##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED June 30, 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
    
    82-0499463(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
  Class
    
    Outstanding as of August 12, 2009Common Stock (no par value)
    
    8,365,836




---



##### 



Intermountain Community Bancorp
 FORM 10-Q
For the Quarter Ended June 30, 2009
 TABLE OF CONTENTS
 PART I  Financial Information
    
    
    3Item 1  Financial Statements (Unaudited)
    
    
    3Consolidated Balance Sheets for June 30, 2009 and December 31, 2008
    
    
    3Consolidated Statements of Operations for the three and six months ended
June 30, 2009 and 2008
    
    
    4Consolidated Statements of Cash Flows for the three and six months ended
June 30, 2009 and 2008
    
    
    5Consolidated Statements of Comprehensive Income for the three and six months ended
June 30, 2009 and 2008
    
    
    7Notes to Consolidated Financial Statements
    
    
    8Item 2  Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    21Item 3  Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 4  Controls and Procedures
    
    
    39PART II  Other Information
    
    
    40Item 1  Legal Proceedings
    
    
    40Item 1A  Risk Factors
    
    
    40Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    45Item 3  Defaults Upon Senior Securities
    
    
    45Item 4  Submission of Matters to a Vote of Security Holders
    
    
    45Item 5  Other Information
    
    
    46Item 6  Exhibits
    
    
    46Signatures
    
    
    47EX-31.1EX-31.2EX-32
  2




---



##### Table of Contents



PART I  Financial Information
 
 Item 1  Financial Statements  Intermountain Community Bancorp
Consolidated Balance Sheets
(Unaudited)
 June 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)ASSETSCash and cash equivalents:Interest-bearing
    
    $
    57,963
    
    
    $
    1,354Non-interest bearing and vault
    
    
    14,793
    
    
    
    21,553Restricted cash
    
    
    4,264
    
    
    
    468Federal funds sold
    
    
    3,585
    
    
    
    71,450Available-for-sale securities, at fair value
    
    
    184,168
    
    
    
    147,618Held-to-maturity securities, at amortized cost
    
    
    17,395
    
    
    
    17,604Federal Home Loan Bank of Seattle stock, at cost
    
    
    2,310
    
    
    
    2,310Loans held for sale
    
    
    4,453
    
    
    
    933Loans receivable, net
    
    
    710,311
    
    
    
    752,615Accrued interest receivable
    
    
    7,020
    
    
    
    6,449Office properties and equipment, net
    
    
    42,860
    
    
    
    44,296Bank-owned life insurance
    
    
    8,217
    
    
    
    8,037Goodwill
    
    
    11,662
    
    
    
    11,662Other intangibles
    
    
    507
    
    
    
    576Other real estate owned
    
    
    13,650
    
    
    
    4,541Prepaid expenses and other assets
    
    
    20,722
    
    
    
    14,089Total assets
    
    $
    1,103,880
    
    
    $
    1,105,555LIABILITIESDeposits
    
    $
    827,546
    
    
    $
    790,412Securities sold subject to repurchase agreements
    
    
    94,380
    
    
    
    109,006Advances from Federal Home Loan Bank
    
    
    36,000
    
    
    
    46,000Cashier checks issued and payable
    
    
    808
    
    
    
    922Accrued interest payable
    
    
    1,574
    
    
    
    2,275Other borrowings
    
    
    39,507
    
    
    
    40,613Accrued expenses and other liabilities
    
    
    5,480
    
    
    
    5,842Total liabilities
    
    
    1,005,295
    
    
    
    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
June 30, 2009 and December 31, 2008
    
    
    78,391
    
    
    
    78,261Preferred stock 1,000,000 shares authorized;
27,000 shares issued and outstanding as of June
30, 2009 and December 31, 2008
    
    
    25,303
    
    
    
    25,149Accumulated other comprehensive loss, net of tax
    
    
    (6,170
    )
    
    
    (5,935
    )Retained earnings
    
    
    1,061
    
    
    
    13,010Total stockholders equity
    
    
    98,585
    
    
    
    110,485Total liabilities and stockholders equity
    
    $
    1,103,880
    
    
    $
    1,105,555
  3




---



##### Table of Contents



Intermountain Community Bancorp

Consolidated Statements of Operations
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands, except per
    
    
    (Dollars in thousands, except pershare data)
    
    
    share data)Interest income:Loans
    
    $
    11,703
    
    
    $
    13,942
    
    
    $
    23,351
    
    
    $
    28,960Investments
    
    
    2,780
    
    
    
    1,899
    
    
    
    5,479
    
    
    
    4,082Total interest income
    
    
    14,483
    
    
    
    15,841
    
    
    
    28,830
    
    
    
    33,042Interest expense:Deposits
    
    
    3,245
    
    
    
    3,275
    
    
    
    6,588
    
    
    
    7,304Other borrowings
    
    
    1,026
    
    
    
    1,390
    
    
    
    2,128
    
    
    
    3,237Total interest expense
    
    
    4,271
    
    
    
    4,665
    
    
    
    8,716
    
    
    
    10,541Net interest income
    
    
    10,212
    
    
    
    11,176
    
    
    
    20,114
    
    
    
    22,501Provision for losses on loans
    
    
    (18,684
    )
    
    
    (2,140
    )
    
    
    (21,454
    )
    
    
    (2,398
    )Net interest income (loss) after provision for losses on loans
    
    
    (8,472
    )
    
    
    9,036
    
    
    
    (1,340
    )
    
    
    20,103Other income:Fees and service charges
    
    
    1,886
    
    
    
    2,342
    
    
    
    3,555
    
    
    
    4,346Loan related fee income
    
    
    663
    
    
    
    385
    
    
    
    1,204
    
    
    
    791Other-than-temporary impairment of investments
(impairment loss of $244, consisting of $1,751 of total
other-than- temporary impairment losses, net of
$1,507 recognized in other comprehensive income, for the
six months ended June 30, 2009)
    
    
    
    
    
    
    
    
    
    
    (244
    )
    
    
    Bank-owned life insurance
    
    
    90
    
    
    
    81
    
    
    
    180
    
    
    
    156Net gain on sale of securities
    
    
    
    
    
    
    2,182
    
    
    
    1,295
    
    
    
    2,182Other
    
    
    66
    
    
    
    241
    
    
    
    228
    
    
    
    535Total other income
    
    
    2,705
    
    
    
    5,231
    
    
    
    6,218
    
    
    
    8,010Operating expenses
    
    
    12,667
    
    
    
    10,635
    
    
    
    23,438
    
    
    
    21,894Income (loss) before income taxes
    
    
    (18,434
    )
    
    
    3,632
    
    
    
    (18,560
    )
    
    
    6,219Income tax( provision) benefit
    
    
    7,432
    
    
    
    (1,363
    )
    
    
    7,440
    
    
    
    (2,296
    )Net income (loss)
    
    
    (11,002
    )
    
    
    2,269
    
    
    
    (11,120
    )
    
    
    3,923Preferred stock dividend
    
    
    415
    
    
    
    
    
    
    
    829
    
    
    
    Net income (loss) applicable to common stockholders
    
    $
    (11,417
    )
    
    $
    2,269
    
    
    $
    (11,949
    )
    
    $
    3,923Earnings (loss) per share  basic
    
    $
    (1.37
    )
    
    $
    0.27
    
    
    $
    (1.43
    )
    
    $
    0.47Earnings (loss) per share  diluted
    
    $
    (1.37
    )
    
    $
    0.27
    
    
    $
    (1.43
    )
    
    $
    0.46Weighted average shares outstanding  basic
    
    
    8,362,402
    
    
    
    8,286,087
    
    
    
    8,355,359
    
    
    
    8,278,596Weighted average shares outstanding  diluted
    
    
    8,362,402
    
    
    
    8,534,186
    
    
    
    8,355,359
    
    
    
