##### 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 September 30, 2009
 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
  Idaho
(State or other jurisdiction of 
incorporation or organization)
    
    82-0499463
(I.R.S. Employer
Identification No.)
 414 Church Street, Sandpoint, Idaho 83864
 (208) 263-0505
 þ o
 o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ
  Class
    
    Outstanding as of November 10, 2009Common Stock (no par value)
    
    8,365,726




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##### 



Intermountain Community Bancorp
 FORM 10-Q
For the Quarter Ended September 30, 2009
 TABLE OF CONTENTS
 PART I  Financial Information
    
    
    3Item 1  Financial Statements (Unaudited)
    
    
    3Consolidated Balance Sheets for September 30, 2009 and December 31, 2008
    
    
    3Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and 2008
    
    
    4Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2009 and 2008
    
    
    5Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2009 and 2008
    
    
    7Notes to Consolidated Financial Statements
    
    
    8Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3  Quantitative and Qualitative Disclosures About Market Risk
    
    
    43Item 4  Controls and Procedures
    
    
    43PART II  Other Information
    
    
    44Item 1  Legal Proceedings
    
    
    44Item 1A  Risk Factors
    
    
    44Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    49Item 3  Defaults Upon Senior Securities
    
    
    49Item 4  Submission of Matters to a Vote of Security Holders
    
    
    49Item 5  Other Information
    
    
    49Item 6  Exhibits
    
    
    50Signatures
    
    
    51EX-10.1EX-10.2EX-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)
 September 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)ASSETSCash and cash equivalents:Interest-bearing
    
    $
    32,974
    
    
    $
    1,354Non-interest bearing and vault
    
    
    10,562
    
    
    
    21,553Restricted cash
    
    
    6,983
    
    
    
    468Federal funds sold
    
    
    
    
    
    
    71,450Available-for-sale securities, at fair value
    
    
    180,808
    
    
    
    147,618Held-to-maturity securities, at amortized cost
    
    
    15,189
    
    
    
    17,604Federal Home Loan Bank (FHLB) of Seattle stock, at cost
    
    
    2,310
    
    
    
    2,310Loans held for sale
    
    
    4,048
    
    
    
    933Loans receivable, net
    
    
    699,047
    
    
    
    752,615Accrued interest receivable
    
    
    6,780
    
    
    
    6,449Office properties and equipment, net
    
    
    42,749
    
    
    
    44,296Bank-owned life insurance
    
    
    8,308
    
    
    
    8,037Goodwill
    
    
    11,662
    
    
    
    11,662Other intangibles
    
    
    472
    
    
    
    576Other real estate owned (OREO)
    
    
    14,395
    
    
    
    4,541Prepaid expenses and other assets
    
    
    22,038
    
    
    
    14,089Total assets
    
    $
    1,058,325
    
    
    $
    1,105,555LIABILITIESDeposits
    
    $
    838,665
    
    
    $
    790,412Securities sold subject to repurchase agreements
    
    
    70,493
    
    
    
    109,006Advances from Federal Home Loan Bank
    
    
    24,000
    
    
    
    46,000Cashier checks issued and payable
    
    
    899
    
    
    
    922Accrued interest payable
    
    
    1,299
    
    
    
    2,275Other borrowings
    
    
    16,527
    
    
    
    40,613Accrued expenses and other liabilities
    
    
    8,840
    
    
    
    5,842Total liabilities
    
    
    960,723
    
    
    
    995,070Commitments and contingent liabilitiesSTOCKHOLDERS EQUITYCommon stock 29,040,000 shares authorized; 8,439,456 and
8,429,576 shares issued and 8,365,726 and 8,333,009
shares outstanding as of September 30, 2009 and December
31, 2008
    
    
    78,481
    
    
    
    78,261Preferred stock 1,000,000 shares authorized; 27,000
shares issued and outstanding as of September 30, 2009
and December 31, 2008
    
    
    25,381
    
    
    
    25,149Accumulated other comprehensive loss, net of tax
    
    
    (4,663
    )
    
    
    (5,935
    )Retained earnings (deficit)
    
    
    (1,597
    )
    
    
    13,010Total stockholders equity
    
    
    97,602
    
    
    
    110,485Total liabilities and stockholders equity
    
    $
    1,058,325
    
    
    $
    1,105,555
  3




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##### Table of Contents



Intermountain Community Bancorp
Consolidated Statements of Operations
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands, except per
    
    
    (Dollars in thousands, except pershare data)
    
    
    share data)Interest income:Loans
    
    $
    11,051
    
    
    $
    14,098
    
    
    $
    34,403
    
    
    $
    43,058Investments
    
    
    2,552
    
    
    
    1,991
    
    
    
    8,030
    
    
    
    6,073Total interest income
    
    
    13,603
    
    
    
    16,089
    
    
    
    42,433
    
    
    
    49,131Interest expense:Deposits
    
    
    3,022
    
    
    
    3,627
    
    
    
    9,609
    
    
    
    10,932Other borrowings
    
    
    920
    
    
    
    1,352
    
    
    
    3,049
    
    
    
    4,588Total interest expense
    
    
    3,942
    
    
    
    4,979
    
    
    
    12,658
    
    
    
    15,520Net interest income
    
    
    9,661
    
    
    
    11,110
    
    
    
    29,775
    
    
    
    33,611Provision for losses on loans
    
    
    (3,756
    )
    
    
    (2,474
    )
    
    
    (25,210
    )
    
    
    (4,872
    )Net interest income (loss) after provision for losses on loans
    
    
    5,905
    
    
    
    8,636
    
    
    
    4,565
    
    
    
    28,739Other income:Fees and service charges
    
    
    1,941
    
    
    
    1,973
    
    
    
    5,497
    
    
    
    5,812Loan related fee income
    
    
    624
    
    
    
    765
    
    
    
    1,828
    
    
    
    2,064Other-than-temporary impairment (OTTI) losses on investments (1)
    
    
    (198
    )
    
    
    
    
    
    
    (442
    )
    
    
    Bank-owned life insurance
    
    
    91
    
    
    
    83
    
    
    
    271
    
    
    
    238Net gain on sale of securities
    
    
    500
    
    
    
    
    
    
    
    1,795
    
    
    
    2,182Other
    
    
    149
    
    
    
    193
    
    
    
    376
    
    
    
    728Total other income
    
    
    3,107
    
    
    
    3,014
    
    
    
    9,325
    
    
    
    11,024Operating expenses
    
    
    12,956
    
    
    
    11,422
    
    
    
    36,395
    
    
    
    33,316Income (loss) before income taxes
    
    
    (3,944
    )
    
    
    228
    
    
    
    (22,505
    )
    
