##### 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 1934FOR THE QUARTERLY PERIOD ENDED September 30, 2005 
 
OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM
           TO
 Commission File Number 000-50667
 INTERMOUNTAIN COMMUNITY BANCORP
  Idaho
    
    82-0499463(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 231 N. Third Avenue, Sandpoint, Idaho 83864
 (208) 263-0505
 þ o
 o þ
 o þ
  Class
    
    Outstanding as of November 1, 2005Common Stock (no par value)
    
    5,852,528
   1




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Intermountain Community Bancorp
 FORM 10-Q
For the Quarter Ended September 30, 2005
 TABLE OF CONTENTS
 PART I  Financial InformationItem 1-
    
    Financial Statements (Unaudited)Consolidated Balance Sheets for September 30, 2005 and December 31, 2004Consolidated Statements of Income for the three and nine months ended September
30, 2005 and 2004Consolidated Statements of Cash Flows for the nine months ended September 30,
2005 and 2004Consolidated Statements of Comprehensive Income for the three and nine months
ended September 30, 2005 and 2004Notes to Consolidated Financial StatementsItem 2-
    
    Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3-
    
    Quantitative and Qualitative Disclosures about Market RiskItem 4-
    
    Controls and ProceduresPART II  Other InformationItem 1-
    
    Legal ProceedingsItem 2-
    
    Unregistered Sales of Equity Securities and Use of ProceedsItem 3-
    
    Defaults Upon Senior SecuritiesItem 4-
    
    Submission of Matters to a Vote of Security HoldersItem 5-
    
    Other InformationItem 6-
    
    ExhibitsSignaturesEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  2




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##### Table of Contents



PART I  Financial Information
 
 Item 1  Financial Statements
 Intermountain Community Bancorp
 
 Consolidated Balance Sheets
 (Unaudited)
 September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)ASSETS:Cash and cash equivalents:Interest bearing
    
    $
    667
    
    
    $
    104Non-interest bearing and vault
    
    
    25,486
    
    
    
    14,098Restricted
    
    
    647
    
    
    
    1,634Federal funds sold
    
    
    2,425
    
    
    
    8,330Interest bearing certificates of deposit
    
    
    
    
    
    
    100Available for sale securities, at fair value
    
    
    104,617
    
    
    
    102,758Held to maturity securities, at amortized cost
    
    
    6,857
    
    
    
    5,409Federal Home Loan Bank of Seattle (FHLB) stock, at cost
    
    
    1,774
    
    
    
    1,210Loans held for sale
    
    
    6,007
    
    
    
    5,686Loans receivable, net
    
    
    537,882
    
    
    
    418,661Accrued interest receivable
    
    
    4,900
    
    
    
    3,722Office properties and equipment, net
    
    
    15,566
    
    
    
    12,941Bank-owned life insurance
    
    
    7,018
    
    
    
    6,795Goodwill
    
    
    11,399
    
    
    
    11,399Other intangible assets, net
    
    
    1,096
    
    
    
    1,238Prepaid expenses and other assets, net
    
    
    4,439
    
    
    
    3,595Total assets
    
    $
    730,780
    
    
    $
    597,680LIABILITIES:Deposits
    
    $
    593,374
    
    
    $
    500,923Securities sold subject to repurchase agreements
    
    
    47,193
    
    
    
    20,901Advances from Federal Home Loan Bank of Seattle
    
    
    10,000
    
    
    
    5,000Cashiers checks issued and payable
    
    
    9,231
    
    
    
    5,478Accrued interest payable
    
    
    1,033
    
    
    
    753Other borrowings
    
    
    16,527
    
    
    
    16,527Accrued expenses and other liabilities
    
    
    3,285
    
    
    
    3,534Total liabilities
    
    
    680,643
    
    
    
    553,116Commitments and contingent liabilitiesSTOCKHOLDERS EQUITY:Common stock, no par value; 24,000,000 and 7,084,000
shares authorized; 5,870,683 and 3,784,180 shares issued;
5,849,163 and 3,784,180 shares outstanding
    