    8,549,144
  4




---



##### Table of Contents



Intermountain Community Bancorp

Consolidated Statements of Cash Flows
(Unaudited)
 Six months endedJune 30,2009
    
    
    2008(Dollars in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (11,120
    )
    
    $
    3,923Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation
    
    
    1,785
    
    
    
    1,653Stock-based compensation expense
    
    
    182
    
    
    
    (344
    )Net amortization of premiums (discounts) on securities
    
    
    202
    
    
    
    (113
    )Provisions for losses on loans
    
    
    21,453
    
    
    
    2,398Amortization of core deposit intangibles
    
    
    69
    
    
    
    74(Gain) on sale of loans, investments, property and equipment
    
    
    (1,884
    )
    
    
    (2,496
    )(Gain) loss on sale of other real estate owned
    
    
    100
    
    
    
    (20
    )OTTI credit loss on available-for-sale investments
    
    
    244
    
    
    
    Charge down on OREO
    
    
    1,150
    
    
    
    Accretion of deferred gain on sale of branch property
    
    
    (8
    )
    
    
    (9
    )Net accretion of loan and deposit discounts and premiums
    
    
    (34
    )
    
    
    (9
    )Increase in cash surrender value of bank-owned life insurance
    
    
    (180
    )
    
    
    (156
    )Change in:Loans held for sale
    
    
    (3,521
    )
    
    
    2,548Accrued interest receivable
    
    
    (571
    )
    
    
    1,890Prepaid expenses and other assets
    
    
    (6,371
    )
    
    
    (2,608
    )Accrued interest payable
    
    
    (701
    )
    
    
    (899
    )Accrued expenses and other liabilities
    
    
    (274
    )
    
    
    (1,627
    )Net cash provided (used in) operating activities
    
    
    521
    
    
    
    4,205Cash flows from investing activities:Purchases of available-for-sale securities
    
    
    (87,501
    )
    
    
    (32,872
    )Purchases of FHLB Stock
    
    
    
    
    
    
    (706
    )Proceeds from calls or maturities of available-for-sale securities
    
    
    33,710
    
    
    
    51,022Principal payments on mortgage-backed securities
    
    
    17,194
    
    
    
    7,082Purchases of held-to-maturity securities
    
    
    (65
    )
    
    
    (127
    )Proceeds from calls or maturities of held-to-maturity securities
    
    
    253
    
    
    
    151Origination of loans, net of principal payments
    
    
    (45,987
    )
    
    
    (40,007
    )Proceeds from sale of loans
    
    
    56,273
    
    
    
    13,994Purchase of office properties and equipment
    
    
    (432
    )
    
    
    (4,999
    )Proceeds from sale of office properties and equipment
    
    
    
    
    
    
    8Net change in federal funds sold
    
    
    67,865
    
    
    
    (165
    )Proceeds from sale of other real estate owned
    
    
    911
    
    
    
    62Net change in restricted cash
    
    
    (3,796
    )
    
    
    3,661Net cash provided by (used in) investing activities
    
    
    38,425
    
    
    
    (2,896
    )
 5




---



##### Table of Contents



Six months endedJune 30,2009
    
    
    2008(Dollars in thousands)Cash flows from financing activities:Net change in demand, money market and savings deposits
    
    $
    17,343
    
    
    $
    (19,988
    )Net change in certificates of deposit
    
    
    19,791
    
    
    
    3,782Net change in repurchase agreements
    
    
    (14,626
    )
    
    
    (13,807
    )Principal reduction of note payable
    
    
    (961
    )
    
    
    (22
    )Payoff of credit line
    
    
    (23,145
    )
    
    
    Proceeds from exercise of stock options
    
    
    56
    
    
    
    95Retirement of treasury stock
    
    
    (7
    )
    
    
    (193
    )Proceeds from other borrowings
    
    
    23,000
    
    
    
    28,657Payoff of FHLB advances
    
    
    (10,000
    )
    
    
    Cash dividends paid to preferred stockholders
    
    
    (548
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    10,903
    
    
    
    (1,476
    )Net change in cash and cash equivalents
    
    
    49,849
    
    
    
    (167
    )Cash and cash equivalents, beginning of period
    
    
    22,907
    
    
    
    27,000Cash and cash equivalents, end of period
    
    $
    72,756
    
    
    $
    26,833Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    9,168
    
    
    $
    11,002Income taxes
    
    
    
    
    
    
    2,495Noncash investing and financing activities:Restricted stock issued
    
    
    
    
    
    
    547Accrual of liability for split dollar life insurance
    
    
    
    
    
    
    389Loans converted to other real estate owned
    
    
    11,270
    
    
    
    1,304
  6




---



##### Table of Contents



Intermountain Community Bancorp
Consolidated Statements of Comprehensive Income
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)
    
    
    (Dollars in thousands)Net income (loss)
    
    $
    (11,002
    )
    
    $
    2,269
    
    
    $
    (11,120
    )
    
    $
    3,923Other comprehensive income (loss):Change in unrealized gains on investments, and MBS available for
sale, excluding non-credit loss on impairment of securities
    
    
    464
    
    
    
    (5,792
    )
    
    
    589
    
    
    
    (4,561
    )Non-credit loss on -impairment on available-for-sale debt securities
    
    
    
    
    
    
    
    
    
    
    (1,507
    )
    
    
    Less deferred income tax provision (benefit)
    
    
    (183
    )
    
    
    2,294
    
    
    
    364
    
    
    
    1,806Change in fair value of qualifying cash flow hedge
    
    
    215
    
    
    
    
    
    
    
    319
    
    
    
    Net other comprehensive income (loss)
    
    
    496
    
    
    
    (3,498
    )
    
    
    (235
    )
    
    
    (2,755
    )Comprehensive income (loss)
    
    $
    (10,506
    )
    
    $
    (1,229
    )
    
    $
    (11,355
    )
    
    $
    1,168
  7




---



##### 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, 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.
    
    Investments
 The amortized cost and fair values of investments are as follows (in thousands):
 Available-for-SaleNon-CreditOTTIRecognized
    
    
    Gross
    
    
    GrossAmortized
    
    
    in OCI
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair Value/Cost
    
    
    (Losses)
    
    
    Gains
    
    
    Losses
    
    
    Carrying ValueJune 30, 2009U.S. treasury securities and
obligations of U.S. government
agencies
    
    $
    60
    
    
    $
    
    
    
    $
    1
    
    
    $
    
    
    
    $
    61Residential mortgage-backed securities
    
    
    193,220
    
    
    
    (1,507
    )
    
    
    2,163
    
    
    
    (9,769
    )
    
    
    184,107$
    193,280
    
    
    $
    (1,507
    )
    
    $
    2,164
    
    
    $
    (9,769
    )
    
    $
    184,168December 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 ValueJune 30, 2009State and municipal securities
    
    $
    17,395
    
    
    $
    
    
    
    $
    160
    
    
    $
    (18
    )
    
    $
    17,537December 31, 2008State and municipal securities
    
    $
    17,604
    
    
    $
    
    
    
    $
    70
    
    
    $
    (149
    )
    
    $
    17,525
 The following table summarizes the duration of Intermountains unrealized losses on
available-for-sale and held-to-maturity securities as of the dates indicated (in thousands).
 Less Than 12 Months
    
    
    12 Months or Longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedJune 30, 2009
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesState and municipal securities
    
    $
    1,327
    
    
    $
    18
    
    
    $
    
    
    
    $
    
    
    
    $
    1,327
    
    
    $
    18Residential mortgage-backed securities
    
    
    13,632
    
    
    
    1,575
    
    
    
    46,936
    
    
    
    8,194
    
    
    
    60,568
    
    
    
    9,769Total
    
    $
    14,959
    
    
    $
    1,593
    
    
    $
    46,936
    
    
    $
    8,194
    
    
    $
    61,895
    
    
    $
    9,787
 8




---



##### Table of Contents



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
    
    $
    
    
    
