Definitive Proxy Statement

DEF 14A 1 ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

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¨	Preliminary Proxy Statement	¨	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x	Definitive Proxy Statement
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MOUNTAIN BANK HOLDING COMPANY

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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LOGO

MOUNTAIN BANK

HOLDING COMPANY

March 11, 2003

Dear Shareholder:

You are cordially invited to attend the annual meeting of shareholders of Mountain Bank Holding Company (the “Company”) to be held on Tuesday, March 25, 2003, at 7:00 p.m., local time at the VFW Hall, 44426 244^th Avenue S.E., Enumclaw, Washington.

At this meeting, you will be asked to elect three directors for a term of three years.

A proxy is enclosed with the Notice of Meeting and Proxy Statement. Please indicate your voting instructions and sign, date, and return the proxy promptly in the postage prepaid envelope provided. Whether or not you plan to attend the annual meeting in person, it is important that you return the enclosed proxy so that your shares are voted. A proxy that is returned signed and dated but with no voting instructions will be voted in favor of the matters and, in appropriate circumstances, will enable the Company’s management to adjourn the meeting to continue to solicit votes to approve these matters. The proxy may be revoked in writing by the person giving it at any time before it is exercised by notice of such revocation to the Secretary of the Company, or by submitting a proxy having a later date, or by such person appearing at the meeting and electing to vote in person.

We value you as a shareholder of Mountain Bank Holding Company and look forward to reporting the results of 2002 to you. We invite your comments concerning any of the Company’s affairs and hope you will contact us for any further information you desire.

Sincerely,

LOGO

Roy T. Brooks

Chairman of the Board

MOUNTAIN BANK HOLDING COMPANY

501 Roosevelt Avenue

Enumclaw, Washington 98022

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD MARCH 25, 2003

To the Shareholders of Mountain Bank Holding Company:

We invite you to attend the 2003 Annual Meeting of Shareholders of Mountain Bank Holding Company (the “Company”) to be held at the VFW Hall, 44426 244^th Avenue S.E., Enumclaw, Washington, on Tuesday, March 25, 2003, at 7:00 p.m. local time for the purpose of considering and voting upon the following matters:

ELECTION OF DIRECTORS. To elect three (3) Directors to serve for a term of three years or until their successors have been elected and qualified.

WHATEVER OTHER BUSINESS may properly come before the Annual Meeting or any adjournments thereof.

If you were a shareholder of record on February 14, 2003, you may vote on the proposal at the Annual Meeting in person or by proxy. We encourage you to promptly complete and return the enclosed proxy card in order to ensure that your shares will be represented and voted at the meeting in accordance with your instructions. If you attend the meeting in person, you may withdraw your proxy and vote your shares.

Further information regarding voting rights and the business to be transacted at the Annual Meeting is given in the accompanying Proxy Statement. Your continued interest as a shareholder in the affairs of the Company, its growth and development, is genuinely appreciated by the directors, officers and personnel who serve you.

March 11, 2003

BY ORDER OF THE BOARD OF DIRECTORS

LOGO

Roy T. Brooks, Chairman of the Board

YOUR VOTE IS IMPORTANT

Whether or not you plan to attend the Annual Meeting, please sign and date your Proxy Card and return it in the enclosed postage prepaid envelope. Retention of the Proxy is not necessary for admission to the Annual Meeting.

MOUNTAIN BANK HOLDING COMPANY

501 Roosevelt Avenue

Enumclaw, Washington 98022

(360) 825-0100

PROXY STATEMENT

Meeting Information. This Proxy Statement and the accompanying Proxy are being sent to shareholders on or about March 11, 2003, for use in connection with the Annual Meeting of Shareholders (“Annual Meeting”) of Mountain Bank Holding Company (the “Company”) to be held on Tuesday, March 25, 2003. In this Proxy, the term “we” and “us” refers to Mountain Bank Holding Company.

Record Date. If you were a shareholder on February 14, 2003, you are entitled to vote at the Annual Meeting. There were 2,154,013 shares of common stock outstanding on the record date.

Solicitation of Proxies. The enclosed Proxy is solicited by and on behalf of our Board of Directors, and we will bear the cost of solicitation. In addition to the mailing of Proxy materials, solicitation may be made by directors, officers and employees of the Company and its bank subsidiary, Mt. Rainier National Bank (the “Bank”) through solicitation of Proxies in person, by telephone, or otherwise. We do not expect to pay any compensation for the solicitation of Proxies, except to brokers, nominees and similar record holders for reasonable expenses in mailing Proxy materials to beneficial owners.

Quorum. At least a majority of the shares entitled to vote at the Annual Meeting constitutes a quorum. Abstentions will be counted as shares present and entitled to vote at the Annual Meeting for purposes of determining the presence of a quorum. Broker non-votes will not be considered shares present and will not be included in determining whether a quorum is present.

Voting on Matters Presented. The three nominees for election as directors at the Annual Meeting who receive the highest number of affirmative votes will be elected. Shareholders are not permitted to cumulate their votes for the election of directors. Votes may be cast for or withheld from each nominee. Votes that are withheld and broker non-votes will have no effect on the outcome of the election. Shareholders of record will be entitled to one vote per share on any matter that may properly come before the Annual Meeting.

Voting of Proxies. Shares represented by properly executed Proxies that are received in time and not revoked, will be voted in accordance with the instructions indicated on the Proxies. If no instructions are indicated, the persons named in the Proxy will vote the shares represented by the Proxy FOR the three nominees listed in this Proxy Statement, and in the discretion of the Proxy holder, as to any other matter which may properly come before the Annual Meeting. Any Proxy given by a shareholder may be revoked before its exercise by (1) giving notice to us in writing, (2) delivery to us of a subsequently dated Proxy, or (3) notifying us at the Annual Meeting before the shareholder vote is taken. The shares represented by properly executed, unrevoked Proxies will be voted in accordance with the specifications in the Proxy.

Voting of Proxies by Beneficial Holder. If your shares are held by a bank, broker or other holder of record you will receive instructions from the holder of record that you must follow in order for your shares to be voted. If you want to attend the shareholder meeting and vote in person, you will need to bring an account statement or letter from the nominee indicating that you were the beneficial owner of the shares on February 14, 2003, the record date.

BUSINESS OF THE MEETING

There is one matter being presented for consideration by the shareholders at the Annual Meeting.

