##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 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
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 414 Church Street, 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)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



Intermountain Community Bancorp
 FORM 10-Q
For the Quarter Ended June 30, 2010
 TABLE OF CONTENTS
 PART I  Financial InformationItem 1  Financial Statements (Unaudited)
    
    
    3Consolidated Balance Sheets for June 30, 2010 and December 31, 2009
    
    
    3Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009
    
    
    4Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009
    
    
    5Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2010 and 2009
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3  Quantitative and Qualitative Disclosures About Market Risk
    
    
    44Item 4  Controls and Procedures
    
    
    44PART II  Other InformationItem 1  Legal Proceedings
    
    
    44Item 1A  Risk Factors
    
    
    44Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    52Item 3  Defaults Upon Senior Securities
    
    
    52Item 4  [Removed and Reserved]
    
    
    52Item 5  Other Information
    
    
    52Item 6  Exhibits
    
    
    52Signatures
    
    
    53EX-31.1EX-31.2EX-32
  2




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##### Table of Contents



PART I  Financial Information
 
 Item 1  Financial Statements
 Intermountain Community Bancorp
 
 Consolidated Balance Sheets
 (Unaudited)
 June 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)ASSETSCash and cash equivalents:Interest-bearing
    
    $
    110,328
    
    
    $
    83,617Non-interest bearing and vault
    
    
    15,206
    
    
    
    19,572Restricted cash
    
    
    3,562
    
    
    
    2,508Available-for-sale securities, at fair value
    
    
    178,945
    
    
    
    181,784Held-to-maturity securities, at amortized cost
    
    
    23,050
    
    
    
    15,177Federal Home Loan Bank (FHLB) of Seattle stock, at cost
    
    
    2,310
    
    
    
    2,310Loans held for sale
    
    
    3,728
    
    
    
    6,574Loans receivable, net
    
    
    623,129
    
    
    
    655,602Accrued interest receivable
    
    
    4,962
    
    
    
    5,077Office properties and equipment, net
    
    
    41,094
    
    
    
    42,425Bank-owned life insurance
    
    
    8,583
    
    
    
    8,397Goodwill
    
    
    11,662
    
    
    
    11,662Other intangibles
    
    
    374
    
    
    
    439Other real estate owned (OREO)
    
    
    8,754
    
    
    
    11,538Prepaid expenses and other assets
    
    
    30,053
    
    
    
    32,962Total assets
    
    $
    1,065,740
    
    
    $
    1,079,644LIABILITIESDeposits
    
    $
    806,780
    
    
    $
    819,321Securities sold subject to repurchase agreements
    
    
    98,549
    
    
    
    95,233Advances from Federal Home Loan Bank
    
    
    49,000
    
    
    
    49,000Cashier checks issued and payable
    
    
    737
    
    
    
    1,113Accrued interest payable
    
    
    1,361
    
    
    
    1,211Other borrowings
    
    
    16,527
    
    
    
    16,527Accrued expenses and other liabilities
    
    
    9,203
    
    
    
    8,612Total liabilities
    
    
    982,157
    
    
    
    991,017Commitments and contingent liabilitiesSTOCKHOLDERS EQUITYCommon stock 300,000,000 shares authorized; 8,433,706
and 8,438,554 shares issued and 8,390,877 and 8,365,836
shares outstanding as of June 30, 2010 and December 31,
2009
    
    
    78,650
    
    
    
    78,569Preferred stock 1,000,000 shares authorized; 27,000
shares issued and outstanding as of June 30, 2010 and
December 31, 2009
    
    
    25,625
    
    
    
    25,461Accumulated other comprehensive loss, net of tax
    
    
    (2,475
    )
    
    
    (4,840
    )Retained deficit
    
    
    (18,217
    )
    
    
    (10,563
    )Total stockholders equity
    
    
    83,583
    
    
    
    88,627Total liabilities and stockholders equity
    
    $
    1,065,740
    
    
    $
    1,079,644
  3




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##### Table of Contents



Intermountain Community Bancorp
 
 Consolidated Statements of Operations
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands,
    
    
    (Dollars in thousands,except per share data)
    
    
    except per share data)Interest income:Loans
    
    $
    9,814
    
    
    $
    11,703
    
    
    $
    19,463
    
    
    $
    23,351Investments
    
    
    1,785
    
    
    
    2,780
    
    
    
    3,752
    
    
    
    5,479Total interest income
    
    
    11,599
    
    
    
    14,483
    
    
    
    23,215
    
    
    
    28,830Interest expense:Deposits
    
    
    2,051
    
    
    
    3,245
    
    
    
    4,441
    
    
    
    6,588Other borrowings
    
    
    789
    
    
    
    1,026
    
    
    
    1,595
    
    
    
    2,128Total interest expense
    
    
    2,840
    
    
    
    4,271
    
    
    
    6,036
    
    
    
    8,716Net interest income
    
    
    8,759
    
    
    
    10,212
    
    
    
    17,179
    
    
    
    20,114Provision for losses on loans
    
    
    (4,914
    )
    
    
    (18,684
    )
    
    
    (11,723
    )
    
    
    (21,454
    )Net interest income (loss) after provision for losses on loans
    
    
    3,845
    
    
    
    (8,472
    )
    
    
    5,456
    
    
    
    (1,340
    )Other income:Fees and service charges
    
    
    2,047
    
    
    
    1,886
    
    
    
    3,835
    
    
    
    3,555Loan related fee income
    
    
    799
    
    
    
    663
    
    
    
    1,293
    
    
    
    1,204Net (loss) gain on sale of securities
    
    
    (167
    )
    
    
    
    
    
    
    (114
    )
    
    
    1,295Other-than-temporary impairment (OTTI) losses on
investments (1)
    
    
    (237
    )
    
    
    
    
    
    
    (256
    )
    
    
    (244
    )Bank-owned life insurance
    
    
    95
    
    
    
    90
    
    
    
    185
    
    
    
    180Other
    
    
    461
    
    
    
    66
    
    
    
    578
    
    
    
    228Total other income
    
    
    2,998
    
    
    
    2,705
    
    
    
    5,521
    
    
    
    6,218Operating expenses
    
    
    11,274
    
    
    
    12,667
    
    
    
    22,835
    
    
    
    23,438Loss before income tax benefit
    
    
    (4,431
    )
    
    
    (18,434
    )
    
    
    (11,858
    )
    
    
    (18,560
    )Income tax benefit
    
    
    1,934
    
    
    
    7,432
    
    
    
    5,051
    
    
    
    7,440Net loss
    
    
    (2,497
    )
    
    
    (11,002
    )
    
    
    (6,807
    )
    
    
    (11,120
    )Preferred stock dividend
    
    
    428
    
    
    
    415
    
    
    
    847
    
    
    
    829Net loss applicable to common stockholders
    
    $
    (2,925
    )
    
    $
    (11,417
    )
    
    $
    (7,654
    )
    
    $
    (11,949
    )Loss per share  basic
    
    $
    (0.35
    )
    
    $
    (1.37
    )
    
    $
    (0.91
    )
    
    $
    (1.43
    )Loss per share  diluted
    
    $
    (0.35
    )
    
    $
    (1.37
    )
    
    $
    (0.91
    )
    
    $
    (1.43
    )Weighted average common shares outstanding  basic
    
    
    8,388,128
    
    
    
    8,362,402
    
    
    
    8,380,265
    
    
    
    8,355,359Weighted average common shares outstanding  diluted
    
    
    8,388,128
    
    
    
    8,362,402
    
    
    
    8,380,265
    
    
    
    8,355,359
 
 (1)
    
    Consisting of $1,529,000, $0, $1,529,000 and $1,751,000 of total other-than-temporary
impairment net losses, net of $1,292,000, $0, $1,273,000 and ($1,507,000) recognized in other
comprehensive income, for the three months ended June 30, 2010, and June 30, 2009 and six
months ended June 30, 2010 and June 30, 2009, respectively.  4




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##### Table of Contents



Intermountain Community Bancorp
 
 Consolidated Statements of Cash Flows
 (Unaudited)
 Six months endedJune 30,2010
    
    
    2009(Dollars in thousands)Cash flows from operating activities:Net loss
    
    $
    (6,807
    )
    
    $
    (11,120
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation
    
    
    1,580
    
    
    
    1,785Stock-based compensation expense
    
    
    209
    
    
    
    182Net amortization of premiums on securities
    
    
    1,751
    
    
    
    202Provisions for losses on loans
    
    
    11,723
    
    
    
    21,453Proceeds from sale of loans
    
    
    43,931
    
    
    
    68,756Originations of loans held for sale
    
    
    (40,238
    )
    
    
    (71,607
    )Amortization of core deposit intangibles
    
    
    66
    
    
    
    69(Gain) on sale of loans, investments, property and equipment
    
    
    (962
    )
    
    
    (1,884
    )(Gain) loss on sale of other real estate owned
    
    
    (52
    )
    
    
    100OTTI credit loss on available-for-sale investments
    
    
    256
    
    
    
    244Charge down on OREO
    
    
    1,947
    
    
    
    1,150Accretion of deferred gain on sale of branch property
    
    
    (8
    )
    
    
    (8
    )Net accretion of loan and deposit discounts and premiums
    
    
    (21
    )
    
    
    (34
    )Increase in cash surrender value of bank-owned life insurance
    
    
    (185
    )
    
    
    (180
    )Change in:Accrued interest receivable
    
    
    115
    
    
    
    (571
    )Prepaid expenses and other assets
    
    
    1,679
    
    
    
    (6,371
    )Accrued interest payable
    
    
    151
    
    
    
    (701
    )Accrued expenses and other liabilities
    
    
    (622
    )
    
    
    (274
    )Net cash provided by operating activities
    
    
    14,513
    
    
    
    1,191Cash flows from investing activities:Purchases of available-for-sale securities
    
    
    (36,306
    )
    
    
    (87,501
    )Proceeds from calls or maturities of available-for-sale securities
    
    
    12,858
    
    
    
    33,710Principal payments on mortgage-backed securities
    
    
    28,035
    
    
    
    17,194Purchases of held-to-maturity securities
    
    
    (7,927
    )
    
    
    (65
    )Proceeds from calls or maturities of held-to-maturity securities
    
    
    45
    
    
    
    253Origination of loans, net principal payments
    
    
    15,843
    
    
    
    9,617Purchase of office properties and equipment
    
    
    (288
    )
    
    
    (432
    )Proceeds from sale of office properties and equipment
    
    
    40
    
    
    
    Net change in federal funds sold
    
    
    
    
    
    
    67,865Proceeds from sale of other real estate owned
    
    
    5,817
    
    
    
    911Net change in restricted cash
    
    
    (1,054
    )
    
    
    (3,796
    )Net cash provided by investing activities
    
    
    17,063
    
    
    