    $
    
    
    
    $
    1,012
    
    
    $
    1,013After one year through five years
    
    
    22
    
    
    
    22
    
    
    
    1,094
    
    
    
    1,120After five years through ten years
    
    
    38
    
    
    
    39
    
    
    
    2,328
    
    
    
    2,420After ten years
    
    
    
    
    
    
    
    
    
    
    12,961
    
    
    
    12,98460
    
    
    
    61
    
    
    
    17,395
    
    
    
    17,537Mortgage-backed securities
    
    
    193,220
    
    
    
    184,107
    
    
    
    
    
    
    
    $
    193,280
    
    
    $
    184,168
    
    
    $
    17,395
    
    
    $
    17,537
 Expected maturities may differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.Intermountains investment portfolios are managed to provide and maintain liquidity; to maintain
a balance of high quality, diversified investments to minimize risk; to offset other asset
portfolio elements in managing interest rate risk; to provide collateral for pledging; and to
maximize returns. At June 30, 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-then-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. An analysis of the portfolio for this quarter indicated no
additional OTTI to this or any other security within the portfolio.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. 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% which
matures in August 2009. During April 2008, the Bank obtained two advances from the FHLB Seattle
in the amounts of $5.0 million and $5.0 million with interest only payable at 2.89% and 2.95% and
maturities in April 2009. The advances matured in April 2009 and were not renewed.
 Advances from FHLB Seattle are collateralized by certain qualifying loans. At June 30, 2009,
Intermountain had the ability to borrow $113.9 million from FHLB Seattle, of which $36.0 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.
 9




---



##### Table of Contents



4.
    
    Other Borrowings:
 The components of other borrowings are as follows (in thousands):
 June 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)
    
    
    
    
    
    
    23,145Term note payable (5)
    
    
    22,980
    
    
    
    Total other borrowings
    
    $
    39,507
    
    
    $
    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 3.85% at June
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 3.93% at June 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, section (5) immediately below.(4)
    
    In March 2007, the Company entered into an additional 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
details of the new financing are detailed in Footnote 4, section (5), immediately below.(5)
    
    In May 2009, the Company negotiated new loan facilities with Pacific Coast Bankers Bank to
refinance the credit line noted in Footnote 4, section (4) immediately above. The loans are
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. The current balance of these loans at June 30, 2009 was
$9.0 million, $11.0 million and $3.0 million, respectively. The amortization on all three
loans is 25 years with a balloon payment and a maturity of May 2012. The Company anticipates
repaying these loans before maturity through the sale of the building, and is currently in
negotiations with a potential buyer. The $11.0 million purchase of the certificate of deposit
was funded by a dividend from the bank to the holding company, and upon pay off of the loan
secured by this account, the funds will be available again for bank or holding company
purposes. Restrictive loan covenants that apply to all three loans include maintaining
minimum levels of total risk-based capital, restrictions on incurring additional debt over
$2.0 million at the holding company level without Pacific Coast Bankers Banks consent, and
requirements to provide financial and loan portfolio information on a periodic basis. In
addition, there are debt service and asset quality requirements that only apply to the $3.0
million credit facility. During the second quarter of 2009, the Company failed to maintain a
Debt Service Coverage ratio of 1.5 to 1.00 due to the net loss recorded. This Debt Service
Coverage requirement was applicable to the $3.0 million loan, and as a result of the failure
to meet this requirement, the interest rate on this loan converts from 10.0% to 15.0%,
effective July 1, 2009. The loan will remain at the default interest rate until the Company
is in compliance with the debt service coverage ratio portion of the Debt Service Covenant,
the earliest being October 1, 2009. Pacific Coast Bankers Bank has approved a waiver of the
violation of the covenant at the June 30, 2009 measurement date. Under the terms of the
waiver agreement, the Company will also establish a reserve account at Pacific Coast Bankers
Bank in the amount of $330,900 from which payments on the $3.0 million note will be drawn. 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 Financial
Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities (FIN No.
46R), the trusts are not consolidated and the debentures and related amounts are treated as
debt of Intermountain. 10




---



##### Table of Contents



5.
    
    Earnings Per Share:
 The following table presents the basic and diluted earnings per share computations:
 Three months Ended June 30,
    
    
    Six months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net income (loss)  basic and diluted
    
    $
    (11,002
    )
    
    $
    2,269
    
    
    $
    (11,120
    )
    
    $
    3,923Preferred stock dividend
    
    
    415
    
    
    
    
    
    
    
    829
    
    
    
    Net Income (loss) applicable to commons stockholders
    
    $
    (11,417
    )
    
    $
    2,269
    
    
    $
    (11,949
    )
    
    $
    3,923Denominator:Weighted average shares outstanding  basic
    
    
    8,362,402
    
    
    
    8,286,087
    
    
    
    8,355,359
    
    
    
    8,278,596Dilutive effect of common stock options, restricted stock awards
    
    
    
    
    
    
    248,099
    
    
    
    
    
    
    
    270,548Weighted average shares outstanding  diluted
    
    
    8,362,402
    
    
    
    8,534,186
    
    
    
    8,355,359
    
    
    
    8,549,144Earnings (loss) per share  basic and diluted:Earnings (loss) per share  basic
    
    $
    (1.37
    )
    
    $
    0.27
    
    
    $
    (1.43
    )
    
    $
    0.47Effect of dilutive common stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Earnings (loss) per share  diluted
    
    $
    (1.37
    )
    
    $
    0.27
    
    
    $
    (1.43
    )
    
    $
    0.46
 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 285,200 and 54,249 shares for the
three months ended June 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 212,735 and 75,823 shares for the six months years ended June
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
    
    
    Six months endedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Salaries and employee benefits
    
    $
    5,653
    
    
    $
    5,530
    
    
    $
    11,358
    
    
    $
    12,476Occupancy expense
    
    
    1,808
    
    
    
    1,938
    
    
    
    3,776
    
    
    
    3,591Advertising
    
    
    344
    
    
    
    426
    
    
    
    643
    
    
    
    691Fees and service charges
    
    
    630
    
    
    
    535
    
    
    
    1,229
    
    
    
    969Printing, postage and supplies
    
    
    293
    
    
    
    360
    
    
    
    653
    
    
    
    708Legal and accounting
    
    
    435
    
    
    
    488
    
    
    
    773
    
    
    
    936Other expense
    
    
    3,504
    
    
    
    1,358
    
    
    
    5,006
    
    
    
    2,523Total operating expenses
    
    $
    12,667
    
    
    $
    10,635
    
    
    $
    23,438
    
    
    $
    21,894
 Salaries and employee benefits expense decreased $1.1 million or 9.0%, over the six month period
last year as a result of decreased staffing levels and lower incentive compensation expense.
Second quarter salaries and employee benefits expense increased $123,000, or 2.2% compared to the
same quarter one year ago, a comparison which is impacted by the reversal of $640,000 in
executive compensation expense in the second quarter of 2008 related to the termination of an
executive bonus plan. 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 increased $185,000, or 5.2%, for the six month period ended June 30, 2009
compared to the same period one year ago. The increase was comprised of an increase in
depreciation expense on the Sandpoint Center which the Company occupied in April 2008. Occupancy
expenses decreased $130,000, or 6.7%, for the three month period ended June 30, 2009 compared to
the same period one year ago. The decrease was 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,
limited new hardware and software purchases, and begun leasing out excess space in its Company
headquarters building.The advertising expense decrease of $48,000 for the six month period and $82,000 for the three
month period ended June 30, 2009 compared to the same period 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 $260,000 increase in fees and service charges
 11




