IMCB-2013.3.31 Q1 10Q
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 March 31, 2013
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to           
COMMISSION FILE NUMBER 000-50667
INTERMOUNTAIN COMMUNITY BANCORP
(Exact name of registrant as specified in its charter)
 
 
 
Idaho
 
82-0499463
(State or other jurisdiction of
 
(IRS Employer
incorporation or organization)
 
Identification No.)

414 Church Street, Sandpoint, ID 83864
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code:
(208) 263-0505

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company þ
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
The number of shares outstanding of the registrant’s Voting Common Stock, no par value per share, as of May 8, 2013 was 2,603,606 and the number of shares of Non-Voting Common Stock, no par value per share, was 3,839,688.

Table of Contents

Intermountain Community Bancorp
FORM 10-Q
For the Quarter Ended March 31, 2013
TABLE OF CONTENTS
 
 
 
 
 
 
 
Item 4 —Mine Safety Disclosure
 EX-3.1 Amended and Restated Articles of Incorporation
 
 EX-31.1
 EX-31.2
 EX-32
 EX-101

2
Table of Contents

PART I — Financial Information
Item - 1 Financial Statements
Intermountain Community Bancorp
Consolidated Balance Sheets
(Unaudited)
 
March 31,
2013
 
December 31,
2012
 
(Dollars in thousands)
ASSETS
 
 
 
Cash and cash equivalents:
 
 
 
Interest-bearing
$
45,897

 
$
53,403

Non-interest bearing and vault
4,074

 
13,536

Restricted cash
12,279

 
13,146

Available-for-sale securities, at fair value
282,769

 
280,169

Held-to-maturity securities, at amortized cost
14,795

 
14,826

Federal Home Loan Bank (“FHLB”) of Seattle stock, at cost
2,249

 
2,269

Loans held for sale
2,023

 
1,684

Loans receivable, net
498,754

 
520,768

Accrued interest receivable
4,051

 
4,320

Office properties and equipment, net
35,231

 
35,453

Bank-owned life insurance ("BOLI")
9,556

 
9,472

Other real estate owned (“OREO”)
4,664

 
4,951

Prepaid expenses and other assets
17,538

 
18,142

Total assets
$
933,880

 
$
972,139

LIABILITIES
 
 
 
Deposits
$
719,467

 
$
748,934

Securities sold subject to repurchase agreements
66,157

 
76,738

Advances from Federal Home Loan Bank
4,000

 
4,000

Unexercised stock warrant liability
772

 
828

Cashier checks issued and payable
2,767

 
2,024

Accrued interest payable
337

 
1,185

Other borrowings
16,527

 
16,527

Accrued expenses and other liabilities
7,942

 
7,469

Total liabilities
817,969

 
857,705

STOCKHOLDERS’ EQUITY
 
 
 
Common stock 30,000,000 shares authorized; 2,603,606 and 2,603,674 shares issued and 2,603,606,and 2,603,131 shares outstanding as of March 31, 2013 and December 31, 2012, respectively
96,358

 
96,368

Common stock - non-voting 10,000,000 shares authorized; 3,839,688 and 3,839,688 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively
31,941

 
31,941

Preferred stock, Series A, 27,000 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively; liquidation preference of $1,000 per share
26,648

 
26,527

Accumulated other comprehensive income, net of tax
3,829

 
3,529

Accumulated deficit
(42,865
)
 
(43,931
)
Total stockholders’ equity
115,911

 
114,434

Total liabilities and stockholders’ equity
$
933,880

 
$
972,139


The accompanying notes are an integral part of the consolidated financial statements.

3
Table of Contents

Intermountain Community Bancorp
Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended
 
March 31,
 
2013
 
2012
 
(Dollars in thousands, except per share data)
Interest income:
 
 
 
Loans
$
6,710

 
$
7,071

Investments
1,593

 
2,049

Total interest income
8,303

 
9,120

Interest expense:
 
 
 
Deposits
561

 
822

Other borrowings
424

 
676

Total interest expense
985

 
1,498

Net interest income
7,318

 
7,622

Provision for losses on loans
(179
)
 
(959
)
Net interest income after provision for losses on loans
7,139

 
6,663

Other income:
 
 
 
Fees and service charges
1,675

 
1,602

Loan related fee income
567

 
605

Net gain on sale of securities
40

 
585

Net gain (loss) on sale of other assets
4

 
4

Other-than-temporary impairment (“OTTI”) losses on investments (1)
(42
)
 
(271
)
Bank-owned life insurance
84

 
87

Fair value adjustment on cash flow hedge
67

 
(384
)
Unexercised warrant liability fair value adjustment
56

 
—

Other
113

 
208

Total other income
2,564

 
2,436

Operating expenses:
 
 
 
Salaries and employee benefits
4,175

 
4,136

Occupancy expense
1,524

 
1,684

Advertising
114

 
112

Fees and service charges
617

 
622

Printing, postage and supplies
217

 
300

Legal and accounting
340

 
350

FDIC assessment
186

 
313

OREO operations
111

 
104

Other expenses
894

 
677

Total operating expenses
8,178

 
8,298

Net income before income taxes
1,525

 
801

Income tax benefit
—

 
—

Net income
1,525

 
801

Preferred stock dividend
458

 
466

Net income applicable to common stockholders
$
1,067

 
$
335

Earnings per share — basic
$
0.17

 
$
0.08

Earnings per share — diluted
$
0.16

 
$
0.08

Weighted average common shares outstanding — basic
6,442,988

 
4,427,831

Weighted average common shares outstanding — diluted
6,480,024

 
4,442,673

(1)
Consisting of $0 and $7 of total other-than-temporary impairment net losses, net of $(42), and $(264) recognized in other comprehensive income, for the three months ended March 31, 2013 and March 31, 2012, respectively.
The accompanying notes are an integral part of the consolidated financial statements.

