e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the year ended
December 31, 2007
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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COMMISSION FILE NUMBER
000-50667
INTERMOUNTAIN COMMUNITY
BANCORP
(Exact name of registrant as
specified in its charter)
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Idaho
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82-0499463
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(State or other jurisdiction
of
incorporation or organization)
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(IRS Employer
Identification No.)
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231 N. Third Avenue, Sandpoint, ID 83864
(Address of principal executive
offices) (Zip code)
Registrants telephone number, including area code:
(208) 263-0505
Securities registered pursuant to Section 12(b) of the
Act:
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None
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None
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(Title of each class)
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(Name of each exchange on which
registered)
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Securities registered pursuant to Section 12(g) of the
Act:
Common Stock (no par value)
(Title of class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. 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):
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o Large
accelerated filer
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þ Accelerated
filer
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o Non-accelerated
filer
(Do not check if a smaller reporting company)
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o Smaller
reporting Company
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
As of June 30, 2007, the aggregate market value of the
common equity held by non-affiliates of the registrant, computed
by reference to the average of the bid and asked prices on such
date as reported on the OTC Bulletin Board, was
$113,597,000.
The number of shares outstanding of the registrants Common
Stock, no par value per share, as of March 2, 2008 was
8,273,578.
DOCUMENTS
INCORPORATED BY REFERENCE
Specific portions of the registrants Proxy Statement dated
March 24, 2008 are incorporated by reference into
Part III hereof.
PART I
Forward-Looking
Statements
The discussion following below and elsewhere in this
Form 10-K
contains forward-looking statements, which are subject to safe
harbors under the Securities Act of 1933 and the Securities
Exchange Act of 1934. When used in this discussion and elsewhere
in this
Form 10-K,
the words or phrases will likely result, are
expected to, will continue, is
anticipated, estimate, project or
similar expressions are intended to identify
forward-looking statements. In addition, statements
that refer to projections of the Companys future financial
performance, anticipated growth and trends in the Companys
businesses and in the financial services industry, including
statements regarding the Companys plans to expand,
expected growth in Other income services, and
expectations regarding operating expense levels during 2008, are
forward-looking statements. Readers are cautioned to not place
undue reliance on any such forward-looking statements, which
speak only as of the date made, and readers are advised that
various factors, including regional and national economic
conditions, unfavorable judicial decisions, substantial changes
in levels of market interest rates, credit and other risks of
lending and investment activities and competitive and regulatory
factors and other factors listed under Risk Factors in
Item 1A could affect the Companys financial
performance and could cause actual results for future periods to
differ materially from those anticipated or projected. The
Company does not undertake and specifically disclaim any
obligation to update any forward-looking statements to reflect
occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.
Intermountain Community Bancorp (Intermountain or
the Company) is a financial holding company
registered under the Bank Holding Company Act of 1956, as
amended. The Company was formed as Panhandle Bancorp in October
1997 under the laws of the State of Idaho in connection with a
holding company reorganization of Panhandle State Bank (the
Bank) that was approved by the shareholders on
November 19, 1997 and became effective on January 27,
1998. In June 2000, Panhandle Bancorp changed its name to
Intermountain Community Bancorp.
Panhandle State Bank, a wholly owned subsidiary of the Company,
was first opened in 1981 to serve the local banking needs of
Bonner County, Idaho. Panhandle State Bank is regulated by the
Idaho Department of Finance (Department), the State
of Washington Department of Financial Institutions, the Oregon
Division of Finance and Corporate Securities and by the Federal
Deposit Insurance Corporation (FDIC), its primary
federal regulator and the insurer of its deposits.
Since opening in 1981, the Bank has continued to grow by opening
additional branch offices throughout Idaho. During 1999, the
Bank opened its first branch under the name of Intermountain
Community Bank, a division of Panhandle State Bank, in Payette,
Idaho. Over the next four years, the Bank opened branches in
Weiser, Coeur dAlene, Nampa, Rathdrum, Caldwell and Post
Falls, Idaho. In January 2003, the Bank acquired a branch office
from Household Bank F.S.B. located in Ontario, Oregon, its first
and only out-of-state branch at the time. Also, in 2003, the
Company changed the names of the Coeur dAlene, Post Falls,
and Rathdrum branches from Intermountain Community Bank to
Panhandle State Bank, because the Panhandle State Bank name had
more brand recognition in the northern part of the state. In
November 2004, Intermountain acquired Snake River Bancorp, Inc.
(Snake River) and its subsidiary bank, Magic Valley
Bank, which consisted of three branches. The branches are
located in south central Idaho in the cities of Twin Falls,
Gooding and Jerome. In June 2005, the Company opened a branch in
Spokane Valley, Washington. In August 2005, the Company closed
its Jerome, Idaho branch and consolidated the branch operations
into its Twin Falls branch.
In 2006, the Company opened branches in Kellogg and Fruitland,
Idaho and a branch in downtown Spokane, Washington. It also
opened a Trust & Wealth division, offering
trust & wealth management services to its customers.
In September 2006, the Company opened a second branch in Twin
Falls, Idaho, and purchased a small investment company, Premier
Alliance, which now operates as Intermountain Community
Investment Services (ICI), providing investment
advisory services to its customers. In January 2007, the Company
opened a loan
3
production and administrative office in Nampa, Idaho, and in
August of 2007, it relocated its Spokane Valley branch to a new
larger facility.
The Bank has filed an application with its bank regulators to
move its main office location. Pending final approval, the Bank
will move its main office to a newly built structure in
Sandpoint and will retain the current Sandpoint office as a
drive-up
banking facility.
The Banks primary service area covers three distinct
geographical regions. The north Idaho and eastern Washington
region encompasses the four northernmost counties in Idaho,
including Boundary County, Bonner County, Shoshone County and
Kootenai County and Spokane County in eastern Washington. The
north Idaho region is heavily forested and contains numerous
lakes. As such, the economies of these counties are primarily
based on tourism, real estate development and natural resources,
including logging, mining and agriculture. Both Kootenai and
Bonner County have also experienced additional light industrial,
high-tech, commercial, retail and medical development over the
past ten years. Shoshone County is experiencing residential
development relating to the outdoor recreation industry in the
area. The Spokane County economy is the most diverse in eastern
Washington. There is an emergence of new high tech industries,
as well as an established base of mature businesses in the
manufacturing, health care and service industries.
The second region served by the Bank encompasses three counties
in southwestern Idaho (Canyon, Payette, and Washington) and one
county in southeastern Oregon (Malheur). The economies of these
counties are primarily based on agriculture and related or
supporting businesses. A variety of crops are grown in the area
including beans, onions, corn, apples, peaches, cherries and
sugar beets. Livestock, including cattle and pigs, are also
raised. Because of its proximity to Boise, Canyon County has
expanding residential and retail development, and a more
diversified light manufacturing and commercial base.
The third region served by the Bank encompasses two counties in
south central Idaho (Twin Falls and Gooding). The economies of
these counties are primarily based on agriculture and related or
supporting businesses. A variety of crops are grown in the area
including beans, peas, corn, hay, sugar beets and potatoes. Fish
farms, dairies and beef cattle are also prevalent. Twin Falls
County has experienced significant growth over the past
10 years and as a result, residential and commercial
construction is a much larger driver of the local economy. The
area is also experiencing growth in light manufacturing and
retail development.
The Companys equity investments include Panhandle State
Bank, as previously noted, and Intermountain Statutory
Trust I and Intermountain Statutory Trust II,
financing subsidiaries formed in January 2003 and March 2004,
respectively. Each Trust has issued $8 million in preferred
securities, the purchasers of which are entitled to receive
cumulative cash distributions from the Trusts. The Company has
issued junior subordinated debentures to the Trusts, and
payments from these debentures are used to make the cash
distributions to the holders of the Trusts preferred
securities.
Primary
Market Area
The Company conducts its primary banking business through its
bank subsidiary, Panhandle State Bank. The Bank maintains its
main office in Sandpoint, Idaho and has 18 other branches. In
addition to the main office, seven branch offices operate under
the name of Panhandle State Bank. Eight branches are operated
under the name Intermountain Community Bank, a division of
Panhandle State Bank, and three branches operate under the name
Magic Valley Bank, a division of Panhandle State Bank. Sixteen
of the Companys branches are located throughout Idaho in
the cities of Bonners Ferry, Caldwell, Coeur dAlene,
Fruitland, Gooding, Kellogg, Nampa, Payette, Ponderay, Post
Falls, Priest River, Rathdrum, Sandpoint, Twin Falls and Weiser.
One branch is located in Spokane Valley, Washington and one
branch is located in Spokane, Washington. In addition, the
Company has one branch located in Ontario, Oregon. The Company
focuses its banking and other services on individuals,
professionals, and small to medium-sized businesses throughout
its market area. On December 31, 2007, the Company had
total consolidated assets of $1.05 billion.
4
Competition
Based on total asset size as of December 31, 2007, the
Company continues to be the largest independent community bank
headquartered in Idaho. The Company competes with a number of
international banking groups, out-of-state banking companies,
state-wide banking organizations, and several local community
banks, as well as savings banks, savings and loans, credit
unions and other non-bank competitors throughout its market
area. Banks and similar financial institutions compete based on
a number of factors, including price, customer service,
convenience, technology, local market knowledge, operational
efficiency, advertising and promotion, and reputation. In
competing against other institutions, the Company focuses on
delivering highly personalized customer service with an emphasis
on local decision-making. It recruits, retains and motivates
seasoned, knowledgeable bankers who have worked in the
Companys market areas for extended periods of time and
supports them with current technology. Product offerings,
pricing and location convenience are generally competitive with
other banks in its market areas. The Company seeks to
differentiate itself based on the high skill levels and local
knowledge of its staff, combined with sophisticated relationship
management and profit systems that pinpoint marketing and
service opportunities. The Company has employed these
competitive tools to grow both market share and profitability
over the past several years. Based on the June 2007 FDIC survey
of banking institutions, the Company is the market share leader
in deposits in five of the eleven counties in which it operates.
As discussed above, the Companys principal market area is
divided into three separate regions based upon population and
the presence of banking offices. In the northern part of Idaho
and eastern Washington, the delineated communities are Boundary,
Bonner, Kootenai and Shoshone Counties in Idaho and Spokane
County in Washington. Primary competitors in this northern
region include US Bank, Wells Fargo, Washington Trust Bank,
Sterling Savings Bank and Bank of America, all large
international or regional banks, and Idaho Independent Bank and
Mountain West Bank, both community banks.
In southwestern and south central Idaho and eastern Oregon, the
Bank has delineated Washington, Payette, Canyon, Malheur, Twin
Falls and Gooding Counties. Primary competitors in the southern
region include international or regional banks, US Bank, Wells
Fargo, Key Bank, Bank of America and Zions Bank, and community
banks, Bank of the Cascades, Idaho Independent Bank, DL Evans
Bank and Farmers National Bank.
Services
Provided
Lending
Activities
The Bank offers and encourages applications for a variety of
secured and unsecured loans to help meet the needs of its
communities, dependent upon the Banks financial condition
and size, legal impediments, local economic conditions and
consistency with safe and sound operating practices. While
specific credit programs may vary from time to time, based on
Bank policies and market conditions, the Bank makes every effort
to encourage applications for the following credit services
throughout its communities.
Commercial Loans. The Bank offers a wide range
of loans and open-end credit arrangements to businesses of small
and moderate size, from small sole proprietorships to larger
corporate entities, with purposes ranging from working capital
and inventory acquisition to equipment purchases and business
expansion. The Bank also participates in the Small Business
Administration (SBA) and USDA financing programs.
Operating loans or lines of credit typically carry annual
maturities. Straight maturity notes are also available, in which
the maturities match the anticipated receipt of specifically
identified repayment sources. Term loans for purposes such as
equipment purchases, expansion, term working capital, and other
purposes generally carry terms that match the borrowers
cash flow capacity, typically with maturities of three years or
longer. Risk is controlled by applying sound, consistent
underwriting guidelines, concentrating on relationship loans as
opposed to transaction type loans, and establishing sound
alternative repayment sources. Government guaranty programs are
also utilized when appropriate.
The Bank also offers loans for agricultural and ranching
purposes. These include expansion loans, short-term working
capital loans, equipment loans, cattle or livestock loans, and
real estate loans on a limited basis. Terms are generally up to
one year for operating loans or lines of credit and up to seven
years for term loans. As with other business loans, sound
underwriting is applied by a staff of lending and credit
personnel seasoned in this line of
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lending. Government guaranteed programs are utilized whenever
appropriate and available. Agricultural real estate loans are
considered for financially sound borrowers with strong financial
and management histories.
Real Estate Loans. For consumers, the Bank
offers first mortgage loans to purchase or refinance homes, home
improvement loans and home equity loans and credit lines.
Conforming 1st mortgage loans are offered with up to
30-year
maturities, while typical maturities for 2nd mortgages
(home improvement and home equity loans and lines) are as stated
below under Consumer Loans. Lot acquisition and
construction loans are also offered to consumers with typical
terms up to 36 months (interest only loans are also
available) and up to 12 months (with six months
extension), respectively. Loans for purchase, construction,
rehabilitation or repurchase of commercial and industrial
properties are also available through the Bank, as are property
development loans, with up to two-year terms typical for
construction and development loans, and up to 10 years for
term loans (generally with re-pricing after three, five or seven
years). Risk is mitigated by selling the conventional
residential mortgage loans (currently nearly 100% are sold) and
underwriting 2nd mortgage products for potential sale.
Commercial real estate loans are generally confined to
owner-occupied properties unless there is a strong customer
relationship or sound business project justifying otherwise. All
commercial real estate loans are restricted to borrowers with
established track records and financial wherewithal. Project due
diligence is conducted by the Bank, to help provide for adequate
contingencies, collateral
and/or
government guaranties.
Consumer Loans. The Bank offers a variety of
consumer loans, including personal loans, motor vehicle loans,
boat loans, recreational vehicle loans, home improvement loans,
home equity loans, open-end credit lines, both secured and
unsecured, and overdraft protection credit lines. The
Banks terms and underwriting on these loans are consistent
with what is offered by competing community banks and credit
unions. Loans for the purchase of new autos typically range up
to 72 months. Loans for the purchase of smaller RVs,
pleasure crafts and used vehicles range up to 60 months.
Loans for the purchase of larger RVs and larger pleasure
crafts, mobile homes, and home equity loans range up to
120 months (180 months if credit factors and value
warrant). Unsecured loans are usually limited to two years,
except for credit lines, which may be open-ended but are
generally reviewed by the Bank periodically. Relationship
lending is emphasized, which, along with credit control
practices, minimizes risk in this type of lending.
Municipal Financing. Operating and term loans
are available to entities that qualify for the Bank to offer
such financing on a tax-exempt basis. Operating loans are
generally restricted by law to duration of one fiscal year. Term
loans, which under certain circumstances can extend beyond one
year, typically range up to five years. Municipal financing is
restricted to loans with sound purposes and with established tax
basis or other revenue to adequately support repayment.
Deposit
Services
The Bank offers the full range of deposit services typically
available in most banks and savings and loan associations,
including checking accounts, savings accounts, money market
accounts and various types of certificates of deposit. The
transaction accounts and certificates of deposit are tailored to
the Banks primary market area at rates competitive with
those offered in the area. All deposit accounts are insured by
the FDIC to the maximum amount permitted by law. The bank also
offers non-FDIC insured alternatives on a limited basis to
customers, in the form of reverse repurchase agreements and
sweep accounts.
Investment
Services
The Bank provides non-FDIC insured investment services through
its division, Intermountain Community Investments
(ICI). Products offered by ICI include annuities,
equity and fixed income securities, mutual funds, insurance
products and brokerage services to its customers. The Bank
offers these products in a manner consistent with the principles
of prudent and safe banking and in compliance with applicable
laws, rules, regulations and regulatory guidelines. The Bank
earns fees for providing these services.
Trust &
Wealth Management Services
The Bank provides trust and wealth management services to its
higher net worth customers to assist them in investment, tax and
estate planning. The Bank offers these services in a manner
consistent with the principles of
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prudent and safe banking and in compliance with applicable laws,
rules, regulations and regulatory guidelines. The Bank earns
fees for managing clients assets and providing trust
services.
Other
Services
These services include automated teller machines
(ATMs), debit cards, safe deposit boxes, merchant
credit card acceptance services, savings bonds, remote deposit
capture, direct deposit, night deposit, cash management
services, internet and phone banking services, VISA/Mastercard
credit cards and ACH origination services. The Bank is a member
of the Star, Plus, Exchange, Interlink and Accell ATM networks.
New products and services introduced in 2007 include check
collect for businesses, enhanced internet cash management
services and portfolio checking for professionals.
Loan
Portfolio
The loan portfolio is the largest component of earning assets.
In 2007, the Company increased total gross loans by 14% or
$93.2 million. Commercial loans contributed the highest
dollar growth in 2007, increasing $96.1 million or 18% over
2006.
During 2007, with a volatile short-term interest rate
environment and a slowdown in lending, loan competition
increased, as lenders continued to aggressively pursue new loan
originations and refinancings. With market interest rates
flattening in early 2007 and then declining in the later months,
yields on the loan portfolio increased only slightly over the
prior year. The Bank continues to pursue quality loans using
conservative underwriting and control practices and to monitor
existing loans carefully for increased default risk. The Bank
continues to utilize relationship pricing models and techniques
to increase customer profitability.
In 2006, the Company increased total gross loans by 20%, or
$111.3 million. Commercial loans contributed the highest
percentage growth in 2006, increasing $102.3 million or 24%
over 2005.
In 2005, the total loan portfolio increased 33%, with commercial
loans contributing the highest percentage growth, 39% over 2004.
In November 2004, the Bank acquired Snake River Bancorp, Inc.
and its subsidiary bank, Magic Valley Bank, which contributed
$65.5 million in net loans receivable at the acquisition
date.
The following table contains information related to the
Companys loan portfolio for the five-year period ended
December 31, 2007 (dollars in thousands).
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December 31,
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2007
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2006
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2005
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2004
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2003
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Commercial loans
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$
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623,439
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$
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527,345
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$
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425,005
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$
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304,783
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$
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215,396
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Residential loans
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114,010
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112,569
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107,554
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94,170
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58,728
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Consumer loans
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26,285
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31,800
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29,109
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24,245
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16,552
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Municipal loans
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5,222
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4,082
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2,856
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2,598
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1,751
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Total loans
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768,956
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675,796
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564,524
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425,796
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292,427
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Allowance for loan losses
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(11,761
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)
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(9,837
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)
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(8,100
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)
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(6,902
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)
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(5,118
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)
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Deferred loan fees, net of direct origination costs
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(646
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)
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(1,074
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)
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(971
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)
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(234
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)
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(53
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Loans receivable, net
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$
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756,549
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$
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664,885
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$
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555,453
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$
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418,660
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$
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287,256
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Weighted average rate
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8.16
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%
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8.65
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%
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7.90
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%
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6.81
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%
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6.60
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%
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Classification
of Loans
The Bank is required under applicable law and regulations to
review its loans on a regular basis and to classify them as
satisfactory, special mention,
substandard, doubtful or
loss. A loan which possesses no apparent weakness or
deficiency is designated satisfactory. A loan which
possesses weaknesses or deficiencies deserving close attention
is designated as special mention. A loan is
generally classified as substandard if it possesses
a
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well-defined weakness and the Bank will probably sustain some
loss if the weaknesses or deficiencies are not corrected. A loan
is classified as doubtful if a probable loss of
principal
and/or
interest exists but the amount of the loss, if any, is subject
to the outcome of future events which are undeterminable at the
time of classification. If a loan is classified as
loss, the Bank either establishes a specific
valuation allowance equal to the amount classified as loss or
charges off such amount.
During 2007, the Company modified its risk grade allocation
factors to better reflect varying loss experiences in different
types of loans. As of December 31, 2007, the risk factors
range from cash equivalent secured loans (Risk Grade
1) to doubtful/loss (Risk Grade
8). Risk Grades 3, 5,
6, 7 and 8 closely reflect
the FDICs definitions for Satisfactory,
Special Mention, Substandard,
Doubtful and Loss, respectively. Risk
Grade 4 is an internally designated
Watch category. At December 31, 2007, the
Company had $4.7 million in the Special Mention,
$18.2 million in the substandard, $423,000 in the Doubtful
and $0 in the Loss loan categories. The majority of the
classified loans were real-estate related, reflecting the
slowdown in the real estate sector of the economy, particularly
in the land development and residential construction sectors.
Non-accrual loans are those loans that have become delinquent
for more than 90 days (unless well-secured and in the
process of collection). Placement of loans on non-accrual status
does not necessarily mean that the outstanding loan principal
will not be collected, but rather that timely collection of
principal and interest is in question. When a loan is placed on
non-accrual status, interest accrued but not received is
reversed. The amount of interest income which would have been
recorded in fiscal 2007, 2006, 2005, 2004 and 2003 on
non-accrual loans was approximately $161,000, $21,000, $95,000,
$55,000 and $7,000, respectively. A non-accrual loan may be
restored to accrual status when principal and interest payments
are brought current or when brought to 90 days or less
delinquent and continuing payment of principal and interest is
expected.
As of December 31, 2007, there were a total of
$6.4 million in identified loans which were not in
compliance with the stated terms of the loan or otherwise
presented additional credit risk to the Company. Of these loans
$800,000 were loans past due 90 days and still accruing
interest and $5.6 million were non-accrual loans.
Information with respect to non-accrual loans is as follows
(dollars in thousands):
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December 31,
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2007
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2006
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2005
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2004
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2003
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Non-accrual loans
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$
|
5,569
|
|
|
$
|
1,201
|
|
|
$
|
807
|
|
|
$
|
1,218
|
|
|
$
|
174
|
|
Non-accrual loans as a percentage of total loans
|
|
|
0.74
|
%
|
|
|
0.18
|
%
|
|
|
0.14
|
%
|
|
|
0.29
|
%
|
|
|
0.06
|
%
|
Total allowance related to these loans
|
|
$
|
585
|
|
|
$
|
531
|
|
|
$
|
341
|
|
|
$
|
413
|
|
|
$
|
47
|
|
Interest income recorded on these loans
|
|
$
|
270
|
|
|
$
|
230
|
|
|
$
|
8
|
|
|
$
|
10
|
|
|
$
|
3
|
|
The $4.4 million increase in non-accrual loans from
December 31, 2006 to December 31, 2007 is primarily
comprised of several larger residential construction and land
loans where repayment is primarily reliant on selling the asset.
The Company has evaluated the borrowers and the collateral
underlying these loans and determined that the probability of
recovery of the loans principal balance is high.
Allowance
for Loan Losses
Allowance for loan losses is based upon managements
assessment of various factors including, but not limited to,
current and future economic trends, historical loan losses,
delinquencies, underlying collateral values, as well as current
and potential risks identified in the loan portfolio. The
allowance is evaluated on a monthly basis by management. The
methodology for calculating the allowance is discussed in more
detail below. An allocation is also included for unfunded
commitments, however this allocation is recorded as a liability,
as required by new bank regulatory guidance issued in early 2007.
