##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the year ended December 31, 2005                                                        
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period from to                                                           

COMMISSION FILE NUMBER 000-50667


INTERMOUNTAIN COMMUNITY BANCORP


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                      
|------------------------------------------------------------------ |  | -------------------------------------
|Idaho                                                              |  | 82-0499463                           
|(State or other jurisdiction of
    incorporation or organization) |  | (IRS Employer
    Identification No.)

231 N. Third Avenue, Sandpoint, ID 83864


(Address of principal executive offices) (Zip code)


Registrants telephone number, including area code:


(208) 263-0505


Securities registered pursuant to Section 12(b) of the
Act:


|                      |  |                                            
|--------------------- |  | -------------------------------------------
|None                  |  | None                                       
|(Title of each class) |  | (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the
Act:


Common Stock (no par value)


(Title of class)


o þ


o þ


þ o


S-K 10-K 10-K. þ


12b-2


o o þ


12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE












---



##### 










TABLE OF CONTENTS


|                                                               |  |                                                                                                                     |      |      |    | 
|-------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------- | ---- | ---- | -- | 
|                                                               |  |                                                                                                                     |      | Page |   
|                                                               |  |                                                                                                                     |      |      |   
|PART I                                                        
|ITEM 1.                                                        |  | BUSINESS                                                                                                            |      |      | 3  | 
|ITEM 1A.                                                       |  | RISK FACTORS                                                                                                        |      |      | 20 | 
|ITEM 1B.                                                       |  | UNRESOLVED STAFF COMMENTS                                                                                           |      |      | 24 | 
|ITEM 2.                                                        |  | PROPERTIES                                                                                                          |      |      | 24 | 
|ITEM 3.                                                        |  | LEGAL PROCEEDINGS                                                                                                   |      |      | 25 | 
|ITEM 4.                                                        |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS                                                             |      |      | 26 | 
|PART II                                                       
|ITEM 5.                                                        |  | MARKET FOR REGISTRANTS COMMON EQUITY,
    RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY
    SECURITIES |      |      | 26 | 
|ITEM 6.                                                        |  | SELECTED FINANCIAL DATA                                                                                             |      |      | 27 | 
|ITEM 7.                                                        |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS                            |      |      | 28 | 
|ITEM 7A.                                                       |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES
    ABOUT MARKET RISK                                                      |      |      | 44 | 
|ITEM 8.                                                        |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA                                                                     |      |      | 48 | 
|ITEM 9.                                                        |  | CHANGES IN AND DISAGREEMENTS WITH
    ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                            |      |      | 48 | 
|ITEM 9A.                                                       |  | CONTROLS AND PROCEDURES                                                                                             |      |      | 48 | 
|ITEM 9B.                                                       |  | OTHER INFORMATION                                                                                                   |      |      | 48 | 
|PART III                                                      
|ITEM 10.                                                       |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE
    REGISTRANT                                                              |      |      | 48 | 
|ITEM 11.                                                       |  | EXECUTIVE COMPENSATION                                                                                              |      |      | 48 | 
|ITEM 12.                                                       |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
    OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                  |      |      | 49 | 
|ITEM 13.                                                       |  | CERTAIN RELATIONSHIPS AND RELATED
    TRANSACTIONS                                                                  |      |      | 49 | 
|ITEM 14.                                                       |  | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                              |      |      | 49 | 
|PART IV                                                       
|ITEM 15.                                                       |  | EXHIBITS AND FINANCIAL STATEMENT
    SCHEDULES                                                                      |      |      | 49 | 
|SIGNATURES                                                     |  |                                                                                                                     | 50   |     
|EXHIBIT INDEX                                                  |  |                                                                                                                     | 52   |     
|Report of Independent Registered Public
    Accounting Firm    |  |                                                                                                                     | F-1  |     
|Consolidated Balance Sheets                                    |  |                                                                                                                     | F-2  |     
|Consolidated Statements of Income                              |  |                                                                                                                     | F-3  |     
|Consolidated Statements of Comprehensive
    Income            |  |                                                                                                                     | F-4  |     
|Consolidated Statements of Changes in
    Stockholders Equity |  |                                                                                                                     | F-5  |     
|Consolidated Statements of Cash Flows                          |  |                                                                                                                     | F-8  |     
|Summary of Accounting Policies                                 |  |                                                                                                                     | F-10 |     
|Notes to Consolidated Financial
    Statements                 |  |                                                                                                                     | F-15 |     
|EXHIBIT 21                                                    
|EXHIBIT 23                                                    
|EXHIBIT 31.1                                                  
|EXHIBIT 31.2                                                  
|EXHIBIT 32                                                    



2



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##### Table of Contents






PART I







|        |         
|------- | --------
|Item 1. | BUSINESS

Forward-Looking Statements


10-K,








out-of




3



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##### Table of Contents











Primary Market Area




Competition


out-of




4



---



##### Table of Contents



Services Provided




| |                   
| | ------------------
| | Lending Activities



Commercial Loans.




Residential Loans. 30-year


Consumer Loans.


5



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##### Table of Contents



Municipal Financing.




| |                 
| | ----------------
| | Deposit Services





| |                    
| | -------------------
| | Investment Services





| |               
| | --------------
| | Other Services

point-of tm


Loan Portfolio








6



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##### Table of Contents





|                                                    |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                    |  | December 31, |        
|                                                    |  |              |        
|                                                    |  | 2005         |         |   | 2004 |   |         | 2003 |  |   | 2002    |   |  | 2001 |        
|                                                    |  |              |         |   |      |   |         |      |  |   |         |   |  |      |        
|Commercial loans                                    |  | $            | 425,005 |   |      | $ | 304,783 |      |  | $ | 215,396 |   |  | $    | 144,872 |   |  | $ | 110,850 |  
|Residential loans                                   |  |              | 107,554 |   |      |   | 94,170  |      |  |   | 58,728  |   |  |      | 36,832  |   |  |   | 34,628  |  
|Consumer loans                                      |  |              | 29,109  |   |      |   | 24,245  |      |  |   | 16,552  |   |  |      | 13,854  |   |  |   | 12,417  |  
|Municipal loans                                     |  |              | 2,856   |   |      |   | 2,598   |      |  |   | 1,751   |   |  |      | 2,679   |   |  |   | 2,263   |  
|                                                    |  |              |         |   |      |   |         |      |  |   |         |   |  |      |        
|Total loans                                         |  |              | 564,524 |   |      |   | 425,796 |      |  |   | 292,427 |   |  |      | 198,237 |   |  |   | 160,158 |  
|Allowance for loan losses                           |  |              | (8,517  | ) |      |   | (6,902  | )    |  |   | (5,118  | ) |  |      | (3,259  | ) |  |   | (2,574  | )
|Deferred loan fees, net of direct origination costs |  |              | (971    | ) |      |   | (234    | )    |  |   | (53     | ) |  |      | (204    | ) |  |   | (488    | )
|                                                    |  |              |         |   |      |   |         |      |  |   |         |   |  |      |        
|Loans receivable, net                               |  | $            | 555,036 |   |      | $ | 418,660 |      |  | $ | 287,256 |   |  | $    | 194,774 |   |  | $ | 157,096 |  
|                                                    |  |              |         |   |      |   |         |      |  |   |         |   |  |      |        
|Weighted average rate                               |  |              | 7.90    | % |      |   | 6.81    | %    |  |   | 6.60    | % |  |      | 6.94    | % |  |   | 7.72    | %
|                                                    |  |              |         |   |      |   |         |      |  |   |         |   |  |      |        



| |                        
| | -----------------------
| | Classification of Loans









|                                                |  |              |      |   |      |   |       |      |  |   |      |   |  |      |      |   |  |   |       |  
|----------------------------------------------- |  | ------------ | ---- | - | ---- | - | ----- | ---- |  | - | ---- | - |  | ---- | ---- | - |  | - | ----- | -
|                                                |  | December 31, |     
|                                                |  |              |     
|                                                |  | 2005         |      |   | 2004 |   |       | 2003 |  |   | 2002 |   |  | 2001 |     
|                                                |  |              |      |   |      |   |       |      |  |   |      |   |  |      |     
|Nonaccrual loans (approximately)                |  | $            | 807  |   |      | $ | 1,218 |      |  | $ | 174  |   |  | $    | 609  |   |  | $ | 1,041 |  
|Nonaccrual loans as a percentage of total loans |  |              | 0.14 | % |      |   | 0.29  | %    |  |   | 0.06 | % |  |      | 0.31 | % |  |   | 0.66  | %
|Total allowance related to these loans          |  | $            | 341  |   |      | $ | 413   |      |  | $ | 47   |   |  | $    | 249  |   |  | $ | 134   |  
|Interest income recorded on these loans         |  | $            | 8    |   |      | $ | 10    |      |  | $ | 3    |   |  | $    | 11   |   |  | $ | 85    |  

7



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| |                              
| | -----------------------------
| | The Allowance for Loan Losses



Allocation of the Allowance for Loan Losses


and Non-Accrual Loans Detail


(Dollars in thousands)


|                  |  |                   |        |   |       |   |         |           |  |             |       |  |  |   |     | 
|----------------- |  | ----------------- | ------ | - | ----- | - | ------- | --------- |  | ----------- | ----- |  |  | - | --- | 
|                  |  | December 31, 2005 |       
|                  |  |                   |       
|                  |  | Percent of        |        |   |      
|                  |  | Loans to          |        |   | Gross |   |         |           |  | Non-Accrual |      
|                  |  | Total Loans       |        |   | Loans |   |         | Allowance |  |             | Loans | 
|                  |  |                   |        |   |       |   |         |           |  |             |       | 
|Commercial loans  |  |                   | 75.28  | % |       | $ | 425,005 |           |  | $           | 6,210 |  |  | $ | 671 | 
|Residential loans |  |                   | 19.05  | % |       |   | 107,554 |           |  |             | 1,827 |  |  |   | 10  | 
|Consumer loans    |  |                   | 5.16   | % |       |   | 29,109  |           |  |             | 450   |  |  |   | 126 | 
|Municipal loans   |  |                   | 0.51   | % |       |   | 2,856   |           |  |             | 30    |  |  |   |    | 
|                  |  |                   |        |   |       |   |         |           |  |             |       | 
|Totals            |  |                   | 100.00 | % |       | $ | 564,524 |           |  | $           | 8,517 |  |  | $ | 807 | 
|                  |  |                   |        |   |       |   |         |           |  |             |       | 

|                  |  |                   |        |   |       |   |         |           |  |             |       |  |  |   |       | 
|----------------- |  | ----------------- | ------ | - | ----- | - | ------- | --------- |  | ----------- | ----- |  |  | - | ----- | 
|                  |  | December 31, 2004 |       
|                  |  |                   |       
|                  |  | Percent of        |        |   |      
|                  |  | Loans to          |        |   | Gross |   |         |           |  | Non-Accrual |      
|                  |  | Total Loans       |        |   | Loans |   |         | Allowance |  |             | Loans | 
|                  |  |                   |        |   |       |   |         |           |  |             |       | 
|Commercial loans  |  |                   | 71.58  | % |       | $ | 304,783 |           |  | $           | 4,844 |  |  | $ | 1,036 | 
|Residential loans |  |                   | 22.11  | % |       |   | 94,170  |           |  |             | 1,710 |  |  |   | 175   | 
|Consumer loans    |  |                   | 5.70   | % |       |   | 24,245  |           |  |             | 307   |  |  |   | 7     | 
|Municipal loans   |  |                   | 0.61   | % |       |   | 2,598   |           |  |             | 41    |  |  |   |      | 
|                  |  |                   |        |   |       |   |         |           |  |             |       | 
|Totals            |  |                   | 100.00 | % |       | $ | 425,796 |           |  | $           | 6,902 |  |  | $ | 1,218 | 
|                  |  |                   |        |   |       |   |         |           |  |             |       | 

|                  |  |                   |        |   |       |   |         |           |  |             |       |  |  |   |     | 
|----------------- |  | ----------------- | ------ | - | ----- | - | ------- | --------- |  | ----------- | ----- |  |  | - | --- | 
|                  |  | December 31, 2003 |       
|                  |  |                   |       
|                  |  | Percent of        |        |   |      
|                  |  | Loans to          |        |   | Gross |   |         |           |  | Non-Accrual |      
|                  |  | Total Loans       |        |   | Loans |   |         | Allowance |  |             | Loans | 
|                  |  |                   |        |   |       |   |         |           |  |             |       | 
|Commercial loans  |  |                   | 73.66  | % |       | $ | 215,396 |           |  | $           | 3,804 |  |  | $ | 121 | 
|Residential loans |  |                   | 20.08  | % |       |   | 58,728  |           |  |             | 1,102 |  |  |   | 37  | 
|Consumer loans    |  |                   | 5.66   | % |       |   | 16,552  |           |  |             | 189   |  |  |   | 16  | 
|Municipal loans   |  |                   | 0.60   | % |       |   | 1,751   |           |  |             | 23    |  |  |   |    | 
|                  |  |                   |        |   |       |   |         |           |  |             |       | 
|Totals            |  |                   | 100.00 | % |       | $ | 292,427 |           |  | $           | 5,118 |  |  | $ | 174 | 
|                  |  |                   |        |   |       |   |         |           |  |             |       | 

8



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|                  |  |                   |        |   |       |   |         |           |  |             |       |  |  |   |     | 
|----------------- |  | ----------------- | ------ | - | ----- | - | ------- | --------- |  | ----------- | ----- |  |  | - | --- | 
|                  |  | December 31, 2002 |       
|                  |  |                   |       
|                  |  | Percent of        |        |   |      
|                  |  | Loans to          |        |   | Gross |   |         |           |  | Non-Accrual |      
|                  |  | Total Loans       |        |   | Loans |   |         | Allowance |  |             | Loans | 
|                  |  |                   |        |   |       |   |         |           |  |             |       | 
|Commercial loans  |  |                   | 73.08  | % |       | $ | 144,872 |           |  | $           | 2,572 |  |  | $ | 161 | 
|Residential loans |  |                   | 18.58  | % |       |   | 36,832  |           |  |             | 485   |  |  |   | 445 | 
|Consumer loans    |  |                   | 6.99   | % |       |   | 13,854  |           |  |             | 184   |  |  |   | 3   | 
|Municipal loans   |  |                   | 1.35   | % |       |   | 2,679   |           |  |             | 18    |  |  |   |    | 
|                  |  |                   |        |   |       |   |         |           |  |             |       | 
|Totals            |  |                   | 100.00 | % |       | $ | 198,237 |           |  | $           | 3,259 |  |  | $ | 609 | 
|                  |  |                   |        |   |       |   |         |           |  |             |       | 

|                  |  |                   |        |   |       |   |         |           |  |             |       |  |  |   |       | 
|----------------- |  | ----------------- | ------ | - | ----- | - | ------- | --------- |  | ----------- | ----- |  |  | - | ----- | 
|                  |  | December 31, 2001 |       
|                  |  |                   |       
|                  |  | Percent of        |        |   |      
|                  |  | Loans to          |        |   | Gross |   |         |           |  | Non-Accrual |      
|                  |  | Total Loans       |        |   | Loans |   |         | Allowance |  |             | Loans | 
|                  |  |                   |        |   |       |   |         |           |  |             |       | 
|Commercial loans  |  |                   | 69.22  | % |       | $ | 110,850 |           |  | $           | 1,804 |  |  | $ | 125   | 
|Residential loans |  |                   | 21.62  | % |       |   | 34,628  |           |  |             | 541   |  |  |   | 906   | 
|Consumer loans    |  |                   | 7.75   | % |       |   | 12,417  |           |  |             | 205   |  |  |   | 10    | 
|Municipal loans   |  |                   | 1.41   | % |       |   | 2,263   |           |  |             | 24    |  |  |   |      | 
|                  |  |                   |        |   |       |   |         |           |  |             |       | 
|Totals            |  |                   | 100.00 | % |       | $ | 160,158 |           |  | $           | 2,574 |  |  | $ | 1,041 | 
|                  |  |                   |        |   |       |   |         |           |  |             |       | 









9



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Analysis of the Allowance for Loan Losses


|                                              |                   |                        |        |      |      |   |        |      |   |   |        |      |   |      |        |     |   |   |        |     |  
|--------------------------------------------- | ----------------- | ---------------------- | ------ | ---- | ---- | - | ------ | ---- | - | - | ------ | ---- | - | ---- | ------ | --- | - | - | ------ | --- | -
|                                              |                   | December 31,           |       
|                                              |                   |                        |       
|                                              |                   | 2005                   |        |      | 2004 |   |        | 2003 |   |   | 2002   |      |   | 2001 |       
|                                              |                   |                        |        |      |      |   |        |      |   |   |        |      |   |      |       
|                                              |                   | (Dollars in thousands) |       
|Balance Beginning December 31                 |                   | $                      | (6,902 | )    |      | $ | (5,118 | )    |   | $ | (3,259 | )    |   | $    | (2,574 | )   |   | $ | (1,875 | )  
|Charge Offs                                   |                   |                        |        |      |      |   |        |      |   |   |        |      |   |      |        |     |   |   |        |    
|                                              | Commercial Loans  |                        |        | 307  |      |   |        | 535  |   |   |        | 785  |   |      |        | 740 |   |   |        | 421 |  
|                                              | Residential Loans |                        |        | 21   |      |   |        | 44   |   |   |        | 195  |   |      |        | 217 |   |   |        | 55  |  
|                                              | Consumer Loans    |                        |        | 464  |      |   |        | 164  |   |   |        | 137  |   |      |        | 46  |   |   |        | 56  |  
|                                              | Municipal Loans   |                        |        |     |      |   |        |     |   |   |        |     |   |      |        |    |   |   |        |    |  
|                                              |                   |                        |        |      |      |   |        |      |   |   |        |      |   |      |       
|Total Charge-offs                             |                   |                        | 792    |      |      |   | 743    |      |   |   | 1,117  |      |   |      | 1,003  |     |   |   | 532    |    
|Recoveries                                    |                   |                        |        |      |      |   |        |      |   |   |        |      |   |      |        |     |   |   |        |    
|                                              | Commercial Loans  |                        |        | (187 | )    |   |        | (131 | ) |   |        | (357 | ) |      |        | (57 | ) |   |        | (73 | )
|                                              | Residential Loans |                        |        | (19  | )    |   |        | (23  | ) |   |        | (35  | ) |      |        | (24 | ) |   |        | (10 | )
|                                              | Consumer Loans    |                        |        | (68  | )    |   |        | (40  | ) |   |        | (5   | ) |      |        |    |   |   |        | (15 | )
|                                              | Municipal Loans   |                        |        |     |      |   |        |     |   |   |        |     |   |      |        |    |   |   |        |    |  
|                                              |                   |                        |        |      |      |   |        |      |   |   |        |      |   |      |       
|Total Recoveries                              |                   |                        | (274   | )    |      |   | (194   | )    |   |   | (397   | )    |   |      | (81    | )   |   |   | (98    | )  
|Net charge offs                               |                   |                        | 518    |      |      |   | 549    |      |   |   | 720    |      |   |      | 922    |     |   |   | 434    |    
|Provision for loan loss                       |                   |                        | (2,229 | )    |      |   | (1,438 | )    |   |   | (955   | )    |   |      | (1,607 | )   |   |   | (1,133 | )  
|Addition from acquisition                     |                   |                        |       |      |      |   | (1,108 | )    |   |   | (1,624 | )    |   |      |       |     |   |   |       |    
|Sale of loans                                 |                   |                        | 96     |      |      |   | 213    |      |   |   |       |      |   |      |       |     |   |   |       |    
|                                              |                   |                        |        |      |      |   |        |      |   |   |        |      |   |      |       
|Balance at end of period                      |                   | $                      | (8,517 | )    |      | $ | (6,902 | )    |   | $ | (5,118 | )    |   | $    | (3,259 | )   |   | $ | (2,574 | )  
|Ratio of net charge-offs to loans outstanding |                   |                        | 0.09   | %    |      |   | 0.13   | %    |   |   | 0.25   | %    |   |      | 0.47   | %   |   |   | 0.27   | %  









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Maturity and Repricing for the Banks


Loan Portfolio at December 31, 2005


|                |  |                        |         |  |               |   |         |             |  |   |         | 
|--------------- |  | ---------------------- | ------- |  | ------------- | - | ------- | ----------- |  | - | ------- | 
|Loan Repricing  |  | Fixed Rate             |         |  | Variable Rate |   |         | Total Loans | 
|                |  |                        |         |  |               |   |         |             | 
|                |  | (Dollars in thousands) |        
|0-90 days       |  | $                      | 29,949  |  |               | $ | 296,194 |             |  | $ | 326,143 | 
|91-365 days     |  |                        | 39,998  |  |               |   | 14,875  |             |  |   | 54,873  | 
|1 year-5 years  |  |                        | 102,182 |  |               |   | 55,778  |             |  |   | 157,960 | 
|5 years or more |  |                        | 25,193  |  |               |   | 355     |             |  |   | 25,548  | 
|                |  |                        |         |  |               |   |         |             | 
|Total           |  | $                      | 197,322 |  |               | $ | 367,202 |             |  | $ | 564,524 | 
|                |  |                        |         |  |               |   |         |             | 



| |                              
| | -----------------------------
| | Loan Portfolio Concentrations





|            |  |  |       |  
|----------- |  |  | ----- | -
|Commercial  |  |  | 75.28 | %
|Residential |  |  | 19.05 | %
|Consumer    |  |  | 5.16  | %
|Municipal   |  |  | 0.51  | %







11



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Investments




held-to held-to


12



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##### Table of Contents





Investment Portfolio Detail


As of December 31,


|                                                                    |  |                        |        |         |           |  |        |        |         |   |           |  |  |        |        |    |  |   |        | 
|------------------------------------------------------------------- |  | ---------------------- | ------ | ------- | --------- |  | ------ | ------ | ------- | - | --------- |  |  | ------ | ------ | -- |  | - | ------ | 
|                                                                    |  |                        |        | Percent |           |  |        |        | Percent |   |           | 
|                                                                    |  | 2005                   |        |         | Change    |  |        | 2004   |         |   | Change    |  |  | 2003   |       
|Carrying Value as of December 31,                                   |  | Amount                 |        |         | Prev. Yr. |  |        | Amount |         |   | Prev. Yr. |  |  | Amount |       
|                                                                    |  |                        |        |         |           |  |        |        |         |   |           |  |  |        |       
|                                                                    |  | (Dollars in thousands) |       
|U.S. treasury securities and obligations of government
    agencies |  | $                      | 51,796 |         |           |  | (14.09 | )%     |         | $ | 60,290    |  |  |        | 63.08  | %  |  | $ | 36,969 | 
|Mortgage-backed securities                                          |  |                        | 30,777 |         |           |  | (23.36 | )%     |         |   | 40,156    |  |  |        | 17.99  | %  |  |   | 34,032 | 
|Corporate bonds                                                     |  |                        | 969    |         |           |  | (51.55 | )%     |         |   | 2,000     |  |  |        | (64.29 | )% |  |   | 5,601  | 
|State and municipal bonds                                           |  |                        | 7,054  |         |           |  | 23.30  | %      |         |   | 5,721     |  |  |        | 71.49  | %  |  |   | 3,336  | 
|                                                                    |  |                        |        |         |           |  |        |        |         |   |           |  |  |        |       
|Total                                                               |  | $                      | 90,596 |         |           |  | (16.24 | )%     |         | $ | 108,167   |  |  |        | 35.31  | %  |  | $ | 79,938 | 
|                                                                    |  |                        |        |         |           |  |        |        |         |   |           |  |  |        |       
|Available for Sale                                                  |  |                        | 83,847 |         |           |  | (18.40 | )%     |         |   | 102,758   |  |  |        | 34.15  | %  |  |   | 76,602 | 
|Held to Maturity                                                    |  |                        | 6,749  |         |           |  | 24.77  | %      |         |   | 5,409     |  |  |        | 62.14  | %  |  |   | 3,336  | 
|                                                                    |  |                        |        |         |           |  |        |        |         |   |           |  |  |        |       
|Total                                                               |  | $                      | 90,596 |         |           |  | (16.24 | )%     |         | $ | 108,167   |  |  |        | 35.31  | %  |  | $ | 79,938 | 
|                                                                    |  |                        |        |         |           |  |        |        |         |   |           |  |  |        |       