4
Table of Contents

Intermountain Community Bancorp
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)

 
Three Months Ended
 
March 31,
 
2013
 
2012
 
(Dollars in thousands)
Net income
$
1,525

 
$
801

Other comprehensive income:
 
 
 
Change in unrealized gains on investments, and mortgage backed securities (“MBS”) available for sale, excluding non-credit loss on impairment of securities
495

 
(731
)
Realized net gains reclassified from other comprehensive income
(40
)
 
(585
)
Non-credit loss on impairment on available-for-sale debt securities
42

 
263

Less deferred income tax benefit (provision) on securities
(197
)
 
417

Change in fair value of qualifying cash flow hedge, net of tax
—

 
330

Net other comprehensive income (loss)
300

 
(306
)
Comprehensive income
$
1,825

 
$
495

The accompanying notes are an integral part of the consolidated financial statements.


5
Table of Contents

Intermountain Community Bancorp
Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended
 
March 31,
 
2013
 
2012
 
(Dollars in thousands)
Cash flows from operating activities:
 
 
 
Net income
$
1,525

 
$
801

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
605

 
676

Stock-based compensation expense
13

 
30

Net amortization of premiums on securities
1,697

 
1,075

Provisions for losses on loans
179

 
959

Amortization of core deposit intangibles
17

 
29

(Gain) on sale of loans, investments, property and equipment
(369
)
 
(973
)
Impact of hedge dedesignation and current fair value adjustment
69

 
458

OTTI credit loss on available-for-sale investments
42

 
271

OREO valuation adjustments
26

 
(20
)
Accretion of deferred gain on sale of branch property
(4
)
 
(4
)
Net accretion of loan and deposit discounts and premiums
(3
)
 
(3
)
Increase in cash surrender value of bank-owned life insurance
(84
)
 
(87
)
Change in value of stock warrants
(56
)
 
—

Change in:
 
 
 
Accrued interest receivable
269

 
(8
)
Prepaid expenses and other assets
366

 
1,869

Accrued interest payable and other liabilities
(440
)
 
1,301

Accrued expenses and other cashiers checks
743

 
(125
)
Proceeds from sale of loans originated for sale
13,711

 
18,242

Loans originated for sale
(13,721
)
 
(16,465
)
Net cash provided by operating activities
4,585

 
8,026

Cash flows from investing activities:
 
 
 
Proceeds from redemption of FHLB Stock
21

 
—

Purchases of available-for-sale securities
(23,575
)
 
(62,360
)
Proceeds from sales, calls or maturities of available-for-sale securities
2,003

 
1,233

Principal payments on mortgage-backed securities
17,778

 
12,190

Proceeds from sales, calls or maturities of held-to-maturity securities
24

 
2,967

Origination of loans, net principal payments
21,444

 
7,694

Purchase of office properties and equipment
(384
)
 
(144
)
Proceeds from sale of other real estate owned
656

 
439

Net change in restricted cash
868

 
(9,893
)
Net cash provided by (used in) investing activities
18,835

 
(47,874
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of series B preferred stock, gross
—

 
32,460

Proceeds from issuance of common stock, gross
—

 
13,832

Proceeds from issuance of warrant, gross
—

 
1,007

Capital issuance costs
—

 
(5,042
)
Net change in demand, money market and savings deposits
(16,214
)
 
8,431

Net change in certificates of deposit
(13,253
)
 
(15,846
)
Net change in repurchase agreements
(10,581
)
 
(21,469
)
Retirement of treasury stock
(1
)
 
—

Payment of preferred stock dividend
(338
)
 
—

Net cash provided by (used in) financing activities
(40,387
)
 
13,373

Net change in cash and cash equivalents
(16,967
)
 
(26,475
)
Cash and cash equivalents, beginning of period
66,938

 
107,199

Cash and cash equivalents, end of period
$
49,971

 
$
80,724

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
1,833

 
$
1,655

Income taxes, net of tax refunds received
$
—

 
$
8

Noncash investing and financing activities:
 
 
 
Loans converted to other real estate owned
$
394

 
$
620

Accrual of preferred stock dividend
$
—

 
$
374

The accompanying notes are an integral part of the consolidated financial statements.