    
    31,651
    
    
    
    30,314Unearned compensation  restricted stock
    
    
    (325
    )
    
    
    Accumulated other comprehensive loss
    
    
    (1,063
    )
    
    
    (509
    )Retained earnings
    
    
    19,874
    
    
    
    14,759Total stockholders equity
    
    
    50,137
    
    
    
    44,564Total liabilities and stockholders equity
    
    $
    730,780
    
    
    $
    597,680
  3




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##### Table of Contents



Intermountain Community Bancorp
 
 Consolidated Statements of Income
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands, except per share data)Interest income:Loans
    
    $
    10,325
    
    
    $
    5,514
    
    
    $
    26,651
    
    
    $
    15,455Investments
    
    
    955
    
    
    
    832
    
    
    
    2,848
    
    
    
    2,377Total interest income
    
    
    11,280
    
    
    
    6,346
    
    
    
    29,499
    
    
    
    17,832Interest expense:Deposits
    
    
    2,195
    
    
    
    1,156
    
    
    
    5,767
    
    
    
    3,211Other borrowings
    
    
    768
    
    
    
    302
    
    
    
    1,828
    
    
    
    771Total interest expense
    
    
    2,963
    
    
    
    1,458
    
    
    
    7,595
    
    
    
    3,982Net interest income
    
    
    8,317
    
    
    
    4,888
    
    
    
    21,904
    
    
    
    13,850Provision for losses on loans
    
    
    (937
    )
    
    
    (168
    )
    
    
    (2,229
    )
    
    
    (997
    )Net interest income after provision for losses on
loans
    
    
    7,380
    
    
    
    4,720
    
    
    
    19,675
    
    
    
    12,853Other income:Fees and service charges
    
    
    2,148
    
    
    
    1,568
    
    
    
    6,017
    
    
    
    4,306Bank owned life insurance
    
    
    77
    
    
    
    63
    
    
    
    223
    
    
    
    191Gain (loss) on sale of securities
    
    
    (2
    )
    
    
    46
    
    
    
    (43
    )
    
    
    33Other
    
    
    278
    
    
    
    227
    
    
    
    814
    
    
    
    608Total other income
    
    
    2,501
    
    
    
    1,904
    
    
    
    7,011
    
    
    
    5,138Operating expenses
    
    
    6,657
    
    
    
    4,644
    
    
    
    18,660
    
    
    
    12,909Income before income taxes
    
    
    3,224
    
    
    
    1,980
    
    
    
    8,026
    
    
    
    5,082Income tax provision
    
    
    (1,176
    )
    
    
    (721
    )
    
    
    (2,909
    )
    
    
    (1,822
    )Net income
    
    $
    2,048
    
    
    $
    1,259
    
    
    $
    5,117
    
    
    $
    3,260Earnings per share  basic
    
    $
    0.35
    
    
    $
    0.26
    
    
    $
    0.89
    
    
    $
    0.68Earnings per share  diluted
    
    $
    0.33
    
    
    $
    0.23
    
    
    $
    0.82
    
    
    $
    0.61Weighted average shares outstanding  basic
    
    
    5,822,575
    
    
    
    4,842,370
    
    
    
    5,767,197
    
    
    
    4,811,742Weighted average shares outstanding  diluted
    
    
    6,258,144
    
    
    
    5,374,627
    
    
    
    6,237,208
    
    
    
    5,366,068
  4




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##### Table of Contents



Intermountain Community Bancorp
 
 Consolidated Statements of Cash Flows
 (Unaudited)
 Nine Months EndedSeptember 30,2005
    
    
    2004(Dollars in thousands)Cash flows from operating activities:Net income
    
    $
    5,117
    
    
    $
    3,260Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation
    
    
    1,227
    
    
    
    948Stock issued as compensation
    
    
    35
    
    
    
    27Amortization of unearned compensation
    
    
    20
    
    
    
    Net amortization of premiums and discounts on securities
    
    
    132
    
    
    
    370Stock dividends on FHLB stock
    
    
    