Election of Directors

General

Our Restated Articles of Incorporation and Bylaws provide that the number of directors must fall within a range of 5 and 25, the exact number to be determined by an affirmative vote of a majority of the directors or by resolution of the shareholders. The Bylaws also provide that the Board of Directors may fill vacancies created on the Board, within certain limits, provided that the number of directors shall at no time exceed 25. The Board of Directors has set the size of the Board at 10 persons.

Directors are elected for a term of three years and until their successors have been elected and qualified. Our Articles require that the terms of the directors be staggered such that one-third of the directors are elected each year.

In accordance with the above, the Board of Directors has nominated Roy T. Brooks, Susan K. Bowen-Hahto and Steve W. Moergeli, each of whom is a current board member, for election as directors for three-year terms to expire in the year 2006. If any of Mr. Brooks, Ms. Bowen-Hahto or Mr. Moergeli should refuse or be unable to serve, your Proxy will be voted for such person as shall be designated by the Board of Directors to replace any such nominee. The Board of Directors presently has no knowledge that any of the nominees will refuse or be unable to serve.

In accordance with our Bylaws, other nominations, if any, may be made only in accordance with the prior notice provisions contained in our Bylaws. Such notice provisions require that a shareholder provide us with written notice (containing the information required by the Bylaws) at least 14 days but not more than 50 days prior to the Annual Meeting (or, if we provide less than 21 days’ public notice of such meeting, no later than 7 days after the date of our notice).

Director Nominees

Nominees For Director For Three-Year Term Expiring In 2006

Roy T. Brooks, 62 was elected a director of the Company in 1993 at which time he was also named as President, Chief Executive Officer and Chairman of the Company. Mr. Brooks has also served as Chairman of the Bank since its inception in 1990. Mr. Brooks is a former Chairman, Chief Executive Officer and part owner of, Westmark Electronics, a manufacturer’s representative and consulting firm.

Susan K. Bowen-Hahto, 54 is a lifetime resident of the Buckley/Enumclaw area and has been active in the community. Ms. Bowen-Hahto is a real estate and land developer and is employed by the White River School District. Ms. Bowen-Hahto has been a member of the Bank’s Board of Directors since 1990 and of the Company’s Board of Directors since 1993.

Steve W. Moergeli, 49 is the President and Chief Executive Officer of Mt. Rainier Bank. Mr. Moergeli began his banking career in Enumclaw in 1978 with Cascade Security Bank and served as Vice President and Manager of Key Bank before joining Mt. Rainier Bank in May 1991 as its Senior Loan Officer. Mr. Moergeli is past President of the Enumclaw Area Chamber of Commerce, past President of the Enumclaw Lions Club and today, serves as Chairman of the Enumclaw City Board of Adjustments and is a Board member of the Enumclaw Community Hospital Foundation. Mr. Moergeli has served on the Boards of Directors of the Company and the Bank since 1997.

The Board of Directors recommends that you vote FOR the nominees to be elected as directors.

Continuing Directors

Directors With Term Expiring In 2004

Barry C. Kombol, 52 is an attorney in private practice. Mr. Kombol has been a member of the Washington State Bar Association since 1978. He serves as general counsel for Palmer Coking Coal Co., Pacific Coast Coal Company and B.N.K Limited Liability Company in Black Diamond. He is also secretary/treasurer of Pacific Coast Coal Company, a company he helped found in 1982. Mr. Kombol also has served as Judge Pro-Tem/Magistrate at Enumclaw Municipal and Aukeen District Courts in King County as well as Owner of Rainier Legal Center, Inc. He is past president and a current member of the Enumclaw Lions Club; founder of the Black Diamond Community Center; and a member of King County’s “Enumclaw Community Planning Committee” (1987-88). Mr. Kombol has served as Vice Chairman of the Company since 1996 and has served as a member of the Board of Directors of the Bank since 1990.

John W. Raeder, 60 is retired from the heating, ventilating, refrigeration and air conditioning business, however, he continues to maintain his membership with the Air Conditioning Contractors of America. Mr. Raeder has chaired the Economic Development Advisory Panel for the City of Enumclaw from 1997 through 1999. Mr. Raeder also served as Chairman and CEO of the Auburn Chamber of Commerce and on the board of the Auburn Downtown Association, was a member of the Auburn Economic Development Committee and was a Consultant for Air Pro, Inc. Mr. Raeder has been a member of the Company’s Board of Directors since 1993 and the Bank’s Board of Directors since 1990.

J. B. Rupert, 60 is a licensed Civil/Structural Professional Engineer and the President of Rupert Engineering, Inc, a Civil/Structural consulting firm that has been in Auburn, Washington for the past 30 years, doing business throughout the western United States and is a Partner of Harter & Rupert Consulting Engineers/Structural. He is also the owner of Rupert Development, Inc., a real estate development company. Mr. Rupert is active within the business community of Auburn and has been a member of the Company’s and the Bank’s Boards of Directors since 2001.

Garrett S. Van Beek, 67 is a dairyman who owns and operates Van Beek Dairy LLC, consisting of a 120 acre farm. He and his wife moved to the Enumclaw area and began farming over 37 years ago. Mr. Van Beek has been a director of the King County Farm Bureau, director of the Pierce County Farm Bureau and director of the Farm Bureau of Washington State. He also served as a director for the Federal Land Bank of Puyallup from 1977 until 1985. He served on the Loan Committee and the Building Committee. Mr. Van Beek is a past member of the Governor’s counsel for agriculture and environment and has served on the Company’s Board of Directors since 1993 and the Bank’s Board of Directors since 1990.

Directors With Term Expiring In 2005

Brian W. Gallagher, 53 is President and majority owner of Northern Transport, Inc., a logging company as well as a transportation company for logs, pilings and poles. He has been in business in the Enumclaw area for over 20 years. Mr. Gallagher also owns Gallagher Farms and is a board member of the Northwest Junior Livestock Show. Mr. Gallagher has been a member of the Company’s Board of Directors since 1993 and the Bank’s Board of Directors since 1990.

Michael K. Jones, Sr., 60 is a licensed Certified Public Accountant and operates his business under the name of Jones & Associates, Inc., Certified Public Accountants. He has many clients on the Enumclaw Plateau. Mr. Jones is also owner of U-7 Racing, Inc., a marine business and part owner of American Space, Inc. and Tri-Arc Electric. Mr. Jones has been a member of the Company’s Board of Directors since 1993 and the Bank’s Board of Directors since 1990. In addition, Mr. Jones has served on the Audit/Compensation and Executive Committees. He has also been active in three professional accounting associations.