6
Table of Contents

Intermountain Community Bancorp
Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation:
The foregoing unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2012. 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.
During the fourth quarter of 2012, IMCB identified a misstatement related to the elimination of cash deposited by the parent company with the subsidiary bank. The misstatement increased the unrestricted cash and deposit balances in the Consolidated Balance Sheet and the amount of cash received from financing activities reported in the Consolidated Statement of Cash Flows for the quarters ended March 31, June 30 and September 30, 2012. In accordance with the SEC Staff Accounting Bulletin (SAB) No. 99, "Materiality," and SAB No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements," management evaluated the materiality of the error from qualitative and quantitative perspectives and concluded that the error was immaterial to these prior interim periods. Consequently, the Consolidated Balance Sheet and Consolidated Statement of Cash Flows contained in this Report have been revised for the three months ended March 31, 2012. This change resulted in a corresponding decrease of $9.5 million from non-interest bearing and vault cash and deposit liabilities on the balance sheet and from cash flows from financing activities on the statement of cash flows. This change did not affect net income or shareholders' equity for any period.


2. Cash & Cash Equivalents:
The balances of the Company's cash and cash equivalents are as follows (in thousands):
 
3/31/2013
 
12/31/2012
 
Balance
 
Balance
Unrestricted interest-bearing cash and cash equivalents
$
45,897

 
$
53,403

Unrestricted non interest-bearing and vault cash
$
4,074

 
$
13,536

Restricted non-interest bearing cash
$
12,279

 
$
13,146

In March 2013 and December 31, 2012, unrestricted interest bearing cash was deposited at the Federal Reserve ("FRB") and Federal Home Loan Bank of Seattle ("FHLB"). Unrestricted non-interest bearing cash includes overnight cash deposited at several of the Company's correspondent banks and balances kept in the vaults of its various offices. At March 31, 2013 restricted non-interest bearing cash consisted of the following:
•
$1.1 million in reserve balances to meet FRB reserve requirements;
•
$572,000 pledged to various correspondent banks to secure interest rate swap transactions and foreign currency exchange lines;
•
$1.1 million held at the Company's subsidiary Bank to be used for future tenant improvements of the Sandpoint Center, as required by the agreement executed to sell the Sandpoint Center in 2009;
•
$9.5 million held at the Company's subsidiary Bank as required by an intercompany agreement signed by the Company and the Bank as part of the Company's January 2012 capital raise, which represents a pledge of funds to the Bank to partially secure the loan made by the Bank to the third party who bought and subsequently leased the Sandpoint Center back to the Bank.

7
Table of Contents

At December 31, 2012, restricted cash consisted of $1.1 million to meet FRB reserve requirements, $572,000 to secure interest swap transactions, $877,000 deposited in escrow for the payment of deferred interest on the Company's Trust II debenture and foreign currency exchange lines, $1.1 million to fund future tenant improvements at the Sandpoint Center, and $9.5 million as required by the intercompany agreement discussed above.

3. Investments:

The amortized cost and fair values of investments are as follows (in thousands):
 
Available-for-Sale
 
Amortized
Cost
 
Cumulative Non-Credit
OTTI (Losses)
Recognized
in OCI
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value/
Carrying Value
March 31, 2013
 
 
 
 
 
 
 
 
 
State and municipal securities
$
64,063

 
$
—

 
$
3,039

 
$
(252
)
 
$
66,850

Mortgage-backed securities - Agency Pass Throughs
69,212

 
—

 
2,109

 
(556
)
 
70,765

Mortgage-backed securities - Agency CMO's
109,154

 
—

 
2,260

 
(247
)
 
111,167

SBA Pools
25,293

 
—

 
519

 
(45
)
 
25,767

Mortgage-backed securities - Non Agency CMO's (below investment grade)
8,719

 
(885
)
 
592

 
(206
)
 
8,220

 
$
276,441

 
$
(885
)
 
$
8,519

 
$
(1,306
)
 
$
282,769

December 31, 2012
 
 
 
 
 
 
 
 
 
State and municipal securities
$
60,984

 
$
—

 
$
2,823

 
$
(158
)
 
$
63,649

Mortgage-backed securities - Agency Pass Throughs
71,821

 
—

 
2,224

 
(652
)
 
73,393

Mortgage-backed securities - Agency CMO's
110,683

 
—

 
2,209

 
(328
)
 
112,564

SBA Pools
19,962

 
—

 
359

 
—

 
20,321

Mortgage-backed securities - Non Agency CMO's (below investment grade)
10,889

 
(1,661
)
 
1,401

 
(387
)
 
10,242

 
$
274,339

 
$
(1,661
)
 
$
9,016

 
$
(1,525
)
 
$
280,169

 
Held-to-Maturity
 
Carrying Value / Amortized Cost
 
Cumulative Non-Credit
OTTI (Losses)
Recognized
in OCI
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
March 31, 2013
 
 
 
 
 
 
 
 
 
State and municipal securities
$
14,795

 
$
—

 
$
1,496

 
$
—

 
$
16,291

December 31, 2012
 
 
 
 
 
 
 
 
 
State and municipal securities
$
14,826

 
$
—

 
$
1,518

 
$
—

 
$
16,344


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).


