director since the Date of Grant of the
Option, the Option will terminate on the earlier of (i) one year
after the date of death of the Optionee, or (ii) the expiration
date otherwise provided in the Option agreement, except that if
the expiration date
4
<PAGE>
should occur during the 180-day period immediately following the
Optionee's death, such Option will terminate at the end of such
180-day period. The Option will be exercisable at any time
prior to such termination by the Optionee's estate, or by such
person or persons who have acquired the right to exercise the
Option by bequest or by inheritance or by reason of the death of
the Optionee.
h. DISABILITY OF OPTIONEE. If an Optionee's status as a Director is
terminated at any time during the Option period by reason of a
disability (within the meaning of Section 22(e)(3) of the Internal
Revenue Code) and if said Optionee had been in Continuous Status
as a Director at all times between the Date of Grant of the Option
and the termination of his or her status as a Director, his or her
Option will terminate on the earlier of (i) one year after the
date of termination of his or her status as a Director, or (ii)
the expiration date otherwise provided in his or her Option
agreement.
i. TERMINATION OF STATUS AS A DIRECTOR.
(1) If an Optionee's status as a Director is terminated at any
time after the grant of an Option to such Director for any
reason other than death or disability, as provided in
subparagraphs 6(g) and 6(h) of this Plan, and excepting if
the Director is removed for cause, as provided in
subparagraph (2) below, such Option will terminate on the
earlier of (i) the same day of the sixth month after the
date of termination of his or her status as a Director, or
(ii) the expiration date otherwise provided in his or her
Option agreement.
(2) If an Optionee is removed as a Director for cause at any
time after the grant of an Option to such Director, then
such Option will terminate on the date of termination of
his or her status as a Director. For this purpose, cause
will be deemed to exist only if the Board has reasonable
grounds to believe that Holding Company has suffered or
will suffer substantial injury as a result of the gross
negligence or dishonesty of the Director who is removed.
j. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any
required action by the shareholders of Holding Company, the number
of shares of Common Stock covered by each outstanding Option, the
number of shares of Common Stock available for grant of additional
Options, and the per-share Exercise Price in each outstanding
Option, will be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting
from any stock split or other subdivision or consolidation of
shares, the payment of any stock dividend (but only on the Common
Stock) or any other increase or decrease in the number of such
shares of Common Stock effected without receipt of consideration
by Holding Company; PROVIDED, however, that conversion of any
convertible securities of Holding Company will not be deemed to
have been "effected without
5
<PAGE>
receipt of consideration." Such adjustment will be made by the
Committee, whose determination in that respect will be final,
binding and conclusive.
(1) Except as otherwise expressly provided in this subparagraph
6(j), no Optionee will have any rights by reason of any
stock split or the payment of any stock dividend or any
other increase or decrease in the number of shares of
Common Stock, and no issuance by Holding Company of shares
of stock of any class, or securities convertible into
shares of stock of any class, will affect the number of
shares or Exercise Price subject to any Options, and no
adjustments in Options will be made by reason thereof. The
grant of an Option under this Plan will not affect in any
way the right or power of Holding Company to make
adjustments, reclassifications, reorganizations or changes
of its capital or business structure.
k. CONDITIONS UPON ISSUANCE OF SHARES. Shares of Common Stock will
not be issued with respect to an Option granted under this Plan
unless the exercise of such Option and the issuance and delivery
of such shares pursuant thereto will comply with all applicable
provisions of law, including applicable federal and state
securities laws. As a condition to the exercise of an Option,
Holding Company may require the person exercising such Option to
represent and warrant at the time of exercise that the shares of
Common Stock are being purchased only for investment and without
any present intention to sell or distribute such Common Stock if,
in the opinion of counsel for Holding Company, such a
representation is required by any of the aforementioned relevant
provisions of law.
l. CORPORATE SALE TRANSACTIONS. In the event of the merger or
reorganization of Holding Company with or into any other
corporation, the sale of substantially all of the assets of
Holding Company, or a dissolution or liquidation of Holding
Company (collectively, "Sale Transaction"), (1) all outstanding
Options that are not then fully exercisable will become
exercisable upon the date of closing of any sale transaction or
such earlier date as the Committee may fix; and (2) the Committee
may, in the exercise of its sole discretion, terminate all
outstanding Options as of a date fixed by the Committee. In such
event, however, the Committee must notify each Optionee of such
action in writing not less than sixty (60) days prior to the
termination date fixed by the Committee, and each Optionee must
have the right to exercise his or her Option prior to said
termination date.
m. SUBSTITUTE STOCK OPTIONS. In connection with an internal
reorganization of Holding Company (e.g., formation of a holding
company), the Committee is authorized, in its discretion, to
substitute for any unexercised Option, a new option for shares of
the resulting entity's stock.