    37,756Cash flows from financing activities:Net change in demand, money market and savings deposits
    
    $
    3,704
    
    
    $
    17,343Net change in certificates of deposit
    
    
    (16,246
    )
    
    
    19,791Net change in repurchase agreements
    
    
    3,315
    
    
    
    (14,626
    )Principal reduction of note payable
    
    
    
    
    
    
    (961
    )Payoff of credit line
    
    
    
    
    
    
    (23,145
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    55Retirement of treasury stock
    
    
    (4
    )
    
    
    (7
    )Proceeds from other borrowings
    
    
    
    
    
    
    23,000Payoff of FHLB advances
    
    
    
    
    
    
    (10,000
    )Cash dividends paid to preferred stockholders
    
    
    
    
    
    
    (548
    )Net cash provided by (used in) financing activities
    
    
    (9,231
    )
    
    
    10,902Net change in cash and cash equivalents
    
    
    22,345
    
    
    
    49,849Cash and cash equivalents, beginning of period
    
    
    103,189
    
    
    
    22,907Cash and cash equivalents, end of period
    
    $
    125,534
    
    
    $
    72,756Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    5,886
    
    
    $
    9,168Income taxes, net of tax refunds received
    
    
    (6,894
    )
    
    
    Noncash investing and financing activities:Loans converted to other real estate owned
    
    
    4,928
    
    
    
    11,270Accrual of preferred stock dividend
    
    
    683
    
    
    
    173
  5




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##### Table of Contents



Intermountain Community Bancorp
 
 Consolidated Statements of Comprehensive Income (Loss)
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands)
    
    
    (Dollars in thousands)Net loss
    
    $
    (2,497
    )
    
    $
    (11,002
    )
    
    $
    (6,807
    )
    
    $
    (11,120
    )Other comprehensive income (loss):Change in unrealized gains on investments, and mortgage backed
securities (MBS) available for sale, excluding non-credit loss
on impairment of securities
    
    
    4,291
    
    
    
    464
    
    
    
    4,906
    
    
    
    589Non-credit loss on impairment of available-for-sale debt securities
    
    
    (1,292
    )
    
    
    
    
    
    
    (1,273
    )
    
    
    (1,507
    )Less deferred income tax provision (benefit)
    
    
    (1,187
    )
    
    
    (183
    )
    
    
    (1,438
    )
    
    
    364Change in fair value of qualifying cash flow hedge
    
    
    (75
    )
    
    
    215
    
    
    
    170
    
    
    
    319Net other comprehensive income (loss)
    
    
    1,737
    
    
    
    496
    
    
    
    2,365
    
    
    
    (235
    )Comprehensive loss
    
    $
    (760
    )
    
    $
    (10,506
    )
    
    $
    (4,442
    )
    
    $
    (11,355
    )
  6




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##### Table of Contents



Intermountain Community Bancorp
 
 Notes to Consolidated Financial Statements
 (Unaudited)
 1.
    
    Basis of Presentation:
 The foregoing unaudited interim consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, these
financial statements do not include all of the disclosures required by accounting principles
generally accepted in the United States of America for complete financial statements. These
unaudited interim consolidated financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 2009. In the opinion
of management, the unaudited interim consolidated financial statements furnished herein include
adjustments, all of which are of a normal recurring nature, necessary for a fair statement of
the results for the interim periods presented.
 The preparation of financial statements in accordance with accounting principles generally
accepted in the United States of America requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities known to exist as of the date the financial statements are published, and the
reported amounts of revenues and expenses during the reporting period. Uncertainties with
respect to such estimates and assumptions are inherent in the preparation of Intermountain
Community Bancorps (Intermountains or the Companys) consolidated financial statements;
accordingly, it is possible that the actual results could differ from these estimates and
assumptions, which could have a material effect on the reported amounts of Intermountains
consolidated financial position and results of operations.
 2.
    
    Investments
 The amortized cost and fair values of investments are as follows (in thousands):
 Available-for-SaleNon-CreditOTTIRecognized
    
    
    Gross
    
    
    GrossAmortized
    
    
    in OCI
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair Value/Cost
    
    
    (Losses)
    
    
    Gains
    
    
    Losses
    
    
    Carrying ValueJune 30, 2010U.S. treasury securities and
obligations of U.S. government
agencies
    
    $
    41
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    41Residential mortgage-backed securities
    
    
    182,160
    
    
    
    (2,498
    )
    
    
    3,602
    
    
    
    (4,360
    )
    
    
    178,904$
    182,201
    
    
    $
    (2,498
    )
    
    $
    3,602
    
    
    $
    (4,360
    )
    
    $
    178,945December 31, 2009U.S. treasury securities and
obligations of U.S. government
agencies
    
    $
    51
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    51Residential mortgage-backed securities
    
    
    188,624
    
    
    
    (1,225
    )
    
    
    2,662
    
    
    
    (8,328
    )
    
    
    181,733$
    188,675
    
    
    $
    (1,225
    )
    
    $
    2,662
    
    
    $
    (8,328
    )
    
    $
    181,784
 Held-to-MaturityNon-CreditCarrying
    
    OTTIValue/
    
    Recognized
    
    Gross
    
    GrossAmortized
    
    in OCI
    
    Unrealized
    
    UnrealizedCost
    
    (Losses)
    
    Gains
    
    Losses
    
    Fair ValueJune 30, 2010State and municipal securities
    
    $
    23,050
    
    
    $
    
    
    
    $
    432
    
    
    $
    (107
    )
    
    $
    23,375December 31, 2009State and municipal securities
    
    $
    15,177
    
    
    $
    
    
    
    $
    276
    
    
    $
    (56
    )
    
    $
    15,397
 7




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##### Table of Contents



The following table summarizes the duration of Intermountains unrealized losses on
available-for-sale and held-to-maturity securities as of the dates indicated (in thousands).
 Less Than 12 Months
    
    
    12 Months or Longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedJune 30, 2010
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesState and municipal securities
    
    $
    
    
    
    $
    
    
    
    $
    7,310
    
    
    $
    107
    
    
    $
    7,310
    
    
    $
    107Residential mortgage-backed securities
    
    
    64,244
    
    
    
    1,019
    
    
    
    2,426
    
    
    
    3,340
    
    
    
    66,670
    
    
    
    4,360Total
    
    $
    64,244
    
    
    $
    1,019
    
    
    $
    9,736
    
    
    $
    3,447
    
    
    $
    73,980
    
    
    $
    4,468
 Less Than 12 Months
    
    
    12 Months or Longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedDecember 31, 2009
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesState and municipal securities
    
    $
    3,196
    
    
    $
    56
    
    
    $
    
    
    
    $
    
    
    
    $
    3,196
    
    
    $
    56Residential mortgage-backed securities
    
    
    49,464
    
    
    
    1,504
    
    
    
    24,124
    
    
    
    6,824
    
    
    
    73,588
    
    
    
    8,328Total
    
    $
    52,660
    
    
    $
    1,560
    
    
    $
    24,124
    
    
    $
    6,824
    
    
    $
    76,784
    
    
    $
    8,384
  Available-for-Sale
    
    
    Held-to-MaturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueOne year or less
    
    $
    10
    
    
    $
    10
    
    
    $
    635
    
    
    $
    636After one year through five years
    
    
    31
    
    
    
    31
    
    
    
    661
    
    
    
    688After five years through ten years
    
    
    
    
    
    
    
    
    
    
    4,733
    
    
    
    4,893After ten years
    
    
    
    
    
    
    
    
    
    
    17,021
    
    
    
    17,15841
    
    
    
    41
    
    
    
    23,050
    
    
    
    23,375Mortgage-backed securities
    
    
    182,160
    
    
    
    178,904
    
    
    
    
    
    
    
    $
    182,201
    
    
    $
    178,945
    
    
    $
    23,050
    
    
    $
    23,375
 Expected maturities may differ from contractual maturities because issuers may have the right
to call or prepay obligations with or without call or prepayment penalties.
 Intermountains investment portfolios are managed to provide and maintain liquidity; to
maintain a balance of high quality, diversified investments to minimize risk; to offset other
asset portfolio elements in managing interest rate risk; to provide collateral for pledging;
and to maximize returns. At June 30, 2010, the Company does not intend to sell any of its
available-for-sale securities that have a loss position and it is not likely that it will be
required to sell the available-for-sale securities before the anticipated recovery of their
remaining amortized cost or maturity date. The unrealized losses on residential mortgage-backed
securities without OTTI were considered by management to be temporary in nature.
 At June 30, 2010, residential mortgage-backed securities included two securities comprised of a
pool of mortgages with a remaining unpaid principal balance of $10.9 million. In March 2009,
due to the lack of an orderly market for the first security and the declining national economic
and housing market, based on analytical modeling taking into consideration a range of factors
normally found in an orderly market, the Company recorded a $1.7 million OTTI on this security.
Based on the analysis of projected cash flows, $526,000 was charged to earnings as a credit
loss during 2009 and $1,225,000 was recognized in other comprehensive income. The Company
recorded an additional credit loss impairment of $163,000 for the six months ended June 30,
2010. In June 2010, based on similar analytical modeling, the Company recorded a $1.5 million
OTTI on an additional security. Based on the analysis of projected cash flows, $92,000 was
charged to earnings as a credit loss during the second quarter 2010 and $1,437,000 was
recognized in other comprehensive income. At this time, the Company anticipates holding the
securities until their value is recovered or until maturity, and will continue to adjust its
net income and other comprehensive income to reflect potential future credit loss impairments
and the securities market value. The Company calculated the credit loss charges against
earnings each quarter by subtracting the estimated present value of future cash flows on the
securities from their amortized cost at the end of each period.
 See Note 11 Fair Value of Measurements for more information on the calculation of fair or
carrying value for the investment securities.
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3.
    