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Table of Contents

 
Less Than 12 Months
 
12 Months or Longer
 
Total
March 31, 2013
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
Residential mortgage-back securities
$
55,301

 
$
(464
)
 
$
19,367

 
$
(545
)
 
$
74,668

 
$
(1,009
)
SBA Pools
4,487

 
(45
)
 
—

 
—

 
4,487

 
(45
)
State and municipal securities
11,494

 
(252
)
 
—

 
—

 
11,494

 
(252
)
Total
$
71,282

 
$
(761
)
 
$
19,367

 
$
(545
)
 
$
90,649

 
$
(1,306
)

 
Less Than 12 Months
 
12 Months or Longer
 
Total
December 31, 2012
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
Residential mortgage-back securities
$
57,180

 
$
(785
)
 
$
11,408

 
$
(582
)
 
$
68,588

 
$
(1,367
)
State and municipal securities
12,019

 
(158
)
 
—

 
—

 
12,019

 
(158
)
Total
$
69,199

 
$
(943
)
 
$
11,408

 
$
(582
)
 
$
80,607

 
$
(1,525
)

At March 31, 2013, the amortized cost and fair value of available-for-sale and held-to-maturity debt securities, by contractual maturity, are as follows (in thousands):

 
Available-for-Sale
 
Held-to-Maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
One year or less
$
—

 
$
—

 
$
508

 
$
515

After one year through five years
3,580

 
3,734

 
1,839

 
1,956

After five years through ten years
12,145

 
11,988

 
10,941

 
12,049

After ten years
48,338

 
51,128

 
1,507

 
1,771

  Subtotal
64,063

 
66,850

 
14,795

 
16,291

Mortgage-backed securities
187,085

 
190,152

 
—

 
—

SBA Pools
25,293

 
25,767

 
—

 
—

  Total Securities
$
276,441

 
$
282,769

 
$
14,795

 
$
16,291


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 March 31, 2013, the Company does not intend to sell any of its available-for-sale securities that have a loss position and it is not likely that it will be required to sell the available-for-sale securities before the anticipated recovery of their remaining amortized cost or maturity date. The unrealized losses on residential mortgage-backed securities without other-than-temporary impairment (“OTTI”) were considered by management to be temporary in nature.

The following table presents the OTTI losses for the three months ended March 31, 2013 and March 31, 2012:

 
2013
 
2012
 
Held To
Maturity
 
Available
For Sale
 
Held To
Maturity
 
Available
For Sale
Total other-than-temporary impairment losses
$
—

 
$
—

 
$
—

 
$
7

Portion of other-than-temporary impairment losses transferred from (recognized in) other comprehensive income (1)
—

 
42

 
—

 
264

Net impairment losses recognized in earnings (2)
$
—

 
$
42

 
$
—

 
$
271

_____________________________
(1)
Represents other-than-temporary impairment losses related to all other factors.

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(2)
Represents other-than-temporary impairment losses related to credit losses.

The OTTI recognized on investment securities available for sale in 2013 relates to one non-agency collateralized mortgage obligation. Another security for which OTTI had been recognized in 2012 was sold in the first quarter of 2013. Each of these securities held various levels of credit subordination. These securities were valued by third-party pricing services using matrix or model pricing methodologies and were corroborated by broker indicative bids. We estimated the cash flows of the underlying collateral for each security considering credit, interest and prepayment risk models that incorporate management’s estimate of projected key assumptions including prepayment rates, collateral default rates and loss severity. Assumptions utilized vary from security to security, and are influenced by factors such as underlying loan interest rates, geographic location, borrower characteristics, vintage, and historical experience. We then used a third party to obtain information about the structure of each security, including subordination and other credit enhancements, in order to determine how the underlying collateral cash flows will be distributed to each security issued in the structure. These cash flows were then discounted at the interest rate equal to the yield anticipated at the time the security was purchased. We review the actual collateral performance of these securities on a quarterly basis and update the inputs as appropriate to determine the projected cash flows.

See Note 10 “Fair Value of Financial Instruments” for more information on the calculation of fair or carrying value for the investment securities.

4. Loans and Allowance for Loan Losses:
The components of loans receivable are as follows (in thousands):
 
March 31, 2013
 
Loans
Receivable
 
%
 
Individually
Evaluated for
Impairment
 
Collectively
Evaluated for
Impairment
Commercial
$
111,968

 
22.1
%
 
$
3,467

 
$
108,501

Commercial real estate
183,796

 
36.3

 
4,979

 
178,817

Commercial construction
8,068

 
1.6

 
—

 
8,068

Land and land development loans
31,673

 
6.2

 
1,955

 
29,718

Agriculture
80,854

 
16.0

 
2,543

 
78,311

Multifamily
15,946

 
3.1

 
—

 
15,946

Residential real estate
57,645

 
11.4

 
2,339

 
55,306

Residential construction
1,318

 
0.3

 
—

 
1,318

Consumer
8,909

 
1.8

 
187

 
8,722

Municipal
6,151

 
1.2

 
—

 
6,151

Total loans receivable
506,328

 
100.0
%
 
$
15,470

 
$
490,858

Allowance for loan losses
(7,678
)
 
 
 
 
 
 
Deferred loan fees, net of direct origination costs
104

 
 
