e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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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, 2010
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OR
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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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414 Church Street, 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 whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o 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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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company þ
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
As of June 30, 2010, 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 $12,252,000.
The number of shares outstanding of the registrants Common
Stock, no par value per share, as of February 28, 2011 was
8,406,578.
DOCUMENTS
INCORPORATED BY REFERENCE
Specific portions of the registrants Proxy Statement for
the 2011 Annual Meeting of Shareholders are incorporated by
reference into Part III hereof.
PART I
Forward-Looking
Statements
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include, but are not limited
to, statements about our plans ,objectives, expectations and
intentions that are not historical facts, and other statements
identified by words such as expects,
anticipates, intends, plans,
believes, will likely,
should, projects, seeks,
estimates or words of similar meaning. These
forward-looking statements are based on current beliefs and
expectations of management and are inherently subject to
significant business, economic and competitive uncertainties and
contingencies, many of which are beyond our control. In
addition, these forward-looking statements are subject to
assumptions with respect to future business strategies and
decisions that are subject to change. In addition to the factors
set forth in the sections titled Risk Factors,
Business and Managements Discussion and
Analysis of Financial Condition and Results of Operations,
as applicable, in this report, the following factors, among
others, could cause actual results to differ materially from the
anticipated results:
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further deterioration in economic conditions that could result
in increased loan and lease losses;
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risks associated with concentrations in real estate-related
loans;
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declines in real estate values supporting loan collateral;
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our ability to comply with the requirements of regulatory orders
issued to us
and/or our
banking subsidiary;
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our ability to raise capital or incur debt on reasonable terms;
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regulatory limits on our subsidiary banks ability to pay
dividends to the Company;
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applicable laws and regulations and legislative or regulatory
changes, including the ultimate financial and operational burden
of the recently enacted financial regulatory reform legislation
and related regulations;
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inflation and interest rate levels, and market and monetary
fluctuations;
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the risks associated with lending and potential adverse changes
in credit quality;
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changes in market interest rates and spreads, which could
adversely affect our net interest income and profitability;
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increased delinquency rates;
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trade, monetary and fiscal policies and laws, including interest
rate and income tax policies of the federal government;
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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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technological and management changes;
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our ability to recruit and retain key management and staff;
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changes in estimates and assumptions used in financial
accounting;
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the Companys critical accounting policies and the
implementation of such policies;
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growth and acquisition strategies;
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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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the strength of the United States economy in general and the
strength of the local economies in which Intermountain conducts
its operations;
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our ability to attract new deposits and loans and leases;
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competitive market pricing factors;
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stability of funding sources and continued availability of
borrowings;
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Intermountains success in gaining regulatory approvals,
when required;
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results of regulatory examinations that could restrict growth;
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future legislative or administrative changes to the Troubled
Asset Relief Program (TARP) Capital Purchase
Program; and
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the impact of the Emergency Economic Stabilization Act of 2008
(EESA), the American Recovery and Reinvestment Act
of 2009 (ARRA) and the Dodd-Frank Wall Street Reform
and Consumer Protection Act (Dodd-Frank Act) and
related rules and regulations on our business operations and
competitiveness, including the impact of executive compensation
restrictions, which may affect our ability to retain and recruit
executives in competition with other firms who do not operate
under those restrictions; and
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Intermountains success at managing the risks involved in
the foregoing.
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Please take into account that forward-looking statements speak
only as of the date of this report. We do not undertake any
obligation to publicly correct or update any forward-looking
statement whether as a result of new information, future events
or otherwise.
General
Overview &
History
Intermountain Community Bancorp (Intermountain or
the Company) is a bank 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, 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 and has also expanded
into the states of Oregon and Washington. 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 several years, the Bank continued to open
branches under both the Intermountain Community Bank and
Panhandle State Bank names. In January 2003, the Bank acquired a
branch office from Household Bank F.S.B. located in Ontario,
Oregon, which is now operating under the Intermountain Community
Bank name. In 2004, Intermountain acquired Snake River Bancorp,
Inc. (Snake River) and its subsidiary bank, Magic
Valley Bank, and the Bank now operates three branches under the
Magic Valley Bank name in south central Idaho. In 2005 and 2006,
the Company opened branches in Spokane Valley and downtown
Spokane, Washington, respectively, and operates these branches
under the name of Intermountain Community Bank of Washington. It
also opened branches in Kellogg under the Panhandle State Bank
name and Fruitland, Idaho under the Intermountain Community Bank
name.
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In 2006, Intermountain also opened a Trust & Wealth
Management division, and purchased a small investment company,
Premier Alliance. The combined unit now operates as
Intermountains Trust & Investment Services
division. The acquisition and development of these services
improves the Companys ability to provide a full-range of
financial services to its targeted customers.
Intermountain offers banking and financial services that fit the
needs of the communities it serves. Lending activities include
consumer, commercial, commercial real estate, residential
construction, mortgage and agricultural loans. A full range of
deposit services are available including checking, savings and
money market accounts as well as various types of certificates
of deposit. Trust and wealth management services, investment and
insurance services, and business cash management solutions round
out the Companys product offerings.
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 $8.0 million in
preferred securities, the purchasers of which are entitled to
receive cumulative cash dividends from the Trusts. The Company
has issued junior subordinated debentures to the Trusts, and
payments from these debentures are used to make the cash
dividends to the holders of the Trusts preferred
securities.
Business
Strategy & Opportunities
Intermountain seeks to differentiate itself by attracting,
retaining and motivating highly experienced employees who are
local market leaders, and supporting them with advanced
technology, training and compensation systems. This approach
allows the Bank to provide local marketing and decision-making
to respond quickly to customer opportunities and build
leadership in its communities. Simultaneously, the Bank has
focused on standardizing and centralizing administrative and
operational functions to improve risk management, efficiency and
the ability of the branches to serve customers effectively.
Intermountain continues to work through the challenges of the
current economic downturn, while positioning itself to prosper
in the economy and markets of the future. Its strengths provide
the foundation for future growth and profitability, and include
the following:
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A strong, loyal and low-cost deposit franchise with proven
growth capabilities: 64% of Intermountains deposits at
December 31, 2010 are in low-cost transaction accounts,
resulting in a cost of funds that has consistently been below
its peer group. Intermountain has maintained this low-cost
deposit focus while growing since 1999 from the 8th ranked
bank by deposit market share to the 2nd in the core markets
it serves (Source: FDIC Deposit Market Share and Federal
Financial Institutions Examination Council (FFIEC)
Uniform Bank Performance Report (UBPR) data).
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A high net interest margin (3.97% and 3.77% for the quarter and
year ended December 31, 2010, respectively) relative to
peers with opportunity for additional improvement if rates rise
or the economy improves: Intermountain has consistently
maintained a higher net interest margin than its peer group
(Source: UBPR data), and believes it has positioned its balance
sheet to protect against current challenges, and provide for
opportunities to capitalize on the likelihood of future rising
market interest rates.
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A sophisticated, and increasingly effective, risk management
system: Tempered by its experiences during the current downturn,
Intermountain has developed a refined credit loss forecasting
system, an integrated approach to credit, liquidity, capital and
other risk factors, and a well-seasoned credit administration
function.
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An operational and compliance infrastructure built for future
profitable growth: During the past several years, Intermountain
has focused on upgrading talent, technology and operational
processes to facilitate further balance sheet growth while
simultaneously reducing the expenses associated with these
upgrades.
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A young, but highly experienced, management team: The
executive and senior management team averages about
50 years old, but still generally exceeds 20 years in
banking experience, most of which has been in the Companys
defined core and growth markets.
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Management believes that the economic and financial crises of
the past several years have fundamentally changed the future
landscape for community banks. In a slower growth, more
conservative environment, further consolidation of the industry
is inevitable. Those banks and management teams with strong
market positions, solid infrastructure, and staying power will
be able to capitalize on the opportunities created by this
changing environment. Management has defined potential
opportunities in terms of prospects within the Companys
core markets of north, southwest rural, and south central Idaho,
and within its growth markets of Spokane, Boise, and contiguous
eastern Washington and northern Idaho counties. While it cannot
guarantee that it will pursue, or be successful in pursuing
opportunities in this new environment, it believes it is
increasingly well-positioned to succeed in the changing
landscape.
Lending conditions are currently challenging, with low borrowing
demand, tight underwriting standards and challenging appraisal
conditions. However, a return to more conservative credit
management, underwriting and structuring and the exit of a
number of distressed competitors may lead to better pricing
opportunities and lower future credit risk for the Company.
Management is responding by diversifying its current portfolio
and positioning for prudent growth opportunities. It believes
these prospects will include pursuing attractive mid-market
commercial credits in its markets, originating commercial real
estate loans to strong borrowers at lower real estate prices,
originating and seasoning mortgage loans to strong borrowers at
conservative
loan-to-values
in rural and smaller suburban areas not well-served by current
secondary market appraisal standards, expanding and diversifying
its agricultural portfolio, and expanding its already strong
government-guaranteed loan marketing efforts. While loan rate
competition is likely to increase in the short term as banks
aggressively pursue high-quality customers, management also
believes that credit spreads may widen in the long-term as more
consolidation occurs. When combined with expected market rate
hikes, the Companys high proportion of variable rate loans
should lead to improved asset yields in the future.
We believe deposit growth and pricing will continue to be a
cornerstone of the Companys success. As demonstrated by
its past successes, the growth of low-cost core deposits has
always been a focus. Management will continue this core focus,
while pursuing opportunities to gain additional market share
from larger banks and smaller, more stressed competitors in its
defined core and growth markets. Based on FDIC call report data,
the Company has identified approximately $742.9 million in
deposits at banks in its core markets that are exhibiting
relatively high levels of distress, and another
$781.7 million in its growth markets. When combined with
potential organic growth, a relatively small capture of these
distressed deposits over the next few years could allow the
Company to rapidly expand its total deposits. More immediately,
management has taken strong steps to reduce its current deposit
and borrowing rates, which will produce lower interest expense
in future periods. It sees additional opportunities to decrease
its cost of funds and interest expense by continuing to reprice
down maturing CDs, lower transaction account interest rates, and
pay off or replace higher rate wholesale funding vehicles.
Management has undertaken significant efforts to improve its
efficiency, and is confident that it can continue reducing its
non-interest expenses. The last three years have been
challenging as the Company first sought to build operational
infrastructure for a larger institution, then faced very
significant credit-related costs. These costs masked underlying
improvement in operating expenses. These improvements are now
becoming increasingly apparent in the financial statements as
the full impact of moves made in late 2009 and throughout 2010
register and credit operations costs begin to subside. In the
future, management believes the infrastructure that has been
built will allow the Company to expand its assets and revenues
while tightly controlling its expense levels. When combined with
lower anticipated credit costs, this should lead to rapid
improvement in efficiency rates. During 2011, management will
continue to focus on rationalizing its cost structure and
restructuring organizational processes to deliver better service
at lower costs.
Management believes that non-interest revenue growth may be
challenging in the near-term because of new regulatory
restrictions, particularly on overdraft and debit card income.
However, it continues to take steps to expand and diversify its
revenue sources. These include expanding its trust and
investment service opportunities to both new and existing
customers, increasing debit and credit card accounts and usage,
pursuing other partners to work with on its secured savings
credit card program, restructuring and enhancing its deposit and
cash management service fees, and reducing waiver rates on
current service fees.
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In addition to the above, management believes that disruption
and consolidation in the market may lead to other opportunities
as well. Subject to regulatory and capital constraints, we
believe that attractive acquisition opportunities within our
footprint will soon appear and that Intermountain could be in a
unique position to capitalize on them. Intermountain is the
largest publicly traded bank holding company headquartered in
Idaho, with branches located throughout the state and has
existing branches in Washington and Oregon, which may help
facilitate future transactions. Even if these opportunities are
not available, large disruptions create potential opportunities
to attract strong new employees and customers.
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
(2) and Weiser. One branch is located in Spokane Valley,
Washington and one branch is located in downtown 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.
Based on asset size and deposits, Intermountain is the largest
publicly traded bank holding company headquartered in Idaho.
After two decades of almost uninterrupted economic and
population growth, the Idaho economy continued to struggle in
2010. Population growth in the state was the 4th fastest of
any state over the period from 2000 to 2010, increasing by
21 percent during this time period. Population growth
slowed in 2009 and 2010, with total 2010 growth estimated at
1.4%. Based on U.S. Census Bureau estimates, the State is
projected to sustain future population growth rates in excess of
the national average for the next 10 years. Idaho
experienced rapid employment growth during the period of 2000 to
2008 (14% versus U.S. 8%), sustained net job losses in
2009, and then rebounded slightly in 2010 (Source: Idaho
Department of Labor). The unemployment rate at the end of 2010
was 9.5%, slightly above the national average of 9.4%. However,
job losses appear to be moderating and longer-term prospects for
the economy are still strong. The Idaho Department of Labor
forecasts unemployment at about 8.5% by the end of 2011, with
employment expected to rise between 14% and 16% between now and
2018. These prospects are based on a diverse economic base,
including agriculture, health care, technology, light
manufacturing, retirement, tourism, education and professional
services segments, a low-cost of living and doing business,
favorable state government policies, and a strong quality of
life. The Oregon, Washington and California governments have all
recently enacted unfriendly business policies, which should
increase the attractiveness of doing business in Idaho. While
Idaho faces difficult state budget issues as well, the
conservative legislature has balanced the budget without
increasing taxes or creating new burdensome business regulations.
Real estate valuations throughout the state have shown
considerable variability, based on specific geographical
location and type of property. In general, Idaho has experienced
higher than average foreclosure rates over the past year, which
is reflected in the price decline of 7.0% (Source: FDIC Third
Quarter, 2010 State Profile). The Boise area has been hit harder
than the rest of the State, with price declines on finished
properties averaging 20% to 40% as a result of increasing
unemployment earlier in the recession and substantial
overbuilding. While the slowing economy has hurt other areas as
well, the amount of available inventory was generally smaller,
resulting in smaller price declines, mostly in the 10% to 30%
range. Generally, residential land prices have dropped more
throughout the state, as available residential supply far
exceeded the demand for it. As such, price declines in land have
ranged anywhere from 15% on the low end to 85% on the high end,
depending on location (Source: Auble Idaho and Eastern
Washington Real Estate Report). It appears that prices are
approaching stabilization, with various areas, including Boise,
southwest rural Idaho, and parts of north Idaho appearing to
have bottomed out.
The Banks primary service area covers four 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. Bonner
and Boundary Counties are heavily forested and contain numerous
lakes. As such, the economies of these counties are primarily
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based on tourism, real estate development and natural resources,
including logging, mining and agriculture. Bonner County has
also experienced expansion in the areas of light industrial,
commercial, retirement and retail development over the past ten
years, and management believes both counties are likely to
continue benefiting from Canadian spending and investment as the
dollar has weakened against the Canadian currency. Shoshone
County continues to experience expansion in the areas of
residential and tourism development relating to the outdoor
recreation industry in the area and has seen a strong resurgence
in mining activity as mineral prices have rebounded. Kootenai
County is more diverse than the other north Idaho counties, with
light industrial, high-tech, commercial, retail, medical,
tourism and real estate development all contributing to the
economic base. It, along with Spokane County in Washington,
should also benefit from additional Canadian investment.
In general, the northern Idaho and eastern Washington economy
lagged the rest of the country and state in terms of feeling the
impacts of the recession. In 2010, however, the recession caught
up with the area. Unemployment rates in north Idaho have risen
to an average exceeding 10% in December 2010, and real estate
values have declined. However, the changes are not as dramatic
throughout this region as in many other areas. Diversification,
strengthening mining prices, less aggressive development in
earlier periods, favorable business cost structures, continuing
tourism activity and Canadian investment have helped cushion the
downturns experienced in the real estate development, retail and
service industries. Although the unemployment rates are high in
north Idaho, they have historically been high, so the relative
impact is not as significant. Spokane has weathered the jobs
downturn better, with an unemployment rate of 9.1% in December
2010 (Washington State Employment Security Department Labor
Market & Economic Analysis). Strength in health care,
agri-business, private education, technology and transportation
have buffered eastern Washington from harder shocks. Data on
real estate activity is limited for much of this region, but it
generally appears that residential home price declines have
ranged from 5% to 25%, while lot prices are down 20% to 50%
based on location. Commercial real estate activity and pricing
has softened, although there is not a significant overhang of
commercial properties in this region. Intermountain holds 56% of
its loans and 48% of its deposits in this region.
The second region served by the Bank encompasses two counties in
southwestern Idaho (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, sheep and pigs, are also raised.
Agriculture has been strong over the past several years,
cushioning the impact of the downturn on these counties.
Unemployment is historically high in this area, and stood at
10.5% in December 2010, but real estate values have held up much
better, given the predominance of agricultural land in the
region. Commercial real estate property is relatively limited
and has not grown significantly. The Company holds 19% of its
loans and 21% of its deposits in this region.
The third region, known as the greater Boise area, is comprised
of two counties, Ada and Canyon. The cities of Boise, Nampa and
Caldwell were hit hard because of excessive residential and
commercial real estate development, volatility in the
areas high-tech industries, and reductions in other
corporate and state and local government activity. Unemployment
in the area was 9.9% in December 2010, but some forecasters
expect improvement in 2011 as the areas technology
industry continues to recover. Real estate price declines have
been the steepest of any in the Companys market areas,
ranging from 25% to 35% drops in finished residential home
prices to 50% to 75% in bare land and subdivision developments.
Although recent indicators, including real estate inventory
levels and valuations may indicate a bottoming, the recovery is
likely to be slow in these two counties. 11% of the
Companys loans and 10% of its deposits are in this region.
The fourth region served by the Bank encompasses two counties in
south central Idaho (Twin Falls and Gooding), also known as the
Magic Valley region. 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 contributors to the local
economy. Twin Falls County has experienced significant
commercial growth over the past 10 years, and as a result,
residential and commercial construction has been a much larger
driver of the local economy. The area is also experiencing
growth in light manufacturing and retail development.
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Twin Falls strong agricultural base, along with its status
as the commercial, medical, retail, retirement and services hub
for the area has cushioned it somewhat from the impacts of the
recession, resulting in a December 2010 unemployment rate of
8.4%. Several large commercial projects have also contributed to
the economy over the past several years. With the completion of
these projects, the next several years are likely to be slower
for the area, but still better than many other areas that lack
similar diversity. In addition, the region maintains a
conservative character with little evidence of significant
overbuilding or excess inventory. The Company has little
exposure to the dairy industry, which has been the one
significantly weaker sector in agriculture. Residential
valuation declines have been relatively moderate, in the 5% to
20% range for homes and 20% to 50% range for development land.
The Company has 8% of its loans and 9% of its deposits in the
Magic Valley region.
As demonstrated by the loan and deposit totals in each market,
Intermountain pursues a long-term strategy of balancing loan and
deposit balances in each of its regions. As it enters new
markets, it may lead with either a heavier emphasis on loans or
deposits depending on specific market opportunities. Over the
long-term, however, management believes that both Intermountain
and the local markets are well-served by pursuing a balanced
strategy and the discipline this requires.
Intermountain has also segmented its market area into core and
growth markets to facilitate future planning activities. The
Company defines its core market as including the four counties
of northern Idaho listed above, Canyon, Payette and Washington
Counties in southwestern Idaho, Malheur County in eastern
Oregon, and Gooding and Magic Valley Counties in Southwest
Idaho. Deposits in this market totaled $6.1 billion, of
which Intermountain held $771 million or 13% (Source: FDIC
Survey of Banking Institutions). The Companys growth
markets consist of Spokane County in Washington, and Ada County
in Idaho (where Boise is located), as well as counties
contiguous to its existing markets in north Idaho and eastern
Washington. Deposits in Ada and Spokane County totaled
$12.3 billion at June 30, 2010 and Intermountain held
$39 million or 0.3% of deposits in this market at the time.
The Company believes that it has significant future
opportunities in these growth markets because of an established
brand presence, strong market contacts in other banking
institutions, and the presence of distressed competitors.
Competition
As noted previously, based on total asset size and deposit
balances as of December 31, 2010, 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 involvement and empowerment. 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 market
share over the past ten years, since it began expanding beyond
its Sandpoint, Idaho base. During this time period, the Company
has grown from eighth overall in market share in its defined
core markets to second, with a consolidated market share of
12.6%. Based on the June 2010 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 noted
previously, the Spokane and Boise market areas represent
potential future growth markets for the Company, as total market
deposits in these two counties exceed by a
two-to-one
margin the total market deposits in the Companys core
markets. The Company has a relatively small, but growing
presence in Spokane County with strong local market talent. The
Company does not have any branches in Ada County, which includes
Boise, but has a number of key managers who came from or worked
in the Boise area. The Company also sees opportunities in the
Idaho and eastern Washington counties contiguous to its current
service
9
area, as they contain a number of smaller struggling
competitors, and management is familiar with many of the bankers
and customers in these markets.
As discussed above, the Companys principal market area is
divided into four separate regions based upon population and the
presence of banking offices. In northern Idaho/eastern
Washington, the primary competitors include US Bank, Wells
Fargo, Washington Trust Bank, Sterling Savings Bank, Banner
Bank and Bank of America, all large international or regional
banks, and Idaho Independent Bank and Mountain West Bank, both
community banks.
Primary competitors in the Companys other regions in
southwestern and south central Idaho and eastern Oregon include
international or regional banks, US Bank, Wells Fargo, Key Bank,
Bank of America, Banner Bank and Zions Bank, and community
banks, Bank of the Cascades, Idaho Independent Bank, DL Evans
Bank, First Federal Savings Bank and Farmers National Bank.
The severe economic downturn and additional regulatory changes
are altering Intermountains competitive landscape. Many
non-FDIC insured competitors, including residential mortgage
brokers, commercial finance operations, and commercial real
estate mortgage brokers have exited the market, a trend which is
likely to continue over the next several years. Additional bank
failures and significant consolidation of the banking industry
are forecasted as well. These events will likely present both
opportunities and challenges to Intermountain. Previous sections
have highlighted various opportunities that may arise, such as
improved credit structuring and pricing, additional growth
through attracting strong employees and customers from
disaffected institutions, and potential acquisition
opportunities. Potential challenges include stronger remaining
competitors, additional regulatory constraints, and additional
credit losses created by market disruption and significant
levels of disposition of loan collateral at depressed prices.
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, regulatory restrictions, 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 United States Department of
Agriculture (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
and/or
collateral life, 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 requiring sound
alternative repayment sources, such as collateral or strong
guarantor support. While underwriting guidelines vary, depending
on the type of loan, in general businesses are required to
maintain a minimum 1.25 debt service coverage ratio
(DSC).
Loan-to-value
(LTV) guidelines generally range from a low of 40%
on illiquid equipment and inventory to a high of 75% of
liquidation value on easily convertible accounts receivable,
inventory or equipment. Government guaranty programs are also
utilized when appropriate, and are currently being emphasized,
given favorable changes made by the federal government to the
programs and the difficult credit environment.
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
10
lending. Underwriting guidelines for agricultural credit lines
depend on the type of loan and collateral, but generally require
a minimum DSC of 1.25, and hard collateral coverage (collateral
other than the crops being grown) of greater than 50% of peak
borrowing. Term equipment loans generally require a minimum 1.25
DSC and maximum 75% liquidation LTV. 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.
Many of the Companys agricultural customers are third or
fourth generation family farmers with strong real estate equity
and limited real estate debt.
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 first mortgage loans are offered with up to
30-year
maturities, while typical maturities for second mortgages (home
improvement and home equity loans and lines) are as stated below
under Consumer Loans. First mortgage loans are
underwritten with the intention to sell the loans on the
secondary market, so guidelines generally reflect secondary
market standards. Lot acquisition and construction loans are
also offered to consumer customers with typical terms up to
36 months (interest only loans are also available) and up
to 12 months (with six months extension),
respectively, and are underwritten to both secondary market
standards and with a solid take-out mortgage loan approval
required.
Loans for purchase, construction, rehabilitation or repurchase
of commercial and industrial properties are also available
through the Bank. Commercial real estate loans are generally
confined to owner-occupied properties unless there is a strong
customer relationship or sound business project justifying
otherwise. Non-owner occupied commercial real estate loans are
restricted to borrowers with established track records and the
ability to fund potential project cash flow shortfalls from
other income sources or liquid assets. Project due diligence is
conducted by the Bank, to help provide for adequate
contingencies, collateral
and/or
government guaranties. General underwriting requirements for
owner-occupied loans require a minimum DSC of 1.25 and a maximum
LTV of 75%. For non-owner occupied loans, a minimum global DSC
of 1.25 is required, excluding rents on the subject property,
and the LTV maximum is generally less than 75%, depending on the
type of property.
With current housing market conditions, the Bank has drastically
curtailed residential land acquisition, development or builder
loans, and has significantly reduced its concentrations of these
types of loans.
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, which generally require sufficient verified and
documented disposable income, solid credit histories, and equity
in the collateral. Generally, underwriting guidelines include a
maximum debt to income of 40%, credit scores exceeding 700, and
maximum LTVs ranging from 80% on home equity loans and lines to
50% to 90% on other types of consumer collateral. Loans for the
purchase of new autos typically range up to 60 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 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
and leases are available to municipal entities, many of which
qualify for financing on a tax-exempt basis. Operating loans are
generally restricted by law to the duration of one fiscal year.
Term loans and leases, 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 bases or other revenue to adequately
support repayment.
Deposit
Services
The Bank offers the full range of retail 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
11
maximum amount permitted by law. The Bank also offers a number
of business-oriented deposit accounts, including various types
of FDIC-insured checking, savings, money market and time deposit
accounts, and non-FDIC insured alternatives including reverse
repurchase agreements and sweep accounts. Its deposit product
offerings are generally competitive with both large and small
direct competitors and provide strong opportunities for fee
income generation through direct service charges, transaction
fee income, and fees associated with related services (see
Other Services below).
Investment
Services
The Bank provides non-FDIC insured investment services through
its division, Trust and Investment Services. Products offered to
its customers include annuities, equity and fixed income
securities, mutual funds, insurance products and brokerage
services. 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, either on a per-product basis or through a percentage
of the balances invested. The Bank is also authorized to provide
investment management services through the Trust &
Wealth Management Department to clients in all fifty states.
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 and to serve as their trustee or other
fiduciary. The Bank offers these services 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 managing client
assets and providing trust services. The Company is one of the
few smaller banking institutions in the northwest to offer
in-house trust services, and activity and income from these
services has increased continuously since its beginning in 2006.
The Banks Trust & Wealth Management Department
operates under a Trust Charter through the FDIC and the
Idaho Department of Finance. Due to the reciprocity arrangements
with the states of Oregon and Washington applicable to the
Banks general banking business, the Bank is authorized to
provide fiduciary services and to serve as a fiduciary in
relationships located or sited in any of those three states. The
Bank is also authorized to provide investment management
services through the Trust & Wealth Management
Department to clients in all fifty states.
Other
Services
Other consumer-oriented services include automated teller
machines (ATMs), debit cards, safe deposit boxes,
internet and phone banking services, savings bonds, and
VISA/Mastercard credit cards. The Bank is a member of the Star,
Plus, Exchange, Interlink and Accell ATM networks. New consumer
products and services introduced over the past several years
include electronic statements, mobile-phone banking access,
identity theft protection, Certificate of Deposit Account
Registry Service (CDARS) certificates of deposit,
and EZ Points, a debit and credit card rewards program.
The Company also offers numerous business services that improve
its customers operations. Its Business Smart Online
product allows companies to manage their financial
operations efficiently from any location, including originating
ACH entries for payroll, outgoing tax and other payments, and
incoming collections. The system also allows transfers of funds
to and from various accounts and operating credit lines.
Intermountains Business Advantage service improves
cash flow and accounts receivable collection activities. Credit
card acceptance, remote deposit capture, night deposit and
concentration account services make it more convenient for
businesses to receive and deposit funds quickly, and the
Companys Check Collect service assists them in
collecting on returned checks. Intermountains positive pay
and credit card monitoring services help reduce fraud, and its
employee benefits program enhances business customers
existing benefits programs by providing valuable banking
services to their employees at a reduced cost. These services
are generally superior to those offered by similar sized and
smaller institutions and competitive with those offered by
larger institutions. They provide additional fee income to
Intermountain, and management is currently evaluating and
adjusting pricing on these services to enhance future revenue.
12
Loan
Portfolio
The loan portfolio is the largest component of earning assets,
and is comprised of net loans receivable and loans held for
sale. In 2010, net loans receivable, which includes loans the
Company generally intends to keep until repayment or maturity,
decreased by 14.1% or $92.4 million. The majority of the
decline was in land and land development loans, down
$27.6 million, commercial construction loans, down
$27.6 million, agricultural loans, down $22.9 million,
and residential construction loans, down $13.4 million.
Loans held for sale, primarily residential real estate loans
originated for sale in the secondary market, decreased by
$3.1 million.
During the past several years, the Company continued to respond
to the effects of the economic downturn by tightening
underwriting standards and aggressively resolving problem loans
through workouts with borrowers, refinances from other sources,
and/or
collateral liquidation. The Company tightened standards so that
new funding for residential land, subdivision and development,
and speculative residential construction lending has generally
ceased. Any future lending in this area would require relatively
low
loan-to-value
ratios and significant outside support from the borrowers.
Management also changed underwriting standards on both owner and
non-owner occupied commercial real estate loans to require
additional hard equity, lower LTVs, and higher DSC ratios, and
as part of its underwriting process, subjects commercial real
estate loan requests to stress testing using various scenarios.
Commercial and consumer standards were also tightened to reflect
tougher economic conditions and generally reduced borrower
strength.
Overall demand for commercial and commercial real estate loans
softened, leading to relatively static balances in these types
as well. The decrease in agricultural loans reflected the very
strong year that area farmers had in 2010, which reduced the
overall need to borrow and sped up the timing of repayment on
their annual operating lines. In a difficult economic climate,
the Bank continues to pursue quality loans using conservative
underwriting and control practices, and is expanding its
emphasis on SBA, USDA and other financing assistance programs.
The Company has also responded to declining economic conditions
by more aggressively monitoring and managing its existing loan
portfolio, and adding expertise and resources to these efforts.
Additional steps the Company has taken include developing a
weekly senior management review of all credit requests over
$250,000, continuing to centralize credit approval and
monitoring functions, increasing the staffing and scope of its
internal credit review team, hiring a highly experienced
external review team to evaluate the Companys portfolio,
and conducting more rigorous annual evaluations of its home
equity credit line portfolio. Bank lending staff continues to
utilize relationship pricing models and other techniques to
manage interest rate risk and increase customer profitability.
The Companys average loan yield increased from 5.92% in
2009 to 6.01% in 2010 as the Federal Reserve maintained the
target fed funds rate at about 0.23%. Other market rates,
including the Wall Street Journal prime lending rate, the London
Interbank Offered Rate (LIBOR) and Federal Home Loan
Bank Advance rates also remained low, pressuring the
Companys loan yields in 2010. In addition, the reversal of
interest on non-accrual and charged off loans, totaling $794,000
in 2010, compared to $1.9 million in 2009 had an impact on
loan yields, reducing the overall loan yield by 0.08% in 2010,
compared to 0.26% in 2009.
Loan
Portfolio Concentrations
The Bank continuously monitors concentrations of loan categories
in regards to industries, loan types and market areas.
Concentration guidelines are established and then approved by
the Board of Directors at least annually, and are reviewed by
management and the Board monthly. Circumstances affecting
industries and market areas 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.
Construction
and Development Loans
Management has focused over the past several years on shifting
the mix of the loan portfolio away from residential
construction, acquisition and development loans to a more
balanced mix of commercial, agriculture, commercial real estate,
and residential real estate loans. It has done this through a
combination of more conservative underwriting practices on
construction and land development lending, limited marketing,
and aggressive resolution
13
and disposal of loans in these categories. As a result, combined
loan balances in the commercial construction, land and land
development, and residential construction categories have
declined by $68.7 million from December 31, 2009 to
December 31, 2010 and by $85.8 million from
December 31, 2008 to December 31, 2009.
After the aggressive reduction efforts of the last two years,
the land development and construction loan components pose much
lower concentration risk for the total loan portfolio. However,
the weakness of the overall construction sector still poses risk
to the remaining construction and development portfolio.
Residential real estate values tend to fluctuate with economic
conditions, and have been falling rapidly in many of the
Banks markets for the last three years, although the rate
of decline is generally slowing. Management plans to continue
curtailing new lending in this segment, and maintaining its
aggressive resolution efforts to further reduce its risk.
Commercial
Loans
Although the impacts of the economic downturn are increasing
risk in the commercial portfolio, management does not consider
this portfolio to present a particular concentration
risk at this time. Management believes there is adequate
diversification by type, industry, and geography to mitigate
excessive risk. The commercial portfolio includes a mix of term
loan facilities and operating loans and lines made to a variety
of different business types in the markets it serves. The
Company utilizes SBA, USDA and other government-assisted or
guaranteed financing programs whenever advantageous to further
mitigate risk in this area. With the exception of the
agricultural portfolio, there is no other significant
concentration of industry types in its loan portfolio, and no
dominant employer or industry across all the markets it serves.
Underwriting focuses on the evaluation of potential future cash
flows to cover debt requirements, sufficient collateral margins
to buffer against devaluations, credit history of the business
and its principals, and additional support from willing and
capable guarantors.
Agricultural
Loans
The agricultural portfolio represents a larger percentage of the
loans in the Banks southern Idaho region. At
December 31, 2010, agricultural loans and agricultural real
estate loans totaled $87.4 million or 15.2% of the total
loan portfolio. The agricultural portfolio consists of loans
secured by livestock, crops and real estate. To mitigate credit
risk, specific underwriting is applied to retain only borrowers
that have proven track records in the agricultural industry.
Many of Intermountains agricultural borrowers are third or
fourth generation farmers and ranchers with limited real estate
debt, which reduces overall debt coverage requirements and
provides extra flexibility and collateral for equipment and
operating borrowing needs. In addition, the Bank has hired
senior lenders with significant experience in agricultural
lending to administer these loans. Further mitigation is
provided through frequent collateral inspections, adherence to
farm operating budgets, and annual or more frequent review of
financial performance. The Company has minimal exposure to the
dairy industry, the one significant agricultural segment that
has been under extreme pressure for the last couple of years.
Commercial
Real Estate Loans
Difficult economic conditions are increasing risk in the
non-residential component of the commercial real estate
portfolio. However, in comparison to peers, the Company had less
overall exposure to commercial real estate and a stronger mix of
owner-occupied (where the borrower occupies and operates in at
least part of the building) versus non-owner occupied loans. The
loans represented in this category are spread across the
Companys footprint, and there are no significant
concentrations by industry type or borrower. The most
significant property types represented in the portfolio are
office (19%), industrial (13%), multifamily (13%), health care
(6%), and retail (5%). The other 44% is a mix of property types
with smaller concentrations, including religious facilities,
auto-related properties, restaurants, convenience stores,
storage units, motels and commercial investment land. Finished
condominiums comprise only 1.1% of the commercial real estate
portfolio, although there are also several unfinished condo
projects in the construction and development portfolio.
While 66% of the Companys commercial real estate portfolio
is in its Northern Idaho/Eastern Washington region, this region
is a large and diverse region with differing local economies and
real estate markets. Given this diversity, and the diversity of
property types and industries represented, management does not
believe that this concentration represents a significant
concentration risk.
14
Non-owner occupied commercial real estate loans are made only to
borrowers with established track records and the ability to fund
potential project cash flow shortfalls from other income sources
or liquid assets. Project due diligence is conducted by the
Bank, to help provide for adequate contingencies, collateral
and/or
government guaranties. The Company has largely avoided
speculative financing of investment properties, particularly of
the types most vulnerable in the current downturn, including
investment office buildings and retail strip developments.
Management believes geographic, borrower and property-type
diversification, and prudent underwriting and monitoring
standards applied by seasoned commercial lenders mitigate
concentration risk in this segment.
Residential
Real Estate and Consumer
Residential real estate and consumer loans comprise smaller
segments of the loan portfolio. Management does not believe they
represent significant concentration risk. While debt service
ability and collateral values have declined in these segments,
underwriting has generally been more conservative, with higher
debt-to-income
and equity requirements than found elsewhere in the financial
industry.
Geographic
Distribution
In terms of geographic distribution, 76% of the Companys
loans are in north Idaho, eastern Washington and southwest Idaho
outside the Boise area. Although economic trends and real estate
valuations have worsened in these market areas, delinquency
levels and price declines have been less significant than in
Boise or other areas of the country. This reflects the differing
economies in these areas, generally more conservative lending
and borrowing norms, and more restrained building and
development activity. In particular, large national and regional
developers and builders did not enter and subsequently exit
these markets. The southwest Idaho and Magic Valley markets are
largely agricultural areas which have not seen rapid price
appreciation or depreciation over the last few years. Through
aggressive loan workout efforts, the Company has reduced its
exposure to the Boise area market significantly over the past
year, resulting in proportionally higher loan balances in the
regions outside of Boise from the prior year.
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 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. It is a transitional category, and once
the amount of the loss is determined, this amount is charged off
and the remaining balance of the loan would most likely be
classified as substandard. The typical duration of a
loan in the doubtful category would be one to two
months. 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.
As of December 31, 2010, the risk grades range from cash
equivalent secured loans (Risk Grade 1) to
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, 2010, the Company had $14.0 million in
the special mention, $54.1 million in the substandard, an
immaterial amount in the doubtful and $0 in the loss loan
categories. At December 31, 2009, the Company had
$6.7 million in the special mention, $75.6 million in
the substandard, $1.6 million in the doubtful and $0 in the
loss loan categories.
Overall, classified loans (loans with risk grades 6, 7, or
8) decreased from $77.2 million at the end of 2009 to
$54.1 million at the end of 2010. The decrease reflected
the Companys efforts in resolving or liquidating problem
loans during the past year, even amidst economic conditions that
were still very challenging. The continued levels of classified
assets reflect poor employment conditions and slow real estate
markets in the Companys market areas.
15
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. Total non-accrual loans
decreased from $18.5 million at December 31, 2009 to
$11.5 million at the end of 2010. When a loan is placed on
non-accrual status, interest accrued but not received is
reversed. The amount of interest income which was reversed from
income in fiscal years 2010, 2009, 2008, 2007 and 2006 on
non-accrual and other problem loans was approximately $794,000,
$1.9 million, $465,000, $161,000 and $21,000, respectively.
A non-accrual loan may be restored to accrual status if it is
brought current and has performed in accordance with contractual
terms for a reasonable period of time, and the collectability of
the total contractual principal and interest is no longer in
doubt. Other problem loans are loans that were not put in the
non-accrual status but were charged off or transferred to OREO
during the year.
Allowance
for Loan Losses
The 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, and 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 loan
commitments. However, this allocation is recorded as a
liability, as required by bank regulatory guidance issued in
early 2007.
Allocation
of the Allowance for Loan Losses
and Non-Accrual Loans Detail
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to
|
|
|
Gross
|
|
|
|
|
|
Non-Accrual
|
|
|
|
Total Loans
|
|
|
Loans
|
|
|
Allowance
|
|
|
Loans
|
|
|
Commercial loans
|
|
|
21.31
|
%
|
|
$
|
122,656
|
|
|
$
|
2,925
|
|
|
$
|
3,859
|
|
Commercial real estate loans
|
|
|
30.50
|
|
|
|
175,559
|
|
|
|
3,655
|
|
|
|
3,566
|
|
Commercial construction loans
|
|
|
3.12
|
|
|
|
17,951
|
|
|
|
540
|
|
|
|
71
|
|
Land and land development loans
|
|
|
10.59
|
|
|
|
60,962
|
|
|
|
2,408
|
|
|
|
1,910
|
|
Agriculture loans
|
|
|
15.18
|
|
|
|
87,364
|
|
|
|
779
|
|
|
|
582
|
|
Multifamily loans
|
|
|
4.59
|
|
|
|
26,417
|
|
|
|
83
|
|
|
|
|
|
Residential real estate loans
|
|
|
10.57
|
|
|
|
60,872
|
|
|
|
1,252
|
|
|
|
964
|
|
Residential construction loans
|
|
|
0.56
|
|
|
|
3,219
|
|
|
|
65
|
|
|
|
110
|
|
Consumer loans
|
|
|
2.45
|
|
|
|
14,095
|
|
|
|
613
|
|
|
|
389
|
|
Municipal loans
|
|
|
1.13
|
|
|
|
6,528
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
100.00
|
%
|
|
$
|
575,623
|
|
|
$
|
12,455
|
|
|
$
|
11,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to
|
|
|
Gross
|
|
|
|
|
|
Non-Accrual
|
|
|
|
Total Loans
|
|
|
Loans
|
|
|
Allowance
|
|
|
Loans
|
|
|
Commercial loans
|
|
|
19.57
|
%
|
|
$
|
131,562
|
|
|
$
|
4,785
|
|
|
$
|
2,653
|
|
Commercial real estate loans
|
|
|
25.69
|
|
|
|
172,726
|
|
|
|
3,827
|
|
|
|
3,209
|
|
Commercial construction loans
|
|
|
6.78
|
|
|
|
45,581
|
|
|
|
1,671
|
|
|
|
3,135
|
|
Land and land development loans
|
|
|
13.18
|
|
|
|
88,604
|
|
|
|
2,707
|
|
|
|
5,724
|
|
Agriculture loans
|
|
|
16.40
|
|
|
|
110,256
|
|
|
|
1,390
|
|
|
|
447
|
|
Multifamily loans
|
|
|
2.69
|
|
|
|
18,067
|
|
|
|
26
|
|
|
|
135
|
|
Residential real estate loans
|
|
|
9.75
|
|
|
|
65,544
|
|
|
|
1,412
|
|
|
|
2,872
|
|
Residential construction loans
|
|
|
2.47
|
|
|
|
16,626
|
|
|
|
170
|
|
|
|
205
|
|
Consumer loans
|
|
|
2.72
|
|
|
|
18,287
|
|
|
|
539
|
|
|
|
88
|
|
Municipal loans
|
|
|
0.75
|
|
|
|
5,061
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
100.00
|
%
|
|
$
|
672,314
|
|
|
$
|
16,608
|
|
|
$
|
18,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to
|
|
|
Gross
|
|
|
|
|
|
Non-Accrual
|
|
|
|
Total Loans
|
|
|
Loans
|
|
|
Allowance
|
|
|
Loans
|
|
|
Commercial loans
|
|
|
82.81
|
%
|
|
$
|
636,982
|
|
|
$
|
14,277
|
|
|
$
|
22,783
|
|
Residential loans
|
|
|
13.51
|
|
|
|
103,937
|
|
|
|
1,653
|
|
|
|
3,491
|
|
Consumer loans
|
|
|
3.02
|
|
|
|
23,245
|
|
|
|
452
|
|
|
|
91
|
|
Municipal loans
|
|
|
0.66
|
|
|
|
5,109
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
100.00
|
%
|
|
$
|
769,273
|
|
|
$
|
16,433
|
|
|
$
|
26,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the table above, commercial loans for the periods
2006-2008
include commercial real estate loans, as well as residential
land, subdivision acquisition and development, and builder
loans, where the borrower is not a consumer.
17
During 2007, the Company changed its method of calculating its
loan loss allowance in line with bank regulatory guidance issued
earlier that year. It continued to refine this methodology in
the subsequent years with improved modeling and collateral
valuation analysis. 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 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 company and regional 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 reviewed and 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 reasonable,
reliable and verifiable reserve calculation and is in compliance
with recent regulatory guidance. The Banks total allowance
for loan losses was 2.16% of total loans at December, 31, 2010
and 2.47% of total loans at December 31, 2009. The decrease
in the ratio is due primarily to the reduction in the loan
portfolio and the level of classified and non-performing loans
over the same period. Chargeoffs outpaced the loan loss
provision in 2010 due to managements aggressive reduction
of problem credits during 2010. In addition, in the third
quarter of 2010, one large commercial credit was charged off in
the amount of $4.5 million for which some recovery is
anticipated in future periods.
Managements general policy is to charge off loans or
portions of loans as soon as an identifiable loss amount can be
determined from evidence obtained, such as updated appraisals or
similar real estate evaluations, equipment, inventory or similar
collateral evaluations, or accepted offers on loan sales or
negotiated discounts. In situations where problem loans are
dependent on collateral liquidation for repayment, management
obtains updated independent valuations, generally no less
frequently than once every six months and more frequently for
larger or more troubled loans. In the time period between these
independent valuations, it monitors market conditions for any
significant event or events that would materially change the
valuations, and updates them as appropriate.
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, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Repricing
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
|
Total Loans
|
|
|
|
(Dollars in thousands)
|
|
|
0-90 days
|
|
$
|
31,536
|
|
|
$
|
129,208
|
|
|
$
|
160,744
|
|
91-365 days
|
|
|
44,036
|
|
|
|
83,429
|
|
|
|
127,465
|
|
1 year-5 years
|
|
|
120,743
|
|
|
|
122,719
|
|
|
|
243,462
|
|
5 years or more
|
|
|
39,791
|
|
|
|
4,161
|
|
|
|
43,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
236,106
|
|
|
$
|
339,517
|
|
|
$
|
575,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has traditionally maintained a high level of
variable rate loans as part of its overall balance sheet
management approach. The significant unanticipated decrease in
market rates experienced during the economic downturn and
financial turmoil of the past several years impacted these loans
negatively and created additional pressure on the Companys
asset yields and net interest margin. However, this approach
positions the Company well for a rising rate environment, in
which event the Company may experience improvement in margin.
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 carried at fair 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 0.7% to $183.1 million at
December 31, 2010 from $181.8 million at
December 31, 2009. The carrying value of the
held-to-maturity
securities
18
portfolio increased 46.4% to $22.2 million at
December 31, 2010 from $15.2 million at
December 31, 2009. During 2010, the Company deployed funds
from reductions in the Companys loan portfolio into the
investment portfolio. In addition, market conditions caused a
slight increase in the carrying value of some of the
Companys
available-for-sale
securities. In an environment where short rates stayed very low
and the yield curve steepened on the long end, the Company
sought to maintain the yield on the investment portfolio, while
positioning it for higher rates in the future. In doing so, the
Company generally maintained a short duration in its portfolio,
but did purchase a small block of high quality longer-term
municipals to maintain yield. Overall, the Company used a
combination of U.S. agency debentures and mortgage-backed
securities, whole loan collateralized mortgage obligations
(CMOs), and municipal bonds to accomplish this
positioning. The average duration of the available for sale and
the
held-to-maturity
portfolios was approximately 2.9 years and 8.2 years,
respectively on December 31, 2010, compared to
2.8 years and 8.5 years, respectively on
December 31, 2009. The average duration differs from the
investments contractual maturity as average duration takes
into account estimated prepayments.
As noted above,
available-for-sale
securities are required by generally accepted accounting
principles to be accounted for at fair value (See Note 20
Fair Value of Financial Instruments in the
Companys Consolidated Financial Statements for more
information).
Active markets and readily available pricing exists for
securities totaling $153.6 million classified as available
for sale as of December 31, 2010. For these securities, the
Company obtained fair value measurements from an independent
pricing service and internally validated these measurements. The
fair value measurements consider observable data that may
include dealer quotes, market spreads, cash flows, the
U.S. Treasury yield curve, live trading levels, trade
execution data, market consensus, prepayment speeds, credit
information and the bonds terms and conditions, among
other things.
The available for sale portfolio also includes
$29.5 million in super senior or senior tranche
collateralized mortgage obligations not backed by a government
or other agency guarantee. These securities are collateralized
by fixed rate prime or Alt A mortgages, are structured to
provide credit support to the senior tranches, and are carefully
analyzed and monitored by management. Because of disruptions in
the current market for non-government agency guaranteed
mortgage-backed securities and CMOs, a less active market
existed for these securities at December 31, 2010. This is
evidenced by a widening in the bid-ask spread for these types of
securities and the smaller volume of actual trades made. As a
result, less reliance can be placed on easily observable market
data, such as pricing on transactions involving similar types of
securities, in determining their current fair value. As such,
significant adjustments were required to determine the fair
value at the December 31, 2010 measurement date.
In valuing these securities, the Company utilized the same
independent pricing service as for its other
available-for-sale
securities. In addition, it utilized Federal Home Loan Bank
pricing indications to derive independent valuations and used
this data to evaluate and adjust the values derived from the
original independent pricing service. In addition to observable
market-based input including dealer quotes, market spreads, live
trading levels and execution data, both services also employed a
present-value income model that considered the nature and timing
of the cash flows and the relative risk of receiving the
anticipated cash flows as agreed. The discount rates used were
based on a risk-free rate, adjusted by a risk premium for each
security. In accordance with accounting guidance, the Company
has determined that the risk-adjusted discount rates utilized
appropriately reflect the Companys best estimate of the
assumptions that market participants would use in pricing the
assets in a current transaction to sell the asset at the
measurement date. Risks include nonperformance risk (that is,
default risk and collateral value risk) and liquidity risk (that
is, the compensation that a market participant receives for
buying an asset that is difficult to sell under current market
conditions). To the extent possible, the pricing services and
the Company validated the results from these models with
independently observable data.
19
The following table displays investment securities balances and
repricing information for the total portfolio:
Investment
Portfolio Detail
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
2010
|
|
|
Change
|
|
|
2009
|
|
|
Change
|
|
|
2008
|
|
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
|
|
$
|
3,894
|
|
|
|
7,535.29
|
%
|
|
$
|
51
|
|
|
|
(99.32
|
)%
|
|
$
|
7,546
|
|
Mortgage-backed securities & collateralized mortgage
obligations (CMOs)
|
|
|
173,957
|
|
|
|
(4.28
|
)
|
|
|
181,733
|
|
|
|
29.74
|
|
|
|
140,072
|
|
State and municipal bonds
|
|
|
27,447
|
|
|
|
80.85
|
|
|
|
15,177
|
|
|
|
(13.79
|
)
|
|
|
17,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
205,298
|
|
|
|
4.23
|
%
|
|
$
|
196,961
|
|
|
|
19.21
|
%
|
|
$
|
165,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
183,081
|
|
|
|
0.71
|
|
|
|
181,784
|
|
|
|
23.14
|
|
|
|
147,618
|
|
Held-to-Maturity
|
|
|
22,217
|
|
|
|
46.39
|
|
|
|
15,177
|
|
|
|
(13.79
|
)
|
|
|
17,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
205,298
|
|
|
|
4.23
|
%
|
|
$
|
196,961
|
|
|
|
19.21
|
%
|
|
$
|
165,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
held as of December 31, 2010
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
|
|
$
|
3
|
|
|
|
0.76
|
%
|
|
$
|
28
|
|
|
|
2.02
|
%
|
|
$
|
3,894
|
|
|
|
2.08
|
%
|
|
$
|
|
|
|
|
0.00
|
%
|
|
$
|
3,925
|
|
|
|
2.08
|
%
|
Mortgage-backed securities & CMOs
|
|
|
458
|
|
|
|
3.90
|
|
|
|
2,836
|
|
|
|
3.58
|
|
|
|
31,492
|
|
|
|
4.24
|
|
|
|
139,140
|
|
|
|
4.06
|
|
|
|
173,926
|
|
|
|
4.03
|
|
State and municipal bonds (tax equivalent)
|
|
|
297
|
|
|
|
3.08
|
|
|
|
708
|
|
|
|
3.77
|
|
|
|
5,930
|
|
|
|
4.04
|
|
|
|
20,512
|
|
|
|
5.12
|
|
|
|
27,447
|
|
|
|
4.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
758
|
|
|
|
3.58
|
%
|
|
$
|
3,572
|
|
|
|
3.60
|
%
|
|
$
|
41,316
|
|
|
|
4.01
|
%
|
|
$
|
159,652
|
|
|
|
4.19
|
%
|
|
$
|
205,298
|
|
|
|
4.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected maturities may differ from contractual maturities
because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Intermountains investment portfolios are managed to
provide and maintain liquidity; to maintain a balance of high
quality, diversified investments to minimize risk; to offset
other asset portfolio elements in managing interest rate risk;
to provide collateral for pledging; and to maximize
risk-adjusted returns. At December 31, 2010, the Company
does not intend to sell any of its
available-for-sale
securities that have a loss position and it is not likely that
it will be required to sell the
available-for-sale
securities before the anticipated recovery of their remaining
amortized cost. However, unforeseen changes in credit risk or
other types of portfolio risk could cause management to change
its position and sell individual securities on a
case-by-case
basis.
See Note 20 Fair Value of Financial Instruments
in the Companys Consolidated Financial Statements for more
information on the calculation of fair or carrying value for the
investment securities.
Fed Funds
Sold & Cash Equivalents
The Bank held $131.8 million in excess funds at the Federal
Reserve at December 31, 2010, as compared to
$81.7 million in Fed Funds Sold at December 31, 2009.
At December 31, 2010, excess funds were held at the Federal
Reserve as opposed to Fed Funds Sold at a correspondent bank as
there was a higher yield on the excess
20
funds at the Federal Reserve. During 2010, the Company
maintained an average balance of Fed Funds Sold and
interest-bearing unrestricted cash equivalents (referred to in
subsequent references as Fed Funds Sold for ease of
reference and because the instruments are not materially
different) of $101.1 million as a strategy to preserve and
enhance liquidity during a period of continuing market turmoil.
This compares to an average balance of Fed Funds Sold in 2009 of
$43.9 million. The higher level of Fed Funds Sold
maintained during 2010 resulted in a decrease in interest income
and net interest income as the Fed Funds Sold yield during 2010
was at historically low levels of between 0.00% and 0.25%.
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
Deposit Composition & Trends
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Demand
|
|
$
|
168,519
|
|
|
|
21.6
|
|
|
$
|
168,244
|
|
|
|
20.5
|
|
NOW and money market 0.0% to 4.65%
|
|
|
327,891
|
|
|
|
42.1
|
|
|
|
340,070
|
|
|
|
41.6
|
|
Savings and IRA 0.0% to 5.75%
|
|
|
75,387
|
|
|
|
9.7
|
|
|
|
77,623
|
|
|
|
9.5
|
|
Certificate of deposit accounts (CDs) under $100,000
|
|
|
79,533
|
|
|
|
10.2
|
|
|
|
86,381
|
|
|
|
10.5
|
|
Jumbo CDs
|
|
|
77,685
|
|
|
|
10.0
|
|
|
|
82,249
|
|
|
|
10.0
|
|
Brokered CDs
|
|
|
40,899
|
|
|
|
5.3
|
|
|
|
54,428
|
|
|
|
6.6
|
|
CDARS CDs to local customers
|
|
|
8,919
|
|
|
|
1.1
|
|
|
|
10,326
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
778,833
|
|
|
|
100.0
|
|
|
$
|
819,321
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate on certificates of deposit
|
|
|
|
|
|
|
1.66
|
%
|
|
|
|
|
|
|
2.52
|
%
|
Core Deposits as a percentage of total deposits(1)
|
|
|
|
|
|
|
83.2
|
%
|
|
|
|
|
|
|
81.6
|
%
|
Deposits generated from the Companys market area as a % of
total deposits
|
|
|
|
|
|
|
94.8
|
%
|
|
|
|
|
|
|
93.4
|
%
|
|
|
|
(1) |
|
Core deposits consist of non-interest bearing checking,
interest-bearing checking, money market, and savings accounts,
and retail certificate of deposit accounts of less than $100,000. |
Deposits totaled $778.8 million, representing 82.4% of the
Banks liabilities at December 31, 2010. Total
deposits decreased 4.9% in 2010, largely as a result of
reductions in wholesale brokered CDs and higher-priced retail
CDs where the bank did not have other accounts with the
depositor. Given the high level of liquid assets, the Company
moved aggressively to price down its deposit portfolio and
allowed brokered, collateralized and single-service deposit
accounts to run off. Total transaction account deposits (demand,
NOW and money market) comprise 63.7% of total deposits, a
percentage that significantly exceeds peer group averages. The
Company continues to emphasize growth in low-cost transaction
account balances to minimize its cost of funding, enhance fee
income and other cross-selling opportunities, and match its
asset composition.