Hans R. Zurcher, 67 a dairy farmer since 1957, presently operates (in partnership with his son) a 208 acre dairy farm, Zurcher Dairy, in Eastern Washington. Mr. Zurcher served as President and Board member for the King County Dairy Herd Improvement Association (D.H.I.A.). He was on the Board of the King-Pierce County Dairy Federation, a political action group, from 1983 to 1989 and served as President from 1986 to 1989. In addition, Mr. Zurcher has served on the Advisory Committee for the Washington State University Dairy Short Course. He is an alumni member of the Enumclaw Future Farmers of America Club, and he and his wife have been active in 4-H along with their children. From 1992 to 1997 he has served on various committees at the Washington State Dairy Products Commission. Mr. Zurcher has served on the Company’s Board of Directors since 1993 and the Bank’s Board of Directors since 1990.

INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES

The following sets forth information concerning the Board of Directors and Committees of the Company during the fiscal year 2002.

The Board of Directors met twelve times during the fiscal year. In addition to meetings of the full Board, directors attended meetings of Board committees. When the need arose, the full Board served as the Nominating Committee. The Audit and Executive Committees were established by the Board of Directors of the Bank and act on behalf of the Company. Each director attended at least 75% of the meetings of the Board and of the committees on which he served. The following table shows the membership of the Audit and Executive Committees during the fiscal year.

Committee Membership

Name	Audit	Executive
Roy T. Brooks		þ*
Brian W. Gallagher		þ
Michael K. Jones	þ*	þ
Barry C. Kombol	þ
Steve W. Moergeli		þ
John W. Raeder	þ
Garrett S. Van Beek		þ
Hans R. Zurcher		þ

Chairman

Certain Committees of the Board of Directors

Audit Committee. The Audit Committee is composed of three directors of the Company who are considered “independent” (as defined by the Nasdaq listing standards). The Bank Audit Committee effectively has served as the Audit Committee of the Company. The Audit Committee operates under a formal written charter (see Appendix A to the Proxy Statement). The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the outside auditors performing or issuing an audit report, and approves the engagement and fees for all audit and non-audit functions, with the outside auditors reporting directly to the Audit Committee. The responsibilities of the Audit Committee include reviewing and discussing with management the annual audited financial statements, including major issues regarding accounting and auditing principles and practices as well as the adequacy of internal controls that could significantly affect the Company’s financial statements; reviewing with management and the independent auditors the Company’s quarterly financial statements prior to filing, or if contemplated, before the public release of quarterly results; and reviewing the adequacy and implementation of the internal auditing, accounting and financial controls. Effective with the adoption of the Charter attached at Appendix A (on February 7, 2003), the committee ceased to perform

the additional role of advising the Board with respect to executive compensation matters, and changed its title from “Audit/Compensation Committee” to “Audit Committee.”

The Audit Committee oversees and evaluates the adequacy of the Company’s internal and disclosure controls, but management is responsible for developing and implementing the internal controls and the financial reporting process. The independent accountants are responsible for performing an independent audit of the consolidated financial statements in accordance with generally accepted auditing standards and issues a report thereon. The committee’s responsibility is to monitor and oversee this process. The committee held four meetings during the year. For 2002, members of the Audit Committee consisted of Messrs. Jones (Chairman), Kombol and Raeder.

Executive Committee. The Executive Committee is composed of the Chairmen from each of the Company’s six active committees. The Executive Committee is authorized to exercise the full authority of the Board of Directors, except as limited by law. Historically, the function of the Executive Committee has been to act upon unanticipated matters that require rapid resolution and that occur between regularly scheduled meetings of the full Board of Directors. For 2002, the Executive Committee consisted of Messrs. Brooks, Gallagher, Jones, Moergeli, Van Beek and Zurcher. The Executive Committee did not have an occasion to meet during the year.

Compensation of Directors

The Company and the Bank have established a program by which non-employee directors receive compensation as follows:

Company. The Directors receive no retainers, nor fees for meetings attended.

Bank. The Chairman of the Board receives no separate compensation for serving as Chairman. During 2002, each non-employee Director (other than the Chairman) received a fee of $900 for each meeting attended; and each non-employee committee member received a fee of $125 for each committee meeting attended, except Audit Committee members who received a fee of $200 for each committee meeting attended.

In addition, in 2002 the Company entered into long term care agreements with each of the directors and certain officers of the Company. See “EXECUTIVE COMPENSATION – Long Term Care Agreements.”

EXECUTIVE COMPENSATION

The following table sets forth a summary of certain information concerning compensation awarded to or paid by us or the Bank for services rendered in all capacities during the last three fiscal years to the Chief Executive Officer and executive officers of the Company or the Bank earning $100,000 or more during fiscal year 2002.

SUMMARY COMPENSATION TABLE

								Long Term Compensation
		Annual Compensation						Awards	Payouts
Name and Principal Position	Year	Salary		Bonus (1)		Other Annual Compensation (2)		Securities Underlying Options	LTIP Payouts	All Other Compensation (3)
Roy T. Brooks Chairman, CEO & President	2002 2001 2000	$	62,878 60,000 54,462	$	0 0 0	$	0 0 0	0 0 4,000	0 0 0	$	2,667 0 0

Steve W. Moergeli, President and CEO of the Bank	2002 2001 2000	$	124,185 116,329 106,905	$	12,500 31,074 16,000		0 0 0	0 0 0	0 0 0	$	8,214 4,422 3,687

Sheila M. Brumley CFO of the Company and Cashier of the Bank	2002 2001	$	94,017 88,135	$	12,000 22,518		0 0	0 0	0 0	$	7,160 3,320

Sterlin E. Franks Senior Vice President of the Bank	2002 2001	$	86,363 82,769	$	10,125 17,493		0 0	0 0	0 0	$	6,958 3,008

(1)

Includes bonuses paid or to be paid during the subsequent year but attributable to the year indicated under our Incentive Compensation Plan.

(2)

Does not include amounts attributable to miscellaneous benefits received by executive officers, including the use of company-owned automobiles and the payment of certain club dues. In the opinion of management, the costs to the Company or the Bank of providing such benefits to any individual executive officer during the year ended December 31, 2002, did not exceed the lesser of $50,000 or 10% of the total of annual salary and bonus reported for the individual.

(3)

Includes contributions to the Company’s 401(k) Plan, Long Term Care Policy expense, and deferred compensation plan expense.