    Goodwill and Other Intangible Assets:
 Intermountain has goodwill and core deposit intangible assets which were recorded in connection
with business combinations. The Company performs a goodwill impairment analysis on an annual
basis as of December 31. Additionally, the Company performs a goodwill impairment evaluation on
an interim basis if a triggering event indicates impairment potentially exists. A significant
amount of judgment is involved in determining if an indicator of impairment has occurred. Such
indicators may include, among others, a significant decline in our expected future cash flows;
a sustained, significant decline in our stock price and market capitalization; a significant
adverse change in legal factors or in the business climate; adverse action or assessment by a
regulator; and unanticipated competition. In response to the significant turmoil in the equity
market for financial institutions, the Company evaluated its goodwill position at each quarter
end during 2009 for potential impairment. The Company engaged an independent consultant at
December 31, 2009 to assist management in evaluating the carrying value of goodwill. The
evaluation followed the two-step process for evaluating impairment required by accounting
guidance. In Step 1, the Company evaluated whether an impairment of goodwill might exist at
December 31, 2009. This evaluation was based on a comparison of the estimated fair value of the
Company in comparison to the book value of the Companys common equity at December 31, 2009. In
estimating the fair value of the Company, management used a combination of discounted cash flow
method and the market value approach. The discounted cash flow modeling used estimates of
future earnings and cash flows under the assumption that the Company is sold to an independent
company, resulting in changes to both its future financial position and operating performance.
In particular, the evaluation assumed reductions in investments, borrowings and preferred stock
on the balance sheet, and increases in earnings resulting from improved net interest margins
from asset deployment into higher-yielding loans, lower credit costs in future years, and
additional cost reductions from consolidation with another company. The rate used to discount
the cash flows was 14.5% and was based on the modified Capital Asset Pricing Model, commonly
used in valuations, which adds various risk and size premiums to an assumed risk-free market
interest rate. As part of its Step 1 analysis, management also estimated the Companys fair
value using commonly used market multiples against tangible book value and deposits. The
results of Step 1 indicated that a potential for impairment did exist at the end of 2009,
requiring the Company to engage in Step 2 to determine the amount of the impairment, if any.
 The Step 2 evaluation requires the Company to calculate the implied fair value of its goodwill.
The implied fair value of goodwill is determined in the same manner as goodwill recognized in a
business combination. The estimated fair value of the Company is allocated to all of the
Companys assets and liabilities, including any unrecognized identifiable assets, as if the
Company had been acquired in a business combination and the estimated fair value of the Company
is the price paid to acquire it. Any excess of the estimated fair value of the Company as
calculated in Step 1 over the fair value of its net assets represents the implied fair value of
goodwill. If the carrying amount of goodwill is greater than the implied fair value of that
goodwill, an impairment loss would be recognized as a charge to earnings in an amount equal to
that excess. In conducting this analysis, management compared the interest rates, maturities,
durations and quality of its assets and liabilities against various market factors and made
adjustments to the carrying value to arrive at the fair value. The Step 2 analysis indicated
that the Companys fair value at December 31, 2009 exceeded the net fair value of its assets by
an amount greater than the carrying value of its goodwill. As a result, the Company determined
that no impairment existed in 2009. At June 30, 2010, the Company concluded there were no
triggering events that would require an interim impairment evaluation at June 30, 2010. The
Company also evaluated its December 31, 2009 Step 2 analysis against current conditions, and
determined that there no material changes that would significantly alter the results as of June
30, 2010. As this evaluation is based on changing market conditions and estimates of current
and future values and cash flows, no assurance can be given that an impairment of goodwill will
not be required in future periods.
 4.
    
    Advances from the Federal Home Loan Bank of Seattle:
 At June 30, 2010 and December 31, 2009 the Bank had a $10.0 million FHLB advance at 4.96% that
matures in September 2010, a $5.0 million FHLB advance at 0.86% that matures in September 2010,
a $5.0 million FHLB advance at 1.49% that matures in September 2011, a $25.0 million FHLB
advance at 2.06% that matures in October 2012 and a $4.0 million FHLB advance at 3.11% that
matures in September 2014. These notes totaled $49.0 million, and the Bank had the ability to
borrow an additional $62.7 million from the FHLB. The Bank plans to pay down the September
2010 maturing FHLB advances with a portion of its excess cash position. In addition, the Bank
also had a letter of credit agreement with the FHLB at June 30, 2010 in the amount of $3.2
million.
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Advances from FHLB Seattle are collateralized by certain qualifying loans. At June 30, 2010,
Intermountain had the ability to borrow $114.3 million from FHLB Seattle, of which
$49.0 million was utilized for borrowing. The Banks credit line with FHLB Seattle is limited
to a percentage of its total regulatory assets subject to collateralization requirements.
Intermountain would be able to borrow amounts in excess of this total from the FHLB Seattle
with the placement of additional available collateral.
 5.
    
    Other Borrowings:
 The components of other borrowings are as follows (in thousands):
 June 30,
    
    
    December 31,2010
    
    
    2009Term note payable (1)
    
    $
    8,279
    
    
    $
    8,279Term note payable (2)
    
    
    8,248
    
    
    
    8,248Total other borrowings
    
    $
    16,527
    
    
    $
    16,527
 
 (1)
    
    In January 2003, the Company issued $8.0 million of Trust Preferred securities through its
subsidiary, Intermountain Statutory Trust I. The debt associated with these securities bears
interest on a variable basis tied to the 90-day LIBOR (London Inter-Bank Offering Rate) index
plus 3.25%, with interest only paid quarterly. The rate on this borrowing was 3.79% at June
30, 2010. The debt is callable by the Company quarterly and matures in March 2033. During the
third quarter of 2008, the Company entered into an interest rate swap contract with Pacific
Coast Bankers Bank. The purpose of the $8.2 million notional value swap is to convert the
variable rate payments made on our Trust Preferred I obligation to a series of fixed rate
payments at 4.58% for five years, as a hedging strategy to help manage the Companys
interest-rate risk. See Note A and B.(2)
    
    In March 2004, the Company issued $8.0 million of Trust Preferred securities through its
subsidiary, Intermountain Statutory Trust II. The debt associated with these securities bears
interest on a variable basis tied to the 90-day LIBOR index plus 2.8%, with interest only paid
quarterly. The rate on this borrowing was 3.10% at June 30, 2010. The debt is callable by the
Company quarterly and matures in April 2034. See Note A and B. A)
    
    Intermountains obligations under the above debentures issued by its subsidiaries
constitute a full and unconditional guarantee by Intermountain of the Statutory Trusts
obligations under the Trust Preferred Securities. In accordance with ASC 810, Consolidation,
(formerly FIN 46R, Consolidation of Variable Interest Entities), the trusts are not
consolidated and the debentures and related amounts are treated as debt of Intermountain.B)
    
    To conserve the liquid assets of the parent Company, the Companys Board of Directors has
decided to defer regularly scheduled interest payments on its outstanding Junior
Subordinated Debentures related to its Trust Preferred Securities (TRUPS Debentures)
beginning in December 2009. The Company is permitted to defer payments of interest on the
TRUPS Debentures for up to 20 consecutive quarterly periods without default. During the
deferral period, the Company may not pay any dividends or distributions on, or redeem,
purchase or acquire, or make a liquidation payment with respect to the Companys capital
stock, or make any payment of principal or interest on, or repay, repurchase or redeem any
debt securities of the Company that rank equally or junior to the TRUPS Debentures.
 6.
    
    Earnings Per Share:
 The following table presents the basic and diluted earnings per share computations (numbers in
thousands):
 Three months Ended June 30,
    
    
    Six months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Net loss  basic and diluted
    
    $
    (2,497
    )
    
    $
    (11,002
    )
    
    $
    (6,807
    )
    
    $
    (11,120
    )Preferred stock dividend
    
    
    428
    
    
    
    415
    
    
    
    847
    
    
    
    829Net loss applicable to commons stockholders
    
    $
    (2,925
    )
    
    $
    (11,417
    )
    
    $
    (7,654
    )
    
    $
    (11,949
    )Denominator:Weighted average shares outstanding  basic
    
    
    8,388,128
    
    
    
    8,362,402
    
    
    
    8,380,265
    
    
    
    8,355,359Dilutive effect of common stock options,
restricted stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares outstanding  diluted
    
    
    8,388,128
    
    
    
    8,362,402
    
    
    
    8,380,265
    
    
    
    8,355,359Loss per share  basic and diluted:Loss per share  basic
    
    $
    (0.35
    )
    
    $
    (1.37
    )
    
    $
    (0.91
    )
    
    $
    (1.43
    )Effect of dilutive common stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss per share  diluted
    
    $
    (0.35
    )
    
    $
    (1.37
    )
    
    $
    (0.91
    )
    
    $
    (1.43
    )Anti-dilutive securities not included in
diluted earnings per share:Common stock options
    
    
    242,157
    
    
    
    260,879
    
    
    
    242,157
    
    
    
    196,889Common stock warrant
    
    
    1,051,183
    
    
    
    450,173
    
    
    
    1,214,870
    
    
    
    354,803Restricted shares
    
    
    34,376
    
    
    
    24,321
    
    
    
    41,790
    
    
    
    15,846Total anti-dilutive shares
    
    
    1,327,716
    
    
    
    735,373
    
    
    
    1,498,817
    
    
    
    567,538
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Common stock equivalents were calculated using the treasury stock method.
 7.
    
    Operating Expenses:
 The following table details Intermountains components of total operating expenses in
thousands:
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Salaries and employee benefits
    
    $
    5,088
    
    
    $
    5,653
    
    
    $
    10,920
    
    
    $
    11,358Occupancy expense
    
    
    1,789
    
    
    
    1,808
    
    
    
    3,616
    
    
    
    3,776Advertising
    
    
    273
    
    
    
    344
    
    
    
    495
    
    
    
    643Fees and service charges
    
    
    697
    
    
    
    630
    
    
    
    1,349
    
    
    
    1,229Printing, postage and supplies
    
    
    325
    
    
    
    293
    
    
    
    714
    
    
    
    653Legal and accounting
    
    
    337
    
    
    
    363
    
    
    
    661
    
    
    
    643FDIC Assessment
    
    
    471
    
    
    
    1,256
    
    
    
    939
    
    
    
    1,410OREO operations
    
    
    1,380
    
    
    
    1,286
    
    
    
    2,410
    
    
    
    1,434Other expense
    
    
    914
    
    
    
    1,034
    
    
    
    1,731
    
    
    
    2,292Total operating expenses
    
    $
    11,274
    
    
    $
    12,667
    
    
    $
    22,835
    
    
    $
    23,438
 Salaries and employee benefits expense decreased $438,000 or 3.86%, over the six month period
last year as a result of planned staff reductions implemented in the first quarter of 2010.
The six month 2010 total included $389,000 in severance costs. For the quarter ended June 30,
2010 salary and benefit expenses decreased $565,000 or 10.00% as compared to the same quarter
last year. Decreased staffing levels and lower incentive compensation expense more than offset
the severance payments noted above and increases in unemployment insurance premiums. Efforts to
reduce compensation expense continue in 2010, as the Company has reduced additional staff,
suspended salary increases for executives and officers and reduced other compensation plans.
 Occupancy expenses decreased $160,000, or 4.24%, for the six month period ended June 30, 2010
compared to the same period one year ago and decreased $19,000 or 1.05% for the quarter in
comparison to last year. The decrease was comprised of a decrease in rent and computer hardware
and software expense as additional cost control measures have been implemented. The Company
expects these expenses to continue declining in 2010 in comparison to prior periods, as it has
postponed building expansion plans, consolidated administrative operations and limited new
hardware and software purchases.
 The advertising expense decrease of $148,000 for the six month period compared to the same
period one year ago is a result of reductions in general advertising and media expenses, as the
need for broad advertising in the current market has been limited. The $120,000 increase in
fees and service charges for the six month period ended June 30, 2010 compared to the same
period one year ago is primarily comprised of increases in loan collection, repossession and
liquidation expenses. Printing, postage and supplies increased $61,000 for the six-month period
in comparison to last years total. The increase reflected timing of the payment of postage and
supply expense during the quarter and a shift of expenses into this category from other areas
as a result of operational changes. Additional outsourcing activities are expected to result
in improvements in these areas over the next six months. Legal and accounting fees increased by
$18,000 in comparison to the same six month period in 2009 as increasing legal expenses related
to loan collection and regulatory compliance were partially offset by a reduction in consulting
fees.
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The $471,000 and $785,000 decreases in FDIC expenses for the six and three month periods ended
June 30, 2010 over last year primarily reflect the special FDIC assessment that was accrued in
June 2009 with no similar assessment in 2010. OREO operations, related valuation adjustments
and gain/loss on sale of OREO increased $976,000 for the six month period over the same period
last year. The Company has been aggressively migrating problem assets into and out of OREO,
resulting in a larger number of OREO properties outstanding during the period and a higher
amount of charge offs and gains/losses related to the sale of OREO properties than in the first
six months of 2009. Other expenses decreased $561,000 or 24.5%, for the six month period over
the same period last year, reflecting decreases in telecommunications, computer services,
training and travel costs, and expense associated with funding the reserve for unfunded loan
commitments.
 8.
    