 
 
 
 
Loans receivable, net
$
498,754

 
 
 
 
 
 
Weighted average interest rate
5.28
%
 
 
 
 
 
 


10
Table of Contents

 
December 31, 2012
 
Loans
Receivable
 
%
 
Individually
Evaluated for
Impairment
 
Collectively
Evaluated for
Impairment
Commercial
$
121,307

 
23.0
%
 
$
6,133

 
$
115,174

Commercial real estate
186,844

 
35.4

 
3,373

 
183,471

Commercial construction
3,832

 
0.7

 
—

 
3,832

Land and land development loans
31,278

 
5.9

 
2,023

 
29,255

Agriculture
85,967

 
16.3

 
2,134

 
83,833

Multifamily
16,544

 
3.1

 
—

 
16,544

Residential real estate
60,020

 
11.3

 
2,362

 
57,658

Residential construction
940

 
0.2

 
—

 
940

Consumer
9,626

 
1.8

 
168

 
9,458

Municipal
12,267

 
2.3

 
—

 
12,267

Total loans receivable
528,625

 
100.0
%
 
$
16,193

 
$
512,432

Allowance for loan losses
(7,943
)
 
 
 
 
 
 
Deferred loan fees, net of direct origination costs
86

 
 
 
 
 
 
Loans receivable, net
$
520,768

 
 
 
 
 
 
Weighted average interest rate
5.28
%
 
 
 
 
 
 

The components of the allowance for loan loss by types are as follows (in thousands):
 
March 31, 2013
 
Total
Allowance
 
Individually
Evaluated
Allowance
 
Collectively
Evaluated
Allowance
Commercial
$
1,763

 
$
210

 
$
1,553

Commercial real estate
2,814

 
301

 
2,513

Commercial construction
217

 
—

 
217

Land and land development loans
1,210

 
142

 
1,068

Agriculture
241

 
10

 
231

Multifamily
55

 
—

 
55

Residential real estate
1,103

 
418

 
685

Residential construction
35

 
—

 
35

Consumer
206

 
114

 
92

Municipal
34

 
—

 
34

Total
$
7,678

 
$
1,195

 
$
6,483



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Table of Contents

 
December 31, 2012
 
Total
Allowance
 
Individually
Evaluated
Allowance
 
Collectively
Evaluated
Allowance
Commercial
$
2,156

 
$
628

 
$
1,528

Commercial real estate
2,762

 
267

 
2,495

Commercial construction
101

 
—

 
101

Land and land development loans
1,197

 
114

 
1,083

Agriculture
228

 
10

 
218

Multifamily
51

 
—

 
51

Residential real estate
1,144

 
458

 
686

Residential construction
24

 
—

 
24

Consumer
202

 
87

 
115

Municipal
78

 
—

 
78

Total
$
7,943

 
$
1,564

 
$
6,379


A summary of current, past due and nonaccrual loans as of March 31, 2013 is as follows, (in thousands):

 
Current
 
30-89 Days
Past Due
 
90 Days or More
Past Due
and Accruing
 
Nonaccrual
 
Total
Commercial
$
110,275

 
$
120

 
$
—

 
$
1,573

 
$
111,968

Commercial real estate
180,809

 
93

 
—

 
2,894

 
183,796

Commercial construction
8,068

 
—

 
—

 
—

 
8,068

Land and land development loans
31,410

 
59

 
—

 
204

 
31,673

Agriculture
80,578

 
—

 
—

 
276

 
80,854

Multifamily
15,946

 
—

 
—

 
—

 
15,946

Residential real estate
57,081

 
378

 
—

 
186

 
57,645

Residential construction
1,318

 
—

 
—

 
—

 
1,318

Consumer
8,874

 
31

 
—

 
4

 
8,909

Municipal
6,151

 
—

 
—

 
—

 
6,151

Total
$
500,510

 
$
681

 
$
—

 
$
5,137

 
$
506,328


A summary of current, past due and nonaccrual loans as of December 31, 2012 is as follows, (in thousands):

 
Current
 
30-89 Days
Past Due
 
90 Days or More
Past Due
and Accruing
 
Nonaccrual
 
Total
Commercial
$
117,096

 
$
169

 
$
—

 
$
4,042

 
$
121,307

Commercial real estate
185,128

 
—

 
—

 
1,716

 
186,844

Commercial construction
3,832

 
—

 
—

 
—

 
3,832

Land and land development loans
31,032

 
—

 
—

 
246

 
31,278

Agriculture
85,835

 
34

 
—

 
98

 
85,967

Multifamily
16,544

 
—

 
—

 
—

 
16,544

Residential real estate
59,158

 
439

 
—

 
423

 
60,020

Residential construction
940

 
—

 
—

 
—

 
940

Consumer
9,577

 
45

 
—

 
4

 
9,626

Municipal
12,267

 
—

 
—

 
—

 
12,267

Total
$
521,409

 
$
687

 
$
—

 
$
6,529

 
$
528,625



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Table of Contents


The following table provides a summary of Troubled Debt Restructurings ("TDR") outstanding at period end by performing status, (in thousands).