Investments held as of December 31, 2005


Mature as follows:


|                                                                    |  |                        |       |        |            |  |         |           |  |      |           |  |  |        |      |   |       |   |       |        |  |  |       |   |  |        |       |  |       |  |       |  |  |   |        |  |  |  |      |  
|------------------------------------------------------------------- |  | ---------------------- | ----- | ------ | ---------- |  | ------- | --------- |  | ---- | --------- |  |  | ------ | ---- | - | ----- | - | ----- | ------ |  |  | ----- | - |  | ------ | ----- |  | ----- |  | ----- |  |  | - | ------ |  |  |  | ---- | -
|                                                                    |  |                        |       | One to |            |  | Five to |           |  | Over |           |  | 
|                                                                    |  | One Year               |       |        | Five Years |  |         | Ten Years |  |      | Ten Years |  |  | Total  |     
|                                                                    |  |                        |       |        |            |  |         |           |  |      |           |  |  |        |     
|                                                                    |  | Amount                 |       |        | Yield      |  |         | Amount    |  |      | Yield     |  |  | Amount |      |   | Yield |   |       | Amount |  |  | Yield |   |  | Amount |       |  | Yield | 
|                                                                    |  |                        |       |        |            |  |         |           |  |      |           |  |  |        |      |   |       |   |       |        |  |  |       |   |  |        |       |  |       | 
|                                                                    |  | (Dollars in thousands) |      
|U.S. treasury securities and obligations of government
    agencies |  | $                      | 6,980 |        |            |  | 3.57    | %         |  | $    | 44,816    |  |  |        | 3.32 | % |       | $ |      |        |  |  |      | % |  | $      |      |  |       |  | %    |  |  | $ | 51,796 |  |  |  | 3.36 | %
|Corporate bonds                                                     |  |                        |      |        |            |  |        | %         |  |      | 969       |  |  |        | 3.25 | % |       |   |      |        |  |  |      | % |  |        |      |  |       |  | %    |  |  |   | 969    |  |  |  | 3.25 | %
|Mortgage-backed securities                                          |  |                        | 68    |        |            |  | 4.26    | %         |  |      | 20,368    |  |  |        | 3.45 | % |       |   | 2,790 |        |  |  | 4.37  | % |  |        | 7,551 |  |       |  | 4.20% |  |  |   | 30,777 |  |  |  | 3.71 | %
|State and municipal bonds
    (tax  equivalent)                    |  |                        | 495   |        |            |  | 5.50    | %         |  |      | 3,786     |  |  |        | 2.95 | % |       |   | 970   |        |  |  | 3.44  | % |  |        | 1,803 |  |       |  | 3.82% |  |  |   | 7,054  |  |  |  | 3.42 | %
|                                                                    |  |                        |       |        |            |  |         |           |  |      |           |  |  |        |      |   |       |   |       |        |  |  |       |   |  |        |       |  |       | 
|Total                                                               |  | $                      | 7,543 |        |            |  | 3.67    | %         |  | $    | 69,939    |  |  |        | 3.34 | % |       | $ | 3,760 |        |  |  | 4.13  | % |  | $      | 9,354 |  |       |  | 4.13% |  |  | $ | 90,596 |  |  |  | 3.48 | %
|                                                                    |  |                        |       |        |            |  |         |           |  |      |           |  |  |        |      |   |       |   |       |        |  |  |       |   |  |        |       |  |       | 

Deposits






13



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|                       |  |   |        | 
|---------------------- |  | - | ------ | 
|Maturities             |  |  
|                       |  |  
|Less than three months |  | $ | 24,043 | 
|Three to six months    |  |   | 11,937 | 
|Six to twelve months   |  |   | 24,958 | 
|Over twelve months     |  |   | 27,467 | 
|                       |  |   |       
|                       |  | $ | 88,405 | 
|                       |  |   |       

Borrowings








90-day


14



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##### Table of Contents





Employees




Supervision and Regulation




| |        
| | -------
| | General





| |                                        
| | ---------------------------------------
| | Federal Bank Holding Company Regulation

General.


Holding Company Bank Ownership. i ii iii


Holding Company Control of Nonbanks.


Transactions with Affiliates.


Tying Arrangements. i ii


Support of Subsidiary Banks.


15



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##### Table of Contents





State Law Restrictions.




| |                                         
| | ----------------------------------------
| | Federal and State Regulation of the Bank

General.


Community Reinvestment.


Insider Credit Transactions. i ii


Regulation of Management. i ii iii


Safety and Soundness Standards.




| |                                 
| | --------------------------------
| | Interstate Banking And Branching



16



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out-of out-of out-of out-of out-of




| |                  
| | -----------------
| | Deposit Insurance







| |          
| | ---------
| | Dividends







| |                 
| | ----------------
| | Capital Adequacy

Regulatory Capital Guidelines.


Tier I and Tier II Capital.


17



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##### Table of Contents



Risk-based Capital Ratios.


Leverage Ratio.


Prompt Corrective Action.




| |                                                
| | -----------------------------------------------
| | Corporate Governance and Accounting Legislation

Sarbanes-Oxley Act of 2002.








| |                           
| | --------------------------
| | Anti-terrorism Legislation

USA Patriot Act of 2001.


18



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| |                                 
| | --------------------------------
| | Financial Services Modernization

Gramm-Leach-Bliley Act of 1999. day-to








| |                                      
| | -------------------------------------
| | Effects Of Government Monetary Policy





| |                                   
| | ----------------------------------
| | Effect of Environmental Regulation



19



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##### Table of Contents







| |                                    
| | -----------------------------------
| | Where you can find more information

http://
Intermountainbank.com http://sec.gov

















|         |             
|-------- | ------------
|Item 1A. | RISK FACTORS



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | As a bank holding company, our earnings are dependent upon
    the performance of our bank as well as by business, economic and
    political conditions.









| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | A downturn in the local economies or real estate markets
    could negatively impact our banking business.





20



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| |                                                                          
| | -------------------------------------------------------------------------
| | Changes in market interest rates could adversely affect
    our earnings.











| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | Competition may adversely affect our ability to attract
    and retain customers at current levels.





21



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| |                                                                               
| | ------------------------------------------------------------------------------
| | We may not be able to successfully implement our internal
    growth strategy.





| |                                                            
| | -----------------------------------------------------------
| | There are risks associated with potential
    acquisitions.





| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to replace key members of management or
    attract and retain qualified relationship managers in the
    future.





| |                                                 
| | ------------------------------------------------
| | The allowance for loan losses may be inadequate.







22



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##### Table of Contents





| |                                                              
| | -------------------------------------------------------------
| | We are expanding our lending activities in riskier
    areas.





| |                                 
| | --------------------------------
| | Our stock price can be volatile.





23



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##### Table of Contents








|         |                          
|-------- | -------------------------
|Item 1B. | UNRESOLVED STAFF COMMENTS






Item 2.     PROPERTIES




|                                      |  |                                                  |  |          |        |  |                         |           |                |             |  |                         |       | 
|------------------------------------- |  | ------------------------------------------------ |  | -------- | ------ |  | ----------------------- | --------- | -------------- | ----------- |  | ----------------------- | ----- | 
|                                      |  |                                                  |  |          |        |  |                         | Occupancy |               
|                                      |  |                                                  |  |          |        |  |                         | Status    |               
|City and County                       |  | Address                                          |  | Sq. Feet |        |  | Date Opened or Acquired |           |                | (Own/Lease) | 
|                                      |  |                                                  |  |          |        |  |                         |           |                |             | 
|Panhandle State Bank Branches         |  |                                                  |  |          |        |  |                         |           |                |             |  |                         |       | 
|IDAHO                                 |  |                                                  |  |          |        |  |                         |           |                |             |  |                         |       | 
|(Kootenai County)                     |  |                                                  |  |          |        |  |                         |           |                |             |  |                         |       | 
|Coeur dAlene Branch(1)               |  | 200 W. Neider Avenue Coeur dAlene, ID 83814     |  |          | 5,500  |  |                         |           | May 2005       |             |  | land lease own building
|                                     
|Rathdrum Branch                       |  | 6878 Hwy 53
    Rathdrum, ID 83858               |  |          | 3,410  |  |                         |           | March 2001     |             |  |                         | own   | 
|                                     
|Post Falls Branch                     |  | 3235 E. Mullan Avenue Post Falls, ID 83854       |  |          | 3,752  |  |                         |           | March 2003     |             |  |                         | own   | 
|                                     
|(Bonner County)                       |  |                                                  |  |          |        |  |                         |           |                |             |  |                         |       | 
|Ponderay Branch                       |  | 300 Kootenai Cut-Off Road
    Ponderay, ID 83852 |  |          | 3,400  |  |                         |           | October 1996   |             |  |                         | own   | 
|                                     
|Priest River Branch                   |  | 301 E. Albeni Road Priest River, ID 83856        |  |          | 3,500  |  |                         |           | December 1996  |             |  |                         | own   | 
|                                     
|Sandpoint Branch                      |  | 231 N. Third Street Sandpoint, ID 83864          |  |          | 10,000 |  |                         |           | May 1981       |             |  |                         | own   | 
|                                     
|(Boundary County)                     |  |                                                  |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                     
|Bonners Ferry Branch                  |  | 6750 Main Street Bonners Ferry, ID 83805         |  |          | 3,400  |  |                         |           | September 1993 |             |  |                         | own   | 
|                                     
|Intermountain Community Bank Branches |  |                                                  |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                     
|IDAHO                                 |  |                                                  |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                     
|(Canyon County)                       |  |                                                  |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                     
|Caldwell Branch                       |  | 506 10th Avenue
    Caldwell, ID 83605           |  |          | 6,480  |  |                         |           | March 2002     |             |  |                         | own   | 
|                                     
|Nampa Branch                          |  | 521 12th Avenue S. Nampa, ID 83651               |  |          | 5,000  |  |                         |           | July 2001      |             |  |                         | own   | 
|                                     
|(Payette County)                      |  |                                                  |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                     
|Payette Branch                        |  | 175 North
    16thStreet Payette, ID 83661       |  |          | 5,000  |  |                         |           | September 1999 |             |  |                         | own   | 
|                                     
|(Washington County)                   |  |                                                  |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                     
|Weiser Branch                         |  | 440 E Main Street Weiser, ID 83672               |  |          | 3,500  |  |                         |           | June 2000      |             |  |                         | own   | 
|                                     
|OREGON                                |  |                                                  |  |          |        |  |                         |           |                |             |  |                         |       | 
|(Malheur County)                      |  |                                                  |  |          |        |  |                         |           |                |             |  |                         |       | 
|Ontario Branch                        |  | 98 South Oregon St. Ontario, OR 97914            |  |          | 10,272 |  |                         |           | January 2003   |             |  |                         | lease | 

24



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|                                                    |  |                                              |  |          |        |  |                         |           |                |             |  |                         |       | 
|--------------------------------------------------- |  | -------------------------------------------- |  | -------- | ------ |  | ----------------------- | --------- | -------------- | ----------- |  | ----------------------- | ----- | 
|                                                    |  |                                              |  |          |        |  |                         | Occupancy |               
|                                                    |  |                                              |  |          |        |  |                         | Status    |               
|City and County                                     |  | Address                                      |  | Sq. Feet |        |  | Date Opened or Acquired |           |                | (Own/Lease) | 
|                                                    |  |                                              |  |          |        |  |                         |           |                |             | 
|                                                   
|WASHINGTON                                          |  |                                              |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                                   
|(Spokane County)                                    |  |                                              |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                                   
|Spokane Branch                                      |  | 200 N. Mullan, Suite 124 Spokane, WA 99206   |  |          | 2,500  |  |                         |           | June 2005      |             |  |                         | lease | 
|                                                   
|Magic Valley Bank Branches                          |  |                                              |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                                   
|IDAHO                                               |  |                                              |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                                   
|(Twin Falls County)                                 |  |                                              |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                                   
|Twin Falls Branch                                   |  | 113 Main Ave W.
    Twin Falls, ID 83301     |  |          | 10,798 |  |                         |           | November 2004  |             |  |                         | lease | 
|                                                   
|(Gooding County)                                    |  |                                              |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                                   
|Gooding Branch                                      |  | 746 Main St.
    Gooding, ID 83330           |  |          | 3,200  |  |                         |           | November 2004  |             |  |                         | own   | 
|                                                   
|ADMINISTRATIVE                                      |  |                                              |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                                   
|IDAHO                                               |  |                                              |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                                   
|(Bonner County)                                     |  |                                              |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                                   
|Sandpoint Data Center                               |  | 218 Main Street Sandpoint, ID 83864          |  |          | 1,900  |  |                         |           | March 1999     |             |  |                         | lease | 
|                                                   
|Sandpoint Management Services                       |  | 110 Main Street Sandpoint, ID 83864          |  |          | 6,669  |  |                         |           | June 2002      |             |  |                         | lease | 
|                                                   
|Sandpoint Finance                                   |  | 303 N. Third St. Sandpoint, ID 83864         |  |          | 1,260  |  |                         |           | September 2004 |             |  |                         | lease | 
|                                                   
|(Kootenai County)                                   |  |                                              |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                                   
|Coeur dAlene Branch and Administrative Services(1) |  | 200 W. Neider Avenue Coeur dAlene, ID 83814 |  |          | 17,600 |  |                         |           | May 2005       |             |  | land lease own building
|                                                   
|WASHINGTON                                          |  |                                              |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                                   
|(Spokane County)                                    |  |                                              |  |          |        |  |                         |           |                |             |  |                         |       | 
|                                                   
|Spokane Home Loan Center                            |  | 200 N. Mullan, Suite 222 Spokane, WA 99206   |  |          | 1,550  |  |                         |           | August 2005    |             |  |                         | lease | 






|   |                                                                                                                                                                                                                                     
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1) | The Coeur dAlene branch is located in the 23,100 square
    foot branch and administration building located at 200 W. Neider
    Avenue in Coeur dAlene. The branch occupies approximately
    5,500 square feet of this building.
|  
|2) | In February 2006, the Company entered into lease agreements for
    new branches located in Kellogg and Fruitland, Idaho. It also
    owns land in Twin Falls, Idaho upon which it intends to build a
    branch in 2006.           




Item 3.     LEGAL
PROCEEDINGS




25



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##### Table of Contents






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







PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
    SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
    SECURITIES

Market Price and Dividend Information




Quarterly Common Stock Price Ranges(1)(2)


|        |  |      |       |  |      |   |       |      |  |   |       |  |  |   |       | 
|------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|        |  | 2005 |       |  | 2004 |  
|        |  |      |       |  |      |  
|Quarter |  | High |       |  | Low  |   |       | High |  |   | Low   | 
|        |  |      |       |  |      |   |       |      |  |   |       | 
|1st     |  | $    | 18.50 |  |      | $ | 16.33 |      |  | $ | 16.00 |  |  | $ | 13.17 | 
|2nd     |  |      | 18.35 |  |      |   | 16.00 |      |  |   | 17.00 |  |  |   | 15.70 | 
|3rd     |  |      | 17.50 |  |      |   | 16.05 |      |  |   | 17.33 |  |  |   | 14.17 | 
|4th     |  |      | 17.75 |  |      |   | 16.50 |      |  |   | 18.33 |  |  |   | 15.00 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This table reflects the range of high and low bid prices for the
    Companys Common Stock during the indicated periods. Prices
    have been retroactively adjusted to reflect a 3-for-2 stock
    split that was effective March 10, 2005. The quotations
    merely reflect the prices at which transactions were proposed,
    and do not necessarily represent actual transactions. Prices do
    not include retail markup, markdown or commissions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(2) | The share amounts include shares that have been purchased
    pursuant to the Companys stock purchase bonus program (the
    program), which provides certain officers of the
    Company with an opportunity to purchase shares of Intermountain
    common stock on the open market and subsequently receive
    reimbursement for those purchases. Each officer who participates
    in this program has entered into a written agreement with the
    Company that specifies, among other things, the maximum amount
    for which such officer may receive reimbursement (the
    award). If the officer makes stock purchases within
    the time frames specified pursuant to the written agreement, he
    or she will receive a bonus, paid in three or five annual
    installments, equal to the lesser of (i) the actual dollar
    amount of the shares purchased; or (ii) the amount of the
    award, provided that the officer is employed with the Company on
    the date that the written agreement specifies such bonus is
    payable. Such purchases could affect the volume and price of the
    Companys shares, as at certain times throughout the year,
    Company officers may be making significant share purchases in
    order to satisfy the requisites to receive bonuses pursuant to
    the program.







26



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##### Table of Contents



Equity Compensation Plan Information




|                                                       |  |                      |         |     |                      |                  |                         |                       |  |  |         |    
|------------------------------------------------------ |  | -------------------- | ------- | --- | -------------------- | ---------------- | ----------------------- | --------------------- |  |  | ------- | ---
|                                                       |  |                      |         |     |                      | Number of Shares |                        
|                                                       |  | Number of Shares     |         |     |                      |                  | Remaining Available for |                      
|                                                       |  | to be Issued Upon    |         |     | Weighted-Average     |                  |                         | Future Issuance Under | 
|                                                       |  | Exercise of          |         |     | Exercise Price of    |                  |                         | Equity Compensation   | 
|                                                       |  | Outstanding Options, |         |     | Outstanding Options, |                  |                         | Plans (Excluding      | 
|                                                       |  | Warrants and Rights  |         |     | Warrants and Rights  |                  |                         | Shares Reflected in   | 
|Plan Category                                          |  | (a)                  |         |     | (b)                  |                  |                         | Column(a),(c)         | 
|                                                       |  |                      |         |     |                      |                  |                         |                       | 
|Equity compensation plans approved by shareholders     |  |                      | 560,914 |     |                      | $                | 6.26                    |                       |  |  | 240,791 |    
|Equity compensation plans not approved by shareholders |  |                      | 94,028  | (1) |                      |                  | 6.07                    | (3)                   |  |  | 78,000  | (2)
|                                                       |  |                      |         |     |                      |                  |                         |                       | 
|Total                                                  |  |                      | 654,942 |     |                      | $                | 6.26                    |                       |  |  | 318,791 |    
|                                                       |  |                      |         |     |                      |                  |                         |                       | 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents 78,000 shares available for issuance under the
    Companys 2003-2005 Long Term Incentive Plan
    (LTIP), and 16,028 shares subject to the Snake
    River Bancorp, Inc. stock options plans that were assumed by the
    Company pursuant to the acquisition of Magic Valley Bank. The
    LTIP was adopted pursuant to Rule 701 of the Securities Act
    of 1933, as amended, prior to Intermountain becoming a public
    reporting company and was not subject to any shareholder
    approval requirements at the time of adoption.
|   
|(2) | Represents shares remaining available for future grant under the
    LTIP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(3) | Represents the weighted average exercise price of the
    outstanding options under the Snake River Bancorp, Inc. stock
    option plans.                                                                                                                                                                                                                                                                                                                                                                                                               






|        |                        
|------- | -----------------------
|Item 6. | SELECTED FINANCIAL DATA

10-K.


|                                                    |  |                                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |        |  
|--------------------------------------------------- |  | ----------------------------------- | ------- | - | ------- | - | ------- | ------- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------ | -
|                                                    |  | For the Year Ended December 31, (1) |        
|                                                    |  |                                     |        
|                                                    |  | 2005(2)                             |         |   | 2004(2) |   |         | 2003(2) |  |   | 2002    |   |  | 2001 |        
|                                                    |  |                                     |         |   |         |   |         |         |  |   |         |   |  |      |        
|STATEMENTS OF INCOME DATA                           |  |                                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |        |  
|Total interest income                               |  | $                                   | 41,648  |   |         | $ | 25,355  |         |  | $ | 20,983  |   |  | $    | 16,787  |   |  | $ | 16,313 |  
|Total interest expense                              |  |                                     | (10,717 | ) |         |   | (5,712  | )       |  |   | (4,970  | ) |  |      | (3,919  | ) |  |   | (6,123 | )
|                                                    |  |                                     |         |   |         |   |         |         |  |   |         |   |  |      |        
|Net interest income                                 |  |                                     | 30,931  |   |         |   | 19,643  |         |  |   | 16,013  |   |  |      | 12,868  |   |  |   | 10,190 |  
|Provision for loan losses                           |  |                                     | (2,229  | ) |         |   | (1,438  | )       |  |   | (955    | ) |  |      | (1,607  | ) |  |   | (1,134 | )
|                                                    |  |                                     |         |   |         |   |         |         |  |   |         |   |  |      |        
|Net interest income after provision losses on loans |  |                                     | 28,702  |   |         |   | 18,205  |         |  |   | 15,058  |   |  |      | 11,261  |   |  |   | 9,056  |  
|Total other income                                  |  |                                     | 9,620   |   |         |   | 7,197   |         |  |   | 5,985   |   |  |      | 4,232   |   |  |   | 2,628  |  
|Total other expense                                 |  |                                     | (26,532 | ) |         |   | (18,884 | )       |  |   | (15,476 | ) |  |      | (11,589 | ) |  |   | (8,760 | )
|                                                    |  |                                     |         |   |         |   |         |         |  |   |         |   |  |      |        

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|                                              |         |                                     |        |       |         |   |        |         |  |   |        |       |  |      |        |       |  |   |       |       | 
|--------------------------------------------- | ------- | ----------------------------------- | ------ | ----- | ------- | - | ------ | ------- |  | - | ------ | ----- |  | ---- | ------ | ----- |  | - | ----- | ----- | 
|                                              |         | For the Year Ended December 31, (1) |       
|                                              |         |                                     |       
|                                              |         | 2005(2)                             |        |       | 2004(2) |   |        | 2003(2) |  |   | 2002   |       |  | 2001 |       
|                                              |         |                                     |        |       |         |   |        |         |  |   |        |       |  |      |       
|Income before income taxes                    |         |                                     | 11,790 |       |         |   | 6,518  |         |  |   | 5,567  |       |  |      | 3,904  |       |  |   | 2,924 |      
|Income taxes                                  |         |                                     | (4,308 | )     |         |   | (2,172 | )       |  |   | (1,906 | )     |  |      | (1,314 | )     |  |   | (960  | )    
|                                              |         |                                     |        |       |         |   |        |         |  |   |        |       |  |      |       
|Net income                                    |         | $                                   | 7,482  |       |         | $ | 4,346  |         |  | $ | 3,661  |       |  | $    | 2,590  |       |  | $ | 1,964 |      
|                                              |         |                                     |        |       |         |   |        |         |  |   |        |       |  |      |       
|Net income per share(3)                       |         |                                     |        |       |         |   |        |         |  |   |        |       |  |      |        |       |  |   |       |      
|                                              | Basic   |                                     | $      | 1.28  |         |   | $      | 0.88    |  |   | $      | 0.77  |  |      | $      | 0.55  |  |   | $     | 0.43  | 
|                                              | Diluted |                                     | $      | 1.18  |         |   | $      | 0.80    |  |   | $      | 0.72  |  |      | $      | 0.53  |  |   | $     | 0.42  | 
|                                              |         |                                     |        |       |         |   |        |         |  |   |        |       |  |      |       
|Weighted average common shares outstanding(3) |         |                                     |        |       |         |   |        |         |  |   |        |       |  |      |        |       |  |   |       |      
|                                              | Basic   |                                     |        | 5,849 |         |   |        | 4,951   |  |   |        | 4,735 |  |      |        | 4,669 |  |   |       | 4,584 | 
|                                              | Diluted |                                     |        | 6,350 |         |   |        | 5,458   |  |   |        | 5,086 |  |      |        | 4,886 |  |   |       | 4,732 | 
|Cash dividends per share                      |         |                                     |       |       |         |   |       |         |  |   |       |       |  |      |       |       |  |   |      |      

|                                                 |  |              |         |  |         |   |         |         |  |   |         |  |  |      |         |  |  |   |         | 
|------------------------------------------------ |  | ------------ | ------- |  | ------- | - | ------- | ------- |  | - | ------- |  |  | ---- | ------- |  |  | - | ------- | 
|                                                 |  | December 31, |        
|                                                 |  |              |        
|                                                 |  | 2005         |         |  | 2004(2) |   |         | 2003(2) |  |   | 2002    |  |  | 2001 |        
|                                                 |  |              |         |  |         |   |         |         |  |   |         |  |  |      |        
|BALANCE SHEET DATA                               |  |              |         |  |         |   |         |         |  |   |         |  |  |      |         |  |  |   |         | 
|Total assets                                     |  | $            | 733,682 |  |         | $ | 597,680 |         |  | $ | 409,760 |  |  | $    | 287,413 |  |  | $ | 236,756 | 
|Net loans                                        |  |              | 555,036 |  |         |   | 418,660 |         |  |   | 287,256 |  |  |      | 194,774 |  |  |   | 157,096 | 
|Deposits                                         |  |              | 597,519 |  |         |   | 500,923 |         |  |   | 344,866 |  |  |      | 243,583 |  |  |   | 192,542 | 
|Securities sold subject to repurchase agreements |  |              | 37,799  |  |         |   | 20,901  |         |  |   | 17,156  |  |  |      | 15,970  |  |  |   | 13,081  | 
|Advances from Federal Home Loan Bank             |  |              | 5,000   |  |         |   | 5,000   |         |  |   | 5,000   |  |  |      |        |  |  |   |        | 
|Other borrowings                                 |  |              | 16,527  |  |         |   | 16,527  |         |  |   | 8,279   |  |  |      |        |  |  |   |        | 
|Shareholders equity                             |  |              | 64,273  |  |         |   | 44,564  |         |  |   | 27,078  |  |  |      | 23,916  |  |  |   | 21,100  | 






|    |                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Certain prior period amounts have been reclassified to conform
    to the current periods presentation.                                                                                                         
|   
|(2) | Comparability is affected by the acquisition of Snake River
    Bancorp, Inc. in November 2004 and a branch in 2003.                                                                                             
|   
|   
|(3) | Earnings per share and weighted average shares outstanding have
    been adjusted retroactively for the effect of stock splits and
    dividends, including the 3-for-2 stock split effective
    March 10, 2005.

|                                 |  |                          |       |   |      |  |       |      |  |  |       |  
|-------------------------------- |  | ------------------------ | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                 |  | Years Ended December 31, |      
|                                 |  |                          |      
|Key Financial Ratios             |  | 2005                     |       |   | 2004 |  |       | 2003 | 
|                                 |  |                          |       |   |      |  |       |      | 
|Return on Average Assets         |  |                          | 1.11  | % |      |  | 0.91  | %    |  |  | 0.99  | %
|Return on Average Equity         |  |                          | 14.80 | % |      |  | 13.71 | %    |  |  | 14.24 | %
|Average Equity to Average Assets |  |                          | 7.53  | % |      |  | 6.64  | %    |  |  | 6.80  | %






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS

10-K.