Director Stock Option Plans

1990 Director Stock Option Plan. At the first Annual Meeting of Shareholders of the Bank, the shareholders approved the 1990 Director Stock Option Plan (the “1990 Director Plan”). The 1990 Director Plan was assumed and adopted by the Company. The 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. The service as a director must be continuous for such vesting to occur. No option can be exercised after the expiration of 15 years from the date of grant. A total of 126,000 shares of our Common Stock were available for issuance under the 1990 Director Plan, of which only 9,450 remain available for grant. Accordingly, as described below, in 1999 the Board and shareholders approved the 1999 Director Stock Option Plan.

1999 Director Stock Option Plan. At the 1999 Annual Meeting, the shareholders approved the 1999 Director Stock Option Plan (the “1999 Director Plan”) with substantially the same terms and conditions as the 1990 Director Plan, except that under the 1999 Director Plan, the term and vesting schedule of each non-qualified stock option is determined by the Plan Administrator. An additional 42,000 shares of stock were reserved for issuance to directors under the 1999 Director Plan, of which 8,400 remain available for grant. Under the terms of the 1999 Director Plan, non-qualified stock options to purchase shares of our Common Stock may be granted to directors at a price not less than the greater of (i) the fair market value, or (ii) the net book value of such shares on the date of grant. Both plans provide that shares available under the plans, as well as granted options, are adjusted to reflect stock dividends and stock splits.

Employee Stock Option Plans

At the first Annual Meeting of Shareholders of the Bank, the shareholders approved the 1990 Employee Stock Option Plan (the “1990 Employee Plan”). The 1990 Employee Plan was assumed and adopted by the Company. A total of 126,000 shares were authorized for issuance under the 1990 Employee Plan and all options under the plan have been granted. The 1990 Employee Plan expired on May 4, 2000.

At the 1999 Annual Meeting, the shareholders approved the 1999 Employee Stock Option Plan (the “1999 Employee Plan”), in which 84,000 additional shares of stock were reserved for issuance to employees. Like the 1990 Employee Plan, both incentive and non-qualified options may be granted to key employees of the Bank. The exercise price of the options must be not less than the greater of (i) the fair market value, or (ii) the net book value of the shares of the Company on the date in which the option is granted. In general, an incentive stock option may be exercised during a period of not more than 10 years from the date of grant, although a shorter period may be specified, and in such amounts as the Board may determine. A non-qualified stock option may be exercised during the period specified by the Board. The Board has the authority to thereafter accelerate the period within which any option may be exercised. During 2002, there were no options to purchase shares granted under the 1999 Employee Plan, leaving a total of 40,875 shares available for grant under the 1999 Employee Plan. Both plans provide that shares available under the plans, as well as granted options, are adjusted to reflect stock dividends and stock splits.

Stock Options

Option Grants in Last Fiscal Year. No stock options were granted to the persons named in the Summary Compensation Table during the fiscal year ended December 31, 2002.

Option Exercises. The following table sets forth certain information concerning exercises of stock options pursuant to the Company’s stock option plans by the named executive officer(s) during the year ended December 31, 2002 and stock options held at year-end.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR

AND YEAR END OPTION VALUES

Name	Shares Acquired on Exercise	Value Realized (1)		Number of Unexercised Options at Year End		Value of Unexercised Options at Year End (2)
Name	Shares Acquired on Exercise	Value Realized (1)		Exercisable	Unexercisable	Exercisable		Unexercisable
Roy T. Brooks	0		0	18,900	4,200	$	172,650	$	12,700
Steve W. Moergeli	2,100	$	22,100	17,500	3,500	$	127,917	$	18,083
Sheila M. Brumley	2,100	$	22,100	3,150	3,150	$	20,775	$	18,525
Sterlin E. Franks	0		0	7,350	2,100	$	52,975	$	10,850

(1)

Calculated by determining the difference between the fair market value of the securities underlying the options at the time of exercise ($13.50 per share) and the exercise price ($2.98 per share).

(2)

On December 31, 2002, the closing price of the Common Stock was $13.50. For purposes of the foregoing table, stock options with an exercise price less than that amount are considered to be “in-the-money” and are considered to have a value equal to the difference between this amount and the exercise price of the stock option multiplied by the number of shares covered by the stock option.

EQUITY COMPENSATION PLAN INFORMATION

	Year Ended December 31, 2002
Plan Category	Number of Shares to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b)	Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans (excluding shares reflected in Column (a)) (c) (1)
Equity compensation plans approved by security holders	207,825	$6.17	84,048
Equity compensation plans not approved by security holders	0	$ 0	0

Total	207,825	$6.17	84,048

(1)

Includes 25,323 shares available for purchase under the Company’s Employee Stock Purchase Plan at December 31, 2002.

Officer Incentive Compensation Plan

The Company operates an Officer Incentive Compensation Plan (the “Incentive Plan”) for the benefit of officers of the Bank. The purpose of the Incentive Plan is to reward individuals who make significant contributions to the Bank’s success and to provide performance-based competitive pay opportunities. Participants are selected by the President and confirmed by the Board of Directors, and must be in a position to materially affect the Bank’s performance. Under the terms of the Incentive Plan, each participant is assigned a specific dollar incentive based on their job description, overall responsibility and direct influence on overall operating results. The percentage of such dollar amount that is actually paid to the participant is based on the Bank’s return on average assets for that fiscal year, as well as the individual goals set for each participant.

Deferred Compensation Plans

In 1993 the Bank established a deferred compensation agreement with Director Kombol under which the director may defer his director’s fees. The Bank has also purchased a whole-life insurance policy, which may be used to fund benefits under the deferred compensation agreement.

In 2002 the Company implemented a supplemental executive retirement plan (the “SERP”) for Messrs. Moergeli and Franks and Ms. Brumley, to provide retirement benefits to them. The SERP is unsecured and unfunded and there are no plan assets. The Company has purchased a single premium Bank Owned Life Insurance Policy (“BOLI policies”) on the lives of Messrs. Moergeli and Franks and Ms. Brumley and intends to use the income from the BOLI policies to offset SERP benefit expenses.