    
    6,447Income tax (provision) benefit
    
    
    1,702
    
    
    
    (2
    )
    
    
    9,143
    
    
    
    (2,298
    )Net income (loss)
    
    
    (2,242
    )
    
    
    226
    
    
    
    (13,362
    )
    
    
    4,149Preferred stock dividend
    
    
    416
    
    
    
    
    
    
    
    1,245
    
    
    
    Net income (loss) applicable to common stockholders
    
    $
    (2,658
    )
    
    $
    226
    
    
    $
    (14,607
    )
    
    $
    4,149Earnings (loss) per share  basic
    
    $
    (0.32
    )
    
    $
    0.03
    
    
    $
    (1.75
    )
    
    $
    0.50Earnings (loss) per share  diluted
    
    $
    (0.32
    )
    
    $
    0.03
    
    
    $
    (1.75
    )
    
    $
    0.49Weighted average common shares outstanding  basic
    
    
    8,365,836
    
    
    
    8,305,236
    
    
    
    8,358,908
    
    
    
    8,287,541Weighted average common shares outstanding  diluted
    
    
    8,365,836
    
    
    
    8,461,591
    
    
    
    8,358,908
    
    
    
    8,531,037
 
 (1)
    
    Consisting of $198,000 and $442,000 of total other-than-temporary impairment net losses, net of $436,000 and $1,310,000 recognized in other comprehensive
income, for the quarter and nine months ended September 30, 2009, respectively.  4




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Intermountain Community Bancorp
Consolidated Statements of Cash Flows
(Unaudited)
 Nine months endedSeptember 30,2009
    
    
    2008(Dollars in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (13,362
    )
    
    $
    4,149Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation
    
    
    2,587
    
    
    
    2,615Stock-based compensation expense
    
    
    272
    
    
    
    (244
    )Net amortization of premiums (discounts) on securities
    
    
    507
    
    
    
    (143
    )Provisions for losses on loans
    
    
    25,210
    
    
    
    4,872Proceeds from sale of loans
    
    
    70,320
    
    
    
    28,972Originations of loans held for sale
    
    
    (72,567
    )
    
    
    (26,271
    )Amortization of core deposit intangibles
    
    
    104
    
    
    
    111(Gain) on sale of loans, investments, property and equipment
    
    
    (2,584
    )
    
    
    (2,681
    )(Gain) loss on sale of other real estate owned
    
    
    254
    
    
    
    5OTTI credit loss on available-for-sale investments
    
    
    442
    
    
    
    Charge down on OREO
    
    
    2,312
    
    
    
    Accretion of deferred gain on sale of branch property
    
    
    (11
    )
    
    
    (9
    )Net accretion of loan and deposit discounts and premiums
    
    
    (53
    )
    
    
    (17
    )Increase in cash surrender value of bank-owned life insurance
    
    
    (271
    )
    
    
    (238
    )Change in:Accrued interest receivable
    
    
    (331
    )
    
    
    1,431Prepaid expenses and other assets
    
    
    (8,724
    )
    
    
    (4,130
    )Accrued interest payable
    
    
    (976
    )
    
    
    (970
    )Accrued expenses and other liabilities
    
    
    3,106
    
    
    
    (2,222
    )Net cash provided by operating activities
    
    
    6,235
    
    
    
    5,230Cash flows from investing activities:Purchases of available-for-sale securities
    
    
    (118,947
    )
    
    
    (47,374
    )Purchases of FHLB Stock
    
    
    
    
    
    
    (705
    )Proceeds from redemption of FHLB Stock
    
    
    
    
    
    
    175Proceeds from calls or maturities of available-for-sale securities
    
    
    59,623
    
    
    
    59,022Principal payments on mortgage-backed securities
    
    
    28,741
    
    
    
    10,272Purchases of held-to-maturity securities
    
    
    (65
    )
    
    
    (6,127
    )Proceeds from calls or maturities of held-to-maturity securities
    
    
    2,420
    
    
    
    1,305Loans made to customers less (greater) than principal collected on loans
    
    
    13,409
    
    
    
    (12,696
    )Purchase of office properties and equipment
    
    
    (1,123
    )
    
    
    (5,554
    )Proceeds from sale of office properties and equipment
    
    
    
    
    
    
    8Net change in federal funds sold
    
    
    71,450
    
    
    
    (13,750
    )Proceeds from sale of other real estate owned
    
    
    2,583
    
    
    
    471Net change in certificates of deposit with other institutions
    
    
    
    
    
    
    (192
    )Net change in restricted cash
    
    
    (6,515
    )
    
    
    1,781Net cash (used in) investing activities
    
    
    51,576
    
    
    
    (13,364
    )
 5




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##### Table of Contents



Nine months endedSeptember 30,2009
    
    
    2008(Dollars in thousands)Cash flows from financing activities:Net change in demand, money market and savings deposits
    
    $
    19,683
    
    
    $
    (3,484
    )Net change in certificates of deposit
    
    
    28,570
    
    
    
    16,008Net change in repurchase agreements
    
    
    (38,513
    )
    
    
    (36,913
    )Principal reduction of note payable
    
    
    (23,941
    )
    
    
    (31
    )Payoff of credit line
    
    
    (23,145
    )
    
    
    Proceeds from exercise of stock options
    
    
    56
    
    
    
    102Retirement of treasury stock
    
    
    (7
    )
    
    
    (193
    )Repayments of FHLB borrowings
    
    
    (36,000
    )
    
    
    (5,000
    )Proceeds from FHLB borrowings
    
    
    14,000
    
    
    
    30,000Proceeds from other borrowings
    
    
    23,000
    
    
    
    3,657Cash dividends paid to preferred stockholders
    
    
    (885
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (37,182
    )
    
    
    4,146Net change in cash and cash equivalents
    
    
    20,629
    
    
    
    (3,988
    )Cash and cash equivalents, beginning of period
    
    
    22,907
    
    
    
    27,000Cash and cash equivalents, end of period
    
    $
    43,536
    
    
    $
    23,012Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    12,497
    
    
    $
    15,974Income taxes
    
    
    
    
    
    
    3,585Noncash investing and financing activities:Restricted stock issued
    
    
    
    
    
    
    647Accrual of liability for split dollar life insurance
    
    
    
    
    
    
    389Loans converted to other real estate owned
    
    
    15,004
    
    
    
    1,743
  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 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)
    
    
    (Dollars in thousands)Net income (loss)
    
    $
    (2,242
    )
    
    $
    226
    
    
    $
    (13,362
    )
    
    $
    4,149Other 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
    
    
    2,421
    
    
    
    (2,660
    )
    
    
    3,010
    
    
    
    (7,221
    )Non-credit loss on impairment on available-for-sale debt
    
    
    198
    
    
    
    
    
    
    
    (1,310
    )
    
    
    Less deferred income tax provision (benefit)
    
    
    (1,037
    )
    
    
    1,053
    
    
    
    (672
    )
    
    
    2,859Change in fair value of qualifying cash flow hedge
    
    
    (75
    )
    
    
    (315
    )
    
    
    244
    
    
    
    (315
    )Net other comprehensive income (loss)
    
    
    1,507
    
    
    
    (1,922
    )
    
    
    1,272
    
    
    
    (4,677
    )Comprehensive loss
    
    $
    (735
    )
    
    $
    (1,696
    )
    
    $
    (12,090
    )
    
    $
    (528
    )
  7




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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, 2008. 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.
    