---



##### Table of Contents



for the six month period and $95,000 increase for the three-month period ended June 30, 2009
compared to the same period one year ago primarily reflected higher expenses for the Companys
internet banking services, as usage increased significantly. Printing, postage and supplies
decreased $55,000 for the six-month period and $67,000 for the second quarter, in comparison to
last years
totals. The decrease reflected efficiencies gained in statement and other printing, and tighter
control over supplies expense. Legal and accounting fees decreased by $163,000, or 17.4% in
comparison to the same six month period in 2008 as a result of payments made during 2008 to a
consultant engaged to assist the Company in streamlining business processes. Legal and accounting
fees decreased by $53,000, or 10.9% in comparison to the same three month period in 2008 for the
same reason.Other expenses increased $2.5 million or 98.5%, for the six month period over the same period
last year. The increase primarily consists of $1.2 million in additional FDIC insurance expense
and $1.2 million additional expense related to the Companys Other Real Estate Owned (OREO).
Of the $1.2 million of increased FDIC insurance, $475,000 represents the accrual of the FDICs
special assessment to be paid on September 30, 2009. The OREO increase is a combination of
additional property write-downs to reflect updated valuations and other carrying expenses. Other
expenses increased $2.1 million or 158.0%, for the three month period over the same period last
year. The increases reflect a $1.1 million increase in FDIC insurance expense from the same
period one year ago, and $1.1 million in OREO write-downs and expense for the three months ended
June 30, 2009 compared to last year.
 7.
    
    Stock-Based Compensation Plans:
 The Company utilized its stock to compensate employees and directors under the 1999 Director
Stock Option Plan, the 1999 Employee Plan and the 1988 Employee Plan (together the Stock Option
Plans). Options to purchase Intermountain common stock had been granted to employees and
directors under the Stock Option Plans at prices equal to the fair market value of the underlying
stock on the dates the options were granted. The options vest 20% per year, over a five-year
period, and expire in 10 years. For the six months ended June 30, 2009 and 2008, stock option
expense totaled $0 and $68,000, respectively. The Company did not have any remaining expense
related to the non-vested stock options outstanding at June 30, 2009.On January 14, 2009, the terms of the Amended and Restated 1999 Employee Stock Option and
Restricted Stock Plan and the 1999 Director Stock Option Plan expired. Upon recommendation of
management and approval of the Board of Directors, it was determined that, due to the economic
uncertainty, the Board would not seek to implement a new plan at this time. The 1988 Employee
Stock Option Plan was a predecessor plan to the Amended and Restated 1999 Employee Stock Option
and Restricted Stock Plan. Because each of these plans has expired, shares may no longer be
awarded under these plans. However, awards remain unexercised or unvested under these plans. The
Company did not grant options to purchase Intermountain common stock or restricted stock during
the six months ended June 30, 2009.In 2003, shareholders approved a change to the 1999 Employee Option Plan to provide for the
granting of restricted stock awards. The Company granted restricted stock to directors and
employees beginning in 2005. The restricted stock vests 20% per year, over a five-year period.
The Company granted 0 and 37,949 restricted shares with a grant date fair value of $0 and
$547,000 during the six months ended June 30, 2009 and 2008, respectively. For the six months
ended June 30, 2009 and 2008, restricted stock expense totaled $182,000 and $163,000,
respectively. Total expense related to stock-based compensation is comprised of restricted stock
expense for the six months ended June 30, 2009 and restricted stock expense, stock option expense
and expense related to the 2006-2008 Long-Term Incentive Plan (LTIP) for the six months ended
June 30, 2008. LTIP expense in 2008 was based on anticipated company performance over a 3-year
period and had a 5-year vesting period. During the six months ended June 30, 2008, the Company
reversed $640,000 in accrued incentives related to the LTIP as it appeared that asset growth and
ROE targets required by the plan would not be met by the end of the incentive accrual period.
During the six months ended June 30, 2009, the Company did not have a Long-Term Incentive Plan
and therefore did not have expense related to this portion of stock-based compensation. Total
expense related to stock-based compensation recorded in the six months ended June 30, 2009 and
2008 was $182,000 and ($344,000), respectively.A summary of the changes in stock options outstanding for the six months ended June 30, 2009 is
presented below:
 Six months ended      June 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, June 30, 2009
    
    
    265,713
    
    
    
    6.29
    
    
    
    3.2Exercisable at June 30, 2009
    
    
    262,263
    
    
    $
    6.20
    
    
    
    3.2
 12




---



##### Table of Contents



The total intrinsic value of options exercised during the six months ended June 30, 2009 and
2008 was $7,000 and $96,000, respectively. A summary of the Companys nonvested restricted shares
for the six months ended June 30, 2009 is presented below:
 Weighted-AverageGrant-DateNonvested Shares
    
    Shares
    
    
    Fair ValueBalance at January 1, 2009
    
    
    96,567
    
    
    $
    16.06Granted
    
    
    
    
    
    
    Vested
    
    
    (21,803
    )
    
    
    17.14Forfeited
    
    
    (1,034
    )
    
    
    18.00Balance at June 30, 2009
    
    
    73,730
    
    
    $
    15.71
 As of June 30, 2009, there was $1.0 million of unrecognized compensation cost related to
nonvested share-based compensation arrangements granted under this plan. This cost is expected to
be recognized over a weighted-average period of 3.1 years.
 8. Derivative Financial Instruments
 Management uses derivative financial instruments to protect against the risk of interest rate
movements on the value of certain assets and liabilities and on future cash flows. The
instruments that have been used by the Company include interest rate swaps and cash flow hedges
with indices that relate to the pricing of specific assets and liabilities.Derivative instruments have inherent risks, primarily market risk and credit risk. Market risk is
associated with changes in interest rates and credit risk relates to the risk that the
counterparty will fail to perform according to the terms of the agreement. The amounts
potentially subject to market and credit risks are the streams of interest payments under the
contracts and the market value of the derivative instrument which is determined based on the
interaction of the notional amount of the contract with the underlying instrument, and not the
notional principal amounts used to express the volume of the transactions. Management monitors
the market risk and credit risk associated with derivative financial instruments as part of its
overall Asset/Liability management process.In accordance with SFAS 133, the Company recognizes all derivative financial instruments in the
consolidated financial statements at fair value regardless of the purpose or intent for holding
the instrument. Derivative financial instruments are included in other assets or other
liabilities, as appropriate, on the Consolidated Balance Sheet. Changes in the fair value of
derivative financial instruments are either recognized periodically in income or in shareholders
equity as a component of other comprehensive income depending on whether the derivative financial
instrument qualifies for hedge accounting, and if so, whether it qualifies as a fair value hedge
or cash flow hedge. Generally, changes in fair values of derivatives accounted for as fair value
hedges are recorded in income in the same period and in the same income statement line as changes
in the fair values of the hedged items that relate to the hedged risk(s). Changes in fair values
of derivative financial instruments accounted for as cash flow hedges, to the extent they are
effective hedges, are recorded as a component of other comprehensive income, net of deferred
taxes. Changes in fair values of derivative financial instruments not qualifying as hedges
pursuant to SFAS 133 are reported in non-interest income. Derivative contracts are valued by the
counter party and are periodically validated by management.Interest Rate Swaps  Designated as Cash Flow HedgesThe tables below identify the Companys interest rate swaps at June 30, 2009 and December 31,
2008, which were entered into to hedge certain LIBOR-based trust preferred debentures and
designated as cash flow hedges pursuant to SFAS 133 (dollars in thousands):
 June 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
    
    
    $
    (666
    )
    
    
    1.13
    %
    
    
    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
 13




---



##### Table of Contents



The fair values, or unrealized losses, of $666,000 at June 30, 2009 and $985,000 at December 31,
2008 are included in other liabilities. These hedges were considered highly effective during the
quarter ended June 30, 2009, and none of the change in fair value of these derivatives was
attributed to hedge ineffectiveness. The changes in fair value, net of tax, are separately
disclosed in the statement of changes in shareholders equity as a component of comprehensive
income. Net cash flows from these interest rate swaps are included in interest expense on trust
preferred debentures. The unrealized loss at June 30, 2009 is a component of comprehensive
income for June 30, 2009. At June 30, 2009, Intermountain had $742,000 in pledged certificates of
deposit and $50,000 in restricted cash as collateral for the cash flow hedge.A rollfoward of the amounts in accumulated other comprehensive income related to interest rate
swaps designated as cash flow hedges follows:
 Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008Unrealized gain (loss) at beginning of period
    