    
    
    
    (26
    )Provisions for losses on loans
    
    
    2,229
    
    
    
    997Amortization of core deposit intangibles
    
    
    142
    
    
    
    53(Gain) loss on sale of securities
    
    
    43
    
    
    
    (33
    )(Gain) loss on sale of loans
    
    
    26
    
    
    
    (2
    )Gain on sale of other real estate owned
    
    
    (133
    )
    
    
    Net accretion of loan and deposit discounts and premiums
    
    
    (118
    )
    
    
    (123
    )Increase in cash surrender value of bank-owned life insurance
    
    
    (223
    )
    
    
    (191
    )Change inLoans held for sale
    
    
    (321
    )
    
    
    (1,563
    )Accrued interest receivable
    
    
    (1,178
    )
    
    
    (491
    )Prepaid expenses and other assets
    
    
    (1,502
    )
    
    
    (359
    )Accrued interest payable
    
    
    280
    
    
    
    303Accrued expenses and other liabilities
    
    
    3,679
    
    
    
    287Net cash provided by operating activities
    
    
    9,455
    
    
    
    3,457Cash flows from investing activities:Purchases of available-for-sale securities
    
    
    (36,477
    )
    
    
    (46,881
    )Proceeds from calls or maturities of available-for-sale securities
    
    
    22,939
    
    
    
    21,706Principal payments on mortgage-backed securities
    
    
    10,631
    
    
    
    10,900Purchases of held-to-maturity securities
    
    
    (1,929
    )
    
    
    (512
    )Proceeds from calls or maturities of held-to-maturity securities
    
    
    450
    
    
    
    199Origination of loans, net of principal payments
    
    
    (122,579
    )
    
    
    (50,624
    )Proceeds from sale of loans
    
    
    1,278
    
    
    
    2,724Purchase of office properties and equipment
    
    
    (3,853
    )
    
    
    (1,982
    )Net change in federal funds sold
    
    
    5,905
    
    
    
    (9,690
    )Purchase of FHLB stock
    
    
    (565
    )
    
    
    (433
    )Proceeds from maturities of certificates of deposit
    
    
    100
    
    
    
    298Proceeds from sales of other real estate owned
    
    
    1,142
    
    
    
    Net (increase) decrease in restricted cash
    
    
    987
    
    
    
    151Investment in affiliate
    
    
    
    
    
    
    (248
    )Net cash used in investing activities
    
    
    (121,971
    )
    
    
    (74,392
    )
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Intermountain Community Bancorp
Consolidated Statements of Cash Flows (continued)
(Unaudited)
 Nine Months EndedSeptember 30,2005
    
    
    2004(Dollars in thousands)Cash flows from financing activities:Net increase in demand, money market and savings deposits
    
    $
    77,963
    
    
    $
    49,952Net increase in certificates of deposit
    
    
    14,428
    
    
    
    17,284Net change in repurchase agreements
    
    
    26,292
    
    
    
    (3,683
    )Proceeds from exercise of stock options
    
    
    786
    
    
    
    421Payments for fractional shares
    
    
    (2
    )
    
    
    Repurchase of stock
    
    
    
    
    
    
    (47
    )Proceeds from debenture issuance
    
    
    
    
    
    
    8,248Repayments of FHLB borrowings
    
    
    (31,000
    )
    
    
    Proceeds from FHLB borrowings
    
    
    36,000
    
    
    
    Net cash provided by financing activities
    
    
    124,467
    
    
    
    72,175Net change in cash and cash equivalents
    
    
    11,951
    
    
    
    1,240Cash and cash equivalents, beginning of period
    
    
    14,202
    
    
    
    10,240Cash and cash equivalents, end of period
    
    $
    26,153
    
    
    $
    11,480Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    7,256
    
    
    $
    3,673Income taxes
    
    
    3,343
    
    
    
    1,871Restricted shares issued
    
    
    345
    
    
    
    
  6




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##### Table of Contents



Intermountain Community Bancorp
 
 Consolidated Statements of Comprehensive Income
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Net income
    