    InvestmentsThe 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 ValueSeptember 30, 2009U.S. treasury securities and
obligations of U.S. government
agencies
    
    $
    56
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    56Residential mortgage-backed securities
    
    
    187,247
    
    
    
    (1,310
    )
    
    
    3,311
    
    
    
    (8,496
    )
    
    
    180,752$
    187,303
    
    
    $
    (1,310
    )
    
    $
    3,311
    
    
    $
    (8,496
    )
    
    $
    180,808December 31, 2008U.S. treasury securities and
obligations of U.S. government
agencies
    
    $
    7,569
    
    
    $
    
    
    
    $
    48
    
    
    $
    
    
    
    $
    7,617Residential mortgage-backed securities
    
    
    148,244
    
    
    
    
    
    
    
    2,550
    
    
    
    (10,793
    )
    
    
    140,001$
    155,813
    
    
    $
    
    
    
    $
    2,598
    
    
    $
    (10,793
    )
    
    $
    147,618
 Held-to-MaturityNon-CreditCarrying
    
    OTTIValue/
    
    Recognized
    
    Gross
    
    GrossAmortized
    
    in OCI
    
    Unrealized
    
    UnrealizedCost
    
    (Losses)
    
    Gains
    
    Losses
    
    Fair ValueSeptember 30, 2009State and municipal securities
    
    $
    15,189
    
    
    $
    
    
    
    $
    412
    
    
    $
    
    
    
    $
    15,601December 31, 2008State and municipal securities
    
    $
    17,604
    
    
    $
    
    
    
    $
    70
    
    
    $
    (149
    )
    
    $
    17,525
 8




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Less Than 12 Months
    
    
    12 Months or Longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedSeptember 30, 2009
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesState and municipal securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Residential mortgage-backed securities
    
    
    1,898
    
    
    
    163
    
    
    
    57,864
    
    
    
    8,333
    
    
    
    59,762
    
    
    
    8,496Total
    
    $
    1,898
    
    
    $
    163
    
    
    $
    57,864
    
    
    $
    8,333
    
    
    $
    59,762
    
    
    $
    8,496
 Less Than 12 Months
    
    
    12 Months or Longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedDecember 31, 2008
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesState and municipal securities
    
    $
    5,453
    
    
    $
    147
    
    
    $
    762
    
    
    $
    2
    
    
    $
    6,215
    
    
    $
    149Residential mortgage-backed securities
    
    
    45,366
    
    
    
    5,708
    
    
    
    15,034
    
    
    
    5,085
    
    
    
    60,400
    
    
    
    10,793Total
    
    $
    50,819
    
    
    $
    5,855
    
    
    $
    15,796
    
    
    $
    5,087
    
    
    $
    66,615
    
    
    $
    10,942
  Available-for-Sale
    
    
    Held-to-MaturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueOne year or less
    
    $
    
    
    
    $
    
    
    
    $
    636
    
    
    $
    647After one year through five years
    
    
    56
    
    
    
    56
    
    
    
    458
    
    
    
    477After five years through ten years
    
    
    
    
    
    
    
    
    
    
    2,651
    
    
    
    2,839After ten years
    
    
    
    
    
    
    
    
    
    
    11,444
    
    
    
    11,63856
    
    
    
    56
    
    
    
    15,189
    
    
    
    15,601Mortgage-backed securities
    
    
    187,247
    
    
    
    180,752
    
    
    
    
    
    
    
    $
    187,303
    
    
    $
    180,808
    
    
    $
    15,189
    
    
    $
    15,601
 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 September 30, 2009, 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. The unrealized losses on residential mortgage-backed securities
without other-than-temporary impairment were considered by management to be temporary in
nature.At March 31, 2009, residential mortgage-backed securities included a security comprised of a
pool of mortgages with a remaining unpaid balance of $4.2 million. Due to the lack of an
orderly market for the security and the declining national economic and housing market, its
fair value was determined to be $2.5 million at March 31, 2009 based on analytical modeling
taking into consideration a range of factors normally found in an orderly market. Of the $1.7
million other-than-temporary impairment on this security, based on an analysis of projected
cash flows, $244,000 was charged to earnings as a credit loss and $1.5 million was recognized
in other comprehensive income. Impairment loss on securities charged to earnings in the three
months ended March 31, 2009 was $244,000. The Company recorded additional $198,000 credit loss
impairment in the third quarter of 2009. However, the overall estimated market value on the
security improved during this time, reducing the non-credit value impairment to $1.3 million.
At this time, the Company anticipates holding the security until its value is recovered or
until maturity, and will continue to adjust its other comprehensive income and capital position
to reflect the securitys current market value. The Company calculated the credit loss charge
against earnings by subtracting the estimated present value of future cash flows on the
security from its amortized cost.See Note 9 Fair Value of Measurements for more information on the calculation of fair or
carrying value for the investment securities.
 3.
    
    Advances from the Federal Home Loan Bank of Seattle:During September 2007, the Bank obtained two advances from the FHLB Seattle in the amounts of
$10.0 million and $14.0 million with interest only payable at 4.96% and 4.90% and maturities in
September 2010 and September 2009, respectively. The
 9




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##### Table of Contents



September 2009 maturity was replaced with three advances in the amount of $5.0 million, $5.0
million and $4.0 million. These advances have interest only payments payable at 0.86%, 1.49% and
3.11% and maturities of September 2010, September 2011 and September 2014, respectively. During
May 2008, the Bank obtained an advance from the FHLB Seattle in the amount of $12.0 million with
interest only payable at 2.88% and a maturity in August 2009. This advance matured and was not
renewed.
 Advances from FHLB Seattle are collateralized by certain qualifying loans. At September 30,
2009, Intermountain had the ability to borrow $112.8 million from FHLB Seattle, of which $24.0
million was utilized. 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.
 4.
    