Overview




28



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29



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30-days












2-for-1




30



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face-to




Results of Operations




| |                    
| | -------------------
| | Net Interest Income



Average Balance Sheets and Analysis of Net Interest Income


|                                           |  |                                      |         |  |                  |   |        |       |  |  |      |  
|------------------------------------------ |  | ------------------------------------ | ------- |  | ---------------- | - | ------ | ----- |  |  | ---- | -
|                                           |  | For the Year Ended December 31, 2005 |        
|                                           |  |                                      |        
|                                           |  | Average                              |         |  | Interest Income/ |   |        |      
|                                           |  | Balance                              |         |  | Expense          |   |        | Yield | 
|                                           |  |                                      |         |  |                  |   |        |       | 
|                                           |  | (Dollars in thousands)               |        
|Loans receivable, net(1)                   |  | $                                    | 505,701 |  |                  | $ | 37,897 |       |  |  | 7.49 | %
|Securities(2)                              |  |                                      | 108,620 |  |                  |   | 3,672  |       |  |  | 3.38 | %
|Federal funds sold                         |  |                                      | 2,790   |  |                  |   | 79     |       |  |  | 2.83 | %
|                                           |  |                                      |         |  |                  |   |        |       | 
|Total earning assets                       |  | $                                    | 617,111 |  |                  | $ | 41,648 |       |  |  | 6.75 | %
|Cash and cash equivalents                  |  |                                      | 21,730  |  |                  |   |        |       |  |  |      |  
|Office properties and equipment, net       |  |                                      | 14,869  |  |                  |   |        |       |  |  |      |  
|Other assets                               |  |                                      | 18,344  |  |                  |   |        |       |  |  |      |  
|                                           |  |                                      |         |  |                  |   |        |       | 
|Total assets                               |  | $                                    | 672,054 |  |                  |   |        |       |  |  |      |  
|                                           |  |                                      |         |  |                  |   |        |       | 
|Time deposits of $100,000 or more          |  |                                      | 83,175  |  |                  |   | 2,842  |       |  |  | 3.42 | %
|Other interest-bearing deposits            |  |                                      | 345,309 |  |                  |   | 5,408  |       |  |  | 1.57 | %
|Short-term borrowings                      |  |                                      | 42,407  |  |                  |   | 1,290  |       |  |  | 3.04 | %
|Other borrowed funds                       |  |                                      | 21,527  |  |                  |   | 1,177  |       |  |  | 5.47 | %
|                                           |  |                                      |         |  |                  |   |        |       | 
|Total interest-bearing liabilities         |  | $                                    | 492,418 |  |                  | $ | 10,717 |       |  |  | 2.18 | %
|Noninterest-bearing deposits               |  |                                      | 119,831 |  |                  |   |        |       |  |  |      |  
|Other liabilities                          |  |                                      | 9,747   |  |                  |   |        |       |  |  |      |  
|Shareholders equity                       |  |                                      | 50,058  |  |                  |   |        |       |  |  |      |  
|                                           |  |                                      |         |  |                  |   |        |       | 
|Total liabilities and shareholders equity |  | $                                    | 672,054 |  |                  |   |        |       |  |  |      |  
|                                           |  |                                      |         |  |                  |   |        |       | 
|Net interest income                        |  |                                      |         |  |                  | $ | 30,931 |       |  |  |      |  
|                                           |  |                                      |         |  |                  |   |        |       | 
|Net interest margin                        |  |                                      |         |  |                  |   |        |       |  |  | 5.01 | %
|                                           |  |                                      |         |  |                  |   |        |       | 

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Average Balance Sheets and Analysis of Net Interest Income


|                                           |  |                                      |         |  |                  |   |        |       |  |  |      |  
|------------------------------------------ |  | ------------------------------------ | ------- |  | ---------------- | - | ------ | ----- |  |  | ---- | -
|                                           |  | For the Year Ended December 31, 2004 |        
|                                           |  |                                      |        
|                                           |  | Average                              |         |  | Interest Income/ |   |        |      
|                                           |  | Balance                              |         |  | Expense          |   |        | Yield | 
|                                           |  |                                      |         |  |                  |   |        |       | 
|                                           |  | (Dollars in thousands)               |        
|Loans receivable, net(1)                   |  | $                                    | 334,704 |  |                  | $ | 22,055 |       |  |  | 6.59 | %
|Securities(2)                              |  |                                      | 93,575  |  |                  |   | 3,190  |       |  |  | 3.41 | %
|Federal funds sold                         |  |                                      | 8,686   |  |                  |   | 110    |       |  |  | 1.27 | %
|                                           |  |                                      |         |  |                  |   |        |       | 
|Total earning assets                       |  | $                                    | 436,965 |  |                  | $ | 25,355 |       |  |  | 5.80 | %
|Cash and cash equivalents                  |  |                                      | 14,584  |  |                  |   |        |       |  |  |      |  
|Office properties and equipment, net       |  |                                      | 10,264  |  |                  |   |        |       |  |  |      |  
|Other assets                               |  |                                      | 9,524   |  |                  |   |        |       |  |  |      |  
|                                           |  |                                      |         |  |                  |   |        |       | 
|Total assets                               |  | $                                    | 471,337 |  |                  |   |        |       |  |  |      |  
|                                           |  |                                      |         |  |                  |   |        |       | 
|Time deposits of $100,000 or more          |  |                                      | 52,576  |  |                  |   | 1,622  |       |  |  | 3.09 | %
|Other interest-bearing deposits            |  |                                      | 258,587 |  |                  |   | 2,973  |       |  |  | 1.15 | %
|Short-term borrowings                      |  |                                      | 15,021  |  |                  |   | 164    |       |  |  | 1.09 | %
|Other borrowed funds                       |  |                                      | 16,108  |  |                  |   | 953    |       |  |  | 5.91 | %
|                                           |  |                                      |         |  |                  |   |        |       | 
|Total interest-bearing liabilities         |  | $                                    | 342,292 |  |                  | $ | 5,712  |       |  |  | 1.67 | %
|Noninterest-bearing deposits               |  |                                      | 88,071  |  |                  |   |        |       |  |  |      |  
|Other liabilities                          |  |                                      | 7,432   |  |                  |   |        |       |  |  |      |  
|Shareholders equity                       |  |                                      | 33,542  |  |                  |   |        |       |  |  |      |  
|                                           |  |                                      |         |  |                  |   |        |       | 
|Total liabilities and shareholders equity |  | $                                    | 471,337 |  |                  |   |        |       |  |  |      |  
|                                           |  |                                      |         |  |                  |   |        |       | 
|Net interest income                        |  |                                      |         |  |                  | $ | 19,643 |       |  |  |      |  
|                                           |  |                                      |         |  |                  |   |        |       | 
|Net interest margin                        |  |                                      |         |  |                  |   |        |       |  |  | 4.50 | %
|                                           |  |                                      |         |  |                  |   |        |       | 

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Average Balance Sheets and Analysis of Net Interest Income


|                                           |  |                                      |         |  |                  |   |        |       |  |  |      |  
|------------------------------------------ |  | ------------------------------------ | ------- |  | ---------------- | - | ------ | ----- |  |  | ---- | -
|                                           |  | For the Year Ended December 31, 2003 |        
|                                           |  |                                      |        
|                                           |  | Average                              |         |  | Interest Income/ |   |        |      
|                                           |  | Balance                              |         |  | Expense          |   |        | Yield | 
|                                           |  |                                      |         |  |                  |   |        |       | 
|                                           |  | (Dollars in thousands)               |        
|Loans receivable, net(1)                   |  | $                                    | 266,416 |  |                  | $ | 18,346 |       |  |  | 6.89 | %
|Securities(2)                              |  |                                      | 74,753  |  |                  |   | 2,576  |       |  |  | 3.45 | %
|Federal funds sold                         |  |                                      | 7,819   |  |                  |   | 61     |       |  |  | 0.78 | %
|                                           |  |                                      |         |  |                  |   |        |       | 
|Total earning assets                       |  | $                                    | 348,988 |  |                  | $ | 20,983 |       |  |  | 6.01 | %
|Cash and cash equivalents                  |  |                                      | 12,362  |  |                  |   |        |       |  |  |      |  
|Office property and equipment, net         |  |                                      | 9,133   |  |                  |   |        |       |  |  |      |  
|Other assets                               |  |                                      | 4,576   |  |                  |   |        |       |  |  |      |  
|                                           |  |                                      |         |  |                  |   |        |       | 
|Total assets                               |  | $                                    | 375,059 |  |                  |   |        |       |  |  |      |  
|                                           |  |                                      |         |  |                  |   |        |       | 
|Time deposits of $100,000 or more          |  | $                                    | 34,363  |  |                  |   | 885    |       |  |  | 2.58 | %
|Other interest-bearing deposits            |  |                                      | 217,201 |  |                  |   | 3,332  |       |  |  | 1.53 | %
|Short term borrowings                      |  |                                      | 14,665  |  |                  |   | 177    |       |  |  | 1.21 | %
|Other borrowed funds                       |  |                                      | 10,528  |  |                  |   | 576    |       |  |  | 5.47 | %
|                                           |  |                                      |         |  |                  |   |        |       | 
|Total interest-bearing liabilities         |  |                                      | 276,757 |  |                  | $ | 4,970  |       |  |  | 1.80 | %
|Noninterest-bearing deposits               |  |                                      | 69,412  |  |                  |   |        |       |  |  |      |  
|Other liabilities                          |  |                                      | 3,108   |  |                  |   |        |       |  |  |      |  
|Shareholders equity                       |  |                                      | 25,782  |  |                  |   |        |       |  |  |      |  
|                                           |  |                                      |         |  |                  |   |        |       | 
|Total liabilities and shareholders equity |  | $                                    | 375,059 |  |                  |   |        |       |  |  |      |  
|                                           |  |                                      |         |  |                  |   |        |       | 
|Net interest income                        |  |                                      |         |  |                  | $ | 16,013 |       |  |  |      |  
|                                           |  |                                      |         |  |                  |   |        |       | 
|Net interest margin                        |  |                                      |         |  |                  |   |        |       |  |  | 4.59 | %
|                                           |  |                                      |         |  |                  |   |        |       | 






|    |                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------
|(1) | Non-accrual loans are included in the average balance, but
    interest on such loans is not recognized in interest income.
|   
|(2) | Municipal interest income is not tax equalized, and represents a
    small portion of total interest income.               

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Changes Due to Volume and Rate 2005 versus 2004


|                                  |  |                |        |   |      |   |       |             |  |   |       |   |  |   |        |  
|--------------------------------- |  | -------------- | ------ | - | ---- | - | ----- | ----------- |  | - | ----- | - |  | - | ------ | -
|                                  |  | Volume         |        |   | Rate |   |       | Volume/Rate |  |   | Total |  
|                                  |  |                |        |   |      |   |       |             |  |   |       |  
|                                  |  | (In thousands) |       
|Loans receivable, net             |  | $              | 11,268 |   |      | $ | 3,028 |             |  | $ | 1,546 |   |  | $ | 15,842 |  
|Securities                        |  |                | 513    |   |      |   | (27   | )           |  |   | (4    | ) |  |   | 482    |  
|Federal funds sold                |  |                | (75    | ) |      |   | 136   |             |  |   | (92   | ) |  |   | (31    | )
|                                  |  |                |        |   |      |   |       |             |  |   |       |  
|Total interest income             |  |                | 11,706 |   |      |   | 3,137 |             |  |   | 1,450 |   |  |   | 16,293 |  
|Time deposits of $100,000 or more |  |                | 944    |   |      |   | 174   |             |  |   | 102   |   |  |   | 1,220  |  
|Other interest-earning deposits   |  |                | 997    |   |      |   | 1,076 |             |  |   | 362   |   |  |   | 2,435  |  
|Borrowings                        |  |                | 620    |   |      |   | 221   |             |  |   | 509   |   |  |   | 1,350  |  
|                                  |  |                |        |   |      |   |       |             |  |   |       |  
|Total interest expense            |  |                | 2,561  |   |      |   | 1,471 |             |  |   | 973   |   |  |   | 5,005  |  
|                                  |  |                |        |   |      |   |       |             |  |   |       |  
|Net interest income               |  | $              | 9,145  |   |      | $ | 1,666 |             |  | $ | 477   |   |  | $ | 11,288 |  
|                                  |  |                |        |   |      |   |       |             |  |   |       |  

Changes Due to Volume and Rate 2004 versus 2003


|                                  |  |                |       |  |      |   |      |             |  |   |       |   |  |   |       |  
|--------------------------------- |  | -------------- | ----- |  | ---- | - | ---- | ----------- |  | - | ----- | - |  | - | ----- | -
|                                  |  | Volume         |       |  | Rate |   |      | Volume/Rate |  |   | Total |  
|                                  |  |                |       |  |      |   |      |             |  |   |       |  
|                                  |  | (In thousands) |      
|Loans receivable, net             |  | $              | 4,702 |  |      | $ | (791 | )           |  | $ | (202  | ) |  | $ | 3,709 |  
|Securities                        |  |                | 649   |  |      |   | (28  | )           |  |   | (7    | ) |  |   | 614   |  
|Federal funds sold                |  |                | 7     |  |      |   | 38   |             |  |   | 4     |   |  |   | 49    |  
|                                  |  |                |       |  |      |   |      |             |  |   |       |  
|Total interest income             |  |                | 5,358 |  |      |   | (781 | )           |  |   | (205  | ) |  |   | 4,372 |  
|Time deposits of $100,000 or more |  |                | 469   |  |      |   | 175  |             |  |   | 93    |   |  |   | 737   |  
|Other interest-bearing deposits   |  |                | 635   |  |      |   | (835 | )           |  |   | (159  | ) |  |   | (359  | )
|Borrowings                        |  |                | 309   |  |      |   | 30   |             |  |   | 25    |   |  |   | 364   |  
|                                  |  |                |       |  |      |   |      |             |  |   |       |  
|Total interest expense            |  |                | 1,413 |  |      |   | (630 | )           |  |   | (41   | ) |  |   | 742   |  
|                                  |  |                |       |  |      |   |      |             |  |   |       |  
|Net interest income               |  | $              | 3,945 |  |      | $ | (151 | )           |  | $ | (164  | ) |  | $ | 3,630 |  
|                                  |  |                |       |  |      |   |      |             |  |   |       |  



| |                                                
| | -----------------------------------------------
| | Net Interest Income  2005 Compared to
    2004





34



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| |                                                
| | -----------------------------------------------
| | Net Interest Income  2004 Compared to
    2003







| |                          
| | -------------------------
| | Provision for Loan Losses



35



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| |             
| | ------------
| | Other Income



|                                      |  |                        |       |   |       |         |     |          |  |  |        |    |         |       |       |  |           |  |     |        |  |  |       |    |  |   |       |  |  |  |     |  
|------------------------------------- |  | ---------------------- | ----- | - | ----- | ------- | --- | -------- |  |  | ------ | -- | ------- | ----- | ----- |  | --------- |  | --- | ------ |  |  | ----- | -- |  | - | ----- |  |  |  | --- | -
|                                      |  |                        |       |   |       | Percent |     |          |  |  |        |    | Percent |       |       |  |           | 
|                                      |  | 2005                   |       |   | % of  |         |     | Change   |  |  | 2004   |    |         | % of  |       |  | Change    |  |     | 2003   |  |  | % of  |   
|Other Income                          |  | Amount                 |       |   | Total |         |     | Prev. Yr |  |  | Amount |    |         | Total |       |  | Prev. Yr. |  |     | Amount |  |  | Total |   
|                                      |  |                        |       |   |       |         |     |          |  |  |        |    |         |       |       |  |           |  |     |        |  |  |       |   
|                                      |  | (Dollars in thousands) |      
|Fees and service charges              |  | $                      | 8,165 |   |       |         | 85  | %        |  |  | 34     | %  |         | $     | 6,081 |  |           |  | 84  | %      |  |  | 14    | %  |  | $ | 5,321 |  |  |  | 89  | %
|BOLI income                           |  |                        | 300   |   |       |         | 3   | %        |  |  | 17     | %  |         |       | 257   |  |           |  | 4   | %      |  |  | (6    | )% |  |   | 273   |  |  |  | 4   | %
|Net (loss) gain on sale of securities |  |                        | (43   | ) |       |         | 0   | %        |  |  | (188   | )% |         |       | 49    |  |           |  | 1   | %      |  |  | 26    | %  |  |   | 39    |  |  |  | 1   | %
|Other income                          |  |                        | 1,198 |   |       |         | 12  | %        |  |  | 48     | %  |         |       | 810   |  |           |  | 11  | %      |  |  | 130   | %  |  |   | 352   |  |  |  | 6   | %
|                                      |  |                        |       |   |       |         |     |          |  |  |        |    |         |       |       |  |           |  |     |        |  |  |       |   
|Total                                 |  | $                      | 9,620 |   |       |         | 100 | %        |  |  | 34     | %  |         | $     | 7,197 |  |           |  | 100 | %      |  |  | 20    | %  |  | $ | 5,985 |  |  |  | 100 | %
|                                      |  |                        |       |   |       |         |     |          |  |  |        |    |         |       |       |  |           |  |     |        |  |  |       |   







| |                   
| | ------------------
| | Operating Expenses



|                                |  |        |        |  |       |         |     |             |  |  |        |    |         |       |        |  |           |  |     |        |  |  |       |   |  |   |        |  |  |  |     |  
|------------------------------- |  | ------ | ------ |  | ----- | ------- | --- | ----------- |  |  | ------ | -- | ------- | ----- | ------ |  | --------- |  | --- | ------ |  |  | ----- | - |  | - | ------ |  |  |  | --- | -
|                                |  |        |        |  |       | Percent |     |             |  |  |        |    | Percent |       |        |  |           | 
|                                |  | 2005   |        |  | % of  |         |     | Change      |  |  | 2004   |    |         | % of  |        |  | Change    |  |     | 2003   |  |  | % of  |  
|Other Expense                   |  | Amount |        |  | Total |         |     | Prev. Yr.   |  |  | Amount |    |         | Total |        |  | Prev. Yr. |  |     | Amount |  |  | Total |  
|                                |  |        |        |  |       |         |     |             |  |  |        |    |         |       |        |  |           |  |     |        |  |  |       |  
|                                |  |        |        |  |       |         |     | (Dollars in |  |  |        |    |         |       |       
|                                |  |        |        |  |       |         |     | thousands)  |  |  |        |    |         |       |       
|Salaries and employee benefits  |  | $      | 15,356 |  |       |         | 58  | %           |  |  | 45     | %  |         | $     | 10,566 |  |           |  | 56  | %      |  |  | 20    | % |  | $ | 8,828  |  |  |  | 57  | %
|Occupancy expense               |  |        | 3,927  |  |       |         | 15  | %           |  |  | 38     | %  |         |       | 2,852  |  |           |  | 15  | %      |  |  | 14    | % |  |   | 2,492  |  |  |  | 16  | %
|Advertising                     |  |        | 767    |  |       |         | 3   | %           |  |  | 35     | %  |         |       | 570    |  |           |  | 3   | %      |  |  | 19    | % |  |   | 480    |  |  |  | 3   | %
|Fees and service charges        |  |        | 974    |  |       |         | 3   | %           |  |  | (5     | )% |         |       | 1,023  |  |           |  | 5   | %      |  |  | 15    | % |  |   | 886    |  |  |  | 6   | %
|Printing , postage and supplies |  |        | 1,257  |  |       |         | 5   | %           |  |  | 45     | %  |         |       | 869    |  |           |  | 5   | %      |  |  | 8     | % |  |   | 803    |  |  |  | 5   | %
|Legal and accounting            |  |        | 1,153  |  |       |         | 4   | %           |  |  | 56     | %  |         |       | 739    |  |           |  | 4   | %      |  |  | 42    | % |  |   | 520    |  |  |  | 3   | %
|Other expense                   |  |        | 3,098  |  |       |         | 12  | %           |  |  | 37     | %  |         |       | 2,265  |  |           |  | 12  | %      |  |  | 54    | % |  |   | 1,467  |  |  |  | 10  | %
|                                |  |        |        |  |       |         |     |             |  |  |        |    |         |       |        |  |           |  |     |        |  |  |       |  
|Total                           |  | $      | 26,532 |  |       |         | 100 | %           |  |  | 41     | %  |         | $     | 18,884 |  |           |  | 100 | %      |  |  | 22    | % |  | $ | 15,476 |  |  |  | 100 | %
|                                |  |        |        |  |       |         |     |             |  |  |        |    |         |       |        |  |           |  |     |        |  |  |       |  

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Financial Position














38



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| |        
| | -------
| | Capital