    Income Taxes:
 Intermountain uses an estimate of future earnings and tax planning strategies to determine
whether or not the benefit of its net deferred tax asset will be realized. In conducting this
analysis, management has assumed economic conditions will continue to be very challenging in
2010, followed by gradual improvement in the ensuing years. These assumptions are in line with
both national and regional economic forecasts. As such, its estimates include credit losses
that are significantly elevated in 2010, but less so than those experienced in 2009, followed
by improvement in ensuing years as the economy improves and the Companys loan portfolio turns
over. It also assumes improving net interest margins beginning in 2011, and reductions in
operating expenses as credit costs abate and its other cost reduction strategies continue.
Based on these estimates and potential additional tax planning strategies that it could employ
to accelerate taxable income, the Company has determined that it is not required to establish a
valuation allowance for the deferred tax assets, as management believes it is more likely than
not that the net deferred tax asset will be realized partially through future reversals of
existing taxable temporary differences. Management further believes that future taxable income
will be sufficient to realize the benefits of the $11.7 million net operating loss carry
forward included in the net deferred tax asset. However, to the extent that this analysis is
based on estimates that are reliant on future economic conditions, management cannot assure
that valuation impairment on its tax asset will not be required in future periods.
 9.
    
    Stock-Based Compensation Plans:
 The Company utilized its stock to compensate employees and directors under the 1999 Director
Stock Option Plan, the 1999 Employee Plan and the 1988 Employee Plan (together the Stock
Option Plans).
 On January 14, 2009, the terms of the Amended and Restated 1999 Employee Stock Option and
Restricted Stock Plan and the 1999 Director Stock Option Plan expired. Upon recommendation of
management and approval of the Board of Directors, it was determined that, due to the economic
uncertainty, the Board would not seek to implement a new plan at this time. The 1988 Employee
Stock Option Plan was a predecessor plan to the Amended and Restated 1999 Employee Stock Option
and Restricted Stock Plan. Because each of these plans has expired, shares may no longer be
awarded under these plans. However, awards remain unexercised or unvested under these plans.
The Company did not grant options to purchase Intermountain common stock or restricted stock
during the six months ended June 30, 2010 or June 30, 2009.
 In 2003, stockholders approved a change to the 1999 Employee Stock Option Plan to provide for
the granting of restricted stock awards. The Company granted restricted stock to directors and
employees beginning in 2005. The restricted stock vests 20% per year, over a five-year period.
The Company granted no restricted shares during either of the six months ended June 30, 2010
and 2009. For the six months ended June 30, 2010 and 2009, restricted stock expense totaled
$209,000 and $182,000, respectively. Total expense related to stock-based compensation recorded
in the six months ended June 30, 2010 and 2009 was $209,000 and $182,000, respectively.
 A summary of the changes in stock options outstanding for the six months ended June 30, 2010,
is presented below:
 Six months ended June 30, 2010(dollars in thousands, except per share amounts)Weighted
    
    WeightedNumber
    
    Average
    
    Averageof
    
    Exercise
    
    RemainingShares
    
    Price
    
    Life (Years)Beginning Options Outstanding, Jan 1, 2010
    
    
    254,686
    
    
    $
    6.35Options Granted
    
    
    
    
    
    
    Exercises
    
    
    
    
    
    
    Forfeitures
    
    
    (12,526
    )
    
    
    7.85Ending options outstanding, June 30, 2010
    
    
    242,160
    
    
    
    6.27
    
    
    
    2.3Exercisable at June 30, 2010
    
    
    242,160
    
    
    $
    6.27
    
    
    
    2.3
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The total intrinsic value of options exercised during the six months ended June 30, 2010 and
2009 was $0 and $7,000, respectively. A summary of the Companys nonvested restricted shares
for the six months ended June 30, 2010, is presented below:
 Weighted-AverageGrant-DateNonvested Shares
    
    Shares
    
    
    Fair ValueBalance at January 1, 2010
    
    
    72,718
    
    
    $
    15.71Granted
    
    
    
    
    
    
    Vested
    
    
    (27,409
    )
    
    
    17.90Forfeited
    
    
    (2,480
    )
    
    
    16.53Balance at June 30, 2010
    
    
    42,829
    
    
    $
    14.27
 10. Derivative Financial Instruments
 Management uses derivative financial instruments to protect against the risk of interest rate
movements on the value of certain assets and liabilities and on future cash flows. The
instruments that have been used by the Company include interest rate swaps and cash flow hedges
with indices that relate to the pricing of specific assets and liabilities.
 Derivative instruments have inherent risks, primarily market risk and credit risk. Market risk
is associated with changes in interest rates and credit risk relates to the risk that the
counterparty will fail to perform according to the terms of the agreement. The amounts
potentially subject to market and credit risks are the streams of interest payments under the
contracts and the market value of the derivative instrument which is determined based on the
interaction of the notional amount of the contract with the underlying instrument, and not the
notional principal amounts used to express the volume of the transactions. Management monitors
the market risk and credit risk associated with derivative financial instruments as part of its
overall Asset/Liability management process.
 In accordance with ASC 815, Derivatives and Hedging, the Company recognizes all derivative
financial instruments in the consolidated financial statements at fair value regardless of the
purpose or intent for holding the instrument. Derivative financial instruments are included in
other assets or other liabilities, as appropriate, on the Consolidated Balance Sheet. Changes
in the fair value of derivative financial instruments are either recognized periodically in
income or in stockholders equity as a component of other comprehensive income depending on
whether the derivative financial instrument qualifies for hedge accounting, and if so, whether
it qualifies as a fair value hedge or cash flow hedge. Generally, changes in fair values of
derivatives accounted for as fair value hedges are recorded in income in the same period and in
the same income statement line as changes in the fair values of the hedged items that relate to
the hedged risk(s). Changes in fair values of derivative financial instruments accounted for as
cash flow hedges, to the extent they are effective hedges, are recorded as a component of other
comprehensive income, net of deferred taxes. Changes in fair values of derivative financial
instruments not qualifying as hedges pursuant to ASC 815 are reported in non-interest income.
Derivative contracts are valued by the counter party and are periodically validated by
management.
 Interest Rate Swaps  Designated as Cash Flow Hedges
 The tables below identify the Companys interest rate swaps at June 30, 2010 and December 31,
2009, which were entered into to hedge certain LIBOR-based trust preferred debentures and
designated as cash flow hedges pursuant to ASC 815 (dollars in thousands):
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June 30, 2010Receive Rate
    
    Pay Rate
    
    Type of HedgingMaturity Date
    
    Notional Amount
    
    Fair Value (Loss)
    
    (LIBOR)
    
    (Fixed)
    
    RelationshipPay Fixed, Receive Variable:October 2013
    
    $
    8,248
    
    
    $
    (929
    )
    
    
    0.30
    %
    
    
    4.58
    %
    
    Cash Flow
 December 31, 2009Receive Rate
    
    Pay Rate
    
    Type of HedgingMaturity Date
    
    Notional Amount
    
    Fair Value (Loss)
    
    (LIBOR)
    
    (Fixed)
    
    RelationshipPay Fixed, Receive Variable:October 2013
    
    $
    8,248
    
    
    $
    (678
    )
    
    
    0.28
    %
    
    
    4.58
    %
    
    Cash Flow
 The fair values, or unrealized losses, of $929,000 at June 30, 2010 and $678,000 at December
31, 2009 are included in other liabilities. The Company has begun to defer the interest
payments on the related Trust Preferred borrowing beginning with the January 2010 scheduled
remittance. As a result of the deferred interest payments, a calculation of the effectiveness
of the hedge was prepared. It was concluded that although the hedge is effective, there is a
small amount of ineffectiveness due to the delayed payments. The Company expensed $90,000 in
interest expense in the six months ended June 30, 2010 related to the ineffective portion of
the hedge. The changes in fair value, net of tax, are separately disclosed in the statement of
changes in stockholders equity as a component of comprehensive income (loss). Net cash flows
from these interest rate swaps are included in interest expense on trust preferred debentures.
The unrealized loss at June 30, 2010 is a component of comprehensive income (loss) for June 30,
2010. At June 30, 2010, Intermountain had $1.0 million in restricted cash as collateral for the
cash flow hedge. A rollfoward of the amounts in accumulated other comprehensive income related
to interest rate swaps designated as cash flow hedges follows:
 Six months EndedJune 30, 2010
    
    
    June 30, 2009Unrealized loss at beginning of period
    
    $
    (678
    )
    
    $
    (985
    )Amount of gross loss recognized in earnings (loss)
    
    
    (90
    )
    
    
    Amount of gross loss recognized in other comprehensive income (loss)
    
    
    (161
    )
    
    
    319Unrealized loss at end of period
    
    $
    (929
    )
    
    $
    (666
    )
 Interest Rate Swaps  Not Designated as Hedging Instruments Under ASC 815
 The Company has purchased certain derivative products to allow the Company to effectively
convert a fixed rate loan to a variable rate payment stream. The Company economically hedges
derivative transactions by entering into offsetting derivatives executed with third parties
upon the origination of a fixed rate loan with a customer. Derivative transactions executed as
part of this program are not designated as ASC 815 hedge relationships and are, therefore,
marked to market through earnings each period. In most cases the derivatives have mirror-image
terms, which result in the positions changes in fair value offsetting completely through
earnings each period. However, to the extent that the derivatives are not a mirror-image,
changes in fair value will not completely offset, resulting in some earnings impact each
period. Changes in the fair value of these interest rate swaps are included in other
non-interest income. The following table summarizes these interest rate swaps as of June 30,
2010 and December 31, 2009 (in thousands):
 June 30, 2010
    
    December 31, 2009Notional
    
    
    
    
    
    NotionalAmount
    
    Fair Value (Loss)
    
    Amount
    
    Fair Value GainInterest rate swaps with third party financial institutions
    
    $
    2,559
    
    
    $
    (95
    )
    
    $
    2,559
    
    
    $
    57
 At June 30, 2010, loans receivable included ($95,000) of derivative assets and other
liabilities included $0 of derivative assets related to these interest rate swap transactions.
At June 30, 2010, the interest rate swaps had a maturity date of March 2019. At June 30, 2010,
Intermountain had $72,000 in restricted cash as collateral for the interest rate swaps.
 11.
    