65% of the Companys transaction accounts have been in
existence for more than three years. When combined with the
growth rates of the Companys retail deposits over the past
ten years, this demonstrates the Companys ability to both
grow and retain its transaction deposit customers.
The Companys strong local, core funding base, high
percentage of checking, money market and savings balances and
careful management of its brokered CD funding provide
lower-cost, more reliable funding to the Company than most of
its peers and add to the liquidity strength of the Bank.
Maintaining the local funding base at a reasonable cost remains
a critical priority for the Companys management and
production staff. The Company uses a combination of proactive
branch staff efforts and a dedicated team of deposit sales
specialists to target and grow low-cost deposit balances. It
emphasizes personalized service, local community involvement and
targeted campaigns to generate deposits, rather than media
campaigns or advertised rate specials. The introduction of new
sales platform technology, web-banking enhancements, and social
networking capabilities in 2010 should spur additional low cost
deposit growth when the Company needs it in the future.
21
The Company seeks long-term balance between loans and deposits
in each of its regions, and has generally succeeded in achieving
this balance, although when it enters new markets, it may
emphasize one or the other depending on the specific market.
Business checking, NOW, money market and savings balances
comprise about 42% of total non-maturity deposits, and consumer
about 58%. The Company emphasizes balanced growth of both
business and consumer deposits in its markets to diversify its
funding sources. Consumer deposit growth is largely driven by
branch marketing efforts in the communities served.
Intermountain also employs specialized business services
officers who target the acquisition of business deposit accounts
and other fee-related services. With the exception of the
secured savings program noted below, the Company is not reliant
on any one depositor or small group of depositors, with the
largest single depositor making up less than 1% of overall
company deposits.
The Company currently holds $22.5 million in deposits used
to secure credit cards marketed and maintained by another bank
under a contractual arrangement. The contractual arrangement
terminated in November, 2009 and was replaced by a transitional
contract allowing the provider sufficient time to move these
deposits into its own organization. This movement is not
anticipated to occur until late 2012, and Intermountain is
pursuing opportunities to expand its management of secured
savings accounts with other potential card providers.
The following table details re-pricing information for the
Banks time deposits with minimum balance of $100,000 at
December 31, 2010 (in thousands):
|
|
|
|
|
Maturities/Repricing
|
|
|
|
|
Less than three months
|
|
$
|
37,655
|
|
Three to six months
|
|
|
10,316
|
|
Six to twelve months
|
|
|
27,661
|
|
Over twelve months
|
|
|
57,018
|
|
|
|
|
|
|
|
|
$
|
132,650
|
|
|
|
|
|
|
In terms of overall deposits, the Company is the market share
leader in 5 of the 11 markets in which it operates and has
consistently grown market share for the past ten years. See the
market share information under Competition on
page 9 of this report for more information.
By repricing its portfolio, the Company succeeded in lowering
the 2010 interest cost on its interest-bearing deposits by
0.55%. This resulted in overall liability interest costs to the
Bank being 0.22% below the average of its peer group as of
December 31, 2010 (Source: UBPR for December 31,
2010). This decrease occurred amidst an environment where
several stressed competitors continued to offer high CD rates in
order to retain and attract additional deposits. Given the
current compressed market rate environment, management believes
that this improvement and its overall competitive standing
positions the Company well for future periods.
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, 2010, the
Bank had overnight unsecured credit lines of $35.0 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 and subject to collateralization requirements
and a blanket pledge agreement. It also has a Borrower in
Custody line set up with the Federal Reserve Bank, subject
to collateralization requirements.
At December 31, 2010 the Bank had a $5.0 million FHLB
advance at 1.49% that matures in September 2011, a
$25.0 million FHLB advance at 2.06% that matures in October
2012, and a $4.0 million FHLB advance at 3.11% that matures
in September 2014. These notes totaled $34.0 million, and
the Bank had the ability to borrow an additional
$83.6 million from the FHLB.
22
The Bank has the ability to borrow up to $24.3 million on a
short term basis from the Federal Reserve Bank under the
Borrower in Custody program, utilizing commercial loans as
collateral. At December 31, 2010, the Bank had no
borrowings outstanding under this line.
In March 2007, the Company entered into an additional borrowing
agreement with Pacific Coast Bankers Bank (PCBB) in
the amount of $18.0 million and in December 2007 increased
the amount to $25.0 million. The borrowing agreement was a
non-revolving line of credit with a variable rate of interest
tied to LIBOR and was collateralized by Bank stock and the
Companys headquarters building. This line was used
primarily to fund the construction costs of this building in
Sandpoint. The balance at December 31, 2008 was
$23.1 million at a variable interest rate of 3.4%. The
borrowing had a maturity of January 2009 and was extended for
90 days with a fixed rate of 7.0%. The Company negotiated
with PCBB to refinance this loan into three amortizing term loan
facilities totaling $23.0 million in May 2009. In August
2009, the Company sold the Sandpoint Center and paid off the
PCBB borrowings.
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
had a fixed rate of 6.65%, matured in February 2026 and had an
outstanding balance of $941,000 at December 31, 2008. The
Note Payable was paid off in May 2009 with the refinance of the
PCBB debt.
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. The majority
of the repurchase agreements are with municipal customers in the
Companys local markets and mature on a daily basis, with
an institutional repurchase agreement in the amount of
$30.0 million maturing in July 2011. These agreements had a
weighted average interest rate of 0.27%, 0.36%, and 2.00% at
December 31, 2010, 2009 and 2008, respectively. The average
balances of securities sold subject to repurchase agreements
were $87.2 million, $82.6 million, and
$102.5 million during the years ended December 31,
2010, 2009 and 2008, respectively. The maximum amount
outstanding at any month end during these same periods was
$105.1 million, $100.3 million, and
$124.4 million, respectively. The increase in the
repurchase amounts during 2010 reflected movement of municipal
funds into sweep agreements as a result of changes in FDIC
coverage on low interest bearing accounts, and lower rates on
municipal investment alternatives. In 2006, the Company entered
into an institutional repurchase agreement to reduce interest
rate risk in a down-rate environment. For all of 2010, this
structured agreement carried an effective interest cost of
0.00%. At December 31, 2010, 2009, and 2008, the Company
pledged as collateral certain investment securities with
aggregate amortized costs of $126.2 million,
$125.4 million, and $114.8 million, respectively.
These investment securities had market values of
$128.7 million, $125.7 million, and
$116.3 million at December 31, 2010, 2009 and 2008,
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 on a variable basis tied to the
90-day LIBOR
index plus 3.25% with interest payable quarterly. The debt was
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 was
callable by the Company starting in April 2009, bears interest
on a variable basis tied to the
90-day LIBOR
index plus 2.8%, and matures in April 2034. In July of 2008, the
Company entered into a cash flow swap transaction with Pacific
Coast Bankers Bank, by which the Company effectively pays a
fixed rate on these securities of 7.38% through July 2013 (see
Note 19 in the Companys Consolidated Financial
Statements for more information on this swap). Funds received
from this borrowing were used to support planned expansion
activities during 2004, including the Snake River Bancorp
acquisition.
During the third quarter of 2009, the Board of Directors of the
Company approved the deferral of regularly scheduled interest
payments on its outstanding Junior Subordinated Debentures
related to its Trust Preferred Securities (TRUPS
Debentures), beginning in December 2009. The Company is
permitted to defer payments of interest on the TRUPS Debentures
for up to 20 consecutive quarterly periods without default.
During the deferral
23
period, the Company may not pay any dividends or distributions
on, or redeem, purchase or acquire, or make a liquidation
payment with respect to the Companys capital stock, or
make any payment of principal or interest on, or repay,
repurchase or redeem any debt securities of the Company that
rank equally or junior to the TRUPS Debentures. Deferred
payments compound for the TRUPS Debentures. Although these
expenses will continue to be accrued on the consolidated income
statements for the Company, deferring these interest payments
will preserve approximately $140,000 per quarter in cash for the
Company. Notwithstanding the current deferral of interest
payments, the Company fully intends to meet all of its
obligations to the holders of the TRUPS Debentures as quickly as
it is prudent to do so. At December 31, 2010, the total
deferred interest payments totaled $682,000.
Employees
The Company employed 349 full-time equivalent employees at
December 31, 2010, down from 406 at the end of 2009 and 418
at the end of 2008. None of the employees are represented by a
collective bargaining unit and the Company believes it has good
relations with its employees. The Company reduced full-time
equivalent employees during both 2009 and 2010 as part of an
operating expense reduction strategy.
Supervision
and Regulation
General
The following discussion provides an overview of certain
elements of the extensive regulatory framework applicable to
Intermountain Community Bancorp (the Company) and
Panhandle State Bank, which operates under the names Panhandle
State Bank, Magic Valley Bank and Intermountain Community Bank
(collectively referred to herein as 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 and growth 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 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
the interpretation or implementation thereof, could have a
material effect on our business or operations. Recently, in
light of the recent financial crisis, numerous proposals to
modify or expand banking regulation have surfaced. Based on past
history, if any are approved, they will add to the complexity
and cost of our business.
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.
24
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 certain non-capital safety and soundness standards on
banks. These standards cover internal controls, information
systems and internal audit systems, loan
25
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.
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.
The Interstate Act requires regulators to consult with community
organizations before permitting an interstate institution to
close a branch in a low-income area. Federal banking regulations
prohibit banks from using their interstate branches primarily
for deposit production and the federal bank regulatory agencies
have implemented a
loan-to-deposit
ratio screen to ensure compliance with this prohibition. As a
result of the Dodd-Frank Act, prior restrictions on de novo
branching by out of state banks have been removed. The
Dodd-Frank Act generally permits all banks to branch into other
states by opening a new branch or purchasing a branch from
another financial institution, to the extent that banks
chartered under the state in which the new branch is located can
do so. In the past, the Interstate Act barred all financial
institutions, except for thrifts, from branching into other
states unless they purchased or merged with a bank located in
the other state.
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. Additionally,
current guidance from the Federal Reserve provides, among other
things, that dividends per share on the Companys common
stock generally should not exceed earnings per share, measured
over the previous four fiscal quarters. The Company entered into
an informal agreement with the Federal Reserve and the Idaho
Department of Finance, which requires the Company to obtain
advance approval from the Federal Reserve and the Idaho
Department of Finance prior to paying any dividends. Payment of
cash dividends by the Company will depend on sufficient earnings
to support them and approval of appropriate bank regulatory
authorities.
In addition to the foregoing regulatory restrictions, we are
subject to contractual restrictions that limit us from paying
dividends on our common stock, including those contained in the
securities purchase agreement between us and the Treasury, as
described in more detail below.
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-
26
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
average 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. At each successively
lower capital category, an insured bank is subject to increased
restrictions on its operations. During these challenging
economic times, the federal banking regulators have actively
enforced these provisions.
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.
Corporate
Governance and Accounting
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.
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.
27
Anti-terrorism
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.
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.
The Emergency Economic Stabilization Act of 2008
Emergency Economic Stabilization Act of
2008. In response to market turmoil and financial
crises affecting the overall banking system and financial
markets in the United States, the Emergency Economic
Stabilization Act of 2008 ( EESA) was enacted on
October 3, 2008. EESA provides the United States Department
of the Treasury (the Treasury) with broad authority
to implement certain actions intended to help restore stability
and liquidity to the U.S. financial markets.
Troubled
Asset Relief Program
Under the EESA, the Treasury has authority, among other things,
to purchase up to $700 billion in mortgage loans,
mortgage-related securities and certain other financial
instruments, including debt and equity securities issued by
financial institutions pursuant to the Troubled Asset Relief
Program (TARP). The purpose of TARP is to restore
confidence and stability to the U.S. banking system and to
encourage financial institutions to increase lending to
customers and to each other. Pursuant to the EESA, the Treasury
was initially authorized to use $350 billion for TARP. Of
this amount, the Treasury allocated $250 billion to the
TARP Capital Purchase Program (CPP), which funds
were used to purchase preferred stock from qualifying financial
institutions. The CPP provides direct equity investment of
perpetual preferred stock by the Treasury in qualified financial
institutions. The program is voluntary and requires an
institution to comply with a number of restrictions and
provisions, including limits on executive compensation, stock
redemptions and declaration of dividends. For publicly traded
companies, the CPP also requires the Treasury to receive
warrants for common stock equal to 15% of the capital invested
by the Treasury. The Company applied for and received
$27 million in the CPP. As a result, the Company is subject
to the restrictions described below. The Treasury made an equity
investment in the Company through its purchase of the
Companys Fixed Rate Cumulative Perpetual Preferred Stock,
Series A (the Preferred Stock). The description
of the Preferred Stock set forth below is qualified in its
entirety by the actual terms of the Preferred Stock, as are
stated in the Certificate of Designation for the Preferred
Stock, a copy of which was attached as Exhibit 3.1 to our
Current Report on
Form 8-K
filed with the SEC on December 19, 2008 and incorporated by
reference.
General. The Preferred Stock constitutes a
single series of our preferred stock, consisting of
27,000 shares, no par value per share, having a liquidation
preference amount of $1,000 per share. The Preferred Stock has
no maturity date. We issued the shares of Preferred Stock to
Treasury on December 19, 2008 in connection with the CPP
for a purchase price of $27,000,000.
28
Dividend Rate. Dividends on the Preferred
Stock are payable quarterly in arrears, when, as and if
authorized and declared by our Board of Directors out of legally
available funds, on a cumulative basis on the $1,000 per share
liquidation preference amount plus the amount of accrued and
unpaid dividends for any prior dividend periods, at a rate of
(i) 5% per annum, from the original issuance date to the
fifth anniversary of the issuance date, and (ii) 9% per
annum, thereafter.
Dividends on the Preferred Stock will be cumulative. If for any
reason our Board of Directors does not declare a dividend on the
Preferred Stock for a particular dividend period, or if our
Board of Directors declares less than a full dividend, we will
remain obligated to pay the unpaid portion of the dividend for
that period and the unpaid dividend will compound on each
subsequent dividend date (meaning that dividends for future
dividend periods will accrue on any unpaid dividend amounts for
prior dividend periods). The Company entered into an informal
agreement with the Federal Reserve and the Idaho Department of
Finance, which requires the Company to obtain advance approval
from the Federal Reserve and the Idaho Department of Finance
prior to paying any dividends including dividends on the
Preferred Stock. Under the CPP, if the Company fails to pay
dividends on the Preferred Stock for 6 quarters, Treasury may
appoint two members to the Companys board of directors.
Priority of Dividends. Until the earlier of
the third anniversary of Treasurys investment or our
redemption or the Treasurys transfer of the Preferred
Stock to an unaffiliated third party, we may not declare or pay
a dividend or other distribution on our common stock (other than
dividends payable solely in common stock), and we generally may
not directly or indirectly purchase, redeem or otherwise acquire
any shares of common stock, including trust preferred securities.
Liquidation Rights. In the event of any
voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company, holders of the Preferred Stock
will be entitled to receive for each share of Preferred Stock,
out of the assets of the Company or proceeds available for
distribution to our shareholders, subject to any rights of our
creditors, before any distribution of assets or proceeds is made
to or set aside for the holders of our common stock and any
other class or series of our stock ranking junior to the
Preferred Stock, payment of an amount equal to the sum of
(i) the $1,000 liquidation preference amount per share and
(ii) the amount of any accrued and unpaid dividends on the
Preferred Stock (including dividends accrued on any unpaid
dividends). To the extent the assets or proceeds available for
distribution to shareholders are not sufficient to fully pay the
liquidation payments owing to the holders of the Preferred Stock
and the holders of any other class or series of our stock
ranking equally with the Preferred Stock, the holders of the
Preferred Stock and such other stock will share ratably in the
distribution. For purposes of the liquidation rights of the
Preferred Stock, neither a merger nor consolidation of the
Company with another entity nor a sale, lease or exchange of all
or substantially all of the Companys assets will
constitute a liquidation, dissolution or winding up of the
affairs of the Company.
Compensation and Corporate Governance Standards and
Restrictions under the CPP. As a participant in
the CPP, the Company is subject to compensation and corporate
governance standards and restrictions under applicable
legislation and Treasury regulations, which include but are not
limited to (1) restrictions on bonus, incentive and
retention awards to our five most highly-compensated employees,
(2) restrictions on severance and
change-in-control
payments to our executive officers and next five most
highly-compensated employees, (3) ensuring that our
compensation programs do not encourage unnecessary and excessive
risks, and (4) requiring the recovery or
clawback of any incentive compensation paid to our
executive officers and next 20 most highly-compensated employees
if it is later determined that such payments were based on
materially inaccurate financial or other performance criteria.
The applicable regulations and their impact on the Company will
be discussed more fully in our proxy statement for the 2010
annual meeting of shareholders, incorporated by reference into
Part III of this
Form 10-K.
Temporary Liquidity Guarantee Program. Another
program established pursuant to the EESA is the Temporary
Liquidity Guarantee Program (TLGP), which
(i) removed the limit on FDIC deposit insurance coverage
for non-interest bearing transaction accounts through
December 31, 2009, and (ii) provided FDIC backing for
certain types of senior unsecured debt issued from
October 14, 2008 through June 30, 2009. The end-date
for issuing senior unsecured debt was later extended to
October 31, 2009 and the FDIC also extended the Transaction
Account Guarantee portion of the TLGP through December 31,
2010. Financial institutions that did not opt out of unlimited
coverage for non-interest bearing accounts were initially
charged an annualized 10 basis points on
29
individual account balances exceeding $250,000, and those
issuing FDIC-backed senior unsecured debt were initially charged
an annualized 75 basis points on all such debt, although
those rates were subsequently increased. We elected to fully
participate in both parts of the TLGP.
Deposit Insurance
The Banks deposits are insured under the Federal Deposit
Insurance Act, up to the maximum applicable limits and are
subject to deposit insurance assessments designed to tie what
banks pay for deposit insurance more closely to the risks they
pose. The Bank has prepaid its quarterly deposit insurance
assessments for 2011 and 2012 pursuant to applicable FDIC
regulations, but the passage of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the Dodd-Frank
Act) in July 2010 required the FDIC to amend its
regulations to redefine the assessment base used for calculating
deposit insurance assessments. As a result, in February 2011,
the FDIC approved new rules to, among other things, change the
assessment base from one based on domestic deposits (as it has
been since 1935) to one based on assets (average
consolidated total assets minus average tangible equity). Since
the new assessment base is larger than the base used under prior
regulations, the rules also lower assessment rates, so that the
total amount of revenue collected by the FDIC from the industry
is not significantly altered. The rule also revises the deposit
insurance assessment system for large financial institutions,
defined as institutions with at least $10 billion in
assets. The rules revise the assessment rate schedule, effective
April 1, 2011, and adopt additional rate schedules that
will go into effect when the Deposit Insurance Fund reserve
ratio reaches various milestones.
Insurance of Deposit
Accounts. The EESA included a
provision for a temporary increase from $100,000 to $250,000 per
depositor in deposit insurance effective October 3, 2008
through December 31, 2010. On May 20, 2009, the
temporary increase was extended through December 31, 2013.
The Dodd-Frank Act permanently raises the current standard
maximum deposit insurance amount to $250,000. The FDIC insurance
coverage limit applies per depositor, per insured depository
institution for each account ownership category. EESA also
temporarily raised the limit on federal deposit insurance
coverage to an unlimited amount for non-interest or low-interest
bearing demand deposits. Pursuant to the Dodd-Frank Act,
unlimited coverage for non-interest transaction accounts will
continue upon expiration of the TLGP until December 31,
2012.
Recent
Legislation
Dodd-Frank Wall Street Reform and Consumer Protection
Act. As a result of the recent financial crises,
on July 21, 2010 the Dodd-Frank Act was signed into law.
The Dodd-Frank Act is expected to have a broad impact on the
financial services industry, including significant regulatory
and compliance changes and changes to corporate governance
matters affecting public companies. Many of the requirements
called for in the Dodd-Frank Act will be implemented over time
and most will be subject to implementing regulations over the
course of several years. Among other things, the legislation
(i) centralizes responsibility for consumer financial
protection by creating a new agency responsible for
implementing, examining and enforcing compliance with federal
consumer financial laws; (ii) applies the same leverage and
risk-based capital requirements that apply to insured depository
institutions to bank holding companies; (iii) requires the
FDIC to seek to make its capital requirements for banks
countercyclical so that the amount of capital required to be
maintained increases in times of economic expansion and
decreases in times of economic contraction; (iv) changes
the assessment base for federal deposit insurance from the
amount of insured deposits to consolidated assets less tangible
capital; (v) requires the SEC to complete studies and
develop rules or approve stock exchange rules regarding various
investor protection issues, including shareholder access to the
proxy process, and various matters pertaining to executive
compensation and compensation committee oversight;
(vi) makes permanent the $250,000 limit for federal deposit
insurance and provides unlimited federal deposit insurance until
December 31, 2012, for non-interest bearing transaction
accounts; (vii) removes prior restrictions on interstate de
novo branching; and (viii) repeals the federal prohibitions
on the payment of interest on demand deposits, thereby
permitting depository institutions to pay interest on business
transaction and other accounts. Many aspects of the Dodd-Frank
Act are subject to rulemaking and will take effect over several
years, making it difficult to anticipate the overall financial
impact on the Company, the Bank and the financial services
industry more generally. However, based on past experience with
new legislation, it can be anticipated that the Dodd-Frank Act,
directly and indirectly, will impact the business of the Company
and the Bank and increase compliance costs.
30
American Recovery and Reinvestment Act of
2009. On February 17, 2009, the American
Recovery and Reinvestment Act of 2009 (ARRA) was
signed into law. ARRA is intended to help stimulate the economy
through a combination of tax cuts and spending provisions
applicable to a broad range of areas with an estimated cost of
$787 billion. The impact that ARRA may have on the US
economy, the Company and the Bank cannot be predicted with
certainty.
Overdrafts. On November 17, 2009, the
Board of Governors of the Federal Reserve System promulgated the
Electronic Fund Transfer rule with an effective date of
January 19, 2010 and a mandatory compliance date of
July 1, 2010. The rule, which applies to all FDIC-regulated
institutions, prohibits financial institutions from assessing an
overdraft fee for paying automated teller machine (ATM) and
one-time
point-of-sale
debit card transactions, unless the customer affirmatively opts
in to the overdraft service for those types of transactions. The
opt-in provision establishes requirements for clear disclosure
of fees and terms of overdraft services for ATM and one-time
debit card transactions. Since a percentage of the
Companys service charges on deposits are in the form of
overdraft fees on
point-of-sale
transactions, this could have an adverse impact on our
non-interest income.
Proposed
Legislation
Proposed legislation is introduced in almost every legislative
session. Certain of such legislation could dramatically affect
the regulation of the banking industry. We cannot predict if any
such legislation will be adopted or if it is adopted how it
would affect the business of the Company or the Bank. Past
history has demonstrated that new legislation or changes to
existing laws or regulations usually results in a greater
compliance burden and therefore generally increases the cost of
doing business.
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 and their
impact on us cannot be predicted with certainty.
Where you
can find more information
The periodic reports Intermountain files with the SEC are
available on Intermountains website at
http://www.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
414 Church Street
Sandpoint, Idaho 83864
(208) 263-0505
Our
business exposes us to certain risks. The following is a
discussion of what we currently believe are the most significant
risks and uncertainties that may affect our business, financial
condition or results of operations, or the value of our common
stock.
The
continued challenging economic environment could have a material
adverse effect on our future results of operations or market
price of our stock.
The national economy and the financial services sector in
particular, are still facing significant challenges.
Substantially all of our loans are to businesses and individuals
in northern, southwestern and south central Idaho,
31
eastern Washington and southwestern Oregon, markets facing many
of the same challenges as the national economy, including
elevated unemployment and declines in commercial and residential
real estate. Although some economic indicators are improving
both nationally and in the markets we serve, unemployment
remains high and there remains substantial uncertainty regarding
when and how strongly a sustained economic recovery will occur.
A further deterioration in economic conditions in the nation as
a whole or in the markets we serve could result in the following
consequences, any of which could have an adverse impact, which
may be material, on our business, financial condition, results
of operations and prospects, and could also cause the market
price of our stock to decline:
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economic conditions may worsen, increasing the likelihood of
credit defaults by borrowers;
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loan collateral values, especially as they relate to commercial
and residential real estate, may decline further, thereby
increasing the severity of loss in the event of loan defaults;
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nonperforming assets and write-downs of assets underlying
troubled credits could adversely affect our earnings;
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demand for banking products and services may decline, including
services for low cost and non-interest-bearing deposits; and
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changes and volatility in interest rates may negatively impact
the yields on earning assets and the cost of interest-bearing
liabilities.
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Our
allowance for loan losses may not be adequate to cover actual
loan losses, which could adversely affect our
earnings.
We maintain an allowance for loan losses in an amount that we
believe is adequate to provide for losses inherent in our loan
portfolio. While we strive to carefully manage and monitor
credit quality and to identify loans that may be deteriorating,
at any time there are loans included in the portfolio that may
result in losses, but that have not yet been identified as
potential problem loans. Through established credit practices,
we attempt to identify deteriorating loans and adjust the loan
loss reserve accordingly. However, because future events are
uncertain, there may be loans that deteriorate in an accelerated
time frame. As a result, future additions to the allowance may
be necessary. Because the loan portfolio contains a number of
loans with relatively large balances, deterioration in the
credit quality of one or more of these loans may require a
significant increase to the allowance for loan losses. Future
additions to the allowance may also be required based on changes
in the financial condition of borrowers, such as have resulted
due to the current, economic conditions or as a result of actual
events turning out differently than forecasted in the
assumptions we use to determine the allowance for loan losses.
Additionally, federal banking regulators, as an integral part of
their supervisory function, periodically review our allowance
for loan losses. These regulatory agencies may require us to
recognize further loan loss provisions or charge-offs based upon
their judgments, which may be different from ours. Any increase
in the allowance for loan losses would have a negative effect,
which may be material, on our financial condition and results of
operations.
We
have recently entered into an informal agreement with our
regulators to take steps to further strengthen the
Bank.
The Bank has entered into an informal agreement with the FDIC
and the Idaho Department of Finance to take steps to further
strengthen the Bank within specified timeframes, including,
among other items, increasing capital by at least
$30 million by June 16, 2010 and thereafter
maintaining a minimum 10% Tier 1 Capital to Average Assets
ratio, not paying dividends from the Bank to the Company without
prior approval, achieving staged reductions in the Banks
adversely classified assets and not engaging in transactions
that would materially alter our balance sheet composition.
Management has taken numerous steps to satisfy the conditions of
the agreement, including seeking and obtaining shareholder
approval to increase the Companys authorized common stock
to facilitate raising capital. The Company is actively engaged
in negotiations with potential investors for a significant
capital raise. However, there can be no assurance that we will
be successful in raising the required capital or satisfying all
of the other conditions of the agreement within the specified
timeframes.
32
We
will pursue additional capital in the future, which likely would
dilute the holders of our outstanding common stock and may
adversely affect the market price of our common
stock.
In the current economic environment, we believe it is prudent to
consider alternatives for raising capital when opportunities to
raise capital at attractive prices present themselves, in order
to further strengthen our capital and better position ourselves
to take advantage of opportunities that may arise in the future.
In addition, as noted above, we have entered into an informal
agreement with our primary regulators to increase capital levels
at the Bank. Alternatives for raising capital may include
issuance and sale of common or preferred stock, trust preferred
securities, or borrowings by the Company, with proceeds
contributed to the Bank. Our ability to raise additional capital
will depend on, among other things, conditions in the capital
markets at the time, which are outside of our control, and our
financial performance. We cannot assure you that such capital
will be available to us on acceptable terms, if at all. Any such
capital raising alternatives likely would dilute the holders of
our outstanding common stock and may adversely affect the market
price of our common stock.
We
incurred a significant loss over the last fiscal year and losses
may continue in the future.
During the year ended December 31, 2010 we incurred a net
loss applicable to common stockholders of $33.5 million, or
a loss of $3.99 per share primarily due to an $11.7 million
goodwill impairment charge, an $8.8 million deferred tax
asset valuation allowance and a $24.0 million provision for
loan losses. During the 2009 fiscal year, we incurred a net loss
applicable to common stockholders of $23.6 million, or a
loss of $2.82 per common share, primarily due to a
$36.3 million expense for the provision for loan losses and
$5.4 million in OREO expenses and chargedowns. In light of
the current economic environment, significant additional
provisions for credit losses may be necessary to supplement the
allowance for loan and lease losses in the future. As a result,
we may incur significant credit costs, including legal and
related collection expenses in 2011, which would continue to
have an adverse impact on our financial condition and results of
operations and the market price of our common stock. Additional
credit losses or impairment charges could cause us to incur a
net loss in the future and could adversely affect the price of,
and market for, our common stock.
Concentration
in real estate loans and the deterioration in the real estate
markets we serve could require material increases in our
allowance for loan losses and adversely affect our financial
condition and results of operations.
The current economic downturn and sluggish recovery is
significantly affecting our market area. At December 31,
2010, 63.7% of our loans were secured with real estate as the
primary collateral. Further deterioration or a slow recovery in
the local economies we serve could have a material adverse
effect on our business, financial condition and results of
operations due to a weakening of our borrowers ability to
repay these loans and a decline in the value of the collateral
securing them. Our ability to recover on these loans by selling
or disposing of the underlying real estate collateral is
adversely impacted by declining real estate values, which
increases the likelihood we will suffer losses on defaulted
loans secured by real estate beyond the amounts provided for in
the allowance for loan losses. This, in turn, could require
material increases in our allowance for loan losses and
adversely affect our financial condition and results of
operations, perhaps materially.
Non-performing
assets take significant time to resolve and adversely affect our
results of operations and financial condition.
At December 31, 2010, our non-performing loans (which
consist of non-accrual loans and loans that are 90 days or
more past due) were 2.0% of the loan portfolio. At
December 31, 2010, our non-performing assets (which also
include OREO) were 1.6% of total assets. These levels of
non-performing loans and assets are at elevated levels compared
to historical norms. Non-performing loans and assets adversely
affect us in a variety of ways. Until economic and market
conditions improve, we may expect to continue to incur losses
relating to elevated levels of non-performing assets. We do not
record interest income on non-accrual loans, thereby adversely
affecting our net interest income and increasing loan
administration costs. When we receive collateral through
foreclosures and similar proceedings, we are required to mark
the related loan to the then fair market value of the
collateral, which may ultimately result in a loss. An increase
in the level of non-performing assets also increases our risk
profile and may impact the capital levels our regulators believe
are appropriate in light of such risks. We utilize various
33
techniques such as loan sales, workouts and restructurings to
manage our problem assets. Decreases in the value of these
problem assets, the underlying collateral, or in the
borrowers performance or financial condition, could
adversely affect our business, results of operations and
financial condition, perhaps materially. In addition, the
resolution of non-performing assets requires significant
commitments of time from management and staff, which can be
detrimental to the performance of their other responsibilities.
There can be no assurance that we will not experience increases
in non-performing loans and assets in the future.
Our
ability to receive dividends from our banking subsidiary
accounts for most of our revenue and could affect our liquidity
and ability to pay dividends.
We are a separate and distinct legal entity from our banking
subsidiary, Panhandle State Bank. We receive substantially all
of our revenue from dividends from our banking subsidiary. These
dividends are the principal source of funds to pay dividends on
our common and preferred stock and principal and interest on our
outstanding debt. The other primary sources of liquidity for the
parent Company are capital or borrowings. Various federal
and/or state
laws and regulations limit the amount of dividends that the Bank
may pay us. For example, Idaho law limits a banks ability
to pay dividends subject to surplus reserve requirements. In
addition, as noted above, we have entered into an informal
agreement with our regulators that prohibits the payment of
dividends from the Bank to the Company without prior approval.
Also, our right to participate in a distribution of assets upon
a subsidiarys liquidation or reorganization is subject to
the prior claims of the subsidiarys creditors. Limitations
on our ability to receive dividends from our subsidiary could
have a material adverse effect on our liquidity and on our
ability to pay dividends on common or preferred stock.
Additionally, if our subsidiarys earnings are not
sufficient to make dividend payments to us while maintaining
adequate capital levels, we may not be able to make dividend
payments to our common and preferred stockholders or principal
and interest payments on our outstanding debt.
In this regard, we have suspended payments on our trust
preferred securities and Fixed Rate Cumulative Perpetual
Preferred Stock, Series A (the Preferred
Stock). In the event that we fail to pay dividends on the
Preferred Stock for a total of at least six quarterly dividend
periods (whether or not consecutive), the U.S. Treasury
will have the right to appoint two directors to our board of
directors until all accrued but unpaid dividends have been paid.
If we do not make payments on our trust preferred securities for
over 20 consecutive quarters, we could be in default under those
securities.
With the suspension of payments on our trust preferred
securities and preferred stock, management projects the parent
Companys cash needs to be approximately $500,000 on an
annualized basis, and that current resources will be sufficient
to meet the parent Companys projected liabilities at least
through April 2011. Management would expect to satisfy any
liquidity needs through borrowings or offerings of equity
securities, although there can be no assurance as to the
availability or terms of such borrowings or equity capital.
A
continued tightening of credit markets and liquidity risk could
adversely affect our business, financial condition and results
of operations.
A continued tightening of the credit markets or any inability to
obtain adequate funds for continued loan growth at an acceptable
cost could negatively affect our asset growth and liquidity
position and, therefore, our earnings capability. In addition to
core deposit growth, maturity of investment securities and loan
payments, the Bank also relies on alternative funding sources
including unsecured borrowing lines with correspondent banks,
borrowing lines with the Federal Home Loan Bank and the Federal
Reserve Bank, public time certificates of deposits and out of
area and brokered time certificates of deposit. Our ability to
access these sources could be impaired by deterioration in our
financial condition as well as factors that are not specific to
us, such as a disruption in the financial markets or negative
views and expectations for the financial services industry or
serious dislocation in the general credit markets. In the event
such disruption should occur, our ability to access these
sources could be negatively affected, both as to price and
availability, which would limit,
and/or
potentially raise the cost of, the funds available to the
Company.
34
The
FDIC has increased insurance premiums and imposed special
assessments to rebuild and maintain the federal deposit
insurance fund, and any additional future premium increases or
special assessments could have a material adverse effect on our
business, financial condition and results of
operations.
In 2009, the FDIC imposed a special deposit insurance assessment
of five basis points on all insured institutions, and also
required insured institutions to prepay estimated quarterly
risk-based assessments through 2012.
The Dodd-Frank Act established 1.35% as the minimum deposit
insurance fund reserve ratio. The FDIC has determined that the
fund reserve ratio should be 2.0% and has adopted a plan under
which it will meet the statutory minimum fund reserve ratio of
1.35% by the statutory deadline of September 30, 2020. The
Dodd-Frank Act requires the FDIC to offset the effect on
institutions with assets less than $10 billion of the
increase in the statutory minimum fund reserve ratio to 1.35%
from the former statutory minimum of 1.15%. The FDIC has not
announced how it will implement this offset or how larger
institutions will be affected by it.
Despite the FDICs actions to restore the deposit insurance
fund, the fund will suffer additional losses in the future due
to failures of insured institutions. There can be no assurance
that there will not be additional significant deposit insurance
premium increases, special assessments or prepayments in order
to restore the insurance funds reserve ratio. Any
significant premium increases or special assessments could have
a material adverse effect on the Companys financial
condition and results of operations.
We may
be required, in the future, to recognize impairment with respect
to investment securities, including the FHLB stock we
hold.
Our securities portfolio contains whole loan private
mortgage-backed securities and currently includes securities
with unrecognized losses. The recent national downturn in real
estate markets and elevated mortgage delinquency and foreclosure
rates have increased credit losses in the portfolio of loans
underlying these securities and resulted in substantial
discounts in their market values. While these trends appear to
have stabilized, any further deterioration in the loans
underlying these securities and resulting market discounts could
lead to
other-than-temporary
impairment in the value of these investments. We evaluate the
securities portfolio for any
other-than-temporary
impairment each reporting period, as required by generally
accepted accounting principles, and as of December 31,
2010, two securities had been determined to be other than
temporarily impaired, with the cumulative impairment totaling
$3.2 million. Of this $3.2 million, $0.5 million
was recognized as a credit loss through the Companys
income statement for the twelve months ended December 31,
2009. For the twelve months ended December 31, 2010 an
additional $0.8 million was recorded as a credit loss
through the Companys income statement. The remaining
$1.9 million was recognized in other comprehensive income
in 2010 and 2009. There can be no assurance that future
evaluations of the securities portfolio will not require us to
recognize additional impairment charges with respect to these
and other holdings.
In addition, as a condition to membership in the Federal Home
Loan Bank of Seattle (FHLB), we are required to
purchase and hold a certain amount of FHLB stock. Our stock
purchase requirement is based, in part, upon the outstanding
principal balance of advances from the FHLB. At
December 31, 2010, we had stock in the FHLB of Seattle
totaling $2.3 million. The FHLB stock held by us is carried
at cost and is subject to recoverability testing under
applicable accounting standards. The FHLB has discontinued the
repurchase of its stock and discontinued the distribution of
dividends. As of December 31, 2010, we did not recognize an
impairment charge related to our FHLB stock holdings. There can
be no assurance, however, that future negative changes to the
financial condition of the FHLB may not require us to recognize
an impairment charge with respect to such.
Recent
levels of market volatility were unprecedented and we cannot
predict whether they will return.
The capital and credit markets have been experiencing volatility
and disruption for over three years, at times reaching
unprecedented levels. In some cases, the markets have produced
downward pressure on stock prices and credit availability for
certain companies without regard to those companies
underlying financial strength. If similar levels of market
disruption and volatility return, there can be no assurance that
we will not experience an adverse effect, which may be material,
on our ability to access capital and on our business, financial
condition and results of operations.
35
We
operate in a highly regulated environment and we cannot predict
the effects of recent and pending federal
legislation.
As discussed further in the section Supervision and
Regulation of this Annual Report on
Form 10-K,
we are subject to extensive regulation, supervision and
examination by federal and state banking authorities. In
addition, as a publicly traded company, we are subject to
regulation by the Securities and Exchange Commission. Any change
in applicable regulations or federal, state or local
legislation, or in policies or interpretations or regulatory
approaches to compliance and enforcement, income tax laws and
accounting principles, could have a substantial impact on us and
our operations. Changes in laws and regulations may also
increase our expenses by imposing additional fees or taxes or
restrictions on our operations. Additional legislation and
regulations that could significantly affect our powers,
authority and operations may be enacted or adopted in the
future, which could have a material adverse effect on our
financial condition and results of operations. Failure to
appropriately comply with any such laws, regulations or
principles could result in sanctions by regulatory agencies or
damage to our reputation, all of which could adversely affect
our business, financial condition or results of operations.
In that regard, sweeping financial regulatory reform legislation
was enacted in July 2010. Among other provisions, the new
legislation (i) creates a new Bureau of Consumer Financial
Protection with broad powers to regulate consumer financial
products such as credit cards and mortgages, (ii) creates a
Financial Stability Oversight Council comprised of the heads of
other regulatory agencies, (iii) will lead to new capital
requirements from federal banking agencies, (iv) places new
limits on electronic debit card interchange fees, and
(v) will require the Securities and Exchange Commission and
national stock exchanges to adopt significant new corporate
governance and executive compensation reforms. The new
legislation and regulations are expected to increase the overall
costs of regulatory compliance.
Further, regulators have significant discretion and authority to
prevent or remedy unsafe or unsound practices or violations of
laws or regulations by financial institutions and holding
companies in the performance of their supervisory and
enforcement duties. Recently, these powers have been utilized
more frequently due to the serious national, regional and local
economic conditions we are facing. The exercise of regulatory
authority may have a negative impact on our financial condition
and results of operations. Additionally, our business is
affected significantly by the fiscal and monetary policies of
the U.S. federal government and its agencies, including the
Federal Reserve Board.
We cannot predict the full effects of recent legislation or the
various other governmental, regulatory, monetary and fiscal
initiatives which have been and may be enacted on the financial
markets generally, or on the Company and on the Bank
specifically. The terms and costs of these activities, or the
failure of these actions to help stabilize the financial
markets, asset prices, market liquidity and a continuation or
worsening of current financial market and economic conditions
could materially and adversely affect our business, financial
condition, results of operations, and the trading price of our
common stock.
Fluctuating
interest rates could adversely affect our
profitability.
Our profitability is dependent to a large extent upon our net
interest income, which is the difference between the interest
earned on loans, securities and other interest-earning assets
and interest paid on deposits, borrowings, and other
interest-bearing liabilities. Because of the differences in
maturities and re-pricing characteristics of our
interest-earning assets and interest-bearing liabilities,
changes in interest rates do not produce equivalent changes in
interest income earned on interest-earning assets and interest
paid on interest-bearing liabilities. Accordingly, fluctuations
in interest rates could adversely affect our net interest
margin, and, in turn, our profitability. We manage our interest
rate risk within established guidelines and generally seek an
asset and liability structure that insulates net interest income
from large deviations attributable to changes in market rates.
However, our interest rate risk management practices may not be
effective in a highly volatile rate environment.
Fluctuations
in interest rates on loans could adversely affect our
business.
Significant increases in market interest rates on loans, or the
perception that an increase may occur, could adversely affect
both our ability to originate new loans and our ability to grow.
Conversely, decreases in interest rates could result in an
acceleration of loan prepayments. An increase in market interest
rates could also adversely
36
affect the ability of our floating-rate borrowers to meet their
higher payment obligations. If this occurred, it could cause an
increase in nonperforming assets and charge offs, which could
adversely affect our business, financial condition and results
of operations.
We
face strong competition from financial services companies and
other companies that offer banking services.
The banking and financial services businesses in our market area
are highly competitive and increased competition may adversely
impact the level of our loans and deposits. Ultimately, we may
not be able to compete successfully against current and future
competitors. These competitors include national banks, foreign
banks, regional banks and other community banks. We also face
competition from many other types of financial institutions,
including savings and loan associations, finance companies,
brokerage firms, insurance companies, credit unions, mortgage
banks and other financial intermediaries. In particular, our
competitors include major financial companies whose greater
resources may afford them a marketplace advantage by enabling
them to maintain numerous locations and mount extensive
promotional and advertising campaigns. Areas of competition
include interest rates for loans and deposits, efforts to obtain
loan and deposit customers, and a range in quality of products
and services provided, including new technology driven products
and services. If we are unable to attract and retain banking
customers, we may be unable to continue our loan growth and
level of deposits.
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
favorable economic conditions in our market areas.
Certain
built-in losses could be limited if we experience an ownership
change, as defined in the Internal Revenue Code.
Certain of our assets, such as loans, may have built-in losses
to the extent the basis of such assets exceeds fair market
value. Section 382 of the Internal Revenue Code
(IRC) may limit the benefit of these built-in losses
that exist at the time of an ownership change. A
Section 382 ownership change occurs if a
stockholder or a group of stockholders, who are deemed to own at
least 5% of our common stock, increase their ownership by more
than 50 percentage points over their lowest ownership
percentage within a rolling three-year period. If an
ownership change occurs, Section 382 would
impose an annual limit on the amount of recognized built-in
losses we can use to reduce our taxable income equal to the
product of the total value of our outstanding equity immediately
prior to the ownership change and the federal
long-term tax-exempt interest rate in effect for the month of
the ownership change. A number of special rules
apply to calculating this limit. The limitations contained in
Section 382 apply for a five-year period beginning on the
date of the ownership change and any recognized
built-in losses that are limited by Section 382 may be
carried forward and reduce our future taxable income for up to
20 years, after which they expire. If an ownership
change were to occur due to the issuance and sale of our
securities, the annual limit of Section 382 could defer our
ability to use some, or all, of the built-in losses to offset
taxable income.
Unexpected
losses or our inability to successfully implement our tax
planning strategies in future reporting periods may require us
to establish a higher valuation allowance against our deferred
income tax assets.
We evaluate our deferred income tax assets for recoverability
based on all available evidence. This process involves
significant management judgment about assumptions that are
subject to change from period to period based on changes in tax
laws, our ability to successfully implement tax planning
strategies, or variances between our future projected operating
performance and our actual results. We are required to establish
a valuation allowance for deferred income tax assets if we
determine, based on available evidence at the time the
determination is made, that it is more likely than not that some
portion or all of the deferred income tax assets may not be
realized. In determining the more-likely-than-not criterion, we
evaluate all positive and negative available evidence as of the
end of each
37
reporting period. In this regard, we established a valuation
allowance for deferred income tax assets of $7.4 million at
September 30, 2010. An additional $1.4 million
valuation allowance was added in the fourth quarter of 2010.
Future adjustments to the deferred income tax asset valuation
allowance, if any, will be determined based upon changes in the
expected realization of the net deferred income tax assets. The
realization of the deferred income tax assets ultimately depends
on the existence of sufficient taxable income in either the
carry back or carry forward periods under the tax law. Net
operating loss carryforwards, if any, may be limited should a
stock offering or sale of securities cause a change in control
as defined in Internal Revenue Code Section 382. In
addition, as discussed above, net unrealized built-in losses, as
defined in IRC Section 382 may be limited. In addition,
risk based capital rules require a regulatory calculation
evaluating the Companys deferred income tax asset balance
for realization against estimated pre-tax future income and net
operating loss carry backs. Under the rules of this calculation
and due to significant estimates utilized in establishing the
valuation allowance and the potential for changes in facts and
circumstances, it is reasonably possible that we will be
required to record adjustments to the valuation allowance in
future reporting periods that would materially reduce our risk
based capital ratios. Such a charge could also have a material
adverse effect on our results of operations, financial condition
and capital position.
Changes
in accounting standards could materially impact our financial
statements.
From time to time the Financial Accounting Standards Board and
the SEC change the financial accounting and reporting standards
that govern the preparation of our financial statements. These
changes can be very difficult to predict and can materially
impact how we record and report our financial condition and
results of operations. In some cases, we could be required to
apply a new or revised standard retroactively, resulting in our
restating prior period financial statements.
The
Preferred Stock diminishes the net income available to our
common stockholders and earnings per common share.
We have issued $27.0 million of Preferred Stock to the
U.S. Treasury pursuant to the Troubled Asset Relief Program
(TARP) Capital Purchase Program. The dividends
accrued on the Preferred Stock reduce the net income available
to common stockholders and our earnings per common share. The
Preferred Stock is cumulative, which means that any dividends
not declared or paid will accumulate and will be payable when
the payment of dividends is resumed. We have deferred the
payment of quarterly dividends on the Preferred Stock, beginning
in December 2009. The dividend rate on the Preferred Stock will
increase from 5% to 9% per annum five years after its original
issuance if not earlier redeemed. If we are unable to redeem the
Preferred Stock prior to the date of this increase, the cost of
capital to us will increase substantially. Depending on our
financial condition at the time, this increase in the Preferred
Stock annual dividend rate could have a material adverse effect
on our earnings and could also adversely affect our ability to
pay dividends on our common shares. Shares of Preferred Stock
will also receive preferential treatment in the event of the
liquidation, dissolution or winding up of the Company.
Finally, the terms of the Preferred Stock allow the
U.S. Treasury to impose additional restrictions, including
those on dividends and including unilateral amendments required
to comply with changes in applicable federal law. Under the
terms of the Preferred Stock, our ability to declare or pay
dividends on any of our shares is limited. Specifically, we are
unable to declare dividend payments on common, junior preferred
or pari passu preferred shares if we are in arrears on the
dividends on the Series A Preferred Stock. As noted above,
we have deferred the payment of dividend payments on the
Series A Preferred Stock and we are therefore currently
restricted from paying dividends on our common stock. Further,
we are not permitted to increase dividends on our common stock
above the amount of the last quarterly cash dividend per share
declared prior to October 14, 2008 (which was zero) without
the U.S. Treasurys approval until the third
anniversary of the investment unless all of the Fixed Rate
Cumulative Perpetual Preferred Stock has been redeemed or
transferred.
Holders
of the Preferred Stock have certain voting rights that may
adversely affect our common stockholders, and the holders of the
Preferred Stock may have interests different from our common
stockholders.
In the event that we fail to pay dividends on the Preferred
Stock for a total of at least six quarterly dividend periods
(whether or not consecutive), the U.S. Treasury will have
the right to appoint two directors to our board of
38
directors until all accrued but unpaid dividends have been paid.
In order to conserve the liquid assets of the Company, our board
of directors has approved the deferral of the regular quarterly
cash dividend on the Preferred Stock, beginning in December
2009. Otherwise, except as required by law, holders of the
Preferred Stock have limited voting rights. So long as shares of
Preferred Stock are outstanding, in addition to any other vote
or consent of stockholders required by law or our Articles of
Incorporation, the vote or consent of holders of at least
662/3%
of the shares of Preferred Stock outstanding is required for:
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any authorization or issuance of shares ranking senior to the
Preferred Stock;
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any amendments to the rights of the Preferred Stock so as to
adversely affect the rights, preferences, privileges or voting
power of the Preferred Stock; or
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consummation of any merger, share exchange or similar
transaction unless the shares of Preferred Stock remain
outstanding, or if we are not the surviving entity in such
transaction, are converted into or exchanged for preference
securities of the surviving entity and the shares of Preferred
Stock remaining outstanding or such preference securities have
the rights, preferences, privileges and voting power of the
Preferred Stock.
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The holder of the Preferred Stock, currently the
U.S. Treasury, may have different interests from the
holders of our common stock, and could vote to block the
foregoing transactions, even when considered desirable by, or in
the best interests of, the holders of our common stock.
Because
of our participation in TARP, we are subject to restrictions on
compensation paid to our executives.
Pursuant to the terms of the TARP Capital Purchase Program, we
are subject to regulations on compensation and corporate
governance for the period during which the U.S. Treasury
holds our Series A Preferred Stock. These regulations
require us to adopt and follow certain procedures and to
restrict the compensation we can pay to key employees. Key
impacts of the regulations on us include, among other things:
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ensuring that incentive compensation for senior executives does
not encourage unnecessary and excessive risks that threaten the
value of Intermountain;
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a prohibition on cash incentive bonuses to our five most
highly-compensated employees, subject to limited exceptions;
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a prohibition on equity compensation awards to our five most
highly-compensated employees other than long-term restricted
stock that cannot be sold, other than to pay related taxes,
except to the extent the Treasury no longer holds the
Series A Preferred Stock;
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a prohibition on any severance or
change-in-control
payments to our senior executive officers and next five most
highly-compensated employees;
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a required recovery or clawback of any bonus or
incentive compensation paid to a senior executive officer or any
of the next twenty most highly compensated employees based on
financial or other performance criteria that are later proven to
be materially inaccurate; and
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an agreement not to deduct for tax purposes annual compensation
in excess of $500,000 for each senior executive officer.
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The combined effect of these restrictions may make it more
difficult to attract and retain key executives and employees,
and the change to the deductibility limit on executive
compensation may increase the overall cost of our compensation
programs in future periods.
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Item 1B.
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UNRESOLVED
STAFF COMMENTS
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Not applicable.
39
At December 31, 2010, 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
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300 Kootenai Cut-Off Road
Ponderay, ID 83852
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3,400
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October 1996
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Own
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Priest River
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301 E. Albeni Road
Priest River, ID 83856
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3,500
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December 1996
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Own
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Sandpoint Center Branch(2)
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414 Church Street
Sandpoint, ID 83864
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11,399
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January 2006
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Lease
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Sandpoint (Drive up)(3)
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231 N. Third Avenue
Sandpoint, ID 83864
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225
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May 1981
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Own
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(Boundary County)
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Bonners Ferry
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6750 Main Street
Bonners Ferry, ID 83805
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3,400
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September 1993
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Own
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(Shoshone County)
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Kellogg
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302 W. Cameron Avenue
Kellogg, ID 83837
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672
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February 2006
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Lease land,
Own modular unit
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Intermountain Community Bank Branches
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(Canyon County)
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Caldwell
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506 South
10th
Avenue
Caldwell, ID 83605
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6,480
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March 2002
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Own
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Nampa
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521 12th
Avenue S.
Nampa, ID 83653
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5,000
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July 2001
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Own
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Payette
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175 North
16th
Street
Payette, ID 83661
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5,000
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September 1999
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Own
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Fruitland
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1710 N. Whitley
Dr., Ste A Fruitland, ID 83619
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1,500
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April 2006
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Lease
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40
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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
|
|
|
or Acquired
|
|
(Own/Lease)
|
|
(Washington County)
|
|
|
|
|
|
|
|
|
|
|
Weiser
|
|
440 E Main Street
Weiser, ID 83672
|
|
|
3,500
|
|
|
June 2000
|
|
Own
|
Magic Valley Bank Branches
|
|
|
|
|
|
|
|
|
|
|
(Twin Falls County)
|
|
|
|
|
|
|
|
|
|
|
Twin Falls
|
|
113 Main Ave West
Twin Falls, ID 83301
|
|
|
10,798
|
|
|
November 2004
|
|
Lease
|
Canyon Rim(4)
|
|
1715 Poleline Road
East Twin Falls, ID 83301
|
|
|
6,975
|
|
|
September 2006
|
|
Lease
|
(Gooding County)
|
|
|
|
|
|
|
|
|
|
|
Gooding(4)
|
|
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 Downtown
|
|
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 Center(3)
|
|
414 Church Street
Sandpoint, ID 83864
|
|
|
26,725
|
|
|
January 2006
|
|
Lease
|
(Canyon County)
|
|
|
|
|
|
|
|
|
|
|
Nampa Administrative Office
|
|
5680 E. Franklin Road,
Suite 225 Nampa, ID 83687
|
|
|
2,795
|
|
|
April 2007
|
|
Lease
|
(Kootenai County)
|
|
|
|
|
|
|
|
|
|
|
Coeur dAlene Branch and Administrative Services(1)
|
|
200 W. Neider Avenue
Coeur dAlene, ID 83814
|
|
|
17,600
|
|
|
May 2005
|
|
Own building
Lease land
|
|
|
|
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 January 2006, the Company purchased land on an installment
contract and subsequently began building the 86,100 square
foot Sandpoint Center. The building contains the Sandpoint
branch, corporate headquarters, administrative, technical and
training facilities, an auditorium and community room and space
for other professional tenants. The Company is currently
pursuing tenants to occupy the other vacant leasable square
footage in this building. In August 2009, the Company sold the
building and provided financing for the purchase of the
building. Due to the non-recourse financing, the transaction was
accounted for using the financing method. |
|
3) |
|
The Sandpoint branch
drive-up is
located in the 10,000 square foot building which housed the
Sandpoint Branch before it was relocated to the Sandpoint
Center. The square footage of the
drive-up
totals 225 square feet. The Company has leased out the
remaining space. |
41
|
|
|
4) |
|
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. |
|
|
Item 3.
|
LEGAL
PROCEEDINGS
|
Intermountain and Panhandle are parties to various claims, legal
actions and complaints in the ordinary course of business. In
Intermountains 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 or results of operations of Intermountain.
|
|
Item 4.
|
[REMOVED
AND RESERVED.]
|
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 February 28,
2011, there were 14 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
Quarter
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
1st
|
|
$
|
2.60
|
|
|
$
|
1.60
|
|
|
$
|
5.20
|
|
|
$
|
3.40
|
|
2nd
|
|
|
3.20
|
|
|
|
1.80
|
|
|
|
4.00
|
|
|
|
3.25
|
|
3rd
|
|
|
2.25
|
|
|
|
1.65
|
|
|
|
3.30
|
|
|
|
1.90
|
|
4th
|
|
|
2.00
|
|
|
|
1.40
|
|
|
|
3.50
|
|
|
|
2.06
|
|
At February 28, 2011 the Company had 8,406,578 shares
of common stock outstanding held by approximately
2,040 shareholders. As a bulletin board stock,
Intermountains stock is relatively thinly traded, with
daily average volumes totaling 2,413 in 2010 and 3,984 in 2009,
respectively.
The Company historically has not paid cash dividends, but may do
so in the 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.
Other than discussed below, 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 2010.
On December 19, 2008, the Company issued 27,000 shares
of Fixed Rate Cumulative Perpetual Preferred Stock, no par value
with a liquidation preference of $1,000 per share
(Preferred Stock) and a ten-year warrant to purchase
up to 653,226 shares of Common Stock, no par value, as part
of the Troubled Asset Relief Program Capital
Purchase Program of the U.S. Department of Treasury
(U.S. Treasury). The $27.0 million cash
proceeds were allocated between the Preferred Stock and the
warrant to purchase common stock based on the relative estimated
fair values at the date of issuance. The fair value of the
warrants was determined under the Black-Scholes model. The model
includes assumptions regarding the Companys common stock
prices, dividend yield, and stock price volatility as well as
assumptions regarding the risk-free interest rate. The strike
price for the warrant is $6.20 per share.
42
Dividends on the Preferred Stock will accrue and be paid
quarterly at a rate of 5% per year for the first five years and
thereafter at a rate of 9% per year. The shares of Preferred
Stock have no stated maturity, do not have voting rights except
in certain limited circumstances and are not subject to
mandatory redemption or a sinking fund.
The Preferred Stock has priority over the Companys Common
Stock with regard to the payment of dividends and liquidation
distributions. The Preferred Stock qualifies as Tier 1
capital. The agreement with the U.S. Treasury contains
limitations on certain actions of the Company including the
payment of quarterly cash dividends on the Companys common
stock in excess of current cash dividends paid in the previous
quarter and the repurchase of its common stock during the first
three years of the agreement. In addition, the Company agreed
that, while the U.S. Treasury owns the Preferred Stock, the
Companys employee benefit plans and other executive
compensation arrangements for its senior executive officers must
comply with Section 111(b) of the Emergency Economic
Stabilization Act of 2008.
Equity
Compensation Plan Information
The Company has historically maintained equity compensation
plans that provided for the grant of awards to its officers,
directors and employees. These plans consisted of the 1988
Employee Stock Option Plan, the Amended and Restated 1999
Employee Stock Option and Restricted Stock Plan and the
1999 Director Stock Option Plan. Each of these plans has
expired and shares may no longer be awarded under these plans.
However, unexercised options or unvested awards remain under
these plans. The following table sets forth information
regarding shares reserved for issuance pursuant to outstanding
awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
277,792
|
|
|
$
|
6.28
|
|
|
|
|
|
43
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.
Total
Return Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2005
|
|
|
|
12/31/2006
|
|
|
|
12/31/2007
|
|
|
|
12/31/2008
|
|
|
|
12/31/2009
|
|
|
|
12/31/2010
|
|
Intermountain Community Bancorp
|
|
|
$
|
100
|
|
|
|
$
|
154
|
|
|
|
$
|
106
|
|
|
|
$
|
31
|
|
|
|
$
|
17
|
|
|
|
$
|
10
|
|
SNL Index
|
|
|
$
|
100
|
|
|
|
$
|
112
|
|
|
|
$
|
87
|
|
|
|
$
|
54
|
|
|
|
$
|
50
|
|
|
|
$
|
54
|
|
Russell 2000
|
|
|
$
|
100
|
|
|
|
$
|
117
|
|
|
|
$
|
114
|
|
|
|
$
|
74
|
|
|
|
$
|
93
|
|
|
|
$
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
Item 6.
|
SELECTED
FINANCIAL DATA
|
The following selected financial data (in thousands) of the
Company is derived from the Companys historical audited
consolidated financial statements and related notes. The
information set forth below should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and related notes contained elsewhere in
this
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, (2)
|
|
|
|
2010(1)
|
|
|
2009(1)
|
|
|
2008(1)
|
|
|
2007(1)
|
|
|
2006(1)
|
|
|
INCOME STATEMENT DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
46,049
|
|
|
$
|
53,867
|
|
|
$
|
63,809
|
|
|
$
|
72,858
|
|
|
$
|
59,580
|
|
Total interest expense
|
|
|
(10,785
|
)
|
|
|
(16,170
|
)
|
|
|
(20,811
|
)
|
|
|
(26,337
|
)
|
|
|
(17,533
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
35,264
|
|
|
|
37,697
|
|
|
|
42,998
|
|
|
|
46,521
|
|
|
|
42,047
|
|
Provision for loan losses
|
|
|
(24,012
|
)
|
|
|
(36,329
|
)
|
|
|
(10,384
|
)
|
|
|
(3,896
|
)
|
|
|
(2,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for losses on loans
|
|
|
11,252
|
|
|
|
1,368
|
|
|
|
32,614
|
|
|
|
42,625
|
|
|
|
39,899
|
|
Total other income
|
|
|
11,024
|
|
|
|
11,991
|
|
|
|
13,932
|
|
|
|
13,199
|
|
|
|
10,838
|
|
Total other expense
|
|
|
(54,894
|
)
|
|
|
(49,630
|
)
|
|
|
(45,372
|
)
|
|
|
(40,926
|
)
|
|
|
(35,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(32,618
|
)
|
|
|
(36,271
|
)
|
|
|
1,174
|
|
|
|
14,898
|
|
|
|
14,777
|
|
Income tax (provision) benefit
|
|
|
882
|
|
|
|
14,360
|
|
|
|
80
|
|
|
|
(5,453
|
)
|
|
|
(5,575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(31,736
|
)
|
|
|
(21,911
|
)
|
|
|
1,254
|
|
|
|
9,445
|
|
|
|
9,202
|
|
Preferred stock dividend
|
|
|
1,716
|
|
|
|
1,662
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
(33,452
|
)
|
|
$
|
(23,573
|
)
|
|
$
|
1,209
|
|
|
$
|
9,445
|
|
|
$
|
9,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(3.99
|
)
|
|
$
|
(2.82
|
)
|
|
$
|
0.15
|
|
|
$
|
1.15
|
|
|
$
|
1.15
|
|
Diluted
|
|
$
|
(3.99
|
)
|
|
$
|
(2.82
|
)
|
|
$
|
0.14
|
|
|
$
|
1.10
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
8,386
|
|
|
|
8,361
|
|
|
|
8,295
|
|
|
|
8,206
|
|
|
|
8,035
|
|
Diluted
|
|
|
8,386
|
|
|
|
8,361
|
|
|
|
8,515
|
|
|
|
8,605
|
|
|
|
8,586
|
|
Cash dividends per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, (1)
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,005,109
|
|
|
$
|
1,079,644
|
|
|
$
|
1,105,555
|
|
|
$
|
1,048,659
|
|
|
$
|
920,348
|
|
Net loans(3)
|
|
|
563,228
|
|
|
|
655,602
|
|
|
|
752,615
|
|
|
|
756,549
|
|
|
|
664,885
|
|
Deposits
|
|
|
778,833
|
|
|
|
819,321
|
|
|
|
790,412
|
|
|
|
757,838
|
|
|
|
693,686
|
|
Securities sold subject to repurchase agreements
|
|
|
105,116
|
|
|
|
95,233
|
|
|
|
109,006
|
|
|
|
124,127
|
|
|
|
106,250
|
|
Advances from Federal Home Loan Bank
|
|
|
34,000
|
|
|
|
49,000
|
|
|
|
46,000
|
|
|
|
29,000
|
|
|
|
5,000
|
|
Other borrowings
|
|
|
16,527
|
|
|
|
16,527
|
|
|
|
40,613
|
|
|
|
36,998
|
|
|
|
22,602
|
|
Stockholders equity
|
|
|
59,353
|
|
|
|
88,627
|
|
|
|
110,485
|
|
|
|
90,119
|
|
|
|
78,080
|
|
|
|
|
(1) |
|
Certain prior period amounts have been reclassified to conform
to the current periods presentation. |
|
(2) |
|
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. |
45
|
|
|
(3) |
|
Net loans receivable have been adjusted for 2006 to move the
allowance for unfunded commitments from the allowance for loan
loss, a component of net loans, to other liabilities. |
RETURNS
ON AVERAGE ASSETS, COMMON SHAREHOLDERS EQUITY AND
AVERAGE
COMMON SHAREHOLDERS TO AVERAGE ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Return on Average Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) available to common shareholders
|
|
|
(3.04
|
)%
|
|
|
(2.01
|
)%
|
|
|
0.12
|
%
|
Adjusted net earnings (loss) available to common shareholders(1)
|
|
|
(1.21
|
)%
|
|
|
|
|
|
|
|
|
Return on Average Common Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) available to common shareholders
|
|
|
(67.35
|
)%
|
|
|
(31.17
|
)%
|
|
|
1.35
|
%
|
Adjusted net earnings (loss) available to common shareholders(1)
|
|
|
(28.97
|
)%
|
|
|
|
|
|
|
|
|
Average Tangible Common Stockholders Equity to Average
Tangible Assets
|
|
|
7.22
|
%
|
|
|
9.28
|
%
|
|
|
8.97
|
%
|
Average Common Stockholders Equity to Average Assets(2)
|
|
|
4.76
|
%
|
|
|
6.95
|
%
|
|
|
8.49
|
%
|
|
|
|
(1) |
|
Non-GAAP ratios adjusted for Goodwill Impairment charge of
$11,662,000 and Deferred Tax Asset Valuation charge of
$7,400,000. |
|
(2) |
|
Average common tangible equity is average common
stockholders equity less average net goodwill and other
intangible assets. |
Management believes that adjusted return on average assets and
return on average equity are meaningful measures of performance.
The exclusion of the goodwill impairment of $11.6 million
and the deferred tax asset valuation of $7.4 million are
relevant as they represent non-cash expenses that are
nonrecurring in the normal course of operations. Additionally,
management believes tangible common equity and the tangible
common equity ratio are meaningful measures of capital adequacy.
Management believes the exclusion of certain intangible assets
in the computation of tangible common equity and tangible common
equity ratio provides a meaningful base for
period-to-period
and
company-to-company
comparisons, which management believes will assist investors in
analyzing the operating results and capital of the Company.
Tangible common equity is calculated as total shareholders
equity less preferred stock and less goodwill and other
intangible assets. In addition, tangible assets are total assets
less goodwill and other intangible assets. The tangible common
equity ratio is calculated as tangible common shareholders
equity divided by tangible assets. The tangible common equity
and tangible common equity ratio is considered a non-GAAP
financial measure and should be viewed in conjunction with the
total shareholders equity and the total shareholders
equity ratio.
The adjusted return on average assets, adjusted return on
average equity, tangible common equity and tangible common
equity ratio are considered non-GAAP financial measures and
should be viewed in conjunction with the return on average
assets, return on average equity, total shareholders
equity and the total shareholders equity ratio.
|
|
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
Forward-Looking Statements and Risk
Factors in Part 1 of this report.
Overview
The Company operates a multi-branch banking system and continues
to plan long-term to operate as a community bank in both
existing and potentially new markets. Given current economic
conditions and short-term market uncertainties, the Company
scaled back its expansion plans in 2008, and is currently
focused on managing
46
and growing its existing asset portfolio, preserving its capital
and liquidity positions, improving operating efficiency and
capitalizing on opportunities to selectively grow its core
low-cost deposit base.
Longer term, based on opportunities available in the future, the
Company plans expansion in markets generally located within the
states where it currently operates, and has identified its
primary short-term growth markets as Ada County in Idaho,
Spokane County, Washington, and counties contiguous to its
existing Idaho and eastern Washington markets. However,
Intermountain currently has branches in Idaho, Oregon and
Washington, which would allow for future expansion in any of
these states without the purchase of another financial
institution. As economic conditions improve, the Company will
pursue 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.
Management and the Board of Directors remain committed to
building a fiscally strong, locally focused community banking
organization and further increasing the level of service we
provide our targeted customers and communities. Our long-term
strategic plan calls for focused earnings growth through
maximizing its operating efficiency and resuming managed balance
sheet growth. We expect to achieve these goals by employing
experienced, knowledgeable and dedicated people and supporting
them with strong technology and training. Please see the
Business Strategy and Opportunities Subsection of
Item 1 on page 5 above for a more detailed discussion
on the Companys strengths and potential opportunities.
Recent
History
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 also
houses a mortgage loan center and some administrative offices.
Also 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 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 Magic Valley Bank. These new branches and divisions
allowed the Company to expand geographically and better serve
its existing customer base.
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).
Despite difficult market conditions, ICI has served the needs of
its customers and increased its customer base since the
acquisition. In 2009, the Company combined its Trust and ICI
functions into one unit, now known as Trust and Investment
Services to further integrate the services and offer customers a
more comprehensive investment and wealth management program.
In August 2006, the Company began construction of new
headquarters building in Sandpoint, Idaho, now known as the
Sandpoint Center. The Company relocated its Sandpoint main
branch, corporate headquarters and administrative offices to
this building in 2008, with the Company occupying approximately
47,000 square feet. The remaining rentable space is being
marketed to prospective tenants who provide complementary
services to those of
47
the Bank. In connection with the building, the Company borrowed
$23.1 million from an unaffiliated bank. This loan was paid
off in August 2009, through the sale of the Sandpoint Center to
an unaffiliated third party. The Bank holds the master lease on
the Sandpoint Center. Because the Company provided the financing
for the purchase of the building on a non-recourse basis, the
transaction was accounted for using the financing method.
As economic conditions and the Companys credit portfolio
stabilizes, its near-term focus is beginning to shift. It has
spent the past several years overcoming the challenges created
by the significant downturn in its markets. In 2009 and 2010, it
responded proactively to the challenging economy in a number of
different ways. In lending, it tightened loan underwriting
standards, actively reduced concentrations of riskier loan
types, significantly enhanced its credit administration and
credit resolution functions, and more aggressively pursued
government-guaranteed and other lower risk lending
opportunities. On the deposit side, it maintained its core
deposit base while simultaneously reducing its cost of funds
through a disciplined approach focused on attracting and
retaining low-cost transactional deposits. Intermountain also
made significant efficiency gains in many areas, including
reducing its workforce by 23% since 2007, and centralizing and
automating more of its core deposit and lending functions. These
cost reduction gains were more than offset in the past couple
years by significantly increased credit costs, but as these
abate, the Companys non-interest expense should reduce
significantly.
As 2011 begins, the Company continues to proactively manage its
current credit portfolio, but is now more aggressively seeking
new quality lending relationships, particularly in the
agriculture, commercial and commercial real estate sectors.
Management is maintaining its focus on increasing the core
deposit base, but at lower pricing. It is also accelerating its
cost management efforts, as management believes that strong
efficiency gains are critical in the projected slow-growth
environment of the near future. Responding to additional
regulatory pressure on traditional income sources such as
overdraft and debit card fees, management is increasing its
focus on enhancing its alternative fee income activities,
including trust and investment, cash management and other
service fees. It is also evaluating a number of new fee income
initiatives.
Longer-term, 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, subject to capital adequacy levels and regulatory
approval. Management believes that the economy arising out of
the current downturn will present a number of new opportunities
for fewer, but stronger, community banks. Its efforts are
focused on positioning Intermountain to take advantage of these
opportunities, particularly through the acquisition of desirable
employees and customers from distressed banks and non-bank
institutions. It will also look for opportunities to acquire
other community banks in both FDIC- and non-FDIC assisted
transactions. The Company has employed these competitive tools
to grow market share over the past ten years, since it began
expanding beyond its Sandpoint base. During this time period,
the Company has grown from eighth overall in market share in the
core Idaho and Oregon markets it serves to second, with a
consolidated market share of 12.6%. The Company is the market
share leader in deposits in five of the eleven counties in which
it operates (Source: June 2010 FDIC Survey of Banking
Institutions). The Spokane and Boise market areas represent
potential future growth markets for the Company, as total market
deposits in these two counties exceed by a
two-to-one
margin the total market deposits in the Companys other
markets. The Company has a relatively small, but growing
presence in Spokane County with strong local market talent. The
Bank does not have any branches in Ada County, which includes
Boise, but has a number of key managers who came from or worked
in the Boise area, which would allow for potential entry and
expansion into this market in the future. Please see the
Business Strategy and Opportunities, Primary
Market Area and Competition Subsections of
Item 1 beginning on page 5 above for a more detailed
discussion on the Companys strengths, market position and
potential opportunities.
Results
of Operations
Overview. Intermountain recorded a net loss
applicable to common stockholders of $33.5 million, or
$3.99 per diluted share, for the twelve months ended
December 31, 2010, compared with net loss applicable to
common stockholders of $23.6 million, or $2.82 per diluted
share, for the twelve months ended December 31, 2009. The
increased loss for 2010 primarily reflected the impacts of an
$11.7 goodwill impairment charge and a $7.4 million
deferred tax asset valuation allowance charge taken by the
Company in the third quarter. Net interest income and other
income were down modestly for the year, but were offset by
larger reductions in the provision for loan losses and other
non-interest expenses. Fourth quarter 2010 results showed
significant improvement over the prior quarter
48
and the same period last year. Intermountain recorded a net loss
applicable to common stockholders of $1.1 million, or $0.13
per diluted share for the three months ended December 31,
2010, compared with a net loss applicable to common stockholders
of $24.7 million or $2.95 per diluted share for the third
quarter of 2010 (impacted by the non-cash charges noted above)
and a net loss applicable to common stockholders of
$9.0 million or $1.07 per diluted share, for the three
months ended December 31, 2009.
The annualized return on average assets (ROAA) was
-3.04% for 2010, but excluding the goodwill impairment charge
and the deferred tax asset valuation charge, it was -1.21% for
the twelve months ended December 31, 2010. For 2009, the
ROAA was -2.01%. The annualized return on average common equity
(ROAE) was -67.35% and -31.16% for the twelve months
ended December 31, 2010 and 2009, respectively. The
annualized return on average common equity (ROAE),
excluding the goodwill impairment charge and the deferred tax
asset valuation charge was -28.97% for the twelve months ended
December 31, 2010. See Item 6, Selected Financial Data
for discussion of non-GAAP financial measures.
The annualized return on average assets (ROAA) was
-0.25%, -9.37%, and -3.17% for the three months ended
December 31, 2010, September 30, 2010 and
December 31, 2009, respectively. The annualized return on
average common equity (ROAE) was -12.39, -212.06%,
and -52.55%, for the three months ended December 31, 2010,
September 30, 2010 and December 31, 2009, respectively.
The goodwill impairment and the deferred tax asset adjustments
noted above total $19.1 million and are non-cash
adjustments that do not impact the Companys current
liquidity or underlying operating results. The adjustments also
have no impact on the Companys regulatory capital ratios,
as they are both already excluded from the Companys
regulatory capital calculations. The goodwill impairment charge
is based upon the results of the goodwill impairment analysis it
completed in the third quarter of 2010. Although the lost
earnings from the goodwill impairment cannot be reclaimed in
future periods, the charge eliminated all of the Companys
remaining goodwill on its balance sheet, so that no further
charges are possible unless the Company records goodwill as part
of a future transaction. The establishment of the non-cash
valuation allowance against the Companys deferred tax
assets (DTA) reflected the Companys decision under
applicable accounting rules to recognize uncertainty in its
ability to generate certain levels of future taxable income,
given the challenging economic times and its prior losses. The
Company analyzes the deferred tax asset on a quarterly basis and
may recapture all or a portion of this allowance depending on
future profitability.
The following tables set forth reconciliations of non-GAAP
financial measures discussed in this report (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
Three Months Ended
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Net income (loss)
|
|
$
|
(31,736
|
)
|
|
$
|
(21,911
|
)
|
|
$
|
(626
|
)
|
|
$
|
(8,548
|
)
|
Less tax benefit
|
|
|
(882
|
)
|
|
|
(14,360
|
)
|
|
|
|
|
|
|
(5,217
|
)
|
Less goodwill impairment
|
|
|
11,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less deferred tax asset valuation
|
|
|
7,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loss before income tax benefit, excluding Goodwill
Impairment
|
|
$
|
(13,556
|
)
|
|
$
|
(36,271
|
)
|
|
$
|
(626
|
)
|
|
$
|
(13,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Both interest expense and other operating expense, excluding the
goodwill impairment, decreased significantly from 2009. Interest
income also declined, reflecting a more conservative asset mix
emphasizing safety and liquidity and the impact of lower
interest rates, particularly on the Companys marketable
securities portfolio. Other income was down from 2009 as a
result of smaller gains on the sale of securities than was
recorded in 2009. Excluding the impact of these sales, the
Company generally had higher fee and other non-interest income
revenue than in 2009. See Item 6, Selected Financial Data for
discussion of non-GAAP financial measures.
Most asset quality metrics continued to improve with lower
levels of non-performing assets and reduced concentrations in
the riskiest loan segments. The Company has been proactive in
identifying and resolving its problem credits, taking
write-downs early in the process and initiating dialogue with
borrowers at the first sign of trouble. As a result, its loan
losses over the past two years have been significant, but are
projected to decline substantially in future periods.
49
As of December 31, 2010, assets totaled $1.01 billion,
a decrease of $74.5 million or 6.9% from the prior year,
reflecting conservative balance sheet management in light of the
weak economy. In 2009, assets totaled $1.08 billion, a 2.3%
decrease from $1.11 billion at December 31, 2008. The
Company decreased net loans receivable by $92.4 million or
14.1% in 2010, and by $97.0 million in 2009. Loan balance
decreases reflect a combination of lower borrowing demand,
tighter underwriting standards and aggressive management and
disposition of problem assets. Total deposits also decreased by
$40.5 million or 4.9% in 2010, following a
$28.9 million increase in 2009, as the Company allowed
higher rate brokered and other non-relationship deposits to roll
off, given the high levels of liquidity on the balance sheet.
Net
Interest Income
The Companys net interest income for the year ended
December 31, 2010 was $35.3 million, a decrease of
$2.4 million from the prior year. The decrease in net
interest income resulted from a combination of a shift in the
mix of the Companys assets to more conservative,
lower-yielding assets and lower yields on its securities
portfolio. Most of the negative impact on interest income from
these sources was offset by decreases in interest expense on the
Companys interest bearing liabilities. The net interest
margin for the year ended December 31, 2010 was 3.77%, as
compared to 3.81% for 2009 and 4.50% for 2008. A volatile
interest rate environment, in which rates on interest earning
assets declined more rapidly and further than rates on
interest-bearing liabilities produced most of the decrease in
the Companys margin during 2009 and 2008.
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, 2010
|
|
|
|
Average
|
|
|
Interest Income/
|
|
|
Average
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
Loans receivable, net(1)
|
|
$
|
632,761
|
|
|
$
|
38,020
|
|
|
|
6.01
|
%
|
Securities(2)
|
|
|
199,819
|
|
|
|
7,793
|
|
|
|
3.90
|
|
Federal funds sold
|
|
|
102,109
|
|
|
|
236
|
|
|
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
934,689
|
|
|
|
46,049
|
|
|
|
4.93
|
%
|
Cash and cash equivalents
|
|
|
18,691
|
|
|
|
|
|
|
|
|
|
Office property and equipment, net
|
|
|
41,293
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
47,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,042,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits of $100,000 or more
|
|
$
|
127,173
|
|
|
$
|
3,065
|
|
|
|
2.41
|
%
|
Other interest-bearing deposits
|
|
|
517,438
|
|
|
|
4,681
|
|
|
|
0.90
|
|
Short-term borrowings
|
|
|
69,232
|
|
|
|
2,005
|
|
|
|
2.90
|
|
Other borrowed funds
|
|
|
79,060
|
|
|
|
1,034
|
|
|
|
1.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
792,903
|
|
|
|
10,785
|
|
|
|
1.36
|
%
|
Noninterest-bearing deposits
|
|
|
161,877
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
9,238
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
78,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,042,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
35,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
3.77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
Average
Balance Sheets and Analysis of Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009
|
|
|
|
Average
|
|
|
Interest Income/
|
|
|
Average
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
Loans receivable, net(1)
|
|
$
|
736,568
|
|
|
$
|
43,611
|
|
|
|
5.92
|
%
|
Securities(2)
|
|
|
201,709
|
|
|
|
10,079
|
|
|
|
5.00
|
|
Federal funds sold
|
|
|
50,387
|
|
|
|
177
|
|
|
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
988,664
|
|
|
|
53,867
|
|
|
|
5.45
|
%
|
Cash and cash equivalents
|
|
|
18,904
|
|
|
|
|
|
|
|
|
|
Office property and equipment, net
|
|
|
43,238
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
29,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,080,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits of $100,000 or more
|
|
$
|
142,831
|
|
|
$
|
4,338
|
|
|
|
3.04
|
%
|
Other interest-bearing deposits
|
|
|
524,901
|
|
|
|
8,001
|
|
|
|
1.52
|
|
Short-term borrowings
|
|
|
92,507
|
|
|
|
2,347
|
|
|
|
2.54
|
|
Other borrowed funds
|
|
|
62,900
|
|
|
|
1,484
|
|
|
|
2.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
823,139
|
|
|
|
16,170
|
|
|
|
1.96
|
%
|
Noninterest-bearing deposits
|
|
|
151,640
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
3,011
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
102,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,080,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
37,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
3.81
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
Average
Balance Sheets and Analysis of Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008
|
|
|
|
Average
|
|
|
Interest Income/
|
|
|
Average
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
Loans receivable, net(1)
|
|
$
|
779,854
|
|
|
$
|
55,614
|
|
|
|
7.13
|
%
|
Securities(2)
|
|
|
155,025
|
|
|
|
7,998
|
|
|
|
5.16
|
|
Federal funds sold
|
|
|
19,937
|
|
|
|
197
|
|
|
|
0.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
954,816
|
|
|
|
63,809
|
|
|
|
6.68
|
%
|
Cash and cash equivalents
|
|
|
22,591
|
|
|
|
|
|
|
|
|
|
Office property and equipment, net
|
|
|
44,372
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
19,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,041,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits of $100,000 or more
|
|
$
|
130,729
|
|
|
$
|
5,176
|
|
|
|
3.96
|
%
|
Other interest-bearing deposits
|
|
|
475,990
|
|
|
|
9,464
|
|
|
|
1.99
|
|
Short-term borrowings
|
|
|
121,055
|
|
|
|
4,385
|
|
|
|
3.62
|
|
Other borrowed funds
|
|
|
70,374
|
|
|
|
1,786
|
|
|
|
2.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
798,148
|
|
|
|
20,811
|
|
|
|
2.61
|
%
|
Noninterest-bearing deposits
|
|
|
145,924
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
6,706
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
90,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,041,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
42,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
4.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 presented on a tax-equivalent
basis, 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.
52
Changes
Due to Volume and Rate 2010 versus 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Volume/Rate
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Loans receivable, net
|
|
$
|
(6,146
|
)
|
|
$
|
646
|
|
|
$
|
(91
|
)
|
|
$
|
(5,591
|
)
|
Securities
|
|
|
(94
|
)
|
|
|
(2,212
|
)
|
|
|
20
|
|
|
|
(2,286
|
)
|
Federal funds sold
|
|
|
182
|
|
|
|
(61
|
)
|
|
|
(62
|
)
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
(6,058
|
)
|
|
|
(1,627
|
)
|
|
|
(133
|
)
|
|
|
(7,818
|
)
|
Time deposits of $100,000 or more
|
|
|
(476
|
)
|
|
|
(896
|
)
|
|
|
99
|
|
|
|
(1,273
|
)
|
Other interest-bearing deposits
|
|
|
(114
|
)
|
|
|
(3,252
|
)
|
|
|
46
|
|
|
|
(3,320
|
)
|
Borrowings
|
|
|
(210
|
)
|
|
|
(329
|
)
|
|
|
(253
|
)
|
|
|
(792
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
(800
|
)
|
|
|
(4,477
|
)
|
|
|
(108
|
)
|
|
|
(5,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
(5,258
|
)
|
|
$
|
2,850
|
|
|
$
|
(25
|
)
|
|
$
|
(2,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
Due to Volume and Rate 2009 versus 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Volume/Rate
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Loans receivable, net
|
|
$
|
(3,087
|
)
|
|
$
|
(9,440
|
)
|
|
$
|
524
|
|
|
$
|
(12,003
|
)
|
Securities
|
|
|
2,408
|
|
|
|
(252
|
)
|
|
|
(75
|
)
|
|
|
2,081
|
|
Federal funds sold
|
|
|
301
|
|
|
|
(127
|
)
|
|
|
(194
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
(378
|
)
|
|
|
(9,819
|
)
|
|
|
255
|
|
|
|
(9,942
|
)
|
Time deposits of $100,000 or more
|
|
|
479
|
|
|
|
(1,206
|
)
|
|
|
(111
|
)
|
|
|
(838
|
)
|
Other interest-earning deposits
|
|
|
972
|
|
|
|
(2,209
|
)
|
|
|
(226
|
)
|
|
|
(1,463
|
)
|
Borrowings
|
|
|
(1,224
|
)
|
|
|
(1,440
|
)
|
|
|
324
|
|
|
|
(2,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
227
|
|
|
|
(4,855
|
)
|
|
|
(13
|
)
|
|
|
(4,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
(605
|
)
|
|
$
|
(4,964
|
)
|
|
$
|
268
|
|
|
$
|
(5,301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income 2010 Compared to 2009
The Companys net interest income decreased to
$35.3 million in 2010 from $37.7 million in 2009. The
net interest income change attributable to volume changes was an
unfavorable $5.3 million from 2009 as the volume of higher
yielding assets, particularly loans, decreased significantly,
overwhelming positive volume changes in Fed Funds Sold on the
asset side and in all interest-bearing liabilities. Overall,
rate changes had a $2.9 million favorable impact on net
interest income in 2010, as rate reductions on all
interest-bearing liabilities and positive rate impacts on the
loan portfolio from lower non-accrual loans offset rate
reductions in the Companys securities portfolio. The
separate volume and rate changes along with a $25,000 decrease
due to the interplay between rate and volume factors created the
$2.4 million overall decrease in net interest income for
2010.
The yield on interest-earning assets decreased 0.52% in 2010
from 2009, while the cost of interest-bearing liabilities
decreased 0.53% during the same period. The earning-asset yield
was significantly impacted by the shift in the mix of Company
assets from the higher-yielding loan portfolio to lower-yielding
fixed income securities and Fed Funds Sold, as a result of
conservative liquidity management, lower loan demand, and
aggressive problem asset resolution. Rates paid on Fed Funds
Sold remained between 0.00% and 0.25% throughout 2010, meaning
that the $101.1 million in average Fed Funds Sold balances
earned only minimal income.
The yield on the Companys loans, at 6.01%, was up modestly
from the prior year, primarily as a result of lower interest
reversals on non-accrual and other problem loans than it
experienced in 2009. The Bank maintained about 56% of its
portfolio as variable rate loans, which were stable but at
relatively low rates as market rates remained very low all year.
The Bank sought to moderate this impact by continuing to
maintain floors on its variable rate loans, and
53
emphasizing the higher yielding commercial, agricultural and
commercial real estate segments of its loan portfolio.
Non-accrual loans were down from 2009, but still had an impact
on net interest income, as the Company reversed $794,000 in
interest income on loans placed on non-accrual status and
problem loans. Problem loans include loans charged off directly
or transferred to OREO. This resulted in an 0.08% decrease in
loan yield over what would have been experienced without the
non-accrual loans. The investment securities portfolio
experienced a 1.10% decrease in yield in 2010 as spreads
tightened on most fixed income securities, prepayments on
mortgage-backed securities increased, and the Company maintained
a short duration in its investment portfolio to position it for
anticipated future higher market rates.
The Company lowered its interest expense by $5.4 million or
33% during 2010. Active management strategies, low market rates,
and decreased competition reduced the average cost on its
interest-bearing liabilities from 1.66% to 1.13% of average
earning assets, while maintaining its solid relationship-based
deposit base. Management focused on eliminating or reducing
funding costs on wholesale sources and non-relationship deposits
during 2010, while protecting its local core deposit franchise.
Its cost of deposits decreased from 1.51% to 0.96% and the cost
of other borrowings and FHLB advances decreased from 2.47% to
2.05%. The Company maintains 20% of its average total deposits a
relatively high percentage as compared to its peer group, in
non-interest bearing demand deposits, which provide a low-cost
funding source in low interest rate environments but holds even
more value in higher interest rate environments.
Net
Interest Income 2009 Compared to 2008
The Companys net interest income decreased to
$37.7 million in 2009 from $43.0 million in 2008. The
net interest income change attributable to volume changes was an
unfavorable $605,000 from 2008 as the volume of higher yielding
assets, particularly loans, decreased significantly,
overwhelming positive volume changes in securities, Fed Funds
Sold, and borrowings. During 2009, interest rates decreased both
on interest earning assets and interest bearing liabilities;
however, rates continued to decrease more significantly on the
asset side than the liability side. This created a
$5.0 million decrease in net interest income attributable
to rate variances. The separate volume and rate changes along
with a $268,000 increase due to the interplay between rate and
volume factors created a $5.3 million overall decrease in
net interest income for 2009.
The yield on interest-earning assets decreased 1.23% in 2009
from 2008, while the cost of interest-bearing liabilities
decreased 0.65% during the same period. The earning-asset yield
was significantly impacted by managements shift in the mix
of Company assets from the higher-yielding loan portfolio to
lower-yielding fixed income securities and Fed Funds Sold to
enhance Company liquidity. Rates paid on Fed Funds Sold remained
between 0.00% and 0.25% throughout 2009, meaning that the
$43.9 million in average Fed Funds Sold balances earned
only minimal income.
The yield on the Companys loans, at 5.92%, was also down
from the prior year, although the drop was less significant than
in 2008. The Bank maintained about 58% of its portfolio as
variable rate loans, which continued to drop as market rates
remained very low all year. The Bank sought to moderate this
impact by continuing to maintain floors on its variable rate
loans, and emphasizing the higher yielding commercial loan
component of its loan portfolio. High levels of non-accrual
loans also significantly impacted net interest income, as the
Company reversed $1.9 million in interest income on loans
placed on non-accrual status and problem loans. This resulted in
an additional 0.26% decrease in the yield on loans. The
investment securities portfolio experienced a 0.16% decrease in
yield in 2009 as spreads tightened on most fixed income
securities and the Company shortened the duration of its
investment portfolio to position it better for anticipated
future higher market rates.
While the significant market rate declines in 2008 and early
2009 also reduced the Companys interest-bearing liability
costs, liability rate decreases lagged behind asset yield
changes. The Company experienced pressure on its deposit rates
from some distressed and deposit-starved competitors, which
continued to offer higher than market rates. These market
conditions particularly impacted time and higher-balance money
market rates, which resulted in both smaller and later declines
than in the rates earned on loans and Fed Funds Sold. The
overall result was a drop of 0.65% in the interest expense rate
during the year.
54
Provision
for Losses on Loans & Credit Quality.
Managements policy is to establish valuation allowances
for estimated losses by charging corresponding provisions
against income. This evaluation is based upon managements
assessment of various factors including, but not limited to,
current and anticipated future economic trends, historical loan
losses, delinquencies, and underlying collateral values, as well
as current and potential risks identified in the portfolio. See
the Loan Portfolio discussion in the
Item 1-
Business section beginning on page 11 of this report
for additional information on asset quality, loan portfolio
trends and provision for loan loss trends.
The provision for losses on loans totaled $24.0 million for
the year ended December 31, 2010, compared to a provision
of $36.3 million for the year ended December 31, 2009.
Net chargeoffs in 2010 totaled $28.2 million compared to
$36.2 million for 2009. The following table summarizes
provision and loan loss allowance activity for the periods
indicated.
Trend
Analysis of the Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007(1)
|
|
|
2006(1)(2)
|
|
|
|
(Dollars in thousands)
|
|
|
Balance Beginning January 1
|
|
$
|
(16,608
|
)
|
|
$
|
(16,433
|
)
|
|
$
|
(11,761
|
)
|
|
$
|
(9,837
|
)
|
|
$
|
(8,100
|
)
|
Charge-Offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
10,603
|
|
|
|
5,037
|
|
|
|
1,486
|
|
|
|
886
|
|
|
|
283
|
|
Commercial real estate loans
|
|
|
5,610
|
|
|
|
3,194
|
|
|
|
186
|
|
|
|
8
|
|
|
|
|
|
Commercial construction loans
|
|
|
1,393
|
|
|
|
4,982
|
|
|
|
663
|
|
|
|
|
|
|
|
|
|
Land and land development loans
|
|
|
8,622
|
|
|
|
19,817
|
|
|
|
2,820
|
|
|
|
580
|
|
|
|
|
|
Agriculture loans
|
|
|
1,055
|
|
|
|
988
|
|
|
|
162
|
|
|
|
50
|
|
|
|
|
|
Multifamily loans
|
|
|
16
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans
|
|
|
2,019
|
|
|
|
1,598
|
|
|
|
173
|
|
|
|
|
|
|
|
9
|
|
Residential construction loans
|
|
|
101
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
490
|
|
|
|
1,001
|
|
|
|
703
|
|
|
|
520
|
|
|
|
501
|
|
Municipal Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Charge-offs
|
|
|
29,909
|
|
|
|
36,911
|
|
|
|
6,193
|
|
|
|
2,044
|
|
|
|
793
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
(628
|
)
|
|
|
(144
|
)
|
|
|
(53
|
)
|
|
|
(34
|
)
|
|
|
(8
|
)
|
Commercial real estate loans
|
|
|
(311
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Commercial construction loans
|
|
|
(391
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and land development loans
|
|
|
(175
|
)
|
|
|
(347
|
)
|
|
|
(198
|
)
|
|
|
|
|
|
|
|
|
Agriculture loans
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Multifamily loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
|
(50
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(4
|
)
|
Residential construction loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
(158
|
)
|
|
|
(256
|
)
|
|
|
(229
|
)
|
|
|
(30
|
)
|
|
|
(435
|
)
|
Municipal Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Recoveries
|
|
|
(1,744
|
)
|
|
|
(757
|
)
|
|
|
(481
|
)
|
|
|
(75
|
)
|
|
|
(447
|
)
|
Net charge-offs
|
|
|
28,165
|
|
|
|
36,154
|
|
|
|
5,712
|
|
|
|
1,969
|
|
|
|
346
|
|
Transfers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
65
|
|
Provision for losses on loans
|
|
|
(24,012
|
)
|
|
|
(36,329
|
)
|
|
|
(10,384
|
)
|
|
|
(3,896
|
)
|
|
|
(2,148
|
)
|
Sale of loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
(12,455
|
)
|
|
$
|
(16,608
|
)
|
|
$
|
(16,433
|
)
|
|
$
|
(11,761
|
)
|
|
$
|
(9,837
|
)
|
Ratio of net charge-offs to loans outstanding
|
|
|
4.89
|
%
|
|
|
5.38
|
%
|
|
|
0.75
|
%
|
|
|
0.26
|
%
|
|
|
0.06
|
%
|
Allowance Unfunded Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Beginning January 1
|
|
$
|
(11
|
)
|
|
$
|
(13
|
)
|
|
$
|
(18
|
)
|
|
$
|
(482
|
)
|
|
$
|
(417
|
)
|
Adjustment
|
|
|
(6
|
)
|
|
|
2
|
|
|
|
5
|
|
|
|
467
|
|
|
|
|
|
Transfers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance Unfunded Commitments at end of period
|
|
$
|
(17
|
)
|
|
$
|
(11
|
)
|
|
$
|
(13
|
)
|
|
$
|
(18
|
)
|
|
$
|
(482
|
)
|
55
|
|
|
(1) |
|
The allowance analysis has been adjusted for the periods 2007
and 2006 to segregate the allowance for loan losses from an
allowance for unfunded commitments, per new bank regulatory
guidance issued in 2007. |
|
(2) |
|
The detail for allowance analysis breakout categories was not
available in 2006. |
The decrease in the loan loss allowance is due primarily to the
reduction in the loan portfolio and the level of classified and
non-performing loans over the same period. Chargeoffs outpaced
the loan loss provision in 2010 due to managements
aggressive reduction of problem credits during 2010. In
addition, in the third quarter of 2010, one large commercial
credit was charged off in the amount of $4.5 million for
which some recovery is anticipated in future periods.
The weak local and national economy continued to have
significant negative impacts on the Companys loan
portfolio in 2010. Credit losses were lower than in 2009, but
were still at levels far higher than the Company has experienced
in the past. While still elevated, losses in construction and
development loans subsided in 2010, as the Company worked
aggressively in 2010 and prior years to reduce the exposure in
this portfolio. Reflecting national and regional trends, the
Company experienced higher losses in both commercial and
commercial real estate loans in 2010, as the impacts of the
prolonged economic downturn cycled into these sectors during the
year. Commercial loan losses were also heavily impacted by one
significant relationship which was restructured in 2010, and for
which the Company anticipates some recovery in future years.
Losses in most other loan segments were either stable or down
from the prior year.
Geographically, the concentration of losses migrated from
southern Idaho to northern Idaho as 2010 progressed. Southern
Idaho felt the impact of the recession and real estate downturn
earlier and more deeply, as it had more excess real estate
inventory than other areas. Northern Idaho economic impacts were
tied more closely to the prolonged downturn and high
unemployment rates. Real estate inventory levels are not as high
in northern Idaho and eastern Washington, and the borrowers are
generally more stable, longer-term residents of the area. As a
result, the Company experienced lower overall default rates and
lower loss rates on those loans that defaulted in the north than
it did in its southern markets.
The Company responded to the volatile credit environment by
adjusting its allowance for loan losses throughout 2009 and
2010. Generally the allowance decreased throughout 2010 as the
volume of problem assets declined, and ended the year at
$12.5 million or 2.16% of total loans, as compared to 2.47%
at the end of 2009. At December 31, 2010, the allowance for
loan losses totaled 108.1% of non-performing loans
(NPLs), up from 87.2% at year end 2009. The higher
coverage of NPLs reflects a considerable reduction in NPLs
during the course of 2010 as the Company moved aggressively to
resolve or liquidate these loans. After peaking at
$25.1 million, or 3.43% of total loans in July 2009, the
allowance declined to $16.6 million or 2.47% of total loans
at the end of 2009. The 2010 ending allowance still reflected
higher levels of problem assets and heightened concerns about
current economic and market conditions. However, management
believes that it has already incurred the most significant
losses and reduced its concentrations in riskier assets,
particularly its residential land and construction portfolio.
Given the current distressed and volatile credit environment,
management continues to evaluate and adjust the loan loss
allowance carefully and frequently to reflect the most current
information available concerning the Companys markets and
loan portfolio. In its evaluation, management considers current
economic and borrower conditions in both the pool of loans
subject to specific impairment (FAS 114 pool),
and the pool subject to a more generalized allowance based on
historical and other factors (FAS 5 pool). The
following table includes this information, (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2010
|
|
|
2009
|
|
|
FAS 5 Allocation
|
|
$
|
8,235
|
|
|
$
|
10,234
|
|
Impaired Allocation
|
|
|
4,220
|
|
|
|
6,374
|
|
|
|
|
|
|
|
|
|
|
Allowances for Loan Loss
|
|
$
|
12,455
|
|
|
$
|
16,608
|
|
|
|
|
|
|
|
|
|
|
The reduction in the reserve from 2009 to 2010 reflects
reductions in both the amount allocated to the impaired loan
pool and the FAS 5 allocation. The Company has proactively
managed its problem loans to lower the total
56
number and volume of loans that are impaired. When a loan is
characterized as impaired, the Company performs a specific
evaluation of the loan, focusing on potential future cash flows
likely to be generated by the loan, current collateral values
underlying the loan, and other factors such as government
guarantees or guarantor support that may impact repayment. Based
on this evaluation, it sets aside a specific reserve for this
loan and/or
charges down the loan to its net realizable value (selling price
of collateral less estimated closing costs) if it is unlikely
that the Company will receive any cash flow beyond the amount
obtained from liquidation of the collateral. If the loan
continues to be impaired, management periodically re-evaluates
the loan for additional potential impairment, and charges it
down or adds to reserves if appropriate. On the pool of loans
not subject to specific impairment, management evaluates both
regional and loan-specific historical loss trends to develop its
base reserve level on a
loan-by-loan
basis. It then modifies those reserves by considering the risk
grade of the loan, current economic conditions, the recent trend
of defaults, trends in collateral values, underwriting and other
loan management considerations, and unique market-specific
factors such as water shortages or other natural phenomena.
Given the continuing high level of problem assets, uncertain
economic conditions, and regulatory pressure, it is reasonably
likely that the Companys reserve levels will remain higher
than those it maintained prior to 2008 for a sustained period of
time.
General trending information with respect to non-performing
loans, non-performing assets, and other key portfolio metrics is
as follows (dollars in thousands):
Credit
Quality Trending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Loans past due in excess of 90 days and still accruing
|
|
$
|
66
|
|
|
$
|
586
|
|
|
$
|
913
|
|
|
$
|
797
|
|
|
$
|
87
|
|
Non-accrual loans
|
|
|
11,451
|
|
|
|
18,468
|
|
|
|
26,365
|
|
|
|
5,569
|
|
|
|
1,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
|
11,517
|
|
|
|
19,054
|
|
|
|
27,278
|
|
|
|
6,366
|
|
|
|
1,288
|
|
OREO
|
|
|
4,429
|
|
|
|
11,538
|
|
|
|
4,541
|
|
|
|
1,682
|
|
|
|
795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets (NPAs)
|
|
$
|
15,946
|
|
|
$
|
30,592
|
|
|
$
|
31,819
|
|
|
$
|
8,048
|
|
|
$
|
2,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified loans(1)
|
|
$
|
54,085
|
|
|
$
|
77,175
|
|
|
$
|
53,847
|
|
|
$
|
18,643
|
|
|
$
|
10,165
|
|
Troubled debt restructured loans(2)
|
|
$
|
4,838
|
|
|
$
|
4,604
|
|
|
$
|
13,424
|
|
|
$
|
|
|
|
$
|
|
|
Total allowance related to non-accrual loans
|
|
$
|
1,192
|
|
|
$
|
965
|
|
|
$
|
6,856
|
|
|
$
|
585
|
|
|
$
|
531
|
|
Interest income recorded on non-accrual loans
|
|
$
|
848
|
|
|
$
|
1,126
|
|
|
$
|
1,193
|
|
|
$
|
270
|
|
|
$
|
230
|
|
Non-accrual loans as a percentage of net loans receivable
|
|
|
2.03
|
%
|
|
|
2.82
|
%
|
|
|
3.50
|
%
|
|
|
0.74
|
%
|
|
|
0.18
|
%
|
Total non-performing loans as a % of net loans receivable
|
|
|
2.04
|
%
|
|
|
2.91
|
%
|
|
|
3.62
|
%
|
|
|
0.84
|
%
|
|
|
0.19
|
%
|
Allowance for loan losses (ALLL) as a % of
non-performing loans
|
|
|
108.1
|
%
|
|
|
87.2
|
%
|
|
|
60.2
|
%
|
|
|
184.7
|
%
|
|
|
763.7
|
%
|
Total NPA as a % of total assets(3)
|
|
|
1.59
|
%
|
|
|
2.83
|
%
|
|
|
2.88
|
%
|
|
|
0.77
|
%
|
|
|
0.23
|
%
|
Total NPA as a % of tangible capital + ALLL (Texas
Ratio)(3)
|
|
|
22.30
|
%
|
|
|
32.85
|
%
|
|
|
27.75
|
%
|
|
|
8.99
|
%
|
|
|
2.76
|
%
|
Loan Delinquency Ratio (30 days and over)
|
|
|
0.55
|
%
|
|
|
1.06
|
%
|
|
|
0.90
|
%
|
|
|
0.40
|
%
|
|
|
0.15
|
%
|
|
|
|
(1) |
|
Classified loan totals are inclusive of non-performing loans and
may also include troubled debt restructured loans, depending on
the grading of these restructured loans. |
|
(2) |
|
Represents accruing restructured loans performing according to
their modified terms. Restructured loans that are not performing
according to their modified terms are included in non-accrual
loans. No other funds are available for disbursement on
restructured loans. |
|
(3) |
|
NPAs include both nonperforming loans and OREO. |
57
The $7.0 million decrease in non-accrual loans from
December 31, 2009 to December 31, 2010 resulted from a
combination of aggressive efforts by our special assets team to
work out or liquidate these loans and chargedowns in cases where
there was a collateral deficiency. This team continued to
migrate properties through the collections process and made
steady progress in reducing overall levels of both classified
and non-accrual loans through multiple management strategies,
including borrower workouts, individual asset sales to local and
regional investors, and a limited number of bulk sales and
auctions of like properties. NPAs fell $14.6 million from
December 31, 2009, and totaled 1.59% of total assets at
December 31, 2010, down from 2.83% at the preceding year
end. NPAs reached their peak of $47.7 million in May 2009
and have trended down since then. The Company continues to
monitor its non-accrual loans closely and revalue the collateral
on a periodic basis. This re-evaluation may create the need for
additional write-downs or additional loss reserves on these
assets. Loan delinquencies (30 days or more past due) also
declined to 0.55% from 1.06% of total loans at the end of
December 31, 2009, reflecting stronger performance in the
general loan portfolio. Loan delinquencies (30 days or more
past due) reached their peak in April 2009 at a rate of 3.10%.
The following tables provide additional trending and
geographical information on the Companys NPAs:
Nonperforming
Asset Trending By Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial loans
|
|
$
|
3,859
|
|
|
$
|
4,394
|
|
|
$
|
3,364
|
|
|
$
|
5,282
|
|
|
$
|
2,653
|
|
Commercial real estate loans
|
|
|
4,354
|
|
|
|
4,882
|
|
|
|
4,760
|
|
|
|
6,766
|
|
|
|
5,235
|
|
Commercial construction loans
|
|
|
69
|
|
|
|
1,662
|
|
|
|
1,931
|
|
|
|
3,858
|
|
|
|
3,133
|
|
Land and land development loans
|
|
|
3,368
|
|
|
|
7,266
|
|
|
|
11,625
|
|
|
|
12,989
|
|
|
|
14,055
|
|
Agriculture loans
|
|
|
582
|
|
|
|
934
|
|
|
|
524
|
|
|
|
250
|
|
|
|
834
|
|
Multifamily loans
|
|
|
|
|
|
|
112
|
|
|
|
112
|
|
|
|
|
|
|
|
135
|
|
Residential real estate loans
|
|
|
3,213
|
|
|
|
3,524
|
|
|
|
3,982
|
|
|
|
4,040
|
|
|
|
3,195
|
|
Residential construction loans
|
|
|
112
|
|
|
|
2
|
|
|
|
193
|
|
|
|
1,173
|
|
|
|
1,264
|
|
Consumer loans
|
|
|
389
|
|
|
|
12
|
|
|
|
28
|
|
|
|
21
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NPAs by Categories
|
|
$
|
15,946
|
|
|
$
|
22,788
|
|
|
$
|
26,519
|
|
|
$
|
34,379
|
|
|
$
|
30,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E. Oregon,
|
|
|
|
|
|
|
|
|
% of Loan
|
|
|
|
North Idaho
|
|
|
Magic
|
|
|
|
|
|
SW Idaho
|
|
|
|
|
|
|
|
|
Type to Total
|
|
NPAs by location
|
|
Eastern
|
|
|
Valley
|
|
|
Greater
|
|
|
Excluding
|
|
|
|
|
|
|
|
|
Non-Performing
|
|
December 31, 2010
|
|
Washington
|
|
|
Idaho
|
|
|
Boise Area
|
|
|
Boise
|
|
|
Other
|
|
|
Total
|
|
|
Assets
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial loans
|
|
$
|
2,927
|
|
|
$
|
415
|
|
|
$
|
135
|
|
|
$
|
352
|
|
|
$
|
30
|
|
|
$
|
3,859
|
|
|
|
24.2
|
%
|
Commercial real estate loans
|
|
|
1,714
|
|
|
|
46
|
|
|
|
453
|
|
|
|
413
|
|
|
|
1,728
|
|
|
|
4,354
|
|
|
|
27.3
|
%
|
Commercial construction loans
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
|
|
0.4
|
%
|
Land and land development loans
|
|
|
2,600
|
|
|
|
49
|
|
|
|
250
|
|
|
|
269
|
|
|
|
200
|
|
|
|
3,368
|
|
|
|
21.1
|
%
|
Agriculture loans
|
|
|
|
|
|
|
|
|
|
|
157
|
|
|
|
22
|
|
|
|
403
|
|
|
|
582
|
|
|
|
3.7
|
%
|
Multifamily loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
Residential real estate loans
|
|
|
2,013
|
|
|
|
102
|
|
|
|
652
|
|
|
|
259
|
|
|
|
187
|
|
|
|
3,213
|
|
|
|
20.2
|
%
|
Residential construction loans
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
|
|
0.7
|
%
|
Consumer loans
|
|
|
386
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389
|
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,821
|
|
|
$
|
615
|
|
|
$
|
1,647
|
|
|
$
|
1,315
|
|
|
$
|
2,548
|
|
|
$
|
15,946
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total NPAs
|
|
|
61.6
|
%
|
|
|
3.9
|
%
|
|
|
10.3
|
%
|
|
|
8.2
|
%
|
|
|
16.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
Percent of NPAs to total loans in each region(1)
|
|
|
3.0
|
%
|
|
|
1.3
|
%
|
|
|
2.5
|
%
|
|
|
1.2
|
%
|
|
|
9.7
|
%
|
|
|
2.8
|
%
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E. Oregon,
|
|
|
|
|
|
|
|
|
% of Loan
|
|
|
|
North Idaho
|
|
|
Magic
|
|
|
|
|
|
SW Idaho
|
|
|
|
|
|
|
|
|
Type to Total
|
|
NPA by location
|
|
Eastern
|
|
|
Valley
|
|
|
Greater
|
|
|
Excluding
|
|
|
|
|
|
|
|
|
Non-Performing
|
|
12/31/2009
|
|
Washington
|
|
|
Idaho
|
|
|
Boise Area
|
|
|
Boise
|
|
|
Other
|
|
|
Total
|
|
|
Assets
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial loans
|
|
$
|
2,194
|
|
|
$
|
303
|
|
|
$
|
28
|
|
|
$
|
128
|
|
|
$
|
|
|
|
$
|
2,653
|
|
|
|
8.7
|
%
|
Commercial real estate loans
|
|
|
3,096
|
|
|
|
1,182
|
|
|
|
399
|
|
|
|
527
|
|
|
|
31
|
|
|
|
5,235
|
|
|
|
17.1
|
%
|
Commercial construction loans
|
|
|
3,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,133
|
|
|
|
10.4
|
%
|
Land and land development loans
|
|
|
6,568
|
|
|
|
1,153
|
|
|
|
2,337
|
|
|
|
1,122
|
|
|
|
2,875
|
|
|
|
14,055
|
|
|
|
45.9
|
%
|
Agriculture loans
|
|
|
|
|
|
|
|
|
|
|
521
|
|
|
|
313
|
|
|
|
|
|
|
|
834
|
|
|
|
2.7
|
%
|
Multifamily loans
|
|
|
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
|
|
0.4
|
%
|
Residential real estate loans
|
|
|
2,194
|
|
|
|
|
|
|
|
422
|
|
|
|
199
|
|
|
|
380
|
|
|
|
3,195
|
|
|
|
10.4
|
%
|
Residential construction loans
|
|
|
1,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,264
|
|
|
|
4.1
|
%
|
Consumer loans
|
|
|
64
|
|
|
|
18
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,513
|
|
|
$
|
2,791
|
|
|
$
|
3,713
|
|
|
$
|
2,289
|
|
|
$
|
3,286
|
|
|
$
|
30,592
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total NPAs
|
|
|
60.5
|
%
|
|
|
9.1
|
%
|
|
|
12.1
|
%
|
|
|
7.5
|
%
|
|
|
10.8
|
%
|
|
|
100.0
|
%
|
|
|
|
|
Percent of NPAs to total loans in each region(1)
|
|
|
5.0
|
%
|
|
|
5.19
|
%
|
|
|
4.5
|
%
|
|
|
1.7
|
%
|
|
|
9.5
|
%
|
|
|
4.6
|
%
|
|
|
|
|
|
|
|
(1) |
|
NPAs include both nonperforming loans and OREO |
The volume of non-performing residential land and construction
assets has declined rapidly since December 2009 and no longer
comprises the majority of NPAs. This reflects the Companys
aggressive effort in resolving or liquidating these assets
quickly to reduce future exposure in this portfolio. NPAs are
now relatively evenly split between commercial, commercial real
estate, construction and development, and residential real
estate loan segments, reflecting the ongoing impacts on all loan
types of the challenging economy. Commercial and residential
real estate NPAs increased moderately since the end of 2009, but
were offset by decreases in commercial real estate and
agricultural NPAs. The top 10 non-performing loans totaled
$4.7 million, or 41% of total non-performing loans and the
top 10 OREO properties accounted for 50% of the OREO balance.
The geographic distribution of NPAs generally correlates with
the distribution of the overall loan portfolio, except that the
percent of total NPAs in the North Idaho -Eastern
Washington region is slightly higher than the percent of
the loan portfolio in this region, and correspondingly, the
percent of total NPAs in the E. Oregon, SW Idaho excluding
Boise and Magic Valley regions are lower. This
reflects generally stronger economic conditions in the Southwest
Idaho market outside Boise as a result of its agricultural base.
It also reflects aggressive efforts to reduce exposure in the
Greater Boise area region in 2008 and 2009. The
Other NPAs total is largely comprised of one
commercial property in Nevada.
All NPAs are reported at the Companys best estimate of net
realizable value. The Company has evaluated the borrowers and
the collateral underlying these loans and determined the
probability of recovery of the loans principal balance.
Given the volatility in the current market, the Company
continues to monitor these assets closely and revalue the
collateral on a frequent and periodic basis. This re-evaluation
may create the need for additional write-downs or additional
loss reserves on these assets.
59
At December 31, 2010 and 2009, classified loans (loans with
risk grades 6, 7 or 8) by loan type are as follows (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Classified Loans
|
|
2010
|
|
|
2009
|
|
|
Commercial loans
|
|
$
|
14,069
|
|
|
$
|
11,685
|
|
Commercial real estate loans
|
|
|
15,807
|
|
|
|
12,409
|
|
Commercial construction loans
|
|
|
7,832
|
|
|
|
15,554
|
|
Land and land development loans
|
|
|
8,040
|
|
|
|
20,136
|
|
Agriculture loans
|
|
|
2,380
|
|
|
|
9,637
|
|
Multifamily loans
|
|
|
|
|
|
|
695
|
|
Residential real estate loans
|
|
|
4,477
|
|
|
|
5,433
|
|
Residential construction loans
|
|
|
277
|
|
|
|
1,165
|
|
Consumer loans
|
|
|
1,203
|
|
|
|
461
|
|
Municipal loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total classified loans
|
|
$
|
54,085
|
|
|
$
|
77,175
|
|
|
|
|
|
|
|
|
|
|
Classified loans are loans for which management believes it may
experience some problems in obtaining repayment under the
contractual terms of the loan, and are inclusive of the
Companys non-accrual loans. However, categorizing a loan
as classified does not necessarily mean that the Company will
experience any or significant loss of expected principal or
interest.
While still elevated, classified loans dropped by
$23 million, or 29.9% in 2010. The total balance of
classified loans reached a peak of $96.2 million in July
2009, and has been reduced by 43.8% since then, as a result of
the workout and disposition efforts of the Companys
special assets team. As a percentage of the Companys net
loans, classified loans reached a peak of 13.9% in November
2009, dropped to 11.8% of net loans at the end of 2009, and
totaled 9.6% at the end of 2010.
The decrease in classified loans from 2009 to 2010 largely
reflects decreases in the construction and land development loan
segments. These segments represented the highest loss exposure
for the Company, and were a priority to resolve and liquidate
rapidly. The reductions were a combination of loan sales,
movement to OREO and subsequent liquidation, and writedowns. The
Company also experienced decreases in classified agricultural
and residential real estate loans, primarily through either
upgrade of the loans or liquidation with very limited losses.
2010 was a strong year for agribusiness, creating strong
performance and lowering exposure risk in this segment of the
Companys portfolio. In contrast, commercial and commercial
real estate classified loans increased moderately during the
year. The increase in these segments reflects the impact of the
prolonged economic downturn and challenging real estate
conditions throughout the Companys market area.
Unemployment rates continued at high levels, placing additional
stress on businesses. This resulted in more borrowers
experiencing difficulties in maintaining their ability to
service the Companys debts. At the same time, real estate
and other collateral valuations remained depressed, reducing the
ability of borrowers or the Bank to liquidate assets or rely on
other repayment sources to cover shortfalls in the cash flow
required to service their debts.
As with NPAs, the geographical distribution of the
Companys classified loans reflects the distribution of the
Companys loan portfolio, with higher distributions in the
North Idaho/Eastern Washington region, and decreased
levels in southern Idaho. As noted above, the Company worked
rapidly to reduce its exposure in the Greater Boise area, and
the other southern Idaho regions have strong agri-business
components. In general, the Company believes that its loss
exposure to classified loans in northern Idaho and eastern
Washington will be less, because of stronger, local borrower
relationships and generally higher real estate and other
collateral values.
Local economies and real estate valuations appeared to stabilize
in the latter part of 2010. However, significant improvement is
not forecast for at least the balance of 2011. Based on local
forecasts, full recovery is likely to occur slowly and over a
multi-year period. As such, management believes that classified
loans, non-performing assets, and credit losses will likely
continue to decline in 2011, but remain at historically high
levels as compared to the years prior to 2008. If this holds
true, the Companys allowance for loan losses would likely
remain at higher levels
60
than its historical experience prior to 2008 as well. Given
market volatility and future uncertainties, management cannot
assure nor guarantee the accuracy of these future forecasts.
Management continues to focus its efforts on managing down the
level of non-performing assets, classified loans and
delinquencies. It uses a variety of analytical tools and an
integrated stress testing program involving both qualitative and
quantitative modeling to assess the current and projected state
of its credit portfolio. The results of this program are
integrated with the Companys capital and liquidity
modeling programs to manage and mitigate future risk in these
areas as well. In early 2010 and again in early 2011, the
Company contracted with an independent loan review firm to
further evaluate and provide independent analysis of its
portfolio and make recommendations for portfolio management
improvement. In particular, the reviews quantified and
stratified the loans in the Banks portfolio based upon
layered risk, product type, asset class, loans- to-one borrower,
and geographic location. The purpose of the reviews was to
provide an independent assessment of the potential imbedded
risks and dollar exposure within the Banks loan portfolio.
The scope of the original review included loans representing
over 80% of the total loan portfolio and included specific asset
evaluations and loss forecasts for the majority of the loan
portfolio. The review in 2011 was slightly smaller in scope, but
still comprised almost 80% of the total portfolio. The firm
employed seasoned financial and commercial lending personnel to
complete the individual loan reviews. Based on its evaluation of
both external and internal loan review results and a comparison
of the 2010 internal and external loss projections against
actual losses, management does not believe that it needs to
materially alter its
12-month
forward loss projections. It has and continues to incorporate a
number of the recommendations made by the review firm into its
ongoing credit management process.
Other
Income
The following table details dollar amount and percentage changes
of certain categories of other income for the three years ended
December 31.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
% of
|
|
|
Change
|
|
|
2009
|
|
|
% of
|
|
|
Change
|
|
|
2008
|
|
|
% of
|
|
Other Income
|
|
Amount
|
|
|
Total
|
|
|
Prev. Yr
|
|
|
Amount
|
|
|
Total
|
|
|
Prev. Yr.
|
|
|
Amount
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Fees and service charges
|
|
$
|
7,133
|
|
|
|
65
|
%
|
|
|
3
|
%
|
|
$
|
6,948
|
|
|
|
58
|
%
|
|
|
(6
|
)%
|
|
$
|
7,394
|
|
|
|
53
|
%
|
Loan related fee income
|
|
|
3,061
|
|
|
|
28
|
|
|
|
5
|
|
|
|
2,913
|
|
|
|
24
|
|
|
|
(4
|
)
|
|
|
3,029
|
|
|
|
22
|
|
BOLI income
|
|
|
368
|
|
|
|
3
|
|
|
|
2
|
|
|
|
360
|
|
|
|
3
|
|
|
|
11
|
|
|
|
324
|
|
|
|
2
|
|
Other-than-temporary
credit impairment on investment securities
|
|
|
(828
|
)
|
|
|
(8
|
)
|
|
|
(57
|
)
|
|
|
(526
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on sale of securities
|
|
|
349
|
|
|
|
3
|
|
|
|
(81
|
)
|
|
|
1,795
|
|
|
|
15
|
|
|
|
(18
|
)
|
|
|
2,182
|
|
|
|
16
|
|
Other income
|
|
|
941
|
|
|
|
9
|
|
|
|
88
|
|
|
|
501
|
|
|
|
4
|
|
|
|
(50
|
)
|
|
|
1,011
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,024
|
|
|
|
100
|
%
|
|
|
(8
|
)%
|
|
$
|
11,991
|
|
|
|
100
|
%
|
|
|
(14
|
)%
|
|
$
|
13,940
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income was $11.0 million and $12.0 million
for the twelve months ended December 31, 2010 and 2009,
respectively, with the decrease largely resulting from a
$1.4 million reduction in gains on the sale of investment
securities.
Fees and service charges earned on deposit, trust and investment
accounts continue to be the Companys primary sources of
other income. Fees and service charges for the twelve month
period ended December 31, 2010 totaled $7.1 million
versus $6.9 million for the same period last year,
reflecting additional trust, investment services, and debit card
income. Increases in these fees offset a 17.2% decrease in
overdraft charges, as the Company implemented new federal
regulations on overdraft charges that came into effect in July
2010. The Company anticipates that further regulations arising
from the Dodd-Frank Act may continue to negatively impact fee
income, particularly income earned on overdraft and debit card
activity. The Company is evaluating new fee structures, and
implementing additional training and marketing programs to
further enhance fee income through reduced waivers, increased
pricing and additional cross-selling of other services to offset
these potential impacts. Amidst the
61
changing regulatory environment, it also continues to evaluate
fees for all of its services to identify new opportunities that
may arise.
Loan related fee income increased by $148,000, or 5.1%, for the
twelve months ended December 31, 2010 compared to one year
ago as a result of additional servicing income and higher
mortgage lending fees. The Company has restructured its mortgage
banking function to enhance origination volume and income, and
continues to build its servicing portfolio to improve customer
service and provide a more stable source of fee income in the
future.
For the twelve-month period, gains on sales of securities
totaled $349,000 in 2010 versus $1.8 million in the same
period of 2009. The credit loss on impaired securities increased
from $526,000 for the twelve months ended December 31, 2009
to $828,000 for the twelve months ended December 31, 2010,
as the Company continued to experience impairments on two
non-government-guaranteed mortgage backed securities.
Bank-owned life insurance (BOLI) income was
relatively flat from the prior year as yields were stable and
the Company did not purchase or liquidate BOLI assets. Other
non-interest income increased $440,000, reflecting higher
secured credit card contract income and lower loss on sales of
assets in 2010. Income from the secured credit card contract is
expected to increase over the next quarter based on higher
pricing, then level off before potentially terminating at the
end of 2012. The Company is evaluating various alternatives,
including partnering with other card providers, to replace this
income source in future years.
The decrease in other income from 2008 to 2009 of
$1.9 million reflected lower fees and service charges,
reduced gains on security sales and decreased secured credit
card contract income in 2009, as well as $526,000 in credit loss
impairment on securities.
Operating
Expenses
The following table details dollar amount and percentage changes
of certain categories of other expense for the three years ended
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
% of
|
|
|
Change
|
|
|
2009
|
|
|
% of
|
|
|
Prev.
|
|
|
2008
|
|
|
% of
|
|
Other Expense
|
|
Amount
|
|
|
Total
|
|
|
Prev. Yr.
|
|
|
Amount
|
|
|
Total
|
|
|
Yr.
|
|
|
Amount
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Salaries and employee benefits
|
|
$
|
20,950
|
|
|
|
38
|
%
|
|
|
(7
|
)%
|
|
$
|
22,512
|
|
|
|
45
|
%
|
|
|
(11
|
)%
|
|
$
|
25,301
|
|
|
|
55
|
%
|
Occupancy expense
|
|
|
7,240
|
|
|
|
13
|
|
|
|
(4
|
)
|
|
|
7,515
|
|
|
|
15
|
|
|
|
0
|
|
|
|
7,496
|
|
|
|
17
|
|
Advertising
|
|
|
1,010
|
|
|
|
2
|
|
|
|
(25
|
)
|
|
|
1,351
|
|
|
|
3
|
|
|
|
(8
|
)
|
|
|
1,474
|
|
|
|
3
|
|
Fees and service charges
|
|
|
2,666
|
|
|
|
5
|
|
|
|
(9
|
)
|
|
|
2,940
|
|
|
|
6
|
|
|
|
48
|
|
|
|
1,990
|
|
|
|
4
|
|
Printing, postage and supplies
|
|
|
1,346
|
|
|
|
2
|
|
|
|
0
|
|
|
|
1,352
|
|
|
|
3
|
|
|
|
(6
|
)
|
|
|
1,442
|
|
|
|
3
|
|
Legal and accounting
|
|
|
1,244
|
|
|
|
2
|
|
|
|
(28
|
)
|
|
|
1,734
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
1,758
|
|
|
|
4
|
|
FDIC assessment
|
|
|
1,892
|
|
|
|
3
|
|
|
|
(20
|
)
|
|
|
2,373
|
|
|
|
5
|
|
|
|
364
|
|
|
|
511
|
|
|
|
1
|
|
OREO operations(1)
|
|
|
3,472
|
|
|
|
6
|
|
|
|
(35
|
)
|
|
|
5,389
|
|
|
|
11
|
|
|
|
445
|
|
|
|
988
|
|
|
|
3
|
|
Goodwill Impairment
|
|
|
11,662
|
|
|
|
22
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
3,412
|
|
|
|
7
|
|
|
|
(24
|
)
|
|
|
4,464
|
|
|
|
9
|
|
|
|
1
|
|
|
|
4,412
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
54,894
|
|
|
|
100
|
%
|
|
|
11
|
%
|
|
$
|
49,630
|
|
|
|
100
|
%
|
|
|
9
|
%
|
|
$
|
45,372
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount includes chargedowns and gains/losses on sale of OREO |
Operating expense for the twelve months ended December 31,
2010 totaled $54.9 million, an increase of
$5.3 million over the same period one year ago. However,
operating expense excluding the goodwill impairment charge for
the twelve months ended December 31, 2010 totaled
$43.2 million, a decrease of $6.4 million, or 12.9%
over the same period one year ago. See Item 6, Selected
Financial Data for discussion of non-GAAP financial measures.
62
Salaries and employee benefits expense for the twelve months
ended December 31, 2010 decreased $1.6 million, or
6.9% compared to the same period one year ago. During 2010, the
Company implemented a restructuring plan resulting in an 8%
reduction in staff by the end of April and continuing reductions
for the rest of the year. Severance costs paid as part of this
staff reduction totaled $561,000 for 2010. Future expense
savings from the original restructuring are estimated to be
approximately $600,000 per quarter, with additional compensation
expense savings forecasted. Ongoing efforts to control
compensation expense include centralizing and automating
additional functions, reducing administrative overhead, and
revamping our credit management process. At December 31,
2010, full-time-equivalent employees (FTE) totaled 349, compared
with 406 at December 31, 2009 and 418 at December 31,
2008. The reductions in compensation and other benefits expense
were partially offset by a $190,000, or 95.0%, increase in
unemployment insurance expense from 2009.
Occupancy expenses were $7.2 million for the twelve months
ended December 31, 2010, a 3.7% decrease compared to
December 31, 2009. The decrease from last year reflects
reduced rent expense and lower hardware, software, and equipment
purchasing activity, as previous infrastructure investments have
enhanced efficiency and reduced the need for additional
purchasing activity. The Company also consolidated
administrative functions during the second quarter, which
allowed it to terminate leases on two formerly leased
properties. Continued centralization and outsourcing efforts are
anticipated to bring further improvement to this area in the
near future.
The advertising expense decrease of $341,000 for the twelve
month period compared to the same period one year ago is a
result of reductions in general advertising and media expenses,
as the need for broad advertising in the current market has been
limited. The $274,000 decrease in fees and service charges for
the twelve month period ended December 31, 2010 compared to
the same period one year ago is primarily comprised of decreases
in loan collection, repossession and liquidation expenses, with
particularly large reductions in the latter part of this year.
These expenses are expected to decline further as the
Companys credit quality continues to improve. Printing,
postage and supplies remained static for the twelve month period
in comparison to last years total, with a $6,000 decrease
from a year ago. Additional outsourcing activities are expected
to result in improvements in these areas over the next several
months. Legal and accounting fees decreased by $490,000 in
comparison to the same twelve month period in 2010 as the
Company reduced expenditures on outside legal and consulting
services related to loan collection and regulatory compliance.
Legal fees may continue to remain high, given Company credit
resolution efforts and increasing regulatory requirements, but
are likely to be offset by lower consulting fees over the near
term.
At $1.9 million, FDIC expense was down $481,000 or 20.0%
from the twelve months ended December 31, 2010. Higher
regular premium costs in 2010 were more than offset by the
absence of any special assessments. In September 2009, the
Company accrued $475,000 to pay a special assessment to the FDIC
to help recapitalize the insurance fund. Given the challenged
state of the banking industry, future assessments are likely to
remain high, but may be partially offset by improving Company
conditions.
OREO operations, related valuation adjustments and gain/loss on
sale of OREO decreased by $1.9 million for the twelve month
period over the same period last year. OREO volumes have been
reduced substantially and property valuation adjustments and
losses on sale are significantly lower. OREO expenses and
adjustments should continue to decline from the peak reached in
late 2009 as the Company reduces its OREO balances and
liquidation activity subsides.
As noted earlier, the Company recorded an $11.7 million
goodwill impairment during 2010, reducing the balance of
goodwill to zero, as compared to the December 31, 2009
balance of $11.7 million. Goodwill represents the
difference between the value of consideration paid and the fair
value of the net assets received in a business combination.
Intermountain records impairment losses as charges to
noninterest expense and adjustments to the carrying value of
goodwill. Goodwill is tested for impairment on an annual basis,
or more frequently as events occur, or as current circumstances
and conditions warrant. The Company engaged an independent
consultant at December 31, 2009 to assist management in
evaluating the carrying value of goodwill. The evaluation
followed the two-step process for evaluating impairment required
by accounting guidance. In Step 1, the Company evaluated whether
an impairment of goodwill might exist at December 31, 2009.
Since the Company operates in a single segment this evaluation
was based on a comparison of the estimated fair value of the
Company in comparison to the book value of the Companys
common equity at December 31, 2009. The results of Step 1
indicated that a potential
63
for impairment did exist at the end of 2009, requiring the
Company to engage in Step 2 to determine the amount of the
impairment, if any.
The Step 2 evaluation required the Company to calculate the
implied fair value of its goodwill. The implied fair value of
goodwill is determined in the same manner as goodwill recognized
in a business combination. The estimated fair value of the
Company is allocated to all of the Companys assets and
liabilities, including any unrecognized identifiable assets, as
if the Company had been acquired in a business combination and
the estimated fair value of the Company is the price paid to
acquire it. The Step 2 analysis indicated that the
Companys fair value at December 31, 2009 exceeded the
net fair value of its assets by an amount greater than the
carrying value of its goodwill. As a result, the Company
determined that no impairment existed in 2009.
At September 30, 2010, the Company concluded there was a
triggering event related to continuing depressed economic
conditions and ongoing losses incurred by the Company. As a
result, Intermountain performed a goodwill impairment evaluation
using current information. In completing its goodwill impairment
analysis, the Company used tangible common equity multiples and
core deposit metrics from recent transactions to estimate the
fair value of the Company at September 30, 2010. For Step
1, the fair value of the Company was less than the common book
value of the Company prior to any goodwill adjustments,
indicating a potential impairment. As such, under accounting
guidance, a Step 2 analysis was required. In the Step 2
analysis, the fair value of the Companys assets and
liabilities was determined, using discounted cash flows based on
the cash flow characteristics of the assets and liabilities and
prevailing market interest rates. The fair value of the
liabilities was subtracted from the fair value of the assets
resulting in the fair value of the net assets. This was then
reduced by the value of the preferred stock to derive the sum of
the fair value of net assets supported by common equity. Since
this number was higher at September 30, 2010 than the fair
value of the Company calculated in Step 1, there was no excess
company value that could be allocated to goodwill, resulting in
a full impairment of the Companys goodwill. Intermountain
recorded this impairment loss as a charge to noninterest expense
and an adjustment to the carrying value of goodwill.
The Companys efficiency ratio was 93.4% (excluding the
goodwill impairment of $11.7 million) for the twelve months
ended December 31, 2010, compared to 99.9% for the twelve
months ended December 31, 2009. However, the quarter by
quarter comparison shows continued improvement in this ratio
over the past year. The ratio was 86.3% for the three months
ended December 31, 2010, compared to the adjusted ratio of
86.6% for the sequential quarter and 125.0% for the three months
ended December 31, 2009. The Company has been and continues
to execute strategies to reduce controllable expenses to improve
efficiency. However, flat asset growth, net interest margin
compression and substantially higher credit-related expenses and
FDIC insurance premiums have hampered efficiency gains. With
economic conditions likely to remain challenging in the near
future, the Company continues to lower its interest expense and
is implementing additional efficiency and cost-cutting efforts.
Management anticipates that as it completes the action plans
developed under prior initiatives and undertakes its new plans,
the efficiency and expense ratios will improve. Stabilization
and improvement in economic conditions in the future should also
improve efficiency, as net interest income rebounds and
credit-related costs subside.
Income Tax Provision. Federal and state income
tax benefits totaled $882,000 and $14.4 million for the
twelve months ended December 31, 2010 and 2009,
respectively. The effective tax rates used to calculate the tax
benefit were (2.7%) and (39.6%) for the twelve months ended
December 31, 2010 and 2009, respectively. During the third
quarter of 2010, Intermountain determined that the negative
evidence associated with three-year cumulative loss and
continued depressed economic conditions outweighed the existing
positive evidence. Therefore, during the third quarter of 2010,
Intermountain established a valuation allowance of
$7.4 million against its deferred tax asset. Results for
fourth quarter 2010 were materially consistent with expectations
and as a result, the Company made no change to the net deferred
tax asset of approximately $15.3 million that it expects to
utilize over the next few years. As a result, due to the
increase in its deferred tax assets (from operations) during the
fourth quarter 2010, the Company increased its valuation
allowance correspondingly by approximately $1.4 million.
The fourth quarter increase in the deferred tax assets and
corresponding increase to the valuation allowance resulted in no
provision or benefit for quarter. The Company analyzes the
deferred tax asset on a quarterly basis and may recapture a
portion or all of this allowance depending on future
profitability. At December 31, 2010, the net deferred tax
asset totaled $15.3 million, net of a deferred tax asset
valuation of $8.8 million, compared to a net deferred tax
asset of $16.9 million, net of a deferred tax asset
valuation of $0 at December 31, 2009. Excluding the
original deferred tax asset valuation charge of
$7.4 million, the effective tax rate was 20.0% for 2010.
64
Intermountain uses an estimate of future earnings and tax
planning strategies to determine whether it is more likely than
not that the benefit of its net deferred tax asset will be
realized. In developing its estimate of future earnings, two
different scenarios were used and the results of the two were
probability weighted and averaged together to determine both the
need for a valuation allowance and the size of the allowance. In
conducting this analysis, management has assumed economic
conditions will continue to be very challenging in 2011,
followed by gradual improvement in the ensuing years. These
assumptions are in line with both national and regional economic
forecasts. As such, its estimates include elevated credit losses
in 2011, but at lower levels than those experienced in 2009 and
2010, followed by improvement in ensuing years as the economy
improves and the Companys loan portfolio turns over. It
also assumes improving net interest margins beginning in late
2011, as it is able to convert some of its cash position to
higher yielding instruments, and reductions in operating
expenses as credit costs abate and its other cost reduction
strategies continue
Financial
Position
Assets. At December 31, 2010,
Intermountains assets were $1.01 billion, down
$74.5 million from $1.08 billion at December 31,
2009. During this period, increases in investments
available-for-sale
and cash and cash equivalents were offset by a decrease in loans
receivable. Given the challenging economic climate and the lack
of quality borrowing demand, the Company continued to manage its
balance sheet cautiously, limiting asset growth, reducing
problem loans and shifting the mix from loans to more
conservative and liquid investments.
Investments. Intermountains total
investment portfolio, including investments available for sale,
investments held to maturity and FHLB stock, at
December 31, 2010 was $207.6 million, an increase of
$8.3 million from the December 31, 2009 balance of
$199.3 million. The increase was primarily due to the net
purchase of high-quality taxable municipal bonds. During the
twelve months ended December 31, 2010, the Company sold
$15.3 million in investment securities resulting in a
$349,000 net pre-tax gain, and experienced higher
prepayments on its MBS related to FNMA and FHLMC accelerating
payments on guaranteed mortgages that had defaulted. The Company
continued to position the portfolio to perform better in
unchanged or rising rate environments by holding mostly
agency-guaranteed mortgage-backed securities with strong cash
flows and short durations. As of December 31, 2010, the
balance of the unrealized loss on investment securities
(including cumulative OTTI recognized through other
comprehensive income), net of federal income taxes, was
$797,000, compared to an unrealized loss at December 31,
2009 of $4.9 million. The unrealized loss for both periods
was caused by the impacts of illiquid markets on the pricing of
some of the Companys non-agency backed mortgage backed
securities, but was mostly offset in the recent period by
unrecognized gains on many of the agency-guaranteed securities.
The Company currently holds two residential MBS, with an unpaid
balance totaling $10.4 million that are determined to have
other than temporary impairments (OTTI), as detailed
in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI Credit
|
|
|
OTTI Impairment
|
|
|
|
Principal
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Loss Recorded in
|
|
|
Loss Recorded in
|
|
Security Issuer
|
|
Balance
|
|
|
Value
|
|
|
(Loss) Gain
|
|
|
Income
|
|
|
OCI
|
|
|
Security 1
|
|
$
|
3,201
|
|
|
$
|
2,066
|
|
|
$
|
526
|
|
|
$
|
(947
|
)
|
|
$
|
(805
|
)
|
Security 2
|
|
|
7,241
|
|
|
|
5,854
|
|
|
|
200
|
|
|
|
(407
|
)
|
|
|
(1,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,442
|
|
|
$
|
7,920
|
|
|
$
|
726
|
|
|
$
|
(1,354
|
)
|
|
$
|
(1,927
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In March, 2009, residential mortgage-backed securities included
a security comprised of a pool of mortgages with a remaining
unpaid principal balance of $4.2 million. In the year ended
December 31, 2009, due to the lack of an orderly market for
the security and the declining national economic and housing
market, its fair value was determined to be $2.5 million at
that time based on analytical modeling taking into consideration
a range of factors normally found in an orderly market. Of the
$1.7 million original OTTI on this security, based on an
analysis of projected cash flows, $244,000 was charged to
earnings as a credit loss and $1.5 million was recognized
in other comprehensive income (loss). The Company has recorded
additional credit loss impairments totaling $947,000, including
$421,000 in 2010. However, the overall estimated market value on
the security improved during this time, reducing the net
non-credit value impairment to $805,000. In June 2010, the
Company identified an additional residential mortgage-backed
security comprised of a pool of mortgages with a remaining
unpaid principal balance
65
of $7.5 million. At June 30, 2010, its fair value was
determined to be $6.0 million based on similar analytical
modeling. Of the $1.5 million original OTTI on this
security, based on an analysis of projected cash flows, $407,000
was charged to earnings as a credit loss for the twelve months
ended December 31, 2010, leaving a net non-credit value
impairment of $1.1 million at December 31, 2010. At
this time, the Company anticipates holding the two securities
until their value is recovered or until maturity, and will
continue to adjust its net income and other comprehensive income
(loss) to reflect potential future credit loss impairments and
the securitys market value. The Company calculated the
credit loss charges against earnings each quarter by subtracting
the estimated present value of future cash flows on the
securities from their amortized cost at the end of each period.
Loans Receivable. At December 31,
2010 net loans receivable totaled $563.2 million, down
$92.4 million or 14.1% from $655.6 million at
December 31, 2009. During the twelve months ended
December 31, 2010, total loan originations were
$267.4 million compared to $411.3 million for the
prior years comparable period. The decrease in total loan
originations reflected difficult economic conditions, muted
borrowing demand in the Companys markets, and tighter
underwriting standards. As part of its Powered By
Community initiative, the Company continues to market
residential and commercial lending programs to help ensure the
credit needs of its communities are met. In particular, it is
pursuing attractive small and mid-market commercial credits,
originating commercial real estate loans to strong borrowers at
lower real estate prices, originating mortgage loans to strong
borrowers at conservative
loan-to-values,
diversifying its agricultural portfolio, and expanding its
already strong government-guaranteed loan marketing efforts.
These efforts have been reasonably successful, but have not been
sufficient to offset the substantial and intentional reduction
in the Companys land development and construction
portfolios. The Company also recently introduced new SBA and
mortgage lending initiatives to spur additional production in
its markets, which appear to be gaining some traction.
The following table sets forth the composition of
Intermountains loan portfolio at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial loans
|
|
$
|
122,656
|
|
|
|
21.31
|
|
|
$
|
131,562
|
|
|
|
19.57
|
|
|
$
|
139,443
|
|
|
|
18.13
|
|
Commercial real estate loans
|
|
|
175,559
|
|
|
|
30.50
|
|
|
|
172,726
|
|
|
|
25.69
|
|
|
|
161,628
|
|
|
|
21.00
|
|
Commercial construction loans
|
|
|
17,951
|
|
|
|
3.12
|
|
|
|
45,581
|
|
|
|
6.78
|
|
|
|
60,057
|
|
|
|
7.81
|
|
Land and land development loans
|
|
|
60,962
|
|
|
|
10.59
|
|
|
|
88,604
|
|
|
|
13.18
|
|
|
|
136,514
|
|
|
|
17.75
|
|
Agriculture loans
|
|
|
87,364
|
|
|
|
15.18
|
|
|
|
110,256
|
|
|
|
16.40
|
|
|
|
112,358
|
|
|
|
14.61
|
|
Multifamily loans
|
|
|
26,417
|
|
|
|
4.59
|
|
|
|
18,067
|
|
|
|
2.69
|
|
|
|
18,617
|
|
|
|
2.42
|
|
Residential real estate loans
|
|
|
60,872
|
|
|
|
10.58
|
|
|
|
65,544
|
|
|
|
9.75
|
|
|
|
72,301
|
|
|
|
9.40
|
|
Residential construction loans
|
|
|
3,219
|
|
|
|
0.56
|
|
|
|
16,626
|
|
|
|
2.47
|
|
|
|
40,001
|
|
|
|
5.20
|
|
Consumer loans
|
|
|
14,095
|
|
|
|
2.45
|
|
|
|
18,287
|
|
|
|
2.72
|
|
|
|
23,245
|
|
|
|
3.02
|
|
Municipal loans
|
|
|
6,528
|
|
|
|
1.12
|
|
|
|
5,061
|
|
|
|
0.75
|
|
|
|
5,109
|
|
|
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
|
575,623
|
|
|
|
100.00
|
|
|
|
672,314
|
|
|
|
100.00
|
|
|
|
769,273
|
|
|
|
100.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred origination fees
|
|
|
60
|
|
|
|
|
|
|
|
(104
|
)
|
|
|
|
|
|
|
(225
|
)
|
|
|
|
|
Allowance for losses on loans
|
|
|
(12,455
|
)
|
|
|
|
|
|
|
(16,608
|
)
|
|
|
|
|
|
|
(16,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
$
|
563,228
|
|
|
|
|
|
|
$
|
655,602
|
|
|
|
|
|
|
$
|
752,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield at end of period
|
|
|
6.04
|
%
|
|
|
|
|
|
|
6.15
|
%
|
|
|
|
|
|
|
6.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the Companys continued efforts to reduce
construction and land development exposure, these loan
categories declined an additional $68.7 million during
2010. They now represent 14.3% of the Companys total loan
portfolio and only about 30.8% of the exposure in 2008, based on
dollar volumes. Commercial loans decreased as several larger
problem loans were resolved in 2010 and slow demand by area
businesses reduced new origination activity. Commercial real
estate loans increased slightly, largely as a result of the
conversion of commercial construction loans into term notes.
Decreasing agricultural loans reflected very strong agricultural
markets,
66
reducing the need for farmers to borrow and allowing them to pay
down additional debt. Most other categories were unchanged or
slightly lower, continuing to reflect slow economic conditions.
The rapid reduction in the construction and land development
portfolio has reduced the future potential loss exposure in this
segment significantly. The mix of this segment has changed
considerably as well, with a substantial reduction in
residential subdivision loans, leaving a lower-risk portfolio of
commercial land and construction loans, smaller lots owned by
individual consumers, and a small number of remaining
lower-priced subdivision projects.
The commercial portfolio is diversified by industry with a
variety of small business customers that have held up relatively
well during this economic downturn. As slow economic conditions
continue, however, the Company has experienced a moderate
increase in stress in this portfolio, including the large
chargeoff on a commercial borrower discussed in the
Provision for Loan Losses section above. Most of the
commercial credits are smaller, however, and Intermountain
carries a higher proportion of SBA and USDA guaranteed loans
than many of its peers, reducing the overall risk in this
portfolio.
Difficult economic conditions continue to create risk in the
non-residential component of the commercial real estate
portfolio. However, in comparison to peers, the Company believes
it has less overall exposure to commercial real estate and a
stronger mix of owner-occupied (where the borrower occupies and
operates in at least part of the building) versus non-owner
occupied loans. The loans represented in this category are
spread across the Companys footprint, and there are no
significant concentrations by industry type or borrower. The
most significant property types represented in the portfolio are
office (19%), industrial (13%), multifamily (13%), health care
(6%), and retail (5%). The other 44% is a mix of property types
with smaller concentrations, including religious facilities,
auto-related properties, restaurants, convenience stores,
storage units, motels and commercial investment land. Finished
condominiums comprise only 1% of the commercial real estate
portfolio, although there are also several unfinished condo
projects in the construction and development portfolio.
The following table provides additional information on the
Companys commercial real estate portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate by Property Types
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
(Dollars in thousands)
|
|
|
Condominiums
|
|
$
|
2,321
|
|
|
|
1.1
|
%
|
|
$
|
4,504
|
|
|
|
2.4
|
%
|
Office
|
|
|
38,528
|
|
|
|
19.1
|
%
|
|
|
32,265
|
|
|
|
16.9
|
%
|
Industrial warehouse
|
|
|
25,911
|
|
|
|
12.8
|
%
|
|
|
29,206
|
|
|
|
15.3
|
%
|
Storage units
|
|
|
6,782
|
|
|
|
3.4
|
%
|
|
|
6,984
|
|
|
|
3.7
|
%
|
Retail
|
|
|
10,722
|
|
|
|
5.3
|
%
|
|
|
12,177
|
|
|
|
6.4
|
%
|
Restaurants
|
|
|
6,114
|
|
|
|
3.0
|
%
|
|
|
6,028
|
|
|
|
3.2
|
%
|
Land and land development
|
|
|
7,859
|
|
|
|
3.9
|
%
|
|
|
10,281
|
|
|
|
5.4
|
%
|
Other commercial
|
|
|
16,562
|
|
|
|
8.2
|
%
|
|
|
19,560
|
|
|
|
10.3
|
%
|
Health care
|
|
|
12,486
|
|
|
|
6.2
|
%
|
|
|
11,345
|
|
|
|
5.9
|
%
|
Religious facilities
|
|
|
1,758
|
|
|
|
0.9
|
%
|
|
|
2,538
|
|
|
|
1.3
|
%
|
Gas stations & convenience stores
|
|
|
5,818
|
|
|
|
2.9
|
%
|
|
|
2,712
|
|
|
|
1.4
|
%
|
Auto R/E (car lot, wash, repair)
|
|
|
2,290
|
|
|
|
1.1
|
%
|
|
|
2,554
|
|
|
|
1.3
|
%
|
Hotel/Motel
|
|
|
2,546
|
|
|
|
1.3
|
%
|
|
|
3,351
|
|
|
|
1.8
|
%
|
Miscellaneous
|
|
|
35,862
|
|
|
|
17.7
|
%
|
|
|
29,221
|
|
|
|
15.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial real estate loans
|
|
|
175,559
|
|
|
|
86.9
|
%
|
|
|
172,726
|
|
|
|
90.5
|
%
|
Multifamily
|
|
|
26,417
|
|
|
|
13.1
|
%
|
|
|
18,067
|
|
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial real estate and Multifamily Loans
|
|
$
|
201,976
|
|
|
|
100.0
|
%
|
|
$
|
190,793
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank is committed to reducing and maintaining its real
estate lending concentrations to levels that are below the
interagency regulatory guidelines issued in late 2007.
Institutions that exceed the levels established in the
guidelines are subject to greater supervisory scrutiny. These
guidelines established concentration limits as measured against
Total Risk Based Capital (generally, the Companys common
stock, non-cumulative perpetual preferred stock and a portion of
its loan loss reserves). The first regulatory guideline
establishes the limit for construction,
67
land development and other land loan balances to total
risk-based capital not to exceed 100%. Company totals for this
category were 102.35%, 151.86%, and 183.26% for 2010, 2009 and
2008, respectively, demonstrating the Companys significant
progress toward meeting this guideline. The second guideline
establishes the limit for total commercial real estate loans,
defined as including the above categories plus loans secured by
multifamily and non-farm nonresidential property but excluding
loans secured by owner-occupied properties, not to exceed 300%
of total risk-based capital. Accordingly, the Company has
decreased these balances from 254.93% in 2008 to 214.29% at the
end of 2009 and up slightly to 216.52% at the end of 2010. As a
result, Intermountain remains below this regulatory guideline.
Most agricultural markets continue to perform very well, and the
Company has very limited exposure to the severely impacted dairy
market. In fact, the sector has performed so well that many of
its best borrowing customers are using excess cash generated
over the past couple of years to reduce their overall borrowing
position. Intermountain has also experienced challenges with a
couple of larger cattle operations, and moved aggressively to
resolve or liquidate these credits.
The residential and consumer portfolios consist primarily of
first and second mortgage loans, unsecured loans to individuals,
and auto, boat and RV loans. These portfolios have performed
well with limited delinquencies and defaults, given the
difficult economic conditions. These loans have generally been
underwritten with relatively conservative loan to values,
reasonable
debt-to-income
ratios and required income verification.
High unemployment and decreased asset values continue to
challenge Intermountains customers and its loan
portfolios. However it appears that economic conditions may be
stabilizing in most of the Companys markets, and
management believes that its underwriting standards and
aggressive identification and management of credit problems are
having a positive impact on its credit portfolios. Losses are
likely to remain elevated in 2011, but at lower levels than in
2009 and 2010, with continued improvement in subsequent years.
Geographic
Distribution
As of December 31, 2010, the Banks loan portfolio by
loan type and geographical market area was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E. Oregon,
|
|
|
|
|
|
|
|
|
% of Loan
|
|
|
|
North Idaho
|
|
|
Magic
|
|
|
Greater
|
|
|
SW Idaho,
|
|
|
|
|
|
|
|
|
type to
|
|
|
|
Eastern
|
|
|
Valley
|
|
|
Boise
|
|
|
excluding
|
|
|
|
|
|
|
|
|
total
|
|
Loan Portfolio by Location
|
|
Washington
|
|
|
Idaho
|
|
|
Area
|
|
|
Boise
|
|
|
Other
|
|
|
Total
|
|
|
loans
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial loans
|
|
$
|
81,916
|
|
|
$
|
9,572
|
|
|
$
|
10,747
|
|
|
$
|
18,865
|
|
|
$
|
1,556
|
|
|
$
|
122,656
|
|
|
|
21.3
|
%
|
Commercial real estate loans
|
|
|
115,721
|
|
|
|
14,536
|
|
|
|
18,295
|
|
|
|
17,465
|
|
|
|
9,542
|
|
|
|
175,559
|
|
|
|
30.5
|
%
|
Commercial construction loans
|
|
|
6,738
|
|
|
|
3,070
|
|
|
|
8,143
|
|
|
|
|
|
|
|
|
|
|
|
17,951
|
|
|
|
3.1
|
%
|
Land and land development loans
|
|
|
47,197
|
|
|
|
4,421
|
|
|
|
5,944
|
|
|
|
1,904
|
|
|
|
1,496
|
|
|
|
60,962
|
|
|
|
10.6
|
%
|
Agriculture loans
|
|
|
1,609
|
|
|
|
7,302
|
|
|
|
16,754
|
|
|
|
59,575
|
|
|
|
2,124
|
|
|
|
87,364
|
|
|
|
15.2
|
%
|
Multifamily loans
|
|
|
18,205
|
|
|
|
|
|
|
|
725
|
|
|
|
|
|
|
|
7,487
|
|
|
|
26,417
|
|
|
|
4.6
|
%
|
Residential real estate loans
|
|
|
39,482
|
|
|
|
5,795
|
|
|
|
3,582
|
|
|
|
8,248
|
|
|
|
3,765
|
|
|
|
60,872
|
|
|
|
10.6
|
%
|
Residential construction loans
|
|
|
2,594
|
|
|
|
287
|
|
|
|
7
|
|
|
|
331
|
|
|
|
|
|
|
|
3,219
|
|
|
|
0.6
|
%
|
Consumer loans
|
|
|
7,802
|
|
|
|
1,580
|
|
|
|
1,318
|
|
|
|
2,960
|
|
|
|
435
|
|
|
|
14,095
|
|
|
|
2.4
|
%
|
Municipal loans
|
|
|
4,955
|
|
|
|
1,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,528
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
326,219
|
|
|
$
|
48,136
|
|
|
$
|
65,515
|
|
|
$
|
109,348
|
|
|
$
|
26,405
|
|
|
$
|
575,623
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total loans in geographic area
|
|
|
56.4
|
%
|
|
|
8.4
|
%
|
|
|
11.5
|
%
|
|
|
19.1
|
%
|
|
|
4.6
|
%
|
|
|
100.0
|
%
|
|
|
|
|
Percent of total loans where real estate is the primary
collateral
|
|
|
70.6
|
%
|
|
|
64.5
|
%
|
|
|
59.5
|
%
|
|
|
40.2
|
%
|
|
|
85.4
|
%
|
|
|
63.7
|
%
|
|
|
|
|
68
As of December 31, 2009, the Banks loan portfolio by
loan type and geographical market area was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E. Oregon,
|
|
|
|
|
|
|
|
|
% of Loan
|
|
|
|
North Idaho
|
|
|
Magic
|
|
|
Greater
|
|
|
SW Idaho,
|
|
|
|
|
|
|
|
|
type to
|
|
|
|
Eastern
|
|
|
Valley
|
|
|
Boise
|
|
|
excluding
|
|
|
|
|
|
|
|
|
total
|
|
Loan Portfolio by Location 12/31/09
|
|
Washington
|
|
|
Idaho
|
|
|
Area
|
|
|
Boise
|
|
|
Other
|
|
|
Total
|
|
|
loans
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Commercial loans
|
|
$
|
86,682
|
|
|
$
|
11,057
|
|
|
$
|
14,067
|
|
|
$
|
18,090
|
|
|
$
|
1,666
|
|
|
$
|
131,562
|
|
|
|
19.6
|
%
|
Commercial real estate loans
|
|
|
106,913
|
|
|
|
17,051
|
|
|
|
20,063
|
|
|
|
15,564
|
|
|
|
13,135
|
|
|
|
172,726
|
|
|
|
25.7
|
%
|
Commercial construction loans
|
|
|
35,335
|
|
|
|
187
|
|
|
|
9,105
|
|
|
|
180
|
|
|
|
774
|
|
|
|
45,581
|
|
|
|
6.8
|
%
|
Land and land development loans
|
|
|
61,329
|
|
|
|
7,434
|
|
|
|
11,403
|
|
|
|
7,342
|
|
|
|
1,096
|
|
|
|
88,604
|
|
|
|
13.2
|
%
|
Agriculture loans
|
|
|
2,145
|
|
|
|
8,883
|
|
|
|
19,618
|
|
|
|
74,730
|
|
|
|
4,880
|
|
|
|
110,256
|
|
|
|
16.4
|
%
|
Multifamily loans
|
|
|
9,133
|
|
|
|
135
|
|
|
|
1,078
|
|
|
|
|
|
|
|
7,721
|
|
|
|
18,067
|
|
|
|
2.6
|
%
|
Residential real estate loans
|
|
|
41,614
|
|
|
|
6,904
|
|
|
|
4,136
|
|
|
|
8,399
|
|
|
|
4,491
|
|
|
|
65,544
|
|
|
|
9.7
|
%
|
Residential construction loans
|
|
|
11,698
|
|
|
|
795
|
|
|
|
1,141
|
|
|
|
2,884
|
|
|
|
108
|
|
|
|
16,626
|
|
|
|
2.5
|
%
|
Consumer loans
|
|
|
9,629
|
|
|
|
2,140
|
|
|
|
1,449
|
|
|
|
4,377
|
|
|
|
692
|
|
|
|
18,287
|
|
|
|
2.7
|
%
|
Municipal loans
|
|
|
4,766
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,061
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
369,244
|
|
|
$
|
54,881
|
|
|
$
|
82,060
|
|
|
$
|
131,566
|
|
|
$
|
34,563
|
|
|
$
|
672,314
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total loans in geographic area
|
|
|
54.9
|
%
|
|
|
8.2
|
%
|
|
|
12.2
|
%
|
|
|
19.6
|
%
|
|
|
5.1
|
%
|
|
|
100.00
|
%
|
|
|
|
|
Percent of total loans where real estate is the primary
collateral
|
|
|
72.1
|
%
|
|
|
63.9
|
%
|
|
|
60.1
|
%
|
|
|
41.0
|
%
|
|
|
79.1
|
%
|
|
|
64.2
|
%
|
|
|
|
|
As illustrated, 76% of the Companys loans are in north
Idaho, eastern Washington and southwest Idaho outside the Boise
area. Although economic trends and real estate valuations have
worsened in these market areas, portfolio loss rates have been
lower than in the Boise area or other areas of the country. This
reflects the differing economies in these areas, generally more
conservative lending and borrowing norms, longer-term customers,
and more restrained building and development activity. In
particular, large national and regional developers and builders
did not enter and subsequently exit these markets. The southwest
Idaho and Magic Valley markets are largely agricultural areas
which have not seen levels of price appreciation or depreciation
as steep as other areas over the last few years. Through
aggressive loan workout efforts, the Company has reduced its
exposure to the Boise market significantly, particularly its
residential construction and land development loans in this
area. The Other category noted above largely
represents loans made to local borrowers where the collateral is
located outside the Companys communities. The mix in this
category is relatively diverse, with the highest proportions in
Oregon, Washington, California, Nevada and Wyoming, but no
single state comprising more than 36% of this total or 1.6% of
the total loan portfolio.
Participation loans where Intermountain purchased part of the
loan and was not the lead bank totaled $19.0 million at
December 31, 2010. $7.1 million of the total is a
condominium project in Boise that is currently classified, but
is being managed very closely, and for which no loss is
expected. The remaining loans are all within the Companys
footprint and management believes they do not present
significant risk at this time.
69
The following table sets forth the composition of
Intermountains loan originations for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial loans
|
|
$
|
75,873
|
|
|
$
|
98,549
|
|
|
|
(23.0
|
)
|
Commercial real estate loans
|
|
|
24,006
|
|
|
|
33,512
|
|
|
|
(28.4
|
)
|
Commercial construction loans
|
|
|
9,960
|
|
|
|
30,711
|
|
|
|
(67.6
|
)
|
Land and land development loans
|
|
|
4,851
|
|
|
|
16,200
|
|
|
|
(70.1
|
)
|
Agriculture loans
|
|
|
65,459
|
|
|
|
89,932
|
|
|
|
(27.2
|
)
|
Multifamily loans
|
|
|
52
|
|
|
|
375
|
|
|
|
(86.1
|
)
|
Residential real estate loans
|
|
|
71,757
|
|
|
|
128,466
|
|
|
|
(44.1
|
)
|
Residential construction loans
|
|
|
5,843
|
|
|
|
3,528
|
|
|
|
65.6
|
|
Consumer
|
|
|
6,961
|
|
|
|
9,033
|
|
|
|
(22.9
|
)
|
Municipal
|
|
|
2,660
|
|
|
|
1,033
|
|
|
|
157.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans originated
|
|
$
|
267,422
|
|
|
$
|
411,339
|
|
|
|
(35.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 origination results reflect reductions in virtually
all areas, as high unemployment, depressed real estate prices,
and cautious borrowers reduced borrowing demand significantly.
The construction and development, and commercial and residential
real estate reductions reflect a combination of minimal loan
demand for these types of loans and tight underwriting
conditions. Potential borrowers remain very cautious about
pursuing new real estate purchase, expansion or construction
activities. The Company anticipates commercial, commercial real
estate and residential real estate origination activity to
slowly increase as the economy improves, borrowing demand
returns, and customers from distressed banks seek new credit
from Intermountain. Residential construction and land
development originations are likely to remain constricted, given
a substantial backlog of properties in its markets.
Office Properties and Equipment. Office
properties and equipment decreased 5.1% to $40.2 million
from $42.4 million at December 31, 2009 due primarily
to depreciation recorded for 2010. Reflecting efficiencies
gained from prior infrastructure investments, the Company has
been able to reduce its hardware, software and equipment
purchases.
Per its original plan, the Company sold the Sandpoint Center,
its Company headquarters, in August 2009 to a third party in
order to reduce debt and increase the Companys future
flexibility. The building was sold for $24.8 million with
financing provided by Panhandle State Bank. Because of the
non-recourse financing terms offered by Panhandle State Bank,
the lease is treated as an operating lease utilizing the
financing method for accounting purposes. Consequently, there
was no gain recognized at the time of the transaction and the
building will remain on the consolidated financial statements
with depreciation and interest expense recognized over the life
of the lease. Panhandle State Bank executed an agreement to
lease the building from the purchaser with an initial term of
20 years with three successive options to extend the lease
for an additional 10 years each.
Other Real Estate Owned. Other real estate
owned decreased to $4.4 million at December 31, 2010
from $11.5 million at December 31, 2009. The Company
continues to actively market and liquidate its OREO properties,
selling seventy-five properties for $13.4 million in 2010.
This more than offset the seventy-two properties totaling
$8.9 million that entered OREO during the period.
70
The following tables provide additional trending information
about the OREO portfolio.
Other
Real Estate Owned Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Balance, beginning of period, January 1
|
|
$
|
11,538
|
|
|
$
|
4,541
|
|
|
$
|
1,682
|
|
|
$
|
795
|
|
Additions to OREO
|
|
|
8,946
|
|
|
|
20,789
|
|
|
|
4,092
|
|
|
|
896
|
|
Proceeds from sale of OREO
|
|
|
(13,442
|
)
|
|
|
(9,830
|
)
|
|
|
(474
|
)
|
|
|
(9
|
)
|
OREO valuation adjustments in the period(1)
|
|
|
(2,613
|
)
|
|
|
(3,962
|
)
|
|
|
(759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period, December 31
|
|
$
|
4,429
|
|
|
$
|
11,538
|
|
|
$
|
4,541
|
|
|
$
|
1,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount includes chargedowns and gains/losses on sale of OREO |
The remaining OREO portfolio consists of 47 properties totaling
$4.4 million. At year end, OREO assets consisted of single
family residences (49%), developed residential lots (23%),
commercial buildings (18%), and raw land (10%). Given still
elevated levels of problem loans, the Company anticipates
continued migration in and liquidation out of the OREO portfolio
over the next year, but has found more active markets to sell
properties, reducing the anticipated loss on OREO property
significantly.
Other
Real Estate Owned Quarterly Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 10
|
|
|
Sep 10
|
|
|
Jun 10
|
|
|
Mar 10
|
|
|
Dec 09
|
|
|
|
(Dollars in thousands)
|
|
|
Balance, beginning of period
|
|
$
|
6,424
|
|
|
$
|
8,754
|
|
|
$
|
11,538
|
|
|
$
|
11,538
|
|
|
$
|
14,395
|
|
Additions to OREO
|
|
|
2,365
|
|
|
|
1,653
|
|
|
|
2,467
|
|
|
|
2,461
|
|
|
|
5,785
|
|
Proceeds from sale of OREO
|
|
|
(4,042
|
)
|
|
|
(3,584
|
)
|
|
|
(4,133
|
)
|
|
|
(1,684
|
)
|
|
|
(6,992
|
)
|
OREO valuation adjustments in the period(1)
|
|
|
(318
|
)
|
|
|
(399
|
)
|
|
|
(1,118
|
)
|
|
|
(777
|
)
|
|
|
(1,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
4,429
|
|
|
$
|
6,424
|
|
|
$
|
8,754
|
|
|
$
|
11,538
|
|
|
$
|
11,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount includes chargedowns and gains/losses on sale of OREO |
Intangible Assets. As discussed in the
Operating Expense section above, intangible assets decreased as
a result of the $11.7 million goodwill impairment recorded
in the quarter ended September 30, 2010 and the continuing
amortization of the core deposit intangible. The Company
concluded there was a triggering event that occurred in the
quarter ended September 30, 2010 which required a goodwill
evaluation as of September 30, 2010. This evaluation
resulted in a full impairment of the Companys goodwill
during 2010.
Deferred Tax Asset. At December 31, 2010,
the Companys net deferred tax asset totaled
$15.3 million. The deferred tax asset included
$17.0 million in net operating loss carry forwards and
$7.0 million in temporary timing differences. At
September 30, 2010, Intermountain assessed whether it was
more-likely-than-not that it would realize the benefits of its
deferred tax asset. Intermountain determined that the negative
evidence associated with a projected three-year cumulative loss
for the period ending December 31, 2010, and the continued
depressed economic conditions outweighed the positive evidence.
Therefore, Intermountain established a valuation allowance of
$7.4 million against its deferred tax asset. During the
fourth quarter of 2010, Intermountain reserved the full tax
benefit in the amount of $1.4 million due to continuing
uncertain economic conditions. See the Income Tax Provision
section above for more information.
BOLI and All Other Assets. Bank-owned life
insurance (BOLI) and other assets totaled
$22.4 million at December 31, 2010, down from
$29.5 million at December 31, 2009.
Deposits. Total deposits decreased
$40.5 million to $778.8 million at December 31,
2010 from $819.3 million at December 31, 2009. The
decrease in 2010 largely reflects managements decision to
allow wholesale and
71
higher-rate, non-relationship deposits to run off during the
year. Given its strong liquidity position, the Company focused
on lowering the cost of its deposit base while maintaining its
strong core relationship deposit base, and was successful in
achieving this goal.
The following table sets forth the composition of
Intermountains deposits at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Demand
|
|
$
|
168,519
|
|
|
|
21.6
|
|
|
$
|
168,244
|
|
|
|
20.5
|
|
NOW and money market 0.0% to 4.65%
|
|
|
327,891
|
|
|
|
42.1
|
|
|
|
340,070
|
|
|
|
41.6
|
|
Savings and IRA 0.0% to 5.75%
|
|
|
75,387
|
|
|
|
9.7
|
|
|
|
77,623
|
|
|
|
9.5
|
|
Certificate of deposit accounts (CDs)
|
|
|
79,533
|
|
|
|
10.2
|
|
|
|
86,381
|
|
|
|
10.5
|
|
Jumbo CDs (CDs $100,000 and over)
|
|
|
77,685
|
|
|
|
10.0
|
|
|
|
82,249
|
|
|
|
10.0
|
|
Brokered CDs
|
|
|
40,899
|
|
|
|
5.3
|
|
|
|
54,428
|
|
|
|
6.6
|
|
CDARS CDs to local customers
|
|
|
8,919
|
|
|
|
1.1
|
|
|
|
10,326
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
778,833
|
|
|
|
100.0
|
|
|
$
|
819,321
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate on certificates of deposit
|
|
|
|
|
|
|
1.66
|
%
|
|
|
|
|
|
|
2.52
|
%
|
Core Deposits as a percentage of total deposits(1)
|
|
|
|
|
|
|
83.2
|
%
|
|
|
|
|
|
|
81.6
|
%
|
Deposits generated from the Companys market area as a % of
total deposits
|
|
|
|
|
|
|
94.8
|
%
|
|
|
|
|
|
|
93.4
|
%
|
|
|
|
(1) |
|
Core deposits consist of non-interest bearing checking, money
market checking, savings accounts, and certificate of deposit
accounts of less than $100,000. |
Non-interest bearing demand deposits were stable during the year
and totaled $168.5 million, or 21.6% of the total deposit
base, NOW and money market deposits totaled $327.9 million
or 42.1% of the deposit base, up from 41.6% in the prior year.
The 3.6% reduction in NOW and money market balances from the
prior year end reflects planned collateralized deposit runoff
and the movement of public deposits into either repurchase
agreements or other investment alternatives as a result of FDIC
coverage changes at year end. Transaction deposits represent the
bulk of the deposit base at 63.7% of total deposits at
December 31, 2010 compared to 62.1% a year ago. Jumbo and
brokered deposits continued to decline both in absolute terms
and as a percent of the overall portfolio reflecting the ongoing
strategy to build core deposits.
The Companys strong local, core funding base, high
percentage of checking, money market and savings balances and
careful management of its brokered CD funding provide
lower-cost, more reliable funding to the Company than most of
its peers and add to the liquidity strength of the Bank.
Maintaining the local funding base at a reasonable cost remains
a critical priority for the Companys management and
production staff. The Company uses a combination of proactive
branch staff efforts and a dedicated team of deposit sales
specialists to target low-cost deposit balances. It emphasizes
personalized service, local community involvement and targeted
campaigns to generate deposits, rather than media campaigns or
advertised rate specials. The introduction of new sales platform
technology, mobile banking technology, electronic statements and
other online banking enhancements should spur additional low
cost deposit growth when the Company needs it in the future.
72
Deposits by location are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
% of total
|
|
|
December 31,
|
|
|
% of total
|
|
Deposits by Location
|
|
2010
|
|
|
deposits
|
|
|
2009
|
|
|
deposits
|
|
|
North Idaho Eastern Washington
|
|
$
|
374,173
|
|
|
|
48.0
|
|
|
$
|
402,620
|
|
|
|
49.1
|
|
Magic Valley Idaho
|
|
|
68,870
|
|
|
|
8.8
|
|
|
|
69,430
|
|
|
|
8.5
|
|
Greater Boise Area
|
|
|
79,697
|
|
|
|
10.2
|
|
|
|
77,291
|
|
|
|
9.4
|
|
Southwest Idaho Oregon, excluding Boise
|
|
|
165,505
|
|
|
|
21.3
|
|
|
|
158,919
|
|
|
|
19.4
|
|
Administration, Secured Savings
|
|
|
90,588
|
|
|
|
11.7
|
|
|
|
111,061
|
|
|
|
13.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
778,833
|
|
|
|
100.0
|
|
|
$
|
819,321
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company attempts to, and has been successful in balancing
loan and deposit growth in each of the market areas it serves.
While northern Idaho and eastern Washington deposits currently
exceed those in the Companys southern Idaho and eastern
Oregon markets, deposits in these newer markets have been
growing rapidly over the past few years. The Companys
deposit market share has grown significantly over the past ten
years, and it now ranks second in overall market share in its
core markets. Intermountain is the deposit market share leader
in five of the eleven counties in which it operates.
Borrowings. Deposit accounts are
Intermountains primary source of funds. Intermountain also
relies upon advances from the Federal Home Loan Bank of Seattle,
repurchase agreements and other borrowings to supplement its
funding, reduce its overall cost of funds, and to meet deposit
withdrawal requirements. These borrowings totaled
$155.6 million and $160.8 million at December 31,
2010 and December 31, 2009, respectively. The balance at
December 31, 2010 consisted of $34.0 million in
advances from the FHLB, $105.1 million in repurchase
agreements, mostly to local municipal customers as part of
strong customer relationships, and $16.5 million in trust
preferred securities. The decrease from the prior year end
resulted from repaying $15.0 million in FHLB advances, but
was partially offset by increases in local municipal repurchase
balances.
Interest
Rate Risk
The results of operations for financial institutions may be
materially and adversely affected by changes in prevailing
economic conditions, including rapid changes in interest rates,
declines in real estate market values and the monetary and
fiscal policies of the federal government. Like all financial
institutions, Intermountains net interest income and its
NPV (the net present value of financial assets, liabilities and
off-balance sheet contracts), are subject to fluctuations in
interest rates. Intermountain utilizes various tools to assess
and manage interest rate risk, including an internal income
simulation model that seeks to estimate the impact of various
rate changes on the net interest income and net income of the
bank. This model is validated by comparing results against
various third-party estimations. Currently, the model and
third-party estimates indicate that Intermountain is slightly
asset-sensitive. An asset-sensitive bank generally sees improved
net interest income and net income in a rising rate environment,
as its assets reprice more rapidly
and/or to a
greater degree than its liabilities. The opposite is true in a
falling interest rate environment. When market rates fall, an
asset-sensitive bank tends to see declining income. Net interest
income results for the past several years reflect this, as
short-term market rates fell over the past 3 years,
resulting in lower net interest income and net income levels,
particularly in relation to the level of interest-earning assets.
To minimize the long-term impact of fluctuating interest rates
on net interest income, Intermountain promotes a loan pricing
policy of utilizing variable interest rate structures that
associates loan rates to Intermountains internal cost of
funds and to the nationally recognized prime or London Interbank
Offered (LIBOR) lending rates. While this strategy
has had adverse impacts in the current unusually low-rate
environment, the approach historically has contributed to a
relatively consistent interest rate spread over the long-term
and reduces pressure from borrowers to renegotiate loan terms
during periods of falling interest rates. Intermountain
currently maintains over fifty percent of its loan portfolio in
variable interest rate assets.
Additionally, the extent to which borrowers prepay loans is
affected by prevailing interest rates. When interest rates
increase, borrowers are less likely to prepay loans. When
interest rates decrease, borrowers are generally more likely to
prepay loans. In the current credit markets, prepayment speeds
have accelerated as borrowers refinance into lower rates, pay
down debt to improve their financial position, or liquidate
assets as part of problem loan work-
73
out strategies. Prepayments may affect the levels of loans
retained in an institutions portfolio, as well as its net
interest income. This has been the case over the past year, as
Intermountain experienced rapid declines in loan volumes and
resulting decreases in its net interest income. Prepayments are
likely to slow in future periods as the economy improves and
rates begin rising. Intermountain maintains an asset and
liability management program intended to manage net interest
income through interest rate cycles and to protect its income by
controlling its exposure to changing interest rates.
On the liability side, Intermountain seeks to manage its
interest rate risk exposure by maintaining a relatively high
percentage of non-interest bearing demand deposits,
interest-bearing demand deposits, savings and money market
accounts. These instruments tend to lag changes in market rates
and may afford the Bank more protection in increasing interest
rate environments, but can also be changed relatively quickly in
a declining rate environment. The Bank utilizes various deposit
pricing strategies and other borrowing sources to manage its
rate risk.
As discussed above, Intermountain uses a simulation model
designed to measure the sensitivity of net interest income and
net income to changes in interest rates. This simulation model
is designed to enable Intermountain to generate a forecast of
net interest income and net income given various interest rate
forecasts and alternative strategies. The model is also designed
to measure the anticipated impact that prepayment risk, basis
risk, customer maturity preferences, volumes of new business and
changes in the relationship between long-term and short-term
interest rates have on the performance of Intermountain. The
results of modeling indicate that the estimated impact of
changing rates on net interest income in a 100 and
300 basis point upward adjustment and a 100 basis
point downward adjustment in market interest rates are within
the guidelines established by management. While the impacts on
net income of upward 100 and downward 100 basis point
market rate adjustments are also within the established
guidelines, the net income increase in a 300 basis point
upward adjustment is above the guidelines. Because the results
indicate improvements in net interest income and net income in
these scenarios, it perceives its current level of interest rate
risk as moderate. The scenario analysis for net income has been
impacted by the unusual current year operating results of the
Company, which increases the impact of upward adjustments.
Intermountain is continuing to pursue strategies to manage the
level of its interest rate risk while increasing its long-term
net interest income and net income: 1) through the
origination and retention of a diversified mix of variable and
fixed-rate consumer, business, commercial real estate loans, and
residential loans which generally have higher yields than
alternative investments; and 2) by increasing the level of
its core deposits, which are generally a lower-cost, less
rate-sensitive funding source than wholesale borrowings. There
can be no assurance that Intermountain will be successful
implementing any of these strategies or that, if these
strategies are implemented, they will have the intended effect
of reducing interest rate risk or increasing net interest income.
Liquidity
and Sources of Funds
As a financial institution, Intermountains primary sources
of funds from assets include the collection of loan principal
and interest payments, cash flows from various investment
securities, and sales of loans, investments or other assets.
Liability financing sources consist primarily of customer
deposits, repurchase obligations with local customers, advances
from FHLB Seattle and correspondent bank borrowings.
During 2010, cash provided by investing activities consisted
primarily of the decrease in loans receivable and principal
payments of
available-for-sale
investment securities offset by the purchase of additional
available-for-sale
investment and
held-to-maturity
securities. During the same period, cash used by financing
activities consisted primarily of decreases in money market, NOW
and savings account balances, reductions in both retail and
wholesale certificates of deposits, and reductions in FHLB
advances. These were partially offset by increases in local
municipal repurchase agreement balances.
Deposits decreased to $778.8 million at December 31,
2010 from $819.3 million at December 31, 2009, with
the largest decreases in brokered and retail CDs. Decreases in
loan balances offset the largely planned reduction in deposits
and FHLB advances, resulting in an increase of
$42.3 million in the Companys cash position at
December 31, 2010 from year end 2009.
Securities sold subject to repurchase agreement totaled
$105.1 million at December 31, 2010. These borrowings
are required to be collateralized by investments with a market
value exceeding the face value of
74
the borrowings. Under certain circumstances, Intermountain could
be required to pledge additional securities or reduce the
borrowings.
Intermountains credit line with FHLB Seattle provides for
borrowings up to a percentage of its total assets subject to
general collateralization requirements. At December 31,
2010, the Companys FHLB Seattle credit line represented a
total borrowing capacity of approximately $120.2 million,
of which $36.6 million was being utilized. Additional
collateralized funding availability at the Federal Reserve
totaled $24.3 million. Both of these collateral secured
lines could be expanded more with the placement of additional
collateral. Overnight-unsecured borrowing lines have been
established at US Bank and Pacific Coast Bankers Bank
(PCBB). At December 31, 2010, the Company had
approximately $35.0 million of overnight funding available
from its unsecured correspondent banking sources. In addition,
up to $1.0 million in funding is available on a semiannual
basis from the State of Idaho in the form of negotiated
certificates of deposit.
Intermountain maintains an active liquidity monitoring and
management plan, and has worked aggressively over the past
several years to expand its on balance sheet liquidity and its
sources of alternative liquidity. Given continuing volatile
economic conditions, the Company has taken additional protective
measures to enhance liquidity, including intensive customer
education and communication efforts, movement of funds into
highly liquid assets and increased emphasis on local
deposit-gathering efforts. Because of its relatively low
reliance on non-core funding sources and the additional efforts
undertaken to improve liquidity discussed above, management
believes that the Companys current liquidity risk is
moderate and manageable.
Management continues to monitor its liquidity position carefully
and conducts periodic stress tests to evaluate future potential
liquidity concerns. It has established contingency plans for
potential liquidity shortfalls. Longer term, the Company intends
to fund asset growth primarily with core deposit growth, and it
has initiated a number of organizational changes and programs to
spur this growth when needed.
Liquidity for the parent Company depends substantially on
dividends from the Bank. As discussed more fully in Risk
Factors, the Bank is currently prohibited from paying
dividends to the parent Company without prior regulatory
approval. The other primary sources of liquidity for the Parent
Company are capital or borrowings. With the suspension of
payments on our trust preferred securities and preferred stock
and the release of some restricted cash securing an
interest-rate swap, management projects the parent
Companys cash needs to be approximately $500,000 on an
annualized basis, and that current resources will be sufficient
to meet the parent Companys projected liabilities at least
through April 2011. Management would expect to satisfy any
additional parent company liquidity needs through borrowings or
offerings of equity securities.
Capital
Resources
Intermountains total stockholders equity was
$59.3 million at December 31, 2010, compared with
$88.6 million at December 31, 2009. The decrease in
total stockholders equity was primarily due to the net
loss for the year ended December 31, 2010, partially offset
by a small decrease in the unrealized loss on the investment
portfolio. Stockholders equity was 5.9% of total assets at
December 31, 2010 and 8.2% at December 31, 2009.
Tangible stockholders equity as a percentage of tangible
assets was 5.9% for December 31, 2010 and 7.2% for
December 31, 2009. Tangible common equity as a percentage
of tangible assets was 3.3% for December 31, 2010 and 4.8%
for December 31, 2009.
At December 31, 2010, Intermountain had unrealized losses
of $797,000 (including cumulative OTTI recognized through other
comprehensive income), net of related income taxes, on
investments classified as
available-for-sale
and $432,000 in unrealized losses on cash flow hedges, net of
related income taxes, as compared to unrealized losses of
$4.2 million, net of related income taxes, on investments
classified as
available-for-sale
and $678,000 unrealized losses on cash flow hedges at
December 31, 2009. Improvements in market valuations for
many of its agency-guaranteed securities and some of the
Companys private mortgage backed securities produced the
improvement since 2009, although illiquid markets for some of
these securities continue to produce the overall unrealized
loss. Fluctuations in prevailing interest rates and turmoil in
global debt markets continue to cause volatility in this
component of accumulated comprehensive loss in
stockholders equity and may continue to do so in future
periods.
75
On December 19, 2008, the Company entered into a definitive
agreement with the U.S. Treasury. Pursuant to this
Agreement, the Company sold 27,000 shares of Preferred
Stock, no par value, having a liquidation amount equal to $1,000
per share, including a warrant (The Warrant) to
purchase 653,226 shares of the Companys common stock,
no par value, to the U.S. Treasury. The Warrant has a
10-year term
and has an exercise price, subject to anti-dilution adjustments,
equal to $6.20 per share of common stock.
The preferred stock qualifies as Tier 1 capital and
provides for cumulative dividends at a rate of 5% per year, for
the first five years, and 9% per year thereafter. The preferred
stock may be redeemed with the approval of the
U.S. Treasury in the first three years with the proceeds
from the issuance of certain qualifying Tier 1 capital or
after three years at par value plus accrued and unpaid
dividends. The original terms governing the Preferred Stock
prohibited the Company from redeeming the shares during the
first three years other than from proceeds received from a
qualifying equity offering. However, subsequent legislation was
passed that would now permit the Company to redeem the shares of
preferred stock upon the approval of Treasury and the
Companys primary federal regulator.
Intermountain issued and has outstanding $16.5 million of
Trust Preferred Securities. The indenture governing the
Trust Preferred Securities limits the ability of
Intermountain under certain circumstances to pay dividends or to
make other capital distributions. The Trust Preferred
Securities are treated as debt of Intermountain. These
Trust Preferred Securities can be called for redemption
beginning in March 2008 by the Company at 100% of the aggregate
principal plus accrued and unpaid interest. See Note 9 of
Notes to Consolidated Financial Statements.
Intermountain and the Bank are required by applicable
regulations to maintain certain minimum capital levels and
ratios of total and Tier 1 capital to risk-weighted assets,
and of Tier I capital to average assets. Intermountain and
the Bank plan to maintain their capital resources and regulatory
capital ratios through the retention of earnings and the
management of the level and mix of assets. Management is also
exploring other opportunities to enhance capital levels. At
December 31, 2010, Intermountain exceeded the minimum
published regulatory capital requirements to be considered
well-capitalized pursuant to Federal Financial
Institutions Examination Council FFIEC regulations.
However, the Bank executed an informal agreement with its
primary regulators in the first quarter of 2010 which among
other conditions, requires the Bank to increase its capital by
$30 million by June 16, 2010 and maintain a 10%
Tier 1 capital to average assets ratio. Although the
Company was not able to meet the capital requirement by the
June 16, 2010 deadline, management has taken numerous steps
to satisfy this condition of the agreement, including seeking
and obtaining shareholder approval to increase the
Companys authorized common stock to facilitate raising
capital and devoting substantial time and resources to pursuing
capital opportunities. The Company is actively engaged in
negotiations with potential investors for a significant capital
raise. However, there can be no assurance that we will be
successful in raising the required capital.
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Published
|
|
|
|
|
|
|
Capital
|
|
|
Well-Capitalized
|
|
|
|
Actual
|
|
|
Requirements
|
|
|
Requirements
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars in thousands)
|
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
$
|
76,090
|
|
|
|
11.32
|
%
|
|
$
|
53,766
|
|
|
|
8
|
%
|
|
$
|
67,207
|
|
|
|
10
|
%
|
Panhandle State Bank
|
|
|
80,251
|
|
|
|
11.94
|
%
|
|
|
53,767
|
|
|
|
8
|
%
|
|
|
67,209
|
|
|
|
10
|
%
|
Tier I capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
67,639
|
|
|
|
10.06
|
%
|
|
|
26,883
|
|
|
|
4
|
%
|
|
|
40,324
|
|
|
|
6
|
%
|
Panhandle State Bank
|
|
|
71,800
|
|
|
|
10.68
|
%
|
|
|
26,884
|
|
|
|
4
|
%
|
|
|
40,325
|
|
|
|
6
|
%
|
Tier I capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
67,639
|
|
|
|
6.84
|
%
|
|
|
39,535
|
|
|
|
4
|
%
|
|
|
49,419
|
|
|
|
5
|
%
|
Panhandle State Bank
|
|
|
71,800
|
|
|
|
7.26
|
%
|
|
|
39,535
|
|
|
|
4
|
%
|
|
|
49,419
|
|
|
|
5
|
%
|
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
$
|
100,553
|
|
|
|
12.52
|
%
|
|
$
|
64,254
|
|
|
|
8
|
%
|
|
$
|
80,317
|
|
|
|
10
|
%
|
Panhandle State Bank
|
|
|
102,095
|
|
|
|
12.72
|
%
|
|
|
64,188
|
|
|
|
8
|
%
|
|
|
80,234
|
|
|
|
10
|
%
|
Tier I capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
90,442
|
|
|
|
11.26
|
%
|
|
|
32,127
|
|
|
|
4
|
%
|
|
|
48,190
|
|
|
|
6
|
%
|
Panhandle State Bank
|
|
|
91,984
|
|
|
|
11.46
|
%
|
|
|
32,094
|
|
|
|
4
|
%
|
|
|
48,141
|
|
|
|
6
|
%
|
Tier I capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
90,442
|
|
|
|
8.61
|
%
|
|
|
41,997
|
|
|
|
4
|
%
|
|
|
52,497
|
|
|
|
5
|
%
|
Panhandle State Bank
|
|
|
91,984
|
|
|
|
8.67
|
%
|
|
|
42,431
|
|
|
|
4
|
%
|
|
|
53,039
|
|
|
|
5
|
%
|
Reflecting the Companys ongoing strategy to prudently
manage through the current economic cycle, the decision to
maximize equity and liquidity at the Bank level has
correspondingly reduced cash available at the parent Company.
Consequently, to conserve the liquid assets of the parent
Company, the Companys Board of Directors decided to defer
regularly scheduled interest payments on its outstanding Junior
Subordinated Debentures related to its Trust Preferred
Securities (TRUPS Debentures), and also defer
regular quarterly cash dividend payments on its preferred stock
held by the U.S. Treasury, beginning in December 2009. The
Company is permitted to defer payments of interest on the TRUPS
Debentures for up to 20 consecutive quarterly periods without
default. During the deferral period, the Company may not pay any
dividends or distributions on, or redeem, purchase or acquire,
or make a liquidation payment with respect to the Companys
capital stock, or make any payment of principal or interest on,
or repay, repurchase or redeem any debt securities of the
Company that rank equally or junior to the TRUPS Debentures.
Under the terms of the preferred stock, if the Company does not
pay dividends for six quarterly dividend periods (whether or not
consecutive), Treasury would be entitled to appoint two members
to the Companys board of directors. Deferred payments
compound for both the TRUPS Debentures and preferred stock.
Although these expenses will be accrued on the consolidated
income statements for the Company, deferring these interest and
dividend payments will preserve approximately $477,000 per
quarter in cash for the Company.
Notwithstanding the pending deferral of interest and dividend
payments, the Company fully intends to meet all of its
obligations to the Treasury and holders of the TRUPS Debentures
as quickly as it is prudent to do so.
Off
Balance Sheet Arrangements and Contractual Obligations
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
77
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.
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, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
$
|
89,310
|
|
|
$
|
31,188
|
|
|
$
|
26,733
|
|
|
$
|
5,186
|
|
|
$
|
26,203
|
|
Short-term debt
|
|
|
80,171
|
|
|
|
80,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations(2)
|
|
|
13,714
|
|
|
|
1,014
|
|
|
|
1,732
|
|
|
|
1,586
|
|
|
|
9,382
|
|
Direct financing obligations(3)
|
|
|
33,725
|
|
|
|
1,635
|
|
|
|
3,270
|
|
|
|
3,434
|
|
|
|
25,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
216,920
|
|
|
$
|
114,008
|
|
|
$
|
31,735
|
|
|
$
|
10,206
|
|
|
$
|
60,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 4 and 15 of Notes to Consolidated Financial
Statements. |
|
(3) |
|
Sandpoint Center Building lease payments related to the direct
financing transaction executed in August 2009. |
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 the 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. Inflation, as measured by the
Consumer Price Index, increased substantially in early 2008
fueled by higher energy and food prices, but subsided in late
2008 as energy prices collapsed and soft demand reduced
inflationary pressures on other goods and services. The
continuing global recession led to benign inflation and even
deflation in some months of 2009 and 2010. It appears that
inflation may increase moderately in 2011, and at higher rates
in future years, as global demand recovers and the large
U.S. budget and trade deficits may weaken the dollar. The
effects of inflation have not had a material direct impact on
the Company over the past several years.
Critical
Accounting Policies
The accounting and reporting policies of Intermountain 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. Intermountains 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 Intermountains
Consolidated Financial Statements and Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
Income Recognition. Intermountain 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 or because of other borrower or
loan indications, Intermountain discontinues the accrual of
interest and reverses any previously accrued interest recognized
in income deemed uncollectible. Interest received on
nonperforming loans is
78
included in income only if recovery of the principal is
reasonably assured. A nonperforming loan may be restored to
accrual status if it is brought current and has performed in
accordance with contractual terms for a reasonable period of
time, and the collectability 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 is
based on the fair value of the collateral for collateral
dependent loans, and on the present value of expected cash flows
for non-collateral dependent loans. For collateral dependent
loans, this evaluation requires management to make estimates of
the value of the collateral and any associated holding and
selling costs, and for non-collateral dependent loans, estimates
on the timing and risk associated with the receipt of
contractual cash flows.
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.
Management believes the allowance for loan losses was adequate
at December 31, 2010. While management uses available
information to provide for loan losses, the ultimate
collectability 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
further 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 accrued expenses and other
liabilities section of the Consolidated Statements of Financial
Condition.
Investments. Assets in the investment
portfolio are initially recorded at cost, which includes any
premiums and discounts. Intermountain amortizes premiums and
discounts as an adjustment to interest income using the interest
yield method over the life 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 Intermountain has the
intent and ability to hold to maturity, and
79
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 reported in stockholders 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
an investment security falls below its amortized cost and the
decline is deemed to be
other-than-temporary,
the securitys fair value will be analyzed based on market
conditions and expected cash flows on the investment security.
The Company calculates a credit loss charge against earnings by
subtracting the estimated present value of estimated future cash
flows on the security from its amortized cost. At
December 31, 2010, residential mortgage-backed securities
included two securities comprised of a pool of mortgages with a
combined remaining unpaid balance of $10.4 million. Due to
the lack of an orderly market for the securities, their fair
value was determined to be $7.9 million at
December 31, 2010 based on analytical modeling taking into
consideration a range of factors normally found in an orderly
market. Based on an analysis of projected cash flows, a total of
$1.4 million has been charged to earnings as a credit loss,
including $526,000 in 2009 and $828,000 in 2010. The remaining
$1.9 million was recognized in other comprehensive income.
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. Intermountains goodwill in prior
periods related to value inherent in the banking business and
the value is dependent upon Intermountains 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 each December. In
addition, GAAP requires an impairment analysis to be conducted
any time a triggering event occurs in relation to
goodwill. Management believes that the significant market
disruption in the financial sector and the declining market
valuations experienced over the past year created a
triggering event. As such, management conducted
interim evaluations of the carrying value of goodwill in each
quarter of 2009, including the quarter ended December 31,
2009. As a result of this analysis, no impairment existed as of
December 31, 2009. Major assumptions used in determining
impairment were projected increases in future income, sales
multiples in determining terminal value and the discount rate
applied to future cash flows.
At September 30, 2010, the Company concluded there was a
triggering event related to continuing depressed economic
conditions and ongoing losses incurred by the Company. As a
result, Intermountain performed a goodwill impairment evaluation
using current information. In completing its goodwill impairment
analysis, the Company used tangible common equity multiples and
core deposit metrics from recent transactions to estimate the
fair value of the Company at December 31, 2010. For Step 1,
the fair value of the Company was less than the common book
value of the Company prior to any goodwill adjustments,
indicating a potential impairment. Under accounting guidance, a
Step 2 analysis was required. In the Step 2 analysis, the fair
value of the Companys assets and liabilities was
determined, using discounted cash flows based on the cash flow
characteristics of the assets and liabilities and prevailing
market interest rates. The fair value of the liabilities was
subtracted from the fair value of the assets resulting in the
fair value of the net assets. This was then reduced by the value
of the preferred stock to derive the sum of the fair value of
net assets supported by common equity. Since this number was
higher at September 30, 2010 than the fair value of the
Company calculated in Step 1, there was no excess company value
that could be allocated to goodwill, resulting in a full
impairment of the Companys goodwill. Intermountain wrote
off all of its goodwill at September 30, 2010, totaling
$11.7 million. Intermountain records impairment losses as
charges to noninterest expense and adjustments to the carrying
value of goodwill. As of December 31, 2010, Intermountain
had other intangible assets related to acquired depository
relationships of $310,000, as compared to $439,000 as of
December 31, 2009. Other intangible assets consisting of
core-deposit intangibles with definite lives are amortized over
the estimated life of the acquired depositor relationships.
80
Other Real Estate Owned. Property acquired
through foreclosure of defaulted mortgage loans is carried at
the lower of cost or fair value less estimated costs to sell. At
the applicable foreclosure date, OREO is recorded at fair value
of the real estate, less the estimated costs to sell the real
estate. Subsequently, OREO is carried at the lower of cost or
fair value, and is periodically re-assessed for impairment based
on fair value at the reporting date. Development and improvement
costs relating to the property are capitalized to the extent
they are deemed to be recoverable.
Intermountain reviews its OREO for impairment in value on a
periodic basis and 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
flow from the use of the property or the fair value, less
selling costs, from the disposition of the property is less than
its carrying value, a loss is recognized. Because of rapid
declines in real estate values in the current distressed
environment, management has increased the frequency and
intensity of its valuation analysis on its OREO properties. As a
result of this analysis, carrying values on some of these
properties have been reduced, and it is reasonably possible that
the carrying values could be reduced again in the near term.
Fair Value Measurements. ASC 820 Fair
Value Measurements establishes a standard framework for
measuring fair value in GAAP, clarifies the definition of
fair value within that framework, and expands
disclosures about the use of fair value measurements. A number
of valuation techniques are used to determine the fair value of
assets and liabilities in Intermountains financial
statements. These include quoted market prices for securities,
interest rate swap valuations based upon the modeling of
termination values adjusted for credit spreads with
counterparties, and appraisals of real estate from independent
licensed appraisers, among other valuation techniques. Fair
value measurements for assets and liabilities where there exists
limited or no observable market data are based primarily upon
estimates, and are often calculated based on the economic and
competitive environment, the characteristics of the asset or
liability and other factors. Therefore, the results cannot be
determined with precision and may not be realized in an actual
sale or immediate settlement of the asset or liability.
Additionally, there are inherent weaknesses in any calculation
technique, and changes in the underlying assumptions used,
including discount rates and estimates of future cash flows,
could significantly affect the results of current or future
values. Significant changes in the aggregate fair value of
assets and liabilities required to be measured at fair value or
for impairment will be recognized in the income statement under
the framework established by GAAP. If impairment is determined,
it could limit the ability of Intermountains banking
subsidiaries to pay dividends or make other payments to the
Holding Company. See Note 20 to the Consolidated Financial
Statements for more information on fair value measurements.
Derivative Financial Instruments and Hedging
Activities. In various aspects of its business,
the Company uses derivative financial instruments to modify its
exposure to changes in interest rates and market prices for
other financial instruments. Many of these derivative financial
instruments are designated as hedges for financial accounting
purposes. Intermountains hedge accounting policy requires
the assessment of hedge effectiveness, identification of similar
hedged item groupings, and measurement of changes in the fair
value of hedged items. If, in the future, the derivative
financial instruments identified as hedges no longer qualify for
hedge accounting treatment, changes in the fair value of these
hedged items would be recognized in current period earnings, and
the impact on the consolidated results of operations and
reported earnings could be significant.
Income Taxes. Income taxes are accounted for
using the asset and liability method. Under this method a
deferred tax asset or liability is determined based on the
enacted tax rates which will be in effect when the differences
between the financial statement carrying amounts and tax basis
of existing assets and liabilities are expected to be reported
in the Companys income tax returns. The effect on deferred
taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances
are established to reduce the net carrying amount of deferred
tax assets if it is determined to be more likely than not, that
all or some portion of the potential deferred tax asset will not
be realized. The Company uses an estimate of future earnings, an
evaluation of its loss carryback ability and tax planning
strategies to determine whether or not the benefit of its net
deferred tax asset may be realized. The analysis used to
determine whether a valuation allowance is required and if so,
the amount of the allowance, is based on estimates of future
taxable income and the effectiveness of future tax planning
strategies. These estimates require significant management
judgment about future economic conditions and Company
performance.
81
At September 30, 2010, Intermountain assessed whether it
was more-likely-than-not that it would realize the benefits of
its deferred tax asset. Intermountain determined that the
negative evidence associated with a projected three year
cumulative loss for the period ending December 31, 2010,
and continued depressed economic conditions outweighed the
positive evidence. Therefore, Intermountain established a
valuation allowance of $7.4 million against its deferred
tax asset. After recording the initial valuation allowance and
increasing it by $1.4 million in the fourth quarter to
reflect the additional small loss and temporary timing
differences, Intermountain had a net deferred asset of
$15.3 million as of December 31, 2010, compared to a
net deferred tax asset of $16.9 million as of
December 31, 2009. See Part II Other
Information, Section 1A. Risk Factors.
New
Accounting Pronouncements
Summary of Significant Accounting Policies, Recently
Issued Accounting Pronouncements in the Notes to the
Consolidated Financial Statements, which is included in
Item 8 of this Report, discusses new accounting
pronouncements adopted by Intermountain and the expected impact
of accounting pronouncements recently issued or proposed, but
not yet required to be adopted.
|
|
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 generally 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.
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 and back-tested against actual results,
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-and
two- 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 base,
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
82
represents the estimated sensitivity of the Companys net
interest income as of December 31, 2010 and 2009 compared
to the established policy limits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
2009
|
|
|
|
|
12 Month Cumulative% effect on NII
|
|
Policy Limit %
|
|
|
12-31-10
|
|
|
Policy Limit %
|
|
|
12-31-09
|
|
|
+100bp
|
|
|
+ 5.0 to −3.0
|
|
|
|
0.09
|
|
|
|
+ 5.0 to −3.0
|
|
|
|
6.09
|
|
+300bp
|
|
|
+10.0 to −8.0
|
|
|
|
3.41
|
|
|
|
+10.0 to −8.0
|
|
|
|
16.97
|
|
−100bp
|
|
|
+ 5.0 to −3.0
|
|
|
|
−0.48
|
|
|
|
+ 5.0 to −3.0
|
|
|
|
2.97
|
|
300bp
|
|
|
+10.0 to −8.0
|
|
|
|
N/A
|
|
|
|
+10.0 to −8.0
|
|
|
|
N/A
|
|
The model results for both years fall within the risk tolerance
guidelines established by the committee, except that the
positive impact on net interest income of rising rates generally
exceeds the Companys guidelines for 2009.
The continuing low level of market rates, and particularly the
Federal Funds target range of between 0.00 and 0.25% is
unprecedented. This has created significant challenges for
interest rate risk management over the past several years, and
is reflected in the significant reduction in net interest income
during this period. Given the highly unusual current market rate
conditions and the potential for rapidly rising rates at some
point in the future, Company management continues to refine and
expand its interest rate risk modeling, and is responding to the
results by proactively managing its balance sheet. Based on the
results of its continuing evaluations, management believes that
its interest rate risk position is moderate and that it is
well-prepared for future likely changes in market rates.
The following table displays the Banks balance sheet based
on the re-pricing 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, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
165,227
|
|
|
$
|
128,247
|
|
|
$
|
241,957
|
|
|
$
|
43,778
|
|
|
$
|
579,209
|
|
Securities
|
|
|
14,773
|
|
|
|
32,905
|
|
|
|
53,614
|
|
|
|
106,316
|
|
|
|
207,608
|
|
Federal funds sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time certificates and interest-bearing cash
|
|
|
132,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
312,693
|
|
|
|
161,152
|
|
|
|
295,571
|
|
|
|
150,094
|
|
|
|
919,510
|
|
Allowance for loan losses
|
|
|
(3,553
|
)
|
|
|
(2,759
|
)
|
|
|
(5,203
|
)
|
|
|
(941
|
)
|
|
|
(12,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets, net
|
|
$
|
309,140
|
|
|
$
|
158,393
|
|
|
$
|
290,368
|
|
|
$
|
149,153
|
|
|
$
|
907,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits(1)
|
|
$
|
327,891
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
327,891
|
|
Savings deposits and IRA(1)
|
|
|
59,363
|
|
|
|
8,264
|
|
|
|
7,759
|
|
|
|
|
|
|
|
75,386
|
|
Time certificates of deposit accounts
|
|
|
60,736
|
|
|
|
71,616
|
|
|
|
74,577
|
|
|
|
107
|
|
|
|
207,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
447,990
|
|
|
|
79,880
|
|
|
|
82,336
|
|
|
|
107
|
|
|
|
610,313
|
|
Repurchase agreements
|
|
|
105,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,116
|
|
FHLB advances
|
|
|
|
|
|
|
5,000
|
|
|
|
29,000
|
|
|
|
|
|
|
|
34,000
|
|
Other borrowed funds
|
|
|
16,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
569,633
|
|
|
$
|
84,880
|
|
|
$
|
111,336
|
|
|
$
|
107
|
|
|
$
|
765,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate sensitivity gap
|
|
$
|
(260,493
|
)
|
|
$
|
73,513
|
|
|
$
|
179,032
|
|
|
$
|
149,046
|
|
|
$
|
141,098
|
|
Cumulative gap
|
|
$
|
(260,493
|
)
|
|
$
|
(186,980
|
)
|
|
$
|
(7,948
|
)
|
|
$
|
141,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes deposits with no stated maturity. |
83
The following table displays expected maturity information and
corresponding interest rates for all interest-sensitive assets
and liabilities at December 31, 2010.
Expected
Maturity Date at December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2012-13
|
|
|
2014-15
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Interest-sensitive assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
60,376
|
|
|
$
|
18,886
|
|
|
$
|
16,702
|
|
|
$
|
26,692
|
|
|
$
|
122,656
|
|
Average interest rate
|
|
|
5.50
|
%
|
|
|
6.63
|
%
|
|
|
6.33
|
%
|
|
|
6.09
|
%
|
|
|
|
|
Commercial real estate loans
|
|
|
28,140
|
|
|
|
42,771
|
|
|
|
22,548
|
|
|
|
82,100
|
|
|
|
175,559
|
|
Average interest rate
|
|
|
6.67
|
%
|
|
|
6.29
|
%
|
|
|
6.49
|
%
|
|
|
6.83
|
%
|
|
|
|
|
Commercial construction loans
|
|
|
10,401
|
|
|
|
7,320
|
|
|
|
|
|
|
|
230
|
|
|
|
17,951
|
|
Average interest rate
|
|
|
6.30
|
%
|
|
|
4.52
|
%
|
|
|
0.00
|
%
|
|
|
6.17
|
%
|
|
|
|
|
Land and land development loans
|
|
|
33,645
|
|
|
|
22,466
|
|
|
|
3,344
|
|
|
|
1,507
|
|
|
|
60,962
|
|
Average interest rate
|
|
|
6.50
|
%
|
|
|
5.82
|
%
|
|
|
6.61
|
%
|
|
|
7.31
|
%
|
|
|
|
|
Agriculture loans
|
|
|
57,355
|
|
|
|
10,981
|
|
|
|
10,568
|
|
|
|
8,460
|
|
|
|
87,364
|
|
Average interest rate
|
|
|
5.88
|
%
|
|
|
6.96
|
%
|
|
|
6.41
|
%
|
|
|
6.92
|
%
|
|
|
|
|
Multifamily loans
|
|
|
3,275
|
|
|
|
22,186
|
|
|
|
659
|
|
|
|
297
|
|
|
|
26,417
|
|
Average interest rate
|
|
|
4.28
|
%
|
|
|
5.37
|
%
|
|
|
4.89
|
%
|
|
|
7.71
|
%
|
|
|
|
|
Residential loans(1)
|
|
|
5,741
|
|
|
|
7,308
|
|
|
|
9,773
|
|
|
|
38,050
|
|
|
|
60,872
|
|
Average interest rate
|
|
|
7.87
|
%
|
|
|
6.17
|
%
|
|
|
6.54
|
%
|
|
|
6.13
|
%
|
|
|
|
|
Residential construction loans
|
|
|
2,414
|
|
|
|
805
|
|
|
|
|
|
|
|
|
|
|
|
3,219
|
|
Average interest rate
|
|
|
6.11
|
%
|
|
|
6.41
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
Consumer loans
|
|
|
5,575
|
|
|
|
5,204
|
|
|
|
1,638
|
|
|
|
1,678
|
|
|
|
14,095
|
|
Average interest rate
|
|
|
7.71
|
%
|
|
|
7.13
|
%
|
|
|
7.68
|
%
|
|
|
7.62
|
%
|
|
|
|
|
Municipal loans
|
|
|
222
|
|
|
|
1,497
|
|
|
|
603
|
|
|
|
4,206
|
|
|
|
6,528
|
|
Average interest rate
|
|
|
5.79
|
%
|
|
|
3.69
|
%
|
|
|
4.70
|
%
|
|
|
4.85
|
%
|
|
|
|
|
Investments
|
|
|
47,678
|
|
|
|
37,101
|
|
|
|
16,513
|
|
|
|
106,316
|
|
|
|
207,608
|
|
Average interest rate
|
|
|
2.86
|
%
|
|
|
3.80
|
%
|
|
|
4.68
|
%
|
|
|
4.73
|
%
|
|
|
|
|
Federal funds sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
Certificates and interest bearing cash
|
|
|
132,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,693
|
|
Average interest rate
|
|
|
0.23
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-sensitive assets
|
|
$
|
387,515
|
|
|
$
|
176,525
|
|
|
$
|
82,348
|
|
|
$
|
269,536
|
|
|
$
|
915,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits and IRA
|
|
$
|
67,628
|
|
|
$
|
4,541
|
|
|
$
|
3,218
|
|
|
$
|
|
|
|
$
|
75,387
|
|
Average interest rate
|
|
|
0.42
|
%
|
|
|
2.10
|
%
|
|
|
3.18
|
%
|
|
|
0.00
|
%
|
|
|
|
|
NOW and money market
|
|
|
327,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
327,891
|
|
Average interest rate
|
|
|
0.48
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
Certificates of deposit accounts
|
|
|
132,352
|
|
|
|
52,356
|
|
|
|
22,221
|
|
|
|
107
|
|
|
|
207,036
|
|
Average interest rate
|
|
|
1.45
|
%
|
|
|
1.67
|
%
|
|
|
2.87
|
%
|
|
|
2.72
|
%
|
|
|
|
|
Repurchase agreements
|
|
|
105,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,116
|
|
Average interest rate
|
|
|
0.28
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
Other borrowed funds
|
|
|
5,000
|
|
|
$
|
25,000
|
|
|
|
4,000
|
|
|
|
16,527
|
|
|
|
50,527
|
|
Average interest rate
|
|
|
1.49
|
%
|
|
|
2.06
|
%
|
|
|
3.11
|
%
|
|
|
3.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-sensitive liabilities
|
|
$
|
637,987
|
|
|
$
|
81,897
|
|
|
$
|
29,439
|
|
|
$
|
16,634
|
|
|
$
|
765,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes loans held for sale. |
84
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,
management will also continue to obtain review and advice from
independent external consultants.
|
|
Item 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The required information is contained on pages F-1 through F-61.
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.
There were no changes in internal control over financial
reporting (as defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f)),
during the fourth fiscal quarter that have materially affected,
or are reasonably likely to materially affect, our internal
control over financial reporting.
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)
and
15d-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, 2010.
The effectiveness of Intermountains internal control over
financial reporting as of December 31, 2010 has been
attested to by BDO USA, LLP, the independent registered public
accounting firm that audited the financial statements included
in Intermountains Annual Report on
Form 10-K,
as stated in their report which is included herein.
85
Report of
Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Intermountain Community Bancorp
Sandpoint, Idaho
We have audited Intermountain Community Bancorps internal
control over financial reporting as of December 31, 2010,
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 Item 9A, Controls and Procedures. 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, 2010, 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, 2010 and 2009, and the related
consolidated statements of operations, comprehensive income/
(loss), changes in stockholders equity, and cash flows for
each of the three years in the period ended December 31,
2010 and our report dated March 4, 2011, expressed an
unqualified opinion thereon.
/s/ BDO USA, LLP
Spokane, Washington
March 4, 2011
86
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
|
PART III
|
|
Item 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
In response to this Item, the information to be set forth in
Intermountains Proxy Statement for the 2011 Annual Meeting
of Shareholders (2011 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 will be set forth under the caption
Meetings and Committees of the Board of Directors in
Intermountains 2011 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,
and is included as Exhibit 14 to this report.
|
|
Item 11.
|
EXECUTIVE
COMPENSATION
|
In response to this Item, the information to be set forth in the
2011 Proxy Statement under the heading Director
Compensation and Executive Compensation is
incorporated herein by reference.
|
|
Item 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
In response to this Item, the information to be set forth in
Intermountains 2011 Proxy Statement under the heading
Security Ownership of Certain Beneficial Owners and
Management is incorporated herein by reference.
|
|
Item 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
In response to this Item, the information to be set forth in
Intermountains 2011 Proxy Statement under the heading
Certain Relationships and Related Transactions is
incorporated herein by reference.
|
|
Item 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
In response to this Item, the information to be set forth in
Intermountains 2011 Proxy Statement under the headings
Ratification of Appointment of Independent Auditors
and Independent Registered Public Accounting Firm is
incorporated herein by reference.
87
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, 2010 and 2009
|
|
|
|
Consolidated Statements of Operations for the years ended
December 31, 2010, 2009 and 2008
|
|
|
|
Consolidated Statements of Comprehensive Income (Loss) for the
years ended December 31, 2010, 2009 and 2008
|
|
|
|
Consolidated Statements of Changes in Stockholders Equity
for the years ended December 31, 2010, 2009 and 2008
|
|
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2010, 2009 and 2008
|
|
|
|
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
88
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 4, 2011
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 4, 2011
|
|
|
|
|
|
/s/ Douglas
Wright
Douglas
Wright
|
|
Executive Vice President and Chief Financial Officer, Principal
Financial and Principal Accounting Officer
|
|
March 4, 2011
|
|
|
|
|
|
/s/ John
B. Parker
John
B. Parker
|
|
Chairman of the Board, Director
|
|
March 4, 2011
|
|
|
|
|
|
/s/ Charles
L. Bauer
Charles
L. Bauer
|
|
Director
|
|
March 4, 2011
|
|
|
|
|
|
/s/ James
T. Diehl
James
T. Diehl
|
|
Director
|
|
March 4, 2011
|
|
|
|
|
|
/s/ Ford
Elsaesser
Ford
Elsaesser
|
|
Director
|
|
March 4, 2011
|
|
|
|
|
|
/s/ Ronald
Jones
Ronald
Jones
|
|
Director
|
|
March 4, 2011
|
|
|
|
|
|
/s/ Maggie
Y. Lyons
Maggie
Y. Lyons
|
|
Director
|
|
March 4, 2011
|
|
|
|
|
|
/s/ Jim
Patrick
Jim
Patrick
|
|
Director
|
|
March 4, 2011
|
|
|
|
|
|
/s/ Michael
J. Romine
Michael
J. Romine
|
|
Director
|
|
March 4, 2011
|
|
|
|
|
|
/s/ Jerrold
Smith
Jerrold
Smith
|
|
Executive Vice President and Director
|
|
March 4, 2011
|
89
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)
|
|
4
|
.2
|
|
|
Certificate of Designations with respect to Fixed Rate
Cumulative Perpetual Preferred Stock, Series A (filed as
part of the Amended and Restated Articles of Incorporation)(4)
|
|
4
|
.3
|
|
|
Warrant to Purchase Common Stock of the Company dated
December 19, 2008(4)
|
|
4
|
.4
|
|
|
Form of Preferred Stock Certificate(4)
|
|
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(5)
|
|
10
|
.4*
|
|
|
Amended and Restated Director Stock Option Plan(6)
|
|
10
|
.5*
|
|
|
Form of Director Restricted Stock Award Agreement(5)
|
|
10
|
.6*
|
|
|
Form of Stock Purchase Bonus Agreement(5)
|
|
10
|
.7*
|
|
|
Amended and Restated Employment Agreement with Curt Hecker dated
January 1, 2008(5)
|
|
10
|
.8*
|
|
|
Amended and Restated Salary Continuation and Split Dollar
Agreement for Curt Hecker dated January 1, 2008(5)
|
|
10
|
.9*
|
|
|
Amended and Restated Employment Agreement with Jerry Smith dated
January 1, 2008(5)
|
|
10
|
.10*
|
|
|
Amended and Restated Salary Continuation and Split Dollar
Agreement with Jerry Smith dated January 1, 2008(5)
|
|
10
|
.11*
|
|
|
Amended and Restated Executive Severance Agreement with Douglas
Wright dated January 1, 2008(5)
|
|
10
|
.12*
|
|
|
Amended and Restated Executive Severance Agreement with John
Nagel dated December 27, 2007(5)
|
|
10
|
.13*
|
|
|
Amended and Restated Executive Severance Agreement with Pam
Rasmussen dated December 28, 2007(5)
|
|
10
|
.14*
|
|
|
Executive Incentive Plan(7)
|
|
10
|
.15
|
|
|
Letter Agreement including the Securities Purchase
Agreement Standard Terms incorporated herein,
between the Company and the United States Department of the
Treasury dated December 19, 2008(4)
|
|
10
|
.16
|
|
|
Real Estate Purchase and Sale Agreement dated as of
August 26, 2009 by and between the Company, as seller, and
Sandpoint Center II, LLC, as buyer(8)
|
|
10
|
.17
|
|
|
Lease Agreement dated as of August 28, 2009 by and between
Sandpoint Center, LLC and Sandpoint Center II, LLC, as landlord,
and Panhandle State Bank, as tenant(8)
|
|
14
|
|
|
|
Code of Ethics(7)
|
|
21
|
+
|
|
|
Subsidiaries of the Registrant
|
|
23
|
+
|
|
|
Consent of BDO USA, 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
|
|
99
|
.1+
|
|
|
Chief Executive Officer TARP Certification
|
|
99
|
.2+
|
|
|
Chief Financial Officer TARP Certification
|
|
|
|
* |
|
Executive Contract, Compensatory Plan or Arrangement |
|
+ |
|
Filed Herewith |
|
(1) |
|
Incorporated by reference to the Exhibit 3.1 of the
Registrants Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009 |
90
|
|
|
(2) |
|
Incorporated by reference to the Exhibit 3.1 of the
Registrants Current Report on
Form 8-K
filed September 8, 2004 |
|
(3) |
|
Incorporated by reference to Exhibits 4.1, 10.1 and 10.3 of
the Registrants Form 10, as amended on July 1,
2004 |
|
(4) |
|
Incorporated by reference to Exhibits 4.1, 4.2, 4.3, 10.1
and 10.2 of the Registrants Current Report on
Form 8-K
filed December 19, 2008 |
|
(5) |
|
Incorporated by reference to Exhibits 10.3 and
10-6
10.14 of the Registrants Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007 |
|
(6) |
|
Incorporated by reference to Exhibit 10.1 of the
Registrants Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2005 |
|
(7) |
|
Incorporated by reference to Exhibits 10.20 and 14 of the
Registrants Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 |
|
(8) |
|
Incorporated by reference to Exhibits 10.1 and 10.2 of the
Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2009 |
91
Report of
Independent Registered Public Accounting Firm
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, 2010 and
2009, and the related consolidated statements of operations,
comprehensive income/(loss), changes in stockholders
equity, and cash flows for each of the three years in the period
ended December 31, 2010. 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,
2010 and 2009, and the results of its operations and its cash
flows for each of the three years in the period ended
December 31, 2010, in conformity with accounting principles
generally accepted in the United States of America.
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, 2010, 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 4, 2011, expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Spokane, Washington
March 4, 2011
F-1
INTERMOUNTAIN
COMMUNITY BANCORP
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
ASSETS
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Interest-bearing
|
|
$
|
132,693
|
|
|
$
|
83,617
|
|
Non-interest bearing and vault
|
|
|
11,973
|
|
|
|
19,572
|
|
Restricted cash
|
|
|
3,290
|
|
|
|
2,508
|
|
Available-for-sale
securities, at fair value
|
|
|
183,081
|
|
|
|
181,784
|
|
Held-to-maturity
securities, at amortized cost
|
|
|
22,217
|
|
|
|
15,177
|
|
Federal Home Loan Bank of Seattle stock, at cost
|
|
|
2,310
|
|
|
|
2,310
|
|
Loans held for sale
|
|
|
3,425
|
|
|
|
6,574
|
|
Loans receivable, net
|
|
|
563,228
|
|
|
|
655,602
|
|
Accrued interest receivable
|
|
|
4,360
|
|
|
|
5,077
|
|
Office properties and equipment, net
|
|
|
40,246
|
|
|
|
42,425
|
|
Bank-owned life insurance
|
|
|
8,765
|
|
|
|
8,397
|
|
Goodwill
|
|
|
|
|
|
|
11,662
|
|
Other intangibles
|
|
|
310
|
|
|
|
439
|
|
Other real estate owned (OREO)
|
|
|
4,429
|
|
|
|
11,538
|
|
Prepaid expenses and other assets
|
|
|
24,782
|
|
|
|
32,962
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,005,109
|
|
|
$
|
1,079,644
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Deposits
|
|
$
|
778,833
|
|
|
$
|
819,321
|
|
Securities sold subject to repurchase agreements
|
|
|
105,116
|
|
|
|
95,233
|
|
Advances from Federal Home Loan Bank
|
|
|
34,000
|
|
|
|
49,000
|
|
Cashier checks issued and payable
|
|
|
580
|
|
|
|
1,113
|
|
Accrued interest payable
|
|
|
1,406
|
|
|
|
1,211
|
|
Other borrowings
|
|
|
16,527
|
|
|
|
16,527
|
|
Accrued expenses and other liabilities
|
|
|
9,294
|
|
|
|
8,612
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
945,756
|
|
|
|
991,017
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities (Notes 15 and 16)
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
Common stock 300,000,000 shares authorized; 8,431,385 and
8,438,554 shares issued and 8,390,877 and
8,365,836 shares outstanding
|
|
|
78,803
|
|
|
|
78,569
|
|
Preferred stock 1,000,000 shares authorized;
27,000 shares issued and 27,000 shares outstanding
|
|
|
25,794
|
|
|
|
25,461
|
|
Accumulated other comprehensive loss, net of tax
|
|
|
(1,229
|
)
|
|
|
(4,840
|
)
|
Retained earnings (deficit)
|
|
|
(44,015
|
)
|
|
|
(10,563
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
59,353
|
|
|
|
88,627
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,005,109
|
|
|
$
|
1,079,644
|
|
|
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-2
INTERMOUNTAIN
COMMUNITY BANCORP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands,
|
|
|
|
except per share amounts)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
38,020
|
|
|
$
|
43,611
|
|
|
$
|
55,614
|
|
Investments
|
|
|
8,029
|
|
|
|
10,256
|
|
|
|
8,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
46,049
|
|
|
|
53,867
|
|
|
|
63,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
7,746
|
|
|
|
12,339
|
|
|
|
14,640
|
|
Other borrowings
|
|
|
1,034
|
|
|
|
1,502
|
|
|
|
1,786
|
|
Short-term borrowings
|
|
|
2,005
|
|
|
|
2,329
|
|
|
|
4,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
10,785
|
|
|
|
16,170
|
|
|
|
20,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
35,264
|
|
|
|
37,697
|
|
|
|
42,998
|
|
Provision for losses on loans
|
|
|
(24,012
|
)
|
|
|
(36,329
|
)
|
|
|
(10,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for losses on loans
|
|
|
11,252
|
|
|
|
1,368
|
|
|
|
32,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees and service charges
|
|
|
7,133
|
|
|
|
6,948
|
|
|
|
7,394
|
|
Loan related fee income
|
|
|
3,061
|
|
|
|
2,913
|
|
|
|
3,029
|
|
Other-than-temporary
impairment (OTTI) credit losses on investments(1)
|
|
|
(828
|
)
|
|
|
(526
|
)
|
|
|
|
|
Bank-owned life insurance
|
|
|
368
|
|
|
|
360
|
|
|
|
324
|
|
Net gain (loss) on sale of securities
|
|
|
349
|
|
|
|
1,795
|
|
|
|
2,182
|
|
Other income
|
|
|
941
|
|
|
|
501
|
|
|
|
1,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
11,024
|
|
|
|
11,991
|
|
|
|
13,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
20,950
|
|
|
|
22,512
|
|
|
|
25,301
|
|
Occupancy expense
|
|
|
7,240
|
|
|
|
7,515
|
|
|
|
7,496
|
|
Advertising
|
|
|
1,010
|
|
|
|
1,351
|
|
|
|
1,474
|
|
Fees and service charges
|
|
|
2,666
|
|
|
|
2,940
|
|
|
|
1,990
|
|
Printing, postage and supplies
|
|
|
1,346
|
|
|
|
1,352
|
|
|
|
1,442
|
|
Legal and accounting
|
|
|
1,244
|
|
|
|
1,734
|
|
|
|
1,758
|
|
FDIC assessment
|
|
|
1,892
|
|
|
|
2,373
|
|
|
|
511
|
|
OREO operations
|
|
|
3,472
|
|
|
|
5,389
|
|
|
|
988
|
|
Goodwill
|
|
|
11,662
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
3,412
|
|
|
|
4,464
|
|
|
|
4,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
54,894
|
|
|
|
49,630
|
|
|
|
45,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(32,618
|
)
|
|
|
(36,271
|
)
|
|
|
1,174
|
|
Income tax benefit
|
|
|
(882
|
)
|
|
|
(14,360
|
)
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(31,736
|
)
|
|
|
(21,911
|
)
|
|
|
1,254
|
|
Preferred stock dividend
|
|
|
1,716
|
|
|
|
1,662
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
(33,452
|
)
|
|
$
|
(23,573
|
)
|
|
$
|
1,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic
|
|
$
|
(3.99
|
)
|
|
$
|
(2.82
|
)
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share diluted
|
|
$
|
(3.99
|
)
|
|
$
|
(2.82
|
)
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding basic
|
|
|
8,385,615
|
|
|
|
8,360,654
|
|
|
|
8,294,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding diluted
|
|
|
8,385,615
|
|
|
|
8,360,654
|
|
|
|
8,514,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) |
|
Consisting of $1,529,000 and $1,751,000 of total
other-than-temporary
impairment net losses, net of $701,000 and $1,225,000 recognized
in other comprehensive income for the years ended
December 31, 2010 and December 31, 2009, respectively. |
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-3
INTERMOUNTAIN
COMMUNITY BANCORP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Net income (loss)
|
|
$
|
(31,736
|
)
|
|
$
|
(21,911
|
)
|
|
$
|
1,254
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains on investments, and mortgage backed
securities (MBS) available for sale, excluding
non-credit loss on impairment of securities
|
|
|
6,273
|
|
|
|
2,529
|
|
|
|
(10,392
|
)
|
Non-credit loss portion of
other-than-temporary
impairment on
available-for-sale
debt
|
|
|
(701
|
)
|
|
|
(1,225
|
)
|
|
|
|
|
Less deferred income tax benefit (provision)
|
|
|
(2,207
|
)
|
|
|
(516
|
)
|
|
|
4,115
|
|
Change in fair value of qualifying cash flow hedge
|
|
|
246
|
|
|
|
307
|
|
|
|
(985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss)
|
|
|
3,611
|
|
|
|
1,095
|
|
|
|
(7,262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(28,125
|
)
|
|
$
|
(20,816
|
)
|
|
$
|
(6,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-4
INTERMOUNTAIN
COMMUNITY BANCORP
Years
Ended December 31, 2010, 2009, and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Balance, January 1, 2008
|
|
|
|
|
|
$
|
|
|
|
|
8,313,005
|
|
|
$
|
76,746
|
|
|
$
|
1,327
|
|
|
$
|
12,046
|
|
|
$
|
90,119
|
|
Cumulative effect of adopting EITF
06-4,
Accounting for deferred compensation and post retirement
benefits and aspects of endorsement split-dollar life insurance
arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(234
|
)
|
|
|
(234
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,254
|
|
|
|
1,254
|
|
Equity based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
(110
|
)
|
Restricted stock grant
|
|
|
|
|
|
|
|
|
|
|
46,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued upon exercise of stock options, net of shares
withheld
|
|
|
|
|
|
|
|
|
|
|
50,692
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
|
124
|
|
Vesting of stock-based compensation awards, net of shares
withheld
|
|
|
|
|
|
|
|
|
|
|
19,615
|
|
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
|
|
(193
|
)
|
Issuance of preferred shares net of expenses
|
|
|
27,000
|
|
|
|
25,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,138
|
|
Accretion of preferred stock discount
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
(45
|
)
|
Issuance of common stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,770
|
|
|
|
|
|
|
|
|
|
|
|
1,770
|
|
Net unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,277
|
)
|
|
|
|
|
|
|
(6,277
|
)
|
Net unrealized loss on hedging activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(985
|
)
|
|
|
|
|
|
|
(985
|
)
|
Tax benefit associated with stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
27,000
|
|
|
$
|
25,149
|
|
|
|
8,429,576
|
|
|
$
|
78,261
|
|
|
$
|
(5,935
|
)
|
|
$
|
13,010
|
|
|
$
|
110,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2010, 2009, and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Balance, December 31, 2008
|
|
|
27,000
|
|
|
$
|
25,149
|
|
|
|
8,429,576
|
|
|
$
|
78,261
|
|
|
$
|
(5,935
|
)
|
|
$
|
13,010
|
|
|
$
|
110,485
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,911
|
)
|
|
|
(21,911
|
)
|
Equity based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
367
|
|
|
|
|
|
|
|
|
|
|
|
367
|
|
Restricted stock grant
|
|
|
|
|
|
|
|
|
|
|
(3,743
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued upon exercise of stock options, net of shares
withheld
|
|
|
|
|
|
|
|
|
|
|
12,721
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
Vesting of stock-based compensation awards, net of shares
withheld
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
Accretion of preferred stock discount
|
|
|
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(312
|
)
|
|
|
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,350
|
)
|
|
|
(1,350
|
)
|
Net unrealized loss on investments, excluding non-credit loss on
impairment of securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,528
|
|
|
|
|
|
|
|
1,528
|
|
Non-credit gain portion of
other-than-temporary
impairment on
available-for-sale
debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(740
|
)
|
|
|
|
|
|
|
(740
|
)
|
Net unrealized gain on hedging activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307
|
|
|
|
|
|
|
|
307
|
|
Tax benefit associated with stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
27,000
|
|
|
$
|
25,461
|
|
|
|
8,438,554
|
|
|
$
|
78,569
|
|
|
$
|
(4,840
|
)
|
|
$
|
(10,563
|
)
|
|
$
|
88,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2010, 2009, and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Balance, December 31, 2009
|
|
|
27,000
|
|
|
$
|
25,461
|
|
|
|
8,438,554
|
|
|
$
|
78,569
|
|
|
$
|
(4,840
|
)
|
|
$
|
(10,563
|
)
|
|
$
|
88,627
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,736
|
)
|
|
|
(31,736
|
)
|
Equity based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
361
|
|
|
|
|
|
|
|
|
|
|
|
361
|
|
Restricted stock cancellations
|
|
|
|
|
|
|
|
|
|
|
(7,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of preferred stock discount
|
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,350
|
)
|
|
|
(1,350
|
)
|
Interest on deferred Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
(33
|
)
|
Net unrealized loss on investments, excluding non-credit loss on
impairment of securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,789
|
|
|
|
|
|
|
|
3,789
|
|
Non-credit gain portion of
other-than-temporary
impairment on
available-for-sale
debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(424
|
)
|
|
|
|
|
|
|
(424
|
)
|
Net unrealized gain on hedging activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
246
|
|
|
|
|
|
|
|
246
|
|
Tax benefit associated with vesting of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
27,000
|
|
|
$
|
25,794
|
|
|
|
8,431,385
|
|
|
$
|
78,803
|
|
|
$
|
(1,229
|
)
|
|
$
|
(44,015
|
)
|
|
$
|
59,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-7
INTERMOUNTAIN
COMMUNITY BANCORP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(31,736
|
)
|
|
$
|
(21,911
|
)
|
|
$
|
1,254
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity based compensation expense
|
|
|
361
|
|
|
|
367
|
|
|
|
(110
|
)
|
Depreciation
|
|
|
3,127
|
|
|
|
3,407
|
|
|
|
3,520
|
|
Net amortization of premiums on securities
|
|
|
2,935
|
|
|
|
1,014
|
|
|
|
(179
|
)
|
Provisions for losses on loans
|
|
|
24,012
|
|
|
|
36,329
|
|
|
|
10,384
|
|
Goodwill impairment
|
|
|
11,662
|
|
|
|
|
|
|
|
|
|
Deferred tax asset valuation allowance
|
|
|
8,766
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of loans
|
|
|
64,287
|
|
|
|
108,791
|
|
|
|
69,771
|
|
Originations of loans held for sale
|
|
|
(59,521
|
)
|
|
|
(112,979
|
)
|
|
|
(65,181
|
)
|
Amortization of core deposit intangibles
|
|
|
129
|
|
|
|
137
|
|
|
|
147
|
|
Net accretion of loan discount
|
|
|
(35
|
)
|
|
|
(100
|
)
|
|
|
(15
|
)
|
Accretion of deferred gain on sale of branch property
|
|
|
(15
|
)
|
|
|
(15
|
)
|
|
|
(15
|
)
|
Gain on sale of loans, investments, property and equipment, OREO
|
|
|
(2,309
|
)
|
|
|
(3,184
|
)
|
|
|
(3,818
|
)
|
Charge downs and gain on OREO
|
|
|
2,958
|
|
|
|
3,962
|
|
|
|
759
|
|
OTTI credit loss on
available-for-sale
investments
|
|
|
828
|
|
|
|
526
|
|
|
|
|
|
Deferred income tax benefit
|
|
|
(9,649
|
)
|
|
|
(8,611
|
)
|
|
|
(1,360
|
)
|
Increase in cash surrender value of bank-owned life insurance
|
|
|
(368
|
)
|
|
|
(360
|
)
|
|
|
(324
|
)
|
Change in :
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
717
|
|
|
|
1,371
|
|
|
|
1,759
|
|
Prepaid expenses and other assets
|
|
|
7,015
|
|
|
|
(10,887
|
)
|
|
|
(2,718
|
)
|
Accrued interest payable
|
|
|
195
|
|
|
|
(1,064
|
)
|
|
|
(753
|
)
|
Accrued expenses and other liabilities
|
|
|
(1,255
|
)
|
|
|
3,158
|
|
|
|
(2,162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
22,104
|
|
|
|
(49
|
)
|
|
|
10,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of
available-for-sale
securities
|
|
|
(66,820
|
)
|
|
|
(129,718
|
)
|
|
|
(78,266
|
)
|
Proceeds from calls, maturities or sales of
available-for-sale
securities
|
|
|
15,336
|
|
|
|
59,623
|
|
|
|
68,522
|
|
Principal payments on mortgage-backed securities
|
|
|
52,370
|
|
|
|
37,550
|
|
|
|
12,932
|
|
Purchases of
held-to-maturity
securities
|
|
|
(7,927
|
)
|
|
|
(64
|
)
|
|
|
(7,639
|
)
|
Proceeds from calls or maturities of
held-to-maturity
securities
|
|
|
861
|
|
|
|
2,429
|
|
|
|
1,313
|
|
Purchase of Federal Home Loan Bank of Seattle stock
|
|
|
|
|
|
|
|
|
|
|
(706
|
)
|
Proceed from redemption of Federal Home Loan Bank of Seattle
stock
|
|
|
|
|
|
|
|
|
|
|
175
|
|
Loans made to customers less (greater) than principal collected
on loans
|
|
|
59,450
|
|
|
|
39,998
|
|
|
|
(15,747
|
)
|
Purchase of office properties and equipment
|
|
|
(987
|
)
|
|
|
(1,603
|
)
|
|
|
(5,845
|
)
|
Proceeds from sales of office properties and equipment
|
|
|
40
|
|
|
|
|
|
|
|
169
|
|
Proceeds from sale of portfolio loans
|
|
|
|
|
|
|
|
|
|
|
5,490
|
|
Proceeds from sale of other real estate owned
|
|
|
13,441
|
|
|
|
9,830
|
|
|
|
474
|
|
Net change in federal funds sold
|
|
|
|
|
|
|
71,450
|
|
|
|
(64,885
|
)
|
Net (increase) decrease in restricted cash
|
|
|
(782
|
)
|
|
|
(2,040
|
)
|
|
|
4,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
64,982
|
|
|
|
87,455
|
|
|
|
(79,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-8
INTERMOUNTAIN
COMMUNITY BANCORP
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in demand, money market and savings
deposits
|
|
|
(14,140
|
)
|
|
|
31,445
|
|
|
|
(583
|
)
|
Net increase (decrease) in certificates of deposit
|
|
|
(26,348
|
)
|
|
|
(2,536
|
)
|
|
|
33,151
|
|
Proceeds from Federal Home Loan Bank advances
|
|
|
|
|
|
|
39,000
|
|
|
|
30,000
|
|
Repayments of Federal Home Loan Bank advances
|
|
|
(15,000
|
)
|
|
|
(36,000
|
)
|
|
|
(13,000
|
)
|
Net change in repurchase agreements
|
|
|
9,883
|
|
|
|
(13,773
|
)
|
|
|
(15,121
|
)
|
Principal reduction of note payable
|
|
|
|
|
|
|
(23,941
|
)
|
|
|
(41
|
)
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
56
|
|
|
|
158
|
|
Proceeds from issuance of preferred stock, net of expenses
|
|
|
|
|
|
|
|
|
|
|
25,138
|
|
Proceeds from issuance of common stock warrants
|
|
|
|
|
|
|
|
|
|
|
1,770
|
|
Cash dividends paid to preferred stockholders
|
|
|
|
|
|
|
(1,223
|
)
|
|
|
|
|
Increase (decrease) in credit line
|
|
|
|
|
|
|
(145
|
)
|
|
|
3,657
|
|
Retirement of treasury stock
|
|
|
(4
|
)
|
|
|
(7
|
)
|
|
|
(227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(45,609
|
)
|
|
|
(7,124
|
)
|
|
|
64,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
41,477
|
|
|
|
80,282
|
|
|
|
(4,093
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
103,189
|
|
|
|
22,907
|
|
|
|
27,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
144,666
|
|
|
$
|
103,189
|
|
|
$
|
22,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
10,590
|
|
|
$
|
16,195
|
|
|
$
|
20,916
|
|
Income taxes, net of tax refunds received
|
|
$
|
(7,144
|
)
|
|
$
|
6,031
|
|
|
$
|
3,615
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares issued
|
|
$
|
|
|
|
$
|
|
|
|
$
|
647
|
|
Accrual of preferred stock dividend
|
|
$
|
1,384
|
|
|
$
|
173
|
|
|
$
|
|
|
Loans converted to other real estate owned
|
|
$
|
8,946
|
|
|
$
|
20,789
|
|
|
$
|
4,092
|
|
Line of credit converted to term debt
|
|
$
|
|
|
|
$
|
23,000
|
|
|
$
|
|
|
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-9
INTERMOUNTAIN
COMMUNITY BANCORP
Organization
Intermountain Community Bancorp (Intermountain or
the Company) is a bank holding company whose
principal activity is the ownership and management of its wholly
owned subsidiary, Panhandle State Bank (the Bank).
The Bank is a state chartered commercial bank under the laws of
the state of Idaho. At December 31, 2010, the Bank had
eight branch offices in northern Idaho, five in southwestern
Idaho, three in southcentral Idaho, two branches in eastern
Washington and one branch in eastern Oregon operating under the
names of Panhandle State Bank, Intermountain Community Bank and
Magic Valley Bank.
Intermountain provides customized quality financial services and
banking products to its customers through experienced, highly
trained staff who are long-time residents of its local markets.
Intermountain believes this philosophy has allowed it to grow
rapidly in its market areas. With $1.01 billion in total
assets as of December 31, 2010, Intermountain originates
loans and attracts deposits from the general public through 19
branches located in Washington, Oregon, and Idaho. In addition,
Intermountain also markets trust and wealth management services
and fixed income and equity products, mutual funds, fixed and
variable annuities and other financial products through its
Trust and Investment Services Division.
The accounting and reporting policies of Intermountain and
subsidiaries conform to U.S. generally accepted accounting
principles (GAAP) and to general practices within
the banking industry. The preparation of financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could materially differ from those estimates. The more
significant accounting policies are as follows:
Principles
of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Cash and
Cash Equivalents
Cash equivalents are any highly liquid debt instruments with a
remaining maturity of three months or less at the date of
purchase. Cash and cash equivalents are on deposit with the
Federal Reserve, and other banks and financial institutions in
amounts that periodically exceed the federal insurance limit.
Intermountain evaluates the credit quality of these banks and
financial institutions to mitigate its credit risk.
Restricted
Cash
Restricted cash represents the required reserve balances
maintained to comply with Federal Reserve Bank requirements and
required cash reserves for loan hedges and Trust Preferred
Cash Flow Hedge held at Pacific Coast Bankers Bank.
Investments
Intermountain classifies debt and equity investments as follows:
|
|
|
|
|
Available-for-Sale. Debt
and equity investments that will be held for indefinite periods
of time are classified as
available-for-sale
and are carried at market value. Market value is determined
using published quotes or other indicators of value as of the
close of business. Unrealized gains and losses that are
considered temporary are reported, net of deferred income taxes,
as a component of accumulated other comprehensive income or loss
in stockholders equity until realized.
|
F-10
INTERMOUNTAIN
COMMUNITY BANCORP
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
|
|
|
|
|
Federal Home Loan Bank of Seattle
Stock. Federal Home Loan Bank (FHLB)
of Seattle stock may only be redeemed by FHLB Seattle or sold to
another member institution at par. Therefore, this investment is
carried at cost.
|
|
|
|
Held-to-Maturity. Investments
in debt securities that management has the intent and ability to
hold until maturity are classified as
held-to-maturity
and are carried at their remaining unpaid principal balance, net
of unamortized premiums or unaccreted discounts.
|
Premiums are amortized and discounts are accreted using the
level-interest-yield method over the estimated remaining term of
the underlying security. Realized gains and losses on sales of
investments and mortgage-backed securities are recognized in the
statement of income in the period sold using the specific
identification method.
In assessing whether a security has an
other-than-temporary
impairment (OTTI), the Company considers whether it
intends to sell a security or if it is likely that it would be
required to sell the security before recovery of the amortized
cost basis of the investment, which may be maturity. For debt
securities, if we intend to sell the security or it is likely
that we will be required to sell the security before recovering
its cost basis, the entire impairment loss would be recognized
in earnings as an OTTI. If we do not intend to sell the security
and it is not likely that we will be required to sell the
security but we do not expect to recover the entire amortized
cost basis of the security, only the portion of the impairment
loss representing credit losses is recognized in earnings. The
credit loss on a security is measured as the difference between
the amortized cost basis and the present value of the cash flows
expected to be collected. Projected cash flows are discounted by
the original or current effective interest rate depending on the
nature of the security being measured for potential OTTI. The
remaining impairment related to all other factors, the
difference between the present value of the cash flows expected
to be collected and fair value, is recognized as a charge to
other comprehensive income (OCI). Impairment losses
related to all other factors are presented as separate
categories within OCI. For investment securities held to
maturity, this amount is accreted over the remaining life of the
debt security prospectively based on the amount and timing of
future estimated cash flows. The accretion of the amount
recorded in OCI increases the carrying value of the investment
and does not affect earnings. If there is an indication of
additional credit losses the security is re-evaluated according
to the procedures described above. The Company recognized total
OTTI on
available-for-sale
securities of $1.5 million in 2010, of which $828,000 was
recognized through earnings as credit loss impairment and
$1.1 million, representing non-credit value impairment, was
recognized in OCI. In 2009, the Company recognized total OTTI of
$701,000, of which $526,000 was recognized through earnings as
credit loss impairment and $1.2 million, representing
non-credit value impairment, was recognized in OCI. No OTTI was
recognized in 2008.
Transfers of securities from available for sale to held to
maturity are accounted for at fair value as of the date of the
transfer. The difference between the fair value and the par
value at the date of transfer is considered a premium or
discount and is accounted for accordingly. Any unrealized gain
or loss at the date of the transfer is reported in OCI, and is
amortized over the remaining life of the security as an
adjustment of yield in a manner consistent with the amortization
of any premium or discount, and will offset or mitigate the
effect on interest income of the amortization of the premium or
discount for that held to maturity security.
Loans
Held for Sale
Loans originated and intended for sale in the secondary market
are carried at the lower of aggregate cost or fair value. Net
unrealized losses are recognized through a valuation allowance
by charges to income. Gains or losses on sales of mortgage loans
are recognized based on the differences between the selling
price and the carrying value of the mortgage loans sold.
The Company records a transfer of financial assets as a sale
when it surrenders control over those financial assets to the
extent that consideration other than beneficial interests in the
transferred assets is received in exchange. The Company
considers control surrendered when all conditions prescribed by
accounting guidance are met. These conditions include whether
the transferred assets are isolated beyond the reach of the
Company and its creditors, the
F-11
INTERMOUNTAIN
COMMUNITY BANCORP
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
presence of constraints on the transferee or beneficial interest
holders, and the Companys rights or obligations to
reacquire transferred financial assets.
Loans
Receivable
Loans receivable that management of Intermountain has the intent
and ability to hold for the foreseeable future or until maturity
or pay-off are reported at their outstanding principal balance
less any unearned income, premiums or discounts and an
associated allowance for losses on loans. Unearned income
includes deferred loan origination fees reduced by loan
origination costs.
Loans are classified as impaired when, based on current
information and events, it is probable the Bank will be unable
to collect all amounts as scheduled under the contractual terms
of the loan agreement. Impaired loans are measured based on the
present value of expected future cash flows discounted at the
loans effective interest rate or the fair value less
estimated selling costs of the collateral, if the loan is
collateral dependent. Changes in these values are reflected in
income through charges to the provision for loan losses.
Interest income is recognized over the term of the loans
receivable based on the unpaid principal balance. The accrual of
interest on impaired loans is discontinued when, in
managements opinion, the borrower may be unable to make
payments as they become due. When interest accrual is
discontinued, all unpaid accrued interest is reversed. Interest
income is then subsequently recognized only to the extent cash
payments are received in excess of principal due.
Allowance
for Losses on Loans
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 is
based on the fair value of the collateral for collateral
dependent loans, and on the present value of expected cash flows
for non-collateral dependent loans. For collateral dependent
loans, this evaluation requires management to make estimates of
the value of the collateral and any associated holding and
selling costs, and for non-collateral dependent loans, estimates
on the timing and risk associated with the receipt of
contractual cash flows.
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.
Management believes the allowance for loan losses was adequate
at December 31, 2010. While management uses available
information to provide for loan losses, the ultimate
collectability 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
further slowdown in economic activity could adversely affect
cash flows for both
F-12
INTERMOUNTAIN
COMMUNITY BANCORP
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
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 accrued expenses and other
liabilities section of the Consolidated Statements of Financial
Condition.
Loan
Origination and Commitment Fees
Loan origination fees, net of direct origination costs, are
deferred and recognized as interest income using the level
interest yield method over the contractual term of each loan
adjusted for actual loan prepayment experience.
Loan commitment fees are deferred until the expiration of the
commitment period unless management believes there is a remote
likelihood that the underlying commitment will be exercised, in
which case the fees are amortized to fee income using the
straight-line method over the commitment period. If a loan
commitment is exercised, the deferred commitment fee is
accounted for in the same manner as a loan origination fee.
Deferred commitment fees associated with expired commitments are
recognized as fee income.
Other
Real Estate Owned
Property acquired through foreclosure of defaulted mortgage
loans is carried at the lower of cost or fair value less
estimated costs to sell. At the applicable foreclosure date,
OREO is recorded at fair value of the real estate, less the
estimated costs to sell the real estate. Subsequently, OREO is
carried at the lower of cost or fair value, and is periodically
re-assessed for impairment based on fair value at the reporting
date. Development and improvement costs relating to the property
are capitalized to the extent they are deemed to be recoverable.
Intermountain reviews its OREO for impairment in value on a
periodic basis and 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
flow from the use of the property or the fair value, less
selling costs, from the disposition of the property is less than
its carrying value, a loss is recognized. Because of rapid
declines in real estate values in the current distressed
environment, management has increased the frequency and
intensity of its valuation analysis on its OREO properties. As a
result of this analysis, carrying values on some of these
properties have been reduced, and it is reasonably possible that
the carrying values could be reduced again in the near term.
Office
Properties and Equipment
Office properties and equipment are carried at cost less
accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the
assets, ranging from two to thirty years. Expenditures for new
properties and equipment and major renewals or betterments are
capitalized. In the case where the Company constructs a facility
and the construction period is lengthy, interest expense will be
capitalized and added to the cost of the facility. Expenditures
for repairs and maintenance are charged to expense as incurred.
Upon sale or retirement, the cost and related accumulated
depreciation are removed from the respective property or
equipment accounts, and the resulting gains or losses are
reflected in operations.
F-13
INTERMOUNTAIN
COMMUNITY BANCORP
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Bank-Owned
Life Insurance
Bank-owned life insurance (BOLI) is carried at the
initial premium paid for the policies plus the increase in the
cash surrender value.
Goodwill
and Other Intangibles
Goodwill and intangible assets with indefinite lives are not
amortized, but are subject to impairment tests at least
annually. Intangible assets with finite lives, including core
deposit intangibles, are amortized over the estimated life of
the depositor relationships acquired. During the quarter ended
September 30, 2010, Intermountain determined that a trigger
event occurred, requiring an evaluation of the Companys
goodwill. Based on the results of the evaluation, the Company
determined that 100% of the goodwill balance was impaired and
recorded an $11.7 million goodwill impairment, which
reduced the carrying value of the Companys goodwill down
to zero. See Note 5 to the Consolidated Financial
Statements for more information on goodwill and other
intangibles.
Fair
Value Measurements
ASC 820 Fair Value Measurements establishes a
standard framework for measuring fair value in GAAP, clarifies
the definition of fair value within that framework,
and expands disclosures about the use of fair value
measurements. A number of valuation techniques are used to
determine the fair value of assets and liabilities in
Intermountains financial statements. These include quoted
market prices for securities, interest rate swap valuations
based upon the modeling of termination values adjusted for
credit spreads with counterparties, and appraisals of real
estate from independent licensed appraisers, among other
valuation techniques. Fair value measurements for assets and
liabilities where there exists limited or no observable market
data are based primarily upon estimates, and are often
calculated based on the economic and competitive environment,
the characteristics of the asset or liability and other factors.
Therefore, the results cannot be determined with precision and
may not be realized in an actual sale or immediate settlement of
the asset or liability. Additionally, there are inherent
weaknesses in any calculation technique, and changes in the
underlying assumptions used, including discount rates and
estimates of future cash flows, could significantly affect the
results of current or future values. Significant changes in the
aggregate fair value of assets and liabilities required to be
measured at fair value or for impairment will be recognized in
the income statement under the framework established by GAAP. If
impairment is determined, it could limit the ability of
Intermountains banking subsidiaries to pay dividends or
make other payments to the Holding Company. See Note 20 to
the Consolidated Financial Statements for more information on
fair value measurements.
Derivative
Financial Instruments and Hedging Activities
In various aspects of its business, the Company uses derivative
financial instruments to modify its exposure to changes in
interest rates and market prices for other financial
instruments. The Company has one derivative financial instrument
that is designated as a hedge for financial accounting purposes.
Intermountains hedge accounting policy requires the
assessment of hedge effectiveness, identification of similar
hedged item groupings, and measurement of changes in the fair
value of hedged items. If, in the future, the derivative
financial instruments identified as hedges no longer qualify for
hedge accounting treatment, changes in the fair value of these
hedged items would be recognized in current period earnings, and
the impact on the consolidated results of operations and
reported earnings could be significant.
Advertising
and Promotion
The Company expenses all costs associated with its advertising
and promotional efforts as incurred. Those costs are included
with operating expenses on the consolidated statements of income.
F-14
INTERMOUNTAIN
COMMUNITY BANCORP
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Income
Taxes
Income taxes are accounted for using the asset and liability
method. Under this method a deferred tax asset or liability is
determined based on the enacted tax rates which will be in
effect when the differences between the financial statement
carrying amounts and tax basis of existing assets and
liabilities are expected to be reported in the Companys
income tax returns. The effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes
the enactment date. Valuation allowances are established to
reduce the net carrying amount of deferred tax assets if it is
determined to be more likely than not, that all or some portion
of the potential deferred tax asset will not be realized. The
Company uses an estimate of future earnings, an evaluation of
its loss carryback ability and tax planning strategies to
determine whether or not the benefit of its net deferred tax
asset may be realized. The analysis used to determine whether a
valuation allowance is required and if so, the amount of the
allowance, is based on estimates of future taxable income and
the effectiveness of future tax planning strategies. These
estimates require significant management judgment about future
economic conditions and Company performance.
At September 30, 2010, Intermountain assessed whether it
was more likely than not that it would realize the benefits of
its deferred tax asset. Intermountain determined that the
negative evidence associated with a projected three year
cumulative loss for the period ending December 31, 2010,
and continued depressed economic conditions outweighed the
positive evidence. Therefore, Intermountain established a
valuation allowance of $7.4 million against its deferred
tax asset. In the fourth quarter of 2010, the Company fully
reserved the tax benefit of $1.4 million due to the
continuing economic uncertainties. Intermountain had a net
deferred asset of $15.3 million as of December 31,
2010, compared to a net deferred tax asset of $16.9 million
as of December 31, 2009. See Note 10 to the
Consolidated Financial Statements for more information on the
tax provision and the deferred tax asset.
Earnings
Per Share
Basic earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding during
the period. Diluted earnings per share is computed by dividing
net income by the weighted average number of common shares
outstanding increased by the additional common shares that would
have been outstanding if the potentially dilutive common shares
had been issued.
Equity
Compensation Plans
The Company formerly maintained equity compensation plans under
which the Company has granted non-qualified and incentive stock
options and restricted stock to employees and non-employee
directors. The Company follows guidance under ASC 718,
Stock Compensation, using the modified prospective
method, and the fair value recognition provision. The Company
elected to adopt the alternative transition method for
calculating the tax effects of stock-based compensation. The
alternative transition method includes simplified methods to
establish the beginning balance of the
additional-paid-in-capital pool (APIC pool) related
to the tax effects of stock-based compensation, and for
determining the subsequent impact on the APIC pool and
consolidated statements of cash flows of the tax effects of
stock-based compensation awards that are outstanding. The fair
value of each stock option grant is estimated on the date of
grant using the Black-Scholes option-pricing model. The
Black-Scholes option-pricing model was developed for use in
estimating the fair value of options. In addition, option
valuation models require the input of highly subjective
assumptions, particularly for the expected term and stock price
volatility. The fair value of each restricted share is based on
the fair market value at the date of grant. The Company records
compensation expense based on the determined fair value.
Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and
F-15
INTERMOUNTAIN
COMMUNITY BANCORP
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could materially differ from those
estimates. Material estimates that are particularly susceptible
to significant changes in the near term relate to the
determination of the allowance for loan losses, valuation of
investments, deferred tax assets and liabilities and valuation
and recoverability of goodwill and intangible assets.
Business
Combinations
Pursuant to ASC 805 Business Combinations,
Intermountains mergers and acquisitions are accounted for
under the purchase method of accounting. Accordingly, the assets
and liabilities of the acquired entities are recorded by
Intermountain at their respective fair values at the date of the
acquisition and the results of operations are included with
those of Intermountain commencing with the date of acquisition.
The excess of the purchase price over the fair value of the
assets acquired and liabilities assumed, including identifiable
intangible assets, is recorded as goodwill.
Reclassifications
Certain amounts in the 2009 and 2008 financial statements have
been reclassified to conform to the current years
presentation. These reclassifications had no effect on total
stockholders equity or net income as previously reported.
New
Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (the
FASB) issued Accounting Standards Update
(ASU)
2009-17,
Accounting for Transfers of Financial Assets.
This standard removes the concept of qualifying special-purpose
entities as an accounting criteria that had provided an
exception to consolidation, provided additional guidance on
requirements for consolidation, and is an update to codification
topic 860. This guidance became effective for the Company on
January 1, 2010, and did not have a material impact on its
consolidated financial statements.
In January 2010, the FASB issued ASU
No. 2010-06,
Fair Value Measurements and Disclosures
(Topic 820) Improving Disclosures about Fair
Value Measurements. FASB ASU
No. 2010-06
requires (i) fair value disclosures by each class of assets
and liabilities (generally a subset within a line item as
presented in the statement of financial position) rather than
major category, (ii) for items measured at fair value on a
recurring basis, the amounts of significant transfers between
Levels 1 and 2, and transfers into and out of Level 3,
and the reasons for those transfers, including separate
discussion related to the transfers into each level apart from
transfers out of each level, and (iii) gross presentation
of the amounts of purchases, sales, issuances, and settlements
in the Level 3 recurring measurement reconciliation.
Additionally, the ASU clarified that a description of the
valuation techniques(s) and inputs used to measure fair values
is required for both recurring and nonrecurring fair value
measurements. Also, if a valuation technique has changed,
entities should disclose that change and the reason for the
change. Disclosures other than the gross presentation changes in
the Level 3 reconciliation were effective for the first
reporting period beginning after December 15, 2009 and did
not have an impact on the Companys consolidated financial
statements. The requirement to present the Level 3 activity
of purchases, sales, issuances, and settlements on a gross basis
will be effective for fiscal years beginning after
December 15, 2010. The Company is currently evaluating the
impact of adoption of FASB ASU
No. 2010-06.
We do not expect it will have a material impact on the
Companys consolidated financial statements.
In February 2010, the FASB issued ASU
No. 2010-09,
Subsequent Events (Topic 855) Amendments to
Certain Recognition and disclosure Requirements. This
ASU eliminated the requirement to disclose the date through
which a Company has evaluated subsequent events and refines the
scope of the disclosure requirements for reissued financial
statements. This ASU was effective for the first quarter of
2010. This ASU did not have a material impact on the
Companys consolidated financial statements.
F-16
INTERMOUNTAIN
COMMUNITY BANCORP
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
In March 2010, the FASB issued ASU
No. 2010-11,
Derivatives and Hedging (Topic 815) Scope
Exception Related to Embedded Credit Derivatives. The
ASU eliminated the scope exception for bifurcation of embedded
credit derivatives in interests in securitized financial assets,
unless they are created solely by subordination of one financial
instrument to another. The ASU was effective the first quarter
beginning after June 15, 2010. The adoption of this ASU did
not have a material impact on the Companys consolidated
financial statements.
In April 2010, the FASB issued ASU
No. 2010-18,
Receivables (Topic 310) Effect of a Loan
Modification When the Loan Is Part of a Pool That is Accounted
for as a Single Asset. This ASU clarified that
modifications of loans that are accounted for within a pool
under Topic
310-30 do
not result in the removal of those loans from the pool even if
the modification of those loans would otherwise be considered a
troubled debt restructuring. An entity will continue to be
required to consider whether the pool of assets in which the
loan is included is impaired if expected cash flows for the pool
change. No additional disclosures are required with this ASU.
The amendments in this ASU are effective for modifications of
loans accounted for within pools under Topic
310-30
occurring in the first interim or annual period ending on or
after July 15, 2010. The amendments are to be applied
prospectively and early application is permitted. Upon initial
adoption of the guidance in this ASU, an entity may make a
onetime election to terminate accounting for loans as a pool
under Topic
310-30. This
election may be applied on a
pool-by-pool
basis and does not preclude an entity from applying pool
accounting to subsequent acquisitions of loans with credit
deterioration. The adoption of this ASU did not have a material
impact on the Companys consolidated financial statements.
In July 2010, the FASB issued ASU
2010-20,Disclosures
about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses. This update amends
codification topic 310 on receivables to improve the disclosures
that an entity provides about the credit quality of its
financing receivables and the related allowance for credit
losses. As a result of these amendments, an entity is required
to disaggregate by portfolio segment or class certain existing
disclosures and provide certain new disclosures about its
financing receivables and related allowance for credit losses.
This guidance is being phased in, with the new disclosure
requirements for period end balances effective as of
December 31, 2010, and the new disclosure requirements for
activity during the reporting period are effective
March 31, 2011. See Footnote 2 Loans and Loan
Loss Allowance.
In December 2010, the FASB issued ASU
No. 2010-29,
Business Combinations (Topic 805): Disclosure of
Supplementary Pro Forma Information for Business
Combinations. ASU
No. 2010-29.
This ASU requires that if a public entity discloses comparative
financial statements, then those disclosures of revenue and
earnings of the combined entity should be as though the business
combination(s) that occurred during the current year had
occurred as of the beginning of the comparable prior annual
reporting period only. The ASU also expands the supplemental pro
forma disclosures under Topic 805 to include a description of
the nature and amount of material, nonrecurring pro forma
adjustments directly attributable to the business combination.
The ASU will be applied prospectively for business combinations
that are consummated on or after the beginning of the first
annual reporting period beginning on or after December 15,
2010. The adoption of this ASU will not have an impact on the
Companys consolidated financial statements except and
until the Company enters a future business combination.
In January 2011, the FASB issued ASU
No. 2011-01,
Deferral of the Effective Date of Disclosures about
Troubled Debt Restructurings in Update
No. 2010-20.
This ASU temporarily delays the effective date of the
disclosures about troubled debt restructurings in Update
2010-20 for
public entities. The delay is intended to allow the Board time
to complete its deliberations on what constitutes a troubled
debt restructuring. The effective date of the new disclosures
about troubled debt restructurings for public entities and the
guidance for determining what constitutes a troubled debt
restructuring will then be coordinated. Currently, that guidance
is anticipated to be effective for interim and annual periods
ending after June 15, 2011. Accordingly, the Company has
not included the disclosures deferred by this ASU.
F-17
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and fair values of investments are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
Non-Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
in OCI
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair Value/
|
|
|
|
Cost
|
|
|
(Losses)
|
|
|
Gains
|
|
|
Losses
|
|
|
Carrying Value
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities and obligations of U.S. government
agencies
|
|
$
|
4,020
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(95
|
)
|
|
$
|
3,925
|
|
State and municipal securities
|
|
|
5,251
|
|
|
|
|
|
|
|
28
|
|
|
|
(49
|
)
|
|
|
5,230
|
|
Mortgage-backed securities & CMOs
|
|
|
175,129
|
|
|
|
(1,926
|
)
|
|
|
3,648
|
|
|
|
(2,925
|
)
|
|
|
173,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
184,400
|
|
|
$
|
(1,926
|
)
|
|
$
|
3,676
|
|
|
$
|
(3,069
|
)
|
|
$
|
183,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities and obligations of U.S. government
agencies
|
|
$
|
51
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
51
|
|
Mortgage-backed securities & CMOs
|
|
|
188,624
|
|
|
|
(1,225
|
)
|
|
|
2,662
|
|
|
|
(8,328
|
)
|
|
|
181,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
188,675
|
|
|
$
|
(1,225
|
)
|
|
$
|
2,662
|
|
|
$
|
(8,328
|
)
|
|
$
|
181,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
|
|
|
|
|
Non-Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
OTTI
|
|
|
|
|
|
|
|
|
|
|
|
|
Value/
|
|
|
Recognized
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
in OCI
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
(Losses)
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal securities
|
|
$
|
22,217
|
|
|
$
|
|
|
|
$
|
280
|
|
|
$
|
(385
|
)
|
|
$
|
22,112
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal securities
|
|
$
|
15,177
|
|
|
$
|
|
|
|
$
|
276
|
|
|
$
|
(56
|
)
|
|
$
|
15,397
|
|
The following table summarizes the duration of
Intermountains unrealized losses on
available-for-sale
and
held-to-maturity
securities as of the dates indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
December 31, 2010
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
U.S. treasury securities and obligations of U.S. government
agencies
|
|
$
|
3,897
|
|
|
$
|
95
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,897
|
|
|
$
|
95
|
|
State and municipal securities
|
|
|
11,713
|
|
|
|
434
|
|
|
|
|
|
|
|
|
|
|
|
11,713
|
|
|
|
434
|
|
Mortgage-backed securities & CMOs
|
|
|
36,338
|
|
|
|
581
|
|
|
|
14,447
|
|
|
|
2,344
|
|
|
|
50,785
|
|
|
|
2,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
51,948
|
|
|
$
|
1,110
|
|
|
$
|
14,447
|
|
|
$
|
2,344
|
|
|
$
|
66,395
|
|
|
$
|
3,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
December 31, 2009
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
State and municipal securities
|
|
$
|
3,196
|
|
|
$
|
56
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,196
|
|
|
$
|
56
|
|
Mortgage-backed securities & CMOs
|
|
|
49,464
|
|
|
|
1,504
|
|
|
|
24,124
|
|
|
|
6,824
|
|
|
|
73,588
|
|
|
|
8,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52,660
|
|
|
$
|
1,560
|
|
|
$
|
24,124
|
|
|
$
|
6,824
|
|
|
$
|
76,784
|
|
|
$
|
8,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, the amortized cost and fair value of
available-for-sale
and
held-to-maturity
debt securities, by contractual maturity, are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
Held-to-Maturity
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
One year or less
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
297
|
|
|
$
|
301
|
|
After one year through five years
|
|
|
28
|
|
|
|
28
|
|
|
|
708
|
|
|
|
752
|
|
After five years through ten years
|
|
|
3,989
|
|
|
|
3,894
|
|
|
|
5,929
|
|
|
|
5,894
|
|
After ten years
|
|
|
5,251
|
|
|
|
5,230
|
|
|
|
15,283
|
|
|
|
15,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,271
|
|
|
|
9,155
|
|
|
|
22,217
|
|
|
|
22,112
|
|
Mortgage-backed securities & CMOs
|
|
|
175,129
|
|
|
|
173,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
184,400
|
|
|
$
|
183,081
|
|
|
$
|
22,217
|
|
|
$
|
22,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected maturities may differ from contractual maturities
because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Intermountains investment portfolios are managed to
provide and maintain liquidity; to maintain a balance of high
quality, diversified investments to minimize risk; to offset
other asset portfolio elements in managing interest rate risk;
to provide collateral for pledging; and to maximize returns. At
December 31, 2010, the Company does not intend to sell any
of its
available-for-sale
securities that have a loss position and it is not likely that
it will be required to sell the
available-for-sale
securities before the anticipated recovery of their remaining
amortized cost or maturity date. The unrealized losses on
residential mortgage-backed securities without OTTI were
considered by management to be temporary in nature.
Investment securities are reviewed on an ongoing basis for the
presence of
other-than-temporary
impairment (OTTI) or permanent impairment, taking
into consideration current market conditions, fair value in
relationship to cost, the extent and nature of the change in
fair value, issuer rating changes and trends, whether we intend
to sell a security or if it is likely that we will be required
to sell the security before recovery of our amortized cost basis
of the investment, which may be at maturity, and other factors.
Prior to the first quarter of 2009, the Company would assess an
OTTI or permanent impairment based on the nature of the decline
and whether the Company had the ability and intent to hold the
investments until a market price recovery. If the Company
determined a security to be
other-than-temporarily
or permanently impaired, the full amount of impairment would be
recognized through earnings in its entirety. New guidance
related to the recognition and presentation of OTTI of debt
securities became effective in the second quarter of 2009, with
early adoption possible in the first quarter of 2009. Rather
than asserting whether a Company has the ability and intent to
hold an investment until a market price recovery, a Company must
consider whether they intend to sell a security or if it is
likely that they would be required to sell the security before
recovery of the amortized cost basis of the investment, which
may be maturity. For debt securities, if the Company intends to
sell the security or it is likely that it will be required to
sell the security before recovering its cost basis, the entire
impairment loss would be recognized in earnings as an OTTI. If
the Company does not intend to sell the security and it is not
likely that it will be required to
F-19
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
sell the security but does not expect to recover the entire
amortized cost basis of the security, only the portion of the
impairment loss representing credit losses would be recognized
in earnings. The credit loss on a security is measured as the
difference between the amortized cost basis and the present
value of the cash flows expected to be collected. Projected cash
flows are discounted by the original or current effective
interest rate depending on the nature of the security being
measured for potential OTTI. The remaining impairment related to
all other factors, the difference between the present value of
the cash flows expected to be collected and fair value, is
recognized as a charge to other comprehensive income
(OCI). Impairment losses related to all other
factors are presented as separate categories within OCI. For
investment securities held to maturity, this amount is accreted
over the remaining life of the debt security prospectively based
on the amount and timing of future estimated cash flows. The
accretion of the amount recorded in OCI increases the carrying
value of the investment and does not affect earnings. If there
is an indication of additional credit losses the security is
reevaluated accordingly to the procedures described above.
The Company did not have any impairments on securities before
2009. Upon adoption of the new OTTI guidance in the first
quarter of 2009, the Company analyzed its securities as well and
determined that as of the adoption date there were OTTI
impairments and such losses were credit related. There was no
cumulative effect adjustment to the opening balance of retained
earnings or a corresponding adjustment to accumulated OCI.
The following table presents the OTTI losses for the years ended
December 31, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Held To
|
|
|
Available
|
|
|
Held To
|
|
|
Available
|
|
|
|
Maturity
|
|
|
For Sale
|
|
|
Maturity
|
|
|
For Sale
|
|
|
Total
other-than-temporary
impairment losses
|
|
$
|
|
|
|
$
|
1,529
|
|
|
$
|
|
|
|
$
|
1,751
|
|
Portion of
other-than-temporary
impairment losses transferred from (recognized in) other
comprehensive income(1)
|
|
|
|
|
|
|
(701
|
)
|
|
|
|
|
|
|
(1,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses recognized in earnings(2)
|
|
$
|
|
|
|
$
|
828
|
|
|
$
|
|
|
|
$
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents
other-than-temporary
impairment losses related to all other factors. |
|
(2) |
|
Represents
other-than-temporary
impairment losses related to credit losses. |
The OTTI recognized on investment securities available for sale
primarily relates to two non-agency collateralized mortgage
obligations for 2010 and one non-agency collateralized mortgage
obligation for 2009. Each of these securities holds various
levels of credit subordination. These securities were valued by
third-party pricing services using matrix or model pricing
methodologies and were corroborated by broker indicative bids.
We estimated the cash flows of the underlying collateral for
each security considering credit, interest and prepayment risk
models that incorporate managements estimate of projected
key assumptions including prepayment rates, collateral default
rates and loss severity. Assumptions utilized vary from security
to security, and are influenced by factors such as underlying
loan interest rates, geographic location, borrower
characteristics and vintage, and historical experience. We then
used a third party to obtain information about the structure of
each security, including subordination and other credit
enhancements, in order to determine how the underlying
collateral cash flows will be distributed to each security
issued in the structure. These cash flows were then discounted
at the interest rate used to recognize interest income on each
security. We review the actual collateral performance of these
securities on a quarterly basis and update the inputs as
appropriate to determine the projected cash flows.
See Note 20 Fair Value of Financial Instruments
for more information on the calculation of fair or carrying
value for the investment securities.
F-20
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Loans
Receivable and Allowance for Loan Losses
|
The components of loans receivable are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
Individually
|
|
|
Collectively
|
|
|
|
Loans
|
|
|
|
|
|
Evaluated for
|
|
|
Evaluated for
|
|
|
|
Receivable
|
|
|
%
|
|
|
Impairment
|
|
|
Impairment
|
|
|
Commercial
|
|
$
|
122,656
|
|
|
|
21.31
|
%
|
|
$
|
10,698
|
|
|
$
|
111,958
|
|
Commercial real estate
|
|
|
175,559
|
|
|
|
30.50
|
|
|
|
13,077
|
|
|
|
162,482
|
|
Commercial Construction
|
|
|
17,951
|
|
|
|
3.12
|
|
|
|
691
|
|
|
|
17,260
|
|
Land and land development loans
|
|
|
60,962
|
|
|
|
10.59
|
|
|
|
5,995
|
|
|
|
54,967
|
|
Agriculture
|
|
|
87,364
|
|
|
|
15.18
|
|
|
|
1,460
|
|
|
|
85,904
|
|
Multifamily
|
|
|
26,417
|
|
|
|
4.59
|
|
|
|
|
|
|
|
26,417
|
|
Residential real estate
|
|
|
60,872
|
|
|
|
10.58
|
|
|
|
3,276
|
|
|
|
57,596
|
|
Residential construction
|
|
|
3,219
|
|
|
|
0.56
|
|
|
|
277
|
|
|
|
2,942
|
|
Consumer
|
|
|
14,095
|
|
|
|
2.45
|
|
|
|
1,094
|
|
|
|
13,001
|
|
Municipal
|
|
|
6,528
|
|
|
|
1.12
|
|
|
|
|
|
|
|
6,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
|
575,623
|
|
|
|
100.00
|
%
|
|
$
|
36,568
|
|
|
$
|
539,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(12,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan fees, net of direct origination costs
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
$
|
563,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate
|
|
|
6.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
Individually
|
|
|
Collectively
|
|
|
|
Loans
|
|
|
|
|
|
Evaluated for
|
|
|
Evaluated for
|
|
|
|
Receivable
|
|
|
%
|
|
|
Impairment
|
|
|
Impairment
|
|
|
Commercial
|
|
$
|
131,562
|
|
|
|
19.57
|
%
|
|
$
|
8,600
|
|
|
$
|
122,962
|
|
Commercial real estate
|
|
|
172,726
|
|
|
|
25.69
|
|
|
|
9,707
|
|
|
|
163,019
|
|
Commercial Construction
|
|
|
45,581
|
|
|
|
6.78
|
|
|
|
7,862
|
|
|
|
37,719
|
|
Land and land development loans
|
|
|
88,604
|
|
|
|
13.18
|
|
|
|
18,060
|
|
|
|
70,544
|
|
Agriculture
|
|
|
110,256
|
|
|
|
16.40
|
|
|
|
6,604
|
|
|
|
103,652
|
|
Multifamily
|
|
|
18,067
|
|
|
|
2.69
|
|
|
|
696
|
|
|
|
17,371
|
|
Residential real estate
|
|
|
65,544
|
|
|
|
9.75
|
|
|
|
4,709
|
|
|
|
60,835
|
|
Residential construction
|
|
|
16,626
|
|
|
|
2.47
|
|
|
|
1,164
|
|
|
|
15,462
|
|
Consumer
|
|
|
18,287
|
|
|
|
2.72
|
|
|
|
318
|
|
|
|
17,969
|
|
Municipal
|
|
|
5,061
|
|
|
|
0.75
|
|
|
|
|
|
|
|
5,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
|
672,314
|
|
|
|
100.00
|
%
|
|
$
|
57,720
|
|
|
$
|
614,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(16,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan fees, net of direct origination costs
|
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
$
|
655,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate
|
|
|
6.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of allowance for loan loss by types are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Individually
|
|
|
Collectively
|
|
|
|
Total
|
|
|
Evaluated
|
|
|
Evaluated
|
|
|
|
Allowance
|
|
|
Allowance
|
|
|
Allowance
|
|
|
Commercial
|
|
$
|
2,925
|
|
|
$
|
744
|
|
|
$
|
2,181
|
|
Commercial real estate
|
|
|
3,655
|
|
|
|
1,475
|
|
|
|
2,180
|
|
Commercial Construction
|
|
|
540
|
|
|
|
145
|
|
|
|
395
|
|
Land and land development loans
|
|
|
2,408
|
|
|
|
770
|
|
|
|
1,638
|
|
Agriculture
|
|
|
779
|
|
|
|
92
|
|
|
|
687
|
|
Multifamily
|
|
|
83
|
|
|
|
|
|
|
|
83
|
|
Residential real estate
|
|
|
1,252
|
|
|
|
545
|
|
|
|
707
|
|
Residential construction
|
|
|
65
|
|
|
|
|
|
|
|
65
|
|
Consumer
|
|
|
613
|
|
|
|
449
|
|
|
|
164
|
|
Municipal
|
|
|
135
|
|
|
|
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,455
|
|
|
$
|
4,220
|
|
|
$
|
8,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Individually
|
|
|
Collectively
|
|
|
|
Total
|
|
|
Evaluated
|
|
|
Evaluated
|
|
|
|
Allowance
|
|
|
Allowance
|
|
|
Allowance
|
|
|
Commercial
|
|
$
|
4,785
|
|
|
$
|
1,893
|
|
|
$
|
2,892
|
|
Commercial real estate
|
|
|
3,827
|
|
|
|
1,654
|
|
|
|
2,173
|
|
Commercial Construction
|
|
|
1,671
|
|
|
|
141
|
|
|
|
1,530
|
|
Land and land development loans
|
|
|
2,707
|
|
|
|
817
|
|
|
|
1,890
|
|
Agriculture
|
|
|
1,390
|
|
|
|
1,242
|
|
|
|
148
|
|
Multifamily
|
|
|
26
|
|
|
|
|
|
|
|
26
|
|
Residential real estate
|
|
|
1,412
|
|
|
|
444
|
|
|
|
968
|
|
Residential construction
|
|
|
170
|
|
|
|
31
|
|
|
|
139
|
|
Consumer
|
|
|
539
|
|
|
|
152
|
|
|
|
387
|
|
Municipal
|
|
|
81
|
|
|
|
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,608
|
|
|
$
|
6,374
|
|
|
$
|
10,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of current, past due and nonaccrual loans as of
December 31, 2010 are as follows, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days or More
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 Days
|
|
|
Past Due
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Past Due
|
|
|
and Accruing
|
|
|
Nonaccrual
|
|
|
Total
|
|
|
Commercial
|
|
$
|
118,036
|
|
|
$
|
761
|
|
|
$
|
|
|
|
$
|
3,859
|
|
|
$
|
122,656
|
|
Commercial real estate
|
|
|
171,633
|
|
|
|
360
|
|
|
|
|
|
|
|
3,566
|
|
|
|
175,559
|
|
Commercial Construction
|
|
|
17,880
|
|
|
|
|
|
|
|
|
|
|
|
71
|
|
|
|
17,951
|
|
Land and land development loans
|
|
|
58,537
|
|
|
|
515
|
|
|
|
|
|
|
|
1,910
|
|
|
|
60,962
|
|
Agriculture
|
|
|
86,782
|
|
|
|
|
|
|
|
|
|
|
|
582
|
|
|
|
87,364
|
|
Multifamily
|
|
|
26,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,417
|
|
Residential real estate
|
|
|
58,481
|
|
|
|
1,361
|
|
|
|
66
|
|
|
|
964
|
|
|
|
60,872
|
|
Residential construction
|
|
|
3,109
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
|
3,219
|
|
Consumer
|
|
|
13,664
|
|
|
|
42
|
|
|
|
|
|
|
|
389
|
|
|
|
14,095
|
|
Municipal
|
|
|
6,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
561,067
|
|
|
$
|
3,039
|
|
|
$
|
66
|
|
|
$
|
11,451
|
|
|
$
|
575,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of current, past due and nonaccrual loans as of
December 31, 2009 are as follows, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days or More
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 Days
|
|
|
Past Due
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Past Due
|
|
|
and Accruing
|
|
|
Nonaccrual
|
|
|
Total
|
|
|
Commercial
|
|
$
|
128,720
|
|
|
$
|
189
|
|
|
$
|
|
|
|
$
|
2,653
|
|
|
$
|
131,562
|
|
Commercial real estate
|
|
|
167,440
|
|
|
|
2,025
|
|
|
|
52
|
|
|
|
3,209
|
|
|
|
172,726
|
|
Commercial Construction
|
|
|
42,446
|
|
|
|
|
|
|
|
|
|
|
|
3,135
|
|
|
|
45,581
|
|
Land and land development loans
|
|
|
79,299
|
|
|
|
3,071
|
|
|
|
510
|
|
|
|
5,724
|
|
|
|
88,604
|
|
Agriculture
|
|
|
109,788
|
|
|
|
21
|
|
|
|
|
|
|
|
447
|
|
|
|
110,256
|
|
Multifamily
|
|
|
17,932
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
|
|
18,067
|
|
Residential real estate
|
|
|
61,628
|
|
|
|
1,020
|
|
|
|
24
|
|
|
|
2,872
|
|
|
|
65,544
|
|
Residential construction
|
|
|
16,421
|
|
|
|
|
|
|
|
|
|
|
|
205
|
|
|
|
16,626
|
|
Consumer
|
|
|
18,199
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
|
18,287
|
|
Municipal
|
|
|
5,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
646,934
|
|
|
$
|
6,326
|
|
|
$
|
586
|
|
|
$
|
18,468
|
|
|
$
|
672,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans totaled $11.5 million at December 31,
2010 and $18.5 million at December 31, 2009. If
nonaccrual loans had been accruing interest at their originally
contracted terms, interest income on such loans would have been
$1.9 million, $1.9 million and $465,000 for 2010, 2009
and 2008, respectively. The actual amounts included in interest
income during 2010, 2009 and 2008 on such loans were $1.1
million, $1.1 million and $1.2 million, respectively.
Troubled Debt Restructures (loans which had been negotiated at
below market interest rates or for which other concessions were
granted, but are accruing interest) were $4.8 million and
$4.6 million at December 31, 2010 and
December 31, 2009, respectively.
The allowance for loan losses and reserve for unfunded
commitments are maintained at levels considered adequate by
management to provide for probable loan losses as of the
Consolidated Balance Sheet reporting dates. The allowance for
loan losses and reserve for unfunded commitments are based on
managements assessment of various factors affecting the
loan portfolio, including problem loans, business conditions and
loss experience, and
F-23
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
an overall evaluation of the quality of the underlying
collateral. Changes in the allowance for loan losses and the
reserve for unfunded commitments during the periods indicated
were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Balance Beginning December 31
|
|
$
|
(16,608
|
)
|
|
$
|
(16,433
|
)
|
Charge-Offs
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
10,603
|
|
|
|
5,037
|
|
Commercial real estate loans
|
|
|
5,610
|
|
|
|
3,194
|
|
Commercial construction loans
|
|
|
1,393
|
|
|
|
4,982
|
|
Land and land development loans
|
|
|
8,622
|
|
|
|
19,817
|
|
Agriculture loans
|
|
|
1,055
|
|
|
|
988
|
|
Multifamily loans
|
|
|
16
|
|
|
|
53
|
|
Residential loans
|
|
|
2,019
|
|
|
|
1,598
|
|
Residential construction loans
|
|
|
101
|
|
|
|
241
|
|
Consumer Loans
|
|
|
490
|
|
|
|
1,001
|
|
Municipal Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Charge-offs
|
|
|
29,909
|
|
|
|
36,911
|
|
Recoveries
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
(628
|
)
|
|
|
(144
|
)
|
Commercial real estate loans
|
|
|
(311
|
)
|
|
|
|
|
Commercial construction loans
|
|
|
(391
|
)
|
|
|
(1
|
)
|
Land and land development loans
|
|
|
(175
|
)
|
|
|
(347
|
)
|
Agriculture loans
|
|
|
(31
|
)
|
|
|
|
|
Multifamily loans
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
|
(50
|
)
|
|
|
(9
|
)
|
Residential construction loans
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
(158
|
)
|
|
|
(256
|
)
|
Municipal Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Recoveries
|
|
|
(1,744
|
)
|
|
|
(757
|
)
|
Net charge-offs
|
|
|
28,165
|
|
|
|
36,154
|
|
Transfers
|
|
|
|
|
|
|
|
|
Provision for losses on loans
|
|
|
(24,012
|
)
|
|
|
(36,329
|
)
|
Sale of loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
(12,455
|
)
|
|
$
|
(16,608
|
)
|
Allowance Unfunded Commitments
|
|
|
|
|
|
|
|
|
Balance Beginning December 31
|
|
$
|
(11
|
)
|
|
$
|
(13
|
)
|
Adjustment
|
|
|
(6
|
)
|
|
|
2
|
|
Transfers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance Unfunded Commitments at end of period
|
|
$
|
(17
|
)
|
|
$
|
(11
|
)
|
F-24
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Allowance for loan losses, beginning of year
|
|
$
|
(16,608
|
)
|
|
$
|
(16,433
|
)
|
|
$
|
(11,761
|
)
|
Loans charged off
|
|
|
29,909
|
|
|
|
36,911
|
|
|
|
6,193
|
|
Recoveries
|
|
|
(1,744
|
)
|
|
|
(757
|
)
|
|
|
(481
|
)
|
Transfers
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for losses on loans
|
|
|
(24,012
|
)
|
|
|
(36,329
|
)
|
|
|
(10,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses, end of year
|
|
$
|
(12,455
|
)
|
|
$
|
(16,608
|
)
|
|
$
|
(16,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance Unfunded Commitments Balance Beginning
December 31
|
|
$
|
(11
|
)
|
|
$
|
(13
|
)
|
|
$
|
(18
|
)
|
Adjustment
|
|
|
(6
|
)
|
|
|
2
|
|
|
|
5
|
|
Transfers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance Unfunded Commitments at end of period
|
|
$
|
(17
|
)
|
|
$
|
(11
|
)
|
|
$
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides information with respect to
impaired loans as of the year ended December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Interest Income
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,319
|
|
|
$
|
2,320
|
|
|
$
|
744
|
|
|
$
|
3,785
|
|
|
$
|
173
|
|
Commercial real estate
|
|
|
4,383
|
|
|
|
5,088
|
|
|
|
1,475
|
|
|
|
4,804
|
|
|
|
381
|
|
Commercial Construction
|
|
|
406
|
|
|
|
407
|
|
|
|
145
|
|
|
|
425
|
|
|
|
17
|
|
Land and land development loans
|
|
|
1,786
|
|
|
|
1,786
|
|
|
|
770
|
|
|
|
2,411
|
|
|
|
120
|
|
Agriculture
|
|
|
428
|
|
|
|
463
|
|
|
|
92
|
|
|
|
1,470
|
|
|
|
46
|
|
Multifamily
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Residential real estate
|
|
|
1,207
|
|
|
|
1,357
|
|
|
|
545
|
|
|
|
1,303
|
|
|
|
98
|
|
Residential construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
302
|
|
|
|
|
|
Consumer
|
|
|
538
|
|
|
|
594
|
|
|
|
449
|
|
|
|
394
|
|
|
|
45
|
|
Municipal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,067
|
|
|
$
|
12,023
|
|
|
$
|
4,220
|
|
|
$
|
14,894
|
|
|
$
|
888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
8,379
|
|
|
$
|
12,362
|
|
|
$
|
|
|
|
$
|
5,865
|
|
|
$
|
1,021
|
|
Commercial real estate
|
|
|
8,694
|
|
|
|
11,510
|
|
|
|
|
|
|
|
6,589
|
|
|
|
901
|
|
Commercial Construction
|
|
|
285
|
|
|
|
418
|
|
|
|
|
|
|
|
3,852
|
|
|
|
36
|
|
Land and land development loans
|
|
|
4,209
|
|
|
|
7,573
|
|
|
|
|
|
|
|
9,617
|
|
|
|
575
|
|
Agriculture
|
|
|
1,032
|
|
|
|
1,885
|
|
|
|
|
|
|
|
2,560
|
|
|
|
192
|
|
Multifamily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
347
|
|
|
|
|
|
Residential real estate
|
|
|
2,069
|
|
|
|
2,335
|
|
|
|
|
|
|
|
2,689
|
|
|
|
204
|
|
Residential construction
|
|
|
277
|
|
|
|
363
|
|
|
|
|
|
|
|
420
|
|
|
|
54
|
|
Consumer
|
|
|
556
|
|
|
|
726
|
|
|
|
|
|
|
|
311
|
|
|
|
75
|
|
Municipal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,501
|
|
|
$
|
37,172
|
|
|
$
|
|
|
|
$
|
32,250
|
|
|
$
|
3,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Interest Income
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
10,698
|
|
|
$
|
14,682
|
|
|
$
|
744
|
|
|
$
|
9,650
|
|
|
$
|
1,194
|
|
Commercial real estate
|
|
|
13,077
|
|
|
|
16,598
|
|
|
|
1,475
|
|
|
|
11,393
|
|
|
|
1,282
|
|
Commercial Construction
|
|
|
691
|
|
|
|
825
|
|
|
|
145
|
|
|
|
4,277
|
|
|
|
53
|
|
Land and land development loans
|
|
|
5,995
|
|
|
|
9,359
|
|
|
|
770
|
|
|
|
12,028
|
|
|
|
695
|
|
Agriculture
|
|
|
1,460
|
|
|
|
2,348
|
|
|
|
92
|
|
|
|
4,030
|
|
|
|
238
|
|
Multifamily
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
347
|
|
|
|
8
|
|
Residential real estate
|
|
|
3,276
|
|
|
|
3,692
|
|
|
|
545
|
|
|
|
3,992
|
|
|
|
302
|
|
Residential construction
|
|
|
277
|
|
|
|
363
|
|
|
|
|
|
|
|
722
|
|
|
|
54
|
|
Consumer
|
|
|
1,094
|
|
|
|
1,320
|
|
|
|
449
|
|
|
|
705
|
|
|
|
120
|
|
Municipal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,568
|
|
|
$
|
49,195
|
|
|
$
|
4,220
|
|
|
$
|
47,144
|
|
|
$
|
3,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides information with respect to
impaired loans as of the year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Interest Income
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Impaired Loans with an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
5,250
|
|
|
$
|
5,301
|
|
|
$
|
1,893
|
|
|
$
|
4,191
|
|
|
$
|
322
|
|
Commercial real estate
|
|
|
5,224
|
|
|
|
5,318
|
|
|
|
1,654
|
|
|
|
3,267
|
|
|
|
348
|
|
Commercial Construction
|
|
|
444
|
|
|
|
444
|
|
|
|
141
|
|
|
|
2,916
|
|
|
|
41
|
|
Land and land development loans
|
|
|
3,036
|
|
|
|
3,191
|
|
|
|
817
|
|
|
|
9,242
|
|
|
|
188
|
|
Agriculture
|
|
|
2,512
|
|
|
|
2,511
|
|
|
|
1,242
|
|
|
|
1,593
|
|
|
|
107
|
|
Multifamily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
|
1,399
|
|
|
|
1,399
|
|
|
|
444
|
|
|
|
991
|
|
|
|
102
|
|
Residential construction
|
|
|
603
|
|
|
|
603
|
|
|
|
31
|
|
|
|
426
|
|
|
|
45
|
|
Consumer
|
|
|
252
|
|
|
|
278
|
|
|
|
152
|
|
|
|
278
|
|
|
|
26
|
|
Municipal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,720
|
|
|
$
|
19,045
|
|
|
$
|
6,374
|
|
|
$
|
22,904
|
|
|
$
|
1,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Interest Income
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Impaired loans without an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
3,350
|
|
|
$
|
10,123
|
|
|
$
|
|
|
|
$
|
2,006
|
|
|
$
|
589
|
|
Commercial real estate
|
|
|
4,483
|
|
|
|
6,143
|
|
|
|
|
|
|
|
2,934
|
|
|
|
374
|
|
Commercial Construction
|
|
|
7,418
|
|
|
|
10,514
|
|
|
|
|
|
|
|
3,848
|
|
|
|
664
|
|
Land and land development loans
|
|
|
15,024
|
|
|
|
26,591
|
|
|
|
|
|
|
|
8,209
|
|
|
|
1,332
|
|
Agriculture
|
|
|
4,092
|
|
|
|
4,387
|
|
|
|
|
|
|
|
2,892
|
|
|
|
401
|
|
Multifamily
|
|
|
696
|
|
|
|
749
|
|
|
|
|
|
|
|
348
|
|
|
|
38
|
|
Residential real estate
|
|
|
3,310
|
|
|
|
3,609
|
|
|
|
|
|
|
|
2,557
|
|
|
|
205
|
|
Residential construction
|
|
|
561
|
|
|
|
571
|
|
|
|
|
|
|
|
747
|
|
|
|
48
|
|
Consumer
|
|
|
66
|
|
|
|
95
|
|
|
|
|
|
|
|
551
|
|
|
|
13
|
|
Municipal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
39,000
|
|
|
$
|
62,782
|
|
|
$
|
|
|
|
$
|
24,267
|
|
|
$
|
3,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
8,600
|
|
|
$
|
15,424
|
|
|
$
|
1,893
|
|
|
$
|
6,197
|
|
|
$
|
911
|
|
Commercial real estate
|
|
|
9,707
|
|
|
|
11,461
|
|
|
|
1,654
|
|
|
|
6,201
|
|
|
|
722
|
|
Commercial Construction
|
|
|
7,862
|
|
|
|
10,958
|
|
|
|
141
|
|
|
|
6,764
|
|
|
|
705
|
|
Land and land development loans
|
|
|
18,060
|
|
|
|
29,782
|
|
|
|
817
|
|
|
|
17,451
|
|
|
|
1,520
|
|
Agriculture
|
|
|
6,604
|
|
|
|
6,898
|
|
|
|
1,242
|
|
|
|
4,485
|
|
|
|
508
|
|
Multifamily
|
|
|
696
|
|
|
|
749
|
|
|
|
|
|
|
|
348
|
|
|
|
38
|
|
Residential real estate
|
|
|
4,709
|
|
|
|
5,008
|
|
|
|
444
|
|
|
|
3,548
|
|
|
|
307
|
|
Residential construction
|
|
|
1,164
|
|
|
|
1,174
|
|
|
|
31
|
|
|
|
1,173
|
|
|
|
93
|
|
Consumer
|
|
|
318
|
|
|
|
373
|
|
|
|
152
|
|
|
|
829
|
|
|
|
39
|
|
Municipal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
57,720
|
|
|
$
|
81,827
|
|
|
$
|
6,374
|
|
|
$
|
47,171
|
|
|
$
|
4,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
quality indicators
The loan and lease credit quality indicators for loans are
developed through review of individual borrowers on an ongoing
basis. Each borrower is evaluated at least annually with more
frequent evaluation of larger or potentially risker loans or
leases. The indicators represent the rating for loans or leases
as of the date presented based on the most recent assessment
performed. These credit quality indicators are defined as
follows:
Satisfactory A satisfactory rated loan
is not adversely classified because it does not display any of
the characteristics for adverse classification.
Watch A watch loan has a solid
but vulnerable repayment source. There is loss exposure only if
repayment/collateral experience prolonged deterioration. Loans
in this risk grade category are subject to frequent review and
change due to the increased vulnerability of repayment sources
and collateral valuations.
Special mention A special mention loan
has potential weaknesses that deserve managements close
attention. If left uncorrected, such potential weaknesses may
result in deterioration of the repayment prospects or collateral
position at some future date. Special mention loans are not
adversely classified and do not warrant adverse classification.
F-27
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Substandard A substandard loan is
inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any.
Loans classified as substandard generally have a well-defined
weakness, or weaknesses, that jeopardize the liquidation of the
debt. These loans are characterized by the distinct possibility
of loss if the deficiencies are not corrected.
Doubtful A loan classified doubtful has all
the weaknesses inherent in a loan classified substandard with
the added characteristic that the weaknesses make collection or
liquidation in full highly questionable and improbable, on the
basis of currently existing facts, conditions, and values.
Loss Loans classified loss are considered
uncollectible and of such little value that their continuing to
be carried as an asset is not warranted. This classification
does not necessarily mean that there is to no potential for
recovery or salvage value, but rather that it is not appropriate
to defer a full write-off even though partial recovery may be
realized in the future.
Credit quality indicators by loan segment are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Portfolio Credit Grades by Type
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Internal
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
Satisfactory
|
|
|
Watch
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
|
|
|
|
Grade 1-3
|
|
|
Grade 4
|
|
|
Grade 5
|
|
|
Grade 6
|
|
|
Grade 7
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial
|
|
$
|
78,693
|
|
|
$
|
26,383
|
|
|
$
|
3,517
|
|
|
$
|
14,062
|
|
|
$
|
1
|
|
|
$
|
122,656
|
|
Commercial real estate
|
|
|
113,759
|
|
|
|
43,296
|
|
|
|
2,696
|
|
|
|
15,808
|
|
|
|
|
|
|
|
175,559
|
|
Commercial Construction
|
|
|
3,921
|
|
|
|
4,976
|
|
|
|
986
|
|
|
|
8,068
|
|
|
|
|
|
|
|
17,951
|
|
Land and land development loans
|
|
|
13,825
|
|
|
|
33,688
|
|
|
|
5,409
|
|
|
|
8,040
|
|
|
|
|
|
|
|
60,962
|
|
Agriculture
|
|
|
60,508
|
|
|
|
23,199
|
|
|
|
1,277
|
|
|
|
2,380
|
|
|
|
|
|
|
|
87,364
|
|
Multifamily
|
|
|
16,455
|
|
|
|
9,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,417
|
|
Residential real estate
|
|
|
46,111
|
|
|
|
10,230
|
|
|
|
54
|
|
|
|
4,477
|
|
|
|
|
|
|
|
60,872
|
|
Residential construction
|
|
|
2,497
|
|
|
|
445
|
|
|
|
|
|
|
|
277
|
|
|
|
|
|
|
|
3,219
|
|
Consumer
|
|
|
12,302
|
|
|
|
715
|
|
|
|
106
|
|
|
|
972
|
|
|
|
|
|
|
|
14,095
|
|
Municipal
|
|
|
6,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
$
|
354,599
|
|
|
$
|
152,894
|
|
|
$
|
14,045
|
|
|
$
|
54,084
|
|
|
$
|
1
|
|
|
$
|
575,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Portfolio Credit Grades by Type
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Internal
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
Satisfactory
|
|
|
Watch
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
|
|
|
|
Grade 1-3
|
|
|
Grade 4
|
|
|
Grade 5
|
|
|
Grade 6
|
|
|
Grade 7
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial
|
|
$
|
102,743
|
|
|
$
|
16,297
|
|
|
$
|
838
|
|
|
$
|
11,192
|
|
|
$
|
492
|
|
|
$
|
131,562
|
|
Commercial real estate
|
|
|
126,455
|
|
|
|
32,399
|
|
|
|
884
|
|
|
|
12,378
|
|
|
|
610
|
|
|
|
172,726
|
|
Commercial Construction
|
|
|
9,505
|
|
|
|
27,809
|
|
|
|
|
|
|
|
8,267
|
|
|
|
|
|
|
|
45,581
|
|
Land and land development loans
|
|
|
25,903
|
|
|
|
40,615
|
|
|
|
2,325
|
|
|
|
19,392
|
|
|
|
369
|
|
|
|
88,604
|
|
Agriculture
|
|
|
73,674
|
|
|
|
25,220
|
|
|
|
1,725
|
|
|
|
9,503
|
|
|
|
134
|
|
|
|
110,256
|
|
Multifamily
|
|
|
17,228
|
|
|
|
|
|
|
|
143
|
|
|
|
696
|
|
|
|
|
|
|
|
18,067
|
|
Residential real estate
|
|
|
51,435
|
|
|
|
7,907
|
|
|
|
770
|
|
|
|
5,432
|
|
|
|
|
|
|
|
65,544
|
|
Residential construction
|
|
|
7,294
|
|
|
|
1,085
|
|
|
|
|
|
|
|
8,247
|
|
|
|
|
|
|
|
16,626
|
|
Consumer
|
|
|
16,680
|
|
|
|
1,146
|
|
|
|
|
|
|
|
457
|
|
|
|
4
|
|
|
|
18,287
|
|
Municipal
|
|
|
5,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
$
|
435,978
|
|
|
$
|
152,478
|
|
|
$
|
6,685
|
|
|
$
|
75,564
|
|
|
$
|
1,609
|
|
|
$
|
672,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of non-performing assets and classified loans at the
dates indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Loans past due in excess of 90 days and still accruing
|
|
$
|
66
|
|
|
$
|
586
|
|
Non-accrual loans
|
|
|
11,451
|
|
|
|
18,468
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
|
11,517
|
|
|
|
19,054
|
|
Other real estate owned (OREO)
|
|
|
4,429
|
|
|
|
11,538
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets (NPAs)
|
|
$
|
15,946
|
|
|
$
|
30,592
|
|
|
|
|
|
|
|
|
|
|
Classified loans(1)
|
|
$
|
54,085
|
|
|
$
|
77,175
|
|
Troubled debt restructured loans
|
|
$
|
4,838
|
|
|
$
|
4,604
|
|
|
|
|
(1) |
|
Classified loan totals are inclusive of non-performing loans and
may also include troubled debt restructured loans, depending on
the grading of these restructured loans. |
Classified loans included non-performing loans and performing
substandard loans where management believes that the loans may
not return principal and interest per their original contractual
terms. A loan that is classified may not necessarily result in a
loss.
At December 31, 2010, the contractual principal payments
due on outstanding loans receivable are shown below (in
thousands). Actual payments may differ from expected payments
because borrowers have the right to prepay loans, with or
without prepayment penalties.
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
|
|
2011
|
|
$
|
230,710
|
|
2012
|
|
|
90,014
|
|
2013
|
|
|
69,081
|
|
2014
|
|
|
33,307
|
|
2015
|
|
|
28,747
|
|
Thereafter
|
|
|
123,764
|
|
|
|
|
|
|
|
|
$
|
575,623
|
|
|
|
|
|
|
The Company sells mortgage loans and Small Business
Administration loans in the secondary market. The sales volumes
and the gains on sale of loans are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Loan volume sold
|
|
$
|
63,314
|
|
|
$
|
108,165
|
|
|
$
|
74,723
|
|
Gain on sale of loans
|
|
|
1,617
|
|
|
|
1,456
|
|
|
|
1,585
|
|
The following table summarizes the detail of loans serviced for
others for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Residential real estate
|
|
$
|
116,627
|
|
|
$
|
96,303
|
|
|
$
|
27,260
|
|
SBA loans
|
|
|
8,557
|
|
|
|
17,509
|
|
|
|
18,645
|
|
Commercial loans
|
|
|
13,000
|
|
|
|
8,710
|
|
|
|
10,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans serviced for others
|
|
$
|
138,184
|
|
|
$
|
122,522
|
|
|
$
|
56,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The gain on the sale of mortgage loans is included in loan
related fee income on the Statement of Operations. For the
periods indicated, servicing income and costs roughly equaled
each other, and as a result, no servicing asset or liability has
been recorded in each of the three periods.
|
|
3.
|
Other
Real Estate Owned
|
Other Real Estate Owned OREO is recorded at fair
value, less estimated selling expenses, at foreclosure. The
carrying value of OREO is regularly evaluated and if necessary,
the value is written down to reduce the carrying value to net
realizable value. Changes in the carrying value of OREO are as
follows for the periods presented:
Other
Real Estate Owned Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Balance, beginning of period, January 1
|
|
$
|
11,538
|
|
|
$
|
4,541
|
|
|
$
|
1,682
|
|
Additions to OREO
|
|
|
8,946
|
|
|
|
20,789
|
|
|
|
4,092
|
|
Proceeds from sale of OREO
|
|
|
(13,442
|
)
|
|
|
(9,830
|
)
|
|
|
(474
|
)
|
OREO valuation Adjustments in the period(1)
|
|
|
(2,613
|
)
|
|
|
(3,962
|
)
|
|
|
(759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period, December 31
|
|
$
|
4,429
|
|
|
$
|
11,538
|
|
|
$
|
4,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount includes chargedowns and gains/losses on sale of OREO |
The balance of OREO decreased by $7.1 million during 2010,
as the Bank worked higher levels of non-performing loans through
the collection and foreclosure process. At December 31,
2010, OREO assets consisted of single family residences (49%),
developed residential lots (23%), commercial buildings (18%),
and raw land (10%). The Credit Risk Management and Asset
Disposition groups continue to work rapidly to dispose of OREO
properties through a combination of individual sales to
investors, bulk sales to investors, and auction sales, generally
as a last resort.
|
|
4.
|
Office
Properties and Equipment
|
The components of office properties and equipment as of
December 31, 2010 and 2009 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Land
|
|
$
|
5,225
|
|
|
$
|
5,225
|
|
Buildings and improvements
|
|
|
35,770
|
|
|
|
36,168
|
|
Construction in progress
|
|
|
65
|
|
|
|
91
|
|
Furniture and equipment
|
|
|
18,815
|
|
|
|
18,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,875
|
|
|
|
59,502
|
|
Less accumulated depreciation
|
|
|
(19,629
|
)
|
|
|
(17,077
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40,246
|
|
|
$
|
42,425
|
|
|
|
|
|
|
|
|
|
|
The Company sold its headquarters building, the Sandpoint
Center, in August 2009 to a third party for $24.8 million
with financing provided by Panhandle State Bank. Because of the
non-recourse financing terms offered by Panhandle State Bank,
the transaction is accounted for utilizing the financing method
for accounting purposes. Consequently, there was no gain
recognized at the time of the transaction and the building will
remain on the consolidated financial statements with
depreciation and interest expense recognized over the life of
the lease.
F-30
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Panhandle State Bank executed an agreement to lease the building
from the purchaser with an initial term of 20 years with
three successive options to extend the lease for an additional
10 years each. For all components of Office Properties and
Equipment, total depreciation expense in the years ended
December 31, 2010, 2009, and 2008 was approximately
$3,127,000, $3,407,000, and $3,521,000, respectively.
|
|
5.
|
Goodwill
and Other Intangible Assets
|
At December 31, 2010, intangible assets consisted primarily
of core deposit intangibles (CDI), which are amounts recorded in
business combinations or deposit purchase transactions related
to the value of transaction-related deposits and the value of
the customer relationships associated with deposits. Prior to
September 30, 2010, intangible assets also included
goodwill, which represented the excess of the purchase price
over the fair value of net assets acquired in business
combinations accounted for under the purchase method.
Goodwill is not amortized but is reviewed annually for
impairment. Goodwill represents the difference between the value
of consideration paid and the fair value of the net assets
received in a business combination. The Company engaged an
independent consultant at December 31, 2009 to assist
management in evaluating the carrying value of goodwill. The
evaluation followed the two-step process for evaluating
impairment required by accounting guidance. In Step 1, the
Company evaluated whether an impairment of goodwill might exist
at December 31, 2009. This evaluation was based on a
comparison of the estimated fair value of the Company in
comparison to the book value of the Companys common equity
at December 31, 2009. The results of Step 1 indicated that
a potential for impairment did exist at the end of 2009,
requiring the Company to engage in Step 2 to determine the
amount of the impairment, if any.
The Step 2 evaluation required the Company to calculate the
implied fair value of its goodwill. The implied fair value of
goodwill is determined in the same manner as goodwill recognized
in a business combination. The estimated fair value of the
Company is allocated to all of the Companys assets and
liabilities, including any unrecognized identifiable assets, as
if the Company had been acquired in a business combination and
the estimated fair value of the Company is the price paid to
acquire it. The Step 2 analysis indicated that the
Companys fair value at December 31, 2009 exceeded the
net fair value of its assets by an amount greater than the
carrying value of its goodwill. As a result, the Company
determined that no impairment existed in 2009.
At September 30, 2010, the Company concluded there was a
triggering event related to continuing depressed economic
conditions and ongoing losses incurred by the Company. As a
result, Intermountain performed a goodwill impairment evaluation
using current information. In completing its goodwill impairment
analysis, the Company used tangible common equity multiples and
core deposit metrics from recent transactions to estimate the
fair value of the Company at September 30, 2010. For Step
1, the fair value of the Company was less than the common book
value of the Company prior to any goodwill adjustments,
indicating a potential impairment. Under accounting guidance, a
Step 2 analysis was required. In the Step 2 analysis, the fair
value of the Companys assets and liabilities was
determined, using discounted cash flows based on the cash flow
characteristics of the assets and liabilities and prevailing
market interest rates. The fair value of the liabilities was
subtracted from the fair value of the assets resulting in the
fair value of the net assets. This was then reduced by the value
of the preferred stock to derive the sum of the fair value of
net assets supported by common equity. Since this number was
higher at September 30, 2010 than the fair value of the
Company calculated in Step 1, there was no excess company value
that could be allocated to goodwill, resulting in a full
impairment of the Companys goodwill. Intermountain
recorded a goodwill impairment charge of $11.7 million,
reducing the balance of goodwill to zero, as compared to the
December 31, 2009 balance of $11.7 million.
Intermountain recorded this impairment loss as a charge to
noninterest expense and an adjustment to the carrying value of
goodwill.
As of December 31, 2010, the Company had other intangible
assets related to acquired depository relationships of $310,000,
as compared to $439,000 as of December 31, 2009. Other
intangible assets are periodically assessed for impairment when
certain triggering events occur that indicate the possibility of
impairment. No impairment is considered to exist at this time.
F-31
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The value of the core deposit intangibles is amortized over the
estimated life of the depositor relationships. At
December 31, 2010 and 2009, the net carrying value of core
deposit intangibles was approximately $310,000 and $439,000,
respectively. Accumulated amortization at December 31, 2010
and 2009 was approximately $1,086,000 and $957,000,
respectively. Amortization expense related to core deposit
intangibles for the years ended December 31, 2010, 2009 and
2008 was approximately $129,000, $136,000 and $147,000,
respectively. Intangible amortization for each of the next five
years is estimated to be as follows (in thousands):
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
|
|
2011
|
|
$
|
122
|
|
2012
|
|
|
116
|
|
2013
|
|
|
46
|
|
2014
|
|
|
26
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
$
|
310
|
|
|
|
|
|
|
The components of deposits and applicable yields as of
December 31, 2010 and 2009, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Demand
|
|
$
|
168,519
|
|
|
$
|
168,244
|
|
NOW and money market 0.0% to 4.65%
|
|
|
327,891
|
|
|
|
340,070
|
|
Savings and IRA 0.0% to 5.75%
|
|
|
75,387
|
|
|
|
77,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
571,797
|
|
|
|
585,937
|
|
Certificate of deposit accounts:
|
|
|
|
|
|
|
|
|
Up to 1.99%
|
|
|
152,751
|
|
|
|
80,312
|
|
2.00% to 2.99%
|
|
|
44,359
|
|
|
|
88,753
|
|
3.00% to 3.99%
|
|
|
1,312
|
|
|
|
51,158
|
|
4.00% to 4.99%
|
|
|
7,860
|
|
|
|
12,013
|
|
5.00% to 5.99%
|
|
|
754
|
|
|
|
1,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
207,036
|
|
|
|
233,384
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
778,833
|
|
|
$
|
819,321
|
|
|
|
|
|
|
|
|
|
|
The weighted average interest rate on certificate of deposit
accounts was 1.66% and 2.43% at December 31, 2010 and 2009,
respectively.
F-32
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2010, the scheduled maturities of
certificate of deposit accounts are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Year Ending December 31,
|
|
Interest Rate
|
|
|
Amounts
|
|
|
2011
|
|
|
1.45
|
%
|
|
$
|
132,356
|
|
2012
|
|
|
1.61
|
%
|
|
|
32,337
|
|
2013
|
|
|
1.75
|
%
|
|
|
20,015
|
|
2014
|
|
|
2.70
|
%
|
|
|
16,738
|
|
2015
|
|
|
3.41
|
%
|
|
|
5,483
|
|
Thereafter
|
|
|
2.72
|
%
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
207,036
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, the remaining maturities of
certificate of deposit accounts with a minimum balance of
$100,000 were as follows (in thousands):
|
|
|
|
|
|
|
Amounts
|
|
|
Less than three months
|
|
$
|
37,655
|
|
Three to six months
|
|
|
10,316
|
|
Six to twelve months
|
|
|
27,661
|
|
Over twelve months
|
|
|
57,018
|
|
|
|
|
|
|
|
|
$
|
132,650
|
|
|
|
|
|
|
The components of interest expense associated with deposits were
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
NOW and money market accounts
|
|
$
|
2,434
|
|
|
$
|
4,490
|
|
|
$
|
5,850
|
|
Savings and IRA accounts
|
|
|
551
|
|
|
|
674
|
|
|
|
679
|
|
Certificate of deposit accounts
|
|
|
4,761
|
|
|
|
7,175
|
|
|
|
8,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,746
|
|
|
$
|
12,339
|
|
|
$
|
14,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Securities
Sold Subject To Repurchase Agreements
|
Securities sold under agreements to repurchase, which are
classified as 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 of the
consolidated financial statements. These agreements had a
weighted average interest rate of 0.27% and 0.36% at
December 31, 2010 and 2009, respectively. Approximately
$75.1 million of the repurchase agreements mature on a
daily basis, while the remaining balance of $30.0 million
has a variable interest rate of 0.0% and matures in July 2011.
The interest rate on the $30.0 million repurchase agreement
reindexes quarterly and is based on 90 Day LIBOR. At
December 31, 2010 and 2009, the Company pledged as
collateral, certain investment securities with aggregate
amortized costs of $126.2 million and $125.4 million,
respectively. These investment securities had market values of
$128.7 million and $125.7 million at December 31,
2010 and 2009, respectively.
F-33
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Advances
from Federal Home Loan Bank:
|
Panhandle State Bank, the banking subsidiary of Intermountain,
has a credit line with FHLB of Seattle that allows it to borrow
funds up to a percentage of its total assets, subject to
collateralization requirements. Certain loans are used as
collateral for these borrowings. At December 31, 2010 and
2009, this credit line represented a total borrowing capacity of
$120.2 million and $121.6 million, of which
$83.6 million and $69.9 million was available,
respectively. The advances from FHLB at December 31, 2010
and 2009 are repayable as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
Amount
|
|
|
Interest Rate
|
|
|
Amount
|
|
|
Interest Rate
|
|
|
Due within 1 year
|
|
$
|
5,000
|
|
|
|
1.49
|
%
|
|
$
|
15,000
|
|
|
|
3.59
|
%
|
Due in 1 to 2 years
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
1.49
|
|
Due in 2 to 3 years
|
|
|
25,000
|
|
|
|
2.06
|
|
|
|
|
|
|
|
|
|
Due in 3 to 4 years
|
|
|
4,000
|
|
|
|
3.11
|
|
|
|
25,000
|
|
|
|
2.06
|
|
Due in 4 to 5 years
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
3.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,000
|
|
|
|
2.10
|
%
|
|
$
|
49,000
|
|
|
|
2.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In September 2010, two FHLB advances matured, totaling
$15.0 million. The Company did not take out any additional
advances at that time.
Only member institutions have access to funds from the Federal
Home Loan Banks. As a condition of membership, Panhandle is
required to hold FHLB stock. As of December 31, 2010 and
2009, Panhandle held $2.3 million for both years of FHLB
stock. The FHLB of Seattle announced that they would no longer
pay dividends or redeem or repurchase capital stock until
further notice. Each FHLB continues to monitor its capital and
other relevant financial measures as a basis for determining a
resumption of dividends and capital stock repurchases at some
later date.
The components of other borrowings are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Term note payable(1)
|
|
$
|
8,279
|
|
|
$
|
8,279
|
|
Term note payable(2)
|
|
|
8,248
|
|
|
|
8,248
|
|
|
|
|
|
|
|
|
|
|
Total other borrowings
|
|
$
|
16,527
|
|
|
$
|
16,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In January 2003, the Company issued $8.0 million of
Trust Preferred securities through its subsidiary,
Intermountain Statutory Trust I. The debt associated with
these securities bears interest on a variable basis tied to the
90-day LIBOR
(London Inter-Bank Offering Rate) index plus 3.25%, with
interest only paid quarterly. The rate on this borrowing was
3.55% at December 31, 2010. The debt is callable by the
Company quarterly and matures in March 2033. During the third
quarter of 2008, the Company entered into an interest rate swap
contract with Pacific Coast Bankers Bank. The purpose of the
$8.2 million notional value swap is to convert the variable
rate payments made on our Trust Preferred I obligation to a
series of fixed rate payments at 7.38% for five years, as a
hedging strategy to help manage the Companys interest-rate
risk. See Note A and B. |
|
(2) |
|
In March 2004, the Company issued $8.0 million of
Trust Preferred securities through its subsidiary,
Intermountain Statutory Trust II. The debt associated with
these securities bears interest on a variable basis tied to the
90-day LIBOR
index plus 2.8%, with interest only paid quarterly. The rate on
this borrowing was |
F-34
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
3.09% at December 31, 2010. The debt is callable by the
Company quarterly and matures in April 2034. See Note A and
B. |
|
|
|
A) |
|
Intermountains obligations under the debentures issued to
the trusts referred to above constitute a full and unconditional
guarantee by Intermountain of the Statutory Trusts
obligations under the Trust Preferred Securities. In
accordance with ASC 810, Consolidation, (formerly
FIN 46R, Consolidation of Variable Interest
Entities), the trusts are not consolidated and the
debentures and related amounts are treated as debt of
Intermountain. |
|
B) |
|
To conserve the liquid assets of the parent Company, the
Companys Board of Directors has decided to defer regularly
scheduled interest payments on its outstanding Junior
Subordinated Debentures related to its Trust Preferred
Securities (TRUPS Debentures) beginning in December
2009. The Company is permitted to defer payments of interest on
the TRUPS Debentures for up to 20 consecutive quarterly periods
without default. During the deferral period, the Company may not
pay any dividends or distributions on, or redeem, purchase or
acquire, or make a liquidation payment with respect to the
Companys capital stock, or make any payment of principal
or interest on, or repay, repurchase or redeem any debt
securities of the Company that rank equally or junior to the
TRUPS Debentures. |
The tax effects of the principal temporary differences giving
rise to deferred tax assets and liabilities as of
December 31, 2010 and 2009 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Allowance for losses on loans
|
|
$
|
4,870
|
|
|
$
|
|
|
|
$
|
6,500
|
|
|
$
|
|
|
Investments
|
|
|
523
|
|
|
|
|
|
|
|
2,729
|
|
|
|
|
|
OTTI
|
|
|
536
|
|
|
|
|
|
|
|
208
|
|
|
|
|
|
OREO chargeoffs
|
|
|
305
|
|
|
|
|
|
|
|
741
|
|
|
|
|
|
NOL carryforward
|
|
|
17,025
|
|
|
|
|
|
|
|
6,550
|
|
|
|
|
|
Deferred gain on sale of premises
|
|
|
1,079
|
|
|
|
|
|
|
|
1,079
|
|
|
|
|
|
Deferred rent
|
|
|
|
|
|
|
|
|
|
|
231
|
|
|
|
|
|
FHLB stock
|
|
|
|
|
|
|
(74
|
)
|
|
|
|
|
|
|
(74
|
)
|
Office properties and equipment
|
|
|
|
|
|
|
(1,507
|
)
|
|
|
|
|
|
|
(1,188
|
)
|
Deferred compensation
|
|
|
409
|
|
|
|
|
|
|
|
392
|
|
|
|
|
|
Core deposit intangible
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
Goodwill
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
25,638
|
|
|
|
(1,581
|
)
|
|
|
18,199
|
|
|
|
(1,348
|
)
|
Deferred tax asset valuation allowance
|
|
|
(8,766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income taxes
|
|
$
|
16,872
|
|
|
$
|
(1,581
|
)
|
|
$
|
18,199
|
|
|
$
|
(1,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of Intermountains income tax provision are
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current income taxes (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
(5,742
|
)
|
|
$
|
1,228
|
|
State
|
|
|
|
|
|
|
(7
|
)
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,749
|
)
|
|
|
1,280
|
|
Deferred income taxes (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(8,468
|
)
|
|
|
(6,949
|
)
|
|
|
(916
|
)
|
State
|
|
|
(1,180
|
)
|
|
|
(1,662
|
)
|
|
|
(444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax (benefit)
|
|
|
(9,648
|
)
|
|
|
(8,611
|
)
|
|
|
(1,360
|
)
|
Deferred tax asset valuation allowance
|
|
|
8,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision (benefit)
|
|
$
|
(882
|
)
|
|
$
|
(14,360
|
)
|
|
$
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The deferred federal and state tax expense includes a deferred
tax asset valuation allowance of $8.8 million for the year
ended December 31, 2010. The Company has recorded income
tax net operating loss and tax credit carryforwards related to
state tax losses.
A reconciliation of the income tax provision and the amount of
income taxes computed by applying the statutory federal
corporate income tax rate to income before income taxes for the
years ended December 31, 2010, 2009 and 2008, is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Income tax provision (benefit) at federal statutory rate
|
|
$
|
(11,416
|
)
|
|
|
(35.0
|
)%
|
|
$
|
(12,695
|
)
|
|
|
(35.0
|
)%
|
|
$
|
411
|
|
|
|
35.0
|
%
|
Tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxes (net of federal tax benefit)
|
|
|
(1,180
|
)
|
|
|
(5.1
|
)%
|
|
|
(1,667
|
)
|
|
|
(4.6
|
)%
|
|
|
(120
|
)
|
|
|
(10.2
|
)%
|
Goodwill impairment
|
|
|
3,587
|
|
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Asset Valuation
|
|
|
8,766
|
|
|
|
26.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt income and other, net
|
|
|
(639
|
)
|
|
|
(0.1
|
)%
|
|
|
2
|
|
|
|
(0.0
|
)%
|
|
|
(371
|
)
|
|
|
(31.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(882
|
)
|
|
|
(2.7
|
)%
|
|
$
|
(14,360
|
)
|
|
|
(39.6
|
)%
|
|
$
|
(80
|
)
|
|
|
(6.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has recorded income tax net operating loss and tax
credit carryforwards related to state tax losses in 2008 and
2009, as well as state and federal tax credits that cannot be
used against current or prior period federal and state income
The amount of deferred tax assets related to federal and state
net operating loss carryforwards totaled $17.0 million at
December 31, 2010 compared to $6.6 million at
December 31, 2009. Intermountain used $5.9 million of
the 2009 tax benefit as a loss carryback to offset taxes paid in
previous years, resulting in an income tax receivable.
Intermountain applied for the associated refund and received it
in the second quarter of 2010.
Intermountain has performed an analysis of its uncertain tax
positions and has not recorded any potential penalties, interest
or additional tax in its financial statements as of
December 31, 2010. Intermountains tax positions for
the years 2007 through 2010 remain subject to review by the
Internal Revenue Service. Intermountain does not expect
unrecognized tax benefits to significantly change within the
next twelve months.
During the third quarter of 2010, Intermountain determined that
the negative evidence associated with three-year cumulative loss
and continued depressed economic conditions outweighed the
existing positive evidence.
F-36
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Therefore, during the third quarter of 2010, Intermountain
established a valuation allowance of $7.4 million against
its deferred tax asset. Results for fourth quarter 2010 were
materially consistent with expectations and as a result, the
Company made no change to the net deferred tax asset of
approximately $15.3 million that it expects to utilize over
the next three years. As a result, due to the increase in its
deferred tax assets (from operations) during the fourth quarter
2010, the Company increased its valuation allowance
correspondingly by approximately $1.4 million. The fourth
quarter increase in the deferred tax assets and corresponding
increase to the valuation allowance resulted in no provision or
benefit for quarter. The Company analyzes the deferred tax asset
on a quarterly basis and may recapture a portion or all of this
allowance depending on future profitability. At
December 31, 2010, the net deferred tax asset totaled
$15.3 million, net of a deferred tax asset valuation of
$8.8 million, compared to a net deferred tax asset of
$16.9 million, net of a deferred tax asset valuation of $0
at December 31, 2009. Excluding the original deferred tax
asset valuation charge of $7.4 million, the effective tax
rate was 20.0% for 2010.
Intermountain uses an estimate of future earnings and tax
planning strategies to determine whether it is more likely than
not that the benefit of its net deferred tax asset will be
realized. In developing its estimate of future earnings, two
different scenarios were used and the results of the two were
probability weighted and averaged together to determine both the
need for a valuation allowance and the size of the allowance. In
conducting this analysis, management has assumed economic
conditions will continue to be very challenging in 2011,
followed by gradual improvement in the ensuing years. These
assumptions are in line with both national and regional economic
forecasts. As such, its estimates include elevated credit losses
in 2011, but at lower levels than those experienced in 2009 and
2010, followed by improvement in ensuing years as the economy
improves and the Companys loan portfolio turns over. It
also assumes improving net interest margins beginning in late
2011, as it is able to convert some of its cash position to
higher yielding instruments, and reductions in operating
expenses as credit costs abate and its other cost reduction
strategies continue.
|
|
11.
|
Stock-Based
Compensation Plans
|
The Company has historically maintained equity compensation
plans that provided for the grant of awards to its officers,
directors and employees. These plans consisted of the 1988
Employee Stock Option Plan, the Amended and Restated 1999
Employee Stock Option and Restricted Stock Plan and the
1999 Director Stock Option Plan. The plans provided for the
grant of incentive stock options, nonqualified stock options and
restricted stock awards (with respect to the employee plans) and
nonqualified stock options and restricted stock awards (with
respect to the director plan). Option awards were granted at a
price not less than the greater of (i) the fair market
value of the common stock or (ii) the net book value of the
common stock at the time of the grant.
On January 14, 2009, the terms of the Amended and Restated
1999 Employee Stock Option and Restricted Stock Plan and the
1999 Director Stock Option Plan expired, and upon
recommendation of management and approval of the Board of
Directors, it was determined that, due to the economic
uncertainty, the Board would not seek to implement a new plan at
that time. The 1988 Employee Stock Option Plan was a predecessor
plan to the Amended and Restated 1999 Employee Stock Option and
Restricted Stock Plan. Because each of these plans has expired,
shares may no longer be awarded under these plans. However,
awards remain unexercised or unvested under these plans.
During 2008, the Company granted restricted stock to its
directors and employees from the 1999 Director Option Plan
and the amended and restructured 1999 Employee Stock Option and
Restricted Stock Plan. These restricted stock grants vest evenly
over a five-year period. The Company did not grant stock options
during 2010, 2009 or 2008.
The fair value of each stock option grant is estimated on the
date of grant using the Black-Scholes option-pricing model. The
Black-Scholes option-pricing model was developed for use in
estimating the fair value of options. In addition, option
valuation models require the input of highly subjective
assumptions, particularly for the expected term and stock price
volatility. The employee stock options do not trade on a
secondary exchange, therefore employees do not derive a benefit
from holding stock options unless there is an appreciation in
the market
F-37
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
price of the stock above the grant price. Such an increase in
stock price would benefit all shareholders commensurately. The
assumptions used to calculate the fair value of options granted
are evaluated and revised, as necessary, to reflect market
conditions and our experience. The fair value of each restricted
share is based on the fair market value at the date of grant.
The Company records compensation expense based on the determined
fair value.
Total stock-based compensation expense (benefit) recognized in
the consolidated statement of operations for the years ended
December 31, 2010, 2009, and 2008 was $361,000, $367,000,
and ($110,000) before income taxes, respectively. Total expense
related to stock-based compensation for 2010 and 2009 is
comprised of restricted stock expense. The total net benefit
related to stock-based compensation for 2008 is comprised of
restricted stock expense, option expense and expense related to
the
2006-2008
Long-Term Incentive Plan (LTIP). The LTIP expense
was based on anticipated company performance over a
3-year
period and had a
5-year
vesting period. During the twelve months ended December 31,
2008, the Company reversed $640,000 in accrued incentives
related to the LTIP as it appeared that asset growth and ROE
targets required by the plan would not be met by the end of
2008. Of the total stock-based compensation expense during the
year ended December 31, 2008, stock option net benefit was
($462,000), restricted stock expense was $348,000 and other
expense related to stock options issued below market price at
issue date totaled $4,000. The Company has no remaining
unrecognized stock-based compensation expense related to the
non-vested stock options outstanding at December 31, 2010.
Prior to the adoption of ASC 718, the Company presented all
tax benefits resulting from the exercise of stock options as
operating cash inflows in the consolidated statements of cash
flows. ASC 718 requires the benefits of tax deductions in excess
of the compensation cost recognized for those options to be
classified as financing cash inflows rather than operating cash
inflows, on a prospective basis. This amount is shown as
Excess tax benefit from stock-based compensation on
the consolidated statement of cash flows.
F-38
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock option transactions for all of the above described plans
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Exercise Price
|
|
|
Remaining life
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Per Share
|
|
|
(Years)
|
|
|
Value(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(thousands)
|
|
|
Balance, January 1, 2008
|
|
|
487,329
|
|
|
$
|
5.48
|
|
|
$
|
2.79 13.20
|
|
|
|
3.12
|
|
|
$
|
4,640
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(161,337
|
)
|
|
|
4.41
|
|
|
|
2.90 12.95
|
|
|
|
|
|
|
|
232
|
|
Options forfeited and canceled
|
|
|
(510
|
)
|
|
|
13.12
|
|
|
|
12.95 13.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2008
|
|
|
325,482
|
|
|
$
|
6.00
|
|
|
$
|
2.79 13.20
|
|
|
|
3.01
|
|
|
|
50
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(12,721
|
)
|
|
|
4.41
|
|
|
|
3.70 4.42
|
|
|
|
|
|
|
|
7
|
|
Options forfeited and canceled
|
|
|
(58,075
|
)
|
|
|
4.51
|
|
|
|
4.42 12.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2009
|
|
|
254,686
|
|
|
$
|
6.35
|
|
|
$
|
2.79 13.20
|
|
|
|
2.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options forfeited and canceled
|
|
|
(17,402
|
)
|
|
|
7.38
|
|
|
|
2.79 13.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2010
|
|
|
237,284
|
|
|
$
|
6.28
|
|
|
$
|
3.67 13.20
|
|
|
|
1.85
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The aggregate intrinsic value is before applicable income taxes,
based on the Companys $1.48 closing stock price at
December 31, 2010, which would have been received by the
optionees had all options been exercised on that date. |
The following table presents information about the options as of
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
of
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Number
|
|
|
Exercise
|
|
Range of Exercise Price
|
|
Shares
|
|
|
Price
|
|
|
Life (Years)
|
|
|
of Shares
|
|
|
Price
|
|
|
$3.69 - $3.90
|
|
|
60,387
|
|
|
$
|
3.79
|
|
|
|
0.2
|
|
|
|
60,387
|
|
|
$
|
3.79
|
|
$4.15 - $4.83
|
|
|
55,560
|
|
|
|
4.64
|
|
|
|
2.1
|
|
|
|
55,560
|
|
|
|
4.64
|
|
$5.50 - $6.13
|
|
|
77,660
|
|
|
|
5.62
|
|
|
|
2.1
|
|
|
|
77,660
|
|
|
|
5.62
|
|
$12.12 - $13.20
|
|
|
43,677
|
|
|
|
12.95
|
|
|
|
3.4
|
|
|
|
43,677
|
|
|
|
12.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237,284
|
|
|
$
|
6.28
|
|
|
|
1.9
|
|
|
|
237,284
|
|
|
$
|
6.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2010, 2009, and 2008,
the intrinsic value of stock options exercised was $0, $7,000
and $232,000, and the total fair value of the options vested was
$0, $0 and $0, respectively.
F-39
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2010, total unrecognized stock-based
compensation expense related to non-vested restricted stock
grants was approximately $389,000, which was expected to be
recognized over a period of approximately 1.8 years.
Restricted stock transactions are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date Fair
|
|
|
|
Shares(1)
|
|
|
Value(1)
|
|
|
Nonvested shares
|
|
|
|
|
|
|
|
|
Balance, January 1, 2008
|
|
|
64,295
|
|
|
$
|
19.53
|
|
Shares granted
|
|
|
51,633
|
|
|
|
12.54
|
|
Shares vested
|
|
|
(15,256
|
)
|
|
|
18.10
|
|
Shares forfeited and canceled
|
|
|
(4,105
|
)
|
|
|
18.42
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
96,567
|
|
|
|
16.06
|
|
Shares granted
|
|
|
|
|
|
|
|
|
Shares vested
|
|
|
(21,913
|
)
|
|
|
17.06
|
|
Shares forfeited and canceled
|
|
|
(1,936
|
)
|
|
|
17.79
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
72,718
|
|
|
|
15.71
|
|
|
|
|
|
|
|
|
|
|
Shares granted
|
|
|
|
|
|
|
|
|
Shares vested
|
|
|
(27,409
|
)
|
|
|
16.55
|
|
Shares forfeited and canceled
|
|
|
(4,801
|
)
|
|
|
15.91
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
40,508
|
|
|
$
|
15.12
|
|
|
|
|
|
|
|
|
|
|
F-40
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table (in thousands, except per share amounts)
presents a reconciliation of the numerators and denominators
used in the basic and diluted earnings per share computations
for the years ended December 31 2010, 2009, and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income basic and diluted
|
|
$
|
(31,736
|
)
|
|
$
|
(21,911
|
)
|
|
$
|
1,254
|
|
Preferred stock dividend
|
|
|
1,716
|
|
|
|
1,662
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income available to commons stockholders
|
|
$
|
(33,452
|
)
|
|
$
|
(23,573
|
)
|
|
$
|
1,209
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
8,385,615
|
|
|
|
8,360,654
|
|
|
|
8,294,502
|
|
Dilutive effect of common stock options, restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
220,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
8,385,615
|
|
|
|
8,360,654
|
|
|
|
8,514,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic
|
|
$
|
(3.99
|
)
|
|
$
|
(2.82
|
)
|
|
$
|
0.15
|
|
Effect of dilutive common stock options
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted
|
|
$
|
(3.99
|
)
|
|
$
|
(2.82
|
)
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive securities not included in diluted earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock options
|
|
|
237,281
|
|
|
|
251,014
|
|
|
|
68,973
|
|
Common stock warrant
|
|
|
1,431,674
|
|
|
|
560,041
|
|
|
|
|
|
Restricted shares
|
|
|
156,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total anti-dilutive shares
|
|
|
1,825,208
|
|
|
|
811,055
|
|
|
|
68,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents were calculated using the treasury
stock method.
At December 31, 2010, 2009 and 2008 there were 237,281,
251,014 and 68,973 options outstanding, respectively that were
not included in the dilutive calculations above. For the year
ended December 31, 2010, anti-dilutive common stock
warrants increased due to decrease in the Companys stock
price at December 31, 2010 compared to December 31,
2009. For the years ended December 31, 2010, 2009 and 2008,
0, 0 and 9,000 shared performance stock awards have been
included in the dilutive shares. These are related to the
non-vested restricted stock awards, stock warrants and the
2003-2005
Long Term Incentive Plan.
On December 19, 2008, the Company issued 27,000 shares
of Fixed Rate Cumulative Perpetual Preferred Stock, no par value
with a liquidation preference of $1,000 per share
(Preferred Stock) and a ten-year warrant to purchase
up to 653,226 shares of Common Stock, no par value, as part
of the Troubled Asset Relief ProgramCapital Purchase Program of
the U.S. Department of Treasury
(U.S. Treasury). The $27.0 million cash
proceeds were allocated between the Preferred Stock and the
warrant to purchase common stock based on the relative estimated
fair values at the date of issuance. The fair value of the
warrants was determined under the Black-Scholes model. The model
includes assumptions regarding the Companys common stock
prices, dividend yield, and stock price
F-41
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
volatility as well as assumptions regarding the risk-free
interest rate. The strike price for the warrant is $6.20 per
share.
Dividends on the Preferred Stock will accrue and be paid
quarterly at a rate of 5% per year for the first five years and
thereafter at a rate of 9% per year. During the third quarter of
2009, the Board of Directors of the Company approved the
deferral of regularly scheduled quarterly dividends on the
Preferred Stock, beginning in December 2009. The shares of
Preferred Stock have no stated maturity, do not have voting
rights except in certain limited circumstances and are not
subject to mandatory redemption or a sinking fund.
The Preferred Stock has priority over the Companys Common
Stock with regard to the payment of dividends and liquidation
distributions. The Preferred Stock qualifies as Tier 1
capital. The agreement with the U.S. Treasury contains
limitations on certain actions of IMCB, including the payment of
quarterly cash dividends on the Companys common stock in
excess of current cash dividends paid in the previous quarter
and the repurchase of its common stock during the first three
years of the agreement. In addition, the Company agreed that,
while the U.S. Treasury owns the Preferred Stock, the
Companys employee benefit plans and other executive
compensation arrangements for its senior executive officers must
comply with Section 111(b) of the Emergency Economic
Stabilization Act of 2008.
The Bank is subject to certain restrictions on the amount of
dividends that it may declare without prior regulatory approval.
At December 31, 2010 and 2009, no retained earnings were
available for dividend declaration without prior regulatory
approval.
The Company (on a consolidated basis) and the Bank are subject
to various regulatory capital requirements administered by state
and federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if
undertaken, could have a direct, material effect on the
Companys financial statements.
Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures
of their assets, liabilities and certain off-balance-sheet items
as calculated under regulatory accounting practices. The capital
amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings
and other factors.
Intermountain and the Bank are required by applicable
regulations to maintain certain minimum capital levels and
ratios of total and Tier 1 capital to risk-weighted assets,
and of Tier I capital to average assets. Intermountain and
the Bank plan to maintain their capital resources and regulatory
capital ratios through the retention of earnings and the
management of the level and mix of assets, and management is
also exploring other opportunities to enhance capital levels. At
December 31, 2010, Intermountain exceeded the minimum
published regulatory capital requirements to be considered
well-capitalized pursuant to Federal Financial
Institutions Examination Council FFIEC regulations.
However, the Bank executed an informal agreement with its
primary regulators in the first quarter of 2010 which among
other conditions, requires the Bank to increase its capital by
$30 million by June 16, 2010 and maintain a 10%
Tier 1 capital to average assets ratio. Although the
Company was not able to meet the capital requirement by the
June 16, 2010 deadline, management has taken numerous steps
to satisfy this condition of the agreement, including seeking
and obtaining shareholder approval to increase the
Companys authorized common stock to facilitate raising
capital and devoting substantial time and resources to pursuing
capital opportunities. The Company is actively engaged in
negotiations with potential investors for a significant capital
raise. However, there can be no assurance that we will be
successful in raising the required capital.
F-42
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the amounts and ratios regarding
actual and minimum core Tier 1 risk-based and total
risk-based capital requirements, together with the amounts and
ratios required in order to meet the published definition of a
well-capitalized institution (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Published
|
|
|
|
|
|
|
Capital
|
|
|
Well-Capitalized
|
|
|
|
Actual
|
|
|
Requirements
|
|
|
Requirements
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars in thousands)
|
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
$
|
76,090
|
|
|
|
11.32
|
%
|
|
$
|
53,766
|
|
|
|
8
|
%
|
|
$
|
67,207
|
|
|
|
10
|
%
|
Panhandle State Bank
|
|
|
80,251
|
|
|
|
11.94
|
%
|
|
|
53,767
|
|
|
|
8
|
%
|
|
|
67,209
|
|
|
|
10
|
%
|
Tier I capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
67,639
|
|
|
|
10.06
|
%
|
|
|
26,883
|
|
|
|
4
|
%
|
|
|
40,324
|
|
|
|
6
|
%
|
Panhandle State Bank
|
|
|
71,800
|
|
|
|
10.68
|
%
|
|
|
26,884
|
|
|
|
4
|
%
|
|
|
40,325
|
|
|
|
6
|
%
|
Tier I capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
67,639
|
|
|
|
6.84
|
%
|
|
|
39,535
|
|
|
|
4
|
%
|
|
|
49,419
|
|
|
|
5
|
%
|
Panhandle State Bank
|
|
|
71,800
|
|
|
|
7.26
|
%
|
|
|
39,535
|
|
|
|
4
|
%
|
|
|
49,419
|
|
|
|
5
|
%
|
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
$
|
100,553
|
|
|
|
12.52
|
%
|
|
$
|
64,254
|
|
|
|
8
|
%
|
|
$
|
80,317
|
|
|
|
10
|
%
|
Panhandle State Bank
|
|
|
102,095
|
|
|
|
12.72
|
%
|
|
|
64,188
|
|
|
|
8
|
%
|
|
|
80,234
|
|
|
|
10
|
%
|
Tier I capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
90,442
|
|
|
|
11.26
|
%
|
|
|
32,127
|
|
|
|
4
|
%
|
|
|
48,190
|
|
|
|
6
|
%
|
Panhandle State Bank
|
|
|
91,984
|
|
|
|
11.46
|
%
|
|
|
32,094
|
|
|
|
4
|
%
|
|
|
48,141
|
|
|
|
6
|
%
|
Tier I capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
90,442
|
|
|
|
8.61
|
%
|
|
|
41,997
|
|
|
|
4
|
%
|
|
|
52,497
|
|
|
|
5
|
%
|
Panhandle State Bank
|
|
|
91,984
|
|
|
|
8.67
|
%
|
|
|
42,431
|
|
|
|
4
|
%
|
|
|
53,039
|
|
|
|
5
|
%
|
Reflecting the Companys ongoing strategy to prudently
manage through the current economic cycle, the decision to
maximize equity and liquidity at the Bank level has
correspondingly reduced cash available at the parent Company.
Consequently, to conserve liquid assets, in December 2009 the
Company decided to defer regularly scheduled interest payments
on its outstanding Junior Subordinated Debentures related to its
Trust Preferred Securities (TRUPS Debentures),
and regular quarterly cash dividend payments on its preferred
stock held by the U.S. Treasury. The Company is permitted
to defer payments of interest on the TRUPS Debentures for up to
20 consecutive quarterly periods without default. During the
deferral period, the Company may not pay any dividends or
distributions on, or redeem, purchase or acquire, or make a
liquidation payment with respect to the Companys capital
stock, or make any payment of principal or interest on, or
repay, repurchase or redeem any debt securities of the Company
that rank equally or junior to the TRUPS Debentures. Under the
terms of the preferred stock, if the Company does not pay
dividends for six quarterly dividend periods (whether or not
consecutive), Treasury would be entitled to appoint two members
to the Companys board of directors. Deferred payments
compound for both the TRUPS Debentures and preferred stock.
Although these expenses will be accrued on the consolidated
income statements for the Company, deferring these interest and
dividend payments will preserve approximately $477,000 per
quarter in cash for the Company.
Notwithstanding the deferral of interest and dividend payments,
the Company fully intends to meet all of its obligations to the
Treasury and holders of the TRUPS Debentures as quickly as it is
prudent to do so.
F-43
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
Commitments
and Contingent Liabilities
|
The Company is engaged in lending activities with borrowers in a
variety of industries. A substantial portion of lending is
concentrated in the regions in which the Company is located.
Collateral on loans, loan commitments and standby letters of
credit vary and may include accounts receivable, inventories,
investment securities, real estate, equipment and vehicles. The
amount and nature of collateral required is based on credit
evaluations of the individual customers.
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its banking customers. These financial
instruments generally include commitments to extend credit,
credit card arrangements, standby letters of credit and
financial guarantees. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of
the amount recognized in the consolidated balance sheet. The
contract amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of financial
instruments.
The Banks exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit, credit card arrangements,
standby letters of credit and financial guarantees written is
represented by the contractual amount of those instruments. The
Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet
instruments.
The contractual amounts of these financial instruments
representing credit risk at December 31, 2010, were as
follows (in thousands):
|
|
|
|
|
Commitments to extend credit
|
|
$
|
144,825
|
|
Credit card arrangements
|
|
$
|
12,802
|
|
Standby letters of credit
|
|
$
|
12,006
|
|
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. Standby
letters of credit typically expire during the next
12 months.
Intermountain leases office space and equipment. As of
December 31, 2010, future minimum payments under all of the
Companys non-cancelable operating leases that have initial
terms in excess of one year are due as follow (in thousands):
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
|
|
2011
|
|
$
|
1,014
|
|
2012
|
|
|
939
|
|
2013
|
|
|
793
|
|
2014
|
|
|
784
|
|
2015
|
|
|
802
|
|
Thereafter
|
|
|
9,382
|
|
|
|
|
|
|
|
|
$
|
13,714
|
|
|
|
|
|
|
Rent expense under these agreements for the years ended
December 31, 2010, 2009 and 2008 totaled approximately
$1,119,000, $1,212,000, and $1,147,000, respectively.
The Company sold the Sandpoint Center, its Company headquarters,
in August 2009 to a third party in a sale-leaseback transaction.
Because of the non-recourse financing terms offered by Panhandle
State Bank, the lease is treated as an operating lease utilizing
the financing method for accounting purposes. Consequently,
there was no
F-44
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
gain recognized at the time of the transaction and the building
will remain on the consolidated financial statements with
depreciation and interest expense recognized over the life of
the lease. Panhandle State Bank executed an agreement to lease
the building from the purchaser with an initial term of
20 years with three successive options to extend the lease
for an additional 10 years each. At December 31, 2010,
the future minimum lease payments for the Sandpoint Center and
related sublease income are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Sandpoint
|
|
|
|
|
|
|
Center
|
|
|
|
|
|
|
Lease
|
|
|
Sub Lease
|
|
Year Ending December 31,
|
|
Obligation
|
|
|
Income(1)
|
|
|
2011
|
|
$
|
1,635
|
|
|
$
|
(89
|
)
|
2012
|
|
|
1,635
|
|
|
|
(75
|
)
|
2013
|
|
|
1,635
|
|
|
|
(64
|
)
|
2014
|
|
|
1,717
|
|
|
|
(46
|
)
|
2015
|
|
|
1,717
|
|
|
|
(32
|
)
|
Thereafter
|
|
|
25,386
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,725
|
|
|
$
|
(365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Sublease income only includes income anticipated to be received
under leases in effect at December 31, 2010. Additional
space is available and may be subleased in the future. |
|
|
16.
|
Employee
Benefits Plans
|
The Company sponsors a 401(k) profit sharing plan covering
employees meeting minimum eligibility requirements. Employee
contributions are voluntary, and the Company may make elective
contributions to match up to 50% of the employees
contribution up to 8% of eligible compensation. The
Companys contributions to the plan for the years ended
December 31, 2010, 2009, and 2008 totaled approximately $0,
$321,000, and $681,000, respectively. Effective January 1,
2009 the Company decreased the contribution match from 50% to
25%. Effective January 1, 2010, the Company decreased the
contribution match to 0%.
During 2003, the Company entered into a split dollar life
insurance agreement on behalf of certain key executives. The
policies were fully funded at purchase. The Company and the
employees estate are co-beneficiaries, with each receiving
a certain amount upon death of the employee. Also, as a result
of the Snake River Bancorp, Inc. acquisition in November 2004,
the Company also assumed a split dollar life insurance agreement
with Snake River directors and key executives.
The Company has various compensation plans for employees.
Contributions to the plan are at the discretion of the Board of
Directors. Deferred compensation expense for the plans described
below for the years ended December 31, 2010, 2009, and 2008
was approximately $862,000 $855,000, and $1,768,000,
respectively. These various compensation plans are discussed in
detail below.
|
|
|
|
|
The Company has annual incentive plans for key employees.
Amounts are generally paid annually within 75 days after
each year end. The accrued balance at December 31, 2010 and
2009 for these plans was approximately $385,000 and $183,000,
respectively.
|
|
|
|
In 2003, the Company adopted a Supplemental Executive Retirement
Plan (SERP). The SERP is a non-qualified unfunded
plan designed to provide retirement benefits for two key
employees of Intermountain. Participants will receive
approximately $258,620 in annual payments for 10 years
beginning at normal retirement age. Retirement benefits vest
after ten years of continued service and benefits are reduced
for early retirement. The disability benefit is similar to the
reduced benefit for early retirement without any vesting
requirements. The plan provides for a change in control benefit
if, within one year of a change in
|
F-45
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
control, the participants employment is terminated. The
total amount accrued under the plan as of December 31, 2010
and 2009, was approximately $529,000 and $408,000, respectively.
|
|
|
|
|
|
In April 2006, the Company implemented a long-term executive
incentive plan, based on long-term corporate goals, to provide
compensation in the form of stock grants to key executive
officers. Participants were required to remain employed through
the vesting period to receive any accrued benefits under the
plan. At the end of 2008, the minimum threshold for payment
under the plan was not met, and therefore, the Company cancelled
all accruals and suspended the plan. For this stock-based
compensation plan, the total adjustment to equity per
ASC 718 at December 31, 2008 was $0 and the
compensation expense recorded for the year ended
December 31, 2008 was ($597,000). The Company had recorded
compensation expense related to the long-term incentive plan
through May 2008, then reversed expense totaling $640,000 in
June 2008. The Company did not have a long-term executive
incentive plan in place during 2010 or 2009.
|
|
|
|
The Company has approved stock purchase agreements for certain
key officers. Participants must remain employed to receive
payments annually in December. The total amount paid under these
agreements for 2010 and 2009 was approximately $415,000 and
$508,000, respectively. Approximately $955,000 remained
available to be awarded at December 31, 2010.
|
The results of operations for financial institutions may be
materially and adversely affected by changes in prevailing
economic conditions, including rapid changes in interest rates,
declines in real estate market values and the monetary and
fiscal policies of the federal government. Like all financial
institutions, Intermountains net interest income and its
NPV (the net present value of financial assets, liabilities and
off-balance sheet contracts), are subject to fluctuations in
interest rates. Intermountain utilizes various tools to assess
and manage interest rate risk, including an internal income
simulation model that seeks to estimate the impact of various
rate changes on the net interest income and net income of the
bank. This model is validated by comparing results against
various third-party estimations. Currently, the model and
third-party estimates indicate that Intermountain is slightly
asset-sensitive. An asset-sensitive bank generally sees improved
net interest income and net income in a rising rate environment,
as its assets reprice more rapidly
and/or to a
greater degree than its liabilities. The opposite is true in a
falling interest rate environment. When market rates fall, an
asset-sensitive bank tends to see declining income. Net interest
income results for the past several years reflect this, as
short-term market rates fell over the past 3 years,
resulting in lower net interest income and net income levels,
particularly in relation to the level of interest-earning assets.
To minimize the long-term impact of fluctuating interest rates
on net interest income, Intermountain promotes a loan pricing
policy of utilizing variable interest rate structures that
associates loan rates to Intermountains internal cost of
funds and to the nationally recognized prime or London Interbank
Offered (LIBOR) lending rates. While this strategy
has had adverse impacts in the current unusually low rate
environment, the approach historically has contributed to a
relatively consistent interest rate spread over the long-term
and reduces pressure from borrowers to renegotiate loan terms
during periods of falling interest rates. Intermountain
currently maintains over fifty percent of its loan portfolio in
variable interest rate assets.
Additionally, the extent to which borrowers prepay loans is
affected by prevailing interest rates. When interest rates
increase, borrowers are less likely to prepay loans. When
interest rates decrease, borrowers are generally more likely to
prepay loans. In the current credit markets, prepayment speeds
have accelerated as borrowers refinance into lower rates, pay
down debt to improve their financial position, or liquidate
assets as part of problem loan work-out strategies. Prepayments
may affect the levels of loans retained in an institutions
portfolio, as well as its net interest income. This has been the
case over the past year, as Intermountain experienced rapid
declines in loan volumes and resulting decreases in its net
interest income. Prepayments are likely to slow in future
periods as the economy improves and rates begin rising.
Intermountain maintains an asset and liability management
program intended to manage net interest income through interest
rate cycles and to protect its income by controlling its
exposure to changing interest rates.
F-46
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On the liability side, Intermountain seeks to manage its
interest rate risk exposure by maintaining a relatively high
percentage of non-interest bearing demand deposits,
interest-bearing demand deposits, savings and money market
accounts. These instruments tend to lag changes in market rates
and may afford the Bank more protection in increasing interest
rate environments, but can also be changed relatively quickly in
a declining rate environment. The Bank utilizes various deposit
pricing strategies and other borrowing sources to manage its
rate risk.
As discussed above, Intermountain uses a simulation model
designed to measure the sensitivity of net interest income and
net income to changes in interest rates. This simulation model
is designed to enable Intermountain to generate a forecast of
net interest income and net income given various interest rate
forecasts and alternative strategies. The model is also designed
to measure the anticipated impact that prepayment risk, basis
risk, customer maturity preferences, volumes of new business and
changes in the relationship between long-term and short-term
interest rates have on the performance of Intermountain. The
results of modeling indicate that the estimated impact of
changing rates on net interest income in a 100 and
300 basis point upward adjustment and a 100 and
300 basis point downward adjustment in market interest
rates are within the guidelines established by management. While
the impacts on net income of upward 100 and downward
100 basis point market rate adjustments are also within the
established guidelines, the net income increase in a
300 basis point upward adjustment is above the guidelines.
Because the results indicate improvements in net interest income
and net income in these scenarios, it perceives its current
level of interest rate risk as moderate. The scenario analysis
for net income has been impacted by the unusual current year
operating results of the Company, which increases the impact of
upward adjustments.
Intermountain is continuing to pursue strategies to manage the
level of its interest rate risk while increasing its long-term
net interest income and net income: 1) through the
origination and retention of a diversified mix of variable and
fixed-rate consumer, business banking, commercial real estate
loans, and residential loans which generally have higher yields
than alternative investments; and 2) by increasing the
level of its core deposits, which are generally a lower-cost,
less rate-sensitive funding source than wholesale borrowings.
There can be no assurance that Intermountain will be successful
implementing any of these strategies or that, if these
strategies are implemented, they will have the intended effect
of reducing interest rate risk or increasing net interest income.
|
|
18.
|
Related-Party
Transactions
|
The Bank has executed certain loans and deposits with its
directors, officers and their affiliates. Related party loans
and deposits are transacted as part of the Companys normal
course of business, and are not subject to preferential terms or
conditions. The aggregate amount of loans outstanding to such
related parties at December 31, 2010 and 2009 was
approximately $139,000 and $226,000, respectively.
During the year, the balance of loans outstanding to directors
and executive officers changed as follows (dollars in thousands):
|
|
|
|
|
|
|
2010
|
|
|
Balance, January 1,
|
|
$
|
226
|
|
Reclassified
|
|
|
(57
|
)
|
New
|
|
|
741
|
|
Sold
|
|
|
(567
|
)
|
Repayment
|
|
|
(204
|
)
|
|
|
|
|
|
Balance, December 31,
|
|
$
|
139
|
|
|
|
|
|
|
Directors fees of approximately $226,000, $259,000, and
$281,000 were paid during the years ended December 31,
2010, 2009, and 2008, respectively.
F-47
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Two of the Companys Board of Directors are principals in
law firms that provide legal services to Intermountain. During
the years ended December 31, 2010, 2009 and 2008 the
Company incurred legal fees of approximately $3,000, $3,000, and
$5,000, respectively, related to services provided by these
firms.
In 2009, Curt Hecker, Intermountains Chief Executive
Officer became a Director on the Board of Pacific Coast Bankers
Bank (PCBB). The Bank utilizes PCBB as a
correspondent bank and utilizes Bank Investment Group, a
subsidiary of PCBB, for various management analytical reporting
functions. During 2010, the Company paid PCBB and related
companies $144,000 for services.
|
|
19.
|
Derivative
Financial Instruments
|
Management uses derivative financial instruments to protect
against the risk of interest rate movements on the value of
certain assets and liabilities and on future cash flows. The
instruments that have been used by the Company include interest
rate swaps and cash flow hedges with indices that relate to the
pricing of specific assets and liabilities.
Derivative instruments have inherent risks, primarily market
risk and credit risk. Market risk is associated with changes in
interest rates and credit risk relates to the risk that the
counterparty will fail to perform according to the terms of the
agreement. The amounts potentially subject to market and credit
risks are the streams of interest payments under the contracts
and the market value of the derivative instrument which is
determined based on the interaction of the notional amount of
the contract with the underlying instrument, and not the
notional principal amounts used to express the volume of the
transactions. Management monitors the market risk and credit
risk associated with derivative financial instruments as part of
its overall Asset/Liability management process.
In accordance with ASC 815, Derivatives and Hedging, the
Company recognizes all derivative financial instruments in the
consolidated financial statements at fair value regardless of
the purpose or intent for holding the instrument. Derivative
financial instruments are included in other assets or other
liabilities, as appropriate, on the Consolidated Balance Sheet.
Changes in the fair value of derivative financial instruments
are either recognized periodically in income or in
stockholders equity as a component of other comprehensive
income (loss) depending on whether the derivative financial
instrument qualifies for hedge accounting, and if so, whether it
qualifies as a fair value hedge or cash flow hedge. Generally,
changes in fair values of derivatives accounted for as fair
value hedges are recorded in income in the same period and in
the same statement of operations line as changes in the fair
values of the hedged items that relate to the hedged risk(s).
Changes in fair values of derivative financial instruments
accounted for as cash flow hedges, to the extent they are
effective hedges, are recorded as a component of other
comprehensive income (loss), net of deferred taxes. Changes in
fair values of derivative financial instruments not qualifying
as hedges pursuant to ASC 815 are reported in non-interest
income. Derivative contracts are valued by the counter party and
are periodically validated by management.
Interest
Rate Swaps Designated as Cash Flow
Hedges
The tables below identify the Companys interest rate swaps
at December 31, 2010 and December 31, 2009, which were
entered into to hedge certain LIBOR-based trust preferred
debentures and designated as cash flow hedges pursuant to
ASC 815 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Fair Value
|
|
|
Receive Rate
|
|
|
Pay Rate
|
|
|
Type of Hedging
|
|
Maturity Date
|
|
Notional Amount
|
|
|
(Loss)
|
|
|
(LIBOR)
|
|
|
(Fixed)
|
|
|
Relationship
|
|
|
Pay Fixed, Receive Variable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2013
|
|
$
|
8,248
|
|
|
$
|
(892
|
)
|
|
|
0.29
|
%
|
|
|
4.58
|
%
|
|
|
Cash Flow
|
|
F-48
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Fair Value
|
|
|
Receive Rate
|
|
|
Pay Rate
|
|
|
Type of Hedging
|
|
Maturity Date
|
|
Notional Amount
|
|
|
(Loss)
|
|
|
(LIBOR)
|
|
|
(Fixed)
|
|
|
Relationship
|
|
|
Pay Fixed, Receive Variable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2013
|
|
$
|
8,248
|
|
|
$
|
(678
|
)
|
|
|
0.28
|
%
|
|
|
4.58
|
%
|
|
|
Cash Flow
|
|
The fair values, or unrealized losses, of $892,000 at
December 31, 2010 and $678,000 at December 31, 2009
are included in other liabilities. The Company has deferred the
interest payments on the related Trust Preferred borrowing
beginning with the January 2010 scheduled remittance. As a
result of the deferred interest payments, a calculation of the
effectiveness of the hedge was prepared. It was concluded that
although the hedge is generally effective, there is a small
amount of ineffectiveness due to the delayed payments. The
Company expensed $178,000 in interest expense in 2010 related to
the ineffective portion of the hedge. The changes in fair value,
net of tax, are separately disclosed in the statement of changes
in stockholders equity as a component of comprehensive
income (loss). Net cash flows from these interest rate swaps are
included in interest expense on trust preferred debentures. The
unrealized loss at December 31, 2010 is a component of
comprehensive income (loss) for December 31, 2010. At
December 31, 2010, Intermountain had $1.0 million in
restricted cash and $190,000 in Pacific Coast Bankers Bank stock
as collateral for the cash flow hedge. The following table
provides a reconciliation of cash flow hedges measured at fair
value during the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Unrealized loss at beginning of period
|
|
$
|
(678
|
)
|
|
$
|
(985
|
)
|
Amount of gross loss recognized in earnings (loss)
|
|
|
(178
|
)
|
|
|
|
|
Amount of gross loss recognized in other comprehensive income
(loss)
|
|
|
(36
|
)
|
|
|
307
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss at end of period
|
|
$
|
(892
|
)
|
|
$
|
(678
|
)
|
|
|
|
|
|
|
|
|
|
Interest
Rate Swaps Not Designated as Hedging Instruments
Under ASC 815
The Company has purchased certain derivative products to allow
the Company to effectively convert a fixed rate loan to a
variable rate payment stream. The Company economically hedges
transactions by entering into offsetting derivatives executed
with third parties upon the origination of a fixed rate loan
with a customer. Derivative transactions executed as part of
this program are not designated as ASC 815 hedge
relationships and are, therefore, marked to market through
earnings each period. In most cases the derivatives have
mirror-image terms to the underlying transaction being hedged,
which result in the positions changes in fair value
offsetting completely through earnings each period. However, to
the extent that the derivatives are not a mirror-image, changes
in fair value will not completely offset, resulting in some
earnings impact each period. Changes in the fair value of these
interest rate swaps are included in other non-interest income.
The following table summarizes these interest rate swaps as of
December 31, 2010 and December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Notional
|
|
|
Fair Value
|
|
|
Notional
|
|
|
Fair Value
|
|
|
|
Amount
|
|
|
(Loss)
|
|
|
Amount
|
|
|
Gain
|
|
|
Interest rate swaps with third party financial institutions
|
|
$
|
2,559
|
|
|
$
|
(38
|
)
|
|
$
|
2,559
|
|
|
$
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, loans receivable included ($38,000)
of derivative assets and other liabilities included $0 of
derivative assets related to these interest rate swap
transactions. At December 31, 2010, the interest rate swaps
had a maturity date of March 2019. At December 31, 2010,
Intermountain had $72,000 in restricted cash as collateral for
the interest rate swaps.
F-49
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Fair
Value of Financial Instruments
|
Fair value is defined under
ASC 820-10
as the price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal market for
the asset or liability in an orderly transaction between market
participants on the measurement date. In support of this
principle
ASC 820-10
establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. The fair value
hierarchy is as follows:
Level 1 inputs Unadjusted quoted prices
in active markets for identical assets or liabilities that the
entity has the ability to access at the measurement date.
Level 2 inputs Inputs other than quoted
prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly. These might
include quoted prices for similar assets and liabilities in
active markets, and inputs other than quoted prices that are
observable for the asset or liability, such as interest rates
and yield curves that are observable at commonly quoted
intervals.
Level 3 inputs Unobservable inputs that
are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
Level 3 assets and liabilities include financial
instruments whose value is determined using pricing models,
discounted cash flow methodologies, or similar techniques, as
well as instruments for which the determination of fair values
requires significant management judgment or estimation.
The following table presents information about the
Companys assets and liabilities measured at fair value on
a recurring basis for the periods shown, and indicates the fair
value hierarchy of the valuation techniques utilized by the
Company to determine such fair value (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
|
|
At December 31, 2010, Using
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
In Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
Fair Value
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Available-for-Sale
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities and obligations of U.S. government
agencies
|
|
$
|
3,925
|
|
|
$
|
|
|
|
$
|
3,925
|
|
|
$
|
|
|
State and municipal securities
|
|
|
5,230
|
|
|
|
|
|
|
|
5,230
|
|
|
|
|
|
Residential mortgage backed securities (MBS)
|
|
|
173,926
|
|
|
|
|
|
|
|
144,412
|
|
|
|
29,514
|
|
Other Assets Derivative
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Measured at Fair Value
|
|
$
|
183,043
|
|
|
$
|
|
|
|
$
|
153,567
|
|
|
$
|
29,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities Derivatives
|
|
$
|
892
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
892
|
|
F-50
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
|
|
At December 31, 2009 Using
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
In Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
Fair Value
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Available-for-Sale
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities and obligations of U.S. government
agencies
|
|
$
|
51
|
|
|
$
|
|
|
|
$
|
51
|
|
|
$
|
|
|
Residential mortgage backed securities (MBS)
|
|
|
181,733
|
|
|
|
|
|
|
|
149,497
|
|
|
|
32,236
|
|
Other Assets Derivative
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Measured at Fair Value
|
|
$
|
181,841
|
|
|
$
|
|
|
|
$
|
149,548
|
|
|
$
|
32,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities Derivatives
|
|
$
|
678
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
678
|
|
The changes in Level 3 assets and liabilities measured at
fair value on a recurring basis as of December 31, 2010 and
December 31, 2009 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant
|
|
|
|
Unobservable Inputs ( Level 3)
|
|
Description
|
|
Residential MBS
|
|
|
Derivatives
|
|
|
Total
|
|
|
January 1, 2010 Balance
|
|
$
|
32,236
|
|
|
$
|
57
|
|
|
$
|
32,293
|
|
Total gains or losses (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
(930
|
)
|
|
|
(95
|
)
|
|
|
(1,025
|
)
|
Included in other comprehensive income
|
|
|
5,642
|
|
|
|
|
|
|
|
5,642
|
|
Principal Payments
|
|
|
(4,971
|
)
|
|
|
|
|
|
|
(4,971
|
)
|
Proceeds from Sales of Securities
|
|
|
(2,463
|
)
|
|
|
|
|
|
|
(2,463
|
)
|
Transfers in and /or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 Balance
|
|
$
|
29,514
|
|
|
$
|
(38
|
)
|
|
$
|
29,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
Using Significant Unobservable
|
|
Description
|
|
Inputs ( Level 3) Derivatives
|
|
|
January 1, 2010 Balance
|
|
$
|
678
|
|
Total gains or losses (realized/unrealized) included in earnings
|
|
|
178
|
|
Included in other comprehensive income
|
|
|
36
|
|
|
|
|
|
|
December 31, 2010 Balance
|
|
$
|
892
|
|
|
|
|
|
|
F-51
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant
|
|
|
|
Unobservable Inputs ( Level 3)
|
|
Description
|
|
Residential MBS
|
|
|
Derivatives
|
|
|
Total
|
|
|
January 1, 2009 Balance
|
|
$
|
38,664
|
|
|
$
|
|
|
|
$
|
38,664
|
|
Total gains or losses (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
(526
|
)
|
|
|
57
|
|
|
|
(469
|
)
|
Included in other comprehensive income
|
|
|
987
|
|
|
|
|
|
|
|
987
|
|
Net accretion of premium/discount included in income
|
|
|
853
|
|
|
|
|
|
|
|
853
|
|
Principal Payments
|
|
|
(7,742
|
)
|
|
|
|
|
|
|
(7,742
|
)
|
Transfers in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 Balance
|
|
$
|
32,236
|
|
|
$
|
57
|
|
|
$
|
32,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
Using Significant Unobservable
|
|
Description
|
|
Inputs ( Level 3) Derivatives
|
|
|
January 1, 2009 Balance
|
|
$
|
985
|
|
Total gains or losses (realized/unrealized)
|
|
|
|
|
Included in earnings
|
|
|
|
|
Included in other comprehensive income
|
|
|
(307
|
)
|
|
|
|
|
|
December 31, 2009 Balance
|
|
$
|
678
|
|
|
|
|
|
|
Intermountain is required, from time to time, to measure certain
other financial assets at fair value on a non-recurring basis.
The following tables present the carrying value for these
financial assets for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
|
|
At December 31, 2010, Using
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
In Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
Fair Value
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Loans(1)
|
|
$
|
32,348
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
32,348
|
|
OREO
|
|
|
4,429
|
|
|
|
|
|
|
|
|
|
|
|
4,429
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Asset, net of valuation allowance
|
|
|
15,291
|
|
|
|
|
|
|
|
|
|
|
|
15,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Measured at Fair Value
|
|
$
|
52,068
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
52,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents impaired loans, net, which are included in loans. |
F-52
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
|
|
At December 31, 2009, Using
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
In Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
Fair Value
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Dec 31,
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Loans(1)
|
|
$
|
51,346
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
51,346
|
|
Other real estate owned
|
|
|
11,538
|
|
|
|
|
|
|
|
|
|
|
|
11,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Measured at Fair Value
|
|
$
|
62,884
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
62,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents impaired loans, net, which are included in loans. |
The loans above represent impaired, collateral dependent loans
that have been adjusted to fair value. When a collateral
dependent loan is identified as impaired, the impairment is
measured using the current fair value of the collateral, less
selling costs. Depending on the characteristics of a loan, the
fair value of collateral is generally estimated by obtaining
external appraisals or other market-based valuation methods. If
the value of the impaired loan is determined to be less than the
recorded investment in the loan, the impairment is recognized
and the carrying value of the loan is adjusted to fair value
through the allowance for loan and lease losses. The loss
represents charge-offs or impairments on collateral dependent
loans for fair value adjustments based on the fair value of
collateral. The carrying value of loans fully charged-off is
zero.
OREO represents real estate which the Company has taken control
of in partial or full satisfaction of loans. At the time of
foreclosure, OREO is recorded at the lower of the carrying
amount of the loan or fair value less costs to sell, which
becomes the propertys new basis. Any write-downs based on
the assets fair value at the date of acquisition are
charged to the allowance for loan and lease losses. After
foreclosure, management periodically performs valuations such
that the real estate is carried at the lower of its new cost
basis or fair value, net of estimated costs to sell. Fair value
adjustments on other real estate owned are recognized within net
loss on real estate owned. The loss represents OREO for fair
value adjustments based on the fair value of the real estate.
The goodwill amount above represents goodwill that has been
adjusted to fair value. At September 30, 2010, the Company
concluded there was a triggering event related to continuing
depressed economic conditions and ongoing losses incurred by the
Company. As a result, Intermountain performed a goodwill
impairment evaluation using current information. In completing
its goodwill impairment analysis, the Company used tangible
common equity multiples and core deposit metrics from recent
transactions to estimate the fair value of the Company at
September 30, 2010. For Step 1, the fair value of the
Company was less than the common book value of the Company prior
to any goodwill adjustments, indicating a potential impairment.
Under accounting guidance, a Step 2 analysis was required. In
the Step 2 analysis, the fair value of the Companys assets
and liabilities was determined, using discounted cash flows
based on the cash flow characteristics of the assets and
liabilities and prevailing market interest rates. The fair value
of the liabilities was subtracted from the fair value of the
assets resulting in the fair value of the net assets. This was
then reduced by the value of the preferred stock to derive the
sum of the fair value of net assets supported by common equity.
Since this number was higher at September 30, 2010 than the
fair value of the Company calculated in Step 1, there was no
excess company value that could be allocated to goodwill,
resulting in a full impairment of the Companys goodwill.
Intermountain recorded a goodwill impairment charge of
$11.7 million, reducing the balance of goodwill to zero, as
compared to the December 31, 2009 balance of
$11.7 million. Intermountain records impairment losses as
charges to noninterest expense and adjustments to the carrying
value of goodwill.
The net deferred tax asset valuation represents a valuation
allowance that was recognized in the third and fourth quarter of
2010. Intermountain uses an estimate of future earnings, and an
evaluation of its loss carryback ability and tax planning
strategies to determine whether or not the benefit of its net
deferred tax asset will be realized. Intermountain assessed
whether it was more likely than not that it would realize the
benefits of its deferred
F-53
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
tax asset. During the third quarter of 2010, Intermountain
determined that the negative evidence associated with three-year
cumulative loss and continued depressed economic conditions
outweighed the positive evidence. Therefore, during the third
quarter of 2010, Intermountain established a valuation allowance
of $7.4 million against its deferred tax asset. The Company
added an additional $1.4 million valuation allowance
against its deferred tax asset in the fourth quarter of 2010.
The Company analyzes the deferred tax asset on a quarterly basis
and may recapture a portion or all of this allowance depending
on future profitability. At December 31, 2010, the net
deferred tax asset totaled $15.3 million, net of a deferred
tax asset valuation of $8.8 million.
The following is a further description of the principal
valuation methods used by the Company to estimate the fair
values of its financial instruments.
Securities
The fair values of securities, other than those categorized as
level 3 described above, are based principally on market
prices and dealer quotes. Certain fair values are estimated
using pricing models or are based on comparisons to market
prices of similar securities. The fair value of stock in the
FHLB equals its carrying amount since such stock is only
redeemable at its par value.
Available for Sale Securities. Securities
totaling $153.6 million classified as available for sale
are reported at fair value utilizing Level 2 inputs. For
these securities, the Company obtained fair value measurements
from an independent pricing service and internally validated
these measurements. The fair value measurements consider
observable data that may include dealer quotes, market spreads,
cash flows, the U.S. Treasury yield curve, live trading
levels, trade execution data, market consensus, prepayment
speeds, credit information and the bonds terms and
conditions, among other things.
The available for sale portfolio also includes
$29.5 million in super senior or senior tranche
collateralized mortgage obligations not backed by a government
or other agency guarantee. These securities are collateralized
by fixed rate prime or Alt A mortgages, are structured to
provide credit support to the senior tranches, and are carefully
analyzed and monitored by management. Because of disruptions in
the current market for mortgage-backed securities and
collateralized mortgage obligations, a limited market exists for
these securities at December 31, 2010. This is evidenced by
a significant widening in the bid-ask spread for these types of
securities and the limited volume of actual trades made. As a
result, less reliance can be placed on easily observable market
data, such as pricing on transactions involving similar types of
securities, in determining their current fair value. As such,
significant adjustments were required to determine the fair
value at the December 31, 2010 measurement date. These
securities are valued using Level 3 inputs.
In valuing these securities, the Company utilized the same
independent pricing service as for its other
available-for-sale
securities and internally validated these measurements. In
addition, it utilized FHLB indications, which are backed by
significant experience in whole-loan collateralized mortgage
obligation valuation and another market source to derive
independent valuations and used this data to evaluate and adjust
the original values derived. In addition to the observable
market-based input including dealer quotes, market spreads, live
trading levels and execution data, both the pricing service and
the FHLB pricing also employed a present-value income model that
considered the nature and timing of the cash flows and the
relative risk of receiving the anticipated cash flows as agreed.
The discount rates used were based on a risk-free rate, adjusted
by a risk premium for each security. In accordance with the
requirements of
ASC 820-10,
the Company has determined that the risk-adjusted discount rates
utilized appropriately reflect the Companys best estimate
of the assumptions that market participants would use in pricing
the assets in a current transaction to sell the asset at the
measurement date. Risks include nonperformance risk (that is,
default risk and collateral value risk) and liquidity risk (that
is, the compensation that a market participant receives for
buying an asset that is difficult to sell under current market
conditions). To the extent possible, the pricing services and
the Company validated the results from these models with
independently observable data.
F-54
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In evaluating securities in the investment portfolio for OTTI,
the Company evaluated the following factors:
|
|
|
|
|
The length of time and the extent to which the market value of
the securities has been lower than their cost;
|
|
|
|
The financial condition and near-term prospects of the issuer or
obligation, including any specific events, which may influence
the operations of the issuer or obligation such as credit
defaults and losses in mortgages underlying the security,
changes in technology that impair the earnings potential of the
investment or the discontinuation of a segment of the business
that may affect the future earnings potential; and
|
|
|
|
The intent and ability of the Company to retain its investment
in the issuer for a period of time sufficient to allow for any
anticipated recovery in market value.
|
Based on the factors above, the Company has determined that two
securities comprised of a pool of mortgages were subject to OTTI
as of December 31, 2010. The following table presents the
OTTI losses for the years ended December 31, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Held To
|
|
|
Available
|
|
|
Held To
|
|
|
Available
|
|
|
|
Maturity
|
|
|
For Sale
|
|
|
Maturity
|
|
|
For Sale
|
|
|
Total
other-than-temporary
impairment losses
|
|
$
|
|
|
|
$
|
1,529
|
|
|
$
|
|
|
|
$
|
1,751
|
|
Portion of
other-than-temporary
impairment losses transferred from (recognized in) other
comprehensive income(1)
|
|
|
|
|
|
|
(701
|
)
|
|
|
|
|
|
|
(1,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses recognized in earnings(2)
|
|
$
|
|
|
|
$
|
828
|
|
|
$
|
|
|
|
$
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents
other-than-temporary
impairment losses related to all other factors. |
|
(2) |
|
Represents
other-than-temporary
impairment losses related to credit losses. |
The OTTI recognized on investment securities available for sale
primarily relates to two non-agency collateralized mortgage
obligations for 2010 and one non-agency collateralized mortgage
obligation for 2009. Each of these securities holds various
levels of credit subordination. These securities were valued by
third-party pricing services using matrix or model pricing
methodologies and were corroborated by broker indicative bids.
We estimated the cash flows of the underlying collateral for
each security considering credit, interest and prepayment risk
models that incorporate managements estimate of projected
key assumptions including prepayment rates, collateral default
rates and loss severity. Assumptions utilized vary from security
to security, and are influenced by factors such as underlying
loan interest rates, geographic location, borrower
characteristics and vintage, and historical experience. We then
used a third party to obtain information about the structure of
each security, including subordination and other credit
enhancements, in order to determine how the underlying
collateral cash flows will be distributed to each security
issued in the structure. These cash flows were then discounted
at the interest rate used to recognize interest income on each
security. We review the actual collateral performance of these
securities on a quarterly basis and update the inputs as
appropriate to determine the projected cash flows.
Loans. Loans are generally not recorded at
fair value on a recurring basis. Periodically, the Company
records nonrecurring adjustments to the carrying value of loans
based on fair value measurements for partial charge-offs of the
uncollectible portions of those loans. Nonrecurring adjustments
also include certain impairment amounts for impaired loans when
establishing the allowance for credit losses. Such amounts are
generally based on either the estimated fair value of the cash
flows to be received or the fair value of the underlying
collateral supporting the loan less selling costs. Real estate
collateral on these loans and the Companys OREO is
typically valued using appraisals or other indications of value
based on recent comparable sales of similar properties or
assumptions generally observable in the marketplace. Management
reviews these valuations and makes additional valuation
adjustments, as necessary, including subtracting estimated costs
of liquidating the collateral or selling the OREO. The related
nonrecurring fair value measurement adjustments have generally
been classified as Level 3 because of the
F-55
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
significant assumptions required estimating future cash flows on
these loans, and the rapidly changing and uncertain collateral
values underlying the loans. Extreme volatility and the lack of
relevant and current sales data in the Companys market
areas for various types of collateral create additional
uncertainties and require the use of multiple sources and
management judgment to make adjustments. Loans subject to
nonrecurring fair value measurement were $32.3 million at
December 31, 2010 all of which were classified as
Level 3.
Other Real Estate Owned. At the applicable
foreclosure date, OREO is recorded at fair value of the real
estate, less the estimated costs to sell the real estate.
Subsequently, OREO is carried at the lower of cost or net
realizable value (fair value less estimated selling costs), and
is periodically assessed for impairment based on fair value at
the reporting date. Fair value is determined from external
appraisals and other valuations using judgments and estimates of
external professionals. Many of these inputs are not observable
and, accordingly, these measurements are classified as
Level 3. The Companys OREO at December 31, 2010
totaled $4.4 million, all of which was classified as
Level 3.
Interest Rate Swaps. During the third quarter
of 2008, the Company entered into an interest rate swap contract
with Pacific Coast Bankers Bank. The purpose of the
$8.2 million notional value swap is to convert the variable
rate payments made on the Trust Preferred I obligation (see
Note 7 Other Borrowings) to a series of fixed
rate payments for five years, as a hedging strategy to help
manage the Companys interest-rate risk. This contract is
carried as an asset or liability at fair value, and as of
December 31, 2010, it was a liability with a fair value of
$892,000.
During the first quarter of 2009, the Company entered into an
interest rate swap contract with Pacific Coast Bankers Bank. The
purpose of the $1.6 million notional value swap is to
convert the fixed rate payments earned on a loan receivable to a
series of variable rate payments for ten years, as a hedging
strategy to help manage the Companys interest-rate risk.
This contract is carried as an asset or liability at fair value,
and as of December 31, 2010, it was an asset with a fair
value of ($35,000). During the second quarter of 2009, the
Company entered into an interest rate swap contract with Pacific
Coast Bankers Bank. The purpose of the $1.0 million
notional value swap is to convert the fixed rate payments earned
on a loan receivable to a series of variable rate payments for
ten years, as a hedging strategy to help manage the
Companys interest-rate risk. This contract is carried as
an asset or liability at fair value, and as of December 31,
2010, it was an asset with a fair value of ($3,000).
Intermountain is required to disclose the estimated fair value
of financial instruments, both assets and liabilities on and off
the balance sheet, for which it is practicable to estimate fair
value. These fair value estimates are made at December 31,
2010 based on relevant market information and information about
the financial instruments. Fair value estimates are intended to
represent the price an asset could be sold at or the price a
liability could be settled for. However, given there is no
active market or observable market transactions for many of the
Companys financial instruments, the Company has made
estimates of many of these fair values which are subjective in
nature, involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimated
values.
F-56
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The estimated fair value of the financial instruments as of
December 31, 2010 and December 31, 2009, are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, restricted cash and federal funds sold
|
|
$
|
147,956
|
|
|
$
|
147,956
|
|
|
$
|
104,835
|
|
|
$
|
104,835
|
|
Interest bearing certificates of deposit
|
|
|
|
|
|
|
|
|
|
|
862
|
|
|
|
862
|
|
Available-for-sale
securities
|
|
|
183,081
|
|
|
|
183,081
|
|
|
|
181,784
|
|
|
|
181,784
|
|
Held-to-maturity
securities
|
|
|
22,217
|
|
|
|
22,112
|
|
|
|
15,177
|
|
|
|
15,397
|
|
Loans held for sale
|
|
|
3,425
|
|
|
|
3,425
|
|
|
|
6,574
|
|
|
|
6,574
|
|
Loans receivable, net
|
|
|
563,228
|
|
|
|
578,080
|
|
|
|
655,602
|
|
|
|
683,300
|
|
Accrued interest receivable
|
|
|
4,360
|
|
|
|
4,360
|
|
|
|
5,077
|
|
|
|
5,077
|
|
BOLI
|
|
|
8,765
|
|
|
|
8,765
|
|
|
|
8,397
|
|
|
|
8,397
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit liabilities
|
|
|
778,833
|
|
|
|
741,426
|
|
|
|
819,321
|
|
|
|
786,704
|
|
Borrowings
|
|
|
155,643
|
|
|
|
156,200
|
|
|
|
160,760
|
|
|
|
160,469
|
|
Accrued interest payable
|
|
|
1,406
|
|
|
|
1,406
|
|
|
|
1,211
|
|
|
|
1,211
|
|
The methods and assumptions used to estimate the fair values of
each class of financial instruments are as follows:
Cash,
Cash Equivalents, Federal Funds and Certificates of
Deposit
The carrying value of cash, cash equivalents, federal funds sold
and certificates of deposit approximates fair value due to the
relatively short-term nature of these instruments.
Investments
and BOLI
See the discussion above regarding the fair values of investment
securities. The fair value of BOLI is equal to the cash
surrender value of the life insurance policies.
Loans
Receivable and Loans Held For Sale
The fair value of performing mortgage loans, commercial real
estate, construction, consumer and commercial loans is estimated
by discounting the cash flows using interest rates that consider
the interest rate risk inherent in the loans and current
economic and lending conditions. Non-accrual loans are assumed
to be carried at their current fair value and therefore are not
adjusted.
Deposits
The fair values for deposits subject to immediate withdrawal
such as interest and non-interest bearing checking, savings and
money market deposit accounts are discounted using market rates
for replacement dollars and using industry and bank-specific
statistics for decay/maturity dates. The carrying amounts for
variable-rate certificates of deposit and other time deposits
approximate their fair value at the reporting date. Fair values
for fixed-rate certificates of deposit are estimated by
discounting future cash flows using interest rates currently
offered on time deposits with similar remaining maturities.
F-57
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Borrowings
The carrying amounts of short-term borrowings under repurchase
agreements approximate their fair values due to the relatively
short period of time between the origination of the instruments
and their expected payment. The fair value of long-term FHLB
Seattle advances and other long-term borrowings is estimated
using discounted cash flow analyses based on the Companys
current incremental borrowing rates for similar types of
borrowing arrangements with similar remaining terms.
Accrued
Interest
The carrying amounts of accrued interest payable and receivable
approximate their fair value.
|
|
21.
|
Quarterly
Financial Data (Unaudited)
|
The following tables present Intermountains condensed
operations on a quarterly basis for the years ended
December 31, 2010 and 2009 (dollars in thousands, except
per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Interest income
|
|
$
|
11,616
|
|
|
$
|
11,599
|
|
|
$
|
11,737
|
|
|
$
|
11,097
|
|
Interest expense
|
|
|
(3,197
|
)
|
|
|
(2,839
|
)
|
|
|
(2,711
|
)
|
|
|
(2,038
|
)
|
Provision for losses on loans
|
|
|
(6,808
|
)
|
|
|
(4,914
|
)
|
|
|
(10,058
|
)
|
|
|
(2,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for losses on loans
|
|
|
1,611
|
|
|
|
3,846
|
|
|
|
(1,032
|
)
|
|
|
6,827
|
|
Other income
|
|
|
2,523
|
|
|
|
2,998
|
|
|
|
2,817
|
|
|
|
2,686
|
|
Operating expenses
|
|
|
(11,560
|
)
|
|
|
(11,277
|
)
|
|
|
(21,918
|
)
|
|
|
(10,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(7,426
|
)
|
|
|
(4,433
|
)
|
|
|
(20,133
|
)
|
|
|
(626
|
)
|
Income tax provision (benefit)
|
|
|
(3,117
|
)
|
|
|
(1,934
|
)
|
|
|
4,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,309
|
)
|
|
$
|
(2,499
|
)
|
|
$
|
(24,302
|
)
|
|
$
|
(626
|
)
|
Preferred stock dividend
|
|
|
419
|
|
|
|
427
|
|
|
|
432
|
|
|
|
438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(4,728
|
)
|
|
$
|
(2,926
|
)
|
|
$
|
(24,734
|
)
|
|
$
|
(1,064
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic
|
|
$
|
(0.56
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(2.95
|
)
|
|
$
|
(0.13
|
)
|
Earnings per share diluted
|
|
$
|
(0.56
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(2.95
|
)
|
|
$
|
(0.13
|
)
|
Weighted average shares outstanding basic
|
|
|
8,372,315
|
|
|
|
8,388,128
|
|
|
|
8,390,877
|
|
|
|
8,390,877
|
|
Weighted average shares outstanding diluted
|
|
|
8,372,315
|
|
|
|
8,388,128
|
|
|
|
8,390,877
|
|
|
|
8,390,877
|
|
F-58
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter(1)
|
|
|
Interest income
|
|
$
|
14,347
|
|
|
$
|
14,483
|
|
|
$
|
13,603
|
|
|
$
|
11,434
|
|
Interest expense
|
|
|
(4,445
|
)
|
|
|
(4,271
|
)
|
|
|
(3,942
|
)
|
|
|
(3,512
|
)
|
Provision for losses on loans
|
|
|
(2,770
|
)
|
|
|
(18,684
|
)
|
|
|
(3,756
|
)
|
|
|
(11,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for losses on loans
|
|
|
7,132
|
|
|
|
(8,472
|
)
|
|
|
5,905
|
|
|
|
(3,197
|
)
|
Other income
|
|
|
3,513
|
|
|
|
2,704
|
|
|
|
3,107
|
|
|
|
2,667
|
|
Operating expenses
|
|
|
(10,773
|
)
|
|
|
(12,666
|
)
|
|
|
(12,956
|
)
|
|
|
(13,235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(128
|
)
|
|
|
(18,434
|
)
|
|
|
(3,944
|
)
|
|
|
(13,765
|
)
|
Income tax provision (benefit)
|
|
|
(9
|
)
|
|
|
(7,432
|
)
|
|
|
(1,702
|
)
|
|
|
(5,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(119
|
)
|
|
$
|
(11,002
|
)
|
|
$
|
(2,242
|
)
|
|
$
|
(8,548
|
)
|
Preferred stock dividend
|
|
|
414
|
|
|
|
415
|
|
|
|
416
|
|
|
|
417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(533
|
)
|
|
$
|
(11,417
|
)
|
|
$
|
(2,658
|
)
|
|
$
|
(8,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic
|
|
$
|
(0.06
|
)
|
|
$
|
(1.37
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(1.07
|
)
|
Earnings per share diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(1.37
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(1.07
|
)
|
Weighted average shares outstanding basic
|
|
|
8,348,238
|
|
|
|
8,362,402
|
|
|
|
8,365,836
|
|
|
|
8,365,836
|
|
Weighted average shares outstanding diluted
|
|
|
8,348,238
|
|
|
|
8,362,402
|
|
|
|
8,365,836
|
|
|
|
8,365,836
|
|
|
|
|
(1) |
|
In 2009, the Company reversed $1.0 million in interest
income related to nonperforming and charged off loans. |
|
|
22.
|
Parent
Company-Only Financial Information
|
Intermountain Community Bancorp became the holding company for
Panhandle State Bank on January 27, 1998. The following
Intermountain Community Bancorp parent company-only financial
information should be read in conjunction with the other notes
to the consolidated financial statements. The accounting
policies for the parent company-only financial statements are
the same as those used in the presentation of the consolidated
financial statements other than the parent company-only
financial statements account for the parent companys
investments in its subsidiaries under the equity method (in
thousands).
F-59
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,163
|
|
|
$
|
1,942
|
|
Certificates of Deposit
|
|
|
|
|
|
|
862
|
|
Investment in subsidiaries
|
|
|
80,473
|
|
|
|
107,374
|
|
Prepaid expenses and other assets
|
|
|
434
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
83,070
|
|
|
$
|
110,396
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Other borrowings
|
|
$
|
16,527
|
|
|
$
|
16,527
|
|
Other liabilities
|
|
|
7,190
|
|
|
|
5,242
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
23,717
|
|
|
|
21,769
|
|
Stockholders Equity
|
|
|
59,353
|
|
|
|
88,627
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
83,070
|
|
|
$
|
110,396
|
|
|
|
|
|
|
|
|
|
|
Condensed
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Interest income
|
|
$
|
1
|
|
|
$
|
72
|
|
|
$
|
2
|
|
Interest expense
|
|
|
(1,035
|
)
|
|
|
(1,843
|
)
|
|
|
(1,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
|
|
|
(1,034
|
)
|
|
|
(1,771
|
)
|
|
|
(1,776
|
)
|
Equity in net earnings of subsidiary
|
|
|
(30,267
|
)
|
|
|
(19,188
|
)
|
|
|
3,371
|
|
Other income
|
|
|
|
|
|
|
673
|
|
|
|
703
|
|
Operating expenses
|
|
|
(434
|
)
|
|
|
(1,625
|
)
|
|
|
(1,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(31,735
|
)
|
|
$
|
(21,911
|
)
|
|
$
|
1,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-60
INTERMOUNTAIN
COMMUNITY BANCORP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
31,736
|
|
|
$
|
(21,911
|
)
|
|
$
|
1,254
|
|
Equity income from subsidiary
|
|
|
30,267
|
|
|
|
19,188
|
|
|
|
(3,371
|
)
|
Depreciation
|
|
|
|
|
|
|
291
|
|
|
|
296
|
|
Other
|
|
|
828
|
|
|
|
211
|
|
|
|
(161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(641
|
)
|
|
|
(2,221
|
)
|
|
|
(1,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in and advances to subsidiaries
|
|
|
|
|
|
|
3,250
|
|
|
|
(23,000
|
)
|
Sale of premises and equipment
|
|
|
|
|
|
|
21,284
|
|
|
|
|
|
Purchase of office properties
|
|
|
|
|
|
|
(131
|
)
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
|
|
|
24,403
|
|
|
|
(23,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from other borrowings
|
|
|
|
|
|
|
23,000
|
|
|
|
3,657
|
|
Proceeds from preferred stock issuance, net of expenses
|
|
|
|
|
|
|
|
|
|
|
26,908
|
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
56
|
|
|
|
186
|
|
Repayment of borrowings
|
|
|
|
|
|
|
(47,086
|
)
|
|
|
(41
|
)
|
Cash dividends paid to preferred stockholders
|
|
|
|
|
|
|
(1,223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
|
|
|
|
(25,253
|
)
|
|
|
30,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(641
|
)
|
|
|
(3,071
|
)
|
|
|
5,518
|
|
Cash and cash equivalents, beginning of year
|
|
|
2,804
|
|
|
|
5,875
|
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
2,163
|
|
|
$
|
2,804
|
|
|
$
|
5,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-61