n. TAX COMPLIANCE. Holding Company, in its sole discretion, may take
actions reasonably believed by it to be required to comply with
any local, state, or federal tax laws relating to the reporting or
withholding of taxes attributable to the grant
6
<PAGE>
or exercise of any Option or the disposition of any shares of
Common Stock issued upon exercise of an Option, including, but
not limited to (i) withholding from any Optionee exercising an
Option a number of shares of Common Stock having a fair market
value equal to the amount required to be withheld by Holding
Company under applicable tax laws, and (ii) withholding from any
form of compensation or other amount due an Optionee, or holder,
of shares of Common Stock issued upon exercise of an Option any
amount required to be withheld by Holding Company under
applicable tax laws. Withholding or reporting will be considered
required for purposes of this subparagraph if the Committee, in
its sole discretion, so determines.
o. OTHER PROVISIONS. Option agreements executed under this Plan may
contain such other provisions as the Committee will deem
advisable.
7. TERM OF THE PLAN. This Plan will become effective and Options may be
granted upon the Plan's approval by the Board, subject to shareholder
approval. Unless sooner terminated as provided in subparagraph 7(a) of
this Plan, this Plan will terminate on the tenth (10th) anniversary of
its effective date. Options may be granted at any time after the
effective date and prior to the date of termination of this Plan.
a. AMENDMENT OR EARLY TERMINATION OF THE PLAN. The Board may
terminate this Plan at any time. The Board may amend this Plan at
any time and from time to time in such respects as the Board may
deem advisable, except that, without approval of the shareholders,
no revision or amendment will increase the number of shares of
Common Stock subject to this Plan other than in connection with an
adjustment under subparagraph 6(j) of this Plan.
b. EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination
of this Plan will affect Options granted prior to such amendment
or termination, and all such Options will remain in full force and
effect notwithstanding such amendment or termination.
8. SHAREHOLDER APPROVAL. Adoption of this Plan will be subject to
ratification by affirmative vote of shareholders owning at least a
majority of the outstanding Common Stock of Holding Company at a duly
convened meeting.
* * * * *
7
<PAGE>
CERTIFICATE OF ADOPTION
I certify that the foregoing Director Stock Option Plan was approved by
the Board of Directors of Mountain Bank Holding Company on February 18, 1999.
I further certify that the foregoing Director Stock Option Plan was
approved by the shareholders of Mountain Bank Holding Company on April 13, 1999.
/s/ Sheila Marie Brumley
-----------------------------------
Sheila Marie Brumley, Secretary
8
<PAGE>
EXHIBIT 6.8
MOUNTAIN BANK HOLDING COMPANY
DIRECTOR STOCK OPTION AGREEMENT
This Director Stock Option Agreement ("Agreement") is entered into by and
between MOUNTAIN BANK HOLDING COMPANY, a Washington corporation (the "Holding
Company") and the Director, named below.
1. Pursuant to Holding Company's Director Stock Option Plan (the "Plan") and
subject to the terms of this Agreement, Holding Company hereby grants the
following irrevocable incentive stock option ("Option"):
Director: _____________________________________________________________
Option Shares:_____________________ Exercise Price: __________________
Date of Grant:_____________________ Date of Termination: _____________
Vesting Schedule: This Option will become exercisable as to __________
Shares on each of the first ____ anniversary dates from the Date of
Grant.
2. Pursuant to this Option, the Director has the option to purchase the stated
number of Option Shares of the common stock of Holding Company at the
Exercise Price, payable on the date of exercise. This Option is granted as
of the Date of Grant, and shall terminate on the Date of Termination unless
sooner terminated by reason of death, disability or other termination of
status as a director as provided in the Plan.
3. This Option shall become exercisable according to the Vesting Schedule.
Option Shares as to which this Option becomes exercisable are called
"Vested Shares." This Option shall be exercisable as to Vested Shares in
whole or in part at any time between the Date of Grant and the Date of
Termination of this Option. Notwithstanding the foregoing, if the
Optionee's status as a director with Holding Company terminates, then this
Option will cease to vest and will not become exercisable as to any
additional shares, as of the date on which the Optionee's status as
director terminates. In such case, this Option will be limited to the
Vested Shares as of such date of the termination of status as director.
4. This Option must be exercised by actual delivery to Holding Company of a
written notice of exercise signed by Director specifying the number of
shares with respect to which this Option is being exercised and the
per-share Exercise Price, accompanied by payment of the full amount of the
Exercise Price for the number of shares being purchased.
<PAGE>
5. All terms and conditions of the Plan are hereby incorporated by this
reference as a part of this Agreement, including but not limited to the
"Terms and Conditions of Options" provided in the Plan.
DIRECTOR: MOUNTAIN BANK HOLDING COMPANY,
a Washington corporation
______________________________ By: _____________________________________
Print Name: __________________ Title: __________________________________
I hereby acknowledge that I have received a copy of the Plan, incorporated by
reference above.
______________________________________
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
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<FISCAL-YEAR-END> DEC-31-1999
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