    $
    2,048
    
    
    $
    1,259
    
    
    $
    5,117
    
    
    $
    3,260Other comprehensive income (loss):Change in unrealized gains (losses) on
investments, net of reclassification adjustments
    
    
    (450
    )
    
    
    1,013
    
    
    
    (904
    )
    
    
    (992
    )Less deferred income tax benefit (provision)
    
    
    172
    
    
    
    (398
    )
    
    
    350
    
    
    
    388Net other comprehensive income (loss)
    
    
    (278
    )
    
    
    615
    
    
    
    (554
    )
    
    
    (604
    )Comprehensive income
    
    $
    1,770
    
    
    $
    1,874
    
    
    $
    4,563
    
    
    $
    2,656
  7




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##### Table of Contents



Intermountain Community Bancorp
 
 Notes to Consolidated Financial Statements
 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, 2004. In the
opinion of management, the unaudited interim consolidated financial statements furnished
herein include all 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) 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.
    
    Advances from the Federal Home Loan Bank of Seattle:The Company had advances from the Federal Home Loan Bank of Seattle totaling $10.0 million
at September 30, 2005. The first advance totals $5.0 million, bears a fixed interest rate
of 2.71% and matures on June 18, 2008. The second advance totals $5.0 million, bears a
fixed interest rate of 3.90% and matures on October 19, 2005.3.
    
    Other Borrowings:The components of other borrowings are as follows (in thousands):
 September 30,
    
    
    December 31,2005
    
    
    2004Term note payable(1)
    
    $
    8,279
    
    
    $
    8,279Term note payable(2)
    
    
    8,248
    
    
    
    8,248Total other borrowings
    
    $
    16,527
    
    
    $
    16,527
    8




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##### Table of Contents



4.
    
    Earnings Per Share:The following table presents the basic and diluted earnings per share computations (dollars
in thousands, except per share amounts):
 Three Months Ended September 30,2005
    
    
    
    
    
    
    
    
    
    
    2004Net
    
    
    Weighted
    
    
    Per Share
    
    
    Net
    
    
    Weighted
    
    
    Per ShareIncome
    
    
    Avg. Shares(1)
    
    
    Amount
    
    
    Income
    
    
    Avg. Shares(1)
    
    
    AmountBasic computations
    
    $
    2,048
    
    
    
    5,822,575
    
    
    $
    0.35
    
    
    $
    1,259
    
    
    
    4,842,370
    
    
    $
    0.26Effect of dilutive
securities:Common stock
options and
restricted shares
    
    
    
    
    
    
    435,569
    
    
    
    (0.02
    )
    
    
    
    
    
    
    532,257
    
    
    
    (0.03
    )Diluted computations
    
    $
    2,048
    
    
    
    6,258,144
    
    
    $
    0.33
    
    
    $
    1,259
    
    
    
    5,374,627
    
    
    $
    0.23Antidilutive
options not included in
diluted earnings per
share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,750
 Nine Months Ended September 30,2005
    
    
    
    
    
    
    
    
    
    
    2004Net
    
    
    Weighted
    
    
    Per Share
    
    
    Net
    
    
    Weighted
    
    
    Per ShareIncome
    
    
    Avg. Shares(1)
    
    
    Amount
    
    
    Income
    
    
    Avg. Shares(1)
    
    
    AmountBasic computations
    
    $
    5,117
    
    
    
    5,767,197
    
    
    $
    0.89
    
    
    $
    3,260
    
    
    
    4,811,742
    
    
    $
    0.68Effect of dilutive
securities:Common stock
options and
restricted shares
    
    
    
    
    
    
    470,011
    
    
    
    (0.07
    )
    
    
    
    
    
    
    554,326
    
    
    
    (0.07
    )Diluted computations
    
    $
    5,117
    
    
    
    6,237,208
    
    
    $
    0.82
    
    
    $
    3,260
    
    
    
    5,366,068
    
    
    $
    0.61Antidilutive
options not included in
diluted earnings per
share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,770
  9




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##### Table of Contents



5.
    
