Intermountain Community Bancorp (IMCB) Announces Third Quarter Earnings

SANDPOINT, Idaho--(Business Wire)--
Intermountain Community Bancorp (OTCBB:IMCB), the holding company
for Panhandle State Bank, the largest locally owned state bank in
Idaho, announced earnings for the third quarter of 2008 today. Net
income totaled $226,000, down 90.0% from the $2.3 million reported for
the second quarter this year and 90.7% over the $2.4 million reported
for the third quarter of 2007. For the nine months ended September 30,
2008, net income was $4.1 million, down 38.0% from the $6.7 million
reported for the nine months ended September 30, 2007. The decline in
earnings over both the three- and nine-month periods reflected the
impacts of declining net interest margins, increased credit losses,
and additions to the reserve for loan losses. Assets remained steady
at $1.05 billion, a 0.4% increase over June 30, 2008 and a 0.7%
increase over September 30, 2007. Earnings per fully diluted share for
the third quarter of 2008 were $0.03 per share compared to $0.27 per
share for the second quarter of 2008, and $0.28 per share for the
third quarter of 2007. Earnings per fully diluted share for the nine
months ended September 30, 2008 were $0.49 per share compared to $0.78
per share during the same period in 2007.

"The national economy and the banking sector continue to face
challenging times," noted Chief Executive Officer Curt Hecker. "While
we believe the measures recently enacted by the government will add
some stability and calm the financial markets, the underlying economy
remains weak. During these difficult times, IMCB continues to focus on
protecting our shareholders and customers by improving our already
strong capital, reserve and liquidity positions," he added.

"Recognizing the high levels of concern in our customers and
communities, we are also communicating extensively with them through
many different channels, answering questions and educating our
customers about their banking relationship with us. Our success is
evidenced by the growth in deposits of $28.7 million during the
challenging third quarter of 2008," Hecker continued.

"As is the case with the majority of financial institutions, our
earnings have declined due to decreasing market interest rates and the
dramatic slowdown in the economy, specifically in the real estate
sector," Hecker added. "However, through careful balance sheet
management, we've managed to avoid net losses thus far while
increasing our risk-based capital, liquidity and reserve positions."

Third Quarter 2008 Highlights

-- Total assets remained steady at $1.05 billion, increasing
0.71% over the same period last year.

-- Net loans receivable decreased by $15.2 million from the
2nd quarter of 2008, but were up by $6.4 million over 3rd
quarter 2007 as the company continued to replace
residential construction and development loan balances
with commercial, agricultural and commercial real estate
loans.

-- Fueled by increases in transaction account balances and
certificates of deposit, deposits increased by $28.7
million from June 30, 2008.

-- Book value per share was $10.71, an increase of 2.6%
compared to the quarter ended September 30, 2007.

-- Total equity increased 3.4% to $89.0 million compared to
the same period in the prior year.

-- The tangible equity to tangible assets ratio was 7.40%, up
from 7.15% at September 30, 2007.

-- The loan loss allowance increased to 1.67% of total loans,
versus 1.48% a year ago.

-- The Company did not hold any FNMA or FHLMC equity
securities or Lehman Brothers or Washington Mutual
securities and, as a result, did not record any investment
losses during the third quarter.

Earnings Summary:

Net income for the quarter ended September 30, 2008 totaled
$226,000, declining 90% from second quarter 2008 and 90.7% from the
third quarter of 2007. Net income for the nine months ended September
30, 2008 totaled $4.1 million, a decrease of 38% from the same period
in 2007. The decline in net income for both periods primarily
reflected decreases in net interest income and increases in the loan
loss provision. Annualized return on average assets for the three
months ended September 30, 2008 declined to 0.09% from 0.88% in the
second quarter of 2008, and 0.95% in the third quarter of 2007.
Annualized return on average equity also decreased to 1.0%, compared
to 10.0% for the linked quarter (referring to previous quarter, June
30, 2008), and 11.4% for the same period one year ago. Annualized
return on average assets for the nine months ended September 30, 2008
decreased to 0.53% from 0.93% in 2007, while annualized return on
average equity decreased to 6.1% compared to 10.9% for the first nine
months of 2007. The decrease in both the return on average assets and
the return on average equity resulted from decreasing net income,
which did not keep pace with the increases in assets and equity.