8
Allocation
of the Allowance for Loan Losses
and Non-Accrual Loans Detail
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to
|
|
|
Gross
|
|
|
|
|
|
Non-Accrual
|
|
|
|
Total Loans
|
|
|
Loans
|
|
|
Allowance
|
|
|
Loans
|
|
|
Commercial loans
|
|
|
81.07
|
%
|
|
$
|
623,439
|
|
|
$
|
9,965
|
|
|
$
|
4,732
|
|
Residential loans
|
|
|
14.83
|
|
|
|
114,010
|
|
|
|
1,196
|
|
|
|
837
|
|
Consumer loans
|
|
|
3.42
|
|
|
|
26,285
|
|
|
|
571
|
|
|
|
|
|
Municipal loans
|
|
|
0.68
|
|
|
|
5,222
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
100.00
|
%
|
|
$
|
768,956
|
|
|
$
|
11,761
|
|
|
$
|
5,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to
|
|
|
Gross
|
|
|
|
|
|
Non-Accrual
|
|
|
|
Total Loans
|
|
|
Loans
|
|
|
Allowance
|
|
|
Loans
|
|
|
Commercial loans
|
|
|
78.03
|
%
|
|
$
|
527,345
|
|
|
$
|
7,924
|
|
|
$
|
1,201
|
|
Residential loans
|
|
|
16.66
|
|
|
|
112,569
|
|
|
|
1,543
|
|
|
|
|
|
Consumer loans
|
|
|
4.71
|
|
|
|
31,800
|
|
|
|
339
|
|
|
|
|
|
Municipal loans
|
|
|
0.60
|
|
|
|
4,082
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
100.00
|
%
|
|
$
|
675,796
|
|
|
$
|
9,837
|
|
|
$
|
1,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to
|
|
|
Gross
|
|
|
|
|
|
Non-Accrual
|
|
|
|
Total Loans
|
|
|
Loans
|
|
|
Allowance
|
|
|
Loans
|
|
|
Commercial loans
|
|
|
75.28
|
%
|
|
$
|
425,005
|
|
|
$
|
5,793
|
|
|
$
|
671
|
|
Residential loans
|
|
|
19.05
|
|
|
|
107,554
|
|
|
|
1,827
|
|
|
|
10
|
|
Consumer loans
|
|
|
5.16
|
|
|
|
29,109
|
|
|
|
450
|
|
|
|
126
|
|
Municipal loans
|
|
|
0.51
|
|
|
|
2,856
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
100.00
|
%
|
|
$
|
564,524
|
|
|
$
|
8,100
|
|
|
$
|
807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to
|
|
|
Gross
|
|
|
|
|
|
Non-Accrual
|
|
|
|
Total Loans
|
|
|
Loans
|
|
|
Allowance
|
|
|
Loans
|
|
|
Commercial loans
|
|
|
71.58
|
%
|
|
$
|
304,783
|
|
|
$
|
4,844
|
|
|
$
|
1,036
|
|
Residential loans
|
|
|
22.11
|
|
|
|
94,170
|
|
|
|
1,710
|
|
|
|
175
|
|
Consumer loans
|
|
|
5.70
|
|
|
|
24,245
|
|
|
|
307
|
|
|
|
7
|
|
Municipal loans
|
|
|
0.61
|
|
|
|
2,598
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
100.00
|
%
|
|
$
|
425,796
|
|
|
$
|
6,902
|
|
|
$
|
1,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to
|
|
|
Gross
|
|
|
|
|
|
Non-Accrual
|
|
|
|
Total Loans
|
|
|
Loans
|
|
|
Allowance
|
|
|
Loans
|
|
|
Commercial loans
|
|
|
73.66
|
%
|
|
$
|
215,396
|
|
|
$
|
3,804
|
|
|
$
|
121
|
|
Residential loans
|
|
|
20.08
|
|
|
|
58,728
|
|
|
|
1,102
|
|
|
|
37
|
|
Consumer loans
|
|
|
5.66
|
|
|
|
16,552
|
|
|
|
189
|
|
|
|
16
|
|
Municipal loans
|
|
|
0.60
|
|
|
|
1,751
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
100.00
|
%
|
|
$
|
292,427
|
|
|
$
|
5,118
|
|
|
$
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
During 2007, the company changed its method of calculating its
loan loss allowance, in line with new bank regulatory guidance
issued in early 2007. Under the new methodology, the loan
portfolio is segregated into loans for which a specific reserve
is calculated by management, and loans for which a reserve is
calculated using an allowance model. For loans with a specific
reserve, management evaluates each loan and derives the
appropriate reserve based on such factors as expected
collectability, collateral value and guarantor support. For
loans with reserves calculated by the model, the model
mathematically derives a base reserve allocation for each loan
using probability of default and loss given default rates based
on both historical and industry experience. This base reserve
allocation is then modified by management considering factors
such as the current economic environment, portfolio delinquency
trends, collateral valuation trends, quality of underwriting and
quality of collection activities. The reserves derived from the
model are modified by management, then added to the reserve for
specifically identified loans to produce the total reserve.
Management believes that this methodology provides a more
accurate, reliable and verifiable reserve calculation and
closely follows recent regulatory guidance. The Banks
total allowance for loan losses was 1.53% of total loans at
December 31, 2007 and 1.46% of total loans at
December 31, 2006. The following table provides additional
detail on the allowance.
Analysis
of the Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007(1)
|
|
|
2006(1)
|
|
|
2005(1)
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands)
|
|
|
Balance Beginning December 31
|
|
$
|
(9,837
|
)
|
|
$
|
(8,100
|
)
|
|
$
|
(6,309
|
)
|
|
$
|
(5,118
|
)
|
|
$
|
(3,259
|
)
|
Charge-Offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
1,523
|
|
|
|
283
|
|
|
|
307
|
|
|
|
535
|
|
|
|
785
|
|
Residential Loans
|
|
|
|
|
|
|
9
|
|
|
|
21
|
|
|
|
44
|
|
|
|
195
|
|
Consumer Loans
|
|
|
521
|
|
|
|
501
|
|
|
|
464
|
|
|
|
164
|
|
|
|
137
|
|
Municipal Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Charge-offs
|
|
|
2,044
|
|
|
|
793
|
|
|
|
792
|
|
|
|
743
|
|
|
|
1,117
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
(34
|
)
|
|
|
(8
|
)
|
|
|
(187
|
)
|
|
|
(131
|
)
|
|
|
(357
|
)
|
Residential Loans
|
|
|
(9
|
)
|
|
|
(4
|
)
|
|
|
(19
|
)
|
|
|
(23
|
)
|
|
|
(35
|
)
|
Consumer Loans
|
|
|
(32
|
)
|
|
|
(435
|
)
|
|
|
(68
|
)
|
|
|
(40
|
)
|
|
|
(5
|
)
|
Municipal Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Recoveries
|
|
|
(75
|
)
|
|
|
(447
|
)
|
|
|
(274
|
)
|
|
|
(194
|
)
|
|
|
(397
|
)
|
Net charge-offs
|
|
|
1,969
|
|
|
|
346
|
|
|
|
518
|
|
|
|
549
|
|
|
|
720
|
|
Transfers
|
|
|
3
|
|
|
|
65
|
|
|
|
(176
|
)
|
|
|
|
|
|
|
|
|
Provision for loan loss
|
|
|
(3,896
|
)
|
|
|
(2,148
|
)
|
|
|
(2,229
|
)
|
|
|
(1,438
|
)
|
|
|
(955
|
)
|
Addition from acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,108
|
)
|
|
|
(1,624
|
)
|
Sale of loans
|
|
|
|
|
|
|
|
|
|
|
96
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
(11,761
|
)
|
|
$
|
(9,837
|
)
|
|
$
|
(8,100
|
)
|
|
$
|
(6,902
|
)
|
|
$
|
(5,118
|
)
|
Ratio of net charge-offs to loans outstanding
|
|
|
0.26
|
%
|
|
|
0.06
|
%
|
|
|
0.09
|
%
|
|
|
0.13
|
%
|
|
|
0.25
|
%
|
Allowance Unfunded Commitments Balance Beginning
December 31
|
|
$
|
(482
|
)
|
|
$
|
(417
|
)
|
|
$
|
(593
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
Adjustment
|
|
|
467
|
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Transfers
|
|
|
(3
|
)
|
|
|
(65
|
)
|
|
|
176
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance Unfunded Commitments at end of period
|
|
|
(18
|
)
|
|
|
(482
|
)
|
|
|
(417
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
(1) |
|
The allowance analysis has been adjusted for the periods 2007,
2006 and 2005 to segregate the allowance for loan losses from an
allowance for unfunded commitments, per new bank regulatory
guidance issued in 2007. Information to accurately segregate the
unfunded commitments was not considered material prior to 2005. |
10
In November 2004, the Bank acquired Snake River Bancorp, Inc,
and its subsidiary bank, Magic Valley Bank. Total loans of
approximately $65.5 million were acquired which was net of
a $1.1 million allowance for loan losses. The loan
portfolio acquired from Magic Valley Bank is similar to the
Banks existing loan portfolio. Therefore, the Banks
current process for assessing the allowance for loan loss was
applied to the Magic Valley Bank portfolio at December 31,
2007, 2006 and 2005.
In January 2003, the Company acquired the loan portfolio of the
Ontario branch of Household FSB (Ontario Branch
Portfolio). Total loans of approximately
$39.4 million were acquired which was net of a
$1.6 million allowance for loan losses. Of the total
$1.1 million in charge-offs during 2003, $0.2 million
related to the Ontario Branch Portfolio.
The following table details loan maturity and repricing
information for fixed and variable rate loans.
Maturity
and Repricing for the Banks
Loan Portfolio at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Repricing
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
|
Total Loans
|
|
|
|
(Dollars in thousands)
|
|
|
0-90 days
|
|
$
|
55,593
|
|
|
$
|
253,685
|
|
|
$
|
309,278
|
|
91-365 days
|
|
|
50,421
|
|
|
|
126,548
|
|
|
|
176,969
|
|
1 year-5 years
|
|
|
119,440
|
|
|
|
97,620
|
|
|
|
217,060
|
|
5 years or more
|
|
|
54,910
|
|
|
|
10,739
|
|
|
|
65,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
280,364
|
|
|
$
|
488,592
|
|
|
$
|
768,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
Portfolio Concentrations
The Bank continuously monitors concentrations of loan categories
in regards to industries and loan types. Due to the makeup of
the Banks marketplace, it expects to have significant
concentrations in certain industries and with specific loan
types. Concentration guidelines are established and then
approved by the Board of Directors at least annually, and are
reviewed by management and the Board monthly. Detrimental
circumstances affecting industries involved in loan
concentrations are reviewed as to their impact as they occur,
and appropriate action is determined regarding the loan
portfolio
and/or
lending strategies and practices.
As of December 31, 2007, the Banks loan portfolio by
loan type was:
|
|
|
|
|
Commercial
|
|
|
31.26
|
%
|
Commercial real estate
|
|
|
49.81
|
%
|
Residential real estate
|
|
|
14.83
|
%
|
Consumer
|
|
|
3.42
|
%
|
Municipal
|
|
|
0.68
|
%
|
These concentrations are typical for the markets served by the
Bank, and management believes that they are comparable with
those of the Banks peer group (banks of similar size and
operating in the same geographic areas). At December 31,
2007, approximately 65% of the total loan portfolio was secured
by real estate.
Management does not consider the overall commercial portfolio
total to present a concentration risk, and feels that there is
adequate diversification by type, industry, and geography to
further mitigate risk. The agricultural portfolio, which is
included in commercial loans, presents a somewhat greater risk,
in that it represents a large percentage of the loans in the
Banks southern Idaho region. At December 31, 2007,
agricultural loans and agricultural real estate loans represent
approximately 11.0% and 3.1% of the total loan portfolio,
respectively. The agricultural portfolio consists of loans
secured by crops, real estate and livestock. To mitigate credit
risk, specific underwriting is applied to retain only borrowers
that have proven track records in the agricultural industry. 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.
11
The residential land and construction loan portfolio currently
appears to pose the greatest overall risk of
loan-type concentration. However, experienced
lenders and consistently applied underwriting standards help to
mitigate credit risk. Real estate values tend to fluctuate
somewhat with economic conditions. Currently, valuations are
static or falling in many of the Banks markets, although
the rate of decline is smaller than current national average
rates of decline. Over longer periods, real estate collateral is
generally considered one of the more stable forms of collateral
in regards to maintaining value.
The Bank lends to contractors and developers, and is also active
in custom construction lending. The Bank has established
concentration limits as measured against Tier 1 capital
(generally, Tier 1 capital is the Companys tangible
net worth). These concentration limits include residential and
commercial construction loans not to exceed 175% and, combined
with development loans, not to exceed 325% of Tier 1
capital. The guidelines further specify that total commercial
real estate loans are not to exceed 400% and other real estate
(agricultural and land) loans are not to exceed 230% of the
Banks Tier 1 capital. Accordingly, at
December 31, 2007, residential and commercial construction
loans represented 128.2% and, combined with development loans,
represented 295.6% of Tier 1 capital. Total commercial real
estate loans represented 380.5%, and other real estate loans
represented 147.7% of the Banks Tier 1 capital,
respectively. In response to the combined banking agencies
recently adopted Commercial Real Estate Lending Guidelines, the
Bank revised measurements and expanded categories for monitoring
in 2007.
The methodology of determining the Banks overall allowance
provides for specific allocation for individual loans or
components of the loan portfolio. This could include any
segment. However, all components deemed to represent significant
concentrations are especially scrutinized for credit quality and
appropriate allowance. Allocations are reviewed and determined
by senior management monthly and reported to the Board of
Directors.
Investments
The investment portfolio is the second largest earning asset
category and is comprised mostly of securities categorized as
available-for-sale. These securities are recorded at market
value. Unrealized gains and losses that are considered temporary
are recorded as a component of accumulated other comprehensive
income or loss.
The carrying value of the available-for-sale securities
portfolio increased 34.0% to $158.8 million at
December 31, 2007 from $118.5 million at
December 31, 2006. The carrying value of the
held-to-maturity securities portfolio increased 68.5% to
$11.3 million at December 31, 2007 from
$6.7 million at December 31, 2006. During 2007, the
Company utilized funds from repurchase agreements and new
deposits to fund the growth in the investment portfolio. In
general, the Company sought to increase the yield and use the
investment portfolio to limit the Banks overall interest
rate risk position during the year. In doing so, the Company
extended the duration of its portfolio and re-positioned it to
perform better in a down-rate environment, to offset the weaker
performance expected from the loan portfolio in such an
environment. The Company used a combination of U.S agency
debentures, highly rated whole loan collateralized mortgage
obligations (CMOs), and municipal bonds to accomplish this
re-positioning. The average duration of the available-for-sale
and the held-to-maturity portfolios was approximately
4.4 years and 6.4 years, respectively on
December 31, 2007, compared to 3.6 years and
5.2 years, respectively on December 31, 2006.
12
The following table displays investment securities balances and
repricing information for the total portfolio:
Investment
Portfolio Detail
As of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
2007
|
|
|
Change
|
|
|
2006
|
|
|
Change
|
|
|
2005
|
|
Carrying Value as of December 31,
|
|
Amount
|
|
|
Prev. Yr.
|
|
|
Amount
|
|
|
Prev. Yr.
|
|
|
Amount
|
|
|
|
(Dollars in thousands)
|
|
|
U.S. treasury securities and obligations of government agencies
|
|
$
|
62,952
|
|
|
|
(19.94
|
)%
|
|
$
|
78,629
|
|
|
|
51.81
|
%
|
|
$
|
51,796
|
|
Mortgage-backed securities
|
|
|
95,739
|
|
|
|
142.02
|
|
|
|
39,559
|
|
|
|
28.53
|
|
|
|
30,777
|
|
Corporate Bonds
|
|
|
|
|
|
|
00.00
|
|
|
|
|
|
|
|
(100.00
|
)
|
|
|
969
|
|
State and municipal bonds
|
|
|
11,424
|
|
|
|
62.71
|
|
|
|
7,021
|
|
|
|
(0.47
|
)
|
|
|
7,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
170,115
|
|
|
|
35.87
|
%
|
|
$
|
125,209
|
|
|
|
38.21
|
%
|
|
$
|
90,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
158,791
|
|
|
|
34.01
|
|
|
|
118,490
|
|
|
|
41.32
|
|
|
|
83,847
|
|
Held-to-Maturity
|
|
|
11,324
|
|
|
|
68.54
|
|
|
|
6,719
|
|
|
|
(0.45
|
)
|
|
|
6,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
170,115
|
|
|
|
35.87
|
%
|
|
$
|
125,209
|
|
|
|
38.21
|
%
|
|
$
|
90,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
held as of December 31, 2007
Mature as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to
|
|
|
Five to
|
|
|
Over
|
|
|
|
|
|
|
One Year
|
|
|
Five Years
|
|
|
Ten Years
|
|
|
Ten Years
|
|
|
Total
|
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
U.S. treasury securities and obligations of government agencies
|
|
$
|
12,691
|
|
|
|
3.53
|
%
|
|
$
|
16,949
|
|
|
|
3.96
|
%
|
|
$
|
33,312
|
|
|
|
5.87
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
62,952
|
|
|
|
4.88
|
%
|
Mortgage-backed securities
|
|
|
120
|
|
|
|
4.92
|
|
|
|
7,103
|
|
|
|
4.03
|
|
|
|
15,056
|
|
|
|
5.28
|
|
|
|
73,460
|
|
|
|
5.92
|
|
|
|
95,739
|
|
|
|
5.68
|
|
State and municipal bonds (tax equivalent)
|
|
|
1,376
|
|
|
|
4.83
|
|
|
|
2,324
|
|
|
|
4.25
|
|
|
|
1,910
|
|
|
|
5.86
|
|
|
|
5,814
|
|
|
|
2.82
|
|
|
|
11,424
|
|
|
|
3.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,187
|
|
|
|
3.66
|
%
|
|
$
|
26,376
|
|
|
|
4.00
|
%
|
|
$
|
50,278
|
|
|
|
5.69
|
%
|
|
$
|
79,274
|
|
|
|
5.69
|
%
|
|
$
|
170,115
|
|
|
|
5.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
Deposits represent approximately 79.1% of the Banks
liabilities at December 31, 2007. The Bank gathers its
deposit base from a combination of small business and retail
sources. The retail and small business base continues to grow
with new and improved product offerings. However, management
recognizes that customer service, targeted marketing and
attractive product offerings, not a vast retail branch network,
are going to be the key to the Banks future customer and
deposit growth. In 2007, the Bank experienced strong competition
for deposits, but successfully grew lower-cost transaction
deposits, including demand, NOW and money market balances, at a
relatively strong rate. Total deposits grew 9.3% in 2007 with
non-interest bearing deposits growing 12.3% and interest-bearing
deposits growing 8.5% over 2006 balances. NOW and money market
accounts (personal, business and public) grew 5.99% to
$308.9 million at December 31, 2007 from
$291.4 million at December 31, 2006. Demand accounts
grew 12.3% to $159.1 million at December 31, 2007 from
$141.6 million at December 31, 2006. Certificate of
deposit accounts grew $24.1 million, from
$178.7 million at December 31, 2006 to
$202.8 million at December 31, 2007, an overall
increase of 13.5%.
The rise in short-term interest rates during 2006 placed
pressure on banks to raise rates paid on deposits during the
first nine months of 2007, placing pressure on the Banks
cost of funds and net interest margin. The Bank
13
responded by focusing on growing core customer relationships
through targeting high deposit balance customers and prospects,
providing high-touch personal service to these customers,
pursuing referrals from existing customers, competitively
pricing its traditional deposit products and enhancing services
offered to its business customers. The decrease in short-term
interest rates during the latter part of 2007 will likely have
the lagged effect of decreasing deposit rates during 2008, but
may simultaneously decrease demand for deposits as well.
Volatility in the equity markets and other customer investment
alternatives may counterbalance this pressure, however.
The following table details repricing information for the
Banks time deposits with minimum balance of $100,000 at
December 31, 2007 (in thousands):
|
|
|
|
|
Maturities
|
|
|
|
|
Less than three months
|
|
$
|
55,059
|
|
Three to six months
|
|
|
25,708
|
|
Six to twelve months
|
|
|
7,988
|
|
Over twelve months
|
|
|
27,880
|
|
|
|
|
|
|
|
|
$
|
116,635
|
|
|
|
|
|
|
Borrowings
As part of the Companys funds management and liquidity
plan, the Bank has arranged to have short-term and long-term
borrowing facilities available. The short-term and overnight
facilities are federal funds purchasing lines as reciprocal
arrangements to the federal funds selling agreements in place
with various correspondent banks. At December 31, the Bank
had overnight unsecured credit lines of $50.0 million
available. For additional long and short-term funding needs, the
Bank has credit available from the Federal Home Loan Bank of
Seattle (FHLB), limited to a percentage of its total regulatory
assets subject to collateralization requirements and a blanket
pledge agreement. At December 31, 2007 the Bank had a
$5.0 million FHLB advance that matures in June 2008, a
$14.0 million FHLB advance that matures in September 2009
and a $10.0 million FHLB advance that matures in September
2010. These notes totaled $29.0 million, and the Bank had
the ability to borrow an additional $59.5 million.
In March 2007, the Company entered into an additional borrowing
agreement with Pacific Coast Bankers Bank in the amount of
$18.0 million and in December 2007 increased the amount to
$25.0 million. The borrowing agreement is a revolving line
of credit with a variable rate of interest tied to LIBOR and is
collateralized by Bank stock and the Sandpoint Center. This line
is currently being used primarily to fund the construction of
the Companys new headquarters building in Sandpoint, with
pay down likely in late 2008 from the buildings
anticipated sale or refinancing into a longer-term instrument.
In January 2006, the Company purchased land to build the
headquarters building and entered into a Note Payable with the
sellers of the property in the amount of $1,130,000. The note
has a fixed rate of 6.65%, matures in February 2026 and had an
outstanding balance of $982,000 at December 31, 2007.
Securities sold under agreements to repurchase, which are
classified as other secured borrowings, generally are short-term
agreements. These agreements are treated as financing
transactions and the obligations to repurchase securities sold
are reflected as a liability in the consolidated financial
statements. The dollar amount of securities underlying the
agreements remains in the applicable asset account. These
agreements had a weighted average interest rate of 4.69%, 5.03%
and 3.60% at December 31, 2007, 2006 and 2005,
respectively. The average balances of securities sold subject to
repurchase agreements were $104.2 million,
$59.7 million and $31.6 million during the years ended
December 31, 2007, 2006 and 2005, respectively. The maximum
amount outstanding at any month end during these same periods
was $124.1 million, $106.2 million and
$47.6 million, respectively. The increase in the peak in
2007 reflected the issuance of repurchase agreements primarily
to municipal customers during the year. In 2006, the Company
entered into an institutional repurchase agreement to reduce
interest rate risk in a down-rate environment. The majority of
the repurchase agreements mature on a daily basis, with the
institutional repurchase agreement in the amount of
$30.0 million maturing in July 2011. At December 31,
2007, 2006 and 2005, the Company pledged as collateral, certain
investment securities with aggregate amortized costs of
$122.2 million,
14
$109.0 million and $37.9 million, respectively. These
investment securities had market values of $123.7 million,
$109.0 million and $37.1 million at December 31,
2007, 2006 and 2005, respectively.
In January 2003 the, Company issued $8.0 million of
Trust Preferred securities through its subsidiary,
Intermountain Statutory Trust I. Approximately
$7.0 million was subsequently transferred to the capital
account of Panhandle State Bank for capitalizing the Ontario
branch acquisition. The debt associated with these securities
bears interest at 6.75% with interest payable quarterly. The
debt is callable by the Company in March 2008 and matures in
March 2033.
In March 2004, the Company issued $8.0 million of
additional Trust Preferred securities through a second
subsidiary, Intermountain Statutory Trust II. This debt is
callable by the Company in April 2009, bears interest on a
variable basis tied to the
90-day LIBOR
index plus 2.8%, and matures in April 2034. The rate at
December 31, 2007 was 8.04%. Funds received from this
borrowing were used to support planned expansion activities
during 2004, including the Snake River Bancorp acquisition.