    Operating Expenses:The following table details Intermountains components of total operating expenses:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Salaries and employee benefits
    
    $
    3,941
    
    
    $
    2,588
    
    
    $
    10,594
    
    
    $
    7,071Occupancy expense
    
    
    967
    
    
    
    768
    
    
    
    2,825
    
    
    
    2,002Advertising
    
    
    227
    
    
    
    170
    
    
    
    530
    
    
    
    395Fees and service charges
    
    
    220
    
    
    
    202
    
    
    
    728
    
    
    
    782Printing, postage and supplies
    
    
    321
    
    
    
    243
    
    
    
    875
    
    
    
    638Legal and accounting
    
    
    265
    
    
    
    154
    
    
    
    873
    
    
    
    547Other expense
    
    
    716
    
    
    
    519
    
    
    
    2,235
    
    
    
    1,474Total operating expenses
    
    $
    6,657
    
    
    $
    4,644
    
    
    $
    18,660
    
    
    $
    12,909
 6.
    
    Stock Options:As allowed by Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123), Intermountain has elected to retain the
compensation measurement principles of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB No. 25), and its related interpretations,
for stock options. Under APB No. 25, compensation cost is recognized at the measurement
date of the amount, if any, that the quoted market price of Intermountains common stock
exceeds the option exercise price. The measurement date is the date at which both the
number of options and the exercise price for each option are known.
 10




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##### Table of Contents



Had compensation cost for Intermountains plans been determined based on the fair value at
the grant dates for awards under the plans, Intermountains reported net income and earnings
per share would have been changed to the pro forma amounts indicated below:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands, except per share amounts)Reported net income
    
    $
    2,048
    
    
    $
    1,259
    
    
    $
    5,117
    
    
    $
    3,260Add back: Stock-based employee compensation
expense, net of related tax effects
    
    
    19
    
    
    
    17
    
    
    
    33
    
    
    
    17Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects
    
    
    (46
    )
    
    
    (41
    )
    
    
    (115
    )
    
    
    (115
    )Pro forma
    
    $
    2,021
    
    
    $
    1,235
    
    
    $
    5,035
    
    
    $
    3,162Basic earnings per share:Reported earnings per share (1)
    
    $
    0.35
    
    
    $
    0.26
    
    
    $
    0.89
    
    
    $
    0.68Stock-based employee compensation, fair value
    
    
    (0.01
    )
    
    
    (0.00
    )
    
    
    (0.02
    )
    
    
    (0.02
    )Pro forma earnings per share
    
    $
    0.34
    
    
    $
    0.26
    
    
    $
    0.87
    
    
    $
    0.66Diluted earnings per share:Reported earnings per share (1)
    
    $
    0.33
    
    
    $
    0.23
    
    
    $
    0.82
    
    
    $
    0.61Stock-based employee compensation, fair value
    
    
    (0.01
    )
    
    
    (0.00
    )
    
    
    (0.01
    )
    
    
    (0.02
    )Pro forma earnings per share
    
    $
    0.32
    
    
    $
    0.23
    
    
    $
    0.81
    
    
    $
    0.59
  7.
    
    Stock Split:On February 24, 2005, the Board of Directors approved a
3-for-2 stock split which was effective March 10, 2005. The
Company issued 1,914,809 shares of common stock related to the
stock split. All shares outstanding and earnings per share
amounts have been adjusted to reflect the stock split.8.
    
    Subsequent Events:On October 19, 2005, an advance from the Federal Home Loan Bank of Seattle in the amount of
$5.0 million matured. The Company did not enter into a new advance.On November 1, 2005, Intermountain commenced a registered public offering of shares of its
common stock. The offering will conclude on December 1, 2005, or such other date as
determined by the board of directors. The offering price is $17.00 per share. The maximum
number of shares to be offered is 588,235 shares of Intermountain common stock.
Intermountain has the right to issue 117,647 additional shares of common stock to address
any over-subscriptions in the offering. Priority in the offering will be given to existing
shareholders of Intermountain Community Bancorp and customers of Panhandle State Bank and
its divisions, Intermountain Community Bank and Magic Valley Bank. Proceeds from the
offering will be used for working capital purposes and to fund continuing expansion of
Panhandle and its divisions.
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##### Table of Contents



9.
    