Net interest income before provision for loan losses totaled $11.1
million for the quarter ended September 30, 2008, a decline of $66,000
from the linked quarter and $1.3 million from the third quarter of
2007. Net interest income before provision for loan losses totaled
$33.6 million for the nine months ended September 30, 2008, a decrease
of $1.1 million, or 3.09%, over the same period one year ago. The
Company experienced slower growth in earning assets during this period
and a decline in the net interest margin. IMCB's net interest margin
decreased to 4.56% for the quarter ended September 30, 2008, compared
to 4.79% for the quarter ended June 30, 2008 and 5.38% for the quarter
ended September 30, 2007. For the nine month period ended September
30, 2008, IMCB's net interest margin decreased 56 basis points to
4.74% over the same period last year. The rapid and unexpectedly large
drop in short-term market interest rates since August of last year
caused the net interest margin to decrease as rates on interest
earning assets decreased faster than interest bearing liabilities, and
the company's non-interest bearing deposits became less valuable. In
addition, the Company positioned its assets more conservatively during
the third quarter to enhance its capital and liquidity positions.
Despite this, the Company's net interest margin performance continues
to rank near the top of its national peer group.

The provision for losses on loans increased to $2.5 million for
the third quarter of 2008, compared to a provision of $2.1 million in
the linked quarter and $1.2 million for the third quarter of 2007. The
provision totaled $4.9 million for the first nine months of 2008
compared to $3.2 million for the nine months ended September 30, 2007.
Net charge offs for the three months ended September 30, 2008 totaled
$2.3 million, compared to $1.2 million for the second quarter 2008 and
$611,000 for the same period in 2007. Net charge offs for the nine
months ended September 30, 2008 totaled $3.6 million compared to $1.6
million for the same period in 2007. Annualized net charge-offs to
average net loans increased to 1.19% for the quarter ended September
30, 2008, compared to 0.61% for the quarter ended June 30, 2008 and
0.32% for the quarter ended September 30, 2007. The year-to-date
annualized net charge off rate is 0.62% compared to 0.30% for the same
period last year. The increased net charge off rates reflected a
continuing slowdown and decreasing valuations in the real estate
market, along with the liquidation of one large development loan in
the third quarter. The loan loss allowance to total loans ratio
increased to 1.67% at September 30, 2008, compared to 1.62% at June
30, 2008 and 1.48% at September 30, 2007. Management continues to
carefully evaluate the loan portfolio and collateral positions, and
believes this level of loan loss allowance is adequate for the balance
and the mix of the portfolio.

Other income for the third quarter totaled $3.0 million, compared
to $5.2 million for the linked quarter and $3.6 million for the third
quarter of 2007. Second quarter 2008 results were impacted by the sale
of $32.0 million in investment securities in April 2008 resulting in a
$2.2 million pre-tax gain for that quarter. For the first nine months,
other income increased $1.2 million, or 12.23%, to a total of $11.0
million in 2008 versus $9.8 million last year. Other fees and service
charges grew $386,000 during this nine-month period, largely driven by
improvements in trust, investment and debit card income. These
increases were offset by significantly lower mortgage and other loan
fee income as a result of the economic slowdown. Secured credit card
contract income also dropped as a result of declining volumes of new
accounts issued and maintained.

Non-interest expense for the third quarter of 2008 totaled $11.4
million, an increase of $786,000 over the linked quarter and $703,000,
or 6.6%, over third quarter 2007. Comparative linked quarter results
were impacted by a $640,000 reduction in executive bonus expense
during the second quarter. Non-interest expense for the nine months
ended September 30, 2008 increased $3.0 million to $33.3 million, or
9.8%, compared to the nine months ended September 30, 2007.

Employee compensation and benefits expense decreased $166,000, or
0.9%, over the same nine-month period last year as a result of
decreased staffing levels and incentive expense. With the slowdown in
the economy and the Company's growth, the Company has moved to further
control personnel expense. Occupancy expenses increased 27.7% for the
nine-month period ended September 30, 2008 compared to the same period
one year ago. These increases reflected additional building expense
from new facilities opened in 2007 and 2008 and additional computer
hardware and software purchased to enhance security, compliance and
business continuity.

Other expenses increased $1.9 million, or 28.4%, for the
nine-month period over the same period last year. The increase in
other expenses can be attributed to consulting fees paid to streamline
business processes, the reinstatement of FDIC insurance fees
industry-wide, and increases in loan collection and computer services
fees. In addition, the 2008 comparative numbers are negatively
impacted by the reversal in 2007 of $384,000 in expenses as a result
of lowering the allowance for unfunded loan commitments in conjunction
with new federal guidance issued last year.

Basic earnings per share for the quarter ended September 30, 2008
totaled $0.03 and, on a fully diluted basis, $0.03 per share. This
compares to earnings per share of $0.27 and $0.27, respectively, for
the second quarter of 2008, and $0.29 and $0.28, respectively, for the
same period last year. Basic earnings per share for the nine months
ended September 30, 2008 totaled $0.50 and, on a fully diluted basis,
$0.49 per share compared to $0.82 and $0.78, respectively, for the
same period last year.

Balance Sheet and Loan Portfolio Quality Summary:

As of September 30, 2008, assets totaled $1.05 billion, an
increase of $3.7 million, or 0.35%, over June 30, 2008, and an
increase of $7.4 million, or 0.71%, over September 30, 2007. Total
deposits grew $28.7 million, or 3.87%, over June 30, 2008, and loans
receivable decreased $15.2 million, or 1.94%, over the same period as
the Company intensified deposit-gathering activities, shifted its
asset mix to a more conservative position, and continued to experience
runoff in residential real estate loan balances. Total deposits
decreased $7.9 million, or 1.02%, from September 30, 2007 to a total
of $770.4 million, while loans receivable increased $6.4 million, or
0.84%, over the same time period.

Reflective of the challenging economy and increasing weakness in
the real estate market in the third quarter, the Company's overall
credit quality deteriorated. Non-performing assets increased to $22.7
million at September 30, 2008, compared to $12.6 million at June 30,
2008 and $2.6 million at September 30, 2007. Non-performing loans
totaled $19.9 million at September 30, 2008, versus $9.7 million and
$1.5 million at June 30, 2008 and September 30, 2007, respectively.
Other real estate owned totaled $2.8 million at September 30, 2008,
versus $2.8 million and $1.1 million at June 30, 2008 and September
30, 2007, respectively. Non-performing assets comprised 2.16% of total
assets at September 30, 2008. The 30-day-and-over loan delinquency
rate was 1.09% at September 30, 2008, versus 0.29% and 1.28% at June
30, 2008 and September 30, 2007, respectively.

Residential land and construction loans continue to comprise most
of the non-performing loan total, reflecting the ongoing severe
weakness in the housing market. The Company continues to carefully
monitor its exposure to these types of assets and is proactively
working with weaker borrowers to stabilize or liquidate its position.
Given the weakness in the market, elevated levels of non-performing
assets are likely to continue for the next several quarters.
Management has evaluated its capital and reserve position carefully
against these anticipated levels and continues to believe that it is
well-protected.

Total commercial real estate loans comprised 403.2% of estimated
Tier 1 capital on a consolidated basis at September 30, 2008, as
compared to 407.7% at June 30, 2008 and 408.4% at September 30, 2007.
Construction, acquisition and development loans comprised 260.2% of
estimated Tier 1 capital at September 30, 2008, as compared to 264.9%
at June 30, 2008 and 305.2% at September 30, 2007. For these loan
metrics, commercial real estate balances are calculated using
regulatory guidelines. As reflected in the figures above, the Company
continues to reduce its concentration of construction, acquisition and
development loans, with further decreases expected in upcoming periods
as existing loans roll off.

Available-for-sale investments totaled $132.0 million at September
30, 2008, an increase of $692,000, or 0.53%, over June 30, 2008, and a
decrease of $16.2 million, or 11.0%, over September 30, 2007.
Management has opted to keep higher levels of cash and cash
equivalents during this tumultuous period and maintained a $20.3
million position in liquid Fed Funds Sold as of September 30, 2008. In
April 2008, the Company sold $32.0 million in investment securities,
recorded a $2.2 million pre-tax gain, and reinvested the proceeds
primarily in higher-yielding agency-guaranteed securities.

The Company has no exposure to FNMA or FHLMC equity securities or
Lehman Brothers or Washington Mutual holdings that would be impacted
by recent events, and as such has not recorded investment losses.
Management has evaluated its existing securities portfolio and
believes that it has no securities that are subject to other than
temporary impairment based on their credit quality, the ability to
hold the securities until maturity, and the high probability of
receiving all expected contractual cash flows.

Office properties and equipment totaled $44.8 million at September
30, 2008, a decrease of $407,000, or 0.9%, over June 30, 2008, and an
increase of $4.9 million, or 12.3%, over September 30, 2007. The
decrease in the third quarter is primarily due to depreciation, as the
Company did not add any significant new assets during the quarter.
Earlier this year, the Company completed the Sandpoint Center and
relocated the Sandpoint branch and administrative staff to it in
April.

As of September 30, 2008, Federal Home Loan Bank advances totaled
$54.0 million, reflecting no change from June 30, 2008 and an increase
of $25.0 million over September 30, 2007. As of September 30, 2008,
other borrowings totaled $40.6 million, again no change from June 30,
2008, and an increase of $6.8 million over September 30, 2007. Funds
from Federal Home Loan Bank advances were primarily used to fund
decreases in repurchase agreements. Other borrowings were utilized to
fund the increase in office properties and equipment. At September 30,
2008, the Company maintained additional borrowing line availability of
$141.3 million, providing additional liquidity for the Bank.

Shareholder's equity totaled $89.0 million at September 30, 2008,
a slight decrease from second quarter and a 3.4% increase over
September 30, 2007. The changes in equity resulted from the retention
of net income, offset by a decrease in the market value of the
available for sale investment portfolio. Book value per share at
September 30, 2008 totaled $10.71 compared to $10.90 at June 30, 2008
and $10.44 at September 30, 2007.

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Key Financial Results (dollars in thousands, except per share data):

Balance Sheet 9/30/2008 6/30/2008 9/30/2007
--------------------------------------------------
Loans Receivable,
net $766,625 $781,786 $760,225
--------------------------------------------------
Allowance for Loan
Loss 13,033 12,893 11,412
--------------------------------------------------
Goodwill, net 11,662 11,662 11,662
--------------------------------------------------
Other Intangible
Assets, net 612 649 761
--------------------------------------------------
Total Assets 1,049,245 1,045,567 1,041,811
--------------------------------------------------
Total Deposits 770,367 741,635 778,296
--------------------------------------------------
Shareholder's Equity 88,960 90,547 86,050
--------------------------------------------------
Book Value Per Share $10.71 $10.90 $10.44
--------------------------------------------------
Shares Outstanding
at end of Period 8,305,769 8,303,769 8,243,447
----------------------------------------------------------------------

Three Months Ended Nine Months Ended
----------------------------------------------------------------------
Income Statement 9/30/2008 6/30/2008 9/30/2007 9/30/2008 9/30/2007
----------------------------------------------------------------------
Total Interest
Income $16,089 $15,841 $19,084 $49,131 $54,093
----------------------------------------------------------------------
Total Interest
Expense 4,979 4,665 6,721 15,520 19,411
----------------------------------------------------------------------
Provision for Losses
on Loans 2,474 2,140 1,221 4,872 3,228
----------------------------------------------------------------------
Net Interest Income
After Provision 8,636 9,036 11,142 28,739 31,454
----------------------------------------------------------------------
Total Other Income 3,014 5,231 3,584 11,024 9,822
----------------------------------------------------------------------
Total Operating
Expenses 11,422 10,635 10,718 33,316 30,352
----------------------------------------------------------------------
Income Before Taxes 228 3,632 4,008 6,447 10,924
----------------------------------------------------------------------
Income Tax Provision 2 1,363 1,590 2,298 4,229
----------------------------------------------------------------------
Net Income 226 2,269 2,418 4,149 6,695
----------------------------------------------------------------------
Basic Earnings Per
Share $0.03 $0.27 $0.29 $0.50 $0.82
----------------------------------------------------------------------
Diluted Earnings Per
Share $0.03 $0.27 $0.28 $0.49 $0.78
----------------------------------------------------------------------
Weighted Average
Shares O/S Basic 8,305,236 8,286,087 8,223,257 8,287,541 8,193,268
----------------------------------------------------------------------
Weighted Average
Shares O/S Fully
Diluted 8,461,591 8,534,186 8,592,975 8,531,037 8,608,796
----------------------------------------------------------------------
Annualized Return on
Assets 0.09% 0.88% 0.95% 0.53% 0.93%
----------------------------------------------------------------------
Annualized Return on
Equity 1.0% 10.0% 11.4% 6.1% 10.9%
----------------------------------------------------------------------
Operating Efficiency
Ratio 80.9% 64.8% 67.2% 74.6% 68.2%
----------------------------------------------------------------------
Net Interest Spread 4.54% 4.76% 5.34% 4.71% 5.23%
----------------------------------------------------------------------
Net Interest Margin 4.56% 4.79% 5.38% 4.74% 5.30%
----------------------------------------------------------------------

----------------------------------------------------------------------
Credit Quality & Capital Measurements
(dollars in thousands) 9/30/2008 6/30/2008 9/30/2007
----------------------------------------------------------------------
Tangible Equity to Tangible Assets 7.40% 7.57% 7.15%
----------------------------------------------------------------------
Equity to Assets 8.48% 8.66% 8.26%
----------------------------------------------------------------------
Allowance for Loan Loss ("ALLL") $13,033 $12,893 $11,412
----------------------------------------------------------------------
ALLL to Total Loans 1.67% 1.62% 1.48%
----------------------------------------------------------------------
Net-Charge offs to Average Net Loans
(Annualized-3 month Period) 1.19% 0.61% 0.32%
----------------------------------------------------------------------
Non Performing Assets (NPA) 22,658 12,574 2,582
----------------------------------------------------------------------
Non Performing Loans 19,881 9,735 1,516
----------------------------------------------------------------------
Other Real Estate Owned 2,777 2,839 1,066
----------------------------------------------------------------------
Classified Assets 40,456 39,109 21,313
----------------------------------------------------------------------
NPA to Total Assets 2.16% 1.20% 0.25%
----------------------------------------------------------------------
NPA to Total Risk-Based Capital 20.86% 11.67% 2.59%
----------------------------------------------------------------------
Loan Delinquency Ratio (30 Days & over) 1.09% 0.29% 1.28%
----------------------------------------------------------------------

*T

Company Activities:

In response to the ongoing turmoil in the economy and financial
markets, Company management has embarked on an aggressive strategy to
educate and inform its customers and communities about the current
financial conditions, the Company's position, and how customers can
ensure the safety of their money. Management is reaching out to
customers and communities in a variety of formats to encourage them to
visit or call our branches, ask questions and meet with executive
management if so desired.

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 services, 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; shifts in interest
rates that may result in lower interest rate margins; shifts in the
demand for the Company's loan and other products; lower-than-expected
revenue or cost savings in connection with acquisitions; changes in
accounting policies; changes in the monetary and fiscal policies of
the federal government; and changes in laws, regulations and the
competitive environment.

Intermountain Community Bancorp
Executive Vice President, Chief Financial Officer
Doug Wright, 509-363-2635
dougw@intermountainbank.com

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