2-for-1


39



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|                                          |  |                        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|----------------------------------------- |  | ---------------------- | ------ | ------- | ------------ |  | ---------------- | ------------ |  | - | ------ |  |  | ------ | -- |  | ----- | - | ------ |  |  |  | --- | 
|                                          |  |                        |        | Capital |              |  | Well-Capitalized |             
|                                          |  | Actual                 |        |         | Requirements |  |                  | Requirements | 
|                                          |  |                        |        |         |              |  |                  |              | 
|                                          |  | Amount                 |        |         | Ratio        |  |                  | Amount       |  |   | Ratio  |  |  | Amount |    |  | Ratio |  
|                                          |  |                        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |  
|                                          |  | (Dollars in thousands) |       
|As of December 31, 2005                   |  |                        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|Total capital (to risk-weighted assets):  |  |                        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|The Company                               |  | $                      | 77,247 |         |              |  | 11.99%           |              |  | $ | 51,528 |  |  |        | 8% |  |       | $ | 64,410 |  |  |  | 10% | 
|Panhandle State Bank                      |  |                        | 76,056 |         |              |  | 11.81%           |              |  |   | 51,528 |  |  |        | 8% |  |       |   | 64,410 |  |  |  | 10% | 
|Tier I capital (to risk-weighted assets): |  |                        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|The Company                               |  |                        | 69,190 |         |              |  | 10.74%           |              |  |   | 25,764 |  |  |        | 4% |  |       |   | 38,646 |  |  |  | 6%  | 
|Panhandle State Bank                      |  |                        | 67,999 |         |              |  | 10.56%           |              |  |   | 25,764 |  |  |        | 4% |  |       |   | 38,646 |  |  |  | 6%  | 
|Tier I capital (to average assets):       |  |                        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|The Company                               |  |                        | 69,190 |         |              |  | 9.61%            |              |  |   | 28,791 |  |  |        | 4% |  |       |   | 35,989 |  |  |  | 5%  | 
|Panhandle State Bank                      |  |                        | 67,999 |         |              |  | 9.43%            |              |  |   | 28,833 |  |  |        | 4% |  |       |   | 36,041 |  |  |  | 5%  | 
|As of December 31, 2004                   |  |                        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|Total capital (to risk-weighted assets):  |  |                        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|The Company                               |  | $                      | 54,540 |         |              |  | 11.24%           |              |  | $ | 38,804 |  |  |        | 8% |  |       | $ | 48,506 |  |  |  | 10% | 
|Panhandle State Bank                      |  |                        | 50,243 |         |              |  | 10.36%           |              |  |   | 38,767 |  |  |        | 8% |  |       |   | 48,459 |  |  |  | 10% | 
|Tier I capital (to risk-weighted assets): |  |                        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|The Company                               |  |                        | 47,460 |         |              |  | 9.78%            |              |  |   | 19,402 |  |  |        | 4% |  |       |   | 29,103 |  |  |  | 6%  | 
|Panhandle State Bank                      |  |                        | 44,169 |         |              |  | 9.11%            |              |  |   | 19,384 |  |  |        | 4% |  |       |   | 29,075 |  |  |  | 6%  | 
|Tier I capital (to average assets):       |  |                        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|The Company                               |  |                        | 47,460 |         |              |  | 8.66%            |              |  |   | 22,431 |  |  |        | 4% |  |       |   | 27,406 |  |  |  | 5%  | 
|Panhandle State Bank                      |  |                        | 44,169 |         |              |  | 8.06%            |              |  |   | 21,927 |  |  |        | 4% |  |       |   | 27,409 |  |  |  | 5%  | 



| |          
| | ---------
| | Liquidity



40



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| |                               
| | ------------------------------
| | Off-Balance Sheet Arrangements





| |                                              
| | ---------------------------------------------
| | Tabular Disclosure of Contractual Obligations



|                                                                                          |  |                        |        |           |        |   |        |         |  |           |         |  |           |         |       |  |  |   |        | 
|----------------------------------------------------------------------------------------- |  | ---------------------- | ------ | --------- | ------ | - | ------ | ------- |  | --------- | ------- |  | --------- | ------- | ----- |  |  | - | ------ | 
|                                                                                          |  | Payments Due by Period |       
|                                                                                          |  |                        |       
|                                                                                          |  |                        |        | Less Than |        |   | 1 to   |         |  | Over 3 to |         |  | More Than |        
|                                                                                          |  | Total                  |        |           | 1 Year |   |        | 3 Years |  |           | 5 Years |  |           | 5 Years |      
|                                                                                          |  |                        |        |           |        |   |        |         |  |           |         |  |           |         |      
|                                                                                          |  | (Dollars in thousands) |       
|Long-term debt(1)                                                                         |  | $                      | 50,930 |           |        | $ | 1,268  |         |  | $         | 7,463   |  |           | $       | 2,264 |  |  | $ | 39,935 | 
|Short-term debt(2)                                                                        |  |                        | 37,802 |           |        |   | 37,802 |         |  |           |        |  |           |         |      |  |  |   |       | 
|Capital lease obligations                                                                 |  |                        |       |           |        |   |       |         |  |           |        |  |           |         |      |  |  |   |       | 
|Operating lease obligations(2)                                                            |  |                        | 5,771  |           |        |   | 581    |         |  |           | 1,019   |  |           |         | 752   |  |  |   | 3,419  | 
|Purchase obligations(3)                                                                   |  |                        | 590    |           |        |   | 590    |         |  |           |        |  |           |         |      |  |  |   |       | 
|Other long-term liabilities reflected on the registrants
    balance sheet under GAAP(2) |  |                        |       |           |        |   |       |         |  |           |        |  |           |         |      |  |  |   |       | 
|                                                                                          |  |                        |        |           |        |   |        |         |  |           |         |  |           |         |      
|Total                                                                                     |  | $                      | 95,093 |           |        | $ | 40,241 |         |  | $         | 8,482   |  |           | $       | 3,016 |  |  | $ | 43,354 | 
|                                                                                          |  |                        |        |           |        |   |        |         |  |           |         |  |           |         |      

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes interest payments related to long-term debt agreements.                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(2) | Excludes recurring accounts payable, accrued expenses and other
    liabilities and customer deposits, all of which are recorded on
    the registrants balance sheet. See Note 5 of
    Notes to Consolidated Financial Statements. Excludes
    operating lease payments for new leases acquired in February
    2006 for the new Kellogg and Fruitland branches. Total annual
    payments under the lease agreements will be $43,200 annually
    through 2007.                      
|   
|(3) | The Company has entered into two purchase agreements for
    purchase of land in Sandpoint, Idaho for the development of the
    planned Financial and Technology center. The agreements are for
    land in the amount of $395,000 and $195,000 and will settle in
    February 2006. In February 2006, the Company purchased land in
    relation to the planned Sandpoint Financial and Technical
    Center, the purchase price was $1.2 million and is excluded
    from this schedule.



| |          
| | ---------
| | Inflation





| |                         
| | ------------------------
| | Interest Rate Management

10-K


Critical Accounting Policies




Income Recognition.


Allowance For Loan Losses.


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Investments.


Held-to




Goodwill and Other Intangible Assets.


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Real Estate Owned (REO).






| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

SFAS No. 123 (revised 2004)
(SFAS 123R), Share-Based
Payment.


115-1







|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK



| |                                     
| | ------------------------------------
| | Interest Rate Sensitivity Management





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out-of


|                                    |  |                |              |  |          |  |       |          |  |  |       | 
|----------------------------------- |  | -------------- | ------------ |  | -------- |  | ----- | -------- |  |  | ----- | 
|12 Month Cumulative % effect on NII |  | Policy Limit % |              |  | 12-31-05 |  |       | 12-31-04 | 
|                                    |  |                |              |  |          |  |       |          | 
|+100bp                              |  |                | +3.0 to -3.0 |  |          |  | 2.12  |          |  |  | -2.91 | 
|+300bp                              |  |                | +8.0 to -8.0 |  |          |  | 8.73  |          |  |  | 0.92  | 
|-100bp                              |  |                | +3.0 to -3.0 |  |          |  | -1.38 |          |  |  | -2.14 | 
|-300bp                              |  |                | +8.0 to -8.0 |  |          |  | -7.27 |          |  |  | -9.54 | 

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Asset/ Liability Maturity Repricing Schedule


December 31, 2005


|                                    |  |                        |         |             |            |   |           |             |  |   |            |   |  |       |         |   |  |   |         |  
|----------------------------------- |  | ---------------------- | ------- | ----------- | ---------- | - | --------- | ----------- |  | - | ---------- | - |  | ----- | ------- | - |  | - | ------- | -
|                                    |  |                        |         | After Three |            |   | After One |             |  |   |            |  
|                                    |  |                        |         | Months      |            |   | Year but  |             |  |   |            |  
|                                    |  | Within Three           |         |             | but Within |   |           | Within Five |  |   | After Five |   |  |      
|                                    |  | Months                 |         |             | One Year   |   |           | Years       |  |   | Years      |   |  | Total |        
|                                    |  |                        |         |             |            |   |           |             |  |   |            |   |  |       |        
|                                    |  | (Dollars in thousands) |        
|Loans receivable and held for sale  |  | $                      | 328,466 |             |            | $ | 54,726    |             |  | $ | 154,227    |   |  | $     | 32,994  |   |  | $ | 570,413 |  
|Securities                          |  |                        | 2,592   |             |            |   | 7,569     |             |  |   | 75,128     |   |  |       | 5,307   |   |  |   | 90,596  |  
|Federal funds sold                  |  |                        | 11,080  |             |            |   |          |             |  |   |           |   |  |       |        |   |  |   | 11,080  |  
|Time certificates and interest cash |  |                        | 250     |             |            |   |          |             |  |   |           |   |  |       |        |   |  |   | 250     |  
|                                    |  |                        |         |             |            |   |           |             |  |   |            |   |  |       |        
|Total earning assets                |  | $                      | 342,388 |             |            | $ | 62,295    |             |  | $ | 229,355    |   |  | $     | 38,301  |   |  | $ | 672,339 |  
|Allowance for loan losses           |  |                        | (5,670  | )           |            |   | (607      | )           |  |   | (1,908     | ) |  |       | (332    | ) |  |   | (8,517  | )
|                                    |  |                        |         |             |            |   |           |             |  |   |            |   |  |       |        
|Total earning assets, net           |  |                        | 336,718 |             |            |   | 61,688    |             |  |   | 227,447    |   |  |       | 37,969  |   |  |   | 663,822 |  
|                                    |  |                        |         |             |            |   |           |             |  |   |            |   |  |       |        
|Interest bearing demand deposits(1) |  | $                      | 216,034 |             |            | $ |          |             |  | $ |           |   |  | $     |        |   |  | $ | 216,034 |  
|Savings deposits and IRA(1)         |  |                        | 62,653  |             |            |   | 3,913     |             |  |   | 6,975      |   |  |       | 222     |   |  |   | 73,763  |  
|Time deposits                       |  |                        | 41,097  |             |            |   | 81,394    |             |  |   | 52,726     |   |  |       | 65      |   |  |   | 175,282 |  
|                                    |  |                        |         |             |            |   |           |             |  |   |            |   |  |       |        
|Total deposits                      |  | $                      | 319,784 |             |            | $ | 85,307    |             |  | $ | 59,701     |   |  | $     | 287     |   |  | $ | 465,079 |  
|Repurchase agreements               |  |                        | 37,799  |             |            |   |          |             |  |   |           |   |  |       |        |   |  |   | 37,799  |  
|FHLB advances                       |  |                        |        |             |            |   |          |             |  |   | 5,000      |   |  |       |        |   |  |   | 5,000   |  
|Other borrowed funds                |  |                        | 8,248   |             |            |   |          |             |  |   | 8,279      |   |  |       |        |   |  |   | 16,527  |  
|                                    |  |                        |         |             |            |   |           |             |  |   |            |   |  |       |        
|Total interest-bearing liabilities  |  | $                      | 365,831 |             |            | $ | 85,307    |             |  | $ | 72,980     |   |  | $     | 287     |   |  | $ | 524,405 |  
|                                    |  |                        |         |             |            |   |           |             |  |   |            |   |  |       |        
|Net interest rate sensitivity gap   |  | $                      | (29,113 | )           |            | $ | (23,619   | )           |  | $ | 154,467    |   |  | $     | 37,682  |   |  | $ | 139,417 |  
|Cumulative gap                      |  | $                      | (29,113 | )           |            | $ | (52,732   | )           |  | $ | 101,735    |   |  | $     | 139,417 |   |  |   |        |  
|                                    |  |                        |         |             |            |   |           |             |  |   |            |   |  |       |        






|    |                                           
|--- | ------------------------------------------
|(1) | Includes deposits with no stated maturity.

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Expected Maturity Date at December 31, 2005


|                                       |  |                        |         |   |         |   |         |         |  |   |            |   |  |       |         |   |  |   |         | 
|-------------------------------------- |  | ---------------------- | ------- | - | ------- | - | ------- | ------- |  | - | ---------- | - |  | ----- | ------- | - |  | - | ------- | 
|                                       |  | 2006                   |         |   | 2007-08 |   |         | 2009-10 |  |   | Thereafter |   |  | Total |        
|                                       |  |                        |         |   |         |   |         |         |  |   |            |   |  |       |        
|                                       |  | (Dollars in thousands) |        
|Interest-sensitive assets:             |  |                        |         |   |         |   |         |         |  |   |            |   |  |       |         |   |  |   |         | 
|Commercial loans                       |  | $                      | 191,760 |   |         | $ | 93,494  |         |  | $ | 48,160     |   |  | $     | 91,591  |   |  | $ | 425,005 | 
|Average interest rate                  |  |                        | 8.17    | % |         |   | 8.06    | %       |  |   | 7.97       | % |  |       | 7.27    | % |  |   |         | 
|Residential loans(1)                   |  |                        | 41,106  |   |         |   | 23,897  |         |  |   | 10,459     |   |  |       | 32,092  |   |  |   | 107,554 | 
|Average interest rate                  |  |                        | 7.94    | % |         |   | 8.03    | %       |  |   | 8.15       | % |  |       | 7.54    | % |  |   |         | 
|Consumer loans                         |  |                        | 4,760   |   |         |   | 11,913  |         |  |   | 8,852      |   |  |       | 3,584   |   |  |   | 29,109  | 
|Average interest rate                  |  |                        | 7.47    | % |         |   | 8.25    | %       |  |   | 8.21       | % |  |       | 7.52    | % |  |   |         | 
|Municipal loans                        |  |                        | 47      |   |         |   | 779     |         |  |   | 194        |   |  |       | 1,836   |   |  |   | 2,856   | 
|Average interest rate                  |  |                        | 4.06    | % |         |   | 4.06    | %       |  |   | 5.21       | % |  |       | 5.33    | % |  |   |         | 
|Securities                             |  |                        | 7,543   |   |         |   | 35,170  |         |  |   | 34,769     |   |  |       | 13,114  |   |  |   | 90,596  | 
|Average interest rate                  |  |                        | 3.03    | % |         |   | 2.65    | %       |  |   | 3.80       | % |  |       | 4.32    | % |  |   |         | 
|Federal funds sold                     |  |                        | 11,080  |   |         |   |        |         |  |   |           |   |  |       |        |   |  |   | 11,080  | 
|Average interest rate                  |  |                        | 4.00    | % |         |   | 0.00    | %       |  |   | 0.00       | % |  |       | 0.00    | % |  |   |         | 
|Certificates and interest bearing cash |  |                        | 250     |   |         |   |        |         |  |   |           |   |  |       |        |   |  |   | 250     | 
|Average interest rate                  |  |                        | 3.90    | % |         |   | 0.00    | %       |  |   | 0.00       | % |  |       | 0.00    | % |  |   |         | 
|                                       |  |                        |         |   |         |   |         |         |  |   |            |   |  |       |        
|Total interest-sensitive assets        |  | $                      | 256,546 |   |         | $ | 165,253 |         |  | $ | 102,434    |   |  | $     | 142,217 |   |  | $ | 666,450 | 
|                                       |  |                        |         |   |         |   |         |         |  |   |            |   |  |       |        
|Deposits:                              |  |                        |         |   |         |   |         |         |  |   |            |   |  |       |         |   |  |   |         | 
|Savings deposits and IRA               |  | $                      | 66,566  |   |         | $ | 4,069   |         |  | $ | 2,906      |   |  | $     | 222     |   |  | $ | 73,763  | 
|Average interest rate                  |  |                        | 0.80    | % |         |   | 3.54    | %       |  |   | 4.01       | % |  |       | 5.73    | % |  |   |         | 
|Money market and NOW                   |  |                        | 216,034 |   |         |   |        |         |  |   |           |   |  |       |        |   |  |   | 216,034 | 
|Average interest rate                  |  |                        | 1.50    | % |         |   | 0.00    | %       |  |   | 0.00       | % |  |       | 0.00    | % |  |   |         | 
|Time certificates                      |  |                        | 122,491 |   |         |   | 44,015  |         |  |   | 8,711      |   |  |       | 65      |   |  |   | 175,282 | 
|Average interest rate                  |  |                        | 3.26    | % |         |   | 3.82    | %       |  |   | 4.15       | % |  |       | 2.02    | % |  |   |         | 
|Repurchase agreements                  |  |                        | 37,799  |   |         |   |        |         |  |   |           |   |  |       |        |   |  |   | 37,799  | 
|Average interest rate                  |  |                        | 3.60    | % |         |   | 0.00    | %       |  |   | 0.00       | % |  |       | 0.00    | % |  |   |         | 
|Other borrowed funds                   |  |                        |        |   |         |   | 5,000   |         |  |   |           |   |  |       | 16,527  |   |  |   | 21,527  | 
|Average interest rate                  |  |                        | 0.00    | % |         |   | 2.71    | %       |  |   | 0.00       | % |  |       | 6.81    | % |  |   |         | 
|                                       |  |                        |         |   |         |   |         |         |  |   |            |   |  |       |        
|Total interest-sensitive liabilities   |  | $                      | 442,890 |   |         | $ | 53,084  |         |  | $ | 11,617     |   |  | $     | 16,814  |   |  | $ | 524,405 | 
|                                       |  |                        |         |   |         |   |         |         |  |   |            |   |  |       |        






|    |                              
|--- | -----------------------------
|(1) | Includes loans held for sale.



47



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##### Table of Contents








|        |                                            
|------- | -------------------------------------------
|Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

10-K.







|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE








|         |                        
|-------- | -----------------------
|Item 9A. | CONTROLS AND PROCEDURES

Disclosure Controls and Procedures


13a-15(e) 15d-15(e)


Changes in Internal Control over Financial Reporting









|         |                  
|-------- | -----------------
|Item 9B. | OTHER INFORMATION






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT





http://www.Intermountainbank.com







|         |                       
|-------- | ----------------------
|Item 11. | EXECUTIVE COMPENSATION



48



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##### Table of Contents








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT AND RELATED STOCKHOLDER MATTERS








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS








|         |                                       
|-------- | --------------------------------------
|Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | Report of Independent Registered Public Accounting Firm                                                            
|
| |  | Consolidated Balance Sheets at December 31, 2005 and 2004                                                          
|
| |  | Consolidated Statements of Income for the years ended
    December 31, 2005, 2004 and 2003                         
|
| |  | Consolidated Statements of Comprehensive Income for the years
    ended December 31, 2005, 2004 and 2003           
|
| |  | Consolidated Statements of Changes in Stockholders Equity
    for the years ended December 31, 2005, 2004 and 2003
|
| |  | Consolidated Statements of Cash Flows for the years ended
    December 31, 2005, 2004 and 2003                     
|
| |  | Summary of Accounting Policies                                                                                     
|
| |  | Notes to Consolidated Financial Statements                                                                         





49



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##### Table of Contents






SIGNATURES






| |                                      
| | -------------------------------------
| | INTERMOUNTAIN COMMUNITY BANCORP      
| | (Registrant)                         
|
| | /s/ Curt Hecker                      
| |                                      
| | Curt Hecker                          
| | President and Chief Executive Officer





|                                     |  |                                                                                       |  |                |  | 
|------------------------------------ |  | ------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                            |  | Title                                                                                 |  | Date          
|                                     |  |                                                                                       |  |               
|                                    
|/s/ Curt HeckerCurt Hecker           |  | President and Chief Executive Officer, Principal Executive
    Officer, Director      |  | March 14, 2006
|                                    
|/s/ John B. ParkerJohn B. Parker     |  | Chairman of the Board, Director                                                       |  | March 14, 2006
|                                    
|/s/ Douglas WrightDouglas Wright     |  | Executive Vice President and Chief Financial Officer, Principal
    Financial Officer |  | March 14, 2006
|                                    
|/s/ Terry L. MerwinTerry L. Merwin   |  | Secretary, Director                                                                   |  | March 14, 2006
|                                    
|/s/ Charles L. BauerCharles L. Bauer |  | Director                                                                              |  | March 14, 2006
|                                    
|/s/ James T. DiehlJames T. Diehl     |  | Director                                                                              |  | March 14, 2006
|                                    
|/s/ Ford ElsaesserFord Elsaesser     |  | Director                                                                              |  | March 14, 2006
|                                    
|/s/ Ronald JonesRonald Jones         |  | Director                                                                              |  | March 14, 2006
|                                    
|/s/ Maggie Y. LyonsMaggie Y. Lyons   |  | Director                                                                              |  | March 14, 2006

50



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|                                           |  |                                       |  |                |  | 
|------------------------------------------ |  | ------------------------------------- |  | -------------- |  | 
|Signature                                  |  | Title                                 |  | Date          
|                                           |  |                                       |  |               
|                                          
|/s/ Jim PatrickJim Patrick                 |  | Director                              |  | March 14, 2006
|                                          
|/s/ Michael J. RomineMichael J. Romine     |  | Director                              |  | March 14, 2006
|                                          
|/s/ Jerrold SmithJerrold Smith             |  | Executive Vice President and Director |  | March 14, 2006
|                                          
|/s/ Barbara StrickfadenBarbara Strickfaden |  | Director                              |  | March 14, 2006
|                                          
|/s/ Douglas P. WardDouglas P. Ward         |  | Director                              |  | March 14, 2006