    Fair Value Measurements
 Fair value is defined under ASC 820-10 as the price that would be received for an asset or paid
to transfer a liability (an exit price) in the principal market for the asset or liability in
an orderly transaction between market participants on the measurement
 14




---



##### Table of Contents



date. In support of this principle ASC 820-10 establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions. The fair value hierarchy is as
follows:
 Level 1 inputs Unadjusted quoted prices in active markets for identical assets or
liabilities that the entity has the ability to access at the measurement date.
 Level 2 inputs Inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly or indirectly. These might include quoted prices
for similar assets and liabilities in active markets, and inputs other than quoted prices that
are observable for the asset or liability, such as interest rates and yield curves that are
observable at commonly quoted intervals.
 Level 3 inputs Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities. Level 3 assets and
liabilities include financial instruments whose value is determined using pricing models,
discounted cash flow methodologies, or similar techniques, as well as instruments for which the
determination of fair values requires significant management judgment or estimation.
 The following table presents information about the Companys assets measured at fair value on a
recurring basis as of June 30, 2010, and indicates the fair value hierarchy of the valuation
techniques utilized by the Company to determine such fair value (in thousands).
 Fair Value MeasurementsAt June 30, 2010, UsingQuoted PricesIn Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableFair Value
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    June 30, 2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Available-for-Sale Securities:U.S. treasury securities and obligations of U.S. government agencies
    
    $
    41
    
    
    $
    
    
    
    $
    41
    
    
    $
    Residential mortgage backed securities (MBS)
    
    
    178,904
    
    
    
    
    
    
    
    148,686
    
    
    
    30,218Other Assets  Derivative
    
    
    (95
    )
    
    
    
    
    
    
    
    
    
    
    (95
    )Total Assets Measured at Fair Value
    
    $
    178,850
    
    
    $
    
    
    
    $
    148,727
    
    
    $
    30,123Other Liabilities  Derivatives
    
    $
    929
    
    
    $
    
    
    
    $
    
    
    
    $
    929
 Fair Value MeasurementsAt December 31, 2009 UsingQuoted PricesIn Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableFair Value
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    Dec 31, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Available-for-Sale Securities:U.S. treasury securities and obligations of U.S. government agencies
    
    $
    51
    
    
    $
    
    
    
    $
    51
    
    
    $
    Residential mortgage backed securities (MBS)
    
    
    181,733
    
    
    
    
    
    
    
    149,497
    
    
    
    32,236Other Assets  Derivative
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    57Total Assets Measured at Fair Value
    
    $
    181,841
    
    
    $
    
    
    
    $
    149,548
    
    
    $
    32,293Other Liabilities  Derivatives
    
    $
    678
    
    
    $
    
    
    
    $
    
    
    
    $
    678
  Fair Value Measurement Transfers- Assets
 Fair Value Measurements Using SignificantUnobservable Inputs ( Level 3)Description
    
    Residential MBS
    
    
    Derivatives
    
    
    TotalJanuary 1, 2010 Balance
    
    $
    32,236
    
    
    $
    57
    
    
    $
    32,293Total gains or losses (realized/unrealized)Included in earnings
    
    
    (256
    )
    
    
    (152
    )
    
    
    (408
    )Included in other comprehensive income
    
    
    3,414
    
    
    
    
    
    
    
    3,414Principal Payments
    
    
    (2,618
    )
    
    
    
    
    
    
    (2,618
    )Sales of Securities
    
    
    (2,558
    )
    
    
    
    
    
    
    (2,558
    )Transfers in and /or out of Level 3
    
    
    
    
    
    
    
    
    
    
    June 30, 2010 Balance
    
    $
    30,218
    
    
    $
    (95
    )
    
    $
    30,123
 15




---



##### Table of Contents



Fair Value Measurement Transfers- Liabilities
 Fair Value MeasurementsUsing Significant UnobservableInputs ( Level 3)Description
    
    DerivativesJanuary 1, 2010 Balance
    
    $
    678Total gains or losses (realized/unrealized)Included in earnings
    
    
    90Included in other comprehensive income
    
    
    161June 30, 2010 Balance
    
    $
    929
  Fair Value MeasurementsAt June 30, 2010, UsingQuoted PricesIn Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableFair Value
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    June 30, 2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Loans(1)
    
    $
    35,704
    
    
    $
    
    
    
    $
    
    
    
    $
    35,704OREO
    
    
    8,754
    
    
    
    
    
    
    
    
    
    
    
    8,754Total Assets Measured at Fair Value
    
    $
    44,458
    
    
    $
    
    
    
    $
    
    
    
    $
    44,458
 
 (1)
    
    Represents impaired loans, net, which are included in loans.   Securities
  Available for Sale Securities.
 16




---



##### Table of Contents




    
    The length of time and the extent to which the market value of the securities has been lower
than their cost;
    
    The financial condition and near-term prospects of the issuer or obligation, including
any specific events, which may influence the operations of the issuer or obligation such as
credit defaults and losses in mortgages underlying the security, changes in technology that
impair the earnings potential of the investment or the discontinuation of a segment of the
business that may affect the future earnings potential; and
    
    The intent and ability of the Company to retain its investment in the issuer for a period
of time sufficient to allow for any anticipated recovery in market value.
  Loans.
 17




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##### Table of Contents



Other Real Estate Owned.
 Interest Rate Swaps.
    June 30, 2010
    
    December 31, 2009Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assets:Cash, cash equivalents, restricted cash and federal funds sold
    
    $
    129,096
    
    
    $
    129,096
    
    
    $
    104,835
    
    
    $
    104,835Interest bearing certificates of deposit
    
    
    
    
    
    
    
    
    
    
    862
    
    
    
    862Available-for-sale securities
    
    
    178,945
    
    
    
    178,945
    
    
    
    181,784
    
    
    
    181,784Held-to-maturity securities
    
    
    23,050
    
    
    
    23,375
    
    
    
    15,177
    
    
    
    15,397Loans held for sale
    
    
    3,728
    
    
    
    3,728
    
    
    
    6,574
    
    
    
    6,574Loans receivable, net
    
    
    623,129
    
    
    
    649,903
    
    
    
    655,602
    
    
    
    683,300Accrued interest receivable
    
    
    4,962
    
    
    
    4,962
    
    
    
    5,077
    
    
    
    5,077BOLI
    
    
    8,583
    
    
    
    8,583
    
    
    
    8,397
    
    
    
    8,397Financial liabilities:Deposit liabilities
    
    
    806,780
    
    
    
    788,459
    
    
    
    819,321
    
    
    
    786,704Borrowings
    
    
    164,076
    
    
    
    164,991
    
    
    
    160,760
    
    
    
    160,469Accrued interest payable
    
    
    1,361
    
    
    
    1,361
    
    
    
    1,211
    
    
    
    1,211
 18




---



##### Table of Contents



Cash, Cash Equivalents, Federal Funds and Certificates of Deposit
  Investments and BOLI
  Loans Receivable and Loans Held For Sale
  Deposits
  Borrowings
  Accrued Interest
  12.
    
    Subsequent Events
  13.
    
    New Accounting Pronouncements:
  19




---



##### Table of Contents



Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
 This report contains forward-looking statements. For a discussion about such statements,
including the risks and uncertainties inherent therein, see Forward-Looking Statements.
Managements Discussion and Analysis of Financial Condition and Results of Operations should be
read in conjunction with the Consolidated Financial Statements and Notes presented elsewhere in
this report and in Intermountains Form 10-K for the year ended December 31, 2009.
 General
 Overview & History
    20




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##### Table of Contents



Business Strategy & Opportunities
   
    
    A strong, loyal and low-cost deposit franchise with proven growth capabilities: 63% of
Intermountains deposits at June 30, 2010 are in low-cost transaction accounts, resulting in
a cost of funds that has consistently been below its peer group. Intermountain has
maintained this low-cost deposit focus while growing since 1999 from the 8th ranked bank by
deposit market share to the 2nd in the core markets it serves (Source: FDIC and Federal
Financial Institutions Examination Council (FFIEC) Uniform Bank Performance Report
(UBPR) data).
    
    A high net interest margin (3.71% for the quarter ended June 30, 2010) relative to peers
with opportunity for additional improvement if rates rise or the economy improves:
Intermountain has consistently maintained a higher net interest margin than its peer group
(Source: UBPR data), and has positioned its balance sheet to protect against current
challenges, and provide for opportunities to capitalize on the likelihood of future rising
market interest rates.
    
    A sophisticated, and increasingly effective, risk management system: Tempered by its
experiences during the current downturn, Intermountain has developed a refined credit loss
forecasting system, an integrated approach to credit, liquidity, capital and other risk
factors, and a well-seasoned credit administration function.
    
    An operational and compliance infrastructure built for future profitable growth: During
the past three years, Intermountain has focused on upgrading talent, technology and
operational processes to facilitate further balance sheet growth without corresponding
expense increases.
    