    Other Borrowings:
 The components of other borrowings are as follows (in thousands):
 September 30,
    
    
    December 31,2009
    
    
    2008Term note payable (1)
    
    $
    8,279
    
    
    $
    8,279Term note payable (2)
    
    
    8,248
    
    
    
    8,248Term note payable (3)
    
    
    
    
    
    
    941Term note payable (4)
    
    
    
    
    
    
    23,145Total other borrowings
    
    $
    16,527
    
    
    $
    40,613
 
 (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 3.53% at
September 30, 2009. 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 for five years, as a hedging strategy to help manage the Companys interest-rate
risk. See Note A.(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 3.31% at September 30, 2009. The debt is callable by
the Company quarterly and matures in April 2034. See Note A.(3)
    
    In January 2006, the Company purchased land to build its new headquarters, the Sandpoint
Center in Sandpoint, Idaho. It entered into a Note Payable with the sellers of the property in
the amount of $1.13 million, with a fixed rate of 6.65%, payable in equal installments. The
note matures in February 2026, but was paid off in May 2009 as part of the refinance of the
borrowing discussed in Footnote 4 immediately below.(4)
    
    In March 2007, the Company entered into a borrowing agreement with Pacific Coast Bankers Bank
(PCBB) in the amount of $18.0 million and in December 2007 increased the amount to $25.0
million. The borrowing agreement was a non-revolving line of credit with a variable rate of
interest tied to LIBOR and was collateralized by Bank stock and the Sandpoint Center. This
line was used primarily to fund the construction costs of the Companys new headquarters
building in Sandpoint. The balance at December 31, 2008 was $23.1 million at a fixed interest
rate of 7.0%. The borrowing had a maturity of January 2009 and was extended for 90 days with a
fixed rate of 7.0%. In May 2009, the Company negotiated new loan facilities with Pacific Coast
Bankers Bank to refinance this credit line into three longer-term, amortizing loans. The loans
were as follows: $9.0 million with a fixed interest rate of 7.0% secured by the Sandpoint
Center and Panhandle State Bank stock, $11.0 million with a variable rate of 2.35% plus the
rate on the $11.0 million 12-month certificate of deposit used to secure this loan (the loan
rate for the first year is 4.35%), and $3.0 million with a rate of 10.0% secured by the
Sandpoint Center and Panhandle State Bank stock. In August 2009, the Sandpoint Center was sold
in a direct financing transaction with an outside party. As part of this transaction the
three loans were paid off. 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.
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##### Table of Contents



5.
    
    Earnings Per Share:The following table presents the basic and diluted earnings per share computations:
 Three months Ended September 30,
    
    
    Nine months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net income (loss)  basic and diluted
    
    $
    (2,242
    )
    
    $
    226
    
    
    $
    (13,362
    )
    
    $
    4,149Preferred stock dividend
    
    
    416
    
    
    
    
    
    
    
    1,245
    
    
    
    Net Income (loss) applicable to commons stockholders
    
    $
    (2,658
    )
    
    $
    226
    
    
    $
    (14,607
    )
    
    $
    4,149Denominator:Weighted average shares outstanding  basic
    
    
    8,365,836
    
    
    
    8,305,236
    
    
    
    8,358,908
    
    
    
    8,287,541Dilutive effect of common stock options, restricted
stock awards
    
    
    
    
    
    
    156,355
    
    
    
    
    
    
    
    243,496Weighted average shares outstanding  diluted
    
    
    8,365,836
    
    
    
    8,461,591
    
    
    
    8,358,908
    
    
    
    8,531,037Earnings (loss) per share  basic and diluted:Earnings (loss) per share  basic
    
    $
    (0.32
    )
    
    $
    0.03
    
    
    $
    (1.75
    )
    
    $
    0.50Effect of dilutive common stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Earnings (loss) per share  diluted
    
    $
    (0.32
    )
    
    $
    0.03
    
    
    $
    (1.75
    )
    
    $
    0.49
 The weighted average number of potentially dilutive common shares excluded in calculating
diluted net income per common share due to the anti-dilutive effect is 265,710 and 93,145
shares for the three months ended September 30, 2009 and 2008, respectively. The weighted
average number of potentially dilutive common shares excluded in calculating diluted net income
per common share due to the anti-dilutive effect is 260,879 and 53,332 shares for the nine
months ended September 30, 2009 and 2008, respectively. Common stock equivalents were
calculated using the treasury stock method.
 6.
    
    Operating Expenses:
 The following table details Intermountains components of total operating expenses in
thousands:
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Salaries and employee benefits
    
    $
    5,673
    
    
    $
    6,446
    
    
    $
    17,031
    
    
    $
    18,922Occupancy expense
    
    
    1,814
    
    
    
    2,005
    
    
    
    5,590
    
    
    
    5,596Advertising
    
    
    366
    
    
    
    378
    
    
    
    1,010
    
    
    
    1,069Fees and service charges
    
    
    919
    
    
    
    452
    
    
    
    2,148
    
    
    
    1,421Printing, postage and supplies
    
    
    375
    
    
    
    396
    
    
    
    1,028
    
    
    
    1,105Legal and accounting
    
    
    549
    
    
    
    406
    
    
    
    1,322
    
    
    
    1,342Other expense
    
    
    3,260
    
    
    
    1,338
    
    
    
    8,266
    
    
    
    3,861Total operating expenses
    
    $
    12,956
    
    
    $
    11,421
    
    
    $
    36,395
    
    
    $
    33,316
 Salaries and employee benefits expense decreased $1.9 million or 10.0%, over the nine month
period last year as a result of decreased staffing levels and lower incentive compensation
expense. Third quarter salaries and employee benefits expense decreased $773,000, or 12.0%
compared to the same quarter one year ago as a result of the same factors. Efforts to control
compensation expense continue in 2009, as the Company has suspended salary increases for
executives and officers, maintained a hiring freeze and reduced other compensation plans.Occupancy expenses decreased $6,000, or 0.1%, for the nine month period ended September 30,
2009 compared to the same period one year ago. Occupancy expenses decreased $191,000,
or 9.5%, for the three month period ended September 30, 2009 compared to the same period one
year ago. The decreases were comprised of a decrease in computer hardware and software expenses
as additional cost control measures have been implemented. The Company expects these expenses
to continue declining in 2009, as it has postponed building expansion plans and limited new
hardware and software purchases.The advertising expense decrease of $59,000 for the nine month period and $12,000 for the
three month period ended September 30, 2009 compared to the same periods one year ago reflected
reductions in general advertising offset by additional donations and community service expenses
associated with the Companys Powered by Communityinitiative. The $727,000 increase in fees
and service charges for the nine month period and $467,000 increase for the three-month period
ended September 30, 2009 compared to the same period one year ago primarily reflected increased
loan collection and repossession expenses and higher
 11