    $
    (985
    )
    
    $
    Amount of gain (loss) recognized in other comprehensive income
    
    
    319
    
    
    
    Unrealized gain (loss) at end of period
    
    $
    (666
    )
    
    $
    
 Interest Rate Swaps  Not Designated as Hedging Instruments Under SFAS 133The Company has purchased certain derivative products to allow the Company to effectively convert
a fixed rate loan to a variable rate payment stream. The Company economically hedges derivative
transactions by entering into offsetting derivatives executed with third parties upon the
origination of a fixed rate loan with a customer. Derivative transactions executed as part of
this program are not designated as SFAS 133 hedge relationships and are, therefore, marked to
market through earnings each period. In most cases the derivatives have mirror-image terms, which
result in the positions changes in fair value offsetting completely through earnings each
period. However, to the extent that the derivatives are not a mirror-image, changes in fair value
will not completely offset, resulting in some earnings impact each period. Changes in the fair
value of these interest rate swaps are included in other non-interest income. The following table
summarizes these interest rate swaps as of June 30, 2009 and December 31, 2008 (dollars in
thousands):
 June 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
    
    
    $
    45
    
    
    $
    
    
    
    $
    
 Because these are fair value hedges, at June 30, 2009, the loss in fair value included in
loans receivable totaled $45,000, which was offset by the fair value hedge gain. At December 31,
2008, other assets included $0 of derivative assets and other liabilities included $0 of
derivative liabilities related to these interest rate swap transactions, because they were
executed in 2009. At June 30, 2009, the interest rate swaps had a maturity date of March 2019.
At June 30, 2009 Intermountain had $72,000 in restricted cash for the interest rate swap.
 9.
    
    Fair Value Measurements
 Fair value is defined under SFAS 157 as the price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal market for the asset or liability in an
orderly transaction between market participants on the measurement date. In support of this
principle, SFAS 157 establishes a fair value hierarchy that prioritizes the information used to
develop those assumptions. The fair value hierarchy is as follows:
 Level 1 inputs
 Level 2 inputs
 Level 3 inputs
 14




---



##### Table of Contents



The following table presents information about the Companys assets measured at fair value on a
recurring basis as of June 30, 2009, and indicates the fair value hierarchy of the valuation
techniques utilized by the Company to determine such fair value (dollars in thousands).
 Fair Value MeasurementsAt June 30, 2009, UsingQuoted PricesIn Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableFair Value
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    June 30, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Available-for-Sale Securities:U.S. treasury securities and obligations of U.S. government agencies
    
    $
    61
    
    
    $
    
    
    
    $
    61
    
    
    $
    Residential mortgage backed securities (MBS)
    
    
    184,107
    
    
    
    
    
    
    
    150,815
    
    
    
    33,292Other Assets  Derivative
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    45Total Assets Measured at Fair Value
    
    $
    184,213
    
    
    $
    
    
    
    $
    150,876
    
    
    $
    33,337Other Liabilities  Derivatives
    
    $
    711
    
    
    $
    
    
    
    $
    
    
    
    $
    711
 Fair Value MeasurementsAt December 31, 2008, UsingQuoted PricesIn Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableFair Value
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    June 30, 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
    
    
    (244
    )
    
    
    45
    
    
    
    (199
    )Included in other comprehensive income
    
    
    (1,022
    )
    
    
    
    
    
    
    (1,022
    )Principal Payments
    
    
    (4,106
    )
    
    
    
    
    
    
    (4,106
    )Transfers in and /or out of Level 3
    
    
    
    
    
    
    
    
    
    
    June 30, 2009 Balance
    
    $
    33,292
    
    
    $
    45
    
    
    $
    33,337
 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
    
    
    45Included in other comprehensive income
    
    
    (319
    )June 30, 2009 Balance
    
    $
    711
 15




---



##### Table of Contents



Fair Value MeasurementsAt June 30, 2009, UsingQuoted PricesIn Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableFair Value
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    June 30, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Loans(1)
    
    $
    43,817
    
    
    $
    
    
    
    $
    
    
    
    $
    43,817Other real estate owned
    
    
    13,650
    
    
    
    
    
    
    
    
    
    
    
    13,650Total Assets Measured at Fair Value
    
    $
    57,467
    
    
    $
    
    
    
    $
    
    
    
    $
    57,467
 
 (1)
    
    Represents collateral-dependent impaired loans, net, which are
included in loans.   Securities
  Available for Sale Securities.
   16




---



##### Table of Contents



EITF
 
    
    The length of time and the extent to which the market value of the securities have been
less 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 holder to retain its investment in the issuer for a period
of time sufficient to allow for any anticipated recovery in market value.
  Loans.
 Other Real Estate Owned.
 Interest Rate Swaps.
  17




---



##### Table of Contents



June 30, 2009
    
    December 31, 2008Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assets:Cash, cash equivalents, restricted cash and federal funds sold
    
    $
    68,863
    
    
    $
    68,863
    
    
    $
    93,653
    
    
    $
    93,653Interest bearing certificates of deposit
    
    
    11,742
    
    
    
    11,742
    
    
    
    1,172
    
    
    
    1,172Available-for-sale securities
    
    
    184,168
    
    
    
    184,168
    
    
    
    147,618
    
    
    
    147,618Held-to-maturity securities
    
    
    17,395
    
    
    
    17,537
    
    
    
    17,604
    
    
    
    17,525Loans held for sale
    
    
    4,453
    
    
    
    4,453
    
    
    
    933
    
    
    
    933Loans receivable, net
    
    
    710,311
    
    
    
    721,670
    
    
    
    752,615
    
    
    
    754,772Accrued interest receivable
    
    
    7,020
    
    
    
    7,020
    
    
    
    6,449
    
    
    
    6,449BOLI
    
    
    8,217
    
    
    
    8,217
    
    
    
    8,037
    
    
    
    8,037Financial liabilities:Deposit liabilities
    
    
    827,546
    
    
    
    795,004
    
    
    
    790,412
    
    
    
    777,710Other borrowed funds
    
    
    169,887
    
    
    
    166,919
    
    
    
    195,619
    
    
    
    193,747Accrued interest payable
    
    
    1,574
    
    
    
    1,574
    
    
    
    2,275
    
    
    
    2,275
  Cash, Cash Equivalents, Federal Funds and Certificates of Deposit
  Investments and BOLI
  Loans Receivable and Loans Held For Sale
  Deposits
  Borrowings
  18




---



##### Table of Contents



Accrued Interest
  10.
    
    Subsequent Events
 Intermountain performed an evaluation of subsequent events through August 14, 2009, the date upon
which Intermountains quarterly report on Form 10-Q was filed with the Securities and Exchange
Commission. No subsequent events were identified that would have required a change to the
financial statements or disclosure in the notes to the financial statements.
 11.
    