Employees
The Bank employed 450 full-time equivalent employees at
December 31, 2007. None of the employees are represented by
a collective bargaining unit and the Company believes it has
good relations with its employees.
Supervision
and Regulation
General
The following discussion describes elements of the extensive
regulatory framework applicable to Intermountain Community
Bancorp (the Company) and Panhandle State (the
Bank). This regulatory framework is primarily
designed for the protection of depositors, federal deposit
insurance funds and the banking system as a whole, rather than
specifically for the protection of shareholders. Due to the
breadth of this regulatory framework, our costs of compliance
continue to increase in order to monitor and satisfy these
requirements.
To the extent that this section describes statutory and
regulatory provisions, it is qualified in its entirety by
reference to those provisions. These statutes and regulations,
as well as related policies, are subject to change by Congress,
state legislatures and federal and state regulators. Changes in
statutes, regulations or regulatory policies applicable to us,
including interpretation or implementation thereof, could have a
material effect on our business or operations.
Federal
Bank Holding Company Regulation
General. The Company is a bank holding company
as defined in the Bank Holding Company Act of 1956, as amended
(BHCA), and is therefore subject to regulation,
supervision and examination by the Federal Reserve. In general,
the BHCA limits the business of bank holding companies to owning
or controlling banks and engaging in other activities closely
related to banking. The Company must file reports with and
provide the Federal Reserve such additional information as it
may require.
Holding Company Bank Ownership. The BHCA
requires every bank holding company to obtain the prior approval
of the Federal Reserve before (i) acquiring, directly or
indirectly, ownership or control of any voting shares of another
bank or bank holding company if, after such acquisition, it
would own or control more than 5% of such shares;
(ii) acquiring all or substantially all of the assets of
another bank or bank holding company; or (iii) merging or
consolidating with another bank holding company.
Holding Company Control of Nonbanks. With some
exceptions, the BHCA also prohibits a bank holding company from
acquiring or retaining direct or indirect ownership or control
of more than 5% of the voting shares of any company which is not
a bank or bank holding company, or from engaging directly or
indirectly in activities other than those of banking, managing
or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions
involve certain non-bank activities that, by statute or by
Federal Reserve regulation or order, have been identified as
activities closely related to the business of banking or of
managing or controlling banks.
15
Transactions with Affiliates. Subsidiary banks
of a bank holding company are subject to restrictions imposed by
the Federal Reserve Act on extensions of credit to the holding
company or its subsidiaries, on investments in their securities
and on the use of their securities as collateral for loans to
any borrower. These regulations and restrictions may limit the
Companys ability to obtain funds from the Bank for its
cash needs, including funds for payment of dividends, interest
and operational expenses.
Tying Arrangements. The Company is prohibited
from engaging in certain tie-in arrangements in connection with
any extension of credit, sale or lease of property or furnishing
of services. For example, with certain exceptions, neither the
Company nor its subsidiaries may condition an extension of
credit to a customer on either (i) a requirement that the
customer obtain additional services provided by us; or
(ii) an agreement by the customer to refrain from obtaining
other services from a competitor.
Support of Subsidiary Banks. Under Federal
Reserve policy, the Company is expected to act as a source of
financial and managerial strength to the Bank. This means that
the Company is required to commit, as necessary, resources to
support the Bank. Any capital loans a bank holding company makes
to its subsidiary banks are subordinate to deposits and to
certain other indebtedness of those subsidiary banks.
State Law Restrictions. As an Idaho
corporation, the Company is subject to certain limitations and
restrictions under applicable Idaho corporate law. For example,
state law restrictions in Idaho include limitations and
restrictions relating to indemnification of directors,
distributions to shareholders, transactions involving directors,
officers or interested shareholders, maintenance of books,
records and minutes, and observance of certain corporate
formalities.
Federal
and State Regulation of the Bank
General. The Bank is an Idaho commercial bank
operating in Idaho, with one branch in Oregon and two in
Washington. Its deposits are insured by the FDIC. As a result,
the Bank is subject to primary supervision and regulation by the
Idaho Department of Finance and the FDIC. With respect to the
Oregon branch and Washington branch, the Bank is also subject to
supervision and regulation by, respectively, the Oregon
Department of Consumer and Business Services and the Washington
Department of Financial Institutions, as well as the FDIC. These
agencies have the authority to prohibit banks from engaging in
what they believe constitute unsafe or unsound banking practices.
Community Reinvestment. The Community
Reinvestment Act of 1977 requires that, in connection with
examinations of financial institutions within their
jurisdiction, the Federal Reserve or the FDIC evaluate the
record of the financial institution in meeting the credit needs
of its local communities, including low and moderate-income
neighborhoods, consistent with the safe and sound operation of
the institution. A banks community reinvestment record is
also considered by the applicable banking agencies in evaluating
mergers, acquisitions and applications to open a branch or
facility.
Insider Credit Transactions. Banks are also
subject to certain restrictions imposed by the Federal Reserve
Act on extensions of credit to executive officers, directors,
principal shareholders or any related interests of such persons.
Extensions of credit (i) must be made on substantially the
same terms, including interest rates and collateral, and follow
credit underwriting procedures that are at least as stringent as
those prevailing at the time for comparable transactions with
persons not covered above and who are not employees; and
(ii) must not involve more than the normal risk of
repayment or present other unfavorable features. Banks are also
subject to certain lending limits and restrictions on overdrafts
to insiders. A violation of these restrictions may result in the
assessment of substantial civil monetary penalties, the
imposition of a cease and desist order, and other regulatory
sanctions.
Regulation of Management. Federal law
(i) sets forth circumstances under which officers or
directors of a bank may be removed by the institutions
federal supervisory agency; (ii) places restraints on
lending by a bank to its executive officers, directors,
principal shareholders, and their related interests; and
(iii) prohibits management personnel of a bank from serving
as a director or in other management positions of another
financial institution whose assets exceed a specified amount or
which has an office within a specified geographic area.
Safety and Soundness Standards. Federal law
imposes upon banks certain non-capital safety and soundness
standards. These standards cover internal controls, information
systems and internal audit systems, loan
16
documentation, credit underwriting, interest rate exposure,
asset growth, compensation, fees and benefits, such other
operational and managerial standards as the agency determines to
be appropriate, and standards for asset quality, earnings and
stock valuation. An institution that fails to meet these
standards must develop a plan acceptable to its regulators,
specifying the steps that the institution will take to meet the
standards. Failure to submit or implement such a plan may
subject the institution to regulatory sanctions.
Consumer Protection and Disclosure
Regulations. Federal and state law requires banks
to adhere to a number of regulations designed to protect
consumers and businesses from inadequate disclosure, unfair
treatment, excessive fees and other similar abuses. An
institution that fails to comply with these regulations must
develop a plan acceptable to its regulators, specifying the
steps that the institution will take to adhere to the
regulations. Failure to submit or implement such a plan may
subject the institution to regulatory sanctions. As new
regulations have been added in the last few years with more
expected in the near future, the costs to the institution of
complying with these regulations has increased.
Interstate
Banking And Branching
The Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (Interstate Act) relaxed prior interstate
branching restrictions under federal law by permitting
nationwide interstate banking and branching under certain
circumstances. Generally, bank holding companies may purchase
banks in any state, and states may not prohibit these purchases.
Additionally, banks are permitted to merge with banks in other
states, as long as the home state of neither merging bank has
opted out under the legislation. The Interstate Act requires
regulators to consult with community organizations before
permitting an interstate institution to close a branch in a
low-income area.
Idaho, Oregon and Washington have each enacted opting
in legislation in accordance with the Interstate Act
provisions allowing banks to engage in interstate merger
transactions, subject to certain aging requirements.
Idaho and Oregon also restrict an out-of-state bank from opening
de novo branches. However, once an out-of-state bank has
acquired a bank within either state, either through merger or
acquisition of all or substantially all of the banks
assets, the out-of-state bank may open additional branches
within the state. In contrast, under Washington law, an
out-of-state bank may, subject to Department of Financial
Institutions approval, open de novo branches in Washington
or acquire an in-state branch so long as the home state of the
out-of-state bank has reciprocal laws with respect to,
respectively, de novo branching or branch acquisitions.
Deposit
Insurance
In 2006, federal deposit insurance reform legislation was
enacted that (i) required the FDIC to merge the Bank
Insurance Fund and the Savings Association Insurance Fund into a
newly created Deposit Insurance Fund; (ii) increases the
amount of deposit insurance coverage for retirement accounts;
(iii) allows for deposit insurance coverage on individual
accounts to be indexed for inflation starting in 2010;
(iv) provides the FDIC more flexibility in setting and
imposing deposit insurance assessments; and (v) provides
eligible institutions credits on future assessments.
The Banks deposits are currently insured to the maximum
allowed per depositor through the Deposit Insurance Fund. The
Bank is required to pay deposit insurance premiums, which are
assessed and paid regularly. The premium amount is based upon a
risk classification system established by the FDIC. Banks with
higher levels of capital and a low degree of supervisory concern
are assessed lower premiums than banks with lower levels of
capital or a higher degree of supervisory concern.
Dividends
The principal source of the Companys cash is from
dividends received from the Bank, which are subject to
government regulation and limitations. Regulatory authorities
may prohibit banks and bank holding companies from paying
dividends in a manner that would constitute an unsafe or unsound
banking practice or would reduce the amount of its capital below
that necessary to meet minimum applicable regulatory capital
requirements. Idaho law also limits a banks ability to pay
dividends subject to surplus reserve requirements.
17
Capital
Adequacy
Regulatory Capital Guidelines. Federal bank
regulatory agencies use capital adequacy guidelines in the
examination and regulation of bank holding companies and banks.
The guidelines are risk-based, meaning that they are
designed to make capital requirements more sensitive to
differences in risk profiles among banks and bank holding
companies.
Tier I and Tier II Capital. Under
the guidelines, an institutions capital is divided into
two broad categories, Tier I capital and Tier II
capital. Tier I capital generally consists of common
stockholders equity, surplus and undivided profits.
Tier II capital generally consists of the allowance for
loan losses, hybrid capital instruments, and term subordinated
debt. The sum of Tier I capital and Tier II capital
represents an institutions total regulatory capital. The
guidelines require that at least 50% of an institutions
total capital consist of Tier I capital.
Risk-based Capital Ratios. The adequacy of an
institutions capital is gauged primarily with reference to
the institutions risk-weighted assets. The guidelines
assign risk weightings to an institutions assets in an
effort to quantify the relative risk of each asset and to
determine the minimum capital required to support that risk. An
institutions risk-weighted assets are then compared with
its Tier I capital and total capital to arrive at a
Tier I risk-based ratio and a total risk-based ratio,
respectively. The guidelines provide that an institution must
have a minimum Tier I risk-based ratio of 4% and a minimum
total risk-based ratio of 8%.
Leverage Ratio. The guidelines also employ a
leverage ratio, which is Tier I capital as a percentage of
total assets, less intangibles. The principal objective of the
leverage ratio is to constrain the maximum degree to which a
bank holding company may leverage its equity capital base. The
minimum leverage ratio is 3%; however, for all but the most
highly rated bank holding companies and for bank holding
companies seeking to expand, regulators expect an additional
cushion of at least 1% to 2%.
Prompt Corrective Action. Under the
guidelines, an institution is assigned to one of five capital
categories depending on its total risk-based capital ratio,
Tier I risk-based capital ratio, and leverage ratio,
together with certain subjective factors. The categories range
from well capitalized to critically
undercapitalized. Institutions that are
undercapitalized or lower are subject to certain
mandatory supervisory corrective actions.
In 2007, the federal banking agencies, including the FDIC and
the Federal Reserve, approved final rules to implement new
risk-based capital requirements. Presently, this new advanced
capital adequacy framework, called Basel II, is applicable only
to large and internationally active banking organizations.
Basel II changes the existing risk-based capital framework
by enhancing its risk sensitivity. Whether Basel II will be
expanded to apply to banking organizations that are the size of
the Company or the Bank is unclear at this time, and what effect
such regulations would have on us cannot be predicted, but we do
not expect our operations would be significantly impacted.
Regulatory
Oversight and Examination
The Federal Reserve conducts periodic inspections of bank
holding companies, which are performed both onsite and offsite.
The supervisory objectives of the inspection program are to
ascertain whether the financial strength of the bank holding
company is being maintained on an ongoing basis and to determine
the effects or consequences of transactions between a holding
company or its non-banking subsidiaries and its subsidiary
banks. For holding companies under $10 billion in assets,
the inspection type and frequency varies depending on asset
size, complexity of the organization, and the holding
companys rating at its last inspection.
Banks are subject to periodic examinations by their primary
regulators. Bank examinations have evolved from reliance on
transaction testing in assessing a banks condition to a
risk-focused approach. These examinations are extensive and
cover the entire breadth of operations of the bank. Generally,
safety and soundness examinations occur on an
18-month
cycle for banks under $500 million in total assets that are
well capitalized and without regulatory issues, and
12-months
otherwise. Examinations alternate between the federal and state
bank regulatory agency or may occur on a combined schedule. The
frequency of consumer compliance and CRA examinations is linked
to the size of the institution and its compliance and CRA
ratings at its most recent examination. However, the examination
authority of the Federal Reserve and the FDIC allows them to
examine supervised banks as frequently as deemed necessary based
on the condition of the bank or as a result of certain
triggering events.
18
Corporate
Governance and Accounting Legislation
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley
Act of 2002 (the Act) addresses among other things,
corporate governance, auditing and accounting, enhanced and
timely disclosure of corporate information, and penalties for
non-compliance. Generally, the Act (i) requires chief
executive officers and chief financial officers to certify to
the accuracy of periodic reports filed with the Securities and
Exchange Commission (the SEC); (ii) imposes
specific and enhanced corporate disclosure requirements;
(iii) accelerates the time frame for reporting of insider
transactions and periodic disclosures by public companies;
(iv) requires companies to adopt and disclose information
about corporate governance practices, including whether or not
they have adopted a code of ethics for senior financial officers
and whether the audit committee includes at least one
audit committee financial expert; and
(v) requires the SEC, based on certain enumerated factors,
to regularly and systematically review corporate filings.
To deter wrongdoing, the Act (i) subjects bonuses issued to
top executives to disgorgement if a restatement of a
companys financial statements was due to corporate
misconduct; (ii) prohibits an officer or director
misleading or coercing an auditor; (iii) prohibits insider
trades during pension fund blackout periods;
(iv) imposes new criminal penalties for fraud and other
wrongful acts; and (v) extends the period during which
certain securities fraud lawsuits can be brought against a
company or its officers.
As a publicly reporting company, the company is subject to the
requirements of the Act and related rules and regulations issued
by the SEC. After enactment, we updated our policies and
procedures to comply with the Acts requirements and have
found that such compliance, including compliance with
Section 404 of the Act relating to management control over
financial reporting, has resulted in significant additional
expense for the Company. We anticipate that we will continue to
incur such additional expense in our ongoing compliance
activities.
Anti-terrorism
Legislation
USA Patriot Act of 2001. The Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001, intended to combat
terrorism, was renewed with certain amendments in 2006 (the
Patriot Act). Certain provisions of the Patriot Act
were made permanent and other sections were made subject to
extended sunset provisions. The Patriot Act, in
relevant part, (i) prohibits banks from providing
correspondent accounts directly to foreign shell banks;
(ii) imposes due diligence requirements on banks opening or
holding accounts for foreign financial institutions or wealthy
foreign individuals; (iii) requires financial institutions
to establish an anti-money-laundering compliance program; and
(iv) eliminates civil liability for persons who file
suspicious activity reports. The Act also includes provisions
providing the government with power to investigate terrorism,
including expanded government access to bank account records.
While the Patriot Act has had some effect on our record keeping
and reporting expenses, we do not believe that the renewal and
amendment will have a material adverse effect on our business or
operations.
Financial
Services Modernization
Gramm-Leach-Bliley Act of 1999. The
Gramm-Leach-Bliley Financial Services Modernization Act of 1999
brought about significant changes to the laws affecting banks
and bank holding companies. Generally, the Act (i) repeals
historical restrictions on preventing banks from affiliating
with securities firms; (ii) provides a uniform framework
for the activities of banks, savings institutions and their
holding companies; (iii) broadens the activities that may
be conducted by national banks and banking subsidiaries of bank
holding companies; (iv) provides an enhanced framework for
protecting the privacy of consumer information and requires
notification to consumers of bank privacy policies; and
(v) addresses a variety of other legal and regulatory
issues affecting both day-to-day operations and long-term
activities of financial institutions. Bank holding companies
that qualify and elect to become financial holding companies can
engage in a wider variety of financial activities than permitted
under previous law, particularly with respect to insurance and
securities underwriting activities.
Recent
Legislation
Financial Services Regulatory Relief Act of
2006. In 2006, the President signed the
Financial Services Regulatory Relief Act of 2006 into law
(the Relief Act). The Relief Act amends several
existing banking laws and
19
regulations, eliminates some unnecessary and overly burdensome
regulations of depository institutions and clarifies several
existing regulations. The Relief Act, among other things,
(i) authorizes the Federal Reserve Board to set reserve
ratios; (ii) amends regulations of national banks relating
to shareholder voting and granting of dividends;
(iii) amends several provisions relating to loans to
insiders, regulatory applications, privacy notices, and golden
parachute payments; and (iv) expands and clarifies the
enforcement authority of federal banking regulators. Our
business, expenses, and operations have not been significantly
impacted by this legislation.
Effects
Of Government Monetary Policy
Our earnings and growth are affected not only by general
economic conditions, but also by the fiscal and monetary
policies of the federal government, particularly the Federal
Reserve. The Federal Reserve implements national monetary policy
for such purposes as curbing inflation and combating recession,
but its open market operations in U.S. government
securities, control of the discount rate applicable to
borrowings from the Federal Reserve, and establishment of
reserve requirements against certain deposits, influence the
growth of bank loans, investments and deposits, and also affect
interest rates charged on loans or paid on deposits. The nature
and impact of future changes in monetary policies, such as the
recent lowering of the Federal Reserves discount and
federal funds target rate, and their impact on us cannot be
predicted with certainty.
Forward-Looking
Statements
From time to time, Intermountain and its senior managers have
made and will make forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Such
statements may be contained in this report and in other
documents that Intermountain files with the Securities and
Exchange Commission. Such statements may also be made by
Intermountain and its senior managers in oral or written
presentations to analysts, investors, the media and others.
Forward-looking statements can be identified by the fact that
they do not relate strictly to historical or current facts.
Also, forward-looking statements can generally be identified by
words such as may, could,
should, would, believe,
anticipate, estimate, seek,
expect, intend, plan and
similar expressions.
Forward-looking statements provide managements
expectations or predictions of future conditions, events or
results. They are not guarantees of future performance. By their
nature, forward-looking statements are subject to risks and
uncertainties. These statements speak only as of the date they
are made. Intermountain does not undertake to update
forward-looking statements to reflect the impact of
circumstances or events that arise after the date the
forward-looking statements were made. There are a number of
factors, many of which are beyond Intermountains control
that could cause actual conditions, events or results to differ
significantly from those described in the forward-looking
statements. These factors, some of which are discussed elsewhere
in this report, include:
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the inflation and interest rate levels, and market and monetary
fluctuations;
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trade, monetary and fiscal policies and laws, including interest
rate policies of the federal government;
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applicable laws and regulations and legislative or regulatory
changes;
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the timely development and acceptance of new products and
services of Intermountain;
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the willingness of customers to substitute competitors
products and services for Intermountains products and
services;
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Intermountains success in gaining regulatory approvals,
when required;
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technological and management changes;
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growth and acquisition strategies;
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the Companys critical accounting policies and the
implementation of such policies;
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lower-than-expected revenue or cost savings or other issues in
connection with mergers and acquisitions;
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changes in consumer spending, saving and borrowing habits;
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20
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the strength of the United States economy in general and the
strength of the local economies in which Intermountain conducts
its operations; and
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Intermountains success at managing the risks involved in
the foregoing.
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Where you
can find more information
The periodic reports Intermountain files with the SEC are
available on Intermountains website
athttp://Intermountainbank.com
after the reports are filed with the SEC. The SEC maintains a
website located at http://sec.gov that also contains this
information. The Company will provide you with copies of these
reports, without charge, upon request made to:
Investor Relations
Intermountain Community Bancorp
231 N. Third Avenue
Sandpoint, Idaho 83864
(208) 263-0505
As a
financial holding company, our earnings are dependent upon the
performance of our bank as well as by business, economic and
political conditions.
Intermountain is a legal entity separate and distinct from the
Bank. Our right to participate in the assets of the Bank upon
the Banks liquidation, reorganization or otherwise will be
subject to the claims of the Banks creditors, which will
take priority except to the extent that we may be a creditor
with a recognized claim.
The Company is subject to certain restrictions on the amount of
dividends that it may declare without prior regulatory approval.
These restrictions may affect the amount of dividends the
Company may declare for distribution to its shareholders in the
future.
Earnings are impacted by business and economic conditions in the
United States and abroad. These conditions include short-term
and long-term interest rates, inflation, monetary supply,
fluctuations in both debt and equity capital markets, and the
strength of the U.S. economy and the local economies in
which we operate. Business and economic conditions that
negatively impact household or corporate incomes could decrease
the demand for our products and increase the number of customers
who fail to pay their loans.
A
downturn in the local economies or real estate markets could
negatively impact our banking business.
The Company has a high concentration in the real estate market
and a downturn in the local economies or real estate markets
could negatively impact our banking business. Because we
primarily serve individuals and businesses located in northern,
southwestern and southcentral Idaho, eastern Washington and
southeastern Oregon, a significant portion of our total loan
portfolio is originated in these areas or secured by real estate
or other assets located in these areas. As a result of this
geographic concentration, the ability of customers to repay
their loans, and consequently our results, are impacted by the
economic and business conditions in our market areas. Any
adverse economic or business developments or natural disasters
in these areas could cause uninsured damage and other loss of
value to real estate that secures our loans or could negatively
affect the ability of borrowers to make payments of principal
and interest on the underlying loans. In the event of such
adverse development or natural disaster, our results of
operations or financial condition could be adversely affected.
Our ability to recover on defaulted loans by foreclosing and
selling the real estate collateral would then be diminished and
we would more likely suffer losses on defaulted loans.
Furthermore, current uncertain geopolitical trends and variable
economic trends, including uncertainty regarding economic
growth, inflation and unemployment, may negatively impact
businesses in our markets. While the short-term and long-term
effects of these events remain uncertain, they could adversely
affect general economic conditions, consumer confidence, market
liquidity or result in changes in interest rates, any of which
could have a negative impact on the banking business.
21
Changes
in market interest rates could adversely affect our
earnings.
Our earnings are impacted by changing market interest rates.
Changes in market interest rates impact the level of loans,
deposits and investments, the credit profile of existing loans
and the rates received on loans and investment securities and
the rates paid on deposits and borrowings. One of our primary
sources of income from operations is net interest income, which
is equal to the difference between the interest income received
on interest-earning assets (usually, loans and investment
securities) and the interest expense incurred in connection with
interest-bearing liabilities (usually, deposits and borrowings).
These rates are highly sensitive to many factors beyond our
control, including general economic conditions, both domestic
and foreign, and the monetary and fiscal policies of various
governmental and regulatory authorities. Net interest income can
be affected significantly by changes in market interest rates.
Changes in relative interest rates may reduce net interest
income as the difference between interest income and interest
expense decreases.