The SERP provides the covered officers with lifetime retirement benefits generally based on a fixed annual amount of compensation. The fixed amounts for Messrs. Moergeli and Franks and Ms. Brumley are $117,806, $65,156 and $88,602, respectively. The SERP includes a number of potential adjustments to the date on which retirement payments are initiated and to the amount of the covered officer’s benefit. These potential adjustments

include provisions for payments of benefits following the covered officer’s disability (reduced to the extent of other employer-sponsored long-term disability plan benefits), acceleration of eligibility for benefits in the case of termination related to a change in control, early retirement at a reduced benefit amount, a 2.5% annual inflation adjustment to benefit payments, and an “Applicable Percentage” schedule, from 0% to 100% of the amount payable, analogous to a five year vesting schedule. Other potential SERP adjustments include an elimination of benefits if the covered officer violates non-competition requirements or is terminated for cause, or resigns voluntarily before achieving an Applicable Percentage of 100%.

Associated with the SERP benefit is a death benefit for each covered officer’s designated beneficiaries. Beneficiaries designated by a covered officer are entitled to a split dollar share of the death proceeds of the life insurance policies on each covered officer, which amounts vary depending on the covered officer’s age at death, employment status with the Company or the Bank at the time of death, and eligibility to receive SERP payments.

Change in Control Severance Agreements

In 2002 the Company and the Bank entered into severance agreements with Mr. Steve Moergeli and Ms. Sheila Brumley (the “Severance Agreements”). The Severance Agreements provide for payments in the event of a change in the ownership or effective control of, or in the ownership of a substantial portion of the assets of, the Company or the Bank. If Mr. Moergeli and/or Ms. Brumley remain employed with the Company and the Bank through the closing of a change in control, he and/or she, as the case may be, will receive a single cash payment equal to two times his or her highest W-2 income received from the Company and/or the Bank over the three years preceding the closing.

The Severance Agreements also provide that if the Company or the Bank terminates the employment of Mr. Moergeli or Ms. Brumley without “cause” (as defined in the Severance Agreement) or if Mr. Moergeli or Ms. Brumley resigns for “good reason” (as defined in the Severance Agreement) before a change in control, and within 12 months thereafter the Company or the Bank enters into or announces a change in control, then on the closing of the change in control, Mr. Moergeli and/or Ms. Brumley, as the case may be, will receive a single cash payment equal to two times his or her highest W-2 income received from the Company and/or the Bank over the three years preceding the closing.

The Severance Agreements are subject to certain limitations based on the “parachute payment” provision of the Internal Revenue Code. The Severance Agreements will terminate immediately if their employment is terminated for cause, or if they resign without good reason, or if they are unable to perform their duties for more than 90 days due to physical or mental disability.

Salary Continuation Agreement

In 2002 the Company and the Bank entered into a Salary Continuation Agreement with Mr. Sterlin Franks. The Salary Continuation Agreement provides that in the event that any person extends a proposal or offer that is intended to or may result in a change in control (defined in the same manner as the term is defined under the Severance Agreements described above), Mr. Franks will assist the Company and the Bank in evaluating such proposal or offer. Subject to other limitations, Mr. Franks will not receive any payment under the Salary Continuation Agreement if he resigns from the Company or the Bank during the period from the receipt of a proposal or offer up to the closing or abandonment of the transaction contemplated by the proposal or offer.

The Salary Continuation Agreement provides that Mr. Franks will continue to receive payments of salary in certain circumstances for a period of 18 months following a change in control. This 18 month period is referred to as the “Salary Continuation Period.” Mr. Franks will be entitled to receive the salary continuation if any of the following events occur: (i) he terminates his employment for “good reason” (as defined in the Salary Continuation Agreement) within the Salary Continuation Period; (ii) the Bank terminates his employment other than for cause or disability (both as defined in the Salary Continuation Agreement), or Mr. Sterlin dies within the

Salary Continuation Period; or (iii) the Bank terminates his employment other than for cause, disability or death prior to a change in control, if such termination occurs within six months before the execution of a definitive agreement providing for a change in control of the Company or the Bank.

Long Term Care Agreements

In 2002 the Company implemented a long term care program for all directors and for Mr. Sterlin Franks and Ms. Sheila Brumley. The Company has entered into Participant Long Term Care Agreements (“Care Agreements”) with each such person. The Company paid a one-time premium for long-term care policies covering each participant. The cost of such single premiums varied from $19,045 to $21,208 per participant. The Company will amortize the cost of such payments over a five year period. Under the Care Agreement, each participant agrees that if his or her service to the Company terminates for any reason, with specified exceptions, such participant will reimburse a percentage of the premium paid by the Company. The reimbursement obligation is 80% of the premium after one year of service, and decreases by 20% for each additional year of service, until five years of service, after which there is no obligation to reimburse the Company. The following termination events exempt the participant from any reimbursement obligation: (i) termination for any reason following five years of service; (ii) death; (iii) disability; (iv) termination for any reason following the attainment of age 70 for a director, or age 62 for an officer; (v) termination for any reason following a change in control; and (vi) termination resulting from non-reelection to the board of directors.

401(k) Plan

Our 401(k) Plan allows for pre-tax employee contributions up to IRS maximum limits with a Company match of 50% of the first 6% of employee contribution. Employee elective contributions are 100% vested at all times. Matching contributions have a two year vesting schedule, and beginning the third year, are 100% vested.

As a result of the tax qualification of the 401(k) Plan, employees are not subject to federal or state income taxation on the employee elective contributions, employer contributions or earnings thereon until those amounts are distributed from the 401(k) Plan, although we continue to receive a compensation expense deduction for compensation paid.

Employee Stock Purchase Plan

In order to encourage and facilitate the purchase of our stock by employees, at the 1996 Annual Meeting the shareholders approved the 1995 Employee Stock Purchase Plan (the “Purchase Plan”). The Purchase Plan makes available 42,000 shares of our Common Stock for purchase by eligible employees through a payroll deduction method. The purchase price is the lower of the market price of our Common Stock at the beginning or end of the plan year. At December 31, 2002, 25,323 shares remained available for issuance under the Purchase Plan. The Purchase Plan provides that shares available under the plan are adjusted to reflect stock dividends and stock splits.

Report of Audit Committee

The Board of Directors has determined that the membership of the Audit Committee, as previously disclosed in the “Information Regarding the Board of Directors and Its Committees” section of this Proxy Statement, meets the independence requirements as defined under the Nasdaq listing standards. During 2002, Nasdaq revised the experience requirements for members of the Audit Committee. A copy of the amended Charter that was reviewed and approved by the committee, and subsequently adopted by the Board, is attached as Appendix A.

The Audit Committee has met and held discussions with management and our independent accountants. Management represented to the Committee that our consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Committee has reviewed and discussed the audited consolidated financial statements with management and the independent accountants. The Committee discussed with the independent accountants matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees).