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7. Stock-Based Compensation Plans
    12




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##### Table of Contents



Nine months ended September 30, 2009(dollars in thousands, except per share amounts)Weighted
    
    WeightedNumber
    
    Average
    
    Averageof
    
    Exercise
    
    RemainingShares
    
    Price
    
    Life (Years)Beginning Options Outstanding, Jan 1, 2009
    
    
    325,482
    
    
    $
    6.00Options Granted
    
    
    
    
    
    
    Exercises
    
    
    (12,721
    )
    
    
    4.41Forfeitures
    
    
    (47,048
    )
    
    
    4.42Ending options outstanding, September 30, 2009
    
    
    265,713
    
    
    
    6.29
    
    
    
    2.8Exercisable at September 30, 2009
    
    
    262,263
    
    
    $
    6.20
    
    
    
    2.8
  Weighted-AverageGrant-DateNonvested Shares
    
    Shares
    
    
    Fair ValueBalance at January 1, 2009
    
    
    96,567
    
    
    $
    16.06Granted
    
    
    
    
    
    
    Vested
    
    
    (21,913
    )
    
    
    17.06Forfeited
    
    
    (1,621
    )
    
    
    17.95Balance at September 30, 2009
    
    
    73,033
    
    
    $
    15.72
  8.       Derivative Financial Instruments
    Interest Rate Swaps  Designated as Cash Flow Hedges
  
 13




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##### Table of Contents



September 30, 2009Fair Value Gain
    
    Receive Rate
    
    Pay Rate
    
    Type of HedgingMaturity Date
    
    Notional Amount
    
    (Loss)
    
    (LIBOR)
    
    (Fixed)
    
    RelationshipPay Fixed, Receive Variable:October 2013
    
    $
    8,248
    
    
    $
    (741
    )
    
    
    0.51
    %
    
    
    4.58
    %
    
    Cash Flow
 December 31, 2008Fair Value Gain
    
    Receive Rate
    
    Pay Rate
    
    Type of HedgingMaturity Date
    
    Notional Amount
    
    (Loss)
    
    (LIBOR)
    
    (Fixed)
    
    RelationshipPay Fixed, Receive Variable:October 2013
    
    $
    8,248
    
    
    $
    (985
    )
    
    
    4.75
    %
    
    
    4.58
    %
    
    Cash Flow
  Nine Months EndedSept 30,
    
    
    Sept 30,2009
    
    
    2008Unrealized gain (loss) at beginning of period
    
    $
    (985
    )
    
    $
    Amount of gain (loss) recognized in other comprehensive income
    
    
    244
    
    
    
    Unrealized gain (loss) at end of period
    
    $
    (741
    )
    
    $
    
 Interest Rate Swaps  Not Designated as Hedging Instruments Under ASC 815
  September 30, 2009
    
    December 31, 2008Notional
    
    Fair Value Gain
    
    Notional
    
    Fair Value GainAmount
    
    (Loss)
    
    Amount
    
    (Loss)Interest rate swaps with third party financial institutions
    
    $
    2,559
    
    
    $
    8
    
    
    $
    
    
    
    $
    
  14




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##### Table of Contents



9. Fair Value Measurements
  Level 1 inputs
 Level 2 inputs
 Level 3 inputs
  Fair Value MeasurementsAt September 30, 2009, UsingQuoted PricesIn Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableFair Value
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    Sept 30, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Available-for-Sale Securities:U.S. treasury securities and obligations of U.S. government agencies
    
    $
    56
    
    
    $
    
    
    
    $
    56
    
    
    $
    Residential mortgage backed securities (MBS)
    
    
    180,752
    
    
    
    
    
    
    
    147,032
    
    
    
    33,720Other Assets  Derivative
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    8Total Assets Measured at Fair Value
    
    $
    180,816
    
    
    $
    
    
    
    $
    147,088
    
    
    $
    33,728Other Liabilities  Derivatives
    
    $
    749
    
    
    $
    
    
    
    $
    
    
    
    $
    749
 Fair Value MeasurementsAt December 31, 2008, 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
    
    $
    147,618
    
    
    $
    
    
    
    $
    108,954
    
    
    $
    38,664Other Assets  Derivative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Assets Measured at Fair Value
    
    $
    147,618
    
    
    $
    
    
    
    $
    108,954
    
    
    $
    38,664Other Liabilities  Derivatives
    
    $
    985
    
    
    $
    
    
    
    $
    
    
    
    $
    985
  Fair Value Measurement Transfers- Assets
 Fair Value Measurements Using SignificantUnobservable Inputs ( Level 3)Description
    
    Residential MBS
    
    
    Derivatives
    
    
    TotalJanuary 1, 2009 Balance
    
    $
    38,664
    
    
    $
    
    
    
    $
    38,664Total gains or losses (realized/unrealized)Included in earnings
    
    
    (442
    )
    
    
    8
    
    
    
    (434
    )Included in other comprehensive income
    
    
    3,757
    
    
    
    
    
    
    
    3,757Principal Payments
    
    
    (8,259
    )
    
    
    
    
    
    
    (8,259
    )Transfers in and /or out of Level 3
    
    
    
    
    
    
    
    
    
    
    September 30, 2009 Balance
    
    $
    33,720
    
    
    $
    8
    
    
    $
    33,728
 15




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##### Table of Contents



Fair Value Measurement Transfers- Liabilities
 Fair Value MeasurementsUsing Significant UnobservableInputs ( Level 3)Description
    
    DerivativesJanuary 1, 2009 Balance
    
    $
    985Total gains or losses (realized/unrealized)Included in earnings
    
    
    8Included in other comprehensive income
    
    
    (244
    )September 30, 2009 Balance
    
    $
    749
  Fair Value MeasurementsAt September 30, 2009, UsingQuoted PricesIn Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableFair Value
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    Sept 30, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Loans(1)
    
    $
    51,602
    
    
    $
    
    
    
    $
    
    
    
    $
    51,602Other real estate owned
    
    
    14,395
    
    
    
    
    
    
    
    
    
    
    
    14,395Total Assets Measured at Fair Value
    
    $
    65,997
    
    
    $
    
    
    
    $
    
    
    
    $
    65,997
 
 (1)
    
    Represents collateral-dependent impaired loans, net, which are included in loans.   Securities
  Available for Sale Securities.
  16




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##### 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.
    September 30, 2009
    
    December 31, 2008Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assets:Cash, cash equivalents, restricted cash and federal funds sold
    
    $
    49,657
    
    
    $
    49,657
    
    
    $
    93,653
    
    
    $
    93,653Interest bearing certificates of deposit
    
    
    862
    
    
    
    862
    
    
    
    1,172
    
    
    