    New Accounting Pronouncements:
 Fair Value Measurements and Impairments of Securities.On April 9, 2009, the FASB issued three
FSPs intended to provide additional application guidance and enhance disclosures regarding fair
value measurements and impairments of securities. FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly, provides guidelines for making fair value
measurements more consistent with the principles presented in FASB Statement No. 157, Fair Value
Measurements. FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments,enhances consistency in financial reporting by increasing the frequency of fair
value disclosures. FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, provides additional guidance designed to create greater clarity
and consistency in accounting for and presenting impairment losses on securities.FSP FAS 157-4 relates to determining fair values when there is no active market or where the
price inputs being used represent distressed sales. It reaffirms the need to use judgment to
ascertain if a formerly active market has become inactive and in determining fair values when
markets have become inactive.FSP FAS 107-1 and APB 28-1 relate to fair value disclosures for any financial instruments that
are not currently reflected on the balance sheet of companies at fair value. Prior to issuing
this FSP, fair values for these assets and liabilities were only disclosed once a year. The FSP
now requires these disclosures on a quarterly basis, providing qualitative and quantitative
information about fair value estimates for all those financial instruments not measured on the
balance sheet at fair value.FSP FAS 115-2 and FAS 124-2 on other-than-temporary impairments are intended to bring greater
consistency to the timing of impairment recognition, and provide greater clarity to investors
about the credit and noncredit components of impaired debt securities that are not expected to be
sold. The measure of impairment in comprehensive income remains at fair value. The FSP also
requires increased and timelier disclosures sought by investors regarding expected cash flows,
credit losses, and an aging of securities with unrealized losses.The FSPs are effective for interim and annual periods ending after June 15, 2009, but entities
may early adopt the FSPs for the interim and annual periods ending after March 15, 2009. The
Company did early adopt the FSPs effective January 1, 2009 and it resulted in a portion of
other-than-temporary impairment being recorded in other comprehensive income instead of earnings
in the amount of $1.5 million for the three months ended March 31, 2009.On January 12, 2009, FASB issued FSP Emerging Issues Task Force (EITF) 99-20-1, Amendments to the
Impairment Guidance of EITF Issue No. 99-20(FSP EITF 99-20-1). FSP EITF 99-20-1 addresses
certain practice issues in EITF No. 99-20, Recognition of Interest Income and Impairment on
Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor
in Securitized Financial Assets, by making its other-than-temporary impairment assessment
guidance consistent with SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities. FSP EITF 99-20-1 removes the reference to the consideration of a market participants
estimates of cash flows in EITF 99-20, and instead requires an assessment of whether it is
probable, based on current information and events, that the holder of the security will be unable
to collect all amounts due according to the contractual terms. If it is probable that there has
been an adverse change in estimated cash flows, an other-than-temporary impairment is deemed to
exist, and a corresponding loss shall be recognized in earnings equal to the entire difference
between the investments carrying value and its fair value at the balance sheet date of the
reporting period for which the assessment is made. This FSP is effective for interim and annual
reporting periods ending after December 15, 2008, and shall be applied prospectively. FSP EITF
99-20-1 was further modified in April 2009 by the issuance of FSP FAS 115-2/124-2 and EITF
99-20-2 discussed above.See the discussion above for the cumulative impact on the Companys
consolidated financial statements.On October 10, 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active(FSP FAS 157-3). The FSP clarifies the
application of FASB Statement No. 157, Fair Value Measurements, in a market that is not active
and provides an example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. The FSP is effective
immediately, and includes prior period financial statements that have not yet been issued, and
therefore the Company is subject to the provision of the FSP effective June 30, 2009. See Notes
to Consolidated Financial Statements, notes 2 and 9 for further discussion of the impact of SFAS
No. 157 and the additional guidance issued.
 19




---



##### Table of Contents



In December 2007, FASB issued SFAS No. 141 (revised), Business Combinations(SFAS No. 141(R)).
SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the
goodwill acquired. SFAS No. 141(R) also establishes disclosure requirements to enable the
evaluation of the nature and financial effects of the business combination. This statement
applies prospectively to business combinations for which the acquisition date is on or after
January 1, 2009. The adoption of the SFAS No. 141(R) for reporting as of June 30, 2009, had no
affect on the Companys financial statements.In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51 (SFAS 160). SFAS 160 establishes accounting
and reporting standards that require that the ownership interests in subsidiaries held by parties
other than the parent be clearly identified, labeled, and presented in the consolidated statement
of financial position within equity, but separate from the parents equity; the amount of
consolidated net income attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of income; and changes in a
parents ownership interest while the parent retains its controlling financial interest in its
subsidiary be accounted for consistently. SFAS 160 also requires that any retained noncontrolling
equity investment in the former subsidiary be initially measured at fair value when a subsidiary
is deconsolidated. SFAS 160 also sets forth the disclosure requirements to identify and
distinguish between the interests of the parent and the interests of the noncontrolling owners.
SFAS 160 applies to all entities that prepare consolidated financial statements, except
not-for-profit organizations, but will affect only those entities that have an outstanding
noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS 160
is effective for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. Earlier adoption is prohibited. SFAS 160 must be applied prospectively
as of the beginning of the fiscal year in which SFAS 160 is initially applied, except for the
presentation and disclosure requirements. The presentation and disclosure requirements are
applied retrospectively for all periods presented. The Company does not have a noncontrolling
interest in one or more subsidiaries. The adoption of the SFAS No. 160 for reporting as of
June 30, 2009, did not have a material impact on the Companys consolidated financial statements.In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities(SFAS 161). SFAS 161 requires specific disclosures regarding the location and
amounts of derivative instruments in the Companys financial statements, how derivative
instruments and related hedged items are accounted for, and how derivative instruments and
related hedged items affect the Companys financial position, financial performance, and cash
flows. SFAS 161 is effective for financial statements issued and for fiscal years and interim
periods after November 15, 2008. Early application was permitted. SFAS 161 impacts the Companys
disclosure, but not its accounting treatment for derivative instruments and related hedged items.
The Company adopted this guidance, effective first quarter 2009, and has complied with the
additional disclosure requirements. See Notes to Consolidated Financial Statements, note 8 for
additional information.In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles(SFAS No. 162). SFAS No. 162 is intended to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting accounting principles to be used
in preparing financial statements that are presented in conformity with U.S. generally accepted
accounting principles (GAAP) for nongovernmental entities. Prior to the issuance of SFAS No.
162, GAAP hierarchy was defined in the American Institute of Certified Public Accountants
(AICPA) Statement on Auditing Standards (SAS) No. 69, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. SAS 69 has been criticized because it
is directed to the auditor rather than the entity. SFAS No. 162 addresses these issues by
establishing that the GAAP hierarchy should be directed to entities because it is the entity (not
its auditor) that is responsible for selecting accounting principles for financial statements
that are presented in conformity with GAAP. This statement is effective for financial statements
issued for interim and annual periods ending after September 15, 2009. The initial application
of SFAS No. 162 will not have an impact on the Companys financial statements.In May 2009, the FASB issued SFAS No. 165, Subsequent Events(SFAS 165). SFAS 165 establishes
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or available to be issued. SFAS 165 sets forth
(i) the period after the balance sheet date during which management of a reporting entity should
evaluate events or transactions that may occur for potential recognition or disclosure in the
financial statements, (ii) the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements and (iii) the
disclosures that an entity should make about events or transactions that occurred after the
balance sheet date. This pronouncement was effective for the period ended June 30, 2009 and did
not have a significant impact on the Companys financial statements, although it did affect the
Companys disclosures.In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets  an
Amendment of FASB Statement No. 140(SFAS 166).SFAS 166 was issued to improve the
information a reporting entity provides in its financial statements about a transfer of financial
assets, including the effect of a transfer on an entitys financial position, financial
performance and cash flows
 20