    New Accounting Policies:SFAS No. 123 (revised 2004) (SFAS 123R), Share-Based Payment.In December 2004, the
FASB issued Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004).
SFAS 123R replaces SFAS No. 123 Accounting for Stock-Based Compensation and supersedes
Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to
Employees. SFAS 123R will require that the compensation cost relating to share-based
payment transactions be recognized in the Companys financial statements, eliminating pro
forma disclosure as an alternative. That cost will be measured based on the grant-date fair
value of the equity or liability instruments issued. In April 2005, the U.S. Securities and
Exchange Commission delayed the mandatory adoption date of this standard. Therefore, this
statement is effective for Intermountain on January 1, 2006. The Company believes the
adoption of SFAS 123R will result in a pre-tax compensation expense of approximately
$141,000 related to options currently outstanding for the year ended December 31, 2006.SFAS No. 154, Accounting Changes and Error Corrections.In May 2005, the FASB issued SFAS
No. 154Accounting Changes and Error Correctionsa replacement of APB Opinion No. 20 and
FASB Statement No. 3. This Statement replaces APB Opinion No. 20, Accounting Changes,and
FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements,and
changes the requirements for the accounting for and reporting of a change in accounting
principle. This Statement applies to all voluntary changes in accounting principle. It also
applies to changes required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. When a pronouncement includes
specific transition provisions, those provisions should be followed. This statement is
effective for accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005.Statement of Position No. 03-3 (SOP 03-3), Accounting for Certain Loans or Debt
Securities Acquired in a Transfer.In December 2003, the Accounting Standards Executive
Committee of the AICPA issued Statement of Position No. 03-3 (SOP 03-3), Accounting for
Certain Loans or Debt Securities Acquired in a Transfer. SOP 03-3 addresses the accounting
for differences between contractual cash flows and the cash flows expected to be collected
from purchased loans or debt securities if those differences are attributable, in part, to
credit quality. SOP 03-3 is effective for loans and debt securities acquired after December
15, 2004. The implementation of SOP 03-3 did not have a material effect on Intermountains
consolidated financial statements.FSP EITF 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF
Issue No. 03-1.In June 2005, the FASB decided not to provide additional guidance on the
meaning of other-than-temporary impairment, and directed the staff to issue proposed FSP
EITF 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF Issue No.
03-1, as final. The final FSP will supersede EITF Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments, and EITF Topic
No. D-44, Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security
Whose Cost Exceeds Fair Value. The final FSP (retitled FSP FAS 115-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments) will replace the
guidance set forth in paragraphs 10-18 of EITF Issue 03-1 with references to existing
other-than-temporary impairment guidance, such as SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, SEC Staff Accounting Bulletin No. 59, Accounting
for Noncurrent Marketable Equity Securities, and APB Opinion No. 18, The Equity Method of
Accounting for Investments in Common Stock. FSP FAS 115-1 will codify the guidance set forth
in EITF Topic D-44 and clarify that an investor should recognize an impairment loss no later
than when the impairment is deemed other than temporary, even if a decision to sell has not
been made. FSP FAS 115-1 will be effective for other-than-temporary impairment analysis
conducted in periods beginning after September 15, 2005. Intermountain does not expect the
adoption of this standard to have a significant impact on Intermountains financial
statements.
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##### 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, 2004.
 General
       13




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Critical Accounting Policies
  Income Recognition .
 Allowance For Loan Losses.
    Investments .
 14




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##### Table of Contents



Goodwill and Other Intangible Assets .
  Real Estate Owned.
  Intermountain Community Bancorp
Comparison of the Three and Nine Month Periods Ended September 30, 2005 and 2004
 Results of Operations
 Overview
  15