Our independent accountants also provided to the Committee the written disclosures required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Committee discussed with the independent accountants that firm’s independence.

Based on the Committee’s review of the audited consolidated financial statements and the various discussions with management and the independent accountants noted above, the Committee recommended that the Board of Directors include the audited consolidated financial statements in our Annual Report on Form 10-KSB for the year ended December 31, 2002, filed with the Securities and Exchange Commission.

Audit Committee-Fiscal Year 2002

Michael K. Jones (Chairman), Barry C. Kombol, John W. Raeder

Compensation Committee Interlocks and Insider Participation

There are no Compensation Committee interlocks.

SECURITY OWNERSHIP OF CERTAIN

BENEFICIAL OWNERS AND MANAGEMENT

The following table shows as of December 31, 2002, the amount of Common Stock beneficially owned by a) each director and director nominee; b) the executive officers of the Company; c) all persons who are beneficial owners of five percent or more of the Company’s Common Stock; and d) all of the Company’s directors and executive officers as a group. Beneficial ownership is a technical term broadly defined by the SEC to mean more than ownership in the usual sense. In general, beneficial ownership includes any shares a director or executive officer can vote or transfer and stock options that are exercisable currently or become exercisable within 60 days. Except as noted below, each holder has sole voting and investment power for all shares as beneficially owned by them. Where beneficial ownership was less than one percent of all outstanding shares, the percentage is not reflected in the table.

Name	Position with Company and Bank*	Number of Shares (1)(2)		Percentage of Shares
Roy T. Brooks	President and Chief Executive Officer of the Company; Chairman of the Company and the Bank	78,561	(3)	3.66	%

Susan K. Bowen-Hahto	Director	30,070	(4)	1.40	%

Sheila M. Brumley	Chief Financial Officer and Corporate Secretary of the Company; Senior Vice President, Corporate Secretary and Cashier of the Bank	21,732	(5)	1.00	%

Sterlin E. Franks	Senior Vice President and Credit Administrator of the Bank	10,900	(6)	*

Brian W. Gallagher	Director	69,146	(7)	3.22	%

Michael K. Jones	Director	65,398	(8)	3.05	%

Barry C. Kombol	Vice-Chairman of the Company; Director of the Bank	29,380		1.37	%

Steve W. Moergeli	President and Chief Executive Officer of the Bank; Director	44,500	(9)	2.07	%

John W. Raeder	Director	33,740	(10)	1.57	%

J.B. Rupert	Director	4,860		*

Garrett S. Van Beek	Director	47,592	(11)	2.22	%

Hans R. Zurcher	Director	53,369		2.49	%

Directors and Executive Officers as a Group (12 persons)		489,248		22.8	%

Directors of the Company also serve as directors of the Bank.

(1)

Shares held directly with sole voting and sole investment power, unless otherwise indicated.

(2)

Share amounts include stock options which are exercisable within 60 days as follows: Mr. Brooks 18,900 shares; Ms. Bowen-Hahto 12,600 shares; Ms. Brumley 3,150 shares; Mr. Franks 7,350 shares; Mr. Gallagher 10,500 shares; Mr. Jones 2,950 shares; Mr. Kombol 8,400 shares; Mr. Moergeli 17,500 shares; Mr. Raeder 10,600 shares; Mr. Van Beek 6,400 shares; and Mr. Zurcher 12,600 shares.

(3)

Includes 9,377 shares held jointly with spouse.

(4)

Includes 2,100 shares held by Ms. Bowen-Hahto’s spouse and 840 shares held in trust for the benefit of Ms. Bowen-Hahto’s child.

(5)

Includes 1,680 shares held in trust for the benefit of Ms. Brumley’s children.

(6)

Includes 252 shares held by Mr. Frank’s spouse.

(7)

Includes 8,099 shares held in trust for the benefit of Mr. Gallagher’s children; 3,584 held by Mr. Gallagher’s spouse and 3,912 held by Mr. Gallagher’s children.

(8)

Includes 11,180 shares held by Mr. Jones’ spouse; 6,711 shares held in trusts for the benefit of Mr. Jones’ children and 1,154 held by Mr. Jones’ daughter.

(9)

Includes 801 shares held by Mr. Moergeli’s spouse.

(10)

Includes 470 shares held by Mr. Raeder’s spouse.

(11)

Includes 5,760 shares held by Mr. Van Beek’s spouse.

TRANSACTIONS WITH MANAGEMENT

Various of our directors and officers, members of their immediate families, and firms in which they had an interest were customers of and had transactions with the Bank during 2002 in the ordinary course of business. Similar transactions may be expected to take place in the ordinary course of business in the future. All outstanding loans and commitments included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not, in the opinion of management, involve more than the normal risk of collectibility nor present other unfavorable features. All such loans are currently in good standing and are being paid in accordance with their terms, except as discussed below.

Two loans to a business affiliated with Director Garrett S. VanBeek continue to be identified as having potential repayment weaknesses. The two loans consist of a $200,000 line of credit and a $79,851 term loan. The line of credit was increased from $150,000 during 2002 and the term loan was restructured. The increase in the line of credit and the restructuring were intended to lower monthly payments and provide additional cash flow to the business, which has been adversely affected by declining milk prices in the dairy industry. The Bank believes that both loans are adequately secured by livestock and equipment. Based upon the Bank’s knowledge of trends in the dairy industry, fiscal year end financial statements of the business are expected to reveal only modest improvement.

COMPLIANCE WITH SECTION 16(a) FILING REQUIREMENTS

Section 16(a) of the Securities Exchange Act of 1934, as amended, (“Section 16(a)”) requires that all executive officers and directors of the Company and all persons who beneficially own more than 10 percent of our Common Stock file reports with the Securities and Exchange Commission with respect to beneficial ownership of our Securities. We have adopted procedures to assist its directors and executive officers in complying with the Section 16(a) filings.

Based solely upon our review of the copies of the filings which it received with respect to the fiscal year ended December 31, 2002, or written representations from certain reporting persons, we believe that all reporting persons made all filings required by Section 16(a) in a timely manner.

AUDITORS

McGladrey & Pullen, LLP performed the audit of the Company’s consolidated financial statements for the year ended December 31, 2002. Representatives of McGladrey & Pullen, LLP will be present at the Annual

Meeting, and will have the opportunity to make a statement if they so desire. They will also be available to respond to appropriate questions.