51



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##### Table of Contents






EXHIBIT INDEX


|            |    |             |  |                                                                                                                                                                                      
|----------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 3  | .1          |  | Amended and Restated Articles of Incorporation(1)                                                                                                                                    
|           
|            | 3  | .2          |  | Amended and Restated Bylaws(2)                                                                                                                                                       
|           
|            | 4  | .1          |  | Form of Stock Certificate(3)                                                                                                                                                         
|           
|            | 10 | .1          |  | Second Amended and Restated 1999 Employee Stock Option and
    Restricted Stock Plan(3)                                                                                              
|           
|            | 10 | .2          |  | 1988 Nonqualified Stock Option Plan, as amended(3)                                                                                                                                   
|           
|            | 10 | .3          |  | Form of Employee Option Agreement(3)                                                                                                                                                 
|           
|            | 10 | .4          |  | Form of Restricted Stock Purchase Agreement(3)                                                                                                                                       
|           
|            | 10 | .5          |  | 1999 Director Stock Option Plan(1)                                                                                                                                                   
|           
|            | 10 | .6          |  | Restricted Stock Purchase Agreement(1)                                                                                                                                               
|           
|            | 10 | .7          |  | Form of Nonqualified Stock Option Agreement(3)                                                                                                                                       
|           
|            | 10 | .8          |  | 2003  2005 Long-Term Incentive Plan, as amended(4)                                                                                                                                  
|           
|            | 10 | .9          |  | 2004 Executive Incentive Plan(3)                                                                                                                                                     
|           
|            | 10 | .10         |  | Stock Purchase Agreement for Douglas Wright dated
    January 6, 2003(3)                                                                                                             
|           
|            | 10 | .11         |  | Stock Purchase Agreement for Jerrold Smith dated January 6,
    2003(3)                                                                                                              
|           
|            | 10 | .12         |  | Stock Purchase Agreement for John Nagel dated February 12,
    2003(3)                                                                                                               
|           
|            | 10 | .13         |  | Form of Stock Purchase Bonus Agreement(3)                                                                                                                                            
|           
|            | 10 | .14         |  | Employment Agreement with Curt Hecker dated December 17,
    2003, as amended March 24, 2004, and March 4, 2005(4)                                                                   
|           
|            | 10 | .15         |  | Curt Hecker Tax Payment Bonus Plan dated December 1, 2000(3)                                                                                                                         
|           
|            | 10 | .16         |  | Form of Curt Hecker Salary Continuation and Split Dollar
    Agreement dated January 1, 2002(3)                                                                                      
|           
|            | 10 | .17         |  | Employment Agreement with Jerry Smith dated December 17,
    2003, as amended March 24, 2004, and March 4, 2005(3)                                                                   
|           
|            | 10 | .18         |  | Form of Jerry Smith Salary Continuation and Split Dollar
    Agreement dated January 1, 2002(3)                                                                                      
|           
|            | 10 | .19         |  | Executive Severance Agreement with Douglas Wright dated
    December 17, 2003, as amended March 4, 2005(4)                                                                           
|           
|            | 10 | .20         |  | Executive Severance Agreement with John Nagel dated
    December 17, 2003, as amended March 24, 2004, and
    March 4, 2005(4)                                                       
|           
|            | 10 | .21         |  | Employment Agreement between Panhandle State Bank and Pamela
    Rasmussen, amended and restated as of November 9, 2004(5)                                                           
|            | 21 |             |  | Subsidiaries of the Registrant                                                                                                                                                       
|           
|            |    |             |  | (1) Panhandle State Bank, an Idaho state-chartered bank                                                                                                                              
|           
|            |    |             |  | (2) Intermountain Statutory Trust I, a Connecticut
    statutory trust                                                                                                               
|           
|            |    |             |  | (3) Intermountain Statutory Trust II, a Delaware
    statutory trust                                                                                                                 
|           
|            | 23 |             |  | Consent of BDO Seidman, LLP                                                                                                                                                          
|           
|            | 31 | .1          |  | Certification of Chief Executive Officer Pursuant to
    Section 302 of the Sarbanes Oxley Act of 2002                                                                               
|           
|            | 31 | .2          |  | Certification of Chief Financial Officer Pursuant to
    Section 302 of the Sarbanes Oxley Act of 2002                                                                               
|           
|            | 32 |             |  | Certification of Chief Executive Officer and Chief Financial
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes Oxley Act of 2002






|    |                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the Registrants Quarterly
    Report on
    Form 10-Q for the
    quarter ended March 31, 2005    
|   
|(2) | Incorporated by reference to the Registrants Current
    Report on
    Form 8-K, filed
    September 8, 2004                   
|   
|(3) | Incorporated by reference to the Registrants Form 10,
    as amended on July 1, 2004                                           
|   
|(4) | Incorporated by reference to the Registrants Annual Report
    on Form 10-K for
    the fiscal year end December 31, 2004      
|   
|(5) | Incorporated by reference to the Registrants Quarterly
    Report on
    Form 10-Q for the
    quarter ended September 30, 2004

52



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















| |                 
| | ----------------
| | BDO Seidman, LLP





F-1



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP





CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                      |                                |                        |         |        |      |   |         |        | 
|----------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ---------------------- | ------- | ------ | ---- | - | ------- | ------ | 
|                                                                                                                                                      |                                | December 31,           |        
|                                                                                                                                                      |                                |                        |        
|                                                                                                                                                      |                                | 2005                   |         |        | 2004 |  
|                                                                                                                                                      |                                |                        |         |        |      |  
|                                                                                                                                                      |                                | (Dollars in thousands, |        
|                                                                                                                                                      |                                | except per share data) |        
|ASSETS                                                                                                                                               
|Cash and cash equivalents:                                                                                                                            |                                |                        |         |        |      |   |         |       
|                                                                                                                                                      | Interest bearing               |                        | $       | 250    |      |   | $       | 104    | 
|                                                                                                                                                      | Non-interest bearing and vault |                        |         | 23,625 |      |   |         | 14,098 | 
|                                                                                                                                                      | Restricted                     |                        |         | 774    |      |   |         | 1,634  | 
|Federal funds sold                                                                                                                                    |                                |                        | 11,080  |        |      |   | 8,330   |       
|Interest bearing certificates of deposit                                                                                                              |                                |                        |        |        |      |   | 100     |       
|Available-for-sale securities, at fair value                                                                                                          |                                |                        | 83,847  |        |      |   | 102,758 |       
|Held-to-maturity securities, at amortized cost                                                                                                        |                                |                        | 6,749   |        |      |   | 5,409   |       
|Federal Home Loan Bank of Seattle stock, at cost                                                                                                      |                                |                        | 1,774   |        |      |   | 1,210   |       
|Loans held for sale                                                                                                                                   |                                |                        | 5,889   |        |      |   | 5,686   |       
|Loans receivable, net                                                                                                                                 |                                |                        | 555,036 |        |      |   | 418,660 |       
|Accrued interest receivable                                                                                                                           |                                |                        | 4,992   |        |      |   | 3,722   |       
|Office properties and equipment, net                                                                                                                  |                                |                        | 15,545  |        |      |   | 12,941  |       
|Bank-owned life insurance                                                                                                                             |                                |                        | 7,095   |        |      |   | 6,795   |       
|Goodwill                                                                                                                                              |                                |                        | 11,399  |        |      |   | 11,399  |       
|Other intangibles                                                                                                                                     |                                |                        | 1,051   |        |      |   | 1,238   |       
|Prepaid expenses and other assets                                                                                                                     |                                |                        | 4,576   |        |      |   | 3,596   |       
|                                                                                                                                                      |                                |                        |         |        |      |  
|Total assets                                                                                                                                          |                                | $                      | 733,682 |        |      | $ | 597,680 |       
|                                                                                                                                                      |                                |                        |         |        |      |  
|                                                                                                                                                     
|LIABILITIES                                                                                                                                          
|Deposits                                                                                                                                              |                                | $                      | 597,519 |        |      | $ | 500,923 |       
|Securities sold subject to repurchase agreements                                                                                                      |                                |                        | 37,799  |        |      |   | 20,901  |       
|Advances from Federal Home Loan Bank                                                                                                                  |                                |                        | 5,000   |        |      |   | 5,000   |       
|Cashier checks issued and payable                                                                                                                     |                                |                        | 6,104   |        |      |   | 5,478   |       
|Accrued interest payable                                                                                                                              |                                |                        | 1,074   |        |      |   | 753     |       
|Other borrowings                                                                                                                                      |                                |                        | 16,527  |        |      |   | 16,527  |       
|Accrued expenses and other liabilities                                                                                                                |                                |                        | 5,386   |        |      |   | 3,534   |       
|                                                                                                                                                      |                                |                        |         |        |      |  
|Total liabilities                                                                                                                                     |                                |                        | 669,409 |        |      |   | 553,116 |       
|                                                                                                                                                      |                                |                        |         |        |      |  
|Commitments and contingent liabilities (Notes 14 and
    15)                                                                                          |                                |                        |         |        |      |   |         |       
|                                                                                                                                                     
|STOCKHOLDERS EQUITY                                                                                                                                 
|Common stock 24,000,000 and 7,084,000 shares authorized;
    6,598,810 and 3,784,180 shares issued and 6,577,290 and
    3,784,180 shares outstanding |                                |                        | 43,671  |        |      |   | 30,314  |       
|Unearned compensation                                                                                                                                 |                                |                        | (301    | )      |      |   |        |       
|Accumulated other comprehensive income (loss), net of tax                                                                                             |                                |                        | (1,337  | )      |      |   | (509    | )     
|Retained earnings                                                                                                                                     |                                |                        | 22,240  |        |      |   | 14,759  |       
|                                                                                                                                                      |                                |                        |         |        |      |  
|Total stockholders equity                                                                                                                            |                                |                        | 64,273  |        |      |   | 44,564  |       
|                                                                                                                                                      |                                |                        |         |        |      |  
|Total liabilities and stockholders equity                                                                                                            |                                | $                      | 733,682 |        |      | $ | 597,680 |       
|                                                                                                                                                      |                                |                        |         |        |      |  



F-2



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP





CONSOLIDATED STATEMENTS OF INCOME


|                                                        |  |                           |           |   |      |   |           |      |  |   |           |  
|------------------------------------------------------- |  | ------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                        |  | Years Ended December 31,  |          
|                                                        |  |                           |          
|                                                        |  | 2005                      |           |   | 2004 |   |           | 2003 | 
|                                                        |  |                           |           |   |      |   |           |      | 
|                                                        |  | (Dollars in thousands,    |          
|                                                        |  | except per share amounts) |          
|Interest income:                                        |  |                           |           |   |      |   |           |      |  |   |           |  
|Loans                                                   |  | $                         | 37,897    |   |      | $ | 22,055    |      |  | $ | 18,346    |  
|Investments                                             |  |                           | 3,751     |   |      |   | 3,300     |      |  |   | 2,637     |  
|                                                        |  |                           |           |   |      |   |           |      | 
|Total interest income                                   |  |                           | 41,648    |   |      |   | 25,355    |      |  |   | 20,983    |  
|                                                        |  |                           |           |   |      |   |           |      | 
|Interest expense:                                       |  |                           |           |   |      |   |           |      |  |   |           |  
|Deposits                                                |  |                           | 8,250     |   |      |   | 4,595     |      |  |   | 4,217     |  
|Other borrowings                                        |  |                           | 1,177     |   |      |   | 953       |      |  |   | 576       |  
|Short-term borrowings                                   |  |                           | 1,290     |   |      |   | 164       |      |  |   | 177       |  
|                                                        |  |                           |           |   |      |   |           |      | 
|Total interest expense                                  |  |                           | 10,717    |   |      |   | 5,712     |      |  |   | 4,970     |  
|                                                        |  |                           |           |   |      |   |           |      | 
|Net interest income                                     |  |                           | 30,931    |   |      |   | 19,643    |      |  |   | 16,013    |  
|Provision for losses on loans                           |  |                           | (2,229    | ) |      |   | (1,438    | )    |  |   | (955      | )
|                                                        |  |                           |           |   |      |   |           |      | 
|Net interest income after provision for losses on loans |  |                           | 28,702    |   |      |   | 18,205    |      |  |   | 15,058    |  
|                                                        |  |                           |           |   |      |   |           |      | 
|Other income:                                           |  |                           |           |   |      |   |           |      |  |   |           |  
|Fees and service charges                                |  |                           | 8,165     |   |      |   | 6,081     |      |  |   | 5,321     |  
|Bank owned life insurance                               |  |                           | 300       |   |      |   | 257       |      |  |   | 273       |  
|Net gain (loss) on sale of securities                   |  |                           | (43       | ) |      |   | 49        |      |  |   | 39        |  
|Other income                                            |  |                           | 1,198     |   |      |   | 810       |      |  |   | 352       |  
|                                                        |  |                           |           |   |      |   |           |      | 
|Total other income                                      |  |                           | 9,620     |   |      |   | 7,197     |      |  |   | 5,985     |  
|                                                        |  |                           |           |   |      |   |           |      | 
|Operating expenses:                                     |  |                           |           |   |      |   |           |      |  |   |           |  
|Salaries and employee benefits                          |  |                           | 15,356    |   |      |   | 10,566    |      |  |   | 8,828     |  
|Occupancy expense                                       |  |                           | 3,927     |   |      |   | 2,852     |      |  |   | 2,492     |  
|Advertising                                             |  |                           | 767       |   |      |   | 570       |      |  |   | 480       |  
|Fees and service charges                                |  |                           | 974       |   |      |   | 1,023     |      |  |   | 886       |  
|Printing, postage and supplies                          |  |                           | 1,257     |   |      |   | 869       |      |  |   | 803       |  
|Legal and accounting                                    |  |                           | 1,153     |   |      |   | 739       |      |  |   | 520       |  
|Other expense                                           |  |                           | 3,098     |   |      |   | 2,265     |      |  |   | 1,467     |  
|                                                        |  |                           |           |   |      |   |           |      | 
|Total operating expenses                                |  |                           | 26,532    |   |      |   | 18,884    |      |  |   | 15,476    |  
|                                                        |  |                           |           |   |      |   |           |      | 
|Income before income taxes                              |  |                           | 11,790    |   |      |   | 6,518     |      |  |   | 5,567     |  
|Income tax provision                                    |  |                           | 4,308     |   |      |   | 2,172     |      |  |   | 1,906     |  
|                                                        |  |                           |           |   |      |   |           |      | 
|Net income                                              |  | $                         | 7,482     |   |      | $ | 4,346     |      |  | $ | 3,661     |  
|                                                        |  |                           |           |   |      |   |           |      | 
|Earnings per share  basic                              |  | $                         | 1.28      |   |      | $ | 0.88      |      |  | $ | 0.77      |  
|                                                        |  |                           |           |   |      |   |           |      | 
|Earnings per share  diluted                            |  | $                         | 1.18      |   |      | $ | 0.80      |      |  | $ | 0.72      |  
|                                                        |  |                           |           |   |      |   |           |      | 
|Weighted average shares outstanding  basic             |  |                           | 5,849,617 |   |      |   | 4,950,866 |      |  |   | 4,735,269 |  
|                                                        |  |                           |           |   |      |   |           |      | 
|Weighted average shares outstanding  diluted           |  |                           | 6,350,259 |   |      |   | 5,457,713 |      |  |   | 5,085,905 |  
|                                                        |  |                           |           |   |      |   |           |      | 



F-3



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP





CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


|                                   |                                                                                     |                          |       |        |      |   |       |        |   |   |       |      |  
|---------------------------------- | ----------------------------------------------------------------------------------- | ------------------------ | ----- | ------ | ---- | - | ----- | ------ | - | - | ----- | ---- | -
|                                   |                                                                                     | Years Ended December 31, |      
|                                   |                                                                                     |                          |      
|                                   |                                                                                     | 2005                     |       |        | 2004 |   |       | 2003   |  
|                                   |                                                                                     |                          |       |        |      |   |       |        |  
|                                   |                                                                                     | (Dollars in thousands)   |      
|Net income                         |                                                                                     | $                        | 7,482 |        |      | $ | 4,346 |        |   | $ | 3,661 |     
|Other comprehensive income (loss): |                                                                                     |                          |       |        |      |   |       |        |   |   |       |     
|                                   | Change in unrealized losses on investments, net of
    reclassification adjustments |                          |       | (1,362 | )    |   |       | (1,290 | ) |   |       | (831 | )
|                                   | Less deferred income tax benefit                                                    |                          |       | 534    |      |   |       | 506    |   |   |       | 326  |  
|                                   |                                                                                     |                          |       |        |      |   |       |        |  
|Net other comprehensive loss       |                                                                                     |                          | (828  | )      |      |   | (784  | )      |   |   | (505  | )   
|                                   |                                                                                     |                          |       |        |      |   |       |        |  
|Comprehensive income               |                                                                                     | $                        | 6,654 |        |      | $ | 3,562 |        |   | $ | 3,156 |     
|                                   |                                                                                     |                          |       |        |      |   |       |        |  



F-4



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP





CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY


Years Ended December 31, 2005, 2004, and 2003


|                                              |  |                                               |           |   |            |       |        |               |  |   |          |   |        |               |      |   |        |   |        |   |  |   |        |  
|--------------------------------------------- |  | --------------------------------------------- | --------- | - | ---------- | ----- | ------ | ------------- |  | - | -------- | - | ------ | ------------- | ---- | - | ------ | - | ------ | - |  | - | ------ | -
|                                              |  |                                               |           |   |            |       |        | Accumulated   |  |   |          |   |       
|                                              |  |                                               |           |   |            | Other |        |               |  |   |         
|                                              |  | Common Stock                                  |           |   | Additional |       |        | Comprehensive |  |   |          |   | Total- |              
|                                              |  |                                               |           |   | Paid-In    |       |        | Income        |  |   | Retained |   |        | Stockholders |     
|                                              |  | Shares                                        |           |   | Amount     |       |        | Capital       |  |   | (Loss)   |   |        | Earnings      |      |   | Equity |  
|                                              |  |                                               |           |   |            |       |        |               |  |   |          |   |        |               |      |   |        |  
|                                              |  | (Dollars in thousands, except per share data) |          
|Balance, January 1, 2003                      |  |                                               | 1,429,899 |   |            | $     | 3,575  |               |  | $ | 8,920    |   |        | $             | 780  |   |        | $ | 10,641 |   |  | $ | 23,916 |  
|Net income                                    |  |                                               |          |   |            |       |       |               |  |   |         |   |        |               |     |   |        |   | 3,661  |   |  |   | 3,661  |  
|Common stock issued as compensation           |  |                                               | 7,732     |   |            |       | 19     |               |  |   | 155      |   |        |               |     |   |        |   |       |   |  |   | 174    |  
|Shares issued upon exercise of stock options  |  |                                               | 19,177    |   |            |       | 37     |               |  |   | 170      |   |        |               |     |   |        |   |       |   |  |   | 207    |  
|Net unrealized loss on investments            |  |                                               |          |   |            |       |       |               |  |   |         |   |        |               | (505 | ) |        |   |       |   |  |   | (505   | )
|Repurchase and cancellation of treasury stock |  |                                               | (15,360   | ) |            |       | (39    | )             |  |   |         |   |        |               |     |   |        |   | (362   | ) |  |   | (401   | )
|Common stock dividend (10%)                   |  |                                               | 143,431   |   |            |       | 358    |               |  |   | 3,169    |   |        |               |     |   |        |   | (3,527 | ) |  |   |       |  
|Fractional share redemption                   |  |                                               | (146      | ) |            |       |       |               |  |   | (3       | ) |        |               |     |   |        |   |       |   |  |   | (3     | )
|Tax benefit associated with stock options     |  |                                               |          |   |            |       |       |               |  |   | 29       |   |        |               |     |   |        |   |       |   |  |   | 29     |  
|Recapitalization                              |  |                                               | 1,580,240 |   |            |       | 12,440 |               |  |   | (12,440  | ) |        |               |     |   |        |   |       |   |  |   |       |  
|                                              |  |                                               |           |   |            |       |        |               |  |   |          |   |        |               |      |   |        |  
|Balance, December 31, 2003                    |  |                                               | 3,164,973 |   |            | $     | 16,390 |               |  | $ |         |   |        | $             | 275  |   |        | $ | 10,413 |   |  | $ | 27,078 |  
|                                              |  |                                               |           |   |            |       |        |               |  |   |          |   |        |               |      |   |        |  



F-5



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY


Years Ended December 31, 2005, 2004, and 2003


|                                              |  |                                               |           |   |            |             |               |         |  |               |   |       |               |   |      |        |  |   |        |  |  |   |        |  
|--------------------------------------------- |  | --------------------------------------------- | --------- | - | ---------- | ----------- | ------------- | ------- |  | ------------- | - | ----- | ------------- | - | ---- | ------ |  | - | ------ |  |  | - | ------ | -
|                                              |  |                                               |           |   |            | Accumulated |               |         |  |               |  
|                                              |  | Common Stock                                  |           |   | Additional |             | Other         |         |  |               |   | Total |              
|                                              |  |                                               |           |   | Paid-In    |             | Comprehensive |         |  | Retained      |   |       | Stockholders |  
|                                              |  | Shares                                        |           |   | Amount     |             |               | Capital |  | Income (Loss) |   |       | Earnings      |   |      | Equity | 
|                                              |  |                                               |           |   |            |             |               |         |  |               |   |       |               |   |      |        | 
|                                              |  | (Dollars in thousands, except per share data) |          
|Balance, December 31, 2003                    |  |                                               | 3,164,973 |   |            | $           | 16,390        |         |  | $             |  |       |               | $ | 275  |        |  | $ | 10,413 |  |  | $ | 27,078 |  
|Net income                                    |  |                                               |          |   |            |             |              |         |  |               |  |       |               |   |     |        |  |   | 4,346  |  |  |   | 4,346  |  
|Compensation expense related to option grants |  |                                               |          |   |            |             | 38            |         |  |               |  |       |               |   |     |        |  |   |       |  |  |   | 38     |  
|Shares issued upon exercise of stock options  |  |                                               | 116,840   |   |            |             | 771           |         |  |               |  |       |               |   |     |        |  |   |       |  |  |   | 771    |  
|Net unrealized loss on investments            |  |                                               |          |   |            |             |              |         |  |               |  |       |               |   | (784 | )      |  |   |       |  |  |   | (784   | )
|Repurchase and cancellation of treasury stock |  |                                               | (2,093    | ) |            |             | (47           | )       |  |               |  |       |               |   |     |        |  |   |       |  |  |   | (47    | )
|Shares issued for business combination        |  |                                               | 504,460   |   |            |             | 13,018        |         |  |               |  |       |               |   |     |        |  |   |       |  |  |   | 13,018 |  
|Tax benefit associated with stock options     |  |                                               |          |   |            |             | 144           |         |  |               |  |       |               |   |     |        |  |   |       |  |  |   | 144    |  
|                                              |  |                                               |           |   |            |             |               |         |  |               |   |       |               |   |      |        |  |  
|Balance, December 31, 2004                    |  |                                               | 3,784,180 |   |            | $           | 30,314        |         |  | $             |  |       |               | $ | (509 | )      |  | $ | 14,759 |  |  | $ | 44,564 |  
|                                              |  |                                               |           |   |            |             |               |         |  |               |   |       |               |   |      |        |  |  



F-6



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY


Years Ended December 31, 2005, 2004, and 2003


|                                                              |  |                                               |           |   |            |          |              |         |             |               |   |  |               |   |       |               |  |   |        |   |  |   |        |   |  |   |        |  
|------------------------------------------------------------- |  | --------------------------------------------- | --------- | - | ---------- | -------- | ------------ | ------- | ----------- | ------------- | - |  | ------------- | - | ----- | ------------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                              |  |                                               |           |   |            | Unearned |              |         | Accumulated |               |   |  |               |  
|                                                              |  | Common Stock                                  |           |   | Additional |          | Compensation |         |             | Other         |   |  |               |   | Total |              
|                                                              |  |                                               |           |   | Paid-In    |          | Restricted   |         |             | Comprehensive |   |  | Retained      |   |       | Stockholders | 
|                                                              |  | Shares                                        |           |   | Amount     |          |              | Capital |             | Stock         |   |  | Income (Loss) |   |       | Earnings      |  |   | Equity |  
|                                                              |  |                                               |           |   |            |          |              |         |             |               |   |  |               |   |       |               |  |   |        |  
|                                                              |  | (Dollars in thousands, except per share data) |          
|Balance, December 31, 2004                                    |  |                                               | 3,784,180 |   |            | $        | 30,314       |         |             | $             |  |  |               | $ |      |               |  | $ | (509   | ) |  | $ | 14,759 |   |  | $ | 44,564 |  
|Net income                                                    |  |                                               |          |   |            |          |             |         |             |               |  |  |               |   |      |               |  |   |       |   |  |   | 7,482  |   |  |   | 7,482  |  
|Compensation expense related to option grants                 |  |                                               |          |   |            |          | 46           |         |             |               |  |  |               |   |      |               |  |   |       |   |  |   |       |   |  |   | 46     |  
|Restricted stock, issued as compensation, net of amortization |  |                                               | 21,520    |   |            |          | 334          |         |             |               |  |  |               |   | (301  | )             |  |   |       |   |  |   |       |   |  |   | 33     |  
|Shares issued upon exercise of stock options                  |  |                                               | 172,419   |   |            |          | 901          |         |             |               |  |  |               |   |      |               |  |   |       |   |  |   |       |   |  |   | 901    |  
|Net unrealized loss on investments                            |  |                                               |          |   |            |          |             |         |             |               |  |  |               |   |      |               |  |   | (828   | ) |  |   |       |   |  |   | (828   | )
|Stock split, three-for-two                                    |  |                                               | 1,914,911 |   |            |          |             |         |             |               |  |  |               |   |      |               |  |   |       |   |  |   |       |   |  |   |       |  
|Fractional share redemption                                   |  |                                               | (102      | ) |            |          |             |         |             |               |  |  |               |   |      |               |  |   |       |   |  |   | (1     | ) |  |   | (1     | )
|Common stock issued, net of costs                             |  |                                               | 705,882   |   |            |          | 11,861       |         |             |               |  |  |               |   |      |               |  |   |       |   |  |   |       |   |  |   | 11,861 |  
|Tax benefit associated with stock options                     |  |                                               |          |   |            |          | 215          |         |             |               |  |  |               |   |      |               |  |   |       |   |  |   |       |   |  |   | 215    |  
|                                                              |  |                                               |           |   |            |          |              |         |             |               |   |  |               |   |       |               |  |   |        |   | 
|Balance, December 31, 2005                                    |  |                                               | 6,598,810 |   |            | $        | 43,671       |         |             | $             |  |  |               | $ | (301  | )             |  | $ | (1,337 | ) |  | $ | 22,240 |   |  | $ | 64,273 |  
|                                                              |  |                                               |           |   |            |          |              |         |             |               |   |  |               |   |       |               |  |   |        |   | 