Market interest rates have shown considerable volatility over
the past several years. After rising through much of 2005 and
the first half of 2006, short-term market rates flattened and
the yield curve inverted through the latter half of 2006 and the
first half of 2007. In this environment, short-term market rates
were higher than long-term market rates, and the amount of
interest we paid on deposits and borrowings increased more
quickly than the amount of interest we received on our loans,
mortgage-related securities and investment securities. In the
latter half of 2007 and early 2008, short-term market rates
declined significantly, causing asset yields to decline. If this
trend continues, it could cause our net interest margin to
decline and profits to decrease.
Should rates start rising again, interest rates would likely
reduce the value of our investment securities and may decrease
demand for loans and make it more difficult for borrowers to
repay their loans. Increasing market interest rates may also
depress property values, which could affect the value of
collateral securing our loans.
An increase in interest rates could also have a negative impact
on our results of operations by reducing the ability of
borrowers to repay their current loan obligations. These
circumstances could not only result in increased loan defaults,
foreclosures and write-offs, but also necessitate further
increases to the allowances for loan losses.
Should market rates fall further, rates on our assets may fall
faster than rates on our liabilities, resulting in decreased
income for the bank. Fluctuations in interest rates may also
result in disintermediation, which is the flow of funds away
from depository institutions into direct investments that pay a
higher rate of return and may affect the value of our investment
securities and other interest-earning assets.
Our cost of funds may increase because of general economic
conditions, unfavorable conditions in the capital markets,
interest rates and competitive pressures. We have traditionally
obtained funds principally through deposits and borrowings. As a
general matter, deposits are a cheaper source of funds than
borrowings, because interest rates paid for deposits are
typically less than interest rates charged for borrowings. If,
as a result of general economic conditions, market interest
rates, competitive pressures, or other factors, our level of
deposits decreases relative to our overall banking operation, we
may have to rely more heavily on borrowings as a source of funds
in the future, which may negatively impact net interest margin.
Competition
may adversely affect our ability to attract and retain customers
at current levels.
The banking and financial services businesses in our market
areas are highly competitive. Competition in the banking,
mortgage and finance industries may limit our ability to attract
and retain customers. We face competition from other banking
institutions, savings banks, credit unions and other financial
institutions. We also compete with non-bank financial service
companies within the states that we serve and out of state
financial intermediaries that have opened loan production
offices or that solicit deposits in our market areas. There has
also been a general consolidation of financial institutions in
recent years, which results in new competitors and larger
competitors in our market areas.
In particular, our competitors include major financial companies
whose greater resources may provide them a marketplace
advantage. Areas of competition include interest rates for loans
and deposits, efforts to obtain deposits and the range and
quality of services provided. Because we have fewer financial
and other resources than larger institutions with which we
compete, we may be limited in our ability to attract customers.
In addition, some of the current commercial banking customers
may seek alternative banking sources as they develop needs for
credit
22
facilities larger than we can accommodate. If we are unable to
attract and retain customers, we may be unable to continue our
loan and deposit growth, and our results of operations and
financial condition may otherwise be negatively impacted.
Additional
market concern over investment securities backed by mortgage
loans could create losses in the Companys investment
portfolio
A majority of the Companys investment portfolio is
comprised of securities where mortgages are the underlying
collateral. These securities include agency-guaranteed mortgage
backed securities and collateralized mortgage obligations and
triple AAA rated non- agency mortgage-backed securities and
collateralized mortgage obligations. With the recent national
downturn in real estate markets and the rising mortgage
delinquency and foreclosure rates, investors are increasingly
concerned about these types of securities. The potential for
subsequent discounting, if continuing for a long period of time,
could lead to permanent impairment in the value of these
investments. This impairment could negatively impact earnings
and the Companys capital position.
We may
not be able to successfully implement our internal growth
strategy.
We have pursued and intend to continue to pursue an internal
growth strategy, the success of which will depend primarily on
generating an increasing level of loans and deposits at
acceptable risk levels and terms without proportionate increases
in non-interest expenses. There can be no assurance that we will
be successful in implementing our internal growth strategy.
Furthermore, the success of our growth strategy will depend on
maintaining sufficient regulatory capital levels and on
continued favorable economic conditions in our market areas.
There
are risks associated with potential acquisitions.
We may make opportunistic acquisitions of other banks or
financial institutions from time to time that further our
business strategy. These acquisitions could involve numerous
risks including lower than expected performance or higher than
expected costs, difficulties in the integration of operations,
services, products and personnel, the diversion of
managements attention from other business concerns,
changes in relationships with customers and the potential loss
of key employees. Any acquisitions will be subject to regulatory
approval, and there can be no assurance that we will be able to
obtain such approvals. We may not be successful in identifying
further acquisition candidates, integrating acquired
institutions or preventing deposit erosion or loan quality
deterioration at acquired institutions. Competition for
acquisitions in our market area is highly competitive, and we
may not be able to acquire other institutions on attractive
terms. There can be no assurance that we will be successful in
completing future acquisitions, or if such transactions are
completed, that we will be successful in integrating acquired
businesses into our operations. Our ability to grow may be
limited if we are unable to successfully make future
acquisitions.
We may
not be able to replace key members of management or attract and
retain qualified relationship managers in the
future.
We depend on the services of existing management to carry out
our business and investment strategies. As we expand, we will
need to continue to attract and retain additional management and
other qualified staff. In particular, because we plan to
continue to expand our locations, products and services, we will
need to continue to attract and retain qualified commercial
banking personnel and investment advisors. Competition for such
personnel is significant in our geographic market areas. The
loss of the services of any management personnel, or the
inability to recruit and retain qualified personnel in the
future, could have an adverse effect on our results of
operations, financial conditions and prospects.
The
allowance for loan losses may be inadequate.
Our loan customers may not repay their loans according to the
terms of the loans, and the collateral securing the payment of
these loans may be insufficient to pay any remaining loan
balance. We therefore may experience significant loan losses,
which could have a material adverse effect on our operating
results.
23
We make various assumptions and judgments about the
collectibility of our loan portfolio, including the
creditworthiness of our borrowers and the value of the real
estate and other assets serving as collateral for the repayment
of many of our loans. We rely on our loan quality reviews, our
experience and our evaluation of economic conditions, among
other factors, in determining the amount of the allowance for
loan losses. If our assumptions prove to be incorrect, our
allowance for loan losses may not be sufficient to cover losses
inherent in our loan portfolio, resulting in additions to our
allowance. Increases in this allowance result in an expense for
the period. If, as a result of general economic conditions or a
decrease in asset quality, management determines that additional
increases in the allowance for loan losses are necessary, we may
incur additional expenses.
Our loans are primarily secured by real estate, including a
concentration of properties located in northern, southwestern
and southcentral Idaho, eastern Washington and southeastern
Oregon. If an earthquake, volcanic eruption or other natural
disaster were to occur in one of our major market areas, loan
losses could occur that are not incorporated in the existing
allowance for loan losses.
We are
expanding our lending activities in riskier areas.
We have identified commercial real estate and commercial
business loans as areas for increased lending emphasis. While
increased lending diversification is expected to increase
interest income, non-residential loans carry greater historical
risk of payment default than residential real estate loans. As
the volume of these loans increase, credit risk increases. In
the event of substantial borrower defaults, our provision for
loan losses would increase and therefore, earnings would be
reduced. As the Company lends in diversified areas such as
commercial real estate, commercial, agricultural, real estate,
commercial construction and residential construction, the
Company may be incur additional risk if one lending area
experienced difficulties due to economic conditions.
Our
stock price can be volatile.
Our stock price can fluctuate widely in response to a variety of
factors, including actual or anticipated variations in quarterly
operating results, recommendations by securities analysts and
news reports relating to trends, concerns and other issues in
the financial services industry. Other factors include new
technology used or services offered by our competitors,
operating and stock price performance of other companies that
investors deem comparable to us, and changes in government
regulations.
General market fluctuations, industry factors and general
economic and political conditions and events, such as future
terrorist attacks and activities, economic slowdowns or
recessions, interest rate changes or credit loss trends, also
could cause our stock price to decrease regardless of our
operating results.
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Item 1B.
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UNRESOLVED
STAFF COMMENTS
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Not applicable.
24
At December 31, 2007, the Company operated 19 branch
offices, including the main office located in Sandpoint, Idaho.
The following is a description of the branch and administrative
offices.
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Occupancy
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Date Opened
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Status
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City and County
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Address
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Sq. Feet
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or Acquired
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(Own/Lease)
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Panhandle State Bank Branches
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IDAHO
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(Kootenai County)
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Coeur dAlene(1)
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200 W. Neider Avenue
Coeur dAlene, ID 83814
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5,500
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May 2005
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Own building
lease land
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Rathdrum
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6878 Hwy 53
Rathdrum, ID 83858
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3,410
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March 2001
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Own
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Post Falls
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3235 E. Mullan Avenue
Post Falls, ID 83854
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3,752
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March 2003
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Own
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(Bonner County)
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|
|
Ponderay
|
|
300 Kootenai Cut-Off Road
Ponderay, ID 83852
|
|
|
3,400
|
|
|
October 1996
|
|
Own
|
Priest River
|
|
301 E. Albeni Road
Priest River, ID 83856
|
|
|
3,500
|
|
|
December 1996
|
|
Own
|
Sandpoint
|
|
231 N. Third Avenue
Sandpoint, ID 83864
|
|
|
10,000
|
|
|
May 1981
|
|
Own
|
(Boundary County)
|
|
|
|
|
|
|
|
|
|
|
Bonners Ferry
|
|
6750 Main Street
Bonners Ferry, ID 83805
|
|
|
3,400
|
|
|
September 1993
|
|
Own
|
(Shoshone County)
|
|
|
|
|
|
|
|
|
|
|
Kellogg
|
|
302 W. Cameron Avenue
Kellogg, ID 83837
|
|
|
672
|
|
|
February 2006
|
|
lease land
own modular unit
|
Intermountain Community Bank Branches
|
|
|
|
|
|
|
|
|
|
|
(Canyon County)
|
|
|
|
|
|
|
|
|
|
|
Caldwell
|
|
506 South
10th Avenue
Caldwell, ID 83605
|
|
|
6,480
|
|
|
March 2002
|
|
Own
|
Nampa
|
|
521
12th Avenue
S.
Nampa, ID 83653
|
|
|
5,000
|
|
|
July 2001
|
|
Own
|
Nampa Loan Production Office
|
|
5660 E. Franklin Road,
Suite 100. Nampa, ID 83687
|
|
|
2,380
|
|
|
February 2007
|
|
Lease
|
(Payette County)
|
|
|
|
|
|
|
|
|
|
|
Payette
|
|
175 North
16th Street
Payette, ID 83661
|
|
|
5,000
|
|
|
September 1999
|
|
Own
|
Fruitland
|
|
1710 N.Whitley Dr, Ste A
Fruitland, ID 83619
|
|
|
1,500
|
|
|
April 2006
|
|
Lease
|
(Washington County)
|
|
|
|
|
|
|
|
|
|
|
Weiser
|
|
440 E Main Street
Weiser, ID 83672
|
|
|
3,500
|
|
|
June 2000
|
|
Own
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy
|
|
|
|
|
|
|
|
Date Opened
|
|
Status
|
City and County
|
|
Address
|
|
Sq. Feet
|
|
|
or Acquired
|
|
(Own/Lease)
|
|
Magic Valley Bank Branches
|
|
|
|
|
|
|
|
|
|
|
(Twin Falls County)
|
|
|
|
|
|
|
|
|
|
|
Twin Falls
|
|
113 Main Ave West
Twin Falls, ID 83301
|
|
|
10,798
|
|
|
November 2004
|
|
Lease
|
Canyon Rim(2)
|
|
1715 Poleline Road East
Twin Falls, ID 83301
|
|
|
6,975
|
|
|
September 2006
|
|
Lease
|
(Gooding County)
|
|
|
|
|
|
|
|
|
|
|
Gooding(2)
|
|
746 Main Street
Gooding, ID 83330
|
|
|
3,200
|
|
|
November 2004
|
|
Lease
|
OREGON
|
|
|
|
|
|
|
|
|
|
|
(Malheur County)
|
|
|
|
|
|
|
|
|
|
|
Ontario
|
|
98 South Oregon St.
Ontario, OR 97914
|
|
|
10,272
|
|
|
January 2003
|
|
Lease
|
Intermountain Community Bank Washington Branches
|
|
|
|
|
|
|
|
|
|
|
WASHINGTON
|
|
|
|
|
|
|
|
|
|
|
(Spokane County)
|
|
|
|
|
|
|
|
|
|
|
Spokane Private Banking
|
|
801 W. Riverside, Ste 400
Spokane, WA 99201
|
|
|
4,818
|
|
|
April 2006
|
|
Lease
|
Spokane Valley
|
|
5211 E. Sprague Avenue
Spokane Valley, WA 99212
|
|
|
16,000
|
|
|
Sept 2006
|
|
Own building
Lease land
|
ADMINISTRATIVE
|
|
|
|
|
|
|
|
|
|
|
(Bonner County)
|
|
|
|
|
|
|
|
|
|
|
Sandpoint Data Center
|
|
218 Main Street
Sandpoint, ID 83864
|
|
|
1,900
|
|
|
March 1999
|
|
Lease
|
Sandpoint Management Services
|
|
110 Main Street
Sandpoint, ID 83864
|
|
|
6,669
|
|
|
June 2002
|
|
Lease
|
Sandpoint Administrative
|
|
307 N. Second Avenue
Sandpoint, ID 83864
|
|
|
4,848
|
|
|
March 2006
|
|
Lease
|
ICI Brokerage Dept
|
|
102
10th &
Hwy 2, Ste A
Priest River, ID 83856
|
|
|
665
|
|
|
September 2006
|
|
Lease
|
Sandpoint Center(3)
|
|
414 Church Street
Sandpoint, ID 83864
|
|
|
|
|
|
January 2006
|
|
Own
|
(Kootenai County)
|
|
|
|
|
|
|
|
|
|
|
Coeur dAlene Branch and
Administrative Services(1)
|
|
200 W. Neider Avenue
Coeur dAlene, ID 83814
|
|
|
17,600
|
|
|
May 2005
|
|
land lease
own building
|
|
|
|
1) |
|
The Coeur dAlene branch is located in the
23,100 square foot branch and administration building
located at 200 W. Neider Avenue in Coeur dAlene.
The branch occupies approximately 5,500 square feet of this
building. |
|
2) |
|
In December 2006, the Company entered in agreements to sell the
Gooding and Canyon Rim branches, and subsequently lease them
back. The sales were completed in January 2007 and the leases
commenced in January 2007. |
|
3) |
|
In January 2006, the Company purchased land on an installment
contract and subsequently began building the 94,000 square
foot Sandpoint Center, which will house the Sandpoint branch,
corporate headquarters and administrative functions. The
building will also contain technical and training facilities, an
auditorium and community room and space for other professional
tenants. Pending receipt of regulatory approval, the Company
anticipates relocating the Sandpoint Branch, corporate
headquarters and administrative functions during the second
quarter of 2008. The Company anticipates selling the building
upon or near completion and leasing back approximately
47,000 square feet. |
26
|
|
Item 3.
|
LEGAL
PROCEEDINGS
|
The Company and the Bank are parties to various claims, legal
actions and complaints in the ordinary course of their
businesses. In the Companys opinion, all such matters are
adequately covered by insurance, are without merit or are of
such kind, or involve such amounts, that unfavorable disposition
would not have a material adverse effect on the consolidated
financial position, cash flows or results of operations of the
Company.
|
|
Item 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
There were no matters submitted to security holders for a vote
during the fourth quarter of 2007.
PART II
|
|
Item 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Price and Dividend Information
Bid and ask prices for the Companys Common Stock are
quoted in the Pink Sheets and on the OTC Bulletin Board
under the symbol IMCB.OB As of March 2, 2008,
there were 13 Pink Sheet/Bulletin Board Market Makers. The
range of high and low closing prices for the Companys
Common Stock for each quarter during the two most recent fiscal
years is as follows:
Quarterly
Common Stock Price Ranges (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Quarter
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
1st
|
|
$
|
22.18
|
|
|
$
|
20.01
|
|
|
$
|
18.18
|
|
|
$
|
14.09
|
|
2nd
|
|
|
20.68
|
|
|
|
17.13
|
|
|
|
20.50
|
|
|
|
17.02
|
|
3rd
|
|
|
17.90
|
|
|
|
14.49
|
|
|
|
21.82
|
|
|
|
18.73
|
|
4th
|
|
|
16.75
|
|
|
|
13.10
|
|
|
|
22.73
|
|
|
|
20.36
|
|
|
|
|
(1) |
|
This table reflects the range of high and low closing prices for
the Companys Common Stock during the indicated periods.
Prices have been retroactively adjusted to reflect all stock
splits and stock dividends, including a 10% common stock
dividend that was effective May 31, 2007. Prices do not
include retail markup, markdown or commissions. |
The approximate number of record holders of the Companys
common stock as of March 2, 2008 was 961, representing
8,273,578 shares outstanding.
The Company historically has not paid cash dividends, nor does
it expect to pay cash dividends in the near future. The Company
is subject to certain restrictions on the amount of dividends
that it may declare without prior regulatory approval. These
restrictions may affect the amount of dividends the Company may
declare for distribution to its shareholders in the future.
There have been no securities of the Company sold within the
last three years that were not registered under the Securities
Act of 1933, as amended. The Company did not make any stock
repurchases during the fourth quarter of 2007.
Equity
Compensation Plan Information
The Company currently maintains four compensation plans that
provide for the issuance of Intermountains common stock to
officers and other employees, directors and consultants. These
consist of the 1988 Employee Stock Option Plan, the 1999
Employee Stock Plan, the 1999 Director Stock Option Plan,
and the 2006-2008 Executive Long Term Incentive Plan, each of
which have been approved by the Companys shareholders. The
27
following table sets forth information regarding outstanding
options and shares reserved for future issuance under the
foregoing plans as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
Number of Shares
|
|
|
|
|
|
Remaining Available for
|
|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
Future Issuance Under
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Equity Compensation
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Plans (Excluding
|
|
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Shares Reflected in
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
Column(a) (c)
|
|
|
Equity compensation plans approved by shareholders
|
|
|
551,624
|
(1)
|
|
$
|
5.48
|
|
|
|
247,399
|
(1)
|
|
|
|
90,750
|
(2)
|
|
|
|
|
|
|
90,750
|
(2)
|
Equity compensation plans not approved by shareholders
|
|
|
31,453
|
(3)
|
|
|
|
|
|
|
31,453
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
673,827
|
|
|
$
|
5.48
|
|
|
|
369,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Under the companys Employee Stock Option and Restricted
Stock Plan, as amended (the Stock Plan), we may
issue Restricted Stock Awards, as that term is defined in the
Stock Plan. |
|
(2) |
|
For purposes of this table, we have listed the
target shares that could be used under the
2006-2008
Long Term Incentive Plan to eligible executive officers,
provided the company meets specific performance goals at the end
of the three-year period. In the event the company exceeds the
performance targets, more shares could be issued. |
|
(3) |
|
We issue securities under the
2003-2005
Long Term Incentive Plan to eligible executive officers,
provided the company has met specific performance goals at the
end of the three-year period. Under the terms of the plan, the
executive must have been continuously employed by the company
during the three-year period and to receive the award, must be
employed at the time the stock award vests. The award vests
equally over a three-period and is payable in restricted stock.
The number of shares set forth in the table are the shares that
may be issued under the
2003-2005
Long Term Incentive Plan, for which a Registration Statement on
Form S-8
has been filed. |
Five-Year
Stock Performance Graph
The following graph shows a five-year comparison of the total
return to shareholders of Intermountains common stock, the
SNL Securities $500 million to $1 billion Bank Asset
Size Index (SNL Index) and the Russell 2000 Index.
All of these cumulative returns are computed assuming the
reinvestment of dividends at the frequency with which dividends
were paid during the applicable years.
28
Total
Return Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
Index
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
Intermountain Community Bancorp
|
|
|
$
|
100
|
|
|
|
$
|
197
|
|
|
|
$
|
275
|
|
|
|
$
|
256
|
|
|
|
$
|
396
|
|
|
|
$
|
272
|
|
|
SNL Index
|
|
|
|
100
|
|
|
|
|
141
|
|
|
|
|
157
|
|
|
|
|
159
|
|
|
|
|
178
|
|
|
|
|
139
|
|
|
Russell 2000
|
|
|
|
100
|
|
|
|
|
145
|
|
|
|
|
170
|
|
|
|
|
176
|
|
|
|
|
206
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 6.
|
SELECTED
FINANCIAL DATA
|
The following selected financial data (in thousands except per
share data) of the Company is derived from the Companys
historical audited consolidated financial statements and related
footnotes. The information set forth below should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and
29
Results of Operations and the consolidated financial
statements and related footnotes contained elsewhere in this
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, (2)
|
|
|
|
2007(1)(5)
|
|
|
2006(1)(5)
|
|
|
2005(1)
|
|
|
2004(1)
|
|
|
2003
|
|
|
STATEMENTS OF INCOME DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
72,858
|
|
|
$
|
59,580
|
|
|
$
|
41,648
|
|
|
$
|
25,355
|
|
|
$
|
20,983
|
|
Total interest expense
|
|
|
(26,337
|
)
|
|
|
(17,533
|
)
|
|
|
(10,717
|
)
|
|
|
(5,712
|
)
|
|
|
(4,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
46,521
|
|
|
|
42,047
|
|
|
|
30,931
|
|
|
|
19,643
|
|
|
|
16,013
|
|
Provision for loan losses
|
|
|
(3,896
|
)
|
|
|
(2,148
|
)
|
|
|
(2,229
|
)
|
|
|
(1,438
|
)
|
|
|
(955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for losses on loans
|
|
|
42,625
|
|
|
|
39,899
|
|
|
|
28,702
|
|
|
|
18,205
|
|
|
|
15,058
|
|
Total other income
|
|
|
13,199
|
|
|
|
10,838
|
|
|
|
9,620
|
|
|
|
7,197
|
|
|
|
5,985
|
|
Total other expense
|
|
|
(40,926
|
)
|
|
|
(35,960
|
)
|
|
|
(26,532
|
)
|
|
|
(18,884
|
)
|
|
|
(15,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
14,898
|
|
|
|
14,777
|
|
|
|
11,790
|
|
|
|
6,518
|
|
|
|
5,567
|
|
Income taxes
|
|
|
(5,453
|
)
|
|
|
(5,575
|
)
|
|
|
(4,308
|
)
|
|
|
(2,172
|
)
|
|
|
(1,906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,445
|
|
|
$
|
9,202
|
|
|
$
|
7,482
|
|
|
$
|
4,346
|
|
|
$
|
3,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.15
|
|
|
$
|
1.15
|
|
|
$
|
1.06
|
|
|
$
|
0.73
|
|
|
$
|
0.64
|
|
Diluted
|
|
$
|
1.10
|
|
|
$
|
1.07
|
|
|
$
|
0.97
|
|
|
$
|
0.66
|
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
8,206
|
|
|
|
8,035
|
|
|
|
7,078
|
|
|
|
5,991
|
|
|
|
5,730
|
|
Diluted
|
|
|
8,605
|
|
|
|
8,586
|
|
|
|
7,684
|
|
|
|
6,604
|
|
|
|
6,154
|
|
Cash dividends per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, (2)
|
|
|
|
2007(1)
|
|
|
2006(1)
|
|
|
2005(1)
|
|
|
2004(1)
|
|
|
2003
|
|
|
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,048,659
|
|
|
$
|
920,348
|
|
|
$
|
734,099
|
|
|
$
|
597,680
|
|
|
$
|
409,760
|
|
Net loans(4)
|
|
|
756,549
|
|
|
|
664,885
|
|
|
|
555,453
|
|
|
|
418,660
|
|
|
|
287,256
|
|
Deposits
|
|
|
757,838
|
|
|
|
693,686
|
|
|
|
597,519
|
|
|
|
500,923
|
|
|
|
344,866
|
|
Securities sold subject to repurchase agreements
|
|
|
124,127
|
|
|
|
106,250
|
|
|
|
37,799
|
|
|
|
20,901
|
|
|
|
17,156
|
|
Advances from Federal Home Loan Bank
|
|
|
29,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
Other borrowings
|
|
|
36,998
|
|
|
|
22,602
|
|
|
|
16,527
|
|
|
|
16,527
|
|
|
|
8,279
|
|
Shareholders equity
|
|
|
90,119
|
|
|
|
78,080
|
|
|
|
64,273
|
|
|
|
44,564
|
|
|
|
27,078
|
|
|
|
|
(1) |
|
Comparability is affected by the acquisition of Snake River
Bancorp in November 2004 and a branch in 2003. |
|
(2) |
|
Certain prior period amounts have been reclassified to conform
to the current periods presentation. |
|
(3) |
|
Earnings per share and weighted average shares outstanding have
been adjusted retroactively for the effect of stock splits and
dividends, including the 10% common stock dividend effective
May 31, 2007 |
|
(4) |
|
Net loans receivable have been adjusted for 2006 and 2005 to
move the allowance for unfunded commitments from the allowance
for loan loss, a component of net loans, to other liabilities. |
|
(5) |
|
Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment, was adopted as of January 1,
2006. During 2007 and 2006, stock based compensation expense was
$486,000 and $848,000, respectively. |
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Key Financial Ratios
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Return on Average Assets
|
|
|
0.96
|
%
|
|
|
1.13
|
%
|
|
|
1.11
|
%
|
Return on Average Equity
|
|
|
11.30
|
%
|
|
|
12.90
|
%
|
|
|
14.80
|
%
|
Average Equity to Average Assets
|
|
|
8.50
|
%
|
|
|
8.76
|
%
|
|
|
7.53
|
%
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion and analysis should be read in
conjunction with the Consolidated Financial Statements and Notes
thereto presented elsewhere in this report. This report contains
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. For a discussion of
the risks and uncertainties inherent in such statements, see
Business Forward-Looking Statements.