    1,172Available-for-sale securities
    
    
    180,808
    
    
    
    180,808
    
    
    
    147,618
    
    
    
    147,618Held-to-maturity securities
    
    
    15,189
    
    
    
    15,601
    
    
    
    17,604
    
    
    
    17,525Loans held for sale
    
    
    4,048
    
    
    
    4,048
    
    
    
    933
    
    
    
    933Loans receivable, net
    
    
    699,047
    
    
    
    711,815
    
    
    
    752,615
    
    
    
    754,772Accrued interest receivable
    
    
    6,780
    
    
    
    6,780
    
    
    
    6,449
    
    
    
    6,449BOLI
    
    
    8,308
    
    
    
    8,308
    
    
    
    8,037
    
    
    
    8,037Financial liabilities:Deposit liabilities
    
    
    838,665
    
    
    
    816,691
    
    
    
    790,412
    
    
    
    777,710Other borrowed funds
    
    
    111,020
    
    
    
    110,951
    
    
    
    195,619
    
    
    
    193,747Accrued interest payable
    
    
    1,299
    
    
    
    1,299
    
    
    
    2,275
    
    
    
    2,275
  Cash, Cash Equivalents, Federal Funds and Certificates of Deposit
  18




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##### Table of Contents



Investments and BOLI
  Loans Receivable and Loans Held For Sale
  Deposits
  Borrowings
  Accrued Interest
  10. Subsequent Events
   19




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##### Table of Contents



11. New Accounting Pronouncements
 Business Combinations
 Consolidation
 Earnings per Share
 InvestmentsOther InvestmentsDebt and Equity Securities
 Fair Value Measurements and Disclosures
 InvestmentsDebt and Equity Securities
 20




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##### Table of Contents



Financial Instruments
 Subsequent Events
 Accounting for Transfers of Financial Assetsan Amendment
of FASB Statement No. 140
 Amendments to FASB Interpretation No. 46(R)
 21




---



##### Table of Contents



Generally Accepted Accounting Principles
 Measuring Liabilities at Fair Value Fair Value Measurements and Disclosure
 
 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, 2008.
 General
     22




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##### Table of Contents



Current Economic Challenges and Future Outlook
     
    
    Lower interest income, largely as a result of reversals of interest on loans that were
placed in non-accrual status or charged off or down during the quarter. The Company,
however, also saw a decrease in interest expense, and continues to maintain a relatively
low cost of interest-bearing liabilities in comparison to its peer group.
 
    
    Lower, but still elevated, provisions for loan losses as a result of high default rates,
declining collateral valuations, and aggressive problem loan identification, workout and
liquidation efforts. Third quarter chargeoffs largely reflected losses that were
identified and reserved for in the second quarter.
 
    
    Continuing high FDIC insurance, loan collection and OREO expenses, offsetting ongoing
expense improvements the Company is making.
  Powered by
 23




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##### Table of Contents



Community
   Critical Accounting Policies
  Income Recognition.
 Allowance For Loan Losses.
  24




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##### Table of Contents



Investments.
  Notes to Consolidated Financial Statements
 Goodwill and Other Intangible Assets.
 25




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##### Table of Contents



Real Estate Owned.
  Fair Value Measurements. Consolidated Financial Statements
 Derivative Financial Instruments and Hedging Activities.
 Consolidated Financial Statements
 26




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##### Table of Contents



Results of Operations
 Overview
   Net Interest Income
    27




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##### Table of Contents



Provision for Losses on Loans & Credit Quality.
  Nine months ended September 30,2009
    
    
    2008(Dollars in thousands)Balance at January 1
    
    $
    16,433
    
    
    $
    11,761Provision for losses on loans
    
    
    25,210
    
    
    
    4,872Amounts written off, net of recoveries
    
    
    (24,030
    )
    
    
    (3,600
    )Allowance  loans, September 30
    
    
    17,613
    
    
    
    13,033Allowance  unfunded commitments, January 1
    
    
    14
    
    
    
    18Adjustment
    
    
    164
    
    
    
    (10
    )Allowance  unfunded commitments, September 30
    
    
    178
    
    
    
    8Total credit allowance including unfunded commitments
    
    $
    17,791
    
    
    $
    13,041
   28




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##### Table of Contents



SouthwestNPA by location
    
    North Idaho
    
    
    
    
    
    
    
    
    
    
    Idaho,September 30, 2009
    
     Eastern
    
    
    Magic Valley
    
    
    Greater Boise
    
    
    excluding(Dollars in thousands)
    
    Washington
    
    
    Idaho
    
    
    Area
    
    
    Boise-Oregon
    
    
    Other
    
    
    TotalCommercial
    
    $
    2,903
    
    
    $
    350
    
    
    $
    516
    
    
    $
    190
    
    
    $
    
    
    
    $
    3,959
    
    
    
    10.8
    %Commercial real estate
    
    
    2,051
    
    
    
    1,149
    
    
    
    402
    
    
    
    9
    
    
    
    32
    
    
    
    3,643
    
    
    
    9.9
    %Commercial
construction, including
all land development
loans
    
    
    2,267
    
    
    
    2,355
    
    
    
    4,163
    
    
    
    1,675
    
    
    
    2,875
    
    
    
    13,335
    
    
    
    36.3
    %Multifamily
    
    
    
    
    
    
    188
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    188
    
    
    
    0.5
    %Residential real estate
    
    
    2,278
    
    
    
    149
    
    
    
    1,668
    
    
    
    984
    
    
    
    103
    
    
    
    5,182
    
    
    
    14.1
    %Residential construction
    
    
    9,401
    
    
    
    
    
    
    
    914
    
    
    
    
    
    
    
    
    
    
    
    10,315
    
    
    
    28.1
    %Consumer
    
    
    52
    
    
    
    28
    
    
    
    21
    
    
    
    1
    
    
    
    
    
    
    
    102
    
    
    
    0.3
    %Total
    
    $
    18,952
    
    
    $
    4,219
    
    
    $
    7,684
    
    
    $
    2,859
    
    
    $
    3,010
    
    
    $
    36,724
    
    
    
    100.0
    %Percent of total NPA
    
    
    51.6
    %
    
    
    11.5
    %
    
    
    20.9
    %
    
    
    7.8
    %
    
    
    8.2
    %
    
    
    100.0
    %
   Loan QualitySeptember 30,
    
    
    June 30,
    
    
    December 31,2009
    
    
    2009
    
    
    2008(dollars in thousands)Loans past due in excess of 90 days and still accruing
    
    $
    471
    
    
    $
    2,966
    
    
    $
    913Non-accrual loans
    
    
    21,858
    
    
    
    24,532
    
    
    
    26,365Total non-performing loans
    
    
    22,329
    
    
    