F-7



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                      |                                        |                          |          |        |      |   |         |        |   |   |         |       |  
|------------------------------------------------------------------------------------- | -------------------------------------- | ------------------------ | -------- | ------ | ---- | - | ------- | ------ | - | - | ------- | ----- | -
|                                                                                      |                                        | Years Ended December 31, |         
|                                                                                      |                                        |                          |         
|                                                                                      |                                        | 2005                     |          |        | 2004 |   |         | 2003   |  
|                                                                                      |                                        |                          |          |        |      |   |         |        |  
|                                                                                      |                                        | (Dollars in thousands)   |         
|Cash flows from operating activities:                                                 |                                        |                          |          |        |      |   |         |        |   |   |         |      
|Net income                                                                            |                                        | $                        | 7,482    |        |      | $ | 4,346   |        |   | $ | 3,661   |      
|Adjustments to reconcile net income to net cash provided by
    operating activities: |                                        |                          |          |        |      |   |         |        |   |   |         |      
|Compensation expense related to stock and option grants                               |                                        |                          | 46       |        |      |   | 38      |        |   |   | 174     |      
|Depreciation                                                                          |                                        |                          | 1,697    |        |      |   | 1,362   |        |   |   | 1,225   |      
|Net amortization of premiums on securities                                            |                                        |                          | 163      |        |      |   | 545     |        |   |   | 695     |      
|Stock dividends on Federal Home Loan Bank of Seattle stock                            |                                        |                          |         |        |      |   | (26     | )      |   |   | (140    | )    
|Provisions for losses on loans                                                        |                                        |                          | 2,229    |        |      |   | 1,438   |        |   |   | 955     |      
|Amortization of core deposit intangibles                                              |                                        |                          | 186      |        |      |   | 94      |        |   |   | 65      |      
|Amortization of unearned compensation- restricted stock                               |                                        |                          | 33       |        |      |   |        |        |   |   |        |      
|Net accretion of loan discount                                                        |                                        |                          | (146     | )      |      |   | (155    | )      |   |   | (208    | )    
|(Gain) Loss on sale of loans, investments, property and equipment                     |                                        |                          | 64       |        |      |   | (52     | )      |   |   | (39     | )    
|Gain on sale of real estate owned                                                     |                                        |                          | (79      | )      |      |   | (30     | )      |   |   |        |      
|Deferred income tax benefit                                                           |                                        |                          | (832     | )      |      |   | (301    | )      |   |   | (306    | )    
|Increase in cash surrender value of bank-owned life insurance                         |                                        |                          | (300     | )      |      |   | (257    | )      |   |   | (273    | )    
|Change in (net of acquisition of business):                                           |                                        |                          |          |        |      |   |         |        |   |   |         |      
|                                                                                      | Loans held for sale                    |                          |          | (203   | )    |   |         | (1,621 | ) |   |         | 2,033 |  
|                                                                                      | Accrued interest receivable            |                          |          | (1,270 | )    |   |         | (477   | ) |   |         | (410  | )
|                                                                                      | Prepaid expenses and other assets      |                          |          | (455   | )    |   |         | 69     |   |   |         | (180  | )
|                                                                                      | Accrued interest payable               |                          |          | 321    |      |   |         | 325    |   |   |         | (101  | )
|                                                                                      | Accrued expenses and other liabilities |                          |          | 2,694  |      |   |         | 1,283  |   |   |         | 3,128 |  
|                                                                                      |                                        |                          |          |        |      |   |         |        |  
|Net cash provided by operating activities                                             |                                        |                          | 11,630   |        |      |   | 6,581   |        |   |   | 10,279  |      
|                                                                                      |                                        |                          |          |        |      |   |         |        |  
|Cash flows from investing activities:                                                 |                                        |                          |          |        |      |   |         |        |   |   |         |      
|Net change in certificates of deposit with other institutions                         |                                        |                          | 100      |        |      |   | 298     |        |   |   | 792     |      
|Purchases of available-for-sale securities                                            |                                        |                          | (39,159  | )      |      |   | (63,868 | )      |   |   | (74,691 | )    
|Proceeds from calls, maturities or sales of available-for-sale
    securities         |                                        |                          | 43,301   |        |      |   | 26,501  |        |   |   | 36,548  |      
|Principal payments on mortgage-backed securities                                      |                                        |                          | 13,248   |        |      |   | 14,399  |        |   |   | 16,469  |      
|Purchases of held-to-maturity securities                                              |                                        |                          | (1,929   | )      |      |   | (512    | )      |   |   | (1,469  | )    
|Proceeds from calls or maturities of held-to-maturity securities                      |                                        |                          | 541      |        |      |   | 299     |        |   |   | 1,081   |      
|Purchase of Federal Home Loan Bank of Seattle stock                                   |                                        |                          | (564     | )      |      |   | (433    | )      |   |   |        |      
|Net increase in loans receivable                                                      |                                        |                          | (139,693 | )      |      |   | (70,440 | )      |   |   | (53,850 | )    
|Proceeds from sale of loans receivable                                                |                                        |                          | 1,278    |        |      |   | 2,724   |        |   |   |        |      
|Net cash and cash equivalents (paid) acquired as part of
    acquisition              |                                        |                          |         |        |      |   | (2,013  | )      |   |   | 14,709  |      
|Purchase of office properties and equipment                                           |                                        |                          | (4,332   | )      |      |   | (3,161  | )      |   |   | (2,245  | )    
|Proceeds from sales of office properties and equipment                                |                                        |                          | 38       |        |      |   | 80      |        |   |   | 111     |      
|Improvements and other changes in real estate owned                                   |                                        |                          | (242     | )      |      |   |        |        |   |   | (523    | )    
|Proceeds from sale of other real estate owned                                         |                                        |                          | 1,163    |        |      |   | 233     |        |   |   | 166     |      
|Investment in affiliate                                                               |                                        |                          |         |        |      |   | (248    | )      |   |   | (249    | )    
|Net change in federal funds sold                                                      |                                        |                          | (2,750   | )      |      |   | (2,620  | )      |   |   | (2,200  | )    
|Net (increase) decrease in restricted cash                                            |                                        |                          | 860      |        |      |   | (639    | )      |   |   | 1,741   |      
|                                                                                      |                                        |                          |          |        |      |   |         |        |  
|Net cash used in investing activities                                                 |                                        |                          | (128,140 | )      |      |   | (99,400 | )      |   |   | (63,610 | )    
|                                                                                      |                                        |                          |          |        |      |   |         |        |  



F-8



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                          |  |                          |         |   |      |   |        |      |  |   |        |  
|--------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                          |  | Years Ended December 31, |        
|                                                          |  |                          |        
|                                                          |  | 2005                     |         |   | 2004 |   |        | 2003 | 
|                                                          |  |                          |         |   |      |   |        |      | 
|                                                          |  | (Dollars in thousands)   |        
|Cash flows from financing activities:                     |  |                          |         |   |      |   |        |      |  |   |        |  
|Net increase in demand, money market and savings deposits |  |                          | 80,024  |   |      |   | 65,958 |      |  |   | 32,158 |  
|Net increase in certificates of deposit                   |  |                          | 16,500  |   |      |   | 20,518 |      |  |   | 8,455  |  
|Net change in federal funds purchased                     |  |                          |        |   |      |   |       |      |  |   |       |  
|Proceeds from other borrowings                            |  |                          |        |   |      |   | 8,248  |      |  |   | 8,279  |  
|Proceeds from Federal Home Loan Bank advances             |  |                          | 48,000  |   |      |   |       |      |  |   | 5,000  |  
|Repayments of Federal Home Loan Bank advances             |  |                          | (48,000 | ) |      |   |       |      |  |   |       |  
|Net change in repurchase agreements                       |  |                          | 16,898  |   |      |   | 1,333  |      |  |   | 1,185  |  
|Proceeds from exercise of stock options                   |  |                          | 901     |   |      |   | 771    |      |  |   | 207    |  
|Proceeds from common stock offering, net of expenses      |  |                          | 11,861  |   |      |   |       |      |  |   |       |  
|Repurchase of treasury stock                              |  |                          |        |   |      |   | (47    | )    |  |   | (401   | )
|Redemption of fractional shares of common stock           |  |                          | (1      | ) |      |   |       |      |  |   | (3     | )
|                                                          |  |                          |         |   |      |   |        |      | 
|Net cash provided by financing activities                 |  |                          | 126,183 |   |      |   | 96,781 |      |  |   | 54,880 |  
|                                                          |  |                          |         |   |      |   |        |      | 
|Net increase in cash and cash equivalents                 |  |                          | 9,673   |   |      |   | 3,962  |      |  |   | 1,549  |  
|Cash and cash equivalents, beginning of year              |  |                          | 14,202  |   |      |   | 10,240 |      |  |   | 8,691  |  
|                                                          |  |                          |         |   |      |   |        |      | 
|Cash and cash equivalents, end of year                    |  | $                        | 23,875  |   |      | $ | 14,202 |      |  | $ | 10,240 |  
|                                                          |  |                          |         |   |      |   |        |      | 
|Supplemental disclosure of cash flow information:         |  |                          |         |   |      |   |        |      |  |   |        |  
|Cash paid during the period for:                          |  |                          |         |   |      |   |        |      |  |   |        |  
|Interest                                                  |  | $                        | 10,325  |   |      | $ | 5,387  |      |  | $ | 4,183  |  
|Income taxes                                              |  | $                        | 4,468   |   |      | $ | 2,410  |      |  | $ | 1,930  |  
|Noncash investing and financing activities:               |  |                          |         |   |      |   |        |      |  |   |        |  
|Common stock dividends                                    |  | $                        |        |   |      | $ |       |      |  | $ | 3,527  |  
|Cancellation of treasury stock                            |  | $                        |        |   |      | $ | 47     |      |  | $ | 401    |  
|Restricted shares issued                                  |  | $                        | 334     |   |      | $ |       |      |  | $ |       |  
|Net liabilities assumed from business combination         |  | $                        |        |   |      | $ |       |      |  | $ | 16,567 |  
|Common stock issued upon business combination             |  | $                        |        |   |      | $ | 13,018 |      |  | $ |       |  



F-9



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP





SUMMARY OF ACCOUNTING POLICIES


Organization




Principles of Consolidation




Cash and Cash Equivalents






Investments






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Available for Sale. Debt and equity investments that will
    be held for indefinite periods of time are classified as
    available for sale and are carried at market value. Market value
    is determined using published quotes or other indicators of
    value as of the close of business. Unrealized gains and losses
    that are considered temporary are reported, net of deferred
    income taxes, as a component of accumulated other comprehensive
    income or loss in stockholders equity until realized.
|
| |  | Federal Home Loan Bank of Seattle Stock. Federal
    Home Loan Bank (FHLB) of Seattle stock may only
    be redeemed by FHLB Seattle or sold to another member
    institution at par. Therefore, this investment is carried at
    cost.                                                                                                                                                                                                                                                                                  
|
| |  | Held to Maturity. Investments in debt securities that
    management has the intent and ability to hold until maturity are
    classified as held to maturity and are carried at their
    remaining unpaid principal balance, net of unamortized premiums
    or unaccreted discounts.                                                                                                                                                                                                                                      



Loans Held for Sale




F-10



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


SUMMARY OF ACCOUNTING
POLICIES  (Continued)




Loans Receivable






Allowance for Losses on Loans






Loan Origination and Commitment Fees






F-11



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


SUMMARY OF ACCOUNTING
POLICIES  (Continued)


Other Real Estate Owned




Office Properties and Equipment




Bank-Owned Life Insurance




Goodwill and Other Intangibles




Advertising and Promotion




Income Taxes




Earnings Per Share




Stock-Based Compensation




F-12



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


SUMMARY OF ACCOUNTING
POLICIES  (Continued)






|                                                                                                                                                    |  |                          |       |   |      |   |       |      |  |   |       |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                                                                                                                    |  | Years Ended December 31, |      
|                                                                                                                                                    |  |                          |      
|                                                                                                                                                    |  | 2005                     |       |   | 2004 |   |       | 2003 | 
|                                                                                                                                                    |  |                          |       |   |      |   |       |      | 
|Reported net income                                                                                                                                 |  | $                        | 7,482 |   |      | $ | 4,346 |      |  | $ | 3,661 |  
|Add back: Stock-based employee compensation expense, net of
    related tax effects                                                                 |  |                          | 48    |   |      |   | 23    |      |  |   | 105   |  
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects |  |                          | (158  | ) |      |   | (144  | )    |  |   | (215  | )
|                                                                                                                                                    |  |                          |       |   |      |   |       |      | 
|Pro forma net income                                                                                                                                |  | $                        | 7,372 |   |      | $ | 4,225 |      |  | $ | 3,551 |  
|                                                                                                                                                    |  |                          |       |   |      |   |       |      | 
|Basic earnings per share:                                                                                                                           |  |                          |       |   |      |   |       |      |  |   |       |  
|Reported earnings per share                                                                                                                         |  | $                        | 1.28  |   |      | $ | 0.88  |      |  | $ | 0.77  |  
|Stock-based employee compensation, fair value                                                                                                       |  |                          | (0.02 | ) |      |   | (0.03 | )    |  |   | (0.02 | )
|                                                                                                                                                    |  |                          |       |   |      |   |       |      | 
|Pro forma earnings per share                                                                                                                        |  | $                        | 1.26  |   |      | $ | 0.85  |      |  | $ | 0.75  |  
|                                                                                                                                                    |  |                          |       |   |      |   |       |      | 
|Dilutive earnings per share:                                                                                                                        |  |                          |       |   |      |   |       |      |  |   |       |  
|Reported earnings per share                                                                                                                         |  | $                        | 1.18  |   |      | $ | 0.80  |      |  | $ | 0.72  |  
|Stock-based employee compensation, fair value                                                                                                       |  |                          | (0.02 | ) |      |   | (0.03 | )    |  |   | (0.02 | )
|                                                                                                                                                    |  |                          |       |   |      |   |       |      | 
|Pro forma earnings per share                                                                                                                        |  | $                        | 1.16  |   |      | $ | 0.77  |      |  | $ | 0.70  |  
|                                                                                                                                                    |  |                          |       |   |      |   |       |      | 





|                         |  |      |          |   |      |  |          |  
|------------------------ |  | ---- | -------- | - | ---- |  | -------- | -
|                         |  | 2004 |          |   | 2003 | 
|                         |  |      |          |   |      | 
|Dividend yield           |  |      | 0.0      | % |      |  | 0.0      | %
|Expected volatility      |  |      | 45.3     | % |      |  | 46.6     | %
|Risk free interest rates |  |      | 4.5      | % |      |  | 4.0      | %
|Expected option lives    |  |      | 5  years |   |      |  | 5  years |  

Estimates




F-13



---



##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


SUMMARY OF ACCOUNTING
POLICIES  (Continued)




Business Combinations




Reclassifications




Recent Accounting Pronouncements


SFAS No. 123 (revised 2004)
(SFAS 123R), Share-Based
Payment.


115-1


F-14



---



##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


SUMMARY OF ACCOUNTING
POLICIES  (Continued)


INTERMOUNTAIN COMMUNITY BANCORP





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |            
|-- | -----------
|1. | Investments



|                                                                         |  |                    |         |            |       |   |            |        |  |             |                |   |  |   |         | 
|------------------------------------------------------------------------ |  | ------------------ | ------- | ---------- | ----- | - | ---------- | ------ |  | ----------- | -------------- | - |  | - | ------- | 
|                                                                         |  | Available-for-Sale |        
|                                                                         |  |                    |        
|                                                                         |  |                    |         | Gross      |       |   | Gross      |        |  |            
|                                                                         |  |                    |         | Unrealized |       |   | Unrealized |        |  | Fair Value/ |               
|                                                                         |  | Amortized Cost     |         |            | Gains |   |            | Losses |  |             | Carrying Value |  
|                                                                         |  |                    |         |            |       |   |            |        |  |             |                |  
|December 31, 2005                                                        |  |                    |         |            |       |   |            |        |  |             |                |   |  |   |         | 
|U.S. treasury securities and obligations of
    U.S. government agencies |  | $                  | 53,271  |            |       | $ |           |        |  | $           | (1,475         | ) |  | $ | 51,796  | 
|Mortgage-backed securities                                               |  |                    | 31,469  |            |       |   | 5          |        |  |             | (697           | ) |  |   | 30,777  | 
|State and municipal securities                                           |  |                    | 308     |            |       |   |           |        |  |             | (3             | ) |  |   | 305     | 
|Corporate bonds                                                          |  |                    | 1,000   |            |       |   |           |        |  |             | (31            | ) |  |   | 969     | 
|                                                                         |  |                    |         |            |       |   |            |        |  |             |                |  
|                                                                         |  | $                  | 86,048  |            |       | $ | 5          |        |  | $           | (2,206         | ) |  | $ | 83,847  | 
|                                                                         |  |                    |         |            |       |   |            |        |  |             |                |  
|December 31, 2004                                                        |  |                    |         |            |       |   |            |        |  |             |                |   |  |   |         | 
|U.S. treasury securities and obligations of
    U.S. government agencies |  | $                  | 60,853  |            |       | $ | 134        |        |  | $           | (697           | ) |  | $ | 60,290  | 
|Mortgage-backed securities                                               |  |                    | 40,428  |            |       |   | 38         |        |  |             | (310           | ) |  |   | 40,156  | 
|State and municipal securities                                           |  |                    | 314     |            |       |   |           |        |  |             | (2             | ) |  |   | 312     | 
|Corporate bonds                                                          |  |                    | 2,002   |            |       |   | 19         |        |  |             | (21            | ) |  |   | 2,000   | 
|                                                                         |  |                    |         |            |       |   |            |        |  |             |                |  
|                                                                         |  | $                  | 103,597 |            |       | $ | 191        |        |  | $           | (1,030         | ) |  | $ | 102,758 | 
|                                                                         |  |                    |         |            |       |   |            |        |  |             |                |  

|                               |  |                  |       |  |            |   |    |            |  |   |            |   |  |   |       | 
|------------------------------ |  | ---------------- | ----- |  | ---------- | - | -- | ---------- |  | - | ---------- | - |  | - | ----- | 
|                               |  | Held-to-Maturity |      
|                               |  |                  |      
|                               |  | Carrying         |       |  |           
|                               |  | Value/           |       |  | Gross      |   |    | Gross      |  |   |           
|                               |  | Amortized        |       |  | Unrealized |   |    | Unrealized |  |   |           
|                               |  | Cost             |       |  | Gains      |   |    | Losses     |  |   | Fair Value |  
|                               |  |                  |       |  |            |   |    |            |  |   |            |  
|December 31, 2005              |  |                  |       |  |            |   |    |            |  |   |            |   |  |   |       | 
|State and municipal securities |  | $                | 6,749 |  |            | $ | 11 |            |  | $ | (103       | ) |  | $ | 6,657 | 
|December 31, 2004              |  |                  |       |  |            |   |    |            |  |   |            |   |  |   |       | 
|State and municipal securities |  | $                | 5,409 |  |            | $ | 39 |            |  | $ | (32        | ) |  | $ | 5,416 | 





F-15



---



##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


held-to


|                                   |  |                    |        |  |                  |   |        |           |  |   |       |  |  |   |       | 
|---------------------------------- |  | ------------------ | ------ |  | ---------------- | - | ------ | --------- |  | - | ----- |  |  | - | ----- | 
|                                   |  | Available-for-Sale |        |  | Held-to-Maturity |  
|                                   |  |                    |        |  |                  |  
|                                   |  | Amortized          |        |  | Fair             |   |        | Amortized |  |   | Fair  | 
|                                   |  | Cost               |        |  | Value            |   |        | Cost      |  |   | Value | 
|                                   |  |                    |        |  |                  |   |        |           |  |   |       | 
|One year or less                   |  | $                  | 7,009  |  |                  | $ | 6,980  |           |  | $ | 495   |  |  | $ | 497   | 
|After one year through five years  |  |                    | 47,367 |  |                  |   | 45,888 |           |  |   | 3,683 |  |  |   | 3,615 | 
|After five years through ten years |  |                    | 103    |  |                  |   | 101    |           |  |   | 869   |  |  |   | 859   | 
|After ten years                    |  |                    | 101    |  |                  |   | 101    |           |  |   | 1,702 |  |  |   | 1,686 | 
|                                   |  |                    |        |  |                  |   |        |           |  |   |       | 
|                                   |  |                    | 54,580 |  |                  |   | 53,070 |           |  |   | 6,749 |  |  |   | 6,657 | 
|Mortgage-backed securities         |  |                    | 31,468 |  |                  |   | 30,777 |           |  |   |      |  |  |   |      | 
|                                   |  |                    |        |  |                  |   |        |           |  |   |       | 
|                                   |  | $                  | 86,048 |  |                  | $ | 83,847 |           |  | $ | 6,749 |  |  | $ | 6,657 | 
|                                   |  |                    |        |  |                  |   |        |           |  |   |       | 



held-to


|                                                                         |  |                     |        |            |                     |   |     |            |            |   |        |  |  |            |       |  |        |   |        |  |  |   |       | 
|------------------------------------------------------------------------ |  | ------------------- | ------ | ---------- | ------------------- | - | --- | ---------- | ---------- | - | ------ |  |  | ---------- | ----- |  | ------ | - | ------ |  |  | - | ----- | 
|                                                                         |  | Less Than 12 Months |        |            | 12 Months or Longer |   |     | Total      |           
|                                                                         |  |                     |        |            |                     |   |     |            |           
|                                                                         |  |                     |        | Unrealized |                     |   |     |            | Unrealized |   |        |  |  | Unrealized |      
|December 31, 2005                                                        |  | Fair Value          |        |            | Losses              |   |     | Fair Value |            |   | Losses |  |  | Fair Value |       |  | Losses |  
|                                                                         |  |                     |        |            |                     |   |     |            |            |   |        |  |  |            |       |  |        |  
|U.S. treasury securities and obligations of
    U.S. government agencies |  | $                   | 7,698  |            |                     | $ | 50  |            |            | $ | 44,098 |  |  | $          | 1,425 |  |        | $ | 51,796 |  |  | $ | 1,475 | 
|Corporate bonds                                                          |  |                     |       |            |                     |   |    |            |            |   | 969    |  |  |            | 31    |  |        |   | 969    |  |  |   | 31    | 
|State and municipal securities                                           |  |                     | 3,208  |            |                     |   | 58  |            |            |   | 1,758  |  |  |            | 48    |  |        |   | 4,966  |  |  |   | 106   | 
|Mortgage-backed securities                                               |  |                     | 7,871  |            |                     |   | 138 |            |            |   | 22,046 |  |  |            | 559   |  |        |   | 29,917 |  |  |   | 697   | 
|                                                                         |  |                     |        |            |                     |   |     |            |            |   |        |  |  |            |       |  |        |  
|Total                                                                    |  | $                   | 18,777 |            |                     | $ | 246 |            |            | $ | 68,871 |  |  | $          | 2,063 |  |        | $ | 87,648 |  |  | $ | 2,309 | 
|                                                                         |  |                     |        |            |                     |   |     |            |            |   |        |  |  |            |       |  |        |  

|                                                                         |  |                     |        |            |                     |   |     |            |            |   |        |  |  |            |     |  |        |   |        |  |  |   |       | 
|------------------------------------------------------------------------ |  | ------------------- | ------ | ---------- | ------------------- | - | --- | ---------- | ---------- | - | ------ |  |  | ---------- | --- |  | ------ | - | ------ |  |  | - | ----- | 
|                                                                         |  | Less Than 12 Months |        |            | 12 Months or Longer |   |     | Total      |           
|                                                                         |  |                     |        |            |                     |   |     |            |           
|                                                                         |  |                     |        | Unrealized |                     |   |     |            | Unrealized |   |        |  |  | Unrealized |    
|December 31, 2004                                                        |  | Fair Value          |        |            | Losses              |   |     | Fair Value |            |   | Losses |  |  | Fair Value |     |  | Losses |  
|                                                                         |  |                     |        |            |                     |   |     |            |            |   |        |  |  |            |     |  |        |  
|U.S. treasury securities and obligations of
    U.S. government agencies |  | $                   | 45,501 |            |                     | $ | 631 |            |            | $ | 4,876  |  |  | $          | 66  |  |        | $ | 50,377 |  |  | $ | 697   | 
|Corporate bonds                                                          |  |                     |       |            |                     |   |    |            |            |   | 979    |  |  |            | 21  |  |        |   | 979    |  |  |   | 21    | 
|State and municipal securities                                           |  |                     | 2,350  |            |                     |   | 16  |            |            |   | 580    |  |  |            | 17  |  |        |   | 2,930  |  |  |   | 33    | 
|Mortgage-backed securities                                               |  |                     | 19,870 |            |                     |   | 186 |            |            |   | 13,084 |  |  |            | 125 |  |        |   | 32,954 |  |  |   | 311   | 
|                                                                         |  |                     |        |            |                     |   |     |            |            |   |        |  |  |            |     |  |        |  
|Total                                                                    |  | $                   | 67,721 |            |                     | $ | 833 |            |            | $ | 19,519 |  |  | $          | 229 |  |        | $ | 87,240 |  |  | $ | 1,062 | 
|                                                                         |  |                     |        |            |                     |   |     |            |            |   |        |  |  |            |     |  |        |  