    A relatively young, but highly experienced, management team: The executive and senior
management team averages under 50 years old, but still generally exceeds 20 years in banking
experience, most of which has been in the Companys defined core and growth markets. The
current economic cycle has provided outstanding learning opportunities for the team, which
it is incorporating into current and future plans.
  21




---



##### Table of Contents



Critical Accounting Policies
  Income Recognition.
 22




---



##### Table of Contents



Allowance For Loan Losses.
     Investments.
  23




---



##### Table of Contents



Goodwill and Other Intangible Assets.
 Real Estate Owned.
  Fair Value Measurements.
 24




---



##### Table of Contents



Derivative Financial Instruments and Hedging Activities.
 Income Taxes.
 Results of Operations
 Overview
   25




---



##### Table of Contents



Net Interest Income
      Provision for Losses on Loans & Credit Quality.
  26




---



##### Table of Contents



June 30,2010
    
    
    2009(Dollars in thousands)Balance Beginning January 1
    
    $
    (16,608
    )
    
    $
    (16,433
    )Charge-OffsCommercial loans
    
    
    4,302
    
    
    
    2,013Commercial real estate loans
    
    
    2,487
    
    
    
    127Commercial construction loans
    
    
    911
    
    
    
    818Land and land development loans
    
    
    5,222
    
    
    
    9,089Agriculture loans
    
    
    689
    
    
    
    688Multifamily loans
    
    
    16
    
    
    
    Residential loans
    
    
    1,220
    
    
    
    721Residential construction loans
    
    
    15
    
    
    
    11Consumer Loans
    
    
    286
    
    
    
    388Municipal Loans
    
    
    1
    
    
    
    Total Charge-offs
    
    
    15,149
    
    
    
    13,855RecoveriesCommercial Loans
    
    
    (312
    )
    
    
    (75
    )Commercial real estate loans
    
    
    (80
    )
    
    
    Commercial construction loans
    
    
    (10
    )
    
    
    Land and land development loans
    
    
    (32
    )
    
    
    Agriculture loans
    
    
    
    
    
    
    Multifamily loans
    
    
    
    
    
    
    Residential Loans
    
    
    (26
    )
    
    
    (50
    )Residential construction loans
    
    
    
    
    
    
    Consumer Loans
    
    
    (101
    )
    
    
    (143
    )Municipal Loans
    
    
    
    
    
    
    Total Recoveries
    
    
    (561
    )
    
    
    (268
    )Net charge-offs
    
    
    14,588
    
    
    
    13,587Transfers
    
    
    
    
    
    
    Provision for losses on loans
    
    
    (11,723
    )
    
    
    (21,454
    )Sale of loans
    
    
    
    
    
    
    Balance at June 30
    
    $
    (13,743
    )
    
    $
    (24,300
    )Ratio of net charge-offs to average net loans (annualized)
    
    
    4.61
    %
    
    
    3.64
    %Allowance  Unfunded CommitmentsBalance
Beginning January 1
    
    $
    (11
    )
    
    $
    (14
    )Adjustment
    
    
    (7
    )
    
    
    (351
    )Transfers
    
    
    
    
    
    
    Allowance  Unfunded Commitments at June 30
    
    $
    (18
    )
    
    $
    (365
    )
   27




---



##### Table of Contents



Non-Accrual Trending
 June 30,
    
    December 31,2010
    
    2009(Dollars in thousands)Non-accrual loans
    
    $
    17,765
    
    
    $
    18,468Non-accrual loans as a percentage of net loans receivable
    
    
    2.85
    %
    
    
    2.82
    %Total allowance related to non-accrual loans
    
    $
    1,503
    
    
    $
    965Interest income recorded on non-accrual loans
    
    $
    353
    
    
    $
    1,126
 Credit Quality Trending
 June 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Loans past due in excess of 90 days and still accruing
    
    $
    
    
    
    $
    586Non-accrual loans
    
    
    17,765
    
    
    
    18,468Total non-performing loans
    
    
    17,765
    
    
    
    19,054OREO
    
    
    8,754
    
    
    
    11,538Total non-performing assets (NPAs)
    
    $
    26,519
    
    
    $
    30,592Classified loans (1)
    
    $
    59,775
    
    
    $
    77,175Troubled debt restructured loans (2)
    
    $
    2,562
    
    
    $
    4,604Non-accrual loans as a percentage of net loans receivable
    
    
    2.85
    %
    
    
    2.82
    %Total non-performing loans as a % of net loans receivable
    
    
    2.85
    %
    
    
    2.91
    %Total NPAs as a percentage of loans receivable (3)
    
    
    4.26
    %
    
    
    4.67
    %Allowance for loan losses (ALLL) as a percentage of non-performing loans
    
    
    77.4
    %
    
    
    87.2
    %Total NPAs as a % of total assets (3)
    
    
    2.49
    %
    
    
    2.83
    %Total NPAs as a % of tangible capital + ALLL (Texas Ratio) (3)
    
    
    31.09
    %
    
    
    32.85
    %Loan delinquency ratio (30 days and over)
    
    
    0.50
    %
    
    
    1.06
    %
 
 (1)
    
    Classified loan totals are inclusive of non-performing loans and may
also include troubled debt restructured loans, depending on the
grading of these restructured loans.(2)
    
    Represents accruing restructured loans performing according to their
modified terms. Restructured loans that are not performing according
to their modified terms are included in non-accrual loans. No other
funds are available for disbursement on restructured loans.(3)
    
    NPAs include both nonperforming loans and OREO. 28




---



##### Table of Contents



June 30, 2010
    
    
    Dec 31, 2009Amount
    
    
    % of Total
    
    
    Amount
    
    
    % of Total(Dollars in thousands)Commercial
    
    $
    11,187
    
    
    
    18.7
    %
    
    $
    11,685
    
    
    
    15.1
    %Commercial real estate
    
    
    12,107
    
    
    
    20.3
    %
    
    
    12,409
    
    
    
    16.1
    %Commercial construction
    
    
    9,656
    
    
    
    16.2
    %
    
    
    15,554
    
    
    
    20.2
    %Land and land development loans
    
    
    11,715
    
    
    
    19.6
    %
    
    
    20,136
    
    
    
    26.1
    %Agriculture
    
    
    7,496
    
    
    
    12.5
    %
    
    
    9,637
    
    
    
    12.5
    %Multifamily
    
    
    672
    
    
    
    1.1
    %
    
    
    695
    
    
    
    0.9
    %Residential real estate
    
    
    5,465
    
    
    
    9.1
    %
    
    
    5,433
    
    
    
    7.0
    %Residential construction
    
    
    761
    
    
    
    1.3
    %
    
    
    1,165
    
    
    
    1.5
    %Consumer
    
    
    716
    
    
    
    1.2
    %
    
    
    461
    
    
    
    0.6
    %Municipal
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %Total classified loans
    
    $
    59,775
    
    
    
    100.0
    %
    
    $
    77,175
    
    
    
    100.0
    %
     29




---



##### Table of Contents



E. Oregon,
    
    
    
    
    
    
    
    
    
    
    % of LoanNorth Idaho 
    
    
    Magic
    
    
    
    
    
    
    SW Idaho
    
    
    
    
    
    
    
    
    
    
    Type to TotalNPAs by location
    
    Eastern
    
    
    Valley
    
    
    Greater
    
    
    Excluding
    
    
    
    
    
    
    
    
    
    
    Non-PerformingJune 30, 2010
    
    Washington
    
    
    Idaho
    
    
    Boise Area
    
    
    Boise
    
    
    Other
    
    
    Total
    
    
    Assets(Dollars in thousands)Commercial loans
    
    $
    2,063
    
    
    $
    531
    
    
    $
    246
    
    
    $
    524
    
    
    $
    
    
    
    $
    3,364
    
    
    
    12.7
    %Commercial real estate loans
    
    
    2,719
    
    
    
    356
    
    
    
    1,329
    
    
    
    315
    
    
    
    41
    
    
    
    4,760
    
    
    
    18.0
    %Commercial construction loans
    
    
    732
    
    
    
    
    
    
    
    
    
    
    
    1,199
    
    
    
    
    
    
    
    1,931
    
    
    
    7.3
    %Land and land development loans
    
    
    5,852
    
    
    
    160
    
    
    
    2,374
    
    
    
    950
    
    
    
    2,289
    
    
    
    11,625
    
    
    
    43.8
    %Agriculture loans
    
    
    
    
    
    
    
    
    
    
    524
    
    
    
    
    
    
    
    
    
    
    
    524
    
    
    
    2.0
    %Multifamily loans
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    0.4
    %Residential real estate loans
    
    
    2,905
    
    
    
    252
    
    
    
    286
    
    
    
    240
    
    
    
    299
    
    
    
    3,982
    
    
    
    15.0
    %Residential construction loans
    
    
    193
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    193
    
    
    
    0.7
    %Consumer loans
    
    
    12
    
    
    
    8
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    0.1
    %Total
    
    $
    14,476
    
    
    $
    1,307
    
    
    $
    4,879
    
    
    $
    3,228
    
    
    $
    2,629
    
    
    $
    26,519
    
    
    
    100.0
    %Percent of total NPAs
    
    
    54.6
    %
    
    
    4.9
    %
    
    
    18.4
    %
    
    
    12.2
    %
    
    
    9.9
    %
    
    
    100.0
    %Percent of NPAs to total loans
in each region(1)
    
    
    4.0
    %
    
    
    2.6
    %
    
    
    6.4
    %
    
    
    2.7
    %
    
    
    9.0
    %
    
    
    4.2
    %
 
 (1)
    
    NPAs include both nonperforming loans and OREO. Nonperforming Asset Trending By Category
 June 30,
    
    
    December 31,
    
    
    June 30,2010
    
    
    2009
    
    
    2009(Dollars in thousands)Commercial loans
    
    $
    3,364
    
    
    $
    2,653
    
    
    $
    4,470Commercial real estate loans
    
    
    4,760
    
    
    
    5,235
    
    
    
    1,795Commercial construction loans
    
    
    1,931
    
    
    
    3,133
    
    
    
    6,374Land and land development loans
    
    
    11,625
    
    
    
    14,055
    
    
    
    20,592Agriculture loans
    
    
    524
    
    
    
    834
    
    
    
    930Multifamily loans
    
    
    112
    
    
    
    135
    
    
    
    2,562Residential real estate loans
    
    
    3,982
    
    
    
    3,195
    
    
    
    4,126Residential construction loans
    
    
    193
    
    
    
    1,264
    
    
    
    66Consumer loans
    
    
    28
    
    
    
    88
    
    
    
    233Total NPAs by Categories
    
    $
    26,519
    
    
    $
    30,592
    
    
    $
    41,148
    30




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Other Income.
   Consolidated Financial Statements
  Operating Expenses.
  31




---



##### Table of Contents



32




---



##### Table of Contents



Income Tax Provision
  Financial Position
 Assets
 Investments.
  33




---



##### Table of Contents



Loans Receivable. Powered By Community
  June 30, 2010
    
    
    December 31, 2009Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Commercial loans
    
    $
    143,935
    
    
    
    22.60
    
    
    $
    131,562
    
    
    
    19.57Commercial real estate loans
    
    
    178,516
    
    
    
    28.03
    
    
    
    172,726
    
    
    
    25.69Commercial construction
    
    
    20,455
    
    
    
    3.21
    
    
    
    45,581
    
    
    
    6.78Land and land development loans
    
    
    76,029
    
    
    
    11.94
    
    
    
    88,604
    
    
    
    13.18Agriculture loans
    
    
    101,029
    
    
    
    15.86
    
    
    
    110,256
    
    
    
    16.40Multifamily loans
    
    
    28,107
    
    
    
    4.41
    
    
    
    18,067
    
    
    
    2.69Residential real estate loans
    
    
    62,794
    
    
    