    27,498
    
    
    
    27,278OREO
    
    
    14,395
    
    
    
    13,650
    
    
    
    4,541Total non-performing assets (NPA)
    
    $
    36,724
    
    
    $
    41,148
    
    
    $
    31,819Classified loans(1)
    
    $
    93,768
    
    
    $
    91,986
    
    
    $
    53,847Troubled debt restructured loans (2)
    
    $
    38,063
    
    
    $
    30,357
    
    
    $
    13,424
 
 (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)
    
    Loans restructured and in compliance with modified terms; excludes non-accrual loans Non-accrual loans as a percentage of net loans receivable
    
    
    3.13
    %
    
    
    3.45
    %
    
    
    3.50
    %Total non-performing loans as a % of net loans receivable
    
    
    3.19
    %
    
    
    3.87
    %
    
    
    3.62
    %Total NPA as a % of loans receivable
    
    
    5.25
    %
    
    
    5.79
    %
    
    
    4.23
    %Allowance for loan losses (ALLL) as a % of non-performing loans
    
    
    78.9
    %
    
    
    88.4
    %
    
    
    60.2
    %Total NPA as a % of total assets
    
    
    3.47
    %
    
    
    3.73
    %
    
    
    2.88
    %Total NPA as a % of tangible capital + ALLL (Texas Ratio)
    
    
    35.63
    %
    
    
    37.17
    %
    
    
    27.75
    %Loan delinquency ratio (30 days and over)
    
    
    1.48
    %
    
    
    2.10
    %
    
    
    0.90
    %
  29




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Other Income.
    Operating Expenses.
 30




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##### Table of Contents



Income Tax Provision
 31




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##### Table of Contents



Financial Position
 Assets
 Investments.
 Consolidated Financial Statements
 Loans Receivable. Powered By Community
  September 30, 2009
    
    
    December 31, 2008Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Commercial
    
    $
    222,381
    
    
    
    31.04
    
    
    $
    227,521
    
    
    
    29.58Commercial real estate
    
    
    176,347
    
    
    
    24.61
    
    
    
    154,273
    
    
    
    20.05Commercial construction, includes all land development loans
    
    
    74,032
    
    
    
    10.33
    
    
    
    84,276
    
    
    
    10.96Multifamily
    
    
    17,938
    
    
    
    2.50
    
    
    
    18,617
    
    
    
    2.42Residential real estate
    
    
    94,659
    
    
    
    13.21
    
    
    
    103,937
    
    
    
    13.51Residential construction
    
    
    105,960
    
    
    
    14.79
    
    
    
    152,295
    
    
    
    19.80Consumer
    
    
    19,424
    
    
    
    2.71
    
    
    
    23,245
    
    
    
    3.02Municipal
    
    
    5,835
    
    
    
    0.81
    
    
    
    5,109
    
    
    
    0.66Total loans receivable
    
    
    716,576
    
    
    
    100.00
    
    
    
    769,273
    
    
    
    100.00Net deferred origination fees
    
    
    84
    
    
    
    
    
    
    
    (225
    )Allowance for losses on loans
    
    
    (17,613
    )
    
    
    
    
    
    
    (16,433
    )Loans receivable, net
    
    $
    699,047
    
    
    
    
    
    
    $
    752,615Weighted average yield at end of period
    
    
    6.04
    %
    
    
    
    
    
    
    6.38
    %
 32




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    % Change
    
    
    2009
    
    
    2008
    
    
    % Change(Dollars in thousands)Commercial
    
    $
    37,187
    
    
    $
    48,545
    
    
    
    (23.4
    )
    
    $
    123,843
    
    
    $
    173,189
    
    
    
    (28.5
    )Commercial real estate
    
    
    46,432
    
    
    
    64,898
    
    
    
    (28.5
    )
    
    
    97,497
    
    
    
    198,337
    
    
    
    (50.8
    )Residential real estate
    
    
    25,697
    
    
    
    20,078
    
    
    
    28.0
    
    
    
    92,524
    
    
    
    59,745
    
    
    
    54.9Consumer
    
    
    2,196
    
    
    
    2,695
    
    
    
    (18.5
    )
    
    
    7,113
    
    
    
    8,943
    
    
    
    (20.5
    )Municipal
    
    
    336
    
    
    
    165
    
    
    
    103.7
    
    
    
    1,033
    
    
    
    640
    
    
    
    61.2Total loans originated
    
    $
    111,848
    
    
    $
    136,381
    
    
    
    (18.0
    )
    
    $
    322,010
    
    
    $
    440,854
    
    
    
    (27.0
    )
  Office Properties and Equipment.
 33




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##### Table of Contents



Other Real Estate Owned.
 Intangible Assets.
 BOLI and All Other Assets
 Deposits
 34




---



##### Table of Contents



September 30, 2009
    
    
    December 31, 2008Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Demand
    
    $
    153,271
    
    
    
    18.3
    
    
    $
    154,265
    
    
    
    19.5NOW and money market 0.0% to 5.25%
    
    
    340,722
    
    
    
    40.6
    
    
    
    321,556
    
    
    
    40.7Savings and IRA 0.0% to 5.75%
    
    
    80,182
    
    
    
    9.6
    
    
    
    78,671
    
    
    
    9.9Certificate of deposit accounts (CDs)
    
    
    89,457
    
    
    
    10.7
    
    
    
    85,504
    
    
    
    10.8Jumbo CDs
    
    
    83,774
    
    
    
    10.0
    
    
    
    76,935
    
    
    
    9.8Brokered CDs
    
    
    76,136
    
    
    
    9.0
    
    
    
    57,956
    
    
    
    7.3CDARS CDs to local customers
    
    
    15,123
    
    
    
    1.8
    
    
    
    15,525
    
    
    
    2.0Total deposits
    
    $
    838,665
    
    
    
    100.0
    
    
    $
    790,412
    
    
    
    100.0Weighted average interest rate on certificates of deposit
    
    
    
    
    
    
    2.73
    %
    
    
    
    
    
    
    3.22
    %Core Deposits as a percentage of total deposits (1)
    
    
    
    
    
    
    78.4
    %
    
    
    
    
    
    
    81.7
    %Deposits generated from the Companys market area as
a % of total deposits
    
    
    
    
    
    
    91.0
    %
    
    
    
    
    
    
    92.7
    %
 
 (1)
    
    Core deposits consist of non-interest bearing checking, money market checking, savings
accounts, and certificate of deposit accounts of less than $100,000.   Borrowings
 Interest Rate Risk
  35




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Liquidity and Sources of Funds
   36