---



##### Table of Contents



and the transferors continuing involvement in the transferred assets.
SFAS 166 eliminates the concept of a qualifying special-purpose entity and changes the guidance
for evaluation for consolidation. This pronouncement is effective January 1, 2010 and is not
expected to have a significant impact on the Companys financial statements.In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R)(SFAS
167). SFAS 167 was issued to amend previous guidance to replace the quantitative-based risks
and rewards calculation for determining which enterprise, if any, has a controlling financial
interest in a variable interest entity with an approach focused on identifying which enterprise
has the power
to direct the activities of a variable interest entity that most significantly impact the
entitys economic performance and (i) the obligation to absorb losses of the entity or (ii) the
right to receive benefits from the entity. The pronouncement is effective January 1, 2010 and is
not expected to have a significant impact on the Companys financial statements.In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Principles, a Replacement of FASB Statement No. 162(SFAS 168).
SFAS 168 was issued and established the FASB Accounting Standards Codification (Codification)
as the source of authoritative U. S. generally accepted accounting principles recognized by the
FASB to be applied by nongovernmental entities. Rules and interpretative releases of the SEC
under authority of federal securities laws are also sources of authoritative guidance for SEC
registrants. All non-grandfathered, non-SEC accounting literature not included in the
Codification will become nonauthoritative. The pronouncement and the Codification will be
effective in the period ending September 30, 2009 and is not expected to have a significant
impact on the Companys financial statements.In June 2008, the FASB issued FASB Staff Position Emerging Issues Task Force 03-6-01,
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating
Securities(FSP EITF 03-6-01). This FSP addresses whether instruments granted in share-based
payment transactions are participating securities prior to vesting and, therefore, need to be
included in the earnings allocation in computing earnings per share (EPS) under the two-class
method described in paragraphs 60 and 61 of FASB Statement No. 128 (SFAS 128), Earnings Per
Share. The guidance in this FSP applies to the calculation of EPS under SFAS 128 for share-based
payment awards with rights to dividends or dividend equivalents. Unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of EPS pursuant to
the two-class method. This statement is effective for fiscal years beginning on or after December
15, 2008 and interim periods within those years. All prior-period EPS data presented shall be
adjusted retrospectively (including interim financial statements, summaries of earnings and
selected financial data) to conform with the provision of this FSP. The Company adopted FSP EITF
03-6-01 on January 1, 2009. Adoption did not have a material effect on the Companys consolidated
financial statements.In June 2008, the Emerging Issues Task Force (EITF) issued EITF 07-05, Determining Whether an
Instrument (or an Embedded Feature) Is Indexed to an Entitys Own Stock, (EITF 07-05). EITF
07-05 supersedes prior guidance that defines the meaning of the phrase indexed to an entitys
own stock and revises the criteria to be used to determine if an equity-linked instrument,
including embedded features, can be classified within shareholders equity. EITF 07-05 is
effective for fiscal years beginning after December 15, 2008. The Company adopted EITF 07-05
effective with the first quarter of fiscal 2009 and adoption did not have a material effect on
the Companys consolidated financial statements.
 
 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
   21




---



##### Table of Contents



Current Economic Challenges and Future Outlook
     
    
    Substantially higher credit losses and provisions for loan losses, to reflect higher
default rates, declining collateral valuations, and aggressive problem loan
identification, workout and liquidation efforts
    
    Slowing loan demand, particularly from higher quality borrowers, as businesses and
consumers continued to retrench
    
    Continuing pressure on fee income, as weaker economic activity depressed revenues from
a broad range of fee categories, including trust and investment services and credit card
related fees
 22




---



##### Table of Contents



Powered by Community
    Critical Accounting Policies
  Income Recognition.
 Allowance For Loan Losses.
 23




---



##### Table of Contents



Investments.
  Notes to Consolidated Financial Statements
 Goodwill and Other Intangible Assets.
 24




---



##### Table of Contents



Real Estate Owned.
  Fair Value Measurements. Consolidated Financial
Statements
 Derivative Financial Instruments and Hedging Activities.
 Consolidated Financial Statements
 Results of Operations
 Overview
 25




---



##### Table of Contents



Net Interest Income
    
    
    As market rates dropped over the last 21 months, changes in the Companys funding
rates lagged changes in yields on loans and investments;
    
    The Company has shifted to a more conservative asset mix with higher relative balances
of lower-yielding investments and cash equivalents; and
    
    The Company has experienced higher levels of non-performing loans, which have resulted
in a reduction in margin of 0.27% for the 3-month comparative period and 0.19% for the
six-month comparative period.
   26




---



##### Table of Contents



Provision for Losses on Loans & Credit Quality.
    Six months ended June 30,2009
    
    
    2008(Dollars in thousands)Balance at January 1
    
    $
    16,433
    
    
    $
    11,761Provision for losses on loans
    
    
    21,454
    
    
    
    2,398Amounts written off, net of recoveries
    
    
    (13,587
    )
    
    
    (1,266
    )Allowance  loans, June 30
    
    
    24,300
    
    
    
    12,893Allowance  unfunded commitments, January 1
    
    
    14
    
    
    
    18Adjustment
    
    
    351
    
    
    
    (10
    )Allowance  unfunded commitments, June 30
    
    
    365
    
    
    
    8Total credit allowance including unfunded commitments
    
    $
    24,665
    
    
    $
    12,901
    27




---



##### Table of Contents



Loan QualityJune 30,
    
    
    Dec 31,2009
    
    
    2008(dollars in thousands)Loans past due in excess of 90 days and still accruing
    
    $
    2,966
    
    
    $
    913Non-accrual loans
    
    
    24,532
    
    
    
    26,365Total non-performing loans
    
    
    27,498
    
    
    
    27,278OREO
    
    
    13,650
    
    
    
    4,541Total non-performing assets (NPA)
    
    $
    41,148
    
    
    $
    31,819Classified loans
    
    $
    91,986
    
    
    $
    53,847Troubled debt restructured loans (1)
    
    $
    30,357
    
    
    $
    13,424
  (1) Loans restructured and in compliance with modified terms; excludes non-accrual loansNon-accrual loans as a percentage of net loans receivable
    
    
    3.45
    %
    
    
    3.50
    %Total non-performing loans as a % of net loans receivable
    
    
    3.87
    %
    
    
    3.62
    %Total NPA as a % of loans receivable
    
    
    5.79
    %
    
    
    4.23
    %Allowance for loan losses (ALLL) as a % of non-performing loans
    
    
    88.4
    %
    
    
    60.2
    %Total NPA as a % of total assets
    
    
    3.73
    %
    
    
    2.88
    %Total NPA as a % of tangible capital + ALLL (Texas Ratio)
    
    
    37.17
    %
    
    
    27.75
    %
  Other Income.
   28




---



##### Table of Contents



Operating Expenses.
       Income Tax Provision
 29




---



##### Table of Contents



Financial Position
 Assets
 Investments.
 Consolidated Financial Statements
 Loans Receivable. Powered By Community
  June 30, 2009
    
    
    December 31, 2008Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Commercial
    
    $
    227,857
    
    
    
    31.02
    
    
    $
    227,521
    
    
    
    29.58Commercial real estate
    
    
    383,235
    
    
    
    52.17
    
    
    
    409,461
    
    
    
    53.23Residential real estate
    
    
    95,617
    
    
    
    13.02
    
    
    
    103,937
    
    
    
    13.51Consumer
    
    
    22,290
    
    
    
    3.03
    
    
    
    23,245
    
    
    
    3.02Municipal
    
    
    5,588
    
    
    
    0.76
    
    
    
    5,109
    
    
    
    0.66Total loans receivable
    
    
    734,587
    
    
    
    100.00
    
    
    
    769,273
    
    
    
    100.00Net deferred origination fees
    
    
    24
    
    
    
    
    
    
    
    (225
    )Allowance for losses on loans
    
    
    (24,300
    )
    
    
    
    
    
    
    (16,433
    )Loans receivable, net
    
    $
    710,311
    
    
    
    
    
    
    $
    752,615Weighted average yield at end of period
    
    
    6.05
    %
    
    
    
    
    
    
    6.38
    %
  30




---



##### Table of Contents



Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    % Change
    
    
    2009
    
    
    2008
    
    
    % Change(Dollars in thousands)Commercial
    
    $
    39,682
    
    
    $
    66,746
    
    
    
    (40.5
    )
    
    $
    86,657
    
    
    $
    124,645
    
    
    
    (30.5
    )Commercial real estate
    
    
    35,742
    
    
    
    73,680
    
    
    
    (51.5
    )
    
    
    51,065
    
    
    
    133,439
    
    
    