Overview
The Company operates a multi-branch banking system and is
executing plans for the formation and acquisition of banks and
bank branches that can operate under a decentralized community
bank structure. Based on opportunities available in the future,
the Company plans expansion in markets generally located within
the states where it currently operates or in contiguous states,
including Idaho, Oregon, Washington and Montana, or in other
areas that may provide significant opportunity for targeted
customer growth. The Company is pursuing a balance of asset and
earnings growth by focusing on increasing its market share in
its present locations, expanding services sold to existing
customers, building new branches and merging
and/or
acquiring community banks that fit closely with the Banks
strategic direction.
The Company continues to make significant investments in human
resources and technology to support its growth initiatives.
Asset growth is expected to keep pace or exceed earnings growth
over the next several years while the Company pursues its
expansion and customer acquisition goals. Further, the Company
continues to leverage its capital which, in addition to retained
earnings, has been supplemented by two trust preferred
debentures totaling approximately $16.5 million, and a
$12.0 million common stock offering in December 2005, both
executed in anticipation of expansion into new markets.
Management and the Board of Directors remain committed to
building a decentralized community banking organization and
further increasing the level of service we provide our targeted
customers and our communities. Our strategic plan calls for a
balanced yet aggressive set of asset growth and shareholder
return goals. We expect to achieve these goals by employing
experienced, knowledgeable and dedicated people and supporting
them with strong technology and training.
In September 2006, the Company acquired a small investment
company with which it had maintained a close relationship for
many years, and subsequently renamed the department,
Intermountain Community Investment Services (ICI).
This acquisition allows the Company to offer non-FDIC insured
investment alternatives to its customers, including mutual
funds, insurance, brokerage services and annuities.
In June 2005, the Company entered the Washington State market by
opening a branch in Spokane Valley, Washington. This branch
allowed the Company to enter into the eastern Washington banking
market and to also better serve its existing customer base. It
added a downtown Spokane location in April 2006 after the Bank
was able to attract a seasoned team of commercial and private
bankers. The Company now offers full service banking and
residential and commercial lending from its Spokane Valley
branch and Spokane downtown offices, which it operates under the
name of Intermountain Community Bank Washington. In
August 2007, the Spokane Valley branch was moved to a larger
facility in a growing small business and retail area. It now
also houses a mortgage loan center and some administrative
offices.
In March 2006, the Company opened a branch in Kellogg, Idaho
under the Panhandle State Bank name. In April 2006, the Company
opened a branch in Fruitland, Idaho which operates as
Intermountain Community Bank. In April 2006, the Company also
opened a Trust & Wealth Management division, and began
offering these services to its customers. In September 2006, the
Company opened a second branch in Twin Falls, Idaho, which
operates as
31
Magic Valley Bank. These new branches and divisions allowed the
Company to expand geographically and better serve its existing
customer base.
In 2005, the Company relocated the Coeur dAlene branch and
administrative office to a combined administrative and branch
office building located on Neider Avenue between Highway 95 and
Government Way in Coeur dAlene. This facility serves as
our primary Coeur dAlene office and accommodates the Home
Loan Center, our centralized real estate mortgage processing
department, various administrative support departments and our
SBA Loan Production Center. The SBA center was initiated in 2003
to enhance the service, delivery and efficiency of the Small
Business Administration lending process.
In August 2006, the Company began construction of a
94,000 square foot financial and technical center office
building in Sandpoint, Idaho. The Company plans to relocate both
its Sandpoint main branch and headquarters to this building,
with the Company occupying approximately 47,000 square
feet. Pending regulatory approval, the Company anticipates
moving into the facility during the second quarter of 2008.
The Company will continue its focus on expanding market share of
targeted customers in its existing markets, and entering new
markets in which it can attract and retain strong employees. It
will also look for opportunities to acquire other community
banks that believe in the strategy of community banking and
desire to build on the Companys culture, employee capital,
technology and operational efficiency. Based on the June 2007
FDIC survey of banking institutions, the Company is the market
share leader in deposits in five of the eleven counties in which
it operates, and has experienced share growth in virtually all
of its markets over the past year.
2007 represented a challenging year for the banking
industry, as slowing economic growth combined with rising loan
defaults, particularly in the real estate sector, to place
pressure on bank earnings. Large banking institutions were also
hurt by significant investment exposure to sub-prime and similar
collateralized debt obligations. As delinquencies in the
collateral underlying these investments increased and investors
pulled money from the market, many large commercial and
investment banks experienced significant write-downs.
While smaller banks did not generally have direct exposure to
the subprime market, the effects of the subprime meltdown
increased pressure on their local real estate loans, causing
rising defaults and chargeoffs. As the Fed sought to control the
situation by adding liquidity and lowering interest rates in the
latter half of the year, many smaller banks also faced
compression in their net interest margin, as they were unable to
reprice liabilities as quickly as assets were repricing.
Worsening economic and real estate conditions are likely in
2008, as the US economy continues to struggle with slower
growth, a weak dollar, and higher inflation, particularly in gas
and food prices, With this backdrop, the Federal Reserve is
likely to continue to push short-term market rates down to spur
higher economic growth.
The northwest economy in which the Company operates held up
better than much of the rest of the nation in 2007, and is
likely to do so again in 2008. Relatively strong exports,
continued in-migration and lower-cost, business-friendly
governments may help bolster these markets against some of the
national difficulties. Still, the northwest economy is likely to
feel the impacts in terms of slowing growth and rising prices.
In this environment, the most significant perceived risks to the
Company are credit quality, interest rate risk,
operational/execution risk, and human resources risk. Poor
credit quality can create significant earnings, capital and
liquidity pressures more quickly than other types of risk faced
by the Bank. During 2007, the financial stability of the
Companys customers weakened in response to the weakening
national economy, although our local markets generally held up
better.. Total loans receivable in 2007 increased 13.9% while
our net loan charge-off rate increased to 0.26% of total loans
from 0.06% in 2006. Non-accrual loans increased approximately
$4.4 million in 2007 to 0.74% of total loans. Loan
delinquencies over
30-days at
fiscal year end 2007 increased to 0.40% at December 31,
2007 from 0.24% at December 31, 2006. The delinquency
ratios reflected strong collection efforts by the Companys
officers, and trended with the increased non-accrual and loss
percentages. Softening credit conditions and particularly a
slowdown in the real estate sector of the economy placed
additional pressure on the loan portfolio during 2007. The
economic environment is expected to deteriorate further in 2008,
creating more risk in the loan portfolio. Management is
responding by actively managing its underwriting, monitoring and
collection efforts.
32
Interest rate risk for the Company can create earnings and
liquidity pressure as market rate changes may adversely impact
net interest income and net earnings. To address this risk,
management closely monitors changing market rate conditions and
bank portfolios and responds accordingly through both portfolio
mix and pricing decisions. In addition, the Company engages in
certain hedging activities to protect itself against changes in
market rates. Market rates were inverted through much of 2007,
meaning that short-term rates were higher than longer-term
rates. In this environment, it became more difficult to maintain
the Companys net interest margin, because deposits
continued to reprice upward as loan rates remained static. In
the latter half of 2007 and early 2008, the Federal Reserve
aggressively cut short-term target rates, leading to a
significant decline in overall short-term market rates,
including the Banks prime lending rate. These movements
are anticipated to create additional pressure on the
Companys net interest margin, as loans reprice down more
quickly than its deposit portfolio. Management anticipated these
movements, and responded by repricing its deposit portfolio
down, aggressively seeking lower-cost funding sources, including
non-interest and low-interest bearing deposits, and engaging in
additional hedging transactions to offset declining asset
yields. The Company also actively employs a customer
profitability system and pricing model to ensure that loans and
deposits are priced appropriately.
The growth in the Bank has increased the risk of operational
problems. These are being addressed through the recruitment and
hiring of additional experienced staff in key administrative
support positions, significant increases in our training budget
and programs, implementation of new monitoring and control
technology and the expansion of our internal compliance and
audit staff.
In addressing human resources risk, management focuses a great
deal of its efforts on developing a culture that promotes,
retains and attracts high quality individuals. Our compensation
and reward systems contribute directly to maintaining and
enhancing this culture, and we encourage strong participation
among all employees in establishing and implementing the
banks business plans.
Management believes that its efforts in managing these and other
risks have been successful, but that continued diligence is
required.
To summarize the Companys financial performance in 2007,
net income increased 2.6% over 2006 while assets increased 14.0%
over the same time period. The Company realized record net
income of $9.4 million or $1.10 per share (diluted). This
is a 2.8% increase in diluted earnings per share over the 2006
figure of $1.07 per share (diluted). Return on average equity
(ROAE) and return on average assets (ROAA), common measures of
bank performance, totaled 11.3% and 0.96%, respectively,
compared to 12.9% and 1.13% in 2006. Assets increased at a
stronger pace than net income in 2007, which resulted in the
decrease in ROAA for the year ended December 31, 2006. Net
income increased only slightly in 2007, while equity increased
due to the retention of net income and the reversal of an
unrealized loss to an unrealized gain position on the investment
portfolio.
In 2005 the Company successfully raised $12 million in
equity capital through a common stock offering. In this common
stock offering, the Company issued 705,882 common shares and
added $11.9 million to stockholders equity. Other equity
events over the past few years include 10% common stock
dividends effective May 31, 2007, and May 31, 2006,
and a
3-for-2
stock split effective March 10, 2005. All per-share data
computations are calculated after giving retroactive effect to
stock dividends and stock splits.
Total assets reached $1.05 billion, a 14.0% increase from
$920.3 million at December 31, 2006. Net loans
experienced 13.8% growth to $756.5 million at
December 31, 2007 from $664.9 million at the end of
2006. Total deposits grew from $693.7 million to
$757.8 million during 2007, representing a 9.3% increase.
Both loans receivable and deposit growth reflect strong organic
growth in the Banks existing markets, as well as
increasing contributions from the newer markets. Growth over the
past four years has been largely driven by the Companys
continued commitment to attracting, motivating and retaining
high quality employees, maintaining high levels of customer
service and community involvement, pursuing an aggressive branch
expansion and acquisition plan and successful face-to-face
business development efforts.
The Companys net interest margin for the year ended
December 31, 2007 was 5.21%, as compared to 5.66% for 2006
and 5.01% for 2005. A volatile interest rate environment, in
which interest rates on interest-costing liabilities generally
rose more than on interest earning assets during 2007 created
the decrease in the Companys margin in 2007.
33
Results
of Operations
Net
Interest Income
The following table provides information on net interest income
for the past three years, setting forth average balances of
interest-earning assets and interest-bearing liabilities, the
interest income earned and interest expense recorded thereon and
the resulting average yield-cost ratios.
Average
Balance Sheets and Analysis of Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2007
|
|
|
|
Average
|
|
|
Interest Income/
|
|
|
Average
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
Loans receivable, net(1)
|
|
$
|
742,310
|
|
|
$
|
65,362
|
|
|
|
8.81
|
%
|
Securities(2)
|
|
|
133,275
|
|
|
|
6,585
|
|
|
|
4.93
|
|
Federal funds sold
|
|
|
17,631
|
|
|
|
911
|
|
|
|
5.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
893,216
|
|
|
|
72,858
|
|
|
|
8.16
|
|
Cash and cash equivalents
|
|
|
21,690
|
|
|
|
|
|
|
|
|
|
Office properties and equipment, net
|
|
|
32,734
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
19,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
966,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits of $100,000 or more
|
|
$
|
91,960
|
|
|
$
|
4,467
|
|
|
|
4.86
|
%
|
Other interest-bearing deposits
|
|
|
488,075
|
|
|
|
14,302
|
|
|
|
2.93
|
|
Short-term borrowings
|
|
|
96,563
|
|
|
|
3,498
|
|
|
|
3.62
|
|
Other borrowed funds
|
|
|
50,961
|
|
|
|
4,070
|
|
|
|
7.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
727,559
|
|
|
|
26,337
|
|
|
|
3.62
|
%
|
Noninterest-bearing deposits
|
|
|
148,586
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
7,066
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
83,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
966,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
46,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
5.21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Average
Balance Sheets and Analysis of Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2006
|
|
|
|
Average
|
|
|
Interest Income/
|
|
|
Average
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
Loans receivable, net(1)
|
|
$
|
623,861
|
|
|
$
|
54,393
|
|
|
|
8.72
|
%
|
Securities(2)
|
|
|
101,896
|
|
|
|
4,378
|
|
|
|
4.30
|
|
Federal funds sold
|
|
|
16,880
|
|
|
|
809
|
|
|
|
4.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
742,637
|
|
|
|
59,580
|
|
|
|
8.02
|
%
|
Cash and cash equivalents
|
|
|
21,729
|
|
|
|
|
|
|
|
|
|
Office properties and equipment, net
|
|
|
19,523
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
21,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
805,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits of $100,000 or more
|
|
$
|
92,933
|
|
|
$
|
3,997
|
|
|
|
4.30
|
%
|
Other interest-bearing deposits
|
|
|
412,009
|
|
|
|
9,195
|
|
|
|
2.23
|
|
Short-term borrowings
|
|
|
48,086
|
|
|
|
2,109
|
|
|
|
4.39
|
|
Other borrowed funds
|
|
|
36,718
|
|
|
|
2,232
|
|
|
|
6.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
589,746
|
|
|
|
17,533
|
|
|
|
2.97
|
%
|
Noninterest-bearing deposits
|
|
|
133,052
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
11,478
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
71,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
805,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
42,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
5.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Average
Balance Sheets and Analysis of Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2005
|
|
|
|
Average
|
|
|
Interest Income/
|
|
|
Average
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
Loans receivable, net(1)
|
|
$
|
505,701
|
|
|
$
|
37,897
|
|
|
|
7.49
|
%
|
Securities(2)
|
|
|
108,620
|
|
|
|
3,672
|
|
|
|
3.38
|
|
Federal funds sold
|
|
|
2,790
|
|
|
|
79
|
|
|
|
2.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
$
|
617,111
|
|
|
$
|
41,648
|
|
|
|
6.75
|
%
|
Cash and cash equivalents
|
|
|
21,730
|
|
|
|
|
|
|
|
|
|
Office property and equipment, net
|
|
|
14,869
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
18,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
672,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits of $100,000 or more
|
|
$
|
83,175
|
|
|
$
|
2,842
|
|
|
|
3.42
|
%
|
Other interest-bearing deposits
|
|
|
345,309
|
|
|
|
5,408
|
|
|
|
1.57
|
|
Short term borrowings
|
|
|
42,407
|
|
|
|
1,290
|
|
|
|
3.04
|
|
Other borrowed funds
|
|
|
21,527
|
|
|
|
1,177
|
|
|
|
5.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
492,418
|
|
|
|
10,717
|
|
|
|
2.18
|
%
|
Noninterest-bearing deposits
|
|
|
119,831
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
9,747
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
50,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
672,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
30,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
5.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Non-accrual loans are included in the average balance, but
interest on such loans is not recognized in interest income. |
|
(2) |
|
Municipal interest income is not tax equalized, and represents a
small portion of total interest income. |
The following rate/volume analysis depicts the increase
(decrease) in net interest income attributable to
(1) interest rate fluctuations (change in rate multiplied
by prior period average balance), (2) volume fluctuations
(change in average balance multiplied by prior period rate) and
(3) volume/rate (changes in rate multiplied by changes in
volume) when compared to the preceding year.
Changes
Due to Volume and Rate 2007 versus 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Volume/Rate
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Loans receivable, net
|
|
$
|
10,327
|
|
|
$
|
539
|
|
|
$
|
103
|
|
|
$
|
10,969
|
|
Securities
|
|
|
1,357
|
|
|
|
648
|
|
|
|
202
|
|
|
|
2,207
|
|
Federal funds sold
|
|
|
26
|
|
|
|
74
|
|
|
|
2
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
11,710
|
|
|
|
1,261
|
|
|
|
307
|
|
|
|
13,278
|
|
Time deposits of $100,000 or more
|
|
|
(42
|
)
|
|
|
517
|
|
|
|
(5
|
)
|
|
|
470
|
|
Other interest-earning deposits
|
|
|
1,698
|
|
|
|
2,878
|
|
|
|
531
|
|
|
|
5,107
|
|
Borrowings
|
|
|
3,068
|
|
|
|
334
|
|
|
|
(175
|
)
|
|
|
3,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
4,724
|
|
|
|
3,729
|
|
|
|
351
|
|
|
|
8,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
6,986
|
|
|
$
|
(2,468
|
)
|
|
$
|
(44
|
)
|
|
$
|
4,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Changes
Due to Volume and Rate 2006 versus 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Volume/Rate
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Loans receivable, net
|
|
$
|
8,855
|
|
|
$
|
6,194
|
|
|
$
|
1,447
|
|
|
$
|
16,496
|
|
Securities
|
|
|
(227
|
)
|
|
|
995
|
|
|
|
(62
|
)
|
|
|
706
|
|
Federal funds sold
|
|
|
399
|
|
|
|
55
|
|
|
|
276
|
|
|
|
730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
9,027
|
|
|
|
7,244
|
|
|
|
1,661
|
|
|
|
17,932
|
|
Time deposits of $100,000 or more
|
|
|
333
|
|
|
|
735
|
|
|
|
87
|
|
|
|
1,155
|
|
Other interest-bearing deposits
|
|
|
1,045
|
|
|
|
2,298
|
|
|
|
444
|
|
|
|
3,787
|
|
Borrowings
|
|
|
1,004
|
|
|
|
737
|
|
|
|
133
|
|
|
|
1,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
2,382
|
|
|
|
3,770
|
|
|
|
664
|
|
|
|
6,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
6,645
|
|
|
$
|
3,474
|
|
|
$
|
997
|
|
|
$
|
11,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income 2007 Compared to 2006
The Companys net interest income increased to
$46.5 million in 2007 from $42.0 million in 2006. The
net interest income increase attributable to volume increases
was a favorable $7.0 million over 2006 as average interest
earning assets increased by $150.6 million and average
interest costing liabilities increased by $137.8 million.
During 2007, interest rates increased both on the interest
earning assets and interest costing liabilities; however, rates
increased more significantly on the liability side than the
assets. This created a $2.5 million decrease attributable
to rate variances. The separate volume and rate changes along
with a $44,000 decrease due to the interplay between rate and
volume factors created a $4.5 million overall increase in
net interest income for 2007.
The yield on interest-earning assets increased 0.14% in 2007
from 2006, while the cost of interest-bearing liabilities
increased 0.65% during the same period. At 0.09%, the loan yield
increase was relatively modest over the prior year. The prime
lending rate was stable during the first half of 2007, but was
generally higher than during 2006. However, it dropped by 1.00%
during the final four months of the year, resulting in a
relatively small annual increase in the overall average loan
yield. Approximately 64% of the Banks loan portfolio is
variable rate, so it responds relatively quickly to both rising
and falling market rates. The Bank sought to moderate this
impact by increasing the higher yielding commercial loan
component of its loan portfolio and emphasizing more fixed rate
loans in 2007.
The investment securities portfolio experienced an increase in
yield of 0.63% as the Company extended the duration of its
investment portfolio and bought higher-yielding securities to
increase yield and offset some of the volatility in the loan
portfolio yield.
The volatile interest rate environment also impacted the
Companys interest-bearing liability costs. During the
first eight months of 2007, market rates stabilized and deposit
costs generally rose in response to market rate increases in
2006. Over the final four months, market rates dropped
significantly and liability costs began to decline, but at a
slower rate than market rate and asset yield declines. As a
result, the overall cost of interest-bearing liabilities
increased by 0.65% during the year.
Net
Interest Income 2006 Compared to 2005
The Companys net interest income increased to
$42.0 million in 2006 from $30.9 million in 2005. The
net interest income increase attributable to volume increases
was a favorable $6.6 million over 2005 as interest earning
assets increased by $125.5 million and interest costing
liabilities increased by $110.4 million. During 2006,
interest rates increased both on the interest earning assets and
interest costing liabilities; however, rates increased more
significantly on the asset side than the liabilities. This
created a $3.5 million increase attributable to rate
variances. The separate volume and rate increases along with a
$957,000 increase due to the interplay between rate and volume
factors created an $11.1 million overall increase in net
interest income for 2006.
37
The yield on interest-earning assets increased 1.27% in 2006
versus 2005. The cost of interest-bearing liabilities increased
0.79%. The loan yield increase of 1.23% represented the largest
combined impact to net yield. The increase by 1.00% in the prime
lending rate during 2006 directly affected the Banks
variable rate loan portfolio, which comprised approximately 63%
of the total loan portfolio at December 31, 2006. The Bank
has increased the higher yielding commercial loan component of
the loan portfolio, which contributed to the increase in loan
yield. The investment securities portfolio experienced an
increase in yield of 0.92% as the Company swapped a number of
lower yielding investment securities for higher yielding ones
during the year. The yield on federal funds sold rose during
2006 by 1.96%, which is in line with the short-term investment
market. The increases in earning asset yields were partially
offset by increases in the cost of interest-bearing sources of
funding. The cost of other borrowings increased by 1.32% as the
Bank partially funded loan and other asset growth with
borrowings. This represented the most drastic rate change from
2005. The cost of interest bearing deposits increased 0.66% as
the Bank raised interest rates on small certificate of deposits
and money market accounts in a rising interest rate environment.
The Company was generally asset-sensitive in 2006, resulting in
improved net interest income during the year, as its earning
assets repriced more quickly and to a higher degree than its
interest costing liabilities.