Fees Paid to Independent Auditors

During the fiscal year ended December 31, 2002, fees paid to our independent auditors, McGladrey & Pullen, LLP, consisted of the following:

Audit Fees. The aggregate fees and expenses billed by McGladrey & Pullen, LLP in connection with the audit of our financial statements as of and for the year ended December 31, 2002 and for the required review of our financial information included in our SEC filings for fiscal year ended December 31, 2002 was $39,264.

Financial Information Systems Design and Implementation Fee. There were no fees incurred for these services for fiscal year 2002.

All Other Fees. The aggregate fees and expenses billed by McGladrey & Pullen, LLP, McGladrey & Pullen Tax Services, LLC and RSM McGladrey, Inc. (affiliates of McGladrey and Pullen, LLP) for all other services rendered to us during the fiscal year ended December 31, 2002 was $34,326.

For the fiscal year 2002 the Board considered and deemed the services provided by McGladrey & Pullen, LLP were compatible with maintaining the principal accountant’s independence.

OTHER BUSINESS

The Board of Directors knows of no other matters to be brought before the shareholders at the Annual Meeting. In the event other matters are presented for a vote at the Meeting, the Proxy holders will vote shares represented by properly executed proxies in their discretion in accordance with their judgment on such matters.

At the Meeting, management will report on the Company’s business and shareholders will have the opportunity to ask questions.

INFORMATION CONCERNING SHAREHOLDER PROPOSALS

Proposals of shareholders intended to be presented at the 2004 annual shareholders’ meeting must be received by the Secretary of the Company before November 11, 2003, for inclusion in the 2004 Proxy Statement and form of proxy. In addition, if we receive notice of a shareholder proposal after January 25, 2004, the persons named as proxies in such Proxy Statement and form of proxy will have discretionary authority to vote on such shareholder proposal.

ANNUAL REPORT TO SHAREHOLDERS

Any shareholder may obtain without charge a copy of our Annual Report on Form 10-KSB filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934 for the year ended December 31, 2002, including financial statements. Written requests for the Form 10-KSB should be addressed to Sheila Brumley, CFO, Mountain Bank Holding Company, 501 Roosevelt Avenue, Enumclaw, Washington 98022.

March 11, 2003

BY ORDER OF THE BOARD OF DIRECTORS

LOGO

Roy T. Brooks, Chairman of the Board

APPENDIX A

MOUNTAIN BANK HOLDING COMPANY

AUDIT COMMITTEE CHARTER & POLICY

(Adopted February 7, 2003)

SCOPE

It is the responsibility of the Board of Directors of Mountain Bank Holding Company (the “Company”) to ensure the protection of the Company’s assets and to deter any practice that could be concluded to be unsafe and unsound. The Audit Committee is appointed by the Board of Directors to assist in monitoring the integrity of the financial statements of the Company, the compliance by the Company with applicable legal and regulatory requirements and the independence and performance of the Company’s internal and external auditors. This Charter and Policy addresses the responsibilities for overseeing the financial reporting process and assuring the objectivity of independent audits.

MEMBERS

The Board of Directors shall at all times maintain an Audit Committee whose membership shall consist of at least three “independent” Board members and shall designate one member as Chairperson. For purposes hereof, “independent” shall mean a director who meets the independence requirements of (i) the National Association of Securities Dealers Automated Quotation System (“Nasdaq”), or (ii) a national securities exchange, in either case as approved by the Securities and Exchange Commission (“SEC”), as such requirements may be modified or supplemented from time to time. This Committee shall meet at least quarterly, shall maintain minutes of its meetings, and shall provide comprehensive reports of its activities to the full Board of Directors.

Each member of the Audit Committee must be “financially literate” in the business judgment of the Board.

The SEC has recently adopted rules requiring disclosure of whether or not an audit committee has at least one “audit committee financial expert” within the meaning of rules promulgated under the Sarbanes-Oxley Act of 2002. This disclosure will be required in the Company’s filings for fiscal years ending after December 15, 2003. The Audit Committee will use its best efforts, in cooperation with the Board, to add a member who meets the criteria of an “audit committee financial expert,” if no current member meets such criteria.

The “audit committee financial expert” criteria are set forth in Exhibit A.

AUTHORITY

The Audit Committee shall have all necessary and appropriate authority to perform its duties and fulfill its obligations as set forth in this Charter and Policy. As set forth under “DUTIES AND RESPONSIBILITIES,” the Audit Committee will, among other things, be directly responsible for the appointment, compensation, retention and oversight of the work of the Company’s independent auditors (including resolution of any disagreements between management and the independent auditors regarding financial reporting), and the Company’s independent auditors will report directly to the Audit Committee. The Audit Committee will determine, in its capacity as a committee of the Board, the appropriate funding necessary to compensate any accounting firm engaged for the purpose of rendering or issuing an audit report or related work or performing other audit, review or attest services for the Company, and will work with the Board as a whole to ensure that such funds are provided pursuant to the Company’s responsibility to do so.

While the Audit Committee has the responsibilities and powers set forth in this Charter and Policy, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements

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are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management and the independent auditor.

MEETINGS

The Audit Committee shall meet as often as may be deemed necessary or appropriate in its judgment, generally four times each year, either in person or telephonically. The Audit Committee shall meet in executive session with the outside auditors and head of internal audit at least annually. The Audit Committee may create subcommittees who shall report to the Audit Committee. The Audit Committee shall report to the full Board of Directors with respect to its meetings. The majority of the members of the Audit Committee shall constitute a quorum.

OUTSIDE ADVISORS AND INVESTIGATION

The Audit Committee will have the authority to retain special legal, accounting or other consultants to advise the Committee. The Audit Committee may request any officer or employee of the Company or the Company’s outside counsel or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee. Additionally, the Audit Committee shall have the authority to conduct or authorize investigations into any matters within its scope of responsibilities and shall have the authority to retain outside advisors to assist it in the conduct of any investigation. The Audit Committee will determine, in its capacity as a committee of the Board, the appropriate funding necessary to compensate any advisors to the Audit Committee, and will work with the Board as a whole to ensure that such funds are provided pursuant to the Company’s responsibility to do so.

DUTIES & RESPONSIBILITIES

General

The Audit Committee shall:

Review and discuss the annual audited financial statements with the Company’s management, including major issues regarding accounting and auditing principles and practices as well as the adequacy of internal controls that could significantly affect the Company’s financial statements.

Review an analysis prepared by management and the independent auditor of significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements.

Review with management and the independent auditor the Company’s quarterly financial statements prior to the filings of its Forms 10-Q, or, if contemplated, before the public release of quarterly results.

Meet periodically with management to review the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures.

Review major changes to the Company’s auditing and accounting principles and practices as suggested by the independent auditor, internal auditors or management.

Prepare the Audit Committee report required by the rules of the Securities and Exchange Commission to be included in the Company’s annual proxy statement.

Review with the Company’s corporate securities counsel legal matters that may have a material impact on the financial statements, the Company’s compliance policies and any material reports or inquiries received from regulators or governmental agencies.

Meet at least annually with the chief financial officer, the internal auditor and the independent auditor in separate executive sessions.

Maintain procedures for the receipt, retention and treatment of complaints received by the Company regarding financial statements disclosures, accounting, internal controls, or auditing matters, and the

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confidential, anonymous submission by employees of the Company regarding the same. Such procedures are set forth on Exhibit B.

Internal Audit

The Audit Committee shall:

Assure that management has in place a system of internal controls designed to minimize the Bank’s risk of loss from errors and irregularities and to maintain confidentiality of information and continuity of operations.

Monitor management and staff compliance with board policies and with laws and regulations.

Review all audit reports and supervisory examination reports.

Select the internal auditor and authorize fees and engagement letters (subject to the approval of the full Board of Directors) for the study, evaluation, and testing of the system of internal controls.

Meet with the internal auditor regularly during the year to review the results of internal audits.

Monitor management’s progress in correcting deficiencies identified in internal audits.

Receive the Compliance Officer(s)’ quarterly report(s) of activities and training.

Receive a quarterly report from the internal auditor affirming that monthly general ledger certifications are being conducted.

Receive a quarterly report from the internal auditor affirming that employee account reviews are being conducted at least quarterly.

10.

Regularly review risk assessments and the internal audit list.

11.

Maintain and monitor compliance with a rolling 30-month internal audit matrix.

12.

Meet annually with external loan credit reviewer.

Executive Management

Executive management shall:

Establish and maintain a system of internal controls.

Shall take prompt corrective action to address any risks identified by internal or external auditors.

Provide written responses to all audit reports within 30 days.

Regulatory Compliance

The

Audit Committee shall:

Monitor compliance-related functions.

Ensure that audit plans include reviews of compliance regulations.

Annually review the Compliance Policy and recommend its adoption to the Board of Directors.

Advise the Board with respect to the Company’s policies and procedures regarding compliance with applicable laws and regulations.

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Independent Auditors

The Audit Committee shall:

Be directly responsible for the appointment, compensation, retention and oversight of the work of the Company’s independent auditors (including resolution of disagreements between management and the independent auditors regarding financial reporting). The Company’s independent auditors will report directly to the Audit Committee.

Pre-approve all auditing services and permissible non-audit services to be provided to the Company by the Company’s independent auditors, except for certain de minimus services as defined in the Sarbanes-Oxley Act of 2002. A description of non-audit services and de minimus services is set forth on Exhibit C.

Meet with the independent auditors regularly during the year to review the overall audit plan, and to receive regulatory reports and management letters.

Authorize audit fees & engagement letters.

Review results of external audits, restrictions, cooperation received, audit findings, audit recommendations, etc.

Monitor management’s progress in correcting deficiencies identified in independent audits.

Receive periodic reports from the independent auditor regarding the auditor’s independence consistent with Independence Standards Board Standard 1, discuss such reports with the auditor, and if so determined by the Audit Committee, take or recommend that the full Board take appropriate action to oversee the independence of the auditor.

Evaluate together with the Board the performance of the Company’s independent auditors.

Review the significant reports to management prepared by the internal auditor and management’s responses.

10.

Obtain from the independent auditor assurance that Section 10A of the Securities Exchange Act of 1934 has not been implicated.

11.

Obtain reports from management and the internal and independent auditors that the Company’s subsidiary entities are in conformity with applicable legal requirements.

12.

Discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit.

13.

Review with the independent auditor any problems or difficulties the auditor may have encountered and any management letter provided by the auditor and the Company’s response to that letter. Such review should include: (a) any difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to required information; (b) any changes required in the planned scope of the internal audit; and (c) the internal auditors responsibilities, budget and staffing.

REVIEW

This Charter and Policy shall be reviewed by the Audit Committee and recommended to the Board of Directors for adoption annually.

EXHIBITS TO CHARTER ARE INTENTIONALLY OMITTED

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MOUNTAIN BANK HOLDING COMPANY

PROXY

PLEASE SIGN AND RETURN IMMEDIATELY

This Proxy Is Solicited on Behalf of the Board of Directors

The undersigned hereby appoints Susan K. Bowen-Hahto and Garrett S. Van Beek, and each of them (with full power to act alone) as Proxies, with full power of substitution, and hereby authorizes them to represent and to vote, as designated below, all the shares of common stock of Mountain Bank Holding Company held of record by the undersigned on February 14, 2003, at the annual meeting of shareholders to be held on March 25, 2003, or any adjournment of such Meeting.

ELECTION OF DIRECTORS

I vote FOR all nominees listed below (except as marked to the contrary below) ¨

I WITHHOLD AUTHORITY to vote for any individual nominee whose name I have struck a line through in the list below ¨

Roy T. Brooks ¨ Susan K. Bowen-Hahto ¨ Steve W. Moergeli

WHATEVER OTHER BUSINESS may properly be brought before the meeting or any adjournment thereof.

THIS PROXY CONFERS AUTHORITY TO VOTE “FOR” AND WILL BE VOTED “FOR” THE PROPOSITIONS LISTED UNLESS AUTHORITY IS WITHHELD OR A VOTE AGAINST IS SPECIFIED, IN WHICH CASE THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATION SO MADE.

Management knows of no other matters that may properly be, or which are likely to be, brought before the Meeting. However, if any other matters are properly presented at the Meeting, this Proxy will be voted in accordance with the recommendations of management.

The Board of Directors recommends a vote “FOR” the listed propositions.

, 2003

WHEN SIGNING AS ATTORNEY, EXECUTOR,

ADMINISTRATOR, TRUSTEE OR GUARDIAN,

PLEASE GIVE FULL TITLE. IF MORE

THAN ONE TRUSTEE, ALL SHOULD SIGN.

ALL JOINT OWNERS MUST SIGN.