    9.86
    
    
    
    65,544
    
    
    
    9.75Residential construction loans
    
    
    4,715
    
    
    
    0.74
    
    
    
    16,626
    
    
    
    2.47Consumer loans
    
    
    16,044
    
    
    
    2.52
    
    
    
    18,287
    
    
    
    2.72Municipal loans
    
    
    5,269
    
    
    
    0.83
    
    
    
    5,061
    
    
    
    0.75Total loans
    
    
    636,893
    
    
    
    100.00
    
    
    
    672,314
    
    
    
    100.00Allowance for loan losses
    
    
    (13,743
    )
    
    
    
    
    
    
    (16,608
    )Deferred loan fees, net of direct origination costs
    
    
    (21
    )
    
    
    
    
    
    
    (104
    )Loans receivable, net
    
    $
    623,129
    
    
    
    
    
    
    $
    655,602Weighted average interest rate
    
    
    6.12
    %
    
    
    
    
    
    
    6.15
    %
    34




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##### Table of Contents



Geographic Distribution
  E. Oregon,
    
    
    
    
    
    
    
    
    
    
    % of LoanNorth Idaho 
    
    
    Magic
    
    
    Greater
    
    
    SW Idaho,
    
    
    
    
    
    
    
    
    
    
    type toEastern
    
    
    Valley
    
    
    Boise
    
    
    excluding
    
    
    
    
    
    
    
    
    
    
    totalLoan Portfolio by Location
    
    Washington
    
    
    Idaho
    
    
    Area
    
    
    Boise
    
    
    Other
    
    
    Total
    
    
    loans(Dollars in thousands)Commercial loans
    
    $
    102,346
    
    
    $
    10,550
    
    
    $
    12,639
    
    
    $
    16,438
    
    
    $
    1,962
    
    
    $
    143,935
    
    
    
    22.6
    %Commercial real estate loans
    
    
    117,781
    
    
    
    15,238
    
    
    
    18,851
    
    
    
    14,962
    
    
    
    11,684
    
    
    
    178,516
    
    
    
    28.0
    %Commercial construction loans
    
    
    9,727
    
    
    
    1,382
    
    
    
    8,148
    
    
    
    1,198
    
    
    
    
    
    
    
    20,455
    
    
    
    3.2
    %Land and land development loans
    
    
    54,361
    
    
    
    6,277
    
    
    
    10,182
    
    
    
    3,676
    
    
    
    1,533
    
    
    
    76,029
    
    
    
    11.9
    %Agriculture loans
    
    
    1,506
    
    
    
    8,660
    
    
    
    19,161
    
    
    
    70,050
    
    
    
    1,652
    
    
    
    101,029
    
    
    
    15.9
    %Multifamily loans
    
    
    19,595
    
    
    
    
    
    
    
    849
    
    
    
    
    
    
    
    7,663
    
    
    
    28,107
    
    
    
    4.4
    %Residential real estate loans
    
    
    39,789
    
    
    
    6,362
    
    
    
    4,189
    
    
    
    8,192
    
    
    
    4,262
    
    
    
    62,794
    
    
    
    9.9
    %Residential construction loans
    
    
    3,457
    
    
    
    607
    
    
    
    630
    
    
    
    21
    
    
    
    
    
    
    
    4,715
    
    
    
    0.8
    %Consumer loans
    
    
    8,705
    
    
    
    1,830
    
    
    
    1,260
    
    
    
    3,715
    
    
    
    534
    
    
    
    16,044
    
    
    
    2.5
    %Municipal loans
    
    
    5,112
    
    
    
    157
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,269
    
    
    
    0.8
    %Total
    
    $
    362,379
    
    
    $
    51,063
    
    
    $
    75,909
    
    
    $
    118,252
    
    
    $
    29,290
    
    
    $
    636,893
    
    
    
    100.0
    %Percent of total loans in
geographic area
    
    
    56.90
    %
    
    
    8.02
    %
    
    
    11.92
    %
    
    
    18.56
    %
    
    
    4.60
    %
    
    
    100.00
    %Percent of total loans where
real 
estate is the primary
collateral
    
    
    67.61
    %
    
    
    64.65
    %
    
    
    59.63
    %
    
    
    40.99
    %
    
    
    86.40
    %
    
    
    62.34
    %
   35




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Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    %Change
    
    
    2010
    
    
    2009
    
    
    %Change(Dollars in thousands)Commercial
    
    $
    34,365
    
    
    $
    39,682
    
    
    
    (13.4
    )
    
    $
    80,037
    
    
    $
    86,657
    
    
    
    (7.6
    )Commercial real estate
    
    
    8,301
    
    
    
    35,742
    
    
    
    (76.8
    )
    
    
    35,726
    
    
    
    51,065
    
    
    
    (30.0
    )Residential real estate
    
    
    10,449
    
    
    
    38,540
    
    
    
    (72.9
    )
    
    
    25,033
    
    
    
    66,827
    
    
    
    (62.5
    )Consumer
    
    
    1,252
    
    
    
    2,461
    
    
    
    (49.1
    )
    
    
    2,347
    
    
    
    4,917
    
    
    
    (52.3
    )Municipal
    
    
    833
    
    
    
    218
    
    
    
    282.2
    
    
    
    834
    
    
    
    696
    
    
    
    19.7Total loans originated
    
    $
    55,200
    
    
    $
    116,643
    
    
    
    (52.7
    )
    
    $
    143,977
    
    
    $
    210,162
    
    
    
    (31.5
    )
  Office Properties and Equipment.
 Other Real Estate Owned.
 Other Real Estate Owned Activity
 2010
    
    
    2009(Dollars in thousands)Balance, beginning of period, January 1
    
    $
    11,538
    
    
    $
    4,541Additions to OREO
    
    
    4,928
    
    
    
    11,270Proceeds from sale of OREO
    
    
    (5,817
    )
    
    
    (1,012
    )Valuation Adjustments in the period(1)
    
    
    (1,895
    )
    
    
    (1,149
    )Balance, end of period, June 30
    
    $
    8,754
    
    
    $
    13,650
 
 (1)
    
    Amount includes chargedowns and gains/losses on sale of OREO Intangible Assets.
 BOLI and All Other Assets
 Deposits
 36




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##### Table of Contents



June 30, 2010
    
    
    December 31, 2009Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Non-interest bearing demand accounts
    
    $
    162,137
    
    
    
    20.1
    
    
    $
    168,244
    
    
    
    20.5NOW and money market 0.0% to 4.65%
    
    
    349,955
    
    
    
    43.4
    
    
    
    340,070
    
    
    
    41.5Savings and IRA 0.0% to 5.75%
    
    
    77,549
    
    
    
    9.6
    
    
    
    77,623
    
    
    
    9.5Certificate of deposit accounts (CDs)
    
    
    84,672
    
    
    
    10.5
    
    
    
    86,381
    
    
    
    10.6Jumbo CDs
    
    
    79,720
    
    
    
    9.9
    
    
    
    82,249
    
    
    
    10.0Brokered CDs
    
    
    45,348
    
    
    
    5.6
    
    
    
    54,428
    
    
    
    6.6CDARS CDs to local customers
    
    
    7,399
    
    
    
    0.9
    
    
    
    10,326
    
    
    
    1.3Total deposits
    
    $
    806,780
    
    
    
    100.0
    
    
    $
    819,321
    
    
    
    100.0Weighted average interest rate on certificates of deposit
    
    
    
    
    
    
    2.11
    %
    
    
    
    
    
    
    2.52
    %Core Deposits as a percentage of total deposits (1)
    
    
    
    
    
    
    83.1
    %
    
    
    
    
    
    
    81.6
    %Deposits generated from the Companys market area as a %
of total deposits
    
    
    
    
    
    
    94.4
    %
    
    
    
    
    
    
    93.4
    %
 
 (1)
    
    Core deposits consist of non-interest bearing checking, money market checking, savings
accounts, and certificate of deposit accounts of less than $100,000 (excluding public
deposits).    June 30,
    
    
    % of total
    
    
    December 31,
    
    
    % of total
    
    
    June 30,
    
    
    % of totalDeposits by Location
    
    2010
    
    
    deposits
    
    
    2009
    
    
    deposits
    
    
    2009
    
    
    depositsNorth Idaho  Eastern Washington
    
    $
    389,935
    
    
    
    48.4
    %
    
    $
    402,620
    
    
    
    49.1
    %
    
    $
    385,521
    
    
    
    46.6
    %Magic Valley Idaho
    
    
    71,047
    
    
    
    8.8
    %
    
    
    69,430
    
    
    
    8.5
    %
    
    
    69,325
    
    
    
    8.4
    %Greater Boise Area
    
    
    76,879
    
    
    
    9.5
    %
    
    
    77,291
    
    
    
    9.4
    %
    
    
    70,914
    
    
    
    8.6
    %Southwest Idaho  Oregon, excluding Boise
    
    
    166,452
    
    
    
    20.6
    %
    
    
    158,919
    
    
    
    19.4
    %
    
    
    158,640
    
    
    
    19.2
    %Administration, Secured Savings
    
    
    102,467
    
    
    
    12.7
    %
    
    
    111,061
    
    
    
    13.6
    %
    
    
    143,146
    
    
    
    17.2
    %Total
    
    $
    806,780
    
    
    
    100.0
    %
    
    $
    819,321
    
    
    
    100.0
    %
    
    $
    827,546
    
    
    
    100.0
    %
  Borrowings
 37




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Interest Rate Risk
      38




---



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Liquidity and Sources of Funds
         39




---



##### Table of Contents



Capital Resources
      Notes to Consolidated Financial Statements
   40




---



##### Table of Contents



Well-CapitalizedActual
    
    Capital Requirements
    
    RequirementsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal capital (to risk-weighted assets):The Company
    
    $
    87,743
    
    
    
    11.69
    %
    
    $
    60,029
    
    
    
    8
    %
    
    $
    75,036
    
    
    
    10
    %Panhandle State Bank
    
    
    90,599
    
    
    
    12.07
    %
    
    
    60,030
    
    
    
    8
    %
    
    
    75,038
    
    
    
    10
    %Tier I capital (to risk-weighted assets):The Company
    
    
    78,310
    
    
    
    10.44
    %
    
    
    30,014
    
    
    
    4
    %
    
    
    45,021
    
    
    
    6
    %Panhandle State Bank
    
    
    81,166
    
    
    
    10.82
    %
    
    
    30,015
    
    
    
    4
    %
    
    
    45,023
    
    
    
    6
    %Tier I capital (to average assets):The Company
    
    
    78,310
    
    
    
    7.54
    %
    
    
    41,523
    
    
    
    4
    %
    
    
    51,904
    
    
    
    5
    %Panhandle State Bank
    
    
    81,166
    
    
    
    7.84
    %
    
    
    41,421
    
    
    