    (61.7
    )Residential real estate
    
    
    38,540
    
    
    
    21,294
    
    
    
    81.0
    
    
    
    66,827
    
    
    
    39,666
    
    
    
    68.5Consumer
    
    
    2,461
    
    
    
    3,144
    
    
    
    (21.7
    )
    
    
    4,917
    
    
    
    6,248
    
    
    
    (21.3
    )Municipal
    
    
    218
    
    
    
    160
    
    
    
    36.3
    
    
    
    696
    
    
    
    475
    
    
    
    46.5Total loans originated
    
    $
    116,643
    
    
    $
    165,024
    
    
    
    (29.3
    )
    
    $
    210,162
    
    
    $
    304,473
    
    
    
    (31.0
    )
   Office Properties and Equipment.
 Other Real Estate Owned.
 31




---



##### Table of Contents



BOLI and All Other Assets
 Deposits
  June 30, 2009
    
    
    December 31, 2008Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Demand
    
    $
    155,446
    
    
    
    18.8
    
    
    $
    154,265
    
    
    
    19.5NOW and money market 0.0% to 5.25%
    
    
    335,606
    
    
    
    40.5
    
    
    
    321,556
    
    
    
    40.7Savings and IRA 0.0% to 5.75%
    
    
    80,782
    
    
    
    9.8
    
    
    
    78,671
    
    
    
    10.0Certificate of deposit accounts
    
    
    255,712
    
    
    
    30.9
    
    
    
    235,920
    
    
    
    29.8Total deposits
    
    $
    827,546
    
    
    
    100.0
    
    
    $
    790,412
    
    
    
    100.0Weighted average interest rate on certificates of deposit
    
    
    
    
    
    
    2.83
    %
    
    
    
    
    
    
    3.22
    %
   Borrowings
 Interest Rate Risk
   32




---



##### Table of Contents



Liquidity and Sources of Funds
    33




---



##### Table of Contents



Capital Resources
   34




---



##### 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
    
    $
    117,953
    
    
    
    13.74
    %
    
    $
    68,691
    
    
    
    8
    %
    
    $
    85,864
    
    
    
    10
    %Panhandle State Bank
    
    
    106,421
    
    
    
    12.42
    %
    
    
    68,522
    
    
    
    8
    %
    
    
    85,653
    
    
    
    10
    %Tier I capital (to risk-weighted assets):The Company
    
    
    107,048
    
    
    
    12.47
    %
    
    
    34,345
    
    
    
    4
    %
    
    
    51,518
    
    
    
    6
    %Panhandle State Bank
    
    
    95,589
    
    
    
    11.16
    %
    
    
    34,261
    
    
    
    4
    %
    
    
    51,392
    
    
    
    6
    %Tier I capital (to average assets):The Company
    
    
    107,048
    
    
    
    9.88
    %
    
    
    43,351
    
    
    
    4
    %
    
    
    54,188
    
    
    
    5
    %Panhandle State Bank
    
    
    95,589
    
    
    
    9.13
    %
    
    
    41,893
    
    
    
    4
    %
    
    
    52,366
    
    
    
    5
    %
 Off Balance Sheet Arrangements and Contractual Obligations
  35




---



##### Table of Contents



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)
    
    $
    99,705
    
    
    $
    2,548
    
    
    $
    67,004
    
    
    $
    1,287
    
    
    $
    28,866Short-term debt
    
    
    90,572
    
    
    
    90,572
    
    
    
    
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations(2)
    
    
    13,472
    
    
    
    915
    
    
    
    1,460
    
    
    
    1,220
    
    
    
    9,877Purchase obligations(3)
    
    
    426
    
    
    
    426
    
    
    
    
    
    
    
    
    
    
    
    Other long-term obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    204,175
    
    
    $
    94,461
    
    
    $
    68,464
    
    
    $
    2,507
    
    
    $
    38,743
 
 (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. New Accounting Pronouncements
 Fair Value Measurements and Impairments of Securities. Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly Interim Disclosures about Fair Value of Financial Instruments, Recognition and Presentation of Other-Than-Temporary Impairments
     Amendments to the
Impairment Guidance of EITF Issue No. 99-20 FSP EITF 99-20-1 Recognition of Interest Income and Impairment on Purchased
Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in
Securitized Financial Assets Accounting for Certain Investments in Debt and Equity Securities
 36




---



##### Table of Contents



FSP FAS 115-2/124-2 and EITF 99-20-2 .
 Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active Notes to Consolidated Financial Statements
 Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51 (
 Disclosures about Derivative Instruments and Hedging
Activities Notes to Consolidated Financial Statements
 t The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles
 Subsequent Events
 37




---



##### Table of Contents



Accounting for Transfers of Financial Assets  an
Amendment of FASB Statement No. 140 .
 Amendments to FASB Interpretation No. 46(R)
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Principles, a Replacement of FASB Statement No. 162
 FASB Staff Position Emerging Issues Task Force 03-6-01, Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities Earnings Per Share.
 Determining Whether an
Instrument (or an Embedded Feature) Is Indexed to an Entitys Own Stock
 Forward-Looking Statements
 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
   38




---



##### Table of Contents




    
    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
    
    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
 39




---



##### 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.
  As a financial holding company, our earnings are dependent upon the performance of our bank as
well as on business, economic, and political conditions.
    A further downturn in the local economies or real estate markets could negatively impact our
banking business.
   Our loan portfolio mix, which has a concentration of loans secured by real estate, could result in
increased credit risk in an economic recession.
  40




---



##### Table of Contents



The allowance for loan losses may be inadequate.
    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.
  Additional market concern over investment securities backed by mortgage loans could create losses
in the Companys investment portfolio.
  41




---



##### Table of Contents



We cannot predict the effect of recent and pending federal legislation.
     Changes in market interest rates could adversely affect our earnings.
      42




---



##### Table of Contents



The FDIC has increased insurance premiums to rebuild and maintain the federal deposit insurance
fund.
   We may experience future goodwill impairment.
  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.
  We have expanded our lending activities in riskier areas.
  43




---



##### Table of Contents



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.
   Continued volatility in the subprime and prime mortgage markets could have additional negative
impacts on the Companys lending operations.
  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.
  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
  44




---



##### Table of Contents



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
 (a)
    
    The annual meeting of Shareholders of Intermountain Community Bancorp was held on April
29, 2009.(b)
    
    Not Applicable(c)
    
    A brief description of each matter voted upon at the Annual Meeting and the number of
votes cast for, against or withheld, including a separate tabulation with respect to each
nominee to serve on the Board is presented below:
 1. Election of 4 directors for terms
expiring in 2012.Ford ElsaesserVotes cast for:
    
    
    5,580,250Votes withheld:
    
    
    216,861Curt HeckerVotes cast for:
    
    
    5,619,205Votes withheld:
    
    
    177,906Michael J. RomineVotes cast for:
    
    
    5,620,464Votes withheld:
    
    
    176,647Jerry SmithVotes cast for:
    
    
    5,601,274Votes withheld:
    
    
    195,8372. Advisory (non-binding) vote on
executive compensation.Votes cast for:
    
    
    4,854,577Votes cast against:
    
    
    287,352Votes abstained:
    
    
    655,1823. Ratification of the appointment
of BDO Seidman, LLP as the Companys independent registered public accounting firm.Votes cast for:
    
    
    5,541,704Votes cast against:
    
    
    229,882Votes abstained:
    
    
    25,525
 45




---



##### Table of Contents



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.
 46




---



##### Table of Contents



Signatures
  INTERMOUNTAIN COMMUNITY BANCORP(Registrant)August 14, 2009            Date
    
    By:
    
    /s/ Curt Hecker

Curt HeckerPresident and Chief Executive OfficerAugust 14,
2009            Date
    
    By:
    
    /s/ Doug Wright

Doug WrightExecutive Vice President and Chief Financial Officer
 47