F-16



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                 
|-- | ----------------
|2. | Loans Receivable



|                                                    |  |              |         |   |      |   |         |  
|--------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                    |  | December 31, |        
|                                                    |  |              |        
|                                                    |  | 2005         |         |   | 2004 |  
|                                                    |  |              |         |   |      |  
|Commercial                                          |  | $            | 425,005 |   |      | $ | 304,783 |  
|Residential                                         |  |              | 107,554 |   |      |   | 94,170  |  
|Consumer                                            |  |              | 29,109  |   |      |   | 24,245  |  
|Municipal                                           |  |              | 2,856   |   |      |   | 2,598   |  
|                                                    |  |              |         |   |      |  
|Total loans receivable                              |  |              | 564,524 |   |      |   | 425,796 |  
|Allowance for loan losses                           |  |              | (8,517  | ) |      |   | (6,902  | )
|Deferred loan fees, net of direct origination costs |  |              | (971    | ) |      |   | (234    | )
|                                                    |  |              |         |   |      |  
|Loans receivable, net                               |  | $            | 555,036 |   |      | $ | 418,660 |  
|                                                    |  |              |         |   |      |  
|Weighted average interest rate                      |  |              | 7.90    | % |      |   | 6.81    | %
|                                                    |  |              |         |   |      |  



|                                             |  |                          |       |   |      |   |       |      |  |   |        |  
|-------------------------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                             |  | Years Ended December 31, |      
|                                             |  |                          |      
|                                             |  | 2005                     |       |   | 2004 |   |       | 2003 | 
|                                             |  |                          |       |   |      |   |       |      | 
|Allowance for loan losses, beginning of year |  | $                        | 6,902 |   |      | $ | 5,118 |      |  | $ | 3,259  |  
|Acquired reserve from business combination   |  |                          |      |   |      |   | 1,108 |      |  |   | 1,624  |  
|Loans charged off                            |  |                          | (792  | ) |      |   | (743  | )    |  |   | (1,117 | )
|Recoveries                                   |  |                          | 274   |   |      |   | 194   |      |  |   | 397    |  
|Allowance related to loan sales              |  |                          | (96   | ) |      |   | (213  | )    |  |   |       |  
|Provision for losses on loans                |  |                          | 2,229 |   |      |   | 1,438 |      |  |   | 955    |  
|                                             |  |                          |       |   |      |   |       |      | 
|Allowance for loan losses, end of year       |  | $                        | 8,517 |   |      | $ | 6,902 |      |  | $ | 5,118  |  
|                                             |  |                          |       |   |      |   |       |      | 





F-17



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |  |        |         | 
|------------------------ |  | ------ | ------- | 
|Year Ending December 31, |  | Amount |        
|                         |  |        |        
|2006                     |  | $      | 237,673 | 
|2007                     |  |        | 64,227  | 
|2008                     |  |        | 65,856  | 
|2009                     |  |        | 32,187  | 
|2010                     |  |        | 35,478  | 
|Thereafter               |  |        | 129,103 | 
|                         |  |        |        
|                         |  | $      | 564,524 | 
|                         |  |        |        



|   |                                
|-- | -------------------------------
|3. | Office Properties and Equipment



|                              |  |              |        |   |      |   |        |  
|----------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                              |  | December 31, |       
|                              |  |              |       
|                              |  | 2005         |        |   | 2004 |  
|                              |  |              |        |   |      |  
|Land                          |  | $            | 2,525  |   |      | $ | 2,525  |  
|Buildings and improvements    |  |              | 10,433 |   |      |   | 7,228  |  
|Construction in progress      |  |              | 155    |   |      |   | 1,231  |  
|Furniture and equipment       |  |              | 9,941  |   |      |   | 8,054  |  
|                              |  |              |        |   |      |  
|                              |  |              | 23,054 |   |      |   | 19,038 |  
|Less accumulated depreciation |  |              | (7,509 | ) |      |   | (6,097 | )
|                              |  |              |        |   |      |  
|                              |  | $            | 15,545 |   |      | $ | 12,941 |  
|                              |  |              |        |   |      |  





|   |                                     
|-- | ------------------------------------
|4. | Goodwill and Other Intangible Assets



F-18



---



##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |  |        |     | 
|------------------------ |  | ------ | --- | 
|Year Ending December 31, |  | Amount |    
|                         |  |        |    
|2006                     |  | $      | 171 | 
|2007                     |  |        | 158 | 
|2008                     |  |        | 147 | 
|2009                     |  |        | 137 | 
|2010                     |  |        | 129 | 
|                         |  |        |    
|                         |  | $      | 742 | 
|                         |  |        |    



|                                  |  |        |        | 
|--------------------------------- |  | ------ | ------ | 
|                                  |  | Amount |       
|                                  |  |        |       
|Balance as of January 1, 2004     |  | $      | 1,150  | 
|Goodwill acquired during the year |  |        | 10,249 | 
|                                  |  |        |       
|Balance as of December 31, 2004   |  |        | 11,399 | 
|Goodwill acquired during the year |  |        |       | 
|                                  |  |        |       
|Balance as of December 31, 2005   |  | $      | 11,399 | 
|                                  |  |        |       





|   |         
|-- | --------
|5. | Deposits



|                                   |  |              |         |  |      |   |         | 
|---------------------------------- |  | ------------ | ------- |  | ---- | - | ------- | 
|                                   |  | December 31, |        
|                                   |  |              |        
|                                   |  | 2005         |         |  | 2004 |  
|                                   |  |              |         |  |      |  
|Demand                             |  | $            | 132,440 |  |      | $ | 109,627 | 
|NOW and money market 0.0% to 4.80% |  |              | 216,034 |  |      |   | 171,473 | 
|Savings and IRA 0.00% to 6.35%     |  |              | 73,763  |  |      |   | 61,113  | 
|                                   |  |              |         |  |      |  
|                                   |  |              | 422,237 |  |      |   | 342,213 | 
|Certificate of deposit accounts:   |  |              |         |  |      |   |         | 
|Up to 1.99%                        |  |              | 5,098   |  |      |   | 56,798  | 
|2.00% to 2.99%                     |  |              | 40,530  |  |      |   | 55,378  | 
|3.00% to 3.99%                     |  |              | 98,358  |  |      |   | 13,977  | 
|4.00% to 4.99%                     |  |              | 30,601  |  |      |   | 4,965   | 
|5.00% to 5.99%                     |  |              | 695     |  |      |   | 17,043  | 
|6.00% to 6.99%                     |  |              |        |  |      |   | 9,549   | 
|7.00% and over                     |  |              |        |  |      |   | 1,000   | 
|                                   |  |              |         |  |      |  
|                                   |  |              | 175,282 |  |      |   | 158,710 | 
|                                   |  |              |         |  |      |  
|Total deposits                     |  | $            | 597,519 |  |      | $ | 500,923 | 
|                                   |  |              |         |  |      |  

F-19



---



##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                         |  |                  |       |  |         |   |         | 
|------------------------ |  | ---------------- | ----- |  | ------- | - | ------- | 
|                         |  | Weighted Average |       |  |        
|Year Ending December 31, |  | Interest Rate    |       |  | Amounts |  
|                         |  |                  |       |  |         |  
|2006                     |  |                  | 3.26% |  |         | $ | 122,491 | 
|2007                     |  |                  | 3.86% |  |         |   | 39,917  | 
|2008                     |  |                  | 3.43% |  |         |   | 4,098   | 
|2009                     |  |                  | 3.75% |  |         |   | 2,735   | 
|2010                     |  |                  | 4.33% |  |         |   | 5,976   | 
|Thereafter               |  |                  | 5.88% |  |         |   | 65      | 
|                         |  |                  |       |  |         |  
|                         |  |                  |       |  |         | $ | 175,282 | 
|                         |  |                  |       |  |         |  



|                       |  |         |        | 
|---------------------- |  | ------- | ------ | 
|                       |  | Amounts |       
|                       |  |         |       
|Less than three months |  | $       | 24,043 | 
|Three to six months    |  |         | 11,937 | 
|Six to twelve months   |  |         | 24,958 | 
|Over twelve months     |  |         | 27,467 | 
|                       |  |         |       
|                       |  | $       | 88,405 | 
|                       |  |         |       



|                                |  |                          |       |  |      |   |       |      |  |   |       | 
|------------------------------- |  | ------------------------ | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                |  | Years Ended December 31, |      
|                                |  |                          |      
|                                |  | 2005                     |       |  | 2004 |   |       | 2032 | 
|                                |  |                          |       |  |      |   |       |      | 
|NOW and money market accounts   |  | $                        | 2,129 |  |      | $ | 772   |      |  | $ | 867   | 
|Savings and IRA accounts        |  |                          | 690   |  |      |   | 393   |      |  |   | 425   | 
|Certificate of deposit accounts |  |                          | 5,431 |  |      |   | 3,430 |      |  |   | 2,925 | 
|                                |  |                          |       |  |      |   |       |      | 
|                                |  | $                        | 8,250 |  |      | $ | 4,595 |      |  | $ | 4,217 | 
|                                |  |                          |       |  |      |   |       |      | 



|   |                                                 
|-- | ------------------------------------------------
|6. | Securities Sold Subject To Repurchase Agreements



F-20



---



##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                     
|-- | ------------------------------------
|7. | Advances From Federal Home Loan Bank







|   |                 
|-- | ----------------
|8. | Other Borrowings











|   |             
|-- | ------------
|9. | Income Taxes



|                                |  |        |       |  |             |   |      |        |  |   |             |  |  |   |      |  
|------------------------------- |  | ------ | ----- |  | ----------- | - | ---- | ------ |  | - | ----------- |  |  | - | ---- | -
|                                |  | 2005   |       |  | 2004        |  
|                                |  |        |       |  |             |  
|                                |  | Assets |       |  | Liabilities |   |      | Assets |  |   | Liabilities | 
|                                |  |        |       |  |             |   |      |        |  |   |             | 
|Allowance for losses on loans   |  | $      | 2,527 |  |             | $ |     |        |  | $ | 1,953       |  |  | $ |     |  
|Investments                     |  |        | 864   |  |             |   |     |        |  |   | 330         |  |  |   |     |  
|FHLB stock                      |  |        |      |  |             |   | (72  | )      |  |   |            |  |  |   | (71  | )
|Office properties and equipment |  |        |      |  |             |   | (557 | )      |  |   |            |  |  |   | (568 | )
|Deferred compensation           |  |        | 653   |  |             |   |     |        |  |   | 421         |  |  |   |     |  
|Core deposit intangible         |  |        |      |  |             |   | (220 | )      |  |   |            |  |  |   | (247 | )
|Other                           |  |        |      |  |             |   | (13  | )      |  |   |            |  |  |   | (4   | )
|                                |  |        |       |  |             |   |      |        |  |   |             | 
|Total deferred income taxes     |  | $      | 4,044 |  |             | $ | (862 | )      |  | $ | 2,704       |  |  | $ | (890 | )
|                                |  |        |       |  |             |   |      |        |  |   |             | 

F-21



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                      |         |                         |       |       |      |   |       |       |  |   |       |       | 
|--------------------- | ------- | ----------------------- | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                      |         | Year Ended December 31, |      
|                      |         |                         |      
|                      |         | 2005                    |       |       | 2004 |   |       | 2003  | 
|                      |         |                         |       |       |      |   |       |       | 
|Current income taxes: |         |                         |       |       |      |   |       |       |  |   |       |      
|                      | Federal |                         | $     | 4,307 |      |   | $     | 2,095 |  |   | $     | 1,919 | 
|                      | State   |                         |       | 833   |      |   |       | 378   |  |   |       | 293   | 
|                      |         |                         |       |       |      |   |       |       | 
|                      |         |                         | 5,140 |       |      |   | 2,473 |       |  |   | 2,212 |      
|Deferred tax benefit  |         |                         | (832  | )     |      |   | (301  | )     |  |   | (306  | )    
|                      |         |                         |       |       |      |   |       |       | 
|                      |         | $                       | 4,308 |       |      | $ | 2,172 |       |  | $ | 1,906 |      
|                      |         |                         |       |       |      |   |       |       | 



|                                               |                                          |        |       |      |      |  |      |        |    |   |       |      |   |        |      |      |    |   |       |      |   |  |      |      |   
|---------------------------------------------- | ---------------------------------------- | ------ | ----- | ---- | ---- |  | ---- | ------ | -- | - | ----- | ---- | - | ------ | ---- | ---- | -- | - | ----- | ---- | - |  | ---- | ---- | --
|                                               |                                          | 2005   |       |      | 2004 |  |      | 2003   |   
|                                               |                                          |        |       |      |      |  |      |        |   
|                                               |                                          | Amount |       |      | %    |  |      | Amount |    |   | %     |      |   | Amount |      |      | %  |  
|                                               |                                          |        |       |      |      |  |      |        |    |   |       |      |   |        |      |      |    |  
|Income tax provision at federal statutory rate |                                          | $      | 4,009 |      |      |  | 34.0 | %      |    | $ | 2,216 |      |   |        | 34.0 | %    |    | $ | 1,893 |      |   |  | 34.0 | %   
|Tax effect of:                                 |                                          |        |       |      |      |  |      |        |    |   |       |      |   |        |      |      |    |   |       |      |   |  |      |     
|                                               | State taxes (net of federal tax benefit) |        |       | 444  |      |  |      | 3.8    | %  |   |       | 209  |   |        |      | 3.2  | %  |   |       | 156  |   |  |      | 2.8  | % 
|                                               | Tax exempt income and other, net         |        |       | (145 | )    |  |      | (1.3   | )% |   |       | (253 | ) |        |      | (3.9 | )% |   |       | (143 | ) |  |      | (2.6 | )%
|                                               |                                          |        |       |      |      |  |      |        |    |   |       |      |   |        |      |      |    |  
|                                               |                                          | $      | 4,308 |      |      |  | 36.5 | %      |    | $ | 2,172 |      |   |        | 33.3 | %    |    | $ | 1,906 |      |   |  | 34.2 | %   
|                                               |                                          |        |       |      |      |  |      |        |    |   |       |      |   |        |      |      |    |  



|    |              
|--- | -------------
|10. | Stock Options

10-year




2-for-1




F-22



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                               |  |           |          |          |                |   |       |                |  |  |               | 
|------------------------------ |  | --------- | -------- | -------- | -------------- | - | ----- | -------------- |  |  | ------------- | 
|                               |  |           |          | Weighted |                |   |      
|                               |  | Number of |          |          | Average        |   |       | Exercise Price | 
|                               |  | Shares    |          |          | Exercise Price |   |       | Per Share      | 
|                               |  |           |          |          |                |   |       |                | 
|Balance, December 31, 2002     |  |           | 837,776  |          |                | $ | 4.60  |                |  |  | $1.48 -  5.83 | 
|Options granted                |  |           | 109,167  |          |                |   | 6.76  |                |  |  | 5.64 -  9.67  | 
|Options exercised              |  |           | (54,581  | )        |                |   | 3.79  |                |  |  | 1.48 -  5.83  | 
|Options forfeited and canceled |  |           | (28,419  | )        |                |   | 3.67  |                |  |  | 2.41 -  6.67  | 
|                               |  |           |          |          |                |   |       |                | 
|Balance, December 31, 2003     |  |           | 863,943  |          |                |   | 4.95  |                |  |  | 1.49 -  9.67  | 
|Options from acquisition       |  |           | 39,795   |          |                |   | 6.24  |                |  |  | 5.72 -  7.17  | 
|Options granted                |  |           | 79,872   |          |                |   | 12.85 |                |  |  | 5.80 - 15.97  | 
|Options exercised              |  |           | (175,260 | )        |                |   | 4.40  |                |  |  | 1.49 -  7.17  | 
|Options forfeited and canceled |  |           | (4,773   | )        |                |   | 9.61  |                |  |  | 5.03 - 15.67  | 
|                               |  |           |          |          |                |   |       |                | 
|Balance, December 31, 2004     |  |           | 803,577  |          |                |   | 5.90  |                |  |  | 1.89 - 15.97  | 
|Options granted                |  |           |         |          |                |   |      |                |  |  |              | 
|Options exercised              |  |           | (197,118 | )        |                |   | 4.73  |                |  |  | 1.88 - 15.97  | 
|Options forfeited and canceled |  |           | (29,517  | )        |                |   | 7.82  |                |  |  | 4.50 - 15.97  | 
|                               |  |           |          |          |                |   |       |                | 
|Balance, December 31, 2005     |  |           | 576,942  |          |                | $ | 6.26  |                |  |  | $3.24 - 15.97 | 
|                               |  |           |          |          |                |   |       |                | 



|                        |  |                   |         |          |             |   |          |              |  |  |           |          |         |          |         |  |  |   |       | 
|----------------------- |  | ----------------- | ------- | -------- | ----------- | - | -------- | ------------ |  |  | --------- | -------- | ------- | -------- | ------- |  |  | - | ----- | 
|                        |  | Total Outstanding |         |          | Exercisable |  
|                        |  |                   |         |          |             |  
|                        |  |                   |         | Weighted |             |   | Weighted |              |  |  |           | Weighted |        
|                        |  | Number            |         |          | Average     |   |          | Average      |  |  |           |          | Average |         
|                        |  | of                |         |          | Exercise    |   |          | Remaining    |  |  | Number    |          |         | Exercise |        
|Range of Exercise Price |  | Shares            |         |          | Price       |   |          | Life (Years) |  |  | of Shares |          |         | Price    |        
|                        |  |                   |         |          |             |   |          |              |  |  |           |          |         |          |        
|$ 3.24 - $ 3.99         |  |                   | 44,617  |          |             | $ | 3.34     |              |  |  | 3.3       |          |         |          | 44,617  |  |  | $ | 3.34  | 
|$ 4.00 - $ 4.75         |  |                   | 75,764  |          |             |   | 4.58     |              |  |  | 5.1       |          |         |          | 58,928  |  |  |   | 4.57  | 
|$ 4.75 - $ 5.50         |  |                   | 266,570 |          |             |   | 5.32     |              |  |  | 3.4       |          |         |          | 259,310 |  |  |   | 5.33  | 
|$ 5.50 - $ 6.25         |  |                   | 52,364  |          |             |   | 5.77     |              |  |  | 6.1       |          |         |          | 25,604  |  |  |   | 5.73  | 
|$ 6.25 - $ 7.00         |  |                   | 71,258  |          |             |   | 6.66     |              |  |  | 6.7       |          |         |          | 36,172  |  |  |   | 6.66  | 
|$ 7.00 - $ 7.75         |  |                   | 13,128  |          |             |   | 7.39     |              |  |  | 6.9       |          |         |          | 5,722   |  |  |   | 7.37  | 
|$ 9.60 - $10.43         |  |                   | 1,500   |          |             |   | 9.67     |              |  |  | 7.7       |          |         |          | 600     |  |  |   | 9.67  | 
|$14.65 - $15.43         |  |                   | 7,200   |          |             |   | 14.96    |              |  |  | 8.2       |          |         |          | 1,700   |  |  |   | 14.94 | 
|$15.43 - $16.19         |  |                   | 44,541  |          |             |   | 15.72    |              |  |  | 8.4       |          |         |          | 8,779   |  |  |   | 15.72 | 
|                        |  |                   |         |          |             |   |          |              |  |  |           |          |         |          |        
|                        |  |                   | 576,942 |          |             | $ | 6.26     |              |  |  | 5.0       |          |         |          | 441,432 |  |  | $ | 5.44  | 
|                        |  |                   |         |          |             |   |          |              |  |  |           |          |         |          |        

F-23



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |                   
|--- | ------------------
|11. | Earnings per Share



|                                                                         |                                                                          |                          |       |           |      |   |       |           |  |   |       |           | 
|------------------------------------------------------------------------ | ------------------------------------------------------------------------ | ------------------------ | ----- | --------- | ---- | - | ----- | --------- |  | - | ----- | --------- | 
|                                                                         |                                                                          | Years Ended December 31, |      
|                                                                         |                                                                          |                          |      
|                                                                         |                                                                          | 2005                     |       |           | 2004 |   |       | 2003      | 
|                                                                         |                                                                          |                          |       |           |      |   |       |           | 
|Numerator:                                                               |                                                                          |                          |       |           |      |   |       |           |  |   |       |          
|                                                                         | Net income  basic and diluted                                           |                          | $     | 7,482     |      |   | $     | 4,346     |  |   | $     | 3,661     | 
|Denominator:                                                             |                                                                          |                          |       |           |      |   |       |           |  |   |       |          
|                                                                         | Weighted average shares outstanding  basic                              |                          |       | 5,849,617 |      |   |       | 4,950,866 |  |   |       | 4,735,269 | 
|                                                                         | Dilutive effect of common stock options, restricted stock and
    awards |                          |       | 500,642   |      |   |       | 506,847   |  |   |       | 350,636   | 
|                                                                         |                                                                          |                          |       |           |      |   |       |           | 
|                                                                         | Weighted average shares outstanding  diluted                            |                          |       | 6,350,259 |      |   |       | 5,457,713 |  |   |       | 5,085,905 | 
|                                                                         |                                                                          |                          |       |           |      |   |       |           | 
|Earnings per share  basic and diluted:                                  |                                                                          |                          |       |           |      |   |       |           |  |   |       |          
|Earnings per share  basic                                               |                                                                          | $                        | 1.28  |           |      | $ | 0.88  |           |  | $ | 0.77  |          
|Effect of dilutive common stock options, restricted stock and
    awards |                                                                          |                          | (0.10 | )         |      |   | (0.08 | )         |  |   | (0.05 | )        
|                                                                         |                                                                          |                          |       |           |      |   |       |           | 
|Earnings per share  diluted                                             |                                                                          | $                        | 1.18  |           |      | $ | 0.80  |           |  | $ | 0.72  |          
|                                                                         |                                                                          |                          |       |           |      |   |       |           | 





|    |                     
|--- | --------------------
|12. | Stockholders Equity