Provision
for Loan Losses
Management continually evaluates allowances for estimated loan
losses and based on this evaluation, charges a corresponding
provision against income. While the Bank generally maintained
its sound credit quality position in 2007, the softening economy
and real estate downturn impacted its results. The allowance for
loan losses as a percentage of total loans receivable was 1.53%
at December 31, 2007 and 1.46% at December 31, 2006.
The provision for loan losses increased from $2.1 million
in 2006 to $3.9 million in 2007. Net chargeoffs in 2007
totaled $2.0 million versus only $347 thousand in 2006.
Much of the additional net chargeoff volume consisted of
write-downs on non-performing construction and land loans to
lowered collateral values, as the Company reevaluated its
collateral positions on its real estate portfolio. At
December 31, 2007, the total allowance for loan losses was
$11.8 million compared to $9.8 million at the end of
the prior year.
With the strong growth in the loan portfolio and its
concentration in real estate loans, management continues to
focus on enhancing its credit quality efforts by recruiting
individuals with strong credit experience, providing additional
training for our lending officers, and refining its credit
approval, management and review process. During the year, the
company also credit-shocked its real estate portfolio and
revised its method of calculating its loan loss allowance, in
line with new bank regulatory guidance issued in early 2007. The
credit shock testing provided management with better information
about the potential impact of different economic scenarios on
the Companys real estate loan portfolio. The ALLL
methodology change provides more detailed and granular
information to management in its consideration of appropriate
allowance levels. While both national and local credit markets
experienced a downturn, the local economy remains relatively
stable. Given local credit conditions and the stability of the
banks loan portfolio, management believes that the loan
loss allowance is adequate at December 31, 2007.
Other
Income
The following table details dollar amount and percentage changes
of certain categories of other income for the three years ended
December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
% of
|
|
|
Change
|
|
|
2006
|
|
|
% of
|
|
|
Change
|
|
|
2005
|
|
|
% of
|
|
Other Income
|
|
Amount
|
|
|
Total
|
|
|
Prev. Yr
|
|
|
Amount
|
|
|
Total
|
|
|
Prev. Yr.
|
|
|
Amount
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Fees and service charges
|
|
$
|
8,646
|
|
|
|
65
|
%
|
|
|
29
|
%
|
|
$
|
6,726
|
|
|
|
62
|
%
|
|
|
17
|
%
|
|
$
|
5,754
|
|
|
|
60
|
%
|
Mortgage Banking Operations
|
|
|
2,749
|
|
|
|
21
|
|
|
|
(17
|
)
|
|
|
3,300
|
|
|
|
30
|
|
|
|
37
|
|
|
|
2,411
|
|
|
|
25
|
|
BOLI income
|
|
|
314
|
|
|
|
2
|
|
|
|
3
|
|
|
|
305
|
|
|
|
3
|
|
|
|
2
|
|
|
|
300
|
|
|
|
3
|
|
Net gain (loss) on sale of securities
|
|
|
(38
|
)
|
|
|
0
|
|
|
|
(96
|
)
|
|
|
(987
|
)
|
|
|
(9
|
)
|
|
|
2,195
|
|
|
|
(43
|
)
|
|
|
0
|
|
Other income
|
|
|
1,528
|
|
|
|
12
|
|
|
|
2
|
|
|
|
1,494
|
|
|
|
14
|
|
|
|
25
|
|
|
|
1,198
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,199
|
|
|
|
100
|
%
|
|
|
22
|
%
|
|
$
|
10,838
|
|
|
|
100
|
%
|
|
|
13
|
%
|
|
$
|
9,620
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
Fees earned from loans sold and a variety of fees and service
charges earned on deposit accounts continue to be the
Banks primary sources of other income. Fees and service
charges increased significantly during 2007 as a result of
increasing investment, trust, debit card and business services
income during the year. The Trust division, established in 2006,
picked up customer volume and grew to approximately
$48.5 million in assets under management at the end of
2007. Intermountain Community Investments, purchased in
September 2006, had a strong year in 2007, contributing over
$700,000 in fee income, and debit card activity expanded rapidly
as customers continued to migrate to electronic banking.
Increasing customer accounts, pricing changes on some services
and stronger cross-selling activity also contributed to the
improvement. The Company expects further growth in income from
all of these sources in 2008 and future years.
Mortgage banking income, which had been expanding rapidly in
prior years, slowed in 2007 as a result of the downturn in the
real estate economy. 2008 is likely to remain a slow year, as
residential real estate activity continues to soften. BOLI
income reflected slightly higher yields in the BOLI portfolio,
while the net loss on securities decreased significantly. In
2006, the Company swapped some very low-yielding securities
resulting in a significant loss, which was not repeated in 2007.
The yield pickup from this investment swap offset the loss taken
within nine months of the swap date. The other income
subcategory largely consists of fees earned on the
Companys contract to provide deposit accounts used to
secure credit card portfolios. This program continued to expand
volumes during the year, but at a slower pace than prior years,
as national credit card activity slowed in 2007. The Company
forecasts continued growth in this contract income, but at
slower rates as the slower economy begins to weigh on credit
card borrowing.
Overall, the Bank continues to rank near the top of its peer
group in terms of other income as a percentage of average
assets. To maintain this position and expand the percentage of
revenue contributed by non-interest income, the Company will
continue to aggressively seek account growth in its local
markets, adjust pricing, cross-sell its investment, trust and
business solutions, and seek further opportunities to diversify
its non-interest income sources.
Operating
Expenses
The following table details dollar amount and percentage changes
of certain categories of other expense for the three years ended
December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
% of
|
|
|
Prev.
|
|
|
2006
|
|
|
% of
|
|
|
Prev.
|
|
|
2005
|
|
|
% of
|
|
Other Expense
|
|
Amount
|
|
|
Total
|
|
|
Yr.
|
|
|
Amount
|
|
|
Total
|
|
|
Yr.
|
|
|
Amount
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Salaries and employee benefits
|
|
$
|
25,394
|
|
|
|
62
|
%
|
|
|
16
|
%
|
|
$
|
21,859
|
|
|
|
61
|
%
|
|
|
42
|
%
|
|
$
|
15,356
|
|
|
|
58
|
%
|
Occupancy expense
|
|
|
6,089
|
|
|
|
15
|
|
|
|
27
|
|
|
|
4,789
|
|
|
|
13
|
|
|
|
22
|
|
|
|
3,927
|
|
|
|
15
|
|
Advertising
|
|
|
1,330
|
|
|
|
3
|
|
|
|
13
|
|
|
|
1,172
|
|
|
|
3
|
|
|
|
53
|
|
|
|
767
|
|
|
|
3
|
|
Fees and service charges
|
|
|
1,404
|
|
|
|
4
|
|
|
|
18
|
|
|
|
1,193
|
|
|
|
4
|
|
|
|
22
|
|
|
|
974
|
|
|
|
3
|
|
Printing, postage and supplies
|
|
|
1,466
|
|
|
|
4
|
|
|
|
3
|
|
|
|
1,430
|
|
|
|
4
|
|
|
|
14
|
|
|
|
1,257
|
|
|
|
5
|
|
Legal and accounting
|
|
|
1,377
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
1,418
|
|
|
|
4
|
|
|
|
23
|
|
|
|
1,153
|
|
|
|
4
|
|
Other expense
|
|
|
3,866
|
|
|
|
9
|
|
|
|
(6
|
)
|
|
|
4,099
|
|
|
|
11
|
|
|
|
32
|
|
|
|
3,098
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40,926
|
|
|
|
100
|
%
|
|
|
14
|
%
|
|
$
|
35,960
|
|
|
|
100
|
%
|
|
|
36
|
%
|
|
$
|
26,532
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Similar to 2006 and 2005, salaries and employee benefits
continued to be the majority of non-interest expense in 2007.
The pace of growth in salaries and employee benefits expense
slowed significantly in 2007, as compared to 2006 and 2005 as
the Company did not expand into new markets or open new branches
during the year.
The number of full-time equivalent employees (FTE) at the Bank
grew in 2007, but at a slower pace than prior years. The Company
added 35 net FTE in 2007, an 8% increase, versus 83, a 25%
increase in 2006. The 2007 FTE growth resulted from expanding
existing branches and increasing administrative staff to support
growth and comply with increasing regulatory requirements. This
increase in FTE, along with normal
cost-of-living
and promotional increases added approximately $3.5 million
to salary and benefits expense during the year. The banks
incentive plans, driven by a combination of asset growth, net
income and return on equity, paid at a lower rate as the
39
Companys asset and income growth slowed and the return on
equity worsened. Recruitment costs totaled $219 thousand in
2007, down from $604,000 the year before. Stock based
compensation expense decreased to $486,000 in 2007 from $848,000
in 2006. Prior to the adoption of FAS123 (R) stock based
compensation expense in 2005 totaled $79,000. Benefits costs
continued to rise, however as health insurance premiums
increased.
As the economy shifts, the Company expects to further stabilize
its staffing levels in 2008 and pursue its short-term objectives
through the retention and motivation of its existing
high-quality staff. The rate of personnel expense growth is
expected to decline further as the company implements cost
saving strategies, including revising business processes to more
effectively utilize existing bank staff. However, benefits
expenses are expected to increase at a rate higher than salary
expenses as health insurance premiums continue to rise.
The 2006 personnel expense and FTE growth resulted from
expanding existing branches and opening new branches in
Fruitland, Kellogg, Twin Falls and downtown Spokane during the
year. In addition, the Company established the Trust and Wealth
Management division, purchased Intermountain Community
Investments, and added administrative staff to support the
company growth and comply with increased regulatory requirements
related to lending compliance, the US Patriot Act and the
Sarbanes Oxley Act. The 2006 increase also reflects introduction
of new incentive compensation plans and changes in accounting
for stock option expense resulting from the introduction of
FAS123 (R), which required the expensing of stock options for
the first time in 2006.
Consistent with the Companys growth strategy, occupancy
and equipment expense grew significantly in 2007 and 2006. The
expense increase was primarily caused by the full-year effect of
operational costs of the branches and divisions opened in 2006.
It also reflects increasing technology expense, as the Bank
continues to improve its infrastructure to support growth,
security and product development initiatives. This expense is
anticipated to increase again in 2008 as the Company completes
and moves into the Sandpoint Center, but it will mitigate some
of this impact by reducing its lease expense and implementing
cost saving measures in other areas.
Public relations and advertising expense totaled
$1.3 million for 2007, a 13% increase over the
$1.2 million expense in 2006. Continued market development,
the need to market in more geographic areas and new target
marketing initiatives caused the increases over 2006 and 2005.
Management expects costs to remain stable in this category in
2008 as the Bank anticipates improving the efficiency of its
marketing efforts during the year.
The increase in fees and service charges during 2007 was caused
primarily by increasing volumes of business and the entry into
new product lines where third party vendors were required. In
addition, the Bank chose to pay service fees to its
correspondent banks and sweep balances into interest-bearing
accounts, rather than maintaining sufficient balances in
non-interest bearing accounts to offset correspondent banking
fees. We expect moderation in this area, as efficiencies allow
us to spread our vendor costs, and new technology initiatives
reduce some of our volume-related expenses. Printing, postage
and supplies remained stable from 2006 to 2007 as the Company
controlled costs in this area. It is expected that this expense
will remain stable in 2008.
Legal and accounting expense decreased in 2007 as the Company
reduced expenditures on Sarbanes Oxley compliance and legal fees
on the collection of problem loans. In 2006, the Company
incurred substantial additional accounting expense to comply
with the requirements of Section 404 of Sarbanes Oxley for
the first time, as well as other new accounting regulations. The
Company also incurred significant legal expense to collect a
large loan in southern Idaho, some of which is anticipated to be
recovered in 2008. It is anticipated that legal and accounting
expense will moderate in 2008, but at a slower pace as the
Company continues its compliance with Sarbanes Oxley and other
legal, regulatory and accounting pronouncements.
Other expenses decreased in 2007, as the Company trimmed
expenses in training, travel, professional consulting,
telecommunications and other operational expenses during the
year. It also experienced lower operational losses than in the
prior year. This category is expected to be stable for 2008, as
the Company continues to focus on cost-saving initiatives.
Cost management is a more critical priority for management in
2008, as the economy slows and credit losses potentially
increase. While 2006 presented unique growth opportunities and
challenges, management began actively targeting higher
efficiency as a significant goal in 2007 and expects to continue
this focus in 2008. It will seek to leverage the investments
made over the past couple years in personnel, compensation
systems, fixed assets, training and marketing expenses to
generate additional growth without corresponding increases in
these expenses.
40
In 2008, it will also engage in significant business process
revisions to improve workflows, efficiency and the quality of
the customer experience. As a result, it will be centralizing
certain processes and employing additional technology to slow
the growth in salary and other expenses.
Financial
Position
Assets increased by $128.3 million or 14% during 2007. This
increase was driven largely by organic growth in the loans
receivable portfolio, particularly commercial loans. Loans
receivable increased by $91.7 million or 14% compared to
2006. Continued strong loan demand in both new and existing
markets and continued progress on relationship banking
initiatives within the Bank created the significant increase in
2007.
Assets increased in 2006 by $186.2 million, or 25%. This
increase primarily resulted from organic loan growth of
$109.4 million, or 20% over 2005, as well as expansion in
the investment portfolio. Loan and asset growth is expected to
moderate in 2008, as local economies respond to the slowdown in
the national economy, and particularly in the real estate
sector. Growth rates in the Companys market areas,
however, are anticipated to exceed national growth rates.
Investments in available for sale securities increased by 34%
from 2006, totaling $158.8 million at December 31,
2007, compared to $118.5 million at December 31, 2006.
Available for sale investments increased to 15% of total assets
compared to 13% for the previous year.
Held-to-maturity
investments also increased, from $6.7 million in 2006 to
$11.3 million in 2007. Management expanded the investment
portfolio again in 2007 to improve its interest rate risk
position, particularly in a down-rate environment. Management
continues to manage the investment portfolio to achieve
reasonable yield and manage interest rate risk exposure, while
maintaining the liquidity necessary to support the rapidly
growing loan portfolio. Changes in the investment portfolio
along with changes in market rates converted an unrealized loss
of $111,000 in the investment portfolio at the end of 2006 into
an unrealized gain of $1.3 million at the end of 2007. The
Company also drew its Fed Funds Sold position down by
$28.8 million during 2007 and reinvested the funds in the
higher-yielding loan portfolio.
Office properties and equipment increased $16.6 million or
65% at December 31, 2007 compared to December 31,
2006. Continued construction on the new Sandpoint headquarters
building and the new Spokane Valley office produced much of the
increase. Investment in additional technology also added to the
change. It is anticipated that the total construction and land
cost of the Sandpoint building will be approximately
$24.4 million. The Company currently plans to sell the
building upon completion and full occupancy in late 2008. It
will then lease back the branch and headquarters space. After
2008, occupancy expense is expected to moderate, as the
Companys future growth initiatives will likely involve
fewer fixed asset expenditures.
Goodwill and other intangible assets decreased to
$12.4 million at December 31, 2007, from
$12.5 million at December 31, 2006. The Company had
goodwill and core deposit intangible assets of approximately
$10.9 million related to the November 2004 Snake River
acquisition, and goodwill and other intangible assets of
approximately $1.9 million as a result of the January 2003
purchase of the Ontario branch of Household FSB. The September
2006 purchase of a small investment company, Premier Alliance,
added $263,000 in goodwill to this total in 2006. No new
acquisitions occurred in 2007. Goodwill and other intangible
assets equaled 1.2% of total assets at December 31, 2007.
The decrease in the balance of goodwill and other intangible
assets in 2007 relates to the amortization of the core deposit
intangibles related to the Snake River acquisition and the
Household FSB purchase.
To fund the asset growth, liabilities increased by
$116.3 million, or 14% over 2006. Most of the increase was
in traditional customer deposits, which grew $64.2 million
or 9% from 2006 balances. The increase in deposits was split
between non-interest bearing deposit accounts
($17.5 million growth), NOW and money market accounts
($17.5 million growth), and certificates of deposit
($24.1 million growth) from the previous year. Over the
last several years, strong penetration in our existing markets
and rapid growth in new branches have combined with market
forces, including volatile equity markets, to produce the
increases. Declining interest rates and increasing competition
from other banks who are facing significant funding pressures
will create additional challenges in growing deposits in 2008.
To combat this, the Bank is specifically targeting customers and
expanding in areas with high deposit concentrations, changing
compensation structures to encourage branch staff to seek
deposit growth, and providing additional training, target
marketing and technology support for our staff. Management will
also emphasize new product development and the use of other
funding alternatives.
41
Deposits as of December 31, 2006 increased by
$96.2 million over December 31, 2005, or 16%. NOW and
money market accounts grew $75.4 million, or 35% from
December 31, 2005. Demand deposit accounts increased
$9.2 million over December 31, 2005, or 7%. Savings
and IRA accounts increased by $8.2 million from
December 31, 2005, or 11%.
Repurchase agreements increased $17.9 million, or 17% as
the Bank utilized repurchase agreements to partially fund the
strong loan and investment growth that occurred during 2007.
Much of the growth in 2007 was used to fund the Companys
purchase of certain investment securities to protect against
lower market rates. The Bank continues to rely on repurchase
agreements as an alternate source of funding to support its
asset growth. The $24 million increase in Federal Home Loan
Bank advances was also used to fund the Companys
investment transactions. The 64% increase over 2006 in other
borrowings to $37.0 million reflects the use of a credit
line to fund construction of the Sandpoint Center. The
outstanding balance of this credit line at December 31,
2007 was $19.5 million.
Total shareholders equity increased by $12.0 million
from $78.1 million at December 31, 2006 to
$90.1 million at December 31, 2007. This increase is
due to the retention of the Companys earnings and the
after-tax increase in the market value of the
available-for-sale
investment portfolio. Total shares outstanding increased to
8.2 million shares. Total shareholders equity grew by
$13.8 million from $64.3 million at December 31,
2005 to $78.1 million at December 31, 2006. This
increase was due primarily to the retention of the
Companys earnings. Both the Banks and the
Companys regulatory capital ratios remain well above the
percentages required by the FDIC to qualify as a well
capitalized institution. Management is closely monitoring
current capital levels in line with its long-term capital plan
to maintain sufficient protection against risk and provide
flexibility to capitalize on future opportunities.
Capital
Capital is the shareholders investment in the Company.
Capital grows through the retention of earnings, the issuance of
new stock, and through the exercise of stock options. Capital
formation allows the Company to grow assets and provides
flexibility and protection in times of adversity. Total equity
on December 31, 2007 was 8.6% of total assets. The largest
component of equity is common stock representing 85% of total
equity. Retained earnings amount to 13% and the remaining 2% is
accumulated other comprehensive income.
Banking regulations require the Company to maintain minimum
levels of capital. The Company manages its capital to maintain a
well capitalized designation (the FDICs
highest rating). Regulatory capital calculations include some of
the trust preferred securities as a component of capital. At
December 31, 2007, the Companys Total capital to risk
weighted assets was 11.61%, compared to 11.62% at
December 31, 2006. At December 31, 2007, the
Companys Tier I capital to risk weighted assets was
10.36%, compared to 10.37% at December 31, 2006. At
December 31, 2007, the Companys Tier I capital
to average assets was 8.90%, compared to 9.13% at
December 31, 2006. The decrease in these capital ratios at
December 31, 2007 compared to December 31, 2006 is
primarily a result of asset growth outpacing the growth of
equity during 2007. It is anticipated that in the future, the
Company will build capital through the retention of earnings and
other sources. To be categorized as well capitalized, an
institution must maintain minimum total risk-based, Tier I
risk-based and Tier I leverage ratios of 10%, 6%, and 5%,
respectively. Based on the established regulatory ratios, the
Company continues to maintain a well-capitalized
designation.
In February 2005, the Company approved a
3-for-2
stock split, payable on March 15, 2005 to shareholders of
record on March 10, 2005. In December 2005, the Company
successfully completed a $12.0 million common stock
offering to its existing shareholders and customers. This
resulted in the issuance of an additional 705,882 shares of
common stock. In April 2006, the Company approved a 10% stock
dividend to all shareholders of record as of May 15, 2006.
In April 2007, the Company approved an additional 10% stock
dividend to all shareholders of record as of May 15, 2007.
42
The following table sets forth the Companys actual
regulatory capital ratios for 2007 and 2006 as well as the
quantitative measures established by regulatory authorities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well-Capitalized
|
|
|
|
Actual
|
|
|
Capital Requirements
|
|
|
Requirements
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars in thousands)
|
|
|
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
$
|
102,927
|
|
|
|
11.61
|
%
|
|
$
|
70,900
|
|
|
|
8
|
%
|
|
$
|
88,626
|
|
|
|
10
|
%
|
Panhandle State Bank
|
|
|
102,898
|
|
|
|
11.61
|
%
|
|
|
70,902
|
|
|
|
8
|
%
|
|
|
88,627
|
|
|
|
10
|
%
|
Tier I capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
91,840
|
|
|
|
10.36
|
%
|
|
|
35,450
|
|
|
|
4
|
%
|
|
|
53,175
|
|
|
|
6
|
%
|
Panhandle State Bank
|
|
|
91,811
|
|
|
|
10.36
|
%
|
|
|
35,451
|
|
|
|
4
|
%
|
|
|
53,176
|
|
|
|
6
|
%
|
Tier I capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
91,840
|
|
|
|
8.90
|
%
|
|
|
41,297
|
|
|
|
4
|
%
|
|
|
51,621
|
|
|
|
5
|
%
|
Panhandle State Bank
|
|
|
91,811
|
|
|
|
9.13
|
%
|
|
|
40,225
|
|
|
|
4
|
%
|
|
|
50,281
|
|
|
|
5
|
%
|
As of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
$
|
90,937
|
|
|
|
11.62
|
%
|
|
$
|
62,611
|
|
|
|
8
|
%
|
|
$
|
78,264
|
|
|
|
10
|
%
|
Panhandle State Bank
|
|
|
89,898
|
|
|
|
11.49
|
%
|
|
|
62,611
|
|
|
|
8
|
%
|
|
|
78,264
|
|
|
|
10
|
%
|
Tier I capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
81,147
|
|
|
|
10.37
|
%
|
|
|
31,306
|
|
|
|
4
|
%
|
|
|
46,958
|
|
|
|
6
|
%
|
Panhandle State Bank
|
|
|
80,108
|
|
|
|
10.24
|
%
|
|
|
31,306
|
|
|
|
4
|
%
|
|
|
46,958
|
|
|
|
6
|
%
|
Tier I capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
81,147
|
|
|
|
9.13
|
%
|
|
|
35,540
|
|
|
|
4
|
%
|
|
|
44,425
|
|
|
|
5
|
%
|
Panhandle State Bank
|
|
|
80,108
|
|
|
|
9.18
|
%
|
|
|
34,915
|
|
|
|
4
|
%
|
|
|
43,643
|
|
|
|
5
|
%
|
Liquidity
Liquidity is the term used to define the Companys ability
to meet its financial commitments. The Company maintains
sufficient liquidity to ensure funds are available for both
lending needs and the withdrawal of deposit funds. The Company
derives liquidity primarily through core deposit growth,
repurchase agreements and other borrowing arrangements, loan
payments and the maturity of investment securities.
At December 31, 2007, the
available-for-sale
investment portfolio had gross unrealized gains in the amount of
$2.2 million, compared to $183,000 at December 31,
2006. Management believes that all unrealized losses as of
December 31, 2007 and 2006 are market driven, with no
permanent sector or issuer credit concerns or impairments.