---



##### Table of Contents



Capital Resources
     37




---



##### Table of Contents



Notes to Consolidated Financial Statements
   Well-CapitalizedActual
    
    Capital Requirements
    
    RequirementsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal capital (to risk-weighted assets):The Company
    
    $
    111,049
    
    
    
    13.11
    %
    
    $
    67,759
    
    
    
    8
    %
    
    $
    84,699
    
    
    
    10
    %Panhandle State Bank
    
    
    108,523
    
    
    
    12.81
    %
    
    
    67,774
    
    
    
    8
    %
    
    
    84,717
    
    
    
    10
    %Tier I capital (to risk-weighted assets):The Company
    
    
    100,373
    
    
    
    11.85
    %
    
    
    33,880
    
    
    
    4
    %
    
    
    50,819
    
    
    
    6
    %Panhandle State Bank
    
    
    97,839
    
    
    
    11.55
    %
    
    
    33,887
    
    
    
    4
    %
    
    
    50,830
    
    
    
    6
    %Tier I capital (to average assets):The Company
    
    
    100,373
    
    
    
    9.44
    %
    
    
    42,527
    
    
    
    4
    %
    
    
    53,159
    
    
    
    5
    %Panhandle State Bank
    
    
    97,839
    
    
    
    9.44
    %
    
    
    41,475
    
    
    
    4
    %
    
    
    51,844
    
    
    
    5
    %
  38




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##### Table of Contents



Off Balance Sheet Arrangements and Contractual Obligations
  Tabular Disclosure of Contractual Obligations
  Payments Due by PeriodLess than
    
    
    1 to
    
    
    Over 3 to
    
    
    More thanTotal
    
    
    1 Year
    
    
    3 Years
    
    
    5 Years
    
    
    5 Years(Dollars in thousands)Long-term debt(1)
    
    $
    69,800
    
    
    $
    764
    
    
    $
    36,451
    
    
    $
    5,375
    
    
    $
    27,210Short-term debt
    
    
    56,033
    
    
    
    56,033
    
    
    
    
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations(2)
    
    
    13,220
    
    
    
    847
    
    
    
    1,444
    
    
    
    1,197
    
    
    
    9,732Purchase obligations(3)
    
    
    254
    
    
    
    254
    
    
    
    
    
    
    
    
    
    
    
    Direct financing obligations(4)
    
    
    35,360
    
    
    
    1,635
    
    
    
    3,270
    
    
    
    3,352
    
    
    
    27,103Total
    
    $
    174,667
    
    
    $
    59,533
    
    
    $
    41,165
    
    
    $
    9,924
    
    
    $
    64,045
 
 (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 3 and 4 of Notes to Consolidated Financial Statements.(3)
    
    Consists of construction contract to complete a portion of the Sandpoint Center for new
tenant improvements.(4)
    
    Sandpoint Center Building lease payments related to direct
financing transaction executed in
August 2009. New Accounting Pronouncements
 Business Combinations
 Consolidation
 39




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##### Table of Contents



Earnings per Share
 InvestmentsOther InvestmentsDebt and Equity Securities
 Fair Value Measurements and Disclosures
 InvestmentsDebt and Equity Securities
 40




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##### Table of Contents



Financial Instruments
 Subsequent Events
 Accounting for Transfers of Financial Assetsan Amendment
of FASB Statement No. 140
 Amendments to FASB Interpretation No. 46(R)
 Generally Accepted Accounting Principles
 Measuring Liabilities at Fair Value Fair Value Measurements and Disclosure
 41




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##### Table of Contents



Forward-Looking Statements
 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
   
    
    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;
    
    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;
    
    changes in estimates and assumptions used in financial accounting;
    
    growth and acquisition strategies;
    
    the Companys critical accounting policies and the implementation of such policies;
    
    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; and
 42




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##### Table of Contents




    
    Intermountains success at managing the risks involved in the foregoing.
  
 Item 3 
Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4   Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Control over Financial Reporting
 43




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##### Table of Contents



PART II  Other Information
 
 Item 1   Legal Proceedings
  
 Item 1A Risk Factors
 We cannot accurately predict the effect of the national economic recession on our future results
of operations or market price of our stock.
  Our earnings are dependent upon the performance of our bank as well as on business, economic, and political conditions.
    We have a high concentration of loans secured by real estate so a further downturn in the markets
we serve could continue to adversely impact our earnings and could increase credit risk associated
with the loan portfolio.
   44




---



##### Table of Contents



Our loan portfolio mix, which has a concentration of loans secured by real estate, could result in
increased credit risk in an economic recession.
  The allowance for loan losses may not be adequate to absorb future losses.
    Nonperforming assets take significant time to resolve and adversely affect our results of
operations and financial condition.
  There can be no assurance as to the timing or amount, if any, of dividends that we will pay on our
common stock.
  45




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##### Table of Contents



Additional market concern over investment securities backed by mortgage loans could create losses
in the Companys investment portfolio.
  Changes in market interest rates could adversely affect our earnings.
      The FDIC has increased insurance premiums to restore and maintain the federal deposit insurance
fund, which has increased our costs and could adversely affect our business.
  46




---



##### 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 not be able to successfully implement our internal growth strategy.
  There are risks associated with potential acquisitions.
  We may not be able to replace key members of management or attract and retain qualified
relationship managers in the future.
  Our stock price can be volatile; we cannot accurately predict the effects of the current economic
downturn on our future results of operations or market price of our stock.
 47




---



##### Table of Contents



A continued tightening of the credit markets may make it difficult to obtain adequate funding for
loan growth, which could adversely affect our earnings.
  We operate in a highly regulated environment and may be adversely affected by changes in federal
state and local laws and regulations.
     48




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##### Table of Contents



Negative publicity regarding the liquidity of financial institutions may have a negative impact on
Company operations.
  Weak future operating performance may cause the Company to violate covenants or other requirements
of its borrowing facilities.
  
 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
  49




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##### Table of Contents



Item 6   Exhibits
 Exhibit No.
    
    Exhibit10.1
    
    Real Estate Purchase and Sale Agreement dated as of August 26, 2009 by and between the Company, as seller, and Sandpoint Center, LLC and Sandpoint Center II, LLC, as buyer10.2
    
    Lease Agreement dated as of August 28, 2009 by
and between Sandpoint Center, LLC and Sandpoint Center II, LLC, as landlord, and Panhandle State Bank, as tenant.31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.32
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
 50




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##### Table of Contents



Signatures
  INTERMOUNTAIN COMMUNITY BANCORP(Registrant)November 13, 2009
    By:
    /s/ Curt HeckerDate
    
    Curt HeckerPresident and Chief Executive OfficerNovember 13, 2009
    By:
    /s/ Doug WrightDate
    
    Doug WrightExecutive Vice President and Chief Financial Officer 51