F-24



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






2-for-1




|    |                   
|--- | ------------------
|13. | Regulatory Matters









F-25



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                          |  |        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|----------------------------------------- |  | ------ | ------ | ------- | ------------ |  | ---------------- | ------------ |  | - | ------ |  |  | ------ | -- |  | ----- | - | ------ |  |  |  | --- | 
|                                          |  |        |        | Capital |              |  | Well-Capitalized |             
|                                          |  | Actual |        |         | Requirements |  |                  | Requirements | 
|                                          |  |        |        |         |              |  |                  |              | 
|                                          |  | Amount |        |         | Ratio        |  |                  | Amount       |  |   | Ratio  |  |  | Amount |    |  | Ratio |  
|                                          |  |        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |  
|As of December 31, 2005                   |  |        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|Total capital (to risk-weighted assets):  |  |        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|The Company                               |  | $      | 77,247 |         |              |  | 11.99%           |              |  | $ | 51,528 |  |  |        | 8% |  |       | $ | 64,410 |  |  |  | 10% | 
|Panhandle State Bank                      |  |        | 76,056 |         |              |  | 11.81%           |              |  |   | 51,528 |  |  |        | 8% |  |       |   | 64,410 |  |  |  | 10% | 
|Tier I capital (to risk-weighted assets): |  |        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|The Company                               |  |        | 69,190 |         |              |  | 10.74%           |              |  |   | 25,764 |  |  |        | 4% |  |       |   | 38,646 |  |  |  | 6%  | 
|Panhandle State Bank                      |  |        | 67,999 |         |              |  | 10.56%           |              |  |   | 25,764 |  |  |        | 4% |  |       |   | 38,646 |  |  |  | 6%  | 
|Tier I capital (to average assets):       |  |        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|The Company                               |  |        | 69,190 |         |              |  | 9.61%            |              |  |   | 28,791 |  |  |        | 4% |  |       |   | 35,989 |  |  |  | 5%  | 
|Panhandle State Bank                      |  |        | 67,999 |         |              |  | 9.43%            |              |  |   | 28,833 |  |  |        | 4% |  |       |   | 36,041 |  |  |  | 5%  | 
|As of December 31, 2004                   |  |        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|Total capital (to risk-weighted assets):  |  |        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|The Company                               |  | $      | 54,540 |         |              |  | 11.24%           |              |  | $ | 38,804 |  |  |        | 8% |  |       | $ | 48,506 |  |  |  | 10% | 
|Panhandle State Bank                      |  |        | 50,243 |         |              |  | 10.36%           |              |  |   | 38,767 |  |  |        | 8% |  |       |   | 48,459 |  |  |  | 10% | 
|Tier I capital (to risk-weighted assets): |  |        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|The Company                               |  |        | 47,460 |         |              |  | 9.78%            |              |  |   | 19,402 |  |  |        | 4% |  |       |   | 29,103 |  |  |  | 6%  | 
|Panhandle State Bank                      |  |        | 44,169 |         |              |  | 9.11%            |              |  |   | 19,384 |  |  |        | 4% |  |       |   | 29,075 |  |  |  | 6%  | 
|Tier I capital (to average assets):       |  |        |        |         |              |  |                  |              |  |   |        |  |  |        |    |  |       |   |        |  |  |  |     | 
|The Company                               |  |        | 47,460 |         |              |  | 8.66%            |              |  |   | 22,431 |  |  |        | 4% |  |       |   | 27,406 |  |  |  | 5%  | 
|Panhandle State Bank                      |  |        | 44,169 |         |              |  | 8.06%            |              |  |   | 21,927 |  |  |        | 4% |  |       |   | 27,409 |  |  |  | 5%  | 



|    |                                       
|--- | --------------------------------------
|14. | Commitments and Contingent Liabilities





F-26



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                             |  |   |         | 
|---------------------------- |  | - | ------- | 
|Commitments to extend credit |  | $ | 166,917 | 
|Credit card arrangements     |  | $ | 5,533   | 
|Standby letters of credit    |  | $ | 6,130   | 





|                         |  |        |       | 
|------------------------ |  | ------ | ----- | 
|Year Ending December 31, |  | Amount |      
|                         |  |        |      
|2006                     |  | $      | 581   | 
|2007                     |  |        | 503   | 
|2008                     |  |        | 516   | 
|2009                     |  |        | 478   | 
|2010                     |  |        | 274   | 
|Thereafter               |  |        | 3,419 | 
|                         |  |        |      
|                         |  | $      | 5,771 | 
|                         |  |        |      







|    |                        
|--- | -----------------------
|15. | Employee Benefits Plans



F-27



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In December 2000, Intermountain executed a deferred compensation
    agreement with the Banks Chief Executive Officer for
    approximately $123,000. In December 2001, Intermountain executed
    a deferred compensation agreement with the Banks President
    for approximately $125,000. Both agreements provide for vesting
    over five equal installments, beginning on the respective grant
    date under the agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | The Company has annual incentive plans for key employees.
    Amounts are paid annually within 75 days after each year
    end. The accrued balance at December 31, 2005 and 2004 for
    these plans was approximately $2,115,000 and $1,407,000,
    respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | In 2003, the Company adopted a Supplemental Executive Retirement
    Plan (SERP). The SERP is a non-qualified unfunded
    plan designed to provide retirement benefits for two key
    employees of Intermountain. Participants will receive
    approximately $258,620 in annual payments for 10 years
    beginning at normal retirement age. Retirement benefits vest
    after ten years of continued service and benefits are reduced
    for early retirement. The disability benefit is similar to the
    reduced benefit for early retirement without any vesting
    requirements. The plan provides for a change in control benefit
    if, within one year of a change in control, the
    participants employment is terminated. Total amount
    accrued under the plan as of December 31, 2005 and 2004,
    was approximately $133,000 and $83,000, respectively.
|
| |  | In January 2003, the Company implemented a long-term executive
    incentive plan, based on long-term corporate goals, to provide
    compensation in the form of stock grants to key executive
    officers. Participants are required to remain employed for a
    defined period of time to receive any accrued benefits under the
    plan. Total accrued liabilities related to the long-term
    incentive plan at December 31, 2005 and 2004, were
    approximately $1,334,000 and $850,000, respectively.                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | During 2003, the Company approved stock purchase agreements for
    certain key officers. Participants must remain employed to
    receive payments annually in December. Total amount paid under
    these agreements for 2005 and 2004 was approximately $67,000 and
    $67,000, respectively. Approximately $122,000 remained payable
    at December 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



|    |                   
|--- | ------------------
|16. | Interest Rate Risk



F-28



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














|    |                           
|--- | --------------------------
|17. | Related-Party Transactions









F-29



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                    
|--- | -----------------------------------
|18. | Fair Value of Financial Instruments







| |                                                                      
| | ---------------------------------------------------------------------
| | Cash, Cash Equivalents, Federal Funds and Certificates of
    Deposit





| |                     
| | --------------------
| | Investments and BOLI





| |                                         
| | ----------------------------------------
| | Loans Receivable and Loans Held For Sale





| |         
| | --------
| | Deposits





| |           
| | ----------
| | Borrowings



F-30



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                 
| | ----------------
| | Accrued Interest





|                                              |  |          |         |  |            |   |          |        |  |   |            |  |  |   |         | 
|--------------------------------------------- |  | -------- | ------- |  | ---------- | - | -------- | ------ |  | - | ---------- |  |  | - | ------- | 
|                                              |  | 2005     |         |  | 2004       |  
|                                              |  |          |         |  |            |  
|                                              |  | Carrying |         |  |            |   | Carrying |        |  |  
|                                              |  | Amount   |         |  | Fair Value |   |          | Amount |  |   | Fair Value | 
|                                              |  |          |         |  |            |   |          |        |  |   |            | 
|Financial assets:                             |  |          |         |  |            |   |          |        |  |   |            |  |  |   |         | 
|Cash, cash equivalents and federal funds sold |  | $        | 35,729  |  |            | $ | 35,729   |        |  | $ | 24,166     |  |  | $ | 24,166  | 
|Interest bearing certificates of deposit      |  |          |        |  |            |   |         |        |  |   | 100        |  |  |   | 100     | 
|Available-for-sale securities                 |  |          | 83,847  |  |            |   | 83,847   |        |  |   | 102,758    |  |  |   | 102,758 | 
|Held-to-maturity securities                   |  |          | 6,749   |  |            |   | 6,657    |        |  |   | 5,409      |  |  |   | 5,416   | 
|Loans held for sale                           |  |          | 5,889   |  |            |   | 5,889    |        |  |   | 5,686      |  |  |   | 5,686   | 
|Loans receivable, net                         |  |          | 555,036 |  |            |   | 555,356  |        |  |   | 418,660    |  |  |   | 418,299 | 
|Accrued interest receivable                   |  |          | 4,992   |  |            |   | 4,992    |        |  |   | 3,722      |  |  |   | 3,722   | 
|BOLI                                          |  |          | 7,095   |  |            |   | 7,095    |        |  |   | 6,795      |  |  |   | 6,795   | 
|Financial liabilities:                        |  |          |         |  |            |   |          |        |  |   |            |  |  |   |         | 
|Deposit liabilities                           |  |          | 597,519 |  |            |   | 603,502  |        |  |   | 500,923    |  |  |   | 500,550 | 
|Other borrowed funds                          |  |          | 59,326  |  |            |   | 57,939   |        |  |   | 42,428     |  |  |   | 40,165  | 
|Accrued interest payable                      |  |          | 1,074   |  |            |   | 1,074    |        |  |   | 753        |  |  |   | 753     | 



|    |                                     
|--- | ------------------------------------
|19. | Quarterly Financial Data (Unaudited)



|                                                        |  |                              |           |   |         |   |           |         |  |   |           |   |  |   |           |  
|------------------------------------------------------- |  | ---------------------------- | --------- | - | ------- | - | --------- | ------- |  | - | --------- | - |  | - | --------- | -
|                                                        |  | Year Ended December 31, 2005 |          
|                                                        |  |                              |          
|                                                        |  | First                        |           |   | Second  |   |           | Third   |  |   | Fourth    |  
|                                                        |  | Quarter                      |           |   | Quarter |   |           | Quarter |  |   | Quarter   |  
|                                                        |  |                              |           |   |         |   |           |         |  |   |           |  
|Interest income                                         |  | $                            | 8,474     |   |         | $ | 9,744     |         |  | $ | 11,280    |   |  | $ | 12,150    |  
|Interest expense                                        |  |                              | (2,062    | ) |         |   | (2,569    | )       |  |   | (2,963    | ) |  |   | (3,123    | )
|Provision for losses on loans                           |  |                              | (298      | ) |         |   | (994      | )       |  |   | (937      | ) |  |   |          |  
|Net interest income after provision for losses on loans |  |                              | 6,114     |   |         |   | 6,181     |         |  |   | 7,380     |   |  |   | 9,027     |  
|Other income                                            |  |                              | 2,041     |   |         |   | 2,469     |         |  |   | 2,501     |   |  |   | 2,609     |  
|Operating expenses                                      |  |                              | (5,806    | ) |         |   | (6,197    | )       |  |   | (6,657    | ) |  |   | (7,872    | )
|Income before income taxes                              |  |                              | 2,349     |   |         |   | 2,453     |         |  |   | 3,224     |   |  |   | 3,764     |  
|Income tax provision                                    |  |                              | (854      | ) |         |   | (879      | )       |  |   | (1,176    | ) |  |   | (1,399    | )
|Net income                                              |  | $                            | 1,495     |   |         | $ | 1,574     |         |  | $ | 2,048     |   |  | $ | 2,365     |  
|Earnings per share  basic(1)                           |  | $                            | 0.26      |   |         | $ | 0.27      |         |  | $ | 0.35      |   |  | $ | 0.39      |  
|Earnings per share  diluted(1)                         |  | $                            | 0.24      |   |         | $ | 0.25      |         |  | $ | 0.32      |   |  | $ | 0.36      |  
|Weighted average shares outstanding  basic(1)          |  |                              | 5,703,914 |   |         |   | 5,773,798 |         |  |   | 5,822,575 |   |  |   | 6,094,188 |  
|Weighted average shares outstanding  diluted(1)        |  |                              | 6,295,487 |   |         |   | 6,314,688 |         |  |   | 6,336,144 |   |  |   | 6,545,750 |  

F-31



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                        |  |                              |           |   |         |   |           |         |  |   |           |   |  |   |           |  
|------------------------------------------------------- |  | ---------------------------- | --------- | - | ------- | - | --------- | ------- |  | - | --------- | - |  | - | --------- | -
|                                                        |  | Year Ended December 31, 2004 |          
|                                                        |  |                              |          
|                                                        |  | First                        |           |   | Second  |   |           | Third   |  |   | Fourth    |  
|                                                        |  | Quarter                      |           |   | Quarter |   |           | Quarter |  |   | Quarter   |  
|                                                        |  |                              |           |   |         |   |           |         |  |   |           |  
|Interest income                                         |  | $                            | 5,553     |   |         | $ | 5,934     |         |  | $ | 6,346     |   |  | $ | 7,522     |  
|Interest expense                                        |  |                              | (1,187    | ) |         |   | (1,337    | )       |  |   | (1,458    | ) |  |   | (1,730    | )
|Provision for losses on loans                           |  |                              | (136      | ) |         |   | (693      | )       |  |   | (168      | ) |  |   | (441      | )
|Net interest income after provision for losses on loans |  |                              | 4,230     |   |         |   | 3,904     |         |  |   | 4,720     |   |  |   | 5,351     |  
|Other income                                            |  |                              | 1,373     |   |         |   | 1,860     |         |  |   | 1,904     |   |  |   | 2,060     |  
|Operating expenses                                      |  |                              | (3,901    | ) |         |   | (4,364    | )       |  |   | (4,644    | ) |  |   | (5,975    | )
|Income before income taxes                              |  |                              | 1,702     |   |         |   | 1,400     |         |  |   | 1,980     |   |  |   | 1,436     |  
|Income tax provision                                    |  |                              | (627      | ) |         |   | (474      | )       |  |   | (721      | ) |  |   | (350      | )
|Net income                                              |  | $                            | 1,075     |   |         | $ | 926       |         |  | $ | 1,259     |   |  | $ | 1,086     |  
|Earnings per share  basic(1)                           |  | $                            | 0.23      |   |         | $ | 0.19      |         |  | $ | 0.26      |   |  | $ | 0.20      |  
|Earnings per share  diluted(1)                         |  | $                            | 0.20      |   |         | $ | 0.17      |         |  | $ | 0.23      |   |  | $ | 0.19      |  
|Weighted average shares outstanding  basic(1)          |  |                              | 4,771,173 |   |         |   | 4,821,348 |         |  |   | 4,842,370 |   |  |   | 5,364,003 |  
|Weighted average shares outstanding  diluted(1)        |  |                              | 5,398,919 |   |         |   | 5,377,937 |         |  |   | 5,374,627 |   |  |   | 5,847,124 |  






|    |                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Earnings per share and weighted average shares outstanding have
    been adjusted to reflect the 3-for-2 stock split effective
    March 10, 2005.

F-32



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                          
|--- | -----------------------------------------
|20. | Parent Company-Only Financial Information



Condensed Balance Sheets


|                                           |  |              |        |  |      |   |        | 
|------------------------------------------ |  | ------------ | ------ |  | ---- | - | ------ | 
|                                           |  | December 31, |       
|                                           |  |              |       
|                                           |  | 2005         |        |  | 2004 |  
|                                           |  |              |        |  |      |  
|Assets:                                    |  |              |        |  |      |   |        | 
|Cash                                       |  | $            | 1,334  |  |      | $ | 4,396  | 
|Construction in progress                   |  |              | 28     |  |      |   |       | 
|Investment in subsidiaries                 |  |              | 79,609 |  |      |   | 56,794 | 
|                                           |  |              |        |  |      |  
|Total assets                               |  | $            | 80,971 |  |      | $ | 61,190 | 
|                                           |  |              |        |  |      |  
|                                          
|Liabilities:                               |  |              |        |  |      |   |        | 
|Other borrowings                           |  | $            | 16,527 |  |      | $ | 16,527 | 
|Other liabilities                          |  |              | 171    |  |      |   | 99     | 
|                                           |  |              |        |  |      |  
|Total liabilities                          |  | $            | 16,698 |  |      | $ | 16,626 | 
|Stockholders Equity                       |  |              | 64,273 |  |      |   | 44,564 | 
|                                           |  |              |        |  |      |  
|Total liabilities and stockholders equity |  | $            | 80,971 |  |      | $ | 61,190 | 
|                                           |  |              |        |  |      |  

Condensed Statements of Income


|                                     |  |                          |        |   |      |   |       |      |  |   |       |  
|------------------------------------ |  | ------------------------ | ------ | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                     |  | Years Ended December 31, |       
|                                     |  |                          |       
|                                     |  | 2005                     |        |   | 2004 |   |       | 2003 | 
|                                     |  |                          |        |   |      |   |       |      | 
|Interest income                      |  | $                        |       |   |      | $ |      |      |  | $ | 8     |  
|Interest expense                     |  |                          | (1,042 | ) |      |   | (815  | )    |  |   | (500  | )
|                                     |  |                          |        |   |      |   |       |      | 
|Net interest income (expense)        |  |                          | (1,042 | ) |      |   | (815  | )    |  |   | (492  | )
|Equity in net earnings of subsidiary |  |                          | 8,931  |   |      |   | 5,502 |      |  |   | 4,296 |  
|Other income                         |  |                          |       |   |      |   |      |      |  |   | 15    |  
|Operating expenses                   |  |                          | (407   | ) |      |   | (341  | )    |  |   | (158  | )
|                                     |  |                          |        |   |      |   |       |      | 
|Net income                           |  | $                        | 7,482  |   |      | $ | 4,346 |      |  | $ | 3,661 |  
|                                     |  |                          |        |   |      |   |       |      | 

F-33



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Condensed Statements of Cash Flows


|                                                                                 |  |                          |         |   |      |   |        |      |  |   |        |  
|-------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                 |  | Years Ended December 31, |        
|                                                                                 |  |                          |        
|                                                                                 |  | 2005                     |         |   | 2004 |   |        | 2003 | 
|                                                                                 |  |                          |         |   |      |   |        |      | 
|Cash flows from operating activities:                                            |  |                          |         |   |      |   |        |      |  |   |        |  
|Net income                                                                       |  | $                        | 7,482   |   |      | $ | 4,346  |      |  | $ | 3,661  |  
|Adjustments to reconcile net income to net cash used in
    operating activities |  |                          | (8,593  | ) |      |   | (5,228 | )    |  |   | (4,098 | )
|                                                                                 |  |                          |         |   |      |   |        |      | 
|Net cash used in operating activities                                            |  |                          | (1,111  | ) |      |   | (882   | )    |  |   | (437   | )
|                                                                                 |  |                          |         |   |      |   |        |      | 
|Cash flows from investing activities:                                            |  |                          |         |   |      |   |        |      |  |   |        |  
|Investments in and advances to subsidiaries                                      |  |                          | (14,712 | ) |      |   | (248   | )    |  |   | (7,249 | )
|Acquisition of Snake River Bancorp, Inc.                                         |  |                          |        |   |      |   | (4,515 | )    |  |   |       |  
|Net decrease in notes and contracts receivable                                   |  |                          |        |   |      |   |       |      |  |   | 157    |  
|                                                                                 |  |                          |         |   |      |   |        |      | 
|Net cash provided by (used in) investing activities                              |  |                          | (14,712 | ) |      |   | (4,763 | )    |  |   | (7,092 | )
|                                                                                 |  |                          |         |   |      |   |        |      | 
|Cash flows from financing activities:                                            |  |                          |         |   |      |   |        |      |  |   |        |  
|Payments to repurchase stock                                                     |  |                          |        |   |      |   | (47    | )    |  |   | (401   | )
|Proceeds from other borrowings                                                   |  |                          |        |   |      |   | 8,248  |      |  |   | 8,279  |  
|Proceeds from common stock offering, net of expenses                             |  |                          | 11,861  |   |      |   |       |      |  |   |       |  
|Proceeds from exercise of stock options                                          |  |                          | 901     |   |      |   | 771    |      |  |   | 207    |  
|Redemption of fractional shares of common stock                                  |  |                          | (1      | ) |      |   |       |      |  |   | (3     | )
|                                                                                 |  |                          |         |   |      |   |        |      | 
|Net cash provided by financing activities                                        |  |                          | 12,761  |   |      |   | 8,972  |      |  |   | 8,082  |  
|                                                                                 |  |                          |         |   |      |   |        |      | 
|Net change in cash and cash equivalents                                          |  |                          | (3,062  | ) |      |   | 3,327  |      |  |   | 553    |  
|Cash and cash equivalents, beginning of year                                     |  |                          | 4,396   |   |      |   | 1,069  |      |  |   | 516    |  
|                                                                                 |  |                          |         |   |      |   |        |      | 
|Cash and cash equivalents, end of year                                           |  | $                        | 1,334   |   |      | $ | 4,396  |      |  | $ | 1,069  |  
|                                                                                 |  |                          |         |   |      |   |        |      | 



|    |                      
|--- | ---------------------
|21. | Business Combinations



F-34



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                        |  |        |        | 
|--------------------------------------- |  | ------ | ------ | 
|                                        |  | Amount |       
|                                        |  |        |       
|Available-for-sale securities           |  | $      | 4,924  | 
|Held-to-maturity securities             |  |        | 1,911  | 
|Federal Home Loan Bank of Seattle stock |  |        | 109    | 
|Loans receivable, net                   |  |        | 65,501 | 
|Loans held for sale                     |  |        | 779    | 
|Office properties and equipment         |  |        | 1,778  | 
|Bank-owned life insurance               |  |        | 1,156  | 
|Goodwill                                |  |        | 10,249 | 
|Customer deposit intangible             |  |        | 690    | 
|Other assets                            |  |        | 764    | 
|                                        |  |        |       
|Total assets acquired                   |  | $      | 87,861 | 
|                                        |  |        |       
|Deposits                                |  | $      | 69,567 | 
|Short-term borrowings                   |  |        | 2,718  | 
|Other liabilities                       |  |        | 2,558  | 
|                                        |  |        |       
|Total liabilities assumed               |  | $      | 74,843 | 
|                                        |  |        |       
|Net assets acquired                     |  | $      | 13,018 | 
|                                        |  |        |       



|                                |  |        |        | 
|------------------------------- |  | ------ | ------ | 
|                                |  | Amount |       
|                                |  |        |       
|Cash and cash equivalents       |  | $      | 14,709 | 
|Available-for-sale securities   |  |        | 4,607  | 
|Loans receivable, net           |  |        | 39,380 | 
|Office properties and equipment |  |        | 367    | 
|Goodwill                        |  |        | 1,150  | 
|Customer deposit intangible     |  |        | 707    | 
|Other assets                    |  |        | 394    | 
|                                |  |        |       
|Total assets acquired           |  | $      | 61,314 | 
|                                |  |        |       
|Deposits                        |  | $      | 60,671 | 
|Other liabilities               |  |        | 643    | 
|                                |  |        |       
|Total liabilities assumed       |  | $      | 61,314 | 
|                                |  |        |       



F-35



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##### Table of Contents



INTERMOUNTAIN COMMUNITY BANCORP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                  
|--- | -----------------
|22. | Subsequent Events





F-36