    4
    %
    
    
    51,776
    
    
    
    5
    %
   Off Balance Sheet Arrangements and Contractual Obligations
  Tabular Disclosure of Contractual Obligations
  41




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##### Table of Contents



Payments Due by PeriodLess than
    
    
    1 to
    
    
    Over 3 to
    
    
    More thanTotal
    
    
    1 Year
    
    
    3 Years
    
    
    5 Years
    
    
    5 Years(in thousands)Long-term debt(1)
    
    $
    95,458
    
    
    $
    1,283
    
    
    $
    62,047
    
    
    $
    5,289
    
    
    $
    26,839Short-term debt
    
    
    83,666
    
    
    
    83,666
    
    
    
    
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations(2)
    
    
    14,286
    
    
    
    1,000
    
    
    
    1,844
    
    
    
    1,573
    
    
    
    9,869Direct financing obligations(3)
    
    
    35,360
    
    
    
    1,635
    
    
    
    3,270
    
    
    
    3,352
    
    
    
    27,103Total
    
    $
    228,770
    
    
    $
    87,584
    
    
    $
    67,161
    
    
    $
    10,214
    
    
    $
    63,811
 
 (1)
    
    Includes interest payments related to long-term debt agreements.(2)
    
    Excludes recurring accounts payable, accrued expenses and other liabilities, repurchase
agreements and customer deposits, all of which are recorded on the registrants balance sheet.
See Notes 4 and 5 of Notes to Consolidated Financial Statements.(3)
    
    Sandpoint Center Building lease payments related to direct financing transaction executed in
August 2009. New Accounting Pronouncements
      Forward-Looking Statements
 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 This report contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to,
statements about our plans, objectives, expectations and intentions that are not historical facts,
and other statements identified by words such as expects, anticipates, intends, plans,
believes,, will likely, should, projects, seeks, estimates or words of similar meaning.
These forward-looking statements are based on current beliefs and expectations of management and
are inherently subject to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond our control. In addition, these forward-looking statements
are subject to
 42




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##### Table of Contents



assumptions with respect to future business strategies and decisions that are subject to
change. In addition to the factors set forth in the sections titled Risk Factors, Business and
Managements Discussion and Analysis of Financial Condition and Results of Operations, as
applicable, in this report and in our Annual Report on Form 10-K for the year ended December 31,
2009, the following factors, among others, could cause actual results to differ materially from the
anticipated results:
 
    
    inflation and interest rate levels, and market and monetary fluctuations;
    
    the risks associated with lending and potential adverse changes in credit quality;
    
    changes in market interest rates and spreads, which could adversely affect our net
interest income and profitability;
    
    increased delinquency rates;
    
    trade, monetary and fiscal policies and laws, including interest rate and income tax
policies of the federal government;
    
    applicable laws and regulations and legislative or regulatory changes, including the
ultimate financial and operational burden of the recently enacted financial regulatory
reform legislation and related regulations;
    
    the timely development and acceptance of new products and services of Intermountain;
    
    the willingness of customers to substitute competitors products and services for
Intermountains products and services;
    
    technological and management changes;
    
    our ability to recruit and retain key management and staff;
    
    changes in estimates and assumptions used in financial accounting;
    
    the Companys critical accounting policies and the implementation of such policies;
    
    growth and acquisition strategies;
    
    lower-than-expected revenue or cost savings or other issues in connection with mergers
and acquisitions;
    
    changes in consumer spending, saving and borrowing habits;
    
    the strength of the United States economy in general and the strength of the local
economies in which Intermountain conducts its operations;
    
    declines in real estate values supporting loan collateral;
    
    our ability to attract new deposits and loans and leases;
    
    competitive market pricing factors;
    
    further deterioration in economic conditions that could result in increased loan and
lease losses;
    
    risks associated with concentrations in real estate-related loans;
    
    stability of funding sources and continued availability of borrowings;
    
    Intermountains success in gaining regulatory approvals, when required;
    
    results of regulatory examinations that could restrict growth;
    
    our ability to comply with the requirements of regulatory orders issued to us and/or our
banking subsidiary;
 43




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##### Table of Contents




    
    significant decline in the market value of the Company that could result in an impairment
of goodwill;
    
    our ability to raise capital or incur debt on reasonable terms;
    
    regulatory limits on our subsidiary banks ability to pay dividends to the Company;
    
    effectiveness of the Emergency Economic Stabilization Act of 2008 (EESA), the American
Recovery and Reinvestment Act of 2009 (ARRA), and other legislative and regulatory efforts
to help stabilize the U.S. financial markets;
    
    future legislative or administrative changes to the Troubled Asset Relief Program
(TARP) Capital Purchase Program enacted under EESA; and
    
    the impact of EESA and ARRA and related rules and regulations on our business operations
and competitiveness, including the impact of executive compensation restrictions, which may
affect our ability to retain and recruit executives in competition with other firms who do
not operate under those restrictions; and
    
    Intermountains success at managing the risks involved in the foregoing.
  
 Item 3  Quantitative and Qualitative Disclosures About Market Risk
 There have not been any material changes to the information set forth under the caption Item 7A.
Quantitative and Qualitative Disclosures about Market Risk included in the Companys Annual
Report on Form 10-K for the year ended December 31, 2009.
 
 Item 4  Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Control over Financial Reporting
 
 PART II  Other Information
 
 Item 1  Legal Proceedings
  
 Item 1A. RISK FACTORS
 Our business exposes us to certain risks. The following is a discussion of what we currently
believe are the most significant risks
and uncertainties that may affect our business, financial condition or results of operations, or
the value of our common stock.
 44




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##### Table of Contents



We cannot accurately predict the effect of the current economic downturn on our future results of
operations or market price of our stock.
  The current economic downturn in the market areas we serve may continue to adversely impact our
earnings and could increase our credit risk associated with our loan portfolio.
  
    
    economic conditions may worsen, increasing the likelihood of credit defaults by
borrowers;
    
    loan collateral values, especially as they relate to commercial and residential real
estate, may decline further, thereby increasing the severity of loss in the event of loan
defaults;
    
    nonperforming assets and write-downs of assets underlying troubled credits could
adversely affect our earnings;
    
    demand for banking products and services may decline, including services for low cost and
non-interest-bearing deposits; and
    
    changes and volatility in interest rates may negatively impact the yields on earning
assets and the cost of interest-bearing liabilities.
 Our allowance for loan losses may not be adequate to cover actual loan losses, which could
adversely affect our earnings.
  We have entered into an informal agreement with our regulators to take steps to further strengthen
the Bank.
  45




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We will pursue additional capital in the future, which could dilute the holders of our outstanding
common stock and may adversely affect the market price of our common stock.
  We incurred a significant loss over the last fiscal year and losses may continue in the future.
  Concentration in real estate loans and the deterioration in the real estate markets we serve could
require material increases in our allowance for loan losses and adversely affect our financial
condition and results of operations.
  Non-performing assets take significant time to resolve and adversely affect our results of
operations and financial condition.
  46




---



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Our ability to receive dividends from our banking subsidiary accounts for most of our revenue and
could affect our liquidity and ability to pay dividends.
   A continued tightening of credit markets and liquidity risk could adversely affect our business,
financial condition and results of operations.
  The FDIC has increased insurance premiums and imposed special assessments to rebuild and maintain
the federal deposit insurance fund, and any additional future premium increases or special
assessments could have a material adverse effect on our business, financial condition and results
of operations.
     47




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##### Table of Contents



If the goodwill recorded in connection with acquisitions becomes impaired, it could have an
adverse impact on earnings and capital.
  We may be required, in the future, to recognize impairment with respect to investment securities,
including the FHLB stock we hold.
   Recent levels of market volatility were unprecedented and we cannot predict whether they will
return.
  We operate in a highly regulated environment and we cannot predict the effects of recent and
pending federal legislation.
  48




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Fluctuating interest rates could adversely affect our profitability.
  Fluctuations in interest rates on loans could adversely affect our business.
  We face strong competition from financial services companies and other companies that offer
banking services.
  49




---



##### Table of Contents



We may not be able to successfully implement our internal growth strategy.
  Certain built-in losses could be limited if we experience an ownership change, as defined in the
Internal Revenue Code.
  Unexpected losses or our inability to successfully implement our tax planning strategies in future
reporting periods may require us to establish a valuation allowance against our deferred income
tax assets.
  Changes in accounting standards could materially impact our financial statements.
  50




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##### Table of Contents



The Preferred Stock diminishes the net income available to our common stockholders and earnings
per common share.
   Holders of the Preferred Stock have certain voting rights that may adversely affect our common
stockholders, and the holders of the Preferred Stock may have interests different from our common
stockholders.
  
    
    any authorization or issuance of shares ranking senior to the Preferred Stock;
    
    any amendments to the rights of the Preferred Stock so as to adversely affect the rights,
preferences, privileges or voting power of the Preferred Stock; or
    
    consummation of any merger, share exchange or similar transaction unless the shares of
Preferred Stock remain outstanding, or if we are not the surviving entity in such
transaction, are converted into or exchanged for preference securities of the surviving
entity and the shares of Preferred Stock remaining outstanding or such preference securities
have the rights, preferences, privileges and voting power of the Preferred Stock.
  Because of our participation in TARP, we are subject to restrictions on compensation paid to our
executives.
  51




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##### Table of Contents




    
    ensuring that incentive compensation for senior executives does not encourage unnecessary
and excessive risks that threaten the value of Intermountain;
    
    a prohibition on cash incentive bonuses to our five most highly-compensated employees,
subject to limited exceptions;
    
    a prohibition on equity compensation awards to our five most highly-compensated employees
other than long-term restricted stock that cannot be sold, other than to pay related taxes,
until Treasury no longer holds the Series A Preferred Stock;
    
    a prohibition on any severance or change-in-control payments to our senior executive
officers and next five most highly-compensated employees;
    
    a required recovery or clawback of any bonus or incentive compensation paid to a senior
executive officer or any of the next twenty most highly compensated employees based on
financial or other performance criteria that are later proven to be materially
inaccurate; and
    
    an agreement not to deduct for tax purposes annual compensation in excess of $500,000 for
each senior executive officer.
  
 Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3  Defaults Upon Senior Securities
  
 Item 4  [Removed and Reserved]
 
 Item 5  Other Information
  
 Item 6  Exhibits
 Exhibit No.
    
    Exhibit31.1
    
    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.
 52




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##### Table of Contents



Signatures
  INTERMOUNTAIN COMMUNITY BANCORP(Registrant)August 13, 2010
    
    By:
    
    /s/ Curt HeckerDate
    
    
    
    Curt HeckerPresident and Chief Executive OfficerAugust 13, 2010
    
    By:
    
    /s/ Doug WrightDate
    
    
    
    Doug WrightExecutive Vice President and Chief Financial
Officer
 53