 
March 31, 2013
 
December 31, 2012
Troubled Debt Restructurings
Nonaccrual
 
Accrual
 
Total
 
Nonaccrual
 
Accrual
 
Total
Commercial
$
31

 
$
527

 
$
558

 
$
1,900

 
$
277

 
$
2,177

Commercial real estate
2,658

 
953

 
3,611

 
1,463

 
956

 
2,419

Land and land development loans
117

 
1,319

 
1,436

 
—

 
1,327

 
1,327

Agriculture
—

 
1,688

 
1,688

 
—

 
291

.
291

Residential real estate
—

 
414

 
414

 
—

 
417

 
417

Consumer
—

 
120

 
120

 
—

 
88

 
88

Total
$
2,806

 
$
5,021

 
$
7,827

 
$
3,363

 
$
3,356

 
$
6,719


The Company's loans that were modified in the three month period ended March 31, 2013 and 2012 and considered a TDR are as follows (dollars in thousands):
 
Three Months Ended March 31, 2013
 
Number
 
Pre-Modification Recorded Investment
 
Post-Modification Recorded Investment
Commercial
4

 
$
263

 
$
263

Land and land development loans
2

 
153

 
153

Agriculture
4

 
1,216

 
1,216

Consumer
1

 
90

 
90

 
11

 
$
1,722

 
$
1,722

 
Three Months Ended March 31, 2012
 
Number
 
Pre-Modification Recorded Investment
 
Post-Modification Recorded Investment
Commercial
1

 
$
75

 
$
75

Commercial real estate
1

 
100

 
100

Agriculture
1

 
110

 
110

 
3

 
$
285

 
$
285


The balances below provide information as to how the loans were modified as TDRs during the three months ended March 31, 2013 and 2012, (in thousands).
 
Three Months Ended March 31, 2013
 
Adjusted Interest Rate Only
 
Other*
Commercial
$
—

 
$
263

Land and land development loans
36

 
117

Agriculture
852

 
364

Consumer
—

 
90

 
$
888

 
$
834

(*) Other includes term or principal concessions or a combination of concessions, including interest rates.

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Table of Contents


 
Three Months Ended March 31, 2012
 
Adjusted Interest Rate Only
 
Other*
Commercial
$
75

 
$
—

Commercial real estate
—

 
100

Agriculture
110

 
—

 
$
185

 
$
100

(*) Other includes term or principal concessions or a combination of concessions, including interest rates.

As of March 31, 2013, the Company had specific reserves of $477,000 on TDRs, and there were no TDRs in default.

The allowance for loan losses and reserve for unfunded commitments are maintained at levels considered adequate by management to provide for probable loan losses as of the reporting dates. The allowance for loan losses and reserve for unfunded commitments are based on management’s assessment of various factors affecting the loan portfolio, including problem loans, business conditions and loss experience, and an overall evaluation of the quality of the underlying collateral. Changes in the allowance for loan losses and the reserve for unfunded commitments during the three month periods ended March 31, 2013 and 2012 are as follows:

 
Allowance for Loan Losses
for the three months ended March 31, 2013
 
Balance,
Beginning of
Quarter
 
Charge-Offs
Jan 1 through Mar 31, 2013
 
Recoveries
Jan 1 through Mar 31, 2013
 
Provision
 
Balance,
End of
Quarter
 
(Dollars in thousands)
Commercial
$
2,156

 
$
(89
)
 
$
178

 
$
(482
)
 
$
1,763

Commercial real estate
2,762

 
(566
)
 
6

 
612

 
2,814

Commercial construction
101

 
—

 
2

 
114

 
217

Land and land development loans
1,197

 
(7
)
 
15

 
5

 
1,210

Agriculture
228

 
—

 
19

 
(6
)
 
241

Multifamily
51

 
—

 
—

 
4

 
55

Residential real estate
1,144

 
—

 
25

 
(66
)
 
1,103

Residential construction
24

 
—

 
—

 
11

 
35

Consumer
202

 
(65
)
 
38

 
31

 
206

Municipal
78

 
—

 
—

 
(44
)
 
34

Allowance for loan losses
$
7,943

 
$
(727
)
 
$
283

 
$
179

 
$
7,678






14
Table of Contents

 
Allowance for Loan Losses
for the three months ended March 31, 2012
 
Balance,
Beginning of
Quarter
 
Charge-Offs
Jan 1 through Mar 31, 2012
 
Recoveries
Jan 1 through Mar 31, 2012
 
Provision
 
Balance,
End of
Quarter
 
(Dollars in thousands)
Commercial
$
2,817

 
$
(679
)
 
$
37

 
$
402

 
$
2,577

Commercial real estate
4,880

 
(1,137
)
 
85

 
125

 
3,953

Commercial construction
500

 
—

 
2

 
(28
)
 
474

Land and land development loans
2,273

 
(473
)
 
38

 
372

 
2,210

Agriculture
172

 
(31
)
 
51

 
(54
)
 
138

Multifamily
91

 
—

 
—

 
(14
)
 
77

Residential real estate
1,566

 
(163
)
 
54

 
118

 
1,575

Residential construction
59

 
—

 
7

 
(4
)
 