Core deposits include demand, interest checking, money market,
savings, and local time deposits. Additional liquidity and
funding sources are provided through the sale of loans, sales of
securities, access to national certificate of deposit
(CD) markets, and both secured and unsecured borrowings.
Core deposits, (total deposits less public deposits and brokered
certificates of deposit), at December 31, 2007 were 95.7%
of total deposits, compared to 97.1% at December 31, 2006.
During 2007, the Company experienced a $45.3 million or
6.7% increase in its core deposit base. Deposit growth of
$64 million lagged loan growth of $87 million in 2007,
but was offset by strong increases in repurchase agreements and
the use of a large Federal Funds Sold position at the beginning
of 2007. As a result, the Company did not significantly utilize
other higher-cost funding sources, such as wholesale
certificates of deposit and other borrowings. In the future,
management anticipates continued competition for deposits which
will require stronger core deposit-gathering efforts and the use
of other funding alternatives. The company utilized other
repurchase agreements, wholesale certificates of deposit and
Federal Home Loan Bank advances during the year to purchase
additional investment securities that would provide interest
rate risk protection in a declining rate environment.
43
Overnight-unsecured borrowing lines have been established at US
Bank, Wells Fargo, Pacific Coast Bankers Bank the Federal Home
Loan Bank of Seattle (FHLB) and the Federal Reserve Bank of
San Francisco. At December 31, 2007, the Company had
approximately $50.0 million of overnight funding available
from its unsecured sources and no overnight fed funds borrowed.
In addition, $2 to $5 million in funding is available on a
semiannual basis from the State of Idaho in the form of
negotiated certificates of deposit. In March 2007, the Company
entered into an additional borrowing agreement with Pacific
Coast Bankers Bank in the amount of $18.0 million, with the
amount being increased to $25.0 million in December 2007.
The borrowing agreement is a revolving line of credit with a
variable rate of interest tied to LIBOR and is being used to
support construction of the new Sandpoint headquarters facility.
Management has also sold whole loans or participated portions of
loans with other lenders as an additional source of liquidity.
While asset growth is expected to moderate in 2008, the
competitive environment for deposits continues to be difficult
in the short-term. As a result, management may utilize these
alternative funding sources to a greater extent in 2008. As
such, management is improving its access to these sources and
upgrading its asset and liability management process, expertise
and technology to effectively control potential future risks in
this area.
Related
Party Transactions
The Bank has executed certain loans and deposits with its
directors, officers and their affiliates. All loans and deposits
made are in conformance with regulatory requirements for banks
and on substantially the same terms and conditions as other
similarly qualified borrowers. The aggregate amount of loans
outstanding to such related parties at December 31, 2007
and 2006 was approximately $1,024,000 and $638,000, respectively.
Directors fees of approximately $296,000, $314,000, and
$310,000 were paid during the years ended December 31,
2007, 2006, and 2005, respectively.
Two of the Companys Board of Directors are principals in
law firms that provide legal services to Intermountain. During
the years ended December 31, 2007, 2006 and 2005 the
Company incurred legal fees of approximately $9,000, $11,000,
and $7,000, respectively, related to services provided by these
firms.
Two directors of Intermountain who joined the boards of
Intermountain and Panhandle State Bank in connection with the
Snake River Bancorp, Inc. acquisition and one former employee of
Magic Valley Bank, who is now an employee of the Company, are
all members of a partnership which owned the branch office
building of Magic Valley Bank in Twin Falls, Idaho. The lease
requires monthly rent of $13,165 and expires on
February 28, 2018. The Company has an option to renew the
lease for three consecutive five-year terms at current market
rates. In connection with the Snake River Bancorp acquisition,
the lease was amended to grant the Company a two-year option to
acquire the property for $2.5 million. In December 2006,
the Company sold the option to acquire the property to an
unrelated party and executed a lease agreement to lease the
building. The property was sold in January 2007 and the lease
commenced in January 2007.
Off-Balance
Sheet Arrangements
The Company, in the conduct of ordinary business operations
routinely enters into contracts for services. These contracts
may require payment for services to be provided in the future
and may also contain penalty clauses for the early termination
of the contracts. The Company is also party to financial
instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and
standby letters of credit. Management does not believe that
these off-balance sheet arrangements have a material current
effect on the Companys financial condition, changes in
financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital
resources, but there is no assurance that such arrangements will
not have a future effect. See Note 14 of Notes to
Consolidated Financial Statements.
44
Tabular
Disclosure of Contractual Obligations
The following table represents the Companys
on-and-off
balance sheet aggregate contractual obligations to make future
payments as of December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1 to
|
|
|
Over 3 to
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
5 Years
|
|
|
|
(Dollars in thousands)
|
|
|
Long-term debt(1)
|
|
$
|
112,678
|
|
|
$
|
4,300
|
|
|
$
|
31,579
|
|
|
$
|
33,601
|
|
|
$
|
43,198
|
|
Short-term debt
|
|
|
120,063
|
|
|
|
100,513
|
|
|
|
19,550
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations(2)
|
|
|
14,667
|
|
|
|
991
|
|
|
|
1,520
|
|
|
|
1,321
|
|
|
|
10,835
|
|
Purchase obligations(3)
|
|
|
4,042
|
|
|
|
4,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities reflected on the registrants
balance sheet under GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
251,450
|
|
|
$
|
109,846
|
|
|
$
|
52,649
|
|
|
$
|
34,922
|
|
|
$
|
54,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 registrants balance sheet. See
Notes 5 and 6 of Notes to Consolidated Financial
Statements. Includes operating lease payments for new
leases executed in December 2006 for the sale leaseback
transactions for previously owned Canyon Rim and Gooding
branches. The sale transaction was completed in January 2007 and
the leases commenced in January 2007. |
|
(3) |
|
The Company is constructing a 94,000 square foot Sandpoint
Center to relocate its Sandpoint branch and corporate
headquarters. |
Inflation
Substantially all of the assets and liabilities of the Company
are monetary. Therefore, inflation has a less significant impact
on the Company than does fluctuation in market interest rates.
Inflation can lead to accelerated growth in noninterest expenses
and may be a contributor to interest rate changes, both of which
may impact net earnings. During the last two years, inflation,
as measured by the Consumer Price Index, has not increased
significantly, although current inflationary trends are higher.
The effects of inflation have not had a material impact on the
Company.
Interest
Rate Management
See discussion under Item 7A of this
Form 10-K.
Critical
Accounting Policies
The accounting and reporting policies of the Company conform to
Generally Accepted Accounting Principles (GAAP) and
to general practices within the banking industry. The
preparation of the financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates. The Companys management has identified the
accounting policies described below as those that, due to the
judgments, estimates and assumptions inherent in those policies,
are critical to an understanding of the Companys
Consolidated Financial Statements and Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
Income Recognition. The Company recognizes
interest income by methods that conform to general accounting
practices within the banking industry. In the event management
believes collection of all or a portion of contractual interest
on a loan has become doubtful, which generally occurs after the
loan is 90 days past due, the
45
Company discontinues the accrual of interest and any previously
accrued interest recognized in income deemed uncollectible is
reversed. Interest received on nonperforming loans is included
in income only if recovery of the principal is reasonably
assured. A nonperforming loan is restored to accrual status when
it is brought current or when brought to 90 days or less
delinquent, has performed in accordance with contractual terms
for a reasonable period of time, and the collectibility of the
total contractual principal and interest is no longer in doubt.
Allowance For Loan Losses. In general,
determining the amount of the allowance for loan losses requires
significant judgment and the use of estimates by management.
This analysis is designed to determine an appropriate level and
allocation of the allowance for losses among loan types and loan
classifications by considering factors affecting loan losses,
including: specific losses; levels and trends in impaired and
nonperforming loans; historical bank and industry loan loss
experience; current national and local economic conditions;
volume, growth and composition of the portfolio; regulatory
guidance; and other relevant factors. Management monitors the
loan portfolio to evaluate the adequacy of the allowance. The
allowance can increase or decrease based upon the results of
managements analysis.
The amount of the allowance for the various loan types
represents managements estimate of probable incurred
losses inherent in the existing loan portfolio based upon
historical bank and industry loan loss experience for each loan
type. The allowance for loan losses related to impaired loans
usually is based on the fair value of the collateral for certain
collateral dependent loans. This evaluation requires management
to make estimates of the value of the collateral and any
associated holding and selling costs.
Individual loan reviews are based upon specific quantitative and
qualitative criteria, including the size of the loan, loan
quality classifications, value of collateral, repayment ability
of borrowers, and historical experience factors. The historical
experience factors utilized are based upon past loss experience,
trends in losses and delinquencies, the growth of loans in
particular markets and industries, and known changes in economic
conditions in the particular lending markets. Allowances for
homogeneous loans (such as residential mortgage loans, personal
loans, etc.) are collectively evaluated based upon historical
bank and industry loan loss experience, trends in losses and
delinquencies, growth of loans in particular markets, and known
changes in economic conditions in each particular lending
market. The Allowance for Loan Losses is presented to the Audit
Committee for review.
Management believes the allowance for loan losses was adequate
at December 31, 2007. While management uses available
information to provide for loan losses, the ultimate
collectibility of a substantial portion of the loan portfolio
and the need for future additions to the allowance will be based
on changes in economic conditions and other relevant factors. A
slowdown in economic activity could adversely affect cash flows
for both commercial and individual borrowers, as a result of
which the Company could experience increases in nonperforming
assets, delinquencies and losses on loans.
A reserve for unfunded commitments is maintained at a level
that, in the opinion of management, is adequate to absorb
probable losses associated with the Banks commitment to
lend funds under existing agreements such as letters or lines of
credit. Management determines the adequacy of the reserve for
unfunded commitments based upon reviews of individual credit
facilities, current economic conditions, the risk
characteristics of the various categories of commitments and
other relevant factors. The reserve is based on estimates, and
ultimate losses may vary from the current estimates. These
estimates are evaluated on a regular basis and, as adjustments
become necessary, they are recognized in earnings in the periods
in which they become known through charges to other non-interest
expense. Draws on unfunded commitments that are considered
uncollectible at the time funds are advanced are charged to the
reserve for unfunded commitments. Provisions for unfunded
commitment losses, and recoveries on commitment advances
previously charged-off, are added to the reserve for unfunded
commitments, which is included in the Other Liabilities section
of the Consolidated Statements of Financial Condition.
Investments. Assets in the investment
portfolios are initially recorded at cost, which includes any
premiums and discounts. The Company amortizes premiums and
discounts as an adjustment to interest income using the interest
yield method over the term of the security. The cost of
investment securities sold, and any resulting gain or loss, is
based on the specific identification method.
Management determines the appropriate classification of
investment securities at the time of purchase.
Held-to-maturity
securities are those securities that the Company has the
positive intent and ability to hold to
46
maturity, and are recorded at amortized cost.
Available-for-sale
securities are those securities that would be available to be
sold in the future in response to liquidity needs, changes in
market interest rates, and asset-liability management
strategies, among others.
Available-for-sale
securities are reported at fair value, with unrealized holding
gains and losses that are considered to be temporary reported in
shareholders equity as a separate component of other
comprehensive income, net of applicable deferred income taxes.
Management evaluates investment securities for other than
temporary declines in fair value on a periodic basis. If the
fair value of investment securities falls below their amortized
cost and the decline is deemed to be other than temporary, the
securities will be written down to current market value and the
write down will be deducted from earnings. There were no
investment securities which management identified to be
other-than-temporarily
impaired for the year ended December 31, 2007. Charges to
income could occur in future periods due to a change in
managements intent to hold the investments to maturity, a
change in managements assessment of credit risk, or a
change in regulatory or accounting requirements.
Goodwill and Other Intangible Assets. Goodwill
arising from business combinations represents the value
attributable to unidentifiable intangible elements in the
business acquired. The Companys goodwill relates to value
inherent in the banking business and the value is dependent upon
the Companys ability to provide quality, cost-effective
services in a competitive market place. As such, goodwill value
is supported ultimately by revenue that is driven by the volume
of business transacted. A decline in earnings as a result of a
lack of growth or the inability to deliver cost effective
services over sustained periods can lead to impairment of
goodwill that could adversely impact earnings in future periods.
Goodwill is not amortized, but is subjected to impairment
analysis at least annually. The last impairment analysis was
performed in December 2007. No impairment was considered
necessary during the year ended December 31, 2007. However,
future events could cause management to conclude that the
Companys goodwill is impaired, which would result in the
Company recording an impairment loss. Any resulting impairment
loss could have a material adverse impact on the Companys
financial condition and results of operations.
Other intangible assets consisting of core-deposit intangibles
with definite lives are amortized over the estimated life of the
acquired depositor relationships. These intangible assets are
also subject to impairment analysis. No impairment was
considered necessary during the year ended December 31,
2007.
Real Estate Owned (REO). Property acquired
through foreclosure of defaulted mortgage loans is carried at
the lower of cost or fair value less estimated costs to sell.
Development and improvement costs relating to the property are
capitalized to the extent they are deemed to be recoverable.
An allowance for losses on REO is designed to include amounts
for estimated losses as a result of impairment in value of the
real property after repossession. The Company reviews its REO
for impairment in value whenever events or circumstances
indicate that the carrying value of the property may not be
recoverable. In performing the review, if expected future
undiscounted cash flows from the use of the property or the fair
value, less selling costs, from the disposition of the property
are less than its carrying value, an allowance for loss is
recognized. As a result of changes in the real estate markets in
which these properties are located, it is reasonably possible
that the carrying values could be reduced in the near term.
Recent
Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board
(FASB) issued SFAS No. 141 (R),
Business Combinations (SFAS No. 141
(R)). SFAS No. 141 (R) establishes principles
and requirements for how the acquirer: 1) recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; 2) recognizes and measures the
goodwill acquired in the business combination or a gain from a
bargain purchase; 3) determines what information to
disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.
SFAS No. 141 (R) applies prospectively to
business combinations entered into by the Company after
January 1, 2009. The Company intends to continue to pursue
a long term growth strategy, which may include acquiring other
financial institutions. As such, SFAS No. 141 (R) may
have a material effect on the Company, mainly in regards to the
valuation of loans, and the treatment for acquisition costs.
47
In November 2007, the SEC issued Staff Accounting
Bulletin 109 (SAB 109) regarding the
valuation of loan commitments. SAB 109 supersedes
SAB 105, and states that in measuring the fair value of a
derivative loan commitment, the expected net future cash flows
related to the associated servicing of the loan should be
included in the measurement of all written loan commitments that
are accounted for at fair value through earnings. SAB 109
will be effective for the Company as of January 1, 2008.
The Company is currently evaluating the impact, if any, of
SAB 109 on future periods.
In February 2007, FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities (SFAS No. 159).
SFAS No. 159 provides a fair value measurement
election for many financial instruments, on an instrument by
instrument basis. SFAS No. 159 will be effective for
the Company as of January 1, 2008. The Company is currently
evaluating whether to make the SFAS No. 159 fair value
election on any of its financial instruments.
In September 2006, the Emerging Issues Task Force
(EITF) reached a consensus on Issue
No. 06-4,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements. EITF Issue
No. 06-4
will be effective for the Company as of January 1, 2008.
The Company has evaluated the impact of EITF Issue
No. 06-4
on future periods and has determined the amount to be immaterial.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157). SFAS No. 157
defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements.
SFAS No. 157 will be effective for the Company as of
January 1, 2008. The Company is currently assessing the
impact of this standard and does not expect
SFAS No. 157 to have a material effect on its
consolidated financial statements.
|
|
Item 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Interest
Rate Sensitivity Management
The largest component of the Companys earnings is net
interest income, which can fluctuate widely when interest rate
movements occur. The Banks management is responsible for
minimizing the Companys exposure to interest rate risk.
This is accomplished by developing objectives, goals and
strategies designed to enhance profitability and performance,
while managing risk within specified control parameters. The
ongoing management of the Companys interest rate
sensitivity limits interest rate risk by controlling the mix and
maturity of assets and liabilities. Management continually
reviews the Banks position and evaluates alternative
sources and uses of funds. This includes any changes in external
factors. Various methods are used to achieve and maintain the
desired rate sensitive position, including the sale or purchase
of assets and product pricing.
The Company views any asset or liability which matures, or is
subject to repricing within one year to be interest sensitive
even though an analysis is performed for all other time
intervals as well. The difference between interest-sensitive
assets and interest sensitive liabilities for a defined period
of time is known as the interest sensitivity gap,
and may be either positive or negative. When the gap is
positive, interest sensitive assets reprice quicker than
interest sensitive liabilities. When negative, the reverse
occurs. Non-interest assets and liabilities have been positioned
based on managements evaluation of the general sensitivity
of these balances to migrate into rate-sensitive products. This
analysis provides a general measure of interest rate risk but
does not address complexities such as prepayment risk, basis
risk and the Banks customer responses to interest rate
changes.
At December 31, 2007, the Companys one-year interest
sensitive gap is negative $299.4 million, or negative
28.55% which falls within the risk tolerance levels established
by the Companys Board. The current gap position indicates
that if interest rates were to change and affect assets and
liabilities equally, rising rates would decrease the Banks
net interest income. The reverse is true when rates fall. The
primary cause for the negative gap is the large block of
deposits with no stated maturity, including NOW, money market
and savings accounts that can be repriced at any time. However,
changes in rates offered on these types of deposits tend to lag
changes in market interest rates, thereby potentially reducing
or eliminating the impact of the negative gap position. As such,
this measure is only a small part of a larger Interest Rate Risk
assessment or analysis.
48
The Asset/Liability Management Committee of the Company also
periodically reviews the results of a detailed and dynamic
simulation model to quantify the estimated exposure of net
interest income (NII) and the estimated economic value of the
Company to changes in interest rates. The simulation model,
which has been compared to and validated with an independent
third-party model, illustrates the estimated impact of changing
interest rates on the interest income received and interest
expense paid on all interest bearing assets and liabilities
reflected on the Companys statement of financial
condition. This interest sensitivity analysis is compared to
policy limits for risk tolerance levels of net interest income
exposure over a one-year time horizon, given a 300 and
100 basis point movement in interest rates. Trends in
out-of-tolerance
conditions are then addressed by the committee, resulting in the
implementation of strategic management intervention designed to
bring interest rate risk within policy targets. A parallel shift
in interest rates over a one-year period is assumed as a
benchmark, with reasonable assumptions made regarding the timing
and extent to which each interest-bearing asset and liability
responds to the changes in market rates. The original
assumptions were made based on industry averages and the
companys own experience, and have been modified based on
the companys continuing analysis of its actual versus
expected performance, and after consultations with an outside
consultant. The following table represents the estimated
sensitivity of the Companys net interest income as of
December 31, 2007 and 2006 compared to the established
policy limits:
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Month Cumulative % effect on NII
|
|
Policy Limit %
|
|
|
12-31-07
|
|
|
12-31-06
|
|
|
+100bp
|
|
|
+8.0 to - 8.0
|
|
|
|
3.81
|
|
|
|
0.25
|
|
+300bp
|
|
|
+15.0 to -15.0
|
|
|
|
10.06
|
|
|
|
5.75
|
|
−100bp
|
|
|
+8.0 to - 8.0
|
|
|
|
0.73
|
|
|
|
−1.81
|
|
−300bp
|
|
|
+15.0 to -15.0
|
|
|
|
−17.8
|
|
|
|
−6.28
|
|
The model results for both years fall within the risk tolerance
guidelines established by the committee, with the exception of
the minus 300 basis point scenario in 2007. Given that
market rates have declined 2.25% over the past six months,
management considers an additional 3.0% drop highly unlikely.
49
The following table displays the Banks balance sheet based
on the repricing schedule of 3 months, 3 months to
1 year, 1 year to 5 years and over 5 years.
Asset/Liability
Maturity Repricing Schedule
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After Three
|
|
|
After One
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
Year but
|
|
|
|
|
|
|
|
|
|
Within Three
|
|
|
but within
|
|
|
within Five
|
|
|
After Five
|
|
|
|
|
|
|
Months
|
|
|
One Year
|
|
|
Years
|
|
|
Years
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Loans receivable and held for sale
|
|
$
|
313,479
|
|
|
$
|
176,969
|
|
|
$
|
217,060
|
|
|
$
|
65,649
|
|
|
$
|
773,157
|
|
Securities
|
|
|
66,360
|
|
|
|
8,166
|
|
|
|
35,753
|
|
|
|
61,614
|
|
|
|
171,893
|
|
Federal funds sold
|
|
|
6,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,565
|
|
Time certificates and interest-bearing cash
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
386,553
|
|
|
|
185,135
|
|
|
|
252,813
|
|
|
|
127,263
|
|
|
|
951,764
|
|
Allowance for loan losses
|
|
|
(3,528
|
)
|
|
|
(3,176
|
)
|
|
|
(4,116
|
)
|
|
|
(941
|
)
|
|
|
(11,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets, net
|
|
$
|
383,025
|
|
|
$
|
181,959
|
|
|
$
|
248,697
|
|
|
$
|
126,322
|
|
|
$
|
940,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits(1)
|
|
$
|
308,857
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
308,857
|
|
Savings deposits and IRA(1)
|
|
|
76,112
|
|
|
|
4,413
|
|
|
|
6,623
|
|
|
|
|
|
|
|
87,148
|
|
Time certificates of deposit accounts
|
|
|
113,219
|
|
|
|
52,727
|
|
|
|
36,747
|
|
|
|
71
|
|
|
|
202,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
498,188
|
|
|
|
57,140
|
|
|
|
43,370
|
|
|
|
71
|
|
|
|
598,769
|
|
Repurchase agreements
|
|
|
124,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,127
|
|
FHLB advances
|
|
|
|
|
|
|
5,000
|
|
|
|
24,000
|
|
|
|
|
|
|
|
29,000
|
|
Other borrowed funds
|
|
|
36,015
|
|
|
|
|
|
|
|
|
|
|
|
982
|
|
|
|
36,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
658,330
|
|
|
$
|
62,140
|
|
|
$
|
67,370
|
|
|
$
|
1,053
|
|
|
$
|
788,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate sensitivity gap
|
|
$
|
(275,305
|
)
|
|
$
|
119,819
|
|
|
$
|
181,327
|
|
|
$
|
125,269
|
|
|
$
|
151,110
|
|
Cumulative gap
|
|
$
|
(275,305
|
)
|
|
$
|
(155,486
|
)
|
|
$
|
25,841
|
|
|
$
|
151,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes deposits with no stated maturity. |
50
The following table displays expected maturity information and
corresponding interest rates for all interest-sensitive assets
and liabilities at December 31, 2007.