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##### Table of Contents



Net Interest Income
   Provision for Losses on Loans.
  16




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##### Table of Contents



Nine Months Ended September 30,2005
    
    
    2004(Dollars in thousands)Balance at January 1
    
    $
    6,902
    
    
    $
    5,118Allowance associated with the sale of loans
    
    
    (96
    )
    
    
    (213
    )Provision for losses on loans
    
    
    2,229
    
    
    
    997Amounts written off, net of recoveries
    
    
    (331
    )
    
    
    (289
    )Balance at September 30
    
    $
    8,704
    
    
    $
    5,613
  Other Income.
 Operating Expenses
   Income Tax Provision
 17




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##### Table of Contents



Financial Position
 Assets
 Investments.
 Loans Receivable
  September 30, 2005
    
    
    December 31, 2004Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Commercial (includes commercial real
estate)
    
    $
    415,895
    
    
    
    75.97
    
    
    $
    304,783
    
    
    
    71.58Residential real estate
    
    
    95,617
    
    
    
    17.47
    
    
    
    94,170
    
    
    
    22.12Consumer
    
    
    32,974
    
    
    
    6.02
    
    
    
    24,245
    
    
    
    5.69Municipal
    
    
    2,951
    
    
    
    0.54
    
    
    
    2,598
    
    
    
    0.61Total loans receivable
    
    
    547,437
    
    
    
    100.00
    
    
    
    425,796
    
    
    
    100.00Net deferred origination fees
    
    
    (851
    )
    
    
    
    
    
    
    (233
    )Allowance for losses on loans
    
    
    (8,704
    )
    
    
    
    
    
    
    (6,902
    )Loans receivable, net
    
    $
    537,882
    
    
    
    
    
    
    $
    418,661Weighted average yield at end of period
    
    
    7.61
    %
    
    
    
    
    
    
    6.81
    %
 18




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    % Change
    
    
    2005
    
    
    2004
    
    
    % Change(Dollars in thousands)Commercial (includes
commercial real estate)
    
    $
    92,279
    
    
    $
    65,595
    
    
    
    40.7
    
    
    $
    315,780
    
    
    $
    207,959
    
    
    
    51.9Residential real estate
    
    
    6,789
    
    
    
    22,654
    
    
    
    (70.0
    )
    
    
    53,745
    
    
    
    61,436
    
    
    
    (12.5
    )Consumer
    
    
    36,214
    
    
    
    4,718
    
    
    
    667.5
    
    
    
    54,152
    
    
    
    11,814
    
    
    
    358.4Municipal
    
    
    4,748
    
    
    
    3,828
    
    
    
    24.0
    
    
    
    4,798
    
    
    
    3,843
    
    
    
    24.8Total loans originated
    
    $
    140,030
    
    
    $
    96,795
    
    
    
    44.7
    
    
    $
    428,475
    
    
    $
    285,052
    
    
    
    50.3
 Office Properties and Equipment.
 BOLI and All Other Assets
 Deposits
  September 30, 2005
    
    
    December 31, 2004Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Demand
    
    $
    137,367
    
    
    
    23.2
    
    
    $
    109,627
    
    
    
    21.9NOW and money market 0.0% to 2.70%
    
    
    211,092
    
    
    
    35.6
    
    
    
    171,474
    
    
    
    34.2Savings and IRA 0.0% to 6.65%
    
    
    71,717
    
    
    
    12.1
    
    
    
    61,112
    
    
    
    12.2Certificate of deposit accounts
    
    
    173,198
    
    
    
    29.1
    
    
    
    158,710
    
    
    
    31.7Total deposits
    
    $
    593,374
    
    
    
    100.0
    
    
    $
    500,923
    
    
    
    100.0Weighted average interest rate on
certificates of deposit
    
    
    
    
    
    
    3.29
    %
    
    
    
    
    
    
    2.85
    %
 Borrowings
 19




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Interest Rate Risk
       Net
Interest Income
 20




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##### Table of Contents



Liquidity and Sources of Funds
     Capital Resources
   21




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##### Table of Contents



Capital
    
    
    Well-CapitalizedActual
    
    
    Requirements
    
    
    RequirementsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in thousands)Total capital
(to risk-weighted
assets)
    
    $
    62,572
    
    
    
    10.16
    %
    
    $
    49,252
    
    
    
    8.00
    %
    
    $
    61,565
    
    
    
    10.00
    %Tier 1 capital to
(to risk-weighted
assets)
    
    
    54,864
    
    
    
    8.91
    
    
    
    24,626
    
    
    
    4.00
    
    
    
    36,939
    
    
    
    6.00Tier 1 capital (to
average assets)
    
    
    54,864
    
    
    
    7.80
    
    
    
    28,118
    
    
    
    4.00
    
    
    
    35,147
    
    
    
    5.00
  Off Balance Sheet Arrangements and Contractual Obligations
   Payments Due by PeriodLess than
    
    
    
    
    
    
    Over
    
    
    More thanTotal
    
    
    1 year
    
    
    1 to 3 years
    
    
    3 to 5 years
    
    
    5 years(Dollars in thousands)Long-term debt(1)
    
    $
    52,214
    
    
    $
    1,222
    
    
    $
    7,406
    
    
    $
    2,173
    
    
    $
    41,413Short-term debt (1)
    
    
    52,207
    
    
    
    52,207
    
    
    
    
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    5,425
    
    
    
    537
    
    
    
    962
    
    
    
    801
    
    
    
    3,125Purchase obligations(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term
liabilities reflected on the
registrants balance sheet
under GAAP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    109,846
    
    
    $
    53,966
    
    
    $
    8,368
    
    
    $
    2,974
    
    
    $
    44,538
 
 (1)
    
    Includes interest payments.(2)
    
    Excludes recurring accounts payable, accrued expenses and other liabilities, repurchase
agreements and customer deposits, all of which are recorded on the Companys balance sheet. 22




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##### Table of Contents



New Accounting Policies
 SFAS No. 123 (revised 2004) (SFAS 123R), Share-Based Payment.
 SFAS No. 154Accounting Changes and Error Corrections. Accounting Changes, Reporting Accounting Changes in Interim Financial Statements,
 Statement of Position No. 03-3 (SOP 03-3), Accounting for Certain Loans or Debt Securities
Acquired in a Transfer.
 FSP EITF 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF
Issue No. 03-1. Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1 The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments Recognition of
Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments Accounting for Certain Investments in Debt and Equity Securities Accounting for Noncurrent Marketable Equity Securities The Equity Method of Accounting for
Investments in Common Stock
 23




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##### Table of Contents



Forward-Looking Statements
   
    
    the strength of the United States economy in general and
the strength of the local economies in which Intermountain conducts its operations;
    
    the effects of inflation, interest rate levels and market
and monetary fluctuations;
    
    trade, monetary and fiscal policies and laws, including
interest rate policies of the federal government;
    
    applicable laws and regulations and legislative or
regulatory changes;
    
    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;
    
    Intermountains success in gaining regulatory approvals,
when required;
    
    technological and management changes;
    
    growth and acquisition strategies;
    
    Intermountains ability to successfully integrate
entities that may be or have been acquired;
    
    changes in consumer spending and saving habits; and
    
    Intermountains success at managing the risks involved in
the foregoing.
 24




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##### Table of Contents



Item 3  Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4  Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Controls
 
 PART II  Other Information
 
 Item 1  Legal Proceedings
  
 Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3  Defaults Upon Senior Securities
  
 Item 4  Submission of Matters to a Vote of Security Holders
  
 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.
 25




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##### Table of Contents



Signatures
  INTERMOUNTAIN COMMUNITY BANCORP(Registrant)November 4, 2005
    
    
    
    By:
    
    /s/ Curt HeckerDate
    
    
    
    
    
    Curt Hecker
President
and Chief Executive OfficerNovember 4, 2005
    
    
    
    By:
    
    /s/ Doug WrightDate
    
    
    
    
    
    Doug Wright
Executive Vice President
and Chief Financial Officer
 26