62

Consumer
295

 
(127
)
 
59

 
31

 
258

Municipal
37

 
—

 
—

 
11

 
48

Allowances for loan losses
$
12,690

 
$
(2,610
)
 
$
333

 
$
959

 
$
11,372



Allowance for Unfunded Commitments

 
Three Months Ended March 31,
 
2013
 
2012
 
 
 
 
Beginning of period
$
15

 
$
13

Adjustment
2

 
1

Allowance — Unfunded Commitments at end of period
$
17

 
$
14


Management's policy is to charge off loans or portions of loans as soon as an identifiable loss amount can be determined from evidence obtained, such as current cash flow information, updated appraisals or similar real estate evaluations, equipment, inventory or similar collateral evaluations, accepted offers on loan sales or negotiated discounts, and/or guarantor asset valuations. In situations where problem loans are dependent on collateral liquidation for repayment, management obtains updated independent valuations, such as appraisals or broker opinions, generally no less frequently than once every twelve months and more frequently for larger or more troubled loans. In the time period between these independent valuations, the Company monitors market conditions for any significant event or events that would materially change the valuations, and updates them as appropriate. If the valuations suggest an increase in collateral values, the Company does not recover prior amounts charged off until the assets are actually sold and the increase realized. However, if the updated valuations suggest additional loss, the Company charges off the additional amount.

The following tables summarize impaired loans:

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Table of Contents

 
Impaired Loans
 
March 31, 2013
 
December 31, 2012
 
Recorded
Investment
 
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Principal
Balance
 
Related
Allowance
 
(Dollars in thousands)
With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
925

 
$
1,535

 
$
210

 
$
1,796

 
$
1,964

 
$
628

Commercial real estate
1,343

 
1,378

 
301

 
1,315

 
1,486

 
267

Land and land development loans
1,617

 
1,645

 
142

 
1,601

 
1,627

 
114

Agriculture
14

 
14

 
10

 
31

 
31

 
10

Residential real estate
715

 
721

 
418

 
1,240

 
1,243

 
458

Consumer
146

 
148

 
114

 
138

 
140

 
87

Total
$
4,760

 
$
5,441

 
$
1,195

 
$
6,121

 
$
6,491

 
$
1,564

Without an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
2,542

 
$
3,711

 
$
—

 
$
4,337

 
$
6,273

 
$
—

Commercial real estate
3,636

 
5,319

 
—

 
2,058

 
3,178

 
—

Land and land development loans
338

 
406

 
—

 
422

 
493

 
—

Agriculture
2,529

 
2,530

 
—

 
2,103

 
2,103

 
—

Residential real estate
1,624

 
1,710

 
—

 
1,122

 
1,254

 
—

Consumer
41

 
59

 
—

 
30

 
48

 
—

Total
$
10,710

 
$
13,735

 
$
—

 
$
10,072

 
$
13,349

 
$
—

Total:
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
3,467

 
$
5,246

 
$
210

 
$
6,133

 
$
8,237

 
$
628

Commercial real estate
4,979

 
6,697

 
301

 
3,373

 
4,664

 
267

Land and land development loans
1,955

 
2,051

 
142

 
2,023

 
2,120

 
114

Agriculture
2,543

 
2,544

 
10

 
2,134

 
2,134

 
10

Residential real estate
2,339

 
2,431

 
418

 
2,362

 
2,497

 
458

Consumer
187

 
207

 
114

 
168

 
188

 
87

Total
$
15,470

 
$
19,176

 
$
1,195

 
$
16,193

 
$
19,840

 
$
1,564









16
Table of Contents

 
Impaired Loans
 
Three Months Ended March 31, 2013
 
Three Months Ended March 31, 2012
 
Average
Recorded
Investment
 
Interest Income
Recognized (*)
 
Average
Recorded
Investment
 
Interest Income
Recognized (*)
 
(Dollars in thousands)
With an allowance recorded:
 
 
 
 
 
 
 
Commercial
$
1,360

 
$
115

 
$
2,959

 
$
81

Commercial real estate
1,329

 
25

 
6,267

 
113

Commercial construction
—

 
—

 
600

 
24

Land and land development loans
1,609

 
28

 
1,956

 
177

Agriculture
23

 
2

 
16

 
—

Residential real estate
978

 
15

 
1,878

 
42

Consumer
142

 
3

 
249

 
7

Municipal
—

 
—

 
—

 
—

Total
$
5,441

 
$
188

 
$
13,925

 
$
444

Without an allowance recorded:
 
 
 
 
 
 
 
Commercial
$
3,439

 
$
207

 
$
6,017

 
$
959

Commercial real estate
2,847

 
160

 
3,123

 
211

Commercial construction
—

 
—

 
148

 
5

Land and land development loans
380

 
22

 
2,906

 
224

Agriculture
2,316

 
111

 
2,380

 
125

Residential real estate
1,373

 
46

 
2,063

 
73

Consumer
36

 
1

 
36

 
4

Municipal
—

 
—

 
—

 
—

Total
$
10,391

 
$
547

 
$
16,673

 
$
1,601

Total:
 
 
 
 
 
 
 
Commercial
$
4,799

 
$
322

 
$
8,976

 
$
1,040

Commercial real estate
4,176

 
185

 
9,390

 
324

Commercial construction
—

 
—

 
748

 
29

Land and land development loans
1,989

 
50

 
4,862

 
401

Agriculture
2,339

 
113

 
2,396

 
125

Residential real estate
2,351

 
61

 
3,941

 
115

Consumer
178

 
4

 
285

 
11

Municipal
—

 
—

 
—

 
—

Total
$
15,832

 
$
735

 
$
30,598

 
$
2,045

 (*) Interest Income on individually impaired loans is calculated using the cash-basis method, using year to date interest on loans outstanding at 3/31/13.