Expected
Maturity Date at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009-10
|
|
|
2011-12
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Interest-sensitive assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
366,005
|
|
|
$
|
87,167
|
|
|
$
|
58,082
|
|
|
$
|
112,184
|
|
|
$
|
623,438
|
|
Average interest rate
|
|
|
8.47
|
%
|
|
|
8.09
|
%
|
|
|
8.36
|
%
|
|
|
8.30
|
%
|
|
|
|
|
Residential loans(1)
|
|
|
48,238
|
|
|
|
21,406
|
|
|
|
10,635
|
|
|
|
33,731
|
|
|
|
114,010
|
|
Average interest rate
|
|
|
8.69
|
%
|
|
|
8.37
|
%
|
|
|
9.00
|
%
|
|
|
8.30
|
%
|
|
|
|
|
Consumer loans
|
|
|
11,101
|
|
|
|
6,419
|
|
|
|
6,222
|
|
|
|
2,544
|
|
|
|
26,286
|
|
Average interest rate
|
|
|
7.83
|
%
|
|
|
9.18
|
%
|
|
|
9.08
|
%
|
|
|
11.06
|
%
|
|
|
|
|
Municipal loans
|
|
|
1,461
|
|
|
|
337
|
|
|
|
1,514
|
|
|
|
1,910
|
|
|
|
5,222
|
|
Average interest rate
|
|
|
6.65
|
%
|
|
|
5.35
|
%
|
|
|
5.62
|
%
|
|
|
5.11
|
%
|
|
|
|
|
Investments
|
|
|
74,527
|
|
|
|
20,859
|
|
|
|
14,893
|
|
|
|
61,615
|
|
|
|
171,894
|
|
Average interest rate
|
|
|
4.29
|
%
|
|
|
5.03
|
%
|
|
|
5.75
|
%
|
|
|
5.53
|
%
|
|
|
|
|
Federal funds sold
|
|
|
6,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,565
|
|
Average interest rate
|
|
|
3.90
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
Certificates and interest bearing cash
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149
|
|
Average interest rate
|
|
|
3.65
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-sensitive assets
|
|
$
|
508,046
|
|
|
$
|
136,188
|
|
|
$
|
91,346
|
|
|
$
|
211,984
|
|
|
$
|
947,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits and IRA
|
|
$
|
80,560
|
|
|
$
|
3,981
|
|
|
$
|
2,608
|
|
|
$
|
|
|
|
$
|
87,149
|
|
Average interest rate
|
|
|
0.78
|
%
|
|
|
4.05
|
%
|
|
|
4.72
|
%
|
|
|
0.00
|
%
|
|
|
|
|
NOW and money market
|
|
|
308,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,857
|
|
Average interest rate
|
|
|
2.59
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
Certificates of deposit accounts
|
|
|
165,945
|
|
|
|
33,894
|
|
|
|
2,853
|
|
|
|
71
|
|
|
|
202,763
|
|
Average interest rate
|
|
|
4.57
|
%
|
|
|
4.71
|
%
|
|
|
4.63
|
%
|
|
|
4.24
|
%
|
|
|
|
|
Repurchase agreements
|
|
|
94,127
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
124,127
|
|
Average interest rate
|
|
|
4.44
|
%
|
|
|
0.00
|
%
|
|
|
5.85
|
%
|
|
|
0.00
|
%
|
|
|
|
|
Other borrowed funds
|
|
|
5,000
|
|
|
$
|
43,488
|
|
|
|
|
|
|
|
17,509
|
|
|
|
65,998
|
|
Average interest rate
|
|
|
2.71
|
%
|
|
|
5.77
|
%
|
|
|
0.00
|
%
|
|
|
7.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-sensitive liabilities
|
|
$
|
654,489
|
|
|
$
|
81,364
|
|
|
$
|
35,461
|
|
|
$
|
17,580
|
|
|
$
|
788,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes loans held for sale. |
Management will continue to refine its interest rate risk
management by performing ongoing validity testing of the current
model, expanding the number of scenarios tested, and enhancing
its modeling techniques. Because of the importance of effective
interest-rate risk management to the Companys performance,
the committee will also continue to seek review and advice from
independent external consultants.
51
|
|
Item 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The required information is contained on pages F-1 through F-37
of this
Form 10-K.
|
|
Item 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
There have been no changes in or disagreements with
Intermountains independent accountants on accounting and
financial statement disclosures.
|
|
Item 9A.
|
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
Intermountains management, with the participation of
Intermountains principal executive officer and principal
financial officer, has evaluated the effectiveness of
Intermountains disclosure controls and procedures (as such
term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act) as of the end of the period covered by
this report. Based on such evaluation, Intermountains
principal executive officer and principal financial officer have
concluded that, as of the end of such period,
Intermountains disclosure controls and procedures are
effective in recording, processing, summarizing and reporting,
on a timely basis, information required to be disclosed by
Intermountain in the reports that it files or submits under the
Exchange Act.
Managements
Report on Internal Control Over Financial Reporting
Intermountains management, including the principal
executive officer and principal financial officer, is
responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in
Exchange Act
Rules 13a-15(f).
Under the supervision and with the participation of
Intermountains management, Intermountain conducted an
evaluation of the effectiveness of its internal control over
financial reporting based on the framework described in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO Framework). Based on
managements evaluation under the COSO Framework,
Intermountains management has concluded that
Intermountains internal control over financial reporting
was effective as of December 31, 2007.
The effectiveness of Intermountains internal control over
financial reporting as of December 31, 2007 has been
attested to by BDO Seidman, LLP, the independent registered
public accounting firm that audited the financial statements
included in Intermountains annual report on 10-K, as
stated in their report which is included herein.
52
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Intermountain Community Bancorp
Sandpoint, Idaho
We have audited Intermountain Community Bancorps
(Company) internal control over financial reporting
as of December 31, 2007, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Intermountain Community
Bancorps management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Intermountain Community Bancorp maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2007, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Intermountain Community Bancorp
as of December 31, 2007 and 2006, and the related
consolidated statements of income, comprehensive income, changes
in stockholders equity, and cash flows for each of the
three years in the period ended December 31, 2007 and our
report dated March 17, 2008, expressed an unqualified
opinion on those consolidated financial statements.
Spokane, Washington
March 17, 2008
53
Changes
in Internal Control over Financial Reporting
There were no changes in internal control over financial
reporting (as defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f)),
during our fourth fiscal quarter that has materially affected,
or is reasonably likely to materially affect, our internal
control over financial reporting.
|
|
Item 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
Item 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
In response to this Item, the information set forth in
Intermountains Proxy Statement dated March 24, 2008
(2008 Proxy Statement) under the headings
Information with Respect to Nominees and Other
Directors, Meetings and Committees of the Board of
Directors, Executive Compensation, and
Security Ownership of Certain Beneficial Owners and
Management and Compliance with Section 16(a)
filing requirements are incorporated herein by reference.
Information concerning Intermountains Audit Committee
financial expert is set forth under the caption Meetings
and Committees of the Board of Directors in
Intermountains 2008 Proxy Statement and is incorporated
herein by reference.
Intermountain has adopted a Code of Ethics that applies to all
Intermountain employees and directors, including
Intermountains senior financial officers. The Code of
Ethics is publicly available on Intermountains website at
http://www.Intermountainbank.com.
|
|
Item 11.
|
EXECUTIVE
COMPENSATION
|
In response to this Item, the information set forth in
Intermountains Proxy Statement dated March 24, 2008
under the heading Directors Compensation and
Executive Compensation is incorporated herein.
|
|
Item 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
In response to this Item, the information set forth in
Intermountains 2008 Proxy Statement under the heading
Security Ownership of Certain Beneficial Owners and
Management is incorporated herein.
|
|
Item 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
In response to this Item, the information set forth in
Intermountains 2008 Proxy Statement under the heading
Certain Relationships and Related Transactions is
incorporated herein.
|
|
Item 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
In response to this Item, the information set forth in
Intermountains 2008 Proxy Statement under the headings
Ratification of Appointment of Independent Auditors
and Independent Registered Public Accounting Firm is
incorporated herein.
54
PART IV
|
|
Item 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a)(1) Audited Consolidated Financial Statements
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
|
Consolidated Balance Sheets at December 31, 2007 and 2006
|
|
|
|
Consolidated Statements of Income for the years ended
December 31, 2007, 2006 and 2005
|
|
|
|
Consolidated Statements of Comprehensive Income for the years
ended December 31, 2007, 2006 and 2005
|
|
|
|
Consolidated Statements of Changes in Stockholders Equity
for the years ended December 31, 2007, 2006 and 2005
|
|
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2007, 2006 and 2005
|
|
|
|
Summary of Accounting Policies
|
|
|
|
Notes to Consolidated Financial Statements
|
(a)(2) Financial Statement Schedules have been omitted as they
are not applicable or the information is included in the
Consolidated Financial Statements
(b) Exhibits: See Exhibit Index
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTERMOUNTAIN COMMUNITY BANCORP
(Registrant)
Curt Hecker
President and Chief Executive Officer
March 17, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Curt
Hecker
Curt
Hecker
|
|
President and Chief Executive Officer, Principal Executive
Officer, Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ John
B. Parker
John
B. Parker
|
|
Chairman of the Board, Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Douglas
Wright
Douglas
Wright
|
|
Executive Vice President and
Chief Financial Officer,
Principal Financial Officer
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Charles
L. Bauer
Charles
L. Bauer
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ James
T. Diehl
James
T. Diehl
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Ford
Elsaesser
Ford
Elsaesser
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Ronald
Jones
Ronald
Jones
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Maggie
Y. Lyons
Maggie
Y. Lyons
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Jim
Patrick
Jim
Patrick
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Michael
J. Romine
Michael
J. Romine
|
|
Director
|
|
March 17, 2008
|
56
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Jerrold
Smith
Jerrold
Smith
|
|
Executive Vice President and Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Barbara
Strickfaden
Barbara
Strickfaden
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Douglas
P. Ward
Douglas
P. Ward
|
|
Director
|
|
March 17, 2008
|
57
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
3
|
.1
|
|
Amended and Restated Articles of Incorporation(1)
|
|
3
|
.2
|
|
Amended and Restated Bylaws(2)
|
|
4
|
.1
|
|
Form of Stock Certificate(3)
|
|
10
|
.1
|
|
Second Amended and Restated 1999 Employee Stock Option and
Restricted Stock Plan(3)
|
|
10
|
.2
|
|
Form of Employee Option Agreement(3)
|
|
10
|
.3
|
|
Form of Restricted Stock Award Agreement
|
|
10
|
.4
|
|
Amended and Restated Director Stock Option Plan(4)
|
|
10
|
.5
|
|
Form of Nonqualified Stock Option Agreement(3)
|
|
10
|
.6
|
|
Form of Director Restricted Stock Award Agreement
|
|
10
|
.7
|
|
Form of Stock Purchase Bonus Agreement
|
|
10
|
.8
|
|
Amended and Restated Employment Agreement with Curt Hecker dated
January 1, 2008
|
|
10
|
.9
|
|
Amended and Restated Salary Continuation and Split Dollar
Agreement for Curt Hecker dated January 1, 2008
|
|
10
|
.10
|
|
Amended and Restated Employment Agreement with Jerry Smith dated
January 1, 2008
|
|
10
|
.11
|
|
Amended and Restated Salary Continuation and Split Dollar
Agreement with Jerry Smith dated January 1, 2008
|
|
10
|
.12
|
|
Amended and Restated Executive Severance Agreement with Douglas
Wright dated January 1, 2008
|
|
10
|
.13
|
|
Amended and Restated Executive Severance Agreement with John
Nagel dated December 27, 2007
|
|
10
|
.14
|
|
Amended and Restated Executive Severance Agreement with Pam
Rasmussen dated December 28, 2007
|
|
10
|
.15
|
|
Amended and Restated
2006-2008
Long Term Incentive Plan(5)
|
|
10
|
.16
|
|
2003 2005 Long-Term Incentive Plan, as amended, and
Restricted Stock Award Agreement(6)
|
|
10
|
.17
|
|
Executive Incentive Plan(7)
|
|
14
|
|
|
Code of Ethics(7)
|
|
21
|
|
|
Subsidiaries of the Registrant
|
|
23
|
|
|
Consent of BDO Seidman, LLP
|
|
31
|
.1
|
|
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes Oxley Act of 2002
|
|
31
|
.2
|
|
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes Oxley Act of 2002
|
|
32
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes Oxley Act of 2002
|
|
|
|
(1) |
|
Incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007 |
|
(2) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K,
filed September 8, 2004 |
|
(3) |
|
Incorporated by reference to the Registrants Form 10,
as amended on July 1, 2004 |
|
(4) |
|
Incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2005 |
|
(5) |
|
Incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2006 |
|
(6) |
|
Incorporated by reference to the
S-8
Registration Statement filed by the Registrant on March 30,
2006
(File No. 333-132835) |
|
(7) |
|
Incorporated by reference to the Registrants Annual Report
on
Form 10-K
for the fiscal year ended December 31, 2006 |
58
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Intermountain Community Bancorp
Sandpoint, Idaho
We have audited the accompanying consolidated balance sheets of
Intermountain Community Bancorp as of December 31, 2007 and
2006 and the related consolidated statements of income,
comprehensive income, changes in stockholders equity, and
cash flows for each of the three years in the period ended
December 31, 2007. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Intermountain Community Bancorp at December 31,
2007 and 2006, and the results of its operations and its cash
flows for each of the three years in the period ended
December 31, 2007, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 10 to the consolidated financial
statements, the Company adopted Statement of Financial
Accounting Standards No. 123(R), Share-Based
Payment, as of January 1, 2006.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Intermountain Community Bancorps internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report
dated March 17, 2008, expressed an unqualified opinion
thereon.
Spokane, Washington
March 17, 2008
F-1
INTERMOUNTAIN
COMMUNITY BANCORP
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands,
|
|
|
|
except per share data)
|
|
|
ASSETS
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Interest-bearing
|
|
$
|
149
|
|
|
$
|
72
|
|
Non-interest bearing and vault
|
|
|
26,851
|
|
|
|
24,305
|
|
Restricted cash
|
|
|
4,527
|
|
|
|
888
|
|
Federal funds sold
|
|
|
6,565
|
|
|
|
35,385
|
|
Available-for-sale
securities, at fair value
|
|
|
158,791
|
|
|
|
118,490
|
|
Held-to-maturity
securities, at amortized cost
|
|
|
11,324
|
|
|
|
6,719
|
|
Federal Home Loan Bank of Seattle stock, at cost
|
|
|
1,779
|
|
|
|
1,779
|
|
Loans held for sale
|
|
|
4,201
|
|
|
|
8,945
|
|
Loans receivable, net
|
|
|
756,549
|
|
|
|
664,885
|
|
Accrued interest receivable
|
|
|
8,207
|
|
|
|
7,329
|
|
Office properties and equipment, net
|
|
|
42,090
|
|
|
|
25,444
|
|
Bank-owned life insurance
|
|
|
7,713
|
|
|
|
7,400
|
|
Goodwill
|
|
|
11,662
|
|
|
|
11,662
|
|
Other intangibles
|
|
|
723
|
|
|
|
881
|
|
Prepaid expenses and other assets
|
|
|
7,528
|
|
|
|
6,164
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,048,659
|
|
|
$
|
920,348
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Deposits
|
|
$
|
757,838
|
|
|
$
|
693,686
|
|
Securities sold subject to repurchase agreements
|
|
|
124,127
|
|
|
|
106,250
|
|
Advances from Federal Home Loan Bank
|
|
|
29,000
|
|
|
|
5,000
|
|
Cashier checks issued and payable
|
|
|
1,509
|
|
|
|
6,501
|
|
Accrued interest payable
|
|
|
3,027
|
|
|
|
1,909
|
|
Other borrowings
|
|
|
36,998
|
|
|
|
22,602
|
|
Accrued expenses and other liabilities
|
|
|
6,041
|
|
|
|
6,320
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
958,540
|
|
|
|
842,268
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities (Notes 14 and 15)
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
Common stock 29,040,000 shares authorized; 8,313,005 and
7,423,904 shares issued and 8,248,710 and
6,577,290 shares outstanding
|
|
|
76,746
|
|
|
|
60,395
|
|
Accumulated other comprehensive income (loss), net of tax
|
|
|
1,327
|
|
|
|
(111
|
)
|
Retained earnings
|
|
|
12,046
|
|
|
|
17,796
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
90,119
|
|
|
|
78,080
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,048,659
|
|
|
$
|
920,348
|
|
|
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-2
INTERMOUNTAIN
COMMUNITY BANCORP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands,
|
|
|
|
except per share amounts)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
65,362
|
|
|
$
|
54,393
|
|
|
$
|
37,897
|
|
Investments
|
|
|
7,496
|
|
|
|
5,187
|
|
|
|
3,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
72,858
|
|
|
|
59,580
|
|
|
|
41,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
18,769
|
|
|
|
13,192
|
|
|
|
8,250
|
|
Other borrowings
|
|
|
3,498
|
|
|
|
2,109
|
|
|
|
1,177
|
|
Short-term borrowings
|
|
|
4,070
|
|
|
|
2,232
|
|
|
|
1,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
26,337
|
|
|
|
17,533
|
|
|
|
10,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
46,521
|
|
|
|
42,047
|
|
|
|
30,931
|
|
Provision for losses on loans
|
|
|
(3,896
|
)
|
|
|
(2,148
|
)
|
|
|
(2,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for losses on loans
|
|
|
42,625
|
|
|
|
39,899
|
|
|
|
28,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees and service charges
|
|
|
8,646
|
|
|
|
6,726
|
|
|
|
5,754
|
|
Mortgage banking operations
|
|
|
2,749
|
|
|
|
3,300
|
|
|
|
2,411
|
|
Bank-owned life insurance
|
|
|
314
|
|
|
|
305
|
|
|
|
300
|
|
Net (loss) on sale of securities
|
|
|
(38
|
)
|
|
|
(987
|
)
|
|
|
(43
|
)
|
Other income
|
|
|
1,528
|
|
|
|
1,494
|
|
|
|
1,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
13,199
|
|
|
|
10,838
|
|
|
|
9,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
25,394
|
|
|
|
21,859
|
|
|
|
15,356
|
|
Occupancy expense
|
|
|
6,089
|
|
|
|
4,789
|
|
|
|
3,927
|
|
Advertising
|
|
|
1,330
|
|
|
|
1,172
|
|
|
|
767
|
|
Fees and service charges
|
|
|
1,404
|
|
|
|
1,193
|
|
|
|
974
|
|
Printing, postage and supplies
|
|
|
1,466
|
|
|
|
1,430
|
|
|
|
1,257
|
|
Legal and accounting
|
|
|
1,377
|
|
|
|
1,418
|
|
|
|
1,153
|
|
Other expenses
|
|
|
3,866
|
|
|
|
4,099
|
|
|
|
3,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
40,926
|
|
|
|
35,960
|
|
|
|
26,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
14,898
|
|
|
|
14,777
|
|
|
|
11,790
|
|
Income tax provision
|
|
|
5,453
|
|
|
|
5,575
|
|
|
|
4,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,445
|
|
|
$
|
9,202
|
|
|
$
|
7,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic
|
|
$
|
1.15
|
|
|
$
|
1.15
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted
|
|
$
|
1.10
|
|
|
$
|
1.07
|
|
|
$
|
0.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding basic
|
|
|
8,206,341
|
|
|
|
8,035,401
|
|
|
|
7,078,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding diluted
|
|
|
8,604,737
|
|
|
|
8,585,687
|
|
|
|
7,683,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-3
INTERMOUNTAIN
COMMUNITY BANCORP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Net income
|
|
$
|
9,445
|
|
|
$
|
9,202
|
|
|
$
|
7,482
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized (losses) gains on investments, net of
reclassification adjustments
|
|
|
2,380
|
|
|
|
2,018
|
|
|
|
(1,362
|
)
|
Less deferred income tax benefit (expense)
|
|
|
(942
|
)
|
|
|
(792
|
)
|
|
|
534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss)
|
|
|
1,438
|
|
|
|
1,226
|
|
|
|
(828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
10,883
|
|
|
$
|
10,428
|
|
|
$
|
6,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-4
INTERMOUNTAIN
COMMUNITY BANCORP
Years
Ended December 31, 2007, 2006, and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Income
|
|
|
Retained
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
(loss)
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Balance, January 1, 2005
|
|
|
3,784,180
|
|
|
$
|
30,314
|
|
|
$
|
(509
|
)
|
|
$
|
14,759
|
|
|
$
|
44,564
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,482
|
|
|
|
7,482
|
|
Equity based compensation
|
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
Restricted Stock Grant
|
|
|
21,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued upon exercise of stock options
|
|
|
172,419
|
|
|
|
901
|
|
|
|
|
|
|
|
|
|
|
|
901
|
|
Net unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
(828
|
)
|
|
|
|
|
|
|
(828
|
)
|
Stock split,
three-for-two
|
|
|
1,914,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fractional share redemption
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Common stock issued, net of costs
|
|
|
705,882
|
|
|
|
11,861
|
|
|
|
|
|
|
|
|
|
|
|
11,861
|
|
Tax benefit associated with stock options
|
|
|
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
6,598,810
|
|
|
$
|
43,370
|
|
|
$
|
(1,337
|
)
|
|
$
|
22,240
|
|
|
$
|
64,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-5
INTERMOUNTAIN
COMMUNITY BANCORP
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Years
Ended December 31, 2007, 2006, and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Balance, December 31, 2005
|
|
|
6,598,810
|
|
|
$
|
43,370
|
|
|
$
|
(1,337
|
)
|
|
$
|
22,240
|
|
|
$
|
64,273
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,202
|
|
|
|
9,202
|
|
Equity based compensation
|
|
|
|
|
|
|
848
|
|
|
|
|
|
|
|
|
|
|
|
848
|
|
Restricted Stock Grant
|
|
|
19,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued upon exercise of stock options
|
|
|
101,245
|
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
|
476
|
|
Vesting of stock-based compensation awards
|
|
|
26,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of liability associated with stock-based
compensation plans upon adoption of SFAS 123 (R)
|
|
|
|
|
|
|
1,333
|
|
|
|
|
|
|
|
|
|
|
|
1,333
|
|
Net unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
1,226
|
|
|
|
|
|
|
|
1,226
|
|
10% common stock dividend
|
|
|
666,840
|
|
|
|
13,637
|
|
|
|
|
|
|
|
(13,637
|
)
|
|
|
|
|
Fractional share redemption
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
Shares issued for business purchase
|
|
|
11,162
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
255
|
|
Tax benefit associated with stock options
|
|
|
|
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
7,423,904
|
|
|
$
|
60,395
|
|
|
$
|
(111
|
)
|
|
$
|
17,796
|
|
|
$
|
78,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-6
INTERMOUNTAIN
COMMUNITY BANCORP
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Years
Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
7,423,904
|
|
|
$
|
60,395
|
|
|
$
|
(111
|
)
|
|
$
|
17,796
|
|
|
$
|
78,080
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,445
|
|
|
|
9,445
|
|
Equity based compensation
|
|
|
|
|
|
|
486
|
|
|
|
|
|
|
|
|
|
|
|
486
|
|
Restricted Stock Grant
|
|
|
26,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued upon exercise of stock options
|
|
|
83,664
|
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
395
|
|
Vesting of stock-based compensation awards
|
|
|
28,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
1,438
|
|
|
|
|
|
|
|
1,438
|
|
10% common stock dividend
|
|
|
750,671
|
|
|
|
15,186
|
|
|
|
|
|
|
|
(15,186
|
)
|
|
|
|
|
Fractional share redemption
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
Tax benefit associated with stock options
|
|
|
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
8,313,005
|
|
|
$
|
76,746
|
|
|
$
|
1,327
|
|
|
$
|
12,046
|
|
|
$
|
90,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-7
INTERMOUNTAIN
COMMUNITY BANCORP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,445
|
|
|
$
|
9,202
|
|
|
$
|
7,482
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity based compensation expense
|
|
|
486
|
|
|
|
848
|
|
|
|
79
|
|
Excess tax benefit related to stock-based compensation
|
|
|
(226
|
)
|
|
|
(382
|
)
|
|
|
|
|
Depreciation
|
|
|
2,632
|
|
|
|
2,095
|
|
|
|
1,697
|
|
Net amortization of premiums on securities
|
|
|
(508
|
)
|
|
|
115
|
|
|
|
163
|
|
Stock dividends on Federal Home Loan Bank of Seattle stock
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
Provisions for losses on loans
|
|
|
3,896
|
|
|
|
2,148
|
|
|
|
2,229
|
|
Amortization of core deposit intangibles
|
|
|