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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2004

For the transition period from              to             

Commission File Number : 0-28394

MOUNTAIN BANK HOLDING COMPANY

(Exact Name of Registrant as Specified in Its Charter)

501 Roosevelt Avenue

Enumclaw, Washington 98022

(Address of Principal Executive Offices)

(360) 825-0100

(Issuer’s Telephone Number, Including Area Code)

Indicate by check mark 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  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act):    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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MOUNTAIN BANK HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED CONDENSED BALANCE SHEETS

See notes to consolidated condensed financial statements

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MOUNTAIN BANK HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)

See notes to consolidated condensed financial statements

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MOUNTAIN BANK HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (In thousands)

Balance Ended September 30

See notes to consolidated condensed financial statements

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MOUNTAIN BANK HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

See notes to consolidated condensed financial statements

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

(1) Summary of Significant Accounting Policies

(a) Basis of Presentation: The accompanying unaudited consolidated condensed financial statements for Mountain Bank Holding Company (the Company) were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions for Form 10-Q and therefore, do not include all disclosures necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments, which are, in the opinion of management, necessary for a fair presentation of the interim consolidated condensed financial statements have been included. All such adjustments are of a normal recurring nature. The unaudited consolidated condensed financial statements should be read in conjunction with the audited financial statements included in the Mountain Bank Holding Company 2003 Annual Report on Form 10-KSB. The results of operations for the nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2004.

(b) Principles of Consolidation: The interim consolidated financial statements include the accounts of Mountain Bank Holding Company and its wholly-owned subsidiary, Mt. Rainier National Bank (the Bank). All significant intercompany balances have been eliminated.

(c) Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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Note 2 – Earnings Per Common Share

Basic earnings per share is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding during the period, without considering any dilutive items. Diluted earnings per common share are computed assuming the exercise of stock options.

Note 3 – Stock Based Compensation

At September 30, 2004 the Company has four stock-based employee and director compensation plans and an employee stock purchase plan. The Company accounts for those plans under the recognition and measurement principles of APB No. 25, Accounting for Stock Issued to Employees and related interpretations. Accordingly, no stock-based compensation cost is reflected in net income as all options granted under those plans and the purchase price under the stock purchase plan were equal to the market value of the Company’s stock on the date of grant. The following table illustrates the effect on

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net income and earnings per share for the three months and nine months ended September 30, 2004 and 2003 if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based compensation awards for the effects of all options granted on or after January 1, 1995 and stock purchased under the stock purchase plan.

Note 4 – Commitments and Contingencies

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

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

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Outstanding commitments under letters of credit totaled $345 thousand and $374 thousand at September 30, 2004 and December 31, 2003, respectively.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This discussion should be read in conjunction with the unaudited consolidated condensed financial statements of the Company and notes thereto presented elsewhere in this report. In the following discussion, unless otherwise noted, references to increases or decreases in average balances in terms of income and expense for a particular period and balances at a particular date refer to the comparison with corresponding amounts for the period or date one year earlier.

The following analysis discusses the material changes in the financial condition and results of operations of the Company at and for the quarter and nine months ended September 30, 2004. This report contains certain “forward looking statements.” The Company desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and is including this statement for the express purpose of availing itself of the protection of such safe harbor with forward looking statements. These forward-looking statements may describe future plans or strategies and include the Company’s expectations of future financial results. The words “believe,” “expect,” “anticipate,” “estimate,” “project,” and similar expressions identify forward-looking statements. The Company’s ability to predict results of the effect of future plans or strategies is inherently uncertain. Factors which could affect actual results include competition in the financial services market for both deposits and loans, interest rate trends, the economic climate in the Company’s market areas and the country as a whole, loan delinquency rates, and changes in federal and state regulation. These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements.

Comparison of Financial Condition at September 30, 2004 and December 31, 2003

Total Assets: Total assets increased $20.3 to $176.6 million at September 30, 2004. This change is due primarily to an increase in loans, including loans held for sale, of $18 million, which was funded by an increase in deposits of $18.4 million.

Interest Bearing Deposits At Other Financial Institutions: Interest bearing deposits at other financial institutions decreased by $4.7 million to $9.2 million from $13.9 million at December 31, 2003. These deposits were utilized to purchase securities yielding a higher return.

Securities: Securities increased $5.4 million to $37.7 million as of September 30, 2004. The Company’s securities portfolio was comprised of US Treasury notes of $3.1 million, US government sponsored agency securities of $16.4 million, mortgage-backed securities of $15.5 million, corporate and municipal securities of $2.6 million and equity securities of $60 thousand. As the corporate bonds matured, the funds were redeployed into US government sponsored agencies, as well as mortgage backed securities. Additional securities were purchased in these two categories with the excess interest bearing deposits to produce a higher return.

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The following table presents the composition and carrying value of the Company’s investment portfolio at September 30, 2004 and December 31, 2003 and the dollar and percentage changes of each investment category.

Loans: Net loans receivable, including loans held for sale, increased by $18 million to $116.8 million at September 30, 2004. The increase in the loan portfolio was a result of a $2.5 million increase in commercial and agriculture loans, a $2.3 million increase in construction and residential real estate loans and a $13.6 million increase in commercial real estate loans. Consumer loans decreased $340 thousand during the same period. The Bank’s two new branches (Sumner and Federal Way), together, contributed $7 million (38.8%) of the year to date growth. Both branches were opened with seasoned, experienced loan officers.

Commercial real estate loans continue to dominate portfolio growth. Motivated by excellent interest rates, borrowers have come to Mt. Rainier National Bank to refinance and purchase commercial income properties. This demand has propelled the bank’s commercial real estate portfolio to $63.6 million, an increase for the year of $13.6 million. This segment of the portfolio now makes up 54.3% of total loans.

The following table sets forth the composition of the Company’s loan portfolio by type of loan:

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Non-performing assets:

The following table sets forth information with respect to the Company’s non-performing assets at the dates indicated:

Activity in the Allowance for Credit Losses: Activity in the allowance for credit losses in the nine months ended September 30, 2004 and 2003 is as follows:

Real Estate Owned: On September 30, 2004, the Company sold the foreclosed property for a total of $158 thousand, which reduced the OREO to $0 and produced a gain on the sale of $18 thousand.

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Premises and Equipment: On March 15, 2004 the Bank opened a loan production office in Federal Way, Washington. The office is a leased facility with approximately 1,000 square feet. Two loan officers and a receptionist from the Federal Way area were hired to staff the facility. The Company is looking for property in the area to open a full service branch. On August 31, 2004, the Company purchased property in Auburn, Washington with the intent to relocate the South Auburn facility. The property is approximately 53,650 square feet with a 6,961 square foot building. The cost of the property was $893.8 thousand. The Company is in the process of completing structural engineering for the remodel of the existing structure. The preliminary costs to remodel the facility should range from $325 thousand to $375 thousand, with an additional estimate of $225 thousand to $275 thousand for furniture and equipment.

Deposits: From December 31, 2003, deposits increased $18.4 million or 13.2%; to September 30, 2004. Certificates of deposits increased $6.4 million, savings increased $1.5 million and interest-bearing deposits, which include money market accounts and NOW accounts increased $4.3 million. Demand deposits increased $6.1 million for the nine-month period. Approximately $3.7 million of the total increase in deposits was attributed to the Sumner location. The Company has opened over 2,400 new accounts during the first nine months of 2004, which has attributed to the increase in deposits.

The following table sets forth the balance of deposits in the various types of accounts offered by the Bank at the dates indicated: