10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2008

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM            TO

Commission File Number 000-50667

INTERMOUNTAIN COMMUNITY BANCORP

(Exact name of registrant as specified in its charter)

Idaho
(State or other jurisdiction of
incorporation or organization) 82-0499463
(I.R.S. Employer
Identification No.)

414 Church Street, Sandpoint, Idaho 83864
(Address of principal executive offices) (Zip Code)

(208) 263-0505
(Registrant’s telephone number, including area code)

231 North Third Avenue, Sandpoint, Idaho 83864
(Former name, former address and former fiscal year, if changed since last report)

     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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

Class	Outstanding as of May 5, 2008
Common Stock (no par value)	8,283,613

Intermountain Community Bancorp

FORM 10-Q
For the Quarter Ended March 31, 2008

TABLE OF CONTENTS

	Page
PART I — Financial Information
Item 1 — Financial Statements (Unaudited)		3
Consolidated Balance Sheets for March 31, 2008 and December 31, 2007		3
Consolidated Statements of Income for the three months ended March 31, 2008 and 2007		4
Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007		5
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2008 and 2007		7
Notes to Consolidated Financial Statements		8
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3 — Quantitative and Qualitative Disclosures About Market Risk		27
Item 4 — Controls and Procedures		27
PART II — Other Information
Item 1 — Legal Proceedings		28
Item 1A — Risk Factor		28
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds		28
Item 3 — Defaults Upon Senior Securities		28
Item 4 — Submission of Matters to a Vote of Security Holders		28
Item 5 — Other Information		28
Item 6 — Exhibits		29
Signatures		30
EXHIBIT 10.2
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32
EXHIBIT 99.1

2

PART I — Financial Information

Item 1 — Financial Statements

Intermountain Community Bancorp

Consolidated Balance Sheets
(Unaudited)

	March 31,		December 31,
	2008		2007
	(Dollars in thousands)
ASSETS:
Cash and cash equivalents:
Interest bearing	$	1,134	$	149
Non-interest bearing and vault		25,392		26,851
Restricted cash		406		4,527
Federal funds sold		3,125		6,565
Available-for-sale securities, at fair value		143,518		158,791
Held-to-maturity securities, at amortized cost		11,293		11,324
Federal Home Loan Bank of Seattle (FHLB) stock, at cost		1,779		1,779
Loans held for sale		3,143		4,201
Loans receivable, net		748,349		756,549
Accrued interest receivable		6,899		8,207
Office properties and equipment, net		44,701		42,090
Bank-owned life insurance		7,788		7,713
Goodwill		11,662		11,662
Other intangible assets		686		723
Prepaid expenses and other assets, net		7,826		7,528
Total assets	$	1,017,701	$	1,048,659
LIABILITIES:
Deposits	$	727,148	$	757,838
Securities sold subject to repurchase agreements		105,006		124,127
Advances from Federal Home Loan Bank of Seattle		29,000		29,000
Cashier checks issued and payable		1,058		1,509
Accrued interest payable		2,155		3,027
Other borrowings		55,402		36,998
Accrued expenses and other liabilities		5,650		6,041
Total liabilities		925,419		958,540
Commitments and contingent liabilities
STOCKHOLDERS’ EQUITY:
Common stock, no par value; 29,040,000 shares authorized; 8,371,979 and 8,313,005 shares issued and 8,283,176 and 8,248,710 shares outstanding		76,746		76,746
Accumulated other comprehensive income		2,070		1,327
Retained earnings		13,466		12,046
Total stockholders’ equity		92,282		90,119
Total liabilities and stockholders’ equity	$	1,017,701	$	1,048,659

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

3

Intermountain Community Bancorp

Consolidated Statements of Income

(Unaudited)

	Three Months Ended
	March 31,
	2008			2007
	(Dollars in thousands, except
	per share data)
Interest income:
Loans	$	15,017		$	15,061
Investments		2,184			1,995
Total interest income		17,201			17,056
Interest expense:
Deposits		4,029			4,434
Other borrowings		1,846			1,774
Total interest expense		5,875			6,208
Net interest income		11,326			10,848
(Provision for) recovery of losses on loans		(258	)		(834	)
Net interest income after provision for and recovery of losses on loans		11,068			10,014
Other income:
Fees and service charges		2,004			1,787
Mortgage banking operations		406			730
Bank-owned life insurance		74			77
Other		294			447
Total other income		2,778			3,041
Operating expenses		11,259			9,677
Income before income taxes		2,587			3,378
Income tax provision		(933	)		(1,285	)
Net income	$	1,654		$	2,093
Earnings per share — basic	$	0.20		$	0.26
Earnings per share — diluted	$	0.19		$	0.24
Weighted average shares outstanding — basic		8,271,104			8,161,310
Weighted average shares outstanding — diluted		8,564,618			8,615,307

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

4

Intermountain Community Bancorp

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended
	March 31,
	2008			2007
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	1,654		$	2,093
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		759			576
Stock-based compensation expense		166			76
Net accretion of premiums on securities		(107	)		(155	)
Excess tax benefit related to stock-based compensation		—			(188	)
Provisions for and (recoveries of) losses on loans		258			834
Accretion of core deposit intangibles		37			40
Gain on sale of loans, investments, property and equipment		(152	)		(141	)
Gain on sale of other real estate owned		(21	)		—
Accretion of deferred gain on sale of branch property		(4	)		(4	)
Net accretion of loan and deposit discounts and premiums		(6	)		(11	)
Increase in cash surrender value of bank-owned life insurance		(75	)		(77	)
Change in:
Loans held for sale		1,058			4,197
Accrued interest receivable		1,308			821
Prepaid expenses and other assets		(1,174	)		(1,426	)
Accrued interest payable		(872	)		300
Accrued expenses and other liabilities		(1,227	)		(1,467	)
Net cash provided by operating activities		1,602			5,468
Cash flows from investing activities:
Purchases of available-for-sale securities		—			(23,929	)
Proceeds from calls or maturities of available-for-sale securities		13,590			41,224
Principal payments on mortgage-backed securities		3,033			1,759
Proceeds from calls or maturities of held-to-maturity securities		18			42
Origination of loans, net of principal payments		2,406			(22,292	)
Proceeds from sale of loans		6,198			935
Proceeds from sale of other real estate owned		62			—
Purchase of office properties and equipment		(3,369	)		(4,425	)
Proceeds from sale of office properties and equipment		—			2,244
Net change in federal funds sold		3,440			(18,865	)
Improvements and other changes in other real estate owned		—			280
Net decrease in restricted cash		4,121			356
Net cash (used in) provided by investing activities		29,499			(22,671	)

5

Intermountain Community Bancorp
Consolidated Statements of Cash Flows (continued)
(Unaudited)

	Three Months Ended
	March 31,
	2008			2007
	(Dollars in thousands)
Cash flows from financing activities:
Net change in demand, money market and savings deposits	$	(22,079	)	$	35,010
Net change in certificates of deposit		(8,613	)		(13,411	)
Net change in repurchase agreements		(19,121	)		(14,018	)
Principal reduction of note payable		(13	)		(9	)
Excess tax benefit related to stock-based compensation		—			188
Acquisition of treasury stock		(190	)		—
Proceeds from exercise of stock options		24			152
Proceeds from other borrowings		18,417			2,446
Net cash (used in) provided by financing activities		(31,575	)		10,358
Net change in cash and cash equivalents		(474	)		(6,845	)
Cash and cash equivalents, beginning of period		27,000			24,377
Cash and cash equivalents, end of period	$	26,526		$	17,532
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	6,080		$	7,099
Income taxes		375			475
Noncash investing and financing activities:
Restricted stock issued		521			684
Deferred gain on sale/leaseback		—			312
Loans converted to other real estate owned		502			—

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

6

Intermountain Community Bancorp

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended
	March 31,
	2008			2007
	(Dollars in thousands)
Net income	$	1,654		$	2,093
Other comprehensive income:
Change in unrealized gains on investments, net of reclassification adjustments		1,231			529
Less deferred income tax benefit		(488	)		(209	)
Net other comprehensive income		743			320
Comprehensive income	$	2,397		$	2,413

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

7

Intermountain Community Bancorp

Notes to Consolidated Financial Statements

1.	Basis of Presentation:
	The foregoing unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2007. In the opinion of management, the unaudited interim consolidated financial statements furnished herein include adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented.
	The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of Intermountain Community Bancorp’s (“Intermountain” or “the Company”) consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of Intermountain’s consolidated financial position and results of operations.
2.	Advances from the Federal Home Loan Bank of Seattle:
	During June of 2003 the Bank obtained an advance from the Federal Home Loan Bank of Seattle (FHLB Seattle) in the amount of $5,000,000. The note is due in May 2008 with interest only payable monthly at 2.71%. During September 2007, the Bank obtained two advances from the FHLB Seattle in the amounts of $10.0 million and $14.0 million with interest only payable at 4.96% and 4.90% and maturities in September 2010 and September 2009, respectively. The Bank also had a $4.0 million cash management advance from the FHLB Seattle with a maturity of April 1, 2008 and an interest rate of 3.35%. This advance is classified as federal funds purchased with other borrowings on the balance sheet.
	Advances from FHLB Seattle are collateralized by certain qualifying loans with a carrying value of approximately $29.0 million at March 31, 2008. The Bank’s credit line with FHLB Seattle is limited to a percentage of its total regulatory assets subject to collateralization requirements. At March 31, 2008, Intermountain had the ability to borrow an additional $52.9 million from FHLB Seattle. Intermountain would be able to borrow amounts in excess of this total from the FHLB Seattle with the placement of additional available collateral.
3.	Other Borrowings:
	The components of other borrowings are as follows (in thousands):

	March 31,		December 31,
	2008		2007
Term note payable (1)	$	8,279	$	8,279
Term note payable (2)		8,248		8,248
Term note payable (3)		970		982
Term note payable (4)		21,795		19,489
Federal funds purchased (5)		16,110		—
Total other borrowings	$	55,402	$	36,998

(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 bore a fixed interest rate for a period of five years from issue date and now 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

8

	borrowing was 5.86% at March 31, 2008. The debt is callable by the Company in March 2008 and matures in March 2033. See Note A.
(2)	In March 2004, the Company issued $8.0 million of Trust Preferred securities through its subsidiary, Intermountain Statutory Trust II. The debt associated with these securities bears interest on a variable basis tied to the 90-day LIBOR index plus 2.8%, with interest only paid quarterly. The rate on this borrowing was 7.10% at March 31, 2008. The debt is callable by the Company after five years and matures in April 2034. See Note A.
(3)	In January 2006, the Company purchased land to build its new headquarters, the Sandpoint Center in Sandpoint, Idaho. It entered into a Note Payable with the sellers of the property in the amount of $1.13 million, with a fixed rate of 6.65%. The note matures in February 2026.
(4)	In December 2007, the Company renewed a borrowing agreement with Pacific Coast Bankers Bank in the amount of $25.0 million. The borrowing agreement is a revolving line of credit with a variable rate of interest tied to LIBOR with a maturity date of January 18, 2009. The collateral for the credit line is all of Panhandle State Bank’s stock and the Sandpoint Center, which is currently under construction. Under the restrictive covenants of the borrowing agreement, Intermountain cannot incur additional debt outside of its normal course of business over $5.0 million without Pacific Coast Banker’s Bank’s consent, and Intermountain is obligated to provide information regarding the loan portfolio on a regular basis. At March 31, 2008, the balance outstanding was $21,795,000 at a rate of 4.57%.
(5)	The Company had overnight borrowings in the amount of $16,110,000 with a weighted average interest rate of 2.90% and a maturity of April 1, 2008. Included in overnight borrowings was a $4.0 million cash management advance from the FHLB Seattle.

A) Intermountain’s obligations under the above debentures issued by its subsidiaries constitute a full and unconditional guarantee by Intermountain of the Statutory Trusts’ obligations under the Trust Preferred Securities. In accordance with Financial Interpretation No. 46 (Revised), “Consolidation of Variable Interest Entities” (“FIN No. 46R”), the trusts are not consolidated and the debentures and related amounts are treated as debt of Intermountain.

4.	Earnings Per Share:
	The following table presents the basic and diluted earnings per share computations:

	Three Months Ended March 31,
	(Dollars in thousands, except per share amounts)
			2008						2007
	Net		Weighted	Per Share			Net		Weighted	Per Share
	Income		Avg. Shares	Amount			Income		Avg. Shares	Amount
Basic computations	$	1,654	8,271,104	$	0.20		$	2,093	8,161,310	$	0.26
Effect of dilutive securities:
Common stock options and stock grants		—	293,514		(0.01	)		—	453,997		(0.02	)
Diluted computations	$	1,654	8,564,618	$	0.19		$	2,093	8,615,307	$	0.24

5.	Operating Expenses:
	The following table details Intermountain’s components of total operating expenses:

	Three Months Ended
	March 31,
	2008		2007
	(Dollars in thousands)
Salaries and employee benefits	$	6,946	$	6,120
Occupancy expense		1,652		1,392

9

	Three Months Ended
	March 31,
	2008		2007
	(Dollars in thousands)
Advertising		266		219
Fees and service charges		434		278
Printing, postage and supplies		349		346
Legal and accounting		448		273
Other expense		1,164		1,049
Total operating expenses	$	11,259	$	9,677

6.	Stock-Based Compensation Plans:
	The Company utilizes its stock to compensate employees and Directors under the 1999 Director Stock Option Plan, the 1999 Employee Plan and the 1988 Employee Plan (together the “Stock Option Plans”). Options to purchase Intermountain common stock have been granted to employees and directors under the Stock Option Plans at prices equal to the fair market value of the underlying stock on the dates the options were granted. The options vest 20% per year, over a five-year period, and expire in 10 years. At March 31, 2008, there were 212,687 shares available for grant. The Company did not grant options to purchase Intermountain common stock during either the three months ended March 31, 2008 or 2007.
	For the periods ended March 31, 2008 and 2007, stock option expense totaled $34,000 and $32,000, respectively. The Company has approximately $101,000 remaining to expense related to the non-vested stock options outstanding at March 31, 2008. This expense will be recorded over a weighted average period of 9.0 months. The expense for the stock options was calculated using the Black-Scholes valuation model per Statement 123 (R). Assumptions used in the Black-Scholes option-pricing model for options issued in years prior to 2005 are as follows:

Dividend yield		0.0	%
Expected volatility		17.0% - 46.6	%
Risk free interest rates		4.0% - 7.1	%
Expected option lives	5 - 10 years

In 2003, shareholders approved a change to the 1999 Employee Option Plan to provide for the granting of restricted stock awards. The Company has granted restricted stock to directors and employees beginning in 2005. The restricted stock vests 20% per year, over a five-year period. The Company granted 35,949 and 28,497 restricted shares with a grant date fair value of $521,000 and $684,000 during the three months ended March 31, 2008 and 2007, respectively. For the periods ended March 31, 2008 and 2007, restricted stock expense totaled $78,000 and $32,000, respectively. Total expense related to stock-based compensation is comprised of restricted stock expense, stock option expense and expense related to the 2006-2008 Long-Term Incentive Plan (“LTIP”). The LTIP expense is based on anticipated company performance over a 3 year period and had a 5-year vesting period. As anticipated company performance changes, the expense related to the LTIP can fluctuate. Total expense related to stock-based compensation recorded in the three months ended March 31, 2008 and 2007 was $166,000 and $32,000, respectively.

A summary of the changes in stock options outstanding for the three months ended March 31, 2008 is presented below:

	Three months ended March 31, 2008
	(dollars in thousands, except per share amounts)
			Weighted		Weighted
	Number		Average		Average
	of		Exercise		Remaining
	Shares		Price		life (Years)
Beginning Options Outstanding		487,329	$	5.48
Options Granted		—		—
Exercises		4,945		4.86
Ending options outstanding		482,384		5.48		2.9
Exercisable at March 31		457,006	$	5.22		2.70

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The total intrinsic value of options exercised during the periods ended March 31, 2008 and 2007 was $43,000 and $468,000, respectively.

A summary of the Company’s nonvested restricted shares for the three months ended March 31, 2008 is presented below:

				Weighted-
				Average
				Grant-Date
Nonvested Shares	Shares			Fair Value
Nonvested at January 1, 2008		64,295		$	19.53
Granted		35,949			14.50
Vested		(10,863	)		20.01
Forfeited		(578	)		18.67
Nonvested at March 31, 2008		88,803		$	17.44

	As of March 31, 2008, there was $1.5 million of unrecognized compensation cost related to nonvested share-based compensation arrangements granted under this plan. This cost is expected to be recognized over a weighted-average period of 3.7 years.
7.	Fair Value Measurements
	Effective January 1, 2008, the Company adopted SFAS No. 157 (SFAS 157), “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, SFAS 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:
	Level 1 inputs — Unadjusted quoted process 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 for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
	Available-for-sale securities is the only balance sheet category the Company is required by generally accepted accounting principles to account for at fair value. The following table presents information about the Company’s assets measured at fair value on a recurring basis as of March 31, 2008, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (dollars in thousands).

			Fair Value Measurements
			At March 31, 2008, Using
			Quoted Prices
			In Active	Other		Significant
			Markets for	Observable		Unobservable
	Fair Value		Identical Assets	Inputs		Inputs
Description	Mar. 31, 2008		(Level 1)	(Level 2)		(Level 3)
Available-for-Sale Securities	$	143,518	$                  —	$	143,518	$                  —
Total Assets Measured at Fair Value	$	143,518	$                  —	$	143,518	$                  —

11

	Available for Sale Securities. Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. 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 bond’s terms and conditions, among other things.
	In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115.” This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company has not elected the fair value option for any financial assets or liabilities at March 31, 2008.
8.	Subsequent Events:
	Subsequent to the end of the first quarter, as part of its interest rate and investment management program, the Company sold $32.0 million in the available for sale investment securities and reinvested the proceeds in other available-for-sale investment securities. The transaction resulted in an after-tax gain on sale of investments of approximately $1.4 million. This will be reflected in second quarter 2008 income.
9.	New Accounting Policies:
	In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. SFAS 157 is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157. This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of adoption was not material.
	In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The Company did not elect the fair value option for any financial assets or financial liabilities as of January 1, 2008, the effective date of the standard.
	In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements (“SFAS 160”). SFAS 160 re-characterizes minority interests in consolidated subsidiaries as non-controlling interests and requires the classification of minority interests as a component of equity. Under SFAS 160, a change in control will be measured at fair value, with any gain or loss recognized in earnings. The effective date for SFAS 160 is for annual periods beginning on or after December 15, 2008. Early adoption and retroactive application of SFAS 160 to fiscal years preceding the effective date are not permitted. The Company is evaluating the impact of adoption on its Consolidated Financial Statements.
	In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). SFAS 161 requires specific disclosures regarding the location and amounts of derivative instruments in the Company’s financial statements; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect the Company’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued and for fiscal years and interim periods after November 15, 2008. Early application is permitted. Because SFAS 161 impacts the Company’s disclosure and not its accounting treatment for derivative instruments and related hedged items, the Company’s adoption of SFAS 161 will not impact the Consolidated Financial Statements.
	In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4 (“EITF 06-4”), Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life

12

Insurance Arrangements. EITF 06-4 requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants’ employment or retirement. The required accrued liability will be based on either the post-employment benefit cost for the continuing life insurance or based on the future death benefit depending on the contractual terms of the underlying agreement. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. Effective January 1, 2008, the Company recorded a liability in the amount of $389,000 and a reduction in equity in the amount of $235,000 to record the liability as of January 1, 2008.

On November 5, 2007, the SEC issued Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at Fair Value through Earnings (“SAB 109”). Previously, SAB 105, Application of Accounting Principles to Loan Commitments, stated that in measuring the fair value of a derivative loan commitment, a company should not incorporate the expected net future cash flows related to the associated servicing of the loan. SAB 109 supersedes SAB 105 and indicates that the expected net future cash flows related to the associated servicing of the loan should be included in measuring fair value for all written loan commitments that are accounted for at fair value through earnings. SAB 105 also indicated that internally-developed intangible assets should not be recorded as part of the fair value of a derivative loan commitment, and SAB 109 retains that view. SAB 109 is effective for derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The Company believes the impact of this standard to be immaterial.

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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

          This report contains forward-looking statements. For a discussion about such statements, including the risks and uncertainties inherent therein, see “Forward-Looking Statements.” Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes presented elsewhere in this report and in Intermountain’s Form 10-K for the year ended December 31, 2007.

General

     Intermountain Community Bancorp (“Intermountain” or the “Company”) is a financial holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was formed as Panhandle Bancorp in October 1997 under the laws of the State of Idaho in connection with a holding company reorganization of Panhandle State Bank (the “Bank”) that was approved by the shareholders on November 19, 1997 and became effective on January 27, 1998. In June 2000, Panhandle Bancorp changed its name to Intermountain Community Bancorp.

     Panhandle State Bank, a wholly owned subsidiary of the Company, was first opened in 1981 to serve the local banking needs of Bonner County, Idaho. Panhandle State Bank is regulated by the Idaho Department of Finance, the State of Washington Department of Financial Institutions, the Oregon Division of Finance and Corporate Securities and by the Federal Deposit Insurance Corporation (“FDIC”), its primary federal regulator and the insurer of its deposits.

     Since opening in 1981, the Bank has continued to grow by opening additional branch offices throughout Idaho. During 1999, the Bank opened its first branch under the name of Intermountain Community Bank, a division of Panhandle State Bank, in Payette, Idaho. Over the next 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 southcentral 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 and Fruitland, Idaho.

     In 2006, Intermountain also opened a Trust & Wealth division, and purchased a small investment company, Premier Alliance, which now operates as Intermountain Community Investment Services (ICI). The acquisition and development of these services improves the Company’s ability to provide a full-range of financial services to its targeted customers. In 2007, the Company relocated its Spokane Valley office to a larger facility housing retail, commercial, and mortgage banking functions and administrative staff. In the first quarter, 2008, the Bank neared completion of the Sandpoint Center, its new corporate headquarters and began relocating administrative staff into the building. It expects to complete this relocation and move the Sandpoint branch to the new center in second quarter 2008.

     Based on asset size at March 31, 2008, Intermountain is the largest independent commercial bank headquartered in the state of Idaho, with consolidated assets of $1.02 billion. Intermountain competes with a number of international banking groups, out-of-state banking companies, state banking organizations, local community banks, savings banks, savings and loans, and credit unions throughout its market area.

     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 services, and business cash management solutions round out the company’s financial offerings.

     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 more recently focused on standardizing and centralizing administrative and operational functions to improve efficiency and the ability of the branches to serve customers effectively.

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Current Economic Challenges and Future Economic Outlook

     After a long period of economic prosperity, both the nation and the Company’s local markets have struggled over the past year. A slowing economy and significant downturns in real estate markets have combined with increasing inflation to create substantial challenges for the Company’s customers and communities. The federal government has moved proactively to limit the damage, but in doing so has produced a dramatic drop in short-term interest rates. This combination of economic factors has impacted the Company negatively in the following ways:

• A slowdown in loan demand, as both the Bank and its borrowers respond to current conditions with increasing caution;

• Slowing deposit demand, as customers have less cash to save with rising inflation and are responding negatively to lowered deposit interest rates;

• Decreasing net interest margin, as the Company’s assets, and particularly its loans, have repriced down more quickly in response to a 3.0% drop in the Federal Funds rate over the past eight months than its deposits and other liabilities;

• Higher non-performing loans and credit losses, as existing borrowers, particularly those in the real estate industry, struggle to make payments and sell assets; and

• Slowing fee income growth, particularly fees derived from mortgage banking activity

          Amidst these challenges, there are some positive factors at work in the Company’s markets. The economies of Idaho, eastern Washington and eastern Oregon have generally been stronger than other markets, as a result of: (1) continuing in-migration and population growth trends; (2) a strong agricultural economy; (3) a diversity of different industries, including manufacturing, natural resources, technology, health care, retail, professional services, tourism and real estate; and (4) benefits from the weak dollar due to the region’s proximity to Canada and a relatively high proportion of export businesses.

          As detailed in the discussion of its results below, the Company’s performance has been adversely impacted by the struggling economy. The Company is responding to the current challenges by actively monitoring and managing its loan portfolio, focusing on retaining, expanding and growing its high-value customers, providing leadership and assistance in its communities, and streamlining operations. While its focus is clear, there can be no assurance that Intermountain will be successful in executing these plans.

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. Intermountain’s 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 Intermountain’s Consolidated Financial Statements and Management’s 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, Intermountain discontinues the accrual of interest and reverses any previously accrued interest recognized in income deemed uncollectible. Interest received on nonperforming loans is included in income only if recovery of the principal is reasonably assured. A nonperforming loan is restored to accrual status when it is brought current or when brought to 90 days or less delinquent, has performed in accordance with contractual terms for a reasonable period of time, and the collectibility of the total contractual principal and interest is no longer in doubt.

          Allowance For Loan Losses. In general, determining the amount of the allowance for loan losses requires significant judgment and the use of estimates by management. This analysis is designed to determine an appropriate level and allocation of the allowance for losses among loan types and loan classifications by considering factors affecting loan losses, including: specific losses; levels and trends in impaired and nonperforming loans; historical bank and industry loan loss experience; current national and local economic conditions; volume, growth and composition of

15

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 management’s analysis.

     The amount of the allowance for the various loan types represents management’s estimate of probable incurred losses inherent in the existing loan portfolio based upon historical bank and industry loan loss experience for each loan type. The allowance for loan losses related to impaired loans usually is based on the fair value of the collateral for certain collateral dependent loans. This evaluation requires management to make estimates of the value of the collateral and any associated holding and selling costs.

     Individual loan reviews are based upon specific quantitative and qualitative criteria, including the size of the loan, loan quality classifications, value of collateral, repayment ability of borrowers, and historical experience factors. The historical experience factors utilized are based upon past loss experience, trends in losses and delinquencies, the growth of loans in particular markets and industries, and known changes in economic conditions in the particular lending markets. Allowances for homogeneous loans (such as residential mortgage loans, personal loans, etc.) are collectively evaluated based upon historical bank and industry loan loss experience, trends in losses and delinquencies, growth of loans in particular markets, and known changes in economic conditions in each particular lending market. The Allowance for Loan Losses analysis is presented to the Audit Committee for review.

     Management believes the allowance for loan losses was adequate at March 31, 2008. While management uses available information to provide for loan losses, the ultimate collectibility of a substantial portion of the loan portfolio and the need for future additions to the allowance will be based on changes in economic conditions and other relevant factors. A slowdown in economic activity could adversely affect cash flows for both commercial and individual borrowers, as a result of which the Company could experience increases in nonperforming assets, delinquencies and losses on loans.

     A reserve for unfunded commitments is maintained at a level that, in the opinion of management, is adequate to absorb probable losses associated with the Bank’s 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 portfolios 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 the Company has the intent and ability to hold to maturity, and are recorded at amortized cost. Available-for-sale securities are those securities that would be available to be sold in the future in response to liquidity needs, changes in market interest rates, and asset-liability management strategies, among others. Available-for-sale securities are reported at fair value, with unrealized holding gains and losses 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 investment securities falls below their amortized cost and the decline is deemed to be other than temporary, the securities will be written down to current market value and the write down will be deducted from earnings. There were no investment securities which management identified to be other-than-temporarily impaired for the three months ended March 31, 2008. Charges to income could occur in future periods due to a change in management’s intent to hold the investments to maturity, a change in management’s 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. Intermountain’s goodwill relates to value inherent in the banking business and the value is dependent upon Intermountain’s ability to provide quality, cost effective services in a competitive market place. As such, goodwill value is supported ultimately by revenue that is

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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 periodically. No impairment was considered necessary during the three months ended March 31, 2008. However, future events could cause management to conclude that Intermountain’s goodwill is impaired, which would result in the recording of an impairment loss. Any resulting impairment loss could have a material adverse impact on Intermountain’s financial condition and results of operations.

     Other intangible assets consisting of core-deposit intangibles with definite lives are amortized over the estimated life of the acquired depositor relationships.

     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. Development and improvement costs relating to the property are capitalized to the extent they are deemed to be recoverable.

     An allowance for losses on real estate owned is designed to include amounts for estimated losses as a result of impairment in value of the real property after repossession. Intermountain reviews its real estate owned for impairment in value whenever events or circumstances indicate that the carrying value of the property may not be recoverable. In performing the review, if expected future undiscounted cash 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, an allowance for loss is recognized. As a result of changes in the real estate markets in which these properties are located, it is reasonably possible that the carrying values could be reduced in the near term.

Intermountain Community Bancorp
Comparison of the Three Month Periods Ended March 31, 2008 and 2007

Results of Operations

     Overview. Intermountain recorded net income of $1.7 million, or $0.19 per diluted share, for the three months ended March 31, 2008, compared with net income of $2.1 million, or $0.24 per diluted share, for the three months ended March 31, 2007.

     The decline in earnings reflected slowing revenue growth and increased non-interest expenses related to higher employee benefits, credit and compliance costs. Both net interest income and non-interest income have been negatively impacted by deteriorating economic conditions, as asset growth has slowed and rapidly declining market interest rates have led to compression in the Bank’s net interest margin. While overall staffing levels have decreased over last year, increased costs related to credit management, regulatory compliance requirements, and higher employee benefit costs have combined to create an increase in non-interest expenses.

     The annualized return on average assets was 0.64% and 0.92% for the three months ended March 31, 2008 and 2007, respectively. The annualized return on average equity was 7.3% and 10.7% for the three months ended March 31, 2008 and 2007, respectively. The decrease in both the return on average assets and the return on average equity resulted primarily from the decrease in net income, as decreases in non interest income and increases in operating expenses offset increases in net interest income.

     The Company’s first quarter results clearly reflect the slowing economic conditions discussed above, combined with the carryover costs of the rapid expansion that it undertook in the past five years. In adjusting to the current market environment, the Company has increased its focus on streamlining internal operations to improve both customer service and efficiency. During its recent rapid growth period, the Company had, in some ways, outpaced its internal operations. Management believes that the challenges presented by the current environment provide opportunities to improve these operations. At the same time, management continues to focus on employee morale and culture, its high-value customers and the communities in which it serves, These efforts have led to the Company’s recent recognition as one of the top places to work in Idaho by the Idaho Business Journal.

     It appears that 2008 will be one of the most challenging years for the banking sector and Intermountain in recent memory. Management is responding by working to protect its customers, employees and shareholders in the current environment, while building effective processes and marketing for the future.

     Net Interest Income. The most significant component of earnings for the Company is net interest income, which is the difference between interest income, primarily from the Company’s loan and investment portfolios, and

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interest expense, primarily on deposits and other borrowings. During the three months ended March 31, 2008 and 2007, net interest income was $11.3 million and $10.8 million, respectively, an increase of 4.4%. The positive increase resulted from growth in earning assets over last year, but was somewhat offset by a lower net interest margin.

     Average interest-earning assets for the three months ended March 31, 2008 and 2007 were $935.3 million and $839.3 million, respectively. The increases in the components of average interest-earning assets are primarily due to organic growth in the loan portfolio, with average loans increasing by $89.9 million. Average investments and cash increased by $6.1 million over the same period. Average net interest spread during the three months ended March 31, 2008 and 2007 was 4.84% and 5.19%, respectively. Net interest margin decreased 0.37% from 5.24%for the three months ended March 31, 2007 to 4.87% for the three months ended March 31, 2008 as the yields on earnings assets decreased at a faster pace than the cost of interest-bearing liabilities. While the prime lending rate was stable during the first half of 2007, it dropped by a total of 3.00% from August 2007 to March 2008. This rapid market rate drop caused loan yields to decrease significantly, while liability interest costs, particularly those on deposits, dropped more slowly. The Company’s assets and liabilities both reprice relatively quickly, but the cost of its liabilities tends to lag its earning asset yield when market rates change substantially.

     Provision for Losses on Loans. Management’s policy is to establish valuation allowances for estimated losses by charging corresponding provisions against income. This evaluation is based upon management’s assessment of various factors including, but not limited to, current and future economic trends, historical loan losses, delinquencies, underlying collateral values, as well as current and potential risks identified in the portfolio.

     Intermountain recorded a provision for losses on loans of $258,000 for the first quarter 2008 compared to an $834,000 provision for losses on loans for the three months ended March 31, 2007. The provision reflects the analysis and assessment of the relevant factors mentioned in the preceding paragraph. The decrease is due primarily to the absence of any large credit write-downs during the quarter and a decrease in the size of the loan portfolio since December 31, 2007.

     In response to current market conditions and the implementation of new federal guidance in 2007, management has expanded and refined its evaluation of the current loan portfolio and the adequacy of its loan loss allowance. The loan loss allowance to total loans ratio was 1.57% at March 31, 2008, compared to 1.52% at March 31, 2007 and 1.53% at December 31, 2007, and remains at a level that is generally higher than its national peer group. Management believes that the level of the loan loss allowance as of March 31, 2008 is adequate for the prevailing economic conditions and the balance and mix of the loan portfolio. However, a significantly deeper or prolonged worsening of the economy may have additional adverse impacts on the Company’s loan portfolio, potentially causing higher future loan loss provision levels.

     The following table summarizes loan loss allowance activity for the periods indicated.

	Three Months Ended March 31,
	2008			2007
	(Dollars in thousands)
Balance at January 1	$	11,761		$	9,837
Provision (recovery) for losses on loans		258			834
Amounts written off, net of recoveries		(77	)		(101	)
Transfers		—			(2	)
Allowance — loans, March 31	$	11,942		$	10,568
Allowance — unfunded commitments, January 1		18			482
Transfers		—			2
Adjustments		(3	)		—
Allowance — unfunded commitments, March 31		15			484
Total credit allowance	$	11,957		$	11,052

     At March 31, 2008, Intermountain’s total classified assets were $31.5 million, compared with $10.4 million at March 31, 2007 and $23.3 million at December 31, 2007. The increase in classified assets is primarily comprised of struggling residential land and construction loans, reflecting the current weakness in the housing market. Total nonperforming loans were $7.1 million at March 31, 2008, compared with $1.8 million at March 31, 2007 and $6.4 million at December 31, 2007, also reflecting weakness in housing-related loans. At March 31, 2008, Intermountain’s

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loan delinquency rate (30 days or more) as a percentage of total loans was 1.13%, compared with 0.25% at March 31, 2007 and 0.40% at December 31, 2007. Management believes that the Company’s credit quality remains stable and that it is identifying and managing potential risks proactively, but the results do reflect deterioration in asset quality levels.

     Other Income. Total other income was $2.8 million and $3.0 million for the three months ended March 31, 2008 and 2007, respectively. Fees and service charge income increased by 12.1% to $2.0 million for the three months ended March 31, 2008 as debit card income, trust and investment income, merchant acceptance and cash management fees continued to increase. This increase was offset by a 44.4% drop in fees from mortgage banking operations for the quarter ended March 31, 2008 over first quarter 2007, as mortgage originations declined significantly. Contractual income from the company’s secured card deposit portfolio was also lower, reflecting tighter conditions in the credit card market. Expanding the depth and breadth of the Company’s non-interest revenue is a high priority for management. It is actively targeting profitable customer groups with new products, ranging from trust services to business cash management solutions.

     Operating Expenses. Operating expenses were $11.3 million and $9.7 million for the three months ended March 31, 2008 and 2007, respectively. The Company’s efficiency ratio increased to 79.8% for the three months ended March 31, 2008 from 69.7% in the corresponding period in 2007, impacted by both increasing expenses and a slowdown in revenue growth from the first quarter of 2007. The carry-over costs from earlier investments to develop new markets and new services, coupled with increases in staffing and technology to support heightened credit monitoring and regulatory compliance requirements were the primary contributors to the growth in operating expenses for the three months ended March 31, 2008.

     Salaries and employee benefits were $6.9 million and $6.1 million for the three months ended March 31, 2008 and 2007, respectively. The rate of increase in salary expense has slowed to 7.0% over the same period last year. Additional regulatory compliance and audit staff comprised approximately 25% of the overall salary increase, with merit and promotional increases generating much of the rest. Benefits expense rose significantly as a result of a large increase in medical and dental insurance premiums at the beginning of 2008. At March 31, 2008, full-time-equivalent employees were 442, compared with 447 at March 31, 2007.

     Occupancy expenses were $1.7 million and $1.4 million for the three months ended March 31, 2008 and 2007, respectively. Occupancy expense increases reflected additional building expense from new branches opened in 2006 and 2007 and additional computer hardware and software purchased to enhance security, compliance and business continuity.

     Other expenses grew from $2.2 million in the first three months of 2007 to $2.7 million in the first quarter of 2008. Advertising, printing, supplies, training and travel expenses were largely flat during this period of time, However, the reinstatement of FDIC insurance premiums added $127,000 and consulting expenses added $190,000 to first quarter 2008 expenses over last year. The Company has engaged consulting assistance to improve its business processes and enhance efficiency, and expects to see the benefits of these efforts in future periods.

     Management has invested heavily in human capital, buildings and technology during its rapid expansion over the past several years, as it sought to build the infrastructure needed to grow and maintain operational integrity and compliance with regulatory requirements. It is now adjusting to a changing market by working to operate more effectively and efficiently. It is completing a number of initiatives, including the implementation of branch imaging technology, automating and streamlining the loan processing function, and centralizing and standardizing certain operational functions. As these initiatives take hold this year, management believes that the Company’s efficiency will improve.

     Income Tax Provision. Intermountain recorded federal and state income tax provisions of $933,000 and $1.3 million for the three months ended March 31, 2008 and 2007, respectively. The decreased tax provision in 2008 from 2007 is due to the decrease in pre-tax net income and a lower effective tax rate. The effective tax rates for both the three-month periods ended March 31, 2008 and 2007 were 36.1% and 38.0%, respectively, with additional investment tax credits and other factors combining to reduce this rate.

Financial Position

     Assets. At March 31, 2008, Intermountain’s assets were $1.02 billion, down $31.0 million or 3.0% from $1.05 billion at December 31, 2007. The decrease in assets primarily reflected decreases in loans, short-term investments and cash.

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     Investments. Intermountain’s investment portfolio at March 31, 2008 was $156.6 million, a decrease of $15.3 million or 8.9% from the December 31, 2007 balance of $171.9 million. The decrease was primarily due to maturity of short-term U. S. Government obligations and paydowns on mortgage-backed securities. Funds from these payments were used to help fund the decrease in deposits and paydown of repurchase agreement obligations. As of March 31, 2008, the balance of the unrealized gain, net of federal income taxes, was $2.1 million compared to an unrealized gain at December 31, 2007 of $1.3 million. Falling long-term market rates increased the market value of the securities, resulting in an increase in the unrealized gain. Subsequent to the end of the first quarter, as part of its interest rate and investment management program, the Company sold $32.0 million in investment securities, and reinvested the proceeds in other available-for-sale investment securities. The transaction resulted in an after-tax gain on sale of investments of approximately $1.4 million. This will be reflected in second quarter 2008 income.

     Loans Receivable. At March 31, 2008, net loans receivable totaled $748.3 million, down $8.2 million or 1.1% from $756.5 million at December 31, 2007. The decrease reflected the slowing economy, tightening credit underwriting standards, and seasonal factors related to slower agriculture and real estate activity during the winter. During the three months ended March 31, 2008, total loan originations were $139.4 million compared with $163.9 million for the prior year’s comparable period, reflecting the slowdown in activity.

     The following table sets forth the composition of Intermountain’s loan portfolio at the dates indicated. Loan balances exclude deferred loan origination costs and fees and allowances for loan losses.

	March 31, 2008					December 31, 2007
	Amount			%		Amount			%
	(Dollars in thousands)
Commercial	$	229,119			30.12	$	240,421			31.27
Commercial real estate		388,898			51.12		383,018			49.80
Residential real estate		112,653			14.81		114,010			14.83
Consumer		24,748			3.25		26,285			3.42
Municipal		5,341			0.70		5,222			0.68
Total loans receivable		760,759			100.00		768,956			100.00
Net deferred origination fees		(468	)				(646	)
Allowance for losses on loans		(11,942	)				(11,761	)
Loans receivable, net	$	748,349				$	756,549
Weighted average yield at end of period		7.46	%				8.16	%

     The following table sets forth Intermountain’s loan originations for the periods indicated.

	Three Months Ended
	March 31,
	2008		2007		% Change
	(Dollars in thousands)
Commercial	$	57,899	$	72,592		(20.2	)
Commercial real estate		59,759		64,364		(7.2	)
Residential real estate		18,373		21,310		(13.8	)
Consumer		3,104		5,453		(43.1	)
Municipal		314		200		57.0
Total loans originated	$	139,449	$	163,919		(14.9	)

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     As of March 31, 2008, the Bank’s loan portfolio by loan type was:

Commercial	30.12	%
Commercial real estate	51.12	%
Residential real estate	14.81	%
Consumer	3.25	%
Municipal	0.70	%

     These concentrations are typical for the markets served by the Bank, and management believes that they are comparable with those of the Bank’s peer group (banks of similar size and operating in the same geographic areas). At March 31, 2008, approximately 66% of the total loan portfolio was secured by real estate.

     The residential land and construction loan portfolio currently appears to pose the greatest overall risk of “loan-type” concentration. However, experienced lenders and consistently applied underwriting standards help to mitigate credit risk. Real estate values tend to fluctuate somewhat with economic conditions. Currently, valuations are static or falling in many of the Bank’s markets, although the rate of decline is smaller than current national average rates of decline. Over longer periods, real estate collateral is generally considered one of the more stable forms of collateral in regards to maintaining value.

     The Bank lends to contractors and developers, and is also active in custom construction lending. The Bank has established concentration limits as measured against Tier 1 capital (generally, Tier 1 capital is the Company’s tangible net worth). These concentration limits include residential and commercial construction loans not to exceed 175% and, combined with development loans, not to exceed 325% of Tier 1 capital. The guidelines further specify that total commercial real estate loans are not to exceed 400% and other real estate (agricultural and land) loans are not to exceed 230% of the Bank’s Tier 1 capital. Accordingly, at March 31, 2008, residential and commercial construction loans represented 112.3% and, combined with development loans, represented 279.9% of Tier 1 capital. Total commercial real estate loans represented 385.0%, and other real estate loans represented 149.9% of the Bank’s Tier 1 capital, respectively. These ratios compare to December 2007 totals of 128.2%, 295.6%, 380.5% and 147.7%, respectively, generally demonstrating decreases in construction and development loans, and slight increases in other real estate and total commercial real estate loans. Those two categories increased in the first quarter due to increased loans for owner occupied consumer and commercial and non owner occupied commercial, as part of a risk diversification strategy by the Bank.

     BOLI and All Other Assets. Bank-owned life insurance (“BOLI”) and other assets decreased to $22.5 million at March 31, 2008 from $23.4 million at December 31, 2007. The decrease was primarily due to decreases in the net deferred tax asset and accrued interest receivable, offset by an increase in other real estate owned.

     Deposits. Total deposits decreased $30.7 million or 4.0% to $727.1 million at March 31, 2008 from $757.8 million at December 31, 2007, primarily due to decreases in demand accounts, money market accounts and certificates of deposits. The decrease reflected negative customer response to significantly lower rates, a tightening economy, the runoff of some high rate deposits, and normal seasonal factors. Company management continues to be very focused on core deposit growth, particularly of lower-costing demand, savings and money market deposits. Management is implementing new compensation plans, promotional strategies and products to spur local deposit growth.

     The following table sets forth the composition of Intermountain’s deposits at the dates indicated.

	March 31, 2008					December 31, 2007
	Amount		%			Amount		%
	(Dollars in thousands)
Demand	$	151,585		20.8		$	159,069		21.0
NOW and money market 0.0% to 5.5%		295,090		40.6			308,857		40.8
Savings and IRA 0.0% to 4.2%		86,321		11.9			87,149		11.5
Certificate of deposit accounts		194,152		26.7			202,763		26.7
Total deposits	$	727,148		100.0		$	757,838		100.0
Weighted average interest rate on certificates of deposit				3.91	%				4.57	%

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     Borrowings. Deposit accounts are Intermountain’s 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 and to meet deposit withdrawal requirements. These borrowings totaled $189.4 million and $190.1 million at March 31, 2008 and December 31, 2007, respectively. The decrease resulted from seasonal declines in municipal repurchase obligations as local governments utilized tax revenues to fund operating expenses. See “Liquidity and Sources of Funds” for additional information.

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, Intermountain’s 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.

     To minimize the 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 Intermountain’s internal cost of funds and to the nationally recognized prime lending rate. This approach historically has contributed to a 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 more likely to prepay loans. Prepayments may affect the levels of loans retained in an institution’s portfolio, as well as its net interest income. 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 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 current modeling are within guidelines established by the Company, except that net income falls slightly below the guideline in a 300 basis point downward adjustment in market rates, a scenario that management believes is highly unlikely given current market interest rates. In general, model results reflect marginal performance improvement in the case of a rising rate environment, and a marginal negative impact in a falling rate environment. Given its current asset-sensitivity, Intermountain has implemented certain hedging actions to protect the company’s financial performance in a period of falling market interest rates and is evaluating additional protective measures.

     Intermountain is continuing to pursue strategies to manage the level of its interest rate risk while increasing its net interest income and net income; 1) through the origination and retention of variable-rate consumer, business banking, construction and commercial real estate loans, which generally have higher yields than residential permanent loans 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

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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.

     Intermountain also uses gap analysis, a traditional analytical tool designed to measure the difference between the amount of interest-earning assets and the amount of interest-bearing liabilities expected to reprice in a given period. Intermountain calculated its one-year cumulative repricing gap position to be negative 41% and a negative 29% at March 31, 2008 and December 31, 2007, respectively. Management attempts to maintain Intermountain’s gap position between positive 20% and negative 35%. At March 31, 2008 Intermountain’s gap position was outside of the recommended guidelines as the Company intentionally changed to shorter term liability maturities in the current interest rate environment. At December 31, 2007, Intermountain’s gap positions were within guidelines established by its Board of Directors. See “Results of Operations — Net Interest Income” and “Capital Resources.”

Liquidity and Sources of Funds

     As a financial institution, Intermountain’s primary sources of funds from assets include the collection of loan principal and interest payments, cash flows from various securities it invests in, and occasional sales of loans, investments or other assets. Liability financing sources consist primarily of customer deposits, advances from FHLB Seattle and other borrowings. Deposits decreased to $727.1 million at March 31, 2008 from $757.8 million at December 31, 2007, primarily due to decreases in demand accounts, money market accounts and certificates of deposits. The net decrease in deposits was offset on the asset side by decreases in cash, loans receivable and the available for sale investment portfolio. At March 31, 2008 and December 31, 2007, securities sold subject to repurchase agreements and federal funds borrowed were $121.1 million and $124.1 million, respectively. Securities sold subject to repurchase agreements are required to be collateralized by investments with a market value exceeding the face value of the borrowings. Under certain circumstances, Intermountain could be required to pledge additional securities or reduce the borrowings.

     During the three months ended March 31, 2008, cash provided by investing activities came from the maturity of investments and the decrease in loans and cash. During the same period, cash used by financing activities consisted primarily of decreases in deposits and borrowings.

     Intermountain’s credit line with FHLB Seattle provides for borrowings up to a percentage of its total assets subject to general collateralization requirements. At March 31, 2008, the Company’s credit line represented a total borrowing capacity of approximately $85.9 million, of which $33.0 million was being utilized through FHLB advances and overnight borrowings. Intermountain also borrows on an unsecured basis from correspondent banks and other financial entities. Correspondent banks and other financial entities provided additional borrowing capacity of $45.1 million at March 31, 2008. As of March 31, 2008 there were no unsecured funds borrowed.

     Intermountain actively manages its liquidity to maintain an adequate margin over the level necessary to support expected and potential loan fundings and deposit withdrawals. This is balanced with the need to maximize yield on alternate investments. The liquidity ratio may vary from time to time, depending on economic conditions, savings flows and loan funding needs.

Capital Resources

     Intermountain’s total stockholders’ equity was $92.3 million at March 31, 2008 compared with $90.1 million at December 31, 2007. The increase in total stockholders’ equity was primarily due to the retention of net income in the first quarter of 2008 and the increase in the unrealized gain on the available for sale investment portfolio. Stockholders’ equity was 9.1% of total assets at March 31, 2008 compared with 8.6% at December 31, 2007.

     At March 31, 2008, Intermountain had an unrealized gain of $2.1 million, net of related income taxes, on investments classified as available-for-sale. At December 31, 2007, Intermountain had an unrealized gain of $1.3 million, net of related income taxes, on investments classified as available-for-sale. Fluctuations in prevailing interest rates continue to cause volatility in this component of accumulated comprehensive gain or loss in stockholders’ equity and may continue to do so in future periods.

     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.

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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 3 of “Notes to Consolidated Financial Statements.”

     Intermountain and Panhandle 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 Panhandle 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, although there can be no assurance in this regard. At March 31, 2008, Intermountain exceeded all such regulatory capital requirements and was “well-capitalized” pursuant to FFIEC regulations.

     The following tables set 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 definition of a “well-capitalized” institution as reported on the quarterly FFIEC call report at March 31, 2008.

											Well-Capitalized
	Actual					Capital Requirements					Requirements
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets):
The Company	$	104,287		11.90	%	$	70,130		8	%	$	87,662		10	%
Panhandle State Bank		104,767		11.95	%		70,131		8	%		87,664		10	%
Tier I capital (to risk-weighted assets):
The Company		93,317		10.65	%		35,065		4	%		52,597		6	%
Panhandle State Bank		93,797		10.70	%		35,065		4	%		52,598		6	%
Tier I capital (to average assets)
The Company		93,317		9.14	%		40,833		4	%		51,042		5	%
Panhandle State Bank		93,797		9.45	%		39,713		4	%		49,641		5	%

Off Balance Sheet Arrangements and Contractual Obligations

     Intermountain, 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. Intermountain is also party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Management does not believe that these off-balance sheet arrangements have a material current effect on Intermountain’s 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.

     The following table represents Intermountain’s on-and-off balance sheet aggregate contractual obligations to make future payments as of March 31, 2008.

	Payments Due by Period
			Less than						More than
	Total		1 year		1 to 3 years		3 to 5 years		5 years
	(Dollars in thousands)
Long-term debt (1)	$	105,592	$	3,540	$	29,638	$	32,642	$	39,772
Short-term debt (1)		118,878		118,878		—		—		—
Capital lease obligations		—		—		—		—		—
Operating lease obligations (2)		14,732		1,124		1,603		1,404		10,601
Purchase obligations (3)		609		609		—		—		—
Other long-term liabilities reflected on the registrant’s balance sheet under GAAP		—		—		—		—		—
Total	$	239,811	$	124,151	$	31,241	$	34,046	$	50,373

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(1)	Includes interest payments.
(2)	Excludes recurring accounts payable, accrued expenses and other liabilities, repurchase agreements and customer deposits, all of which are recorded on the Company’s balance sheet.
(3)	The Company is constructing the Sandpoint Center in Sandpoint, Idaho. It is anticipated that the Bank will occupy approximately 50% of the building with occupancy by branch and administrative staff to be completed by June 2008. The Company will continue to complete the building for non-Bank tenants.

New Accounting Policies

     In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. SFAS 157 is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157. This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of adoption was not material.

     In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The Company did not elect the fair value option for any financial assets or financial liabilities as of January 1, 2008, the effective date of the standard.

     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements (“SFAS 160”). SFAS 160 re-characterizes minority interests in consolidated subsidiaries as non-controlling interests and requires the classification of minority interests as a component of equity. Under SFAS 160, a change in control will be measured at fair value, with any gain or loss recognized in earnings. The effective date for SFAS 160 is for annual periods beginning on or after December 15, 2008. Early adoption and retroactive application of SFAS 160 to fiscal years preceding the effective date are not permitted. The Company is evaluating the impact of adoption on its Consolidated Financial Statements.

     In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). SFAS 161 requires specific disclosures regarding the location and amounts of derivative instruments in the Company’s financial statements; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect the Company’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued and for fiscal years and interim periods after November 15, 2008. Early application is permitted. Because SFAS 161 impacts the Company’s disclosure and not its accounting treatment for derivative instruments and related hedged items, the Company’s adoption of SFAS 161 will not impact the Consolidated Financial Statements.

     In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4 (“EITF 06-4”), Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. EITF 06-4 requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants’ employment or retirement. The required accrued liability will be based on either the post-employment benefit cost for the continuing life insurance or based on the future death benefit depending on the contractual terms of the underlying agreement. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. Effective January 1, 2008, the Company recorded a liability in the amount of $389,000 and a reduction in equity in the amount of $235,000 to record the liability as of January 1, 2008.

     On November 5, 2007, the SEC issued Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at Fair Value through Earnings (“SAB 109”). Previously, SAB 105, Application of Accounting Principles to Loan Commitments, stated that in measuring the fair value of a derivative loan commitment, a company should not incorporate the expected net future cash flows related to the associated servicing of the loan. SAB 109 supersedes SAB 105 and indicates that the expected net future cash flows related to the associated servicing of the loan should be included in measuring fair value for all written loan commitments that are accounted for at fair value through earnings. SAB 105 also indicated that internally-developed intangible assets should not be recorded as part of the fair value of a derivative loan commitment, and SAB 109 retains that view. SAB 109 is effective for derivative loan commitments

25

issued or modified in fiscal quarters beginning after December 15, 2007. The Company believes the impact of this standard to be immaterial.

Forward-Looking Statements

          From time to time, Intermountain and its senior managers have made and will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are contained in this report and may be contained in other documents that Intermountain files with the Securities and Exchange Commission. Such statements may also be made by Intermountain and its senior managers in oral or written presentations to analysts, investors, the media and others. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Also, forward-looking statements can generally be identified by words such as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “seek,” “expect,” “intend,” “plan” and similar expressions.

          Forward-looking statements provide our expectations or predictions of future conditions, events or results. They are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties. These statements speak only as of the date they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made. There are a number of factors, many of which are beyond our control, which could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. These factors, some of which are discussed elsewhere in this report, include:

• the strength of the United States economy in general and the strength of the local economies and real estate markets in which Intermountain conducts its operations;

• a deeper decline in the housing market or a significant tightening in available credit for businesses and consumers;

• significantly increased defaults and delinquencies in the Company’s loan portfolio as a result of worsening economic conditions;

• the effects of inflation, interest rate levels and market and monetary fluctuations;

• trade, monetary and fiscal policies and laws, including interest rate policies of the federal government;

• applicable laws and regulations and legislative or regulatory changes;

• the timely development and acceptance of new products and services of Intermountain;

• the willingness of customers to substitute competitors’ products and services for Intermountain’s products and services;

• Intermountain’s success in gaining regulatory approvals, when required;

• technological and management changes;

• announcement and successful and timely implementation of growth, acquisition and efficiency strategies;

• Intermountain’s ability to successfully integrate entities that may be or have been acquired;

• changes in consumer spending and saving habits; and

• Intermountain’s success at managing the risks involved in the foregoing.

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Item 3 — Quantitative and Qualitative Disclosures About Market Risk

The information set forth under the caption Item 7A. Quantitative and Qualitative Disclosures about Market Risk included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, is hereby incorporated herein by reference.

Item 4 — Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures: An evaluation of Intermountain’s disclosure controls and procedures (as required by section 13a — 15(b) of the Securities Exchange Act of 1934 (the “Act”)) was carried out under the supervision and with the participation of Intermountain’s management, including the Chief Executive Officer and the Chief Financial Officer. Our Chief Executive Officer and Chief Financial Officer concluded that based on that evaluation, our disclosure controls and procedures as currently in effect are effective, as of March 31, 2008, in ensuring that the information required to be disclosed by us in the reports we file or submit under the Act is (i) accumulated and communicated to Intermountain’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b) Changes in Internal Control over Financial Reporting: In the quarter ended March 31, 2008, there were no changes in Intermountain’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, Intermountain’s internal control over financial reporting.

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PART II — Other Information

Item 1 — Legal Proceedings

          Intermountain and Panhandle are parties to various claims, legal actions and complaints in the ordinary course of business. In Intermountain’s 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 1A Risk Factors

          There have been no material changes from the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007.

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES

The following table presents Intermountain’s repurchases of its common stock during the quarter ended March 31, 2008. Although Intermountain does not maintain a repurchase plan or program, a limited number of shares of Intermountain’s common stock were repurchased in connection with the administration of Intermountain’s stock-based compensation plans. Upon repurchase, Intermountain cancelled the shares.

					Total Number of		Maximum Number of
					Shares Purchase as		Shares that May Yet
					Part of Publicly		Be Purchased Under
	Total Number of		Average Price Paid		Announced Plans or		the Plans or
Period	Shares Purchased(1)		Per Share		Programs		Programs(2)
January 1 — March 31, 2008		12,805	$	13.72		0		0

(1) Represents the aggregate shares that were withheld by the Company as payment of the requisite tax payable upon the vesting of restricted stock awards.

Item 3 — Defaults Upon Senior Securities

          Not applicable.

Item 4 — Submission of Matters to a Vote of Security Holders

          Not Applicable

Item 5 — Other Information

          Not Applicable

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Item 6 — Exhibits

Exhibit No.	Exhibit
10.2	Amended 2006-2008 Long Term Incentive Plan.
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	Year end earnings release for year ended December 31, 2007.

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Signatures

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	INTERMOUNTAIN COMMUNITY BANCORP
	(Registrant)
May 12, 2008	By:	/s/ Curt Hecker
Date		Curt Hecker
		President
		and Chief Executive Officer
May 12, 2008	By:	/s/ Doug Wright
Date		Doug Wright
		Executive Vice President
		and Chief Financial Officer

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EX-10.2

PANHANDLE STATE BANK

Amended and Restated

2006-2008 LONG TERM EXECUTIVE INCENTIVE PLAN
PLAN DOCUMENT

Approved by the Board of Directors on April 28, 2006

Approved by the Shareholders April 25, 2007

Amended and Restated January 23, 2008

TABLE OF CONTENTS

SECTION	PAGE
Purpose		3
Administration		3
Plan Description		3
Eligibility		3
Size of Award Opportunities		4
Performance Criteria and Goals		4
Payout and Vesting Schedule		4
Withholding		4
Payment		4
Automatic Vesting		5
No Guarantee of Employment		6
Modification and Termination		6
Extraordinary Items		6
Termination		6
Exhibit “A” Participants
Exhibit “B” Matrix of Performance

2

PANHANDLE STATE BANK
2006-2008 LONG-TERM INCENTIVE PLAN

This document describes the 2006-2008 Long-Term Incentive Plan (the Plan) for Panhandle State Bank (the Bank).

1.	Purpose.
	The purpose of the Plan is to provide motivation and direction to key executives to achieve the long-term strategic goals of the Bank. Specific objectives of the Plan include:

• Support the Bank’s long-term strategic plan.

• Provide long-term orientation to decision making

• Focus participants’ attention on maximizing long-term shareholder value.

2.	Administration.
	The Plan will be administered by the Compensation Committee of the Board of Directors of Intermountain Community Bancorp (the Committee). The Committee will assure that the Plan is implemented and maintained according to Plan provisions.
3.	Plan Description.
	The Plan will provide participants with long-term financial reward opportunities based on achieving minimum levels of long-term performance goals. The Plan consists of a matrix which will reward the participants providing the minimum long-term corporate goals are obtained, and, if achieved, stock awards will be provided to Plan participants such that, if the eligibility requirements are met, a restricted stock award will be granted on January 5, 2009, and will vest one-third at the time of grant, one-third on January 5, 2010 and the remaining one-third on January 5, 2011. The minimum performance levels are to be based upon a three (3) year (2006-2008) running average of return on equity and net asset growth (the “Plan Performance Period”).
4.	Eligibility.
	Participants in the Plan will include key members of the executive team of the Bank. The CEO of the Bank will recommend who participates in the Plan for Committee approval. Participants must be continuously employed at the Bank during the Plan Performance Period and must further be employed on January 5, 2009, the date the award is granted, and remain employed on each vesting date. The CEO will communicate such participation to each participant at the beginning of the Plan Performance Period. Participants in the Plan are listed on Exhibit “A.”

3

	At the beginning of each calendar year, the CEO will review and, if appropriate, revise Plan participation for the remaining period of the Long-Term Plan.
5.	Size of Award Opportunities.
	To be most effective, payout opportunities must be meaningful and competitive. To accomplish this, there has been established a matrix which will award participants for Bank performance so long as minimum levels of return on equity and average asset growth over the Plan Performance Period are met. If the Bank’s performance is in excess of the minimums, the Plan’s participant benefits will increase as performance increases. The performance matrix for each participant in this Plan is attached hereto as Exhibit “B.” The restricted stock award shall be adjusted for any stock splits/dividends issued during the term of the Plan.
6.	Performance Criteria and Goals.
	The performance criteria of consolidated average annual return on equity of Intermountain Community Bancorp and consolidated average annual asset growth of Intermountain Community Bancorp for the Plan Performance Period will support the maximization of long-term shareholder value. At the beginning of each fiscal year, the CEO will provide to the Committee the performance pursuant to the Plan for the prior calendar year.
7.	Payout Schedule.
	The benefits, if any, to be paid to the executives shall vest such that one-third of the benefits paid on January 5, 2009 will vest at the time of grant, one-third on January 5, 2010 and the remaining one-third on January 5, 2011. As a condition precedent to the award of any benefits pursuant to this Plan, the executive will be required to be employed by the Bank on each vesting date.
8.	Withholding.
	The participant shall be solely responsible for all federal, state, local and foreign income and payroll taxes relating to the grant and vesting of awards and shares of restricted stock received pursuant to awards. The Bank shall withhold from compensation otherwise payable to a participant such amount as the Bank determines is required to be withheld under applicable law with respect to the taxes; provided, however, that in lieu of such withholding, a participant may pay to the Bank, if the participant makes such payment in a timely manner, the amount that would otherwise be withheld. Payment by the participant under the immediately preceding sentence may be either in the form of cash or a surrender of shares of restricted stock that have vested with a fair market value equal to the amount that the Bank determines is required to be withheld under applicable law with respect to the taxes.
9.	Payment.
	Benefits to be awarded pursuant to this Plan, if any, shall be in the form of a restricted stock grant to the executive according to the applicable matrix attached as Exhibit “B,” the full amount of which will be granted on January 5, 2009, vesting in the amounts and on such

4

	dates as set forth in Section 7 of the Plan.
10.	Automatic Vesting.
	If a change in control of Intermountain Community Bancorp or the Bank occurs before the end of the Plan Performance Period, the stock grants awarded to participants under the Plan shall be determined as of the date the change in control occurred rather than as of the end of the Plan Performance Period. The stock grants shall be determined by the Committee based on Intermountain Community Bancorp’s consolidated average annual return on equity and consolidated average annual asset growth through the most recent quarter end before the change in control occurred. If the most recent quarter end is an interim period, the Committee may make annualizing or other appropriate adjustments to consolidated average annual return on equity and consolidated average annual asset growth. The stock awards shall be similarly determined for any participant who dies or who becomes disabled (as determined by the Committee) before the end of the Plan Performance Period, based on consolidated average annual return on equity and consolidated average annual asset growth through the most recent quarter end before death or disability occurred. Once a participant’s stock award is determined after a change in control or after the participant’s death or disability, the stock award shall be paid to the participant as promptly as practicable, rather than according to the schedule set forth in Section 7 (one-third January 5, 2009,one-third on January 5, 2010 and one-third on January 5, 2011), and the requirement that a participant remain employed through January5, 2011 to claim entitlement to the full amount of this stock award shall not apply. If a change in control occurs after December 31, 2008, or if the participant dies or becomes disabled after December 31, 2008, but before the stock award fully vests according to the schedule described in Section 7, the stock award shall likewise be considered “fully vested” and the requirement that the participant remain employed through January 5, 2011 to claim entitlement to the full amount of his stock award shall not apply.
	For purposes of this section 10, the term change in control shall mean a change in the ownership of Intermountain Community Bancorp, a change in effective control of Intermountain Community Bancorp, or a change in the ownership of a substantial portion of the assets of Intermountain Community Bancorp, as those terms are defined in Internal Revenue Code section 409A or in regulations or guidance of general applicability issued by the Treasury Department under Section 409A of the Internal Revenue Code, including the Treasury Department’s Notice 2005-1, Part IV.B (questions 11 through 14), contained in Internal Revenue Bulletin 2005-2 (January 10, 2005). For purposes of this section 10, the term disability means that, because of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of at least 12 months, the participant is unable to engage in any substantial gainful activity or the participant is receiving income replacement benefits for a period of at least three months under an accident and health plan covering employees of the Bank. The existence of disability shall be determined by the Committee.

5

11.	No Guarantee of Employment.
	Nothing in the Plan or any Plan materials guarantees employment at the Bank. Further, this Plan should not be implied as any contract agreement.
12.	Modification and Termination.
	The Committee has the right to amend or terminate the Plan at any time. However, termination or modification of the Plan during the Plan Performance Period will not negatively affect performance goals and payout opportunities up until the point of termination.
13.	Extraordinary Items.
	The Committee has the authority but no obligation to exclude any extraordinary accounting items such as changes in generally accepted accounting procedures, sales or major assets or regulatory changes.
14.	Termination.
	Participants must be continuously employed by the Bank throughout the Plan Performance Period and must further be employed on January 5, 2009 in order to receive the award, the first one-third of which will vest on the date of grant. The Participant must continue to remain employed on the vesting dates of January 5, 2010 and January 5, 2011 to receive the remaining two-thirds of the award. Participants who become fully disabled or die during the term of the Plan will receive benefits pursuant to the Plan on a pro-rata basis based upon the performance results through the most recent quarter end. Participants who voluntarily or involuntarily terminate their employment prior to receiving benefits under the Plan will forfeit automatically their rights to any unvested portions of the award.

6

Exhibit “A” — Participants

2006 — 2008 Long Term Plan

Curt Hecker	Chief Executive Officer
Jerry Smith	President, Branch Administration
Doug Wright	Executive Vice President & Chief Financial Officer
John Nagel	Executive Vice President & Credit Administrator
Pam Rasmussen	Executive Vice President & Chief Operating Officer

7

Exhibit B

[INTENTIONALLY OMITTED]

8

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Curt Hecker, certify that:

1.	I have reviewed this quarterly report of Intermountain Community Bancorp;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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 principals.
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 12, 2008

/s/ Curt Hecker  

Curt Hecker 

President and Chief Executive Officer 

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Doug Wright, certify that:

1.	I have reviewed this quarterly report of Intermountain Community Bancorp;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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 principals.
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 12, 2008

/s/ Doug Wright  

Doug Wright 

Executive Vice President and Chief Financial Officer 

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Intermountain Community Bancorp (the “Company”) on Form 10-Q for the period ending March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Curt Hecker, Chief Executive Officer, and Doug Wright, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Date: May 12, 2008

/s/ Curt Hecker	/s/ Doug Wright
Curt Hecker	Doug Wright
Chief Executive Officer	Chief Financial Officer

EX-99.1

EXHIBIT 99.1

FOR IMMEDIATE RELEASE

CONTACT:	Carolyn Gay
	Vice President, Risk Manager & Financial Accounting Officer
	Intermountain Community Bancorp
	(509)944-3888
	carolyng@panhandlebank.com

INTERMOUNTAIN COMMUNITY BANCORP (IMCB) ANNOUNCES RECORD ASSETS AND EARNINGS FOR 2007

Sandpoint, Idaho, March 3, 2008 – Intermountain Community Bancorp (OTCBB – IMCB.OB), the holding company for Panhandle State Bank, the largest locally owned state bank in Idaho, announced today earnings for the quarter and year ended December 31, 2007. Net income during 2007 was $9.4 million, up 2.6% over the $9.2 million net income reported for 2006. Assets continued to grow at a strong pace, exceeding $1.0 billion at December 31, 2007, representing an increase of 14.0% over December 31, 2006. Loan balances increased by 13.9% and deposit balances increased by 9.3%. Earnings per fully diluted share increased by 2.8% to $1.10 per share for the year ended December 31, 2007, compared to $1.07 for the year ended December 31, 2006. The 2006 earnings per basic and fully diluted share have been adjusted for the 10% common stock dividend which was effective in May 2007.

“2007 has been a challenging year for the nation’s financial institutions,” noted Chief Executive Officer Curt Hecker. “The financial markets have experienced uncertainty in a volatile interest rate market, while the national real estate market has softened significantly. Our communities have not experienced the deep challenges faced by other parts of the nation, but our customers and employees have still been impacted. Despite these challenges, our banking team has continued to increase our loan and deposit balances,” Hecker continued. “Our advantage is that we’re a locally run bank actively involved in and supporting the communities we serve. We are sincerely interested in our customers’ long-term stability and prosperity, and we continue to offer them a safe, familiar environment with knowledgeable bankers ready to assist through both prosperous and challenging times.”

2007 Highlights:

§	Net income for the year ended December 31, 2007 totaled $9.4 million, a 2.6% increase over the previous year
§	Net interest income after loan loss provision for 2007 was $42.6 million, an increase of 6.8% compared to 2006
§	Total assets topped the $1 billion threshold increasing 14.0% over 2006
§	Loan balances increased by 13.9% over 2006
§	Deposit balances increased by 9.3% compared to December 31, 2006
§	Book value per share was $10.93, an increase of 13.7% over year-end 2006
§	Total equity increased 15.4% to $90.1 million compared to December 31, 2006
§	Fully diluted earnings per share for 2007 increased to $1.10, a 2.8% increase over the year ended December 31, 2006
§	The Company now holds the top market share position in five of the eleven counties in which it operates, based on deposit data from the Federal Deposit Insurance Corporation as of June 30, 2007
§	The Company relocated its Spokane Valley branch into a new building in August 2007 in a busy and growing commercial area in east Spokane. It includes a full-service branch, a home loan center and administrative offices
§	The Company’s 94,000 square foot Sandpoint Center is scheduled for occupancy in mid-April 2008

Financial Summary:

Net income for the year ended December 31, 2007 totaled $9.4 million, an improvement of 2.6% over 2006. Net income for the fourth quarter of 2007 totaled $2.8 million, an increase of 20.9% from the same quarter of 2006, and 13.8% from third quarter 2007. Return on average assets for the year ended December 31, 2007 decreased to 0.96% compared to 1.13% for the same period one year ago. Return on average equity for the year ended December 31, 2007 decreased to 11.3% compared to 12.9% for the same period one year ago. Return on average assets and return on average equity for the three months ended December 31, 2007 increased to 1.04% and 12.4%, compared to 1.00% and 11.8% for the same period one year ago. Continued strong organic growth, steady net interest income and other fee income improvement created increased revenue results during the periods above, as both net interest income and non-interest income increased for the fourth quarter and year ended December 31, 2007. These results were offset by higher operating expenses primarily associated with new market entry, technology enhancements, and increasing regulatory compliance costs.

Net interest income after provision for loan losses rose to $42.6 million for the year ended December 31, 2007, an improvement of $2.7 million, or 6.8% over the same period last year. Key factors in this improvement included consistent growth in earning assets and a continued relatively strong net interest margin. Earning asset increases resulted from loan growth in both the Company’s existing markets and new branches. Net interest margin decreased 45 basis points to 5.21% for the year ended December 31, 2007 compared to 5.66% for the year ended December 31, 2006. The decrease resulted from rates on the cost of funding continuing to reprice upward in response to earlier market rate conditions at the same time that asset yields flattened and began to decline as a result of Federal Reserve rate cuts during the final quarter of 2007. Net interest income after provision for loan losses rose to $11.2 million for the quarter

ended December 31, 2007, an increase of $336,000, or 3.1% compared to the fourth quarter of 2006. Rapidly declining market rates created pressure on both net interest income and the net interest margin during the fourth quarter. The net interest margin totaled 4.97% for the fourth quarter of 2007, down from 5.51% for the fourth quarter of 2006. The net interest margin remains substantially higher than regional and national peer group averages.

The provision for losses on loans increased $1.8 million for the year ended December 31, 2007 to $3.9 million compared to $2.1 million for the year ended December 31, 2006. The provision for losses on loans increased by $96,000 for the quarter ended December 31, 2007 compared to the quarter ended December 31, 2006. The increases resulted from growth in the Company’s loan portfolio and softening credit conditions, as bank customers and communities felt the impacts of the slowing economy, particularly in the real estate sector. During the year, the company refined its method of calculating its loan loss allowance, in line with regulatory guidance issued in early 2007. While both national and local credit markets experienced a downturn, the local economy remains relatively stable. Given local credit conditions and the stability of the bank’s loan portfolio, management believes that the loan loss allowance is adequate at December 31, 2007.

Non-interest income for the year ended December 31, 2007 increased 21.8% or $2.4 million over the year ended December 31, 2006, driven largely by volume increases in fees and service charges and other non-interest income. Fees and service charges improved 28.5% or $1.9 million for the year as the bank continued to grow its number of customers, expand cross-selling activities to existing customers and pricing changes on certain services. The growth also reflects stronger trust, brokerage, and debit card income. The increase in other income was primarily driven by improvement in contract income from the bank’s secured deposit program. Reflecting market conditions, mortgage banking income decreased during 2007 as mortgage origination activities slowed from the rapid pace of prior years. Driven largely by the same factors as noted above, non-interest income for the quarter ending December 31, 2007 increased $315,000, or 10.3% over the same period in the prior year.

Non-interest expense for the year ended December 31, 2007 increased $5.0 million, or 13.8% compared to the year ended December 31, 2006. The major contributor was personnel expense, which increased $3.5 million, or 16.2% for the year ended December 31, 2007 compared to the prior year. In keeping with its long-term goals, the Company exercised a number of opportunities in 2006 and early 2007 to enter new markets and add quality production staff to position the Company for future growth. These growth initiatives resulted in significant increases to both personnel and occupancy expense during the year, but are anticipated to generate additional revenue in future years. In addition, the Company bolstered its administrative and audit staff to successfully manage increasing internal control and regulatory compliance requirements. In comparison to the larger year-over-year increase, non-interest expense for the quarter ended December 31, 2007 increased 4.2%, or $426,000 compared to the quarter ended December 31, 2006. The Company slowed its expense growth during the last half of 2007 as it more aggressively implemented cost-saving strategies.

Earnings per share for the year ended December 31, 2007 totaled $1.15, and on a fully diluted basis, $1.10 per share, compared to earnings of $1.15 per share and fully diluted earnings of $1.07 per share for the same period last year. Earnings per share for the quarter ended December 31, 2007 totaled $0.33 per share, and on a fully diluted basis, $0.32 per share,

respectively, compared to earnings per share of $0.28 and fully diluted earnings per share of $0.27 for the same time period last year. Basic and fully diluted earnings per share numbers for the year and quarter ending December 31, 2006 have been adjusted for the 10% common stock dividend that was effective in May 2007.

As of December 31, 2007 assets totaled a record $1.05 billion, an increase of $128.8 million, or 14.0% over assets as of December 31, 2006. Total deposits grew 9.3%, or $64.2 million over December 31, 2006 to a total of $757.8 million as of December 31, 2007. Net loans receivable increased $92.1 million, or 13.9% over December 31, 2006 to a total of $756.5 million as of December 31, 2007. Loan growth in the Company’s Spokane, north Idaho and southwestern Idaho markets drove the asset increases, while deposit growth came from all the Company’s markets. Strong growth over the past several years has resulted in the Company now holding the top market share position in terms of deposits in five of the eleven counties in which it operates.

Total non-performing loans were $6.4 million, or 0.84% of net loans as of December 31, 2007, compared to $1.3 million or 0.19% of net loans at December 31, 2006. The non-performing loan balance increased due to an increase in both non-accrual loans and loans over 90 days and still accruing. Net charge-offs to average net loans increased to 0.26% for the year ended December 31, 2007 compared to 0.06% for the prior year. Net charge-offs totaled $2.0 million in 2007, compared to $346,000 in 2006.

Total equity increased to $90.1 million, a 15.4% increase over December 31, 2006. The increase in equity resulted from the retention of the bank’s net income and an increase in the unrealized net gain on the available-for-sale investment portfolio during 2007. Book value per share at December 31, 2007 was $10.93, as compared to $9.61 at December 31, 2006. Book value at December 31, 2006 has been adjusted for the effect of the 10% common stock dividend that was effective in May 2007.

“Our employees rose to the challenge in 2007, increasing their focus on customers while finding opportunities to improve efficiency and adapt to changing market conditions,” Hecker summarized. “We continue to have the best employees in the industry, all of whom are deeply committed to the vitality and growth of our local communities. This has always been our strength and will continue to create opportunities for us in the future.”

Key Financial Results:

	At December 31,
	(dollars in thousands,
	except per share data)				Actual
Balance Sheet	2007		2006		Change			% Change
Loans Receivable, net	$	756,549	$	664,403	$	92,146			13.9	%
Allowance for Loan Loss		11,761		9,834		1,927			19.6	%
Goodwill, net		11,662		11,662		—			—
Other Intangible Assets, net		723		881		(158	)		(17.9	)%
Total Assets		1,048,659		919,866		128,793			14.0	%
Total Deposits		757,838		693,686		64,152			9.3	%
Stockholders’ Equity		90,119		78,080		12,039			15.4	%
Book Value Per Share	$	10.93	$	9.61	$	1.32			13.7	%
Shares Outstanding at end of Period		8,248,710		8,121,203		127,507			1.6	%

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
Income Statement	2007			2006			2007			2006
Total Interest Income	$	18,765		$	17,009		$	72,858		$	59,580
Total Interest Expense		6,926			5,602			26,337			17,533
Provision for Losses on Loans		668			572			3,896			2,148
Net Interest Income After Provision		11,171			10,835			42,625			39,899
Total Other Income		3,376			3,061			13,199			10,838
Total Operating Expenses		10,572			10,146			40,926			35,960
Income Before Taxes		3,975			3,750			14,898			14,777
Income Tax Provision		1,224			1,474			5,453			5,575
Net Income	$	2,751		$	2,276		$	9,445		$	9,202
Basic Earnings Per Share	$	0.33		$	0.28		$	1.15		$	1.15
Diluted Earnings Per Share	$	0.32		$	0.27		$	1.10		$	1.07
Wtd-Avg Shares O/S Basic		8,245,133			8,094,757			8,206,341			8,035,401
Wtd-Avg Shares O/S Fully Diluted		8,582,943			8,641,019			8,604,737			8,585,687
Annualized Return on Assets		1.04	%		1.00	%		0.96	%		1.13	%
Annualized Return on Equity		12.4	%		11.8	%		11.3	%		12.9	%
Operating Efficiency Ratio		69.5	%		70.1	%		68.5	%		68.0	%
Net Interest Spread		4.94	%		5.43	%		5.15	%		5.59	%
Net Interest Margin		4.97	%		5.51	%		5.21	%		5.66	%

Company Activities:

The Company relocated its Spokane Valley branch into a new building in August 2007 in the center of a busy and growing commercial area in east Spokane. The office includes a full-service branch, a home loan center and administrative offices.

The Company’s Sandpoint Center is slated for occupancy in early 2008. IMCB will occupy approximately two-thirds of the building by consolidating its Sandpoint administrative offices.

About Intermountain Community Bancorp:

Intermountain is headquartered in Sandpoint, Idaho, and operates as four separate divisions with twenty banking locations in three states. Its banking subsidiary, Panhandle State Bank, offers financial services through northern Idaho offices in Sandpoint, Ponderay, Bonners Ferry, Priest River, Coeur d’Alene, Post Falls, Rathdrum and Kellogg. Intermountain Community Bank, a division of Panhandle State Bank, operates branches in southwest Idaho in Weiser, Payette, Nampa, Caldwell and Fruitland as well as in Ontario, Oregon. Intermountain Community Bank Washington, a division of Panhandle State Bank, operates branches in

downtown Spokane and Spokane Valley, Washington. Magic Valley Bank, a division of Panhandle State Bank, operates branches in Twin Falls and Gooding, Idaho.

All data contained in this report have been prepared on a consolidated basis for Intermountain Community Bancorp. IMCB’s shares are listed on the OTC Bulletin Board ticker symbol IMCB.OB.

Additional information on Intermountain Community Bancorp, and its internet banking, can be found at www.intermountainbank.com.

This news release contains forward-looking statements within the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include but are not limited to statements about the Company’s plans, objectives, expectations and intentions and other statements contained in this report that are not historical facts. These forward-looking statements are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control. Actual results may differ materially from the results discussed in these forward- looking statements because of numerous possible risks and uncertainties. These include but are not limited to: the possibility of adverse economic developments that may, among other things, increase default and delinquency risks in the Company’s loan portfolio; a continued decline in the housing and related real estate markets; a tightening of available credit; shifts in interest rates that may result in lower interest rate margins; shifts in the demand for the Company’s loan and other products; changes in accounting policies; changes in the monetary and fiscal policies of the federal government; and changes in laws, regulations and the competitive environment.