Loan Risk Factors

The following is a recap of the risk characteristics associated with each of the Company's major loan portfolio segments.

Commercial Loans: Although the impacts of the soft recovery continue to heighten risk in the commercial portfolio, management does not consider the portfolio to present “concentration risk” at this time. Management believes there is adequate diversification by type, industry, and geography to mitigate excessive risk. The commercial portfolio includes a mix of term loan facilities and operating loans and lines made to a variety of different business types in the markets it serves. The Company utilizes SBA, USDA and other government-assisted or guaranteed financing programs whenever advantageous to further mitigate risk in this area. With the exception of the agricultural portfolio discussed in more detail below, there is no other significant concentration of industry types in its loan portfolio, and no dominant employer or industry across all the markets it serves. Underwriting focuses on the

17
Table of Contents

evaluation of potential future cash flows to cover debt requirements, sufficient collateral margins to buffer against devaluations, credit history of the business and its principals, and additional support from willing and capable guarantors.

Commercial Real Estate Loans: The slow recovery and stagnant real estate values continue to heighten risk in the non-residential component of the commercial real estate portfolio. However, in comparison to its national peer group and the risk that existed in its construction and development portfolio, the Company has less overall exposure to commercial real estate and a stronger mix of owner-occupied (where the borrower occupies and operates in at least part of the building) versus non-owner occupied loans. The loans represented in this category are spread across the Company's footprint, and there are no significant concentrations by industry type or borrower. The most significant property types represented in the portfolio are office 19.7%, industrial 15.9%, health care 12.3% and retail 12.6%. The other 39.5% is a mix of property types with smaller concentrations, including religious facilities, auto-related properties, restaurants, convenience stores, storage units, motels and commercial investment land.

While 66.4% of the Company's commercial real estate portfolio is in its Northern Idaho/Eastern Washington region, this region is a large and diverse region with differing local economies and real estate markets. Given this diversity, and the diversity of property types and industries represented, management does not believe that this concentration represents a significant concentration risk.

Non-owner occupied commercial real estate loans are made only to projects with strong debt-service-coverage and lower loan-to-value ratios and/or to borrowers with established track records and the ability to fund potential project cash flow shortfalls from other income sources or liquid assets. Project due diligence is conducted by the Bank, to help provide for adequate contingencies, collateral and/or government guaranties. The Company has largely avoided speculative financing of investment properties, particularly of the types most vulnerable in the recent downturn, including investment office buildings and retail strip developments. Management believes geographic, borrower and property-type diversification, and prudent underwriting and monitoring standards applied by seasoned commercial lenders mitigate concentration risk in this segment, although general economic sluggishness continues to negatively impact results.

Construction and Development Loans: After the aggressive reduction efforts of the past few years, the land development and commercial construction loan components pose much lower concentration risk for the total loan portfolio, and now total $35.1 million, or 6.6% of the loan portfolio. The substantial portfolio reduction, combined with stabilizing housing prices, has reduced risk in this portfolio to a level where it no longer represents a significant concentration risk.

Agricultural Loans: The agricultural portfolio represents a larger percentage of the loans in the Bank's southern Idaho region. At the end of the period, agricultural loans and agricultural real estate loans totaled $80.9 million or 16.0% of the total loan portfolio. The agricultural portfolio consists of loans secured by livestock, crops and real estate. Agriculture has typically been a cyclical industry with periods of both strong and weak performance. Current conditions are strong and are projected to remain solid for the next couple years, although rising input costs present some additional risk. To mitigate credit risk, specific underwriting is applied to retain only borrowers that have proven track records in the agricultural industry. Many of Intermountain's agricultural borrowers are third or fourth generation farmers and ranchers with limited real estate debt, which reduces overall debt coverage requirements and provides extra flexibility and collateral for equipment and operating borrowing needs. In addition, the Bank has hired senior lenders with significant experience in agricultural lending to administer these loans. Further mitigation is provided through frequent collateral inspections, adherence to farm operating budgets, and annual or more frequent review of financial performance. The Company has minimal exposure to the dairy industry, the significant agricultural segment that has been under extreme pressure for the past few years.

Multifamily: The multifamily segment comprises $15.9 million or 3.1% of the total loan portfolio at the end of the period. This portfolio represents relatively low risk for the Company, as a result of the strong current market for multifamily properties and low vacancy rates across the Company's footprint.

Residential Real Estate, Residential Construction and Consumer: