##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 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 0-13585
 INTEGRA BANK CORPORATION
  Indiana
(State or other jurisdiction of 
incorporation or organization)
    
    35-1632155
(I.R.S. Employer Identification number)21 S.E. Third Street, P.O. Box 868, Evansville, IN
(Address of principal executive offices)
    
    47705-0868
(Zip Code)
  Securities registered pursuant to Section 12(b) of the Act:
    
    COMMON STOCK, $1.00 STATED VALUE(Title of Class)
    Yes o No þ
 Yes o No þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller Reporting Company o(Do not check if a smaller reporting company)
 o þ




---



##### 



PAGENUMBERPART IItem 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    9Item 1B. Unresolved Staff Comments
    
    
    16Item 2. Properties
    
    
    16Item 3. Legal Proceedings
    
    
    16Item 4. Submission of Matters to a Vote of Security Holders
    
    
    16PART IIItem 5. Market for Registrants Common Equity and Related Stockholder Matters
    
    
    17Item 6. Selected Financial Data
    
    
    19Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    20Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    48Item 8. Financial Statements and Supplementary Data
    
    
    50Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    93Item 9A. Controls and Procedures
    
    
    93Item 9B. Other Information
    
    
    93PART IIIItem 10. Directors and Executive Officers and Corporate Governance
    
    
    93Item 11. Executive Compensation
    
    
    93Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    93Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    93Item 14. Principal Accountant Fees and Services
    
    
    93PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    94Signatures
    
    
    95Exhibit 3(b)Exhibit 10(d)Exhibit 10(f)Exhibit 10(g)Exhibit 10(j)Exhibit 10(v)Exhibit 21Exhibit 23Exhibit 31(a)Exhibit 31(b)Exhibit 32
   2




---



##### Table of Contents



General
           General
    3




---



##### Table of Contents



Acquisitions and Changes in Control
   Dividends and Other Relationships with Affiliates
     4




---



##### Table of Contents



Regulatory Capital Requirements
   Deposit Insurance
   Community Reinvestment Act
  Gramm-Leach-Bliley Act
      5




---



##### Table of Contents



USA Patriot Act of 2001
   Additional Regulation, Government Policies, and Legislation
    Participation in Capital Purchase Program
     6




---



##### Table of Contents




    
    We must file with the SEC a registration statement under the Securities Act of 1933
registering for resale the Treasury Preferred Stock, the Warrant and any shares of common
stock issuable from time to time upon exercise of the Warrant.
 
    
    As long as the Treasury Preferred Stock remains outstanding, unless all accrued and
unpaid dividends for all past dividend periods on the Treasury Preferred Stock are fully
paid, we will not be permitted to declare or pay dividends on any common stock, any junior
preferred shares or, generally, any preferred shares ranking pari passu with the Treasury
Preferred Stock (other than in the case of pari passu preferred shares, dividends on a pro
rata basis with the Treasury Preferred Stock), nor will we be permitted to repurchase or
redeem any common stock or preferred shares other than the Treasury Preferred Stock.
 
    
    Unless the Treasury Preferred Stock has been transferred to unaffiliated third parties
or redeemed in whole, until February 27, 2012, the Treasury Departments approval is
required for any increase in common stock dividends or any share repurchases other than
repurchases of the Treasury Preferred Stock, repurchases of junior preferred shares or
common stock in connection with the administration of any employee benefit plan in the
ordinary course of business and consistent with past practice and purchases under certain
other limited circumstances specified in the Securities Purchase Agreement.
 
    
    As a recipient of government funding under the Capital Purchase Program, we must also
comply with the executive compensation and corporate governance standards imposed by the
ARRA for so long as the Treasury Department holds any securities acquired from us pursuant
to the Securities Purchase Agreement or upon exercise of the Warrant, excluding any period
during which the Treasury Department holds only the Warrant, or the Covered Period. The
ARRA executive compensation standards apply to our Senior Executive Officers (as defined in
the ARRA) as well as other employees. The ARRA directs the Treasury Department to adopt
implementing rules for these standards and also grants to the Treasury Department the
authority to establish additional standards. These standards are more stringent than those
currently in effect under the Capital Purchase Program and the Securities Purchase
Agreement or those previously proposed by the Treasury Department, but it is still unclear
how these standards will relate to the similar standards announced by the Treasury
Department in the guidelines it issued on February 4, 2009, or whether the standards will
be considered effective immediately or only after the Treasury Department adopts
implementing regulations. The standards imposed by the ARRA include, without limitation,
the following:
 
    
    ensuring that incentive compensation for Senior Executive Officers does not
encourage unnecessary and excessive risks that threaten the value of the financial
institution;
 
    
    any bonus, retention award or incentive compensation paid (or under a legally
binding obligation to be paid) to a Senior Executive Officer or any of our 20 next
most highly-compensated employees based on statements of earnings, revenues, gains
or other criteria that are later proven to be materially inaccurate must be subject
to recovery or clawback by us;
 
    
    we are prohibited from paying or accruing any bonus, retention award or incentive
compensation with respect to our five most highly-compensated employees or such
higher number as the Secretary of the Treasury Department may determine is in the
public interest, except for grants of restricted stock that do not fully vest during
the Covered Period and do not have a value which exceeds one-third of an employees
total annual compensation;
 
    
    severance payments to the Senior Executive Officers and our five next most
highly-compensated employees, generally referred to as golden parachute payments, are
prohibited, except for payments for services performed or benefits accrued;
 
    
    compensation plans that encourage manipulation of reported earnings are prohibited;
  7




---



##### Table of Contents




    
    the Treasury Department may retroactively review bonuses, retention awards and other
compensation previously paid to a Senior Executive Officer or any of our 20 next most
highly-compensated employees that the Treasury Department finds to be inconsistent with
the purposes of the Capital Purchase Program or otherwise contrary to the public
interest;
 
    
    our Board of Directors must establish a company-wide policy regarding excessive or
luxury expenditures;
 
    
    our proxy statements for annual shareholder meetings must permit a non-binding say
on pay shareholder vote on the compensation of executives;
 
    
    compensation in excess of $500,000 for each Senior Executive Officer must not be
deducted for federal income tax purposes; and
 
    
    we must comply with the executive compensation reporting and recordkeeping
requirements established by the Treasury Department.
        8




---



##### Table of Contents



NAME
    
    AGE
    
    OFFICE AND BUSINESS EXPERIENCEMichael T. Vea
    
    
    50
    
    
    Chairman of the Board, President, and Chief
Executive Officer of the Company (January 2000
to present); Chairman of the Board and Chief
Executive Officer of the Company (September
1999 to January 2000).Martin M. Zorn
    
    
    52
    
    
    Executive Vice President, Chief Operating
Officer and Chief Financial Officer, (July,
2008 to present), Executive Vice President
Finance and Risk, Chief Financial Officer
(April 2006 to July, 2008); Executive Vice
President, Chief Risk Officer (March 2002 to
April 2006); Executive Vice President,
Commercial and Metro Markets Manager (March
2001 to March 2002).Raymond D. Beck
    
    
    53
    
    
    Executive Vice President, Chief Credit and
Risk Officer (July 2008 to present), Executive
Vice President and Chief Credit Officer,
Integra Bank (September 2006 to July 2008);
Senior Vice President, Commercial Loan Workout
Group, National City Corporation (August 2004
to September 2006); Senior Vice President and
Senior Credit Officer, Provident Bank (May
2002 to August 2004).Roger M. Duncan
    
    
    55
    
    
    Executive Vice President, Integra Bank, Retail
Manager and Community Markets Manager;
President of Evansville Region, (July 2008 to
present); Executive Vice President, Integra
Bank, President of Evansville Region and
Community Banking Division, (October 2006 to
July 2008); Market Executive, Community
Banking Division (January 2000 to October
2006).Bradley M. Stevens
    
    
    67
    
    
    President and Chief Executive Officer -
Chicago Region, Integra Bank (April 2007 to
present); President and Chief Executive
Officer, Prairie Financial Corporation (1994
to April 2007); President and Chief Executive
Officer, Prairie Bank and Trust Company (1992
to April 2007).Roger D. Watson
    
    
    55
    
    
    Executive Vice President of Commercial and
Corporate Real Estate, Integra Bank (April
2003 to present).Michael B. Carroll
    
    
    47
    
    
    Executive Vice President and Controller of the
Company, (December 2008 to present); Senior
Vice President and Controller of the Company
(December 2005 to December, 2008); Senior Vice
President and Risk Manager of the Company (May
2002 to December 2005).
  
    9




---



##### Table of Contents



We Are Subject to Interest Rate Risk.
  We Are Subject to Lending Risk.
   Our Allowance for Loan Losses May be Insufficient.
  Our Profitability Depends Significantly on Local Economic Conditions and Trends.
   10




---



##### Table of Contents



Current Market Developments May Adversely Affect our Industry, Business, Results of Operations and
Access to Capital.
   
    
    Further declines in the housing market and the increased volatility of the stock market
may adversely affect consumer confidence and may cause adverse changes in loan payment
patterns, causing increases in delinquencies and default rates.
 
    
    The processes we use to estimate probable losses and impairment of assets, including
investment securities, may no longer be reliable because they rely on complex
judgments, including forecasts of economic conditions, which may no longer be capable of
accurate estimation.
 
    
    Our ability to assess the creditworthiness of our customers may be impaired if the
models and approaches we use to select, manage and underwrite our customers become less
predictive of future charge-offs.
 
    
    Additional losses and declines in financial performance in the banking industry could
negatively impact the value of our trust-preferred securities portfolio and result in
additional other-than-temporary impairment;
 
    
    A decline in consumer confidence could also result in withdrawal of deposit funds by
consumers, negatively impacting our liquidity.
 
    
    Our ability to borrow from other financial institutions on favorable terms or at all
could be adversely affected by further disruptions in the capital markets or other events.
 
    
    We may be required to pay higher FDIC premiums because of the increased deposit coverage
and the closure of other financial institutions could deplete the insurance fund of the
FDIC.
  Increases in FDIC insurance premiums could affect our earnings, liquidity and capital.
  We may elect or be compelled to seek additional capital in the future, but that capital may not be
available when it is needed.
   11




---



##### Table of Contents



There can be no assurance that recent legislative and regulatory initiatives to address difficult
market and economic conditions will stabilize the United States banking system and the enactment of
these initiatives may significantly affect our financial condition, results of operations, liquidity
or stock price.
    Because of our participation in the Capital Purchase Program, we are subject to several
restrictions including restrictions on our ability to declare or pay dividends and repurchase our
shares as well as restrictions on compensation paid to our executive officers.
   12




---



##### Table of Contents



The Decline in Fair Value of our Stock Could Adversely Affect Our Ability to Raise Capital, Dilute
Current Shareholders Ownership or Make it More Expensive to Raise Capital.
  If we are unable to redeem the Treasury Preferred Stock after five years, the cost of this capital
to us will increase substantially.
  The Treasury Preferred Stock impacts net income available to holders of our common stock and
earnings per share of our common stock, and the Warrant we issued to the Treasury Department may be
dilutive to holders of our common stock.
   13




---



##### Table of Contents



We Operate in a Highly Competitive Industry and Market Area.
   
    
    The ability to develop, maintain and build upon long-term customer relationships;
 
    
    The ability to expand our market position;
 
    
    The scope, relevance and pricing of products and services;
 
    
    Our reputation with consumers who reside in the markets we serve;
 
    
    The rate at which we introduce new products and services;
 
    
    Customer satisfaction; and
 
    
    Industry and general economic trends.
  We Are Subject to Extensive Government Regulation and Supervision and Face Legal Risks.
     14




---



##### Table of Contents



Our Controls and Procedures May Fail or be Circumvented.
  The Holding Company Relies On Dividends From Integra Bank For Most Of Its Revenue.
  Potential Acquisitions may Disrupt Our Business and Dilute Shareholder Value.
  
    
    Potential exposure to unknown or contingent liabilities of the target company;
 
    
    Exposure to potential asset quality issues of the target company;
 
    
    Difficulty and expense of integrating the operations and personnel of the target
company;
 
    
    Potential disruption to our business;
 
    
    Potential diversion of our managements time and attention;
 
    
    Changes in the national economy or in the markets in which we do business that reduce
the anticipated benefits resulting from an acquisition;
 
    
    The possible loss of key employees and customers of the target company; and
 
    
    Difficulty in estimating the value of the target company.
  We May Not Be Able to Attract and Retain Skilled People.
   15




---



##### Table of Contents



Our Information Systems May Experience an Interruption or Breach in Security.
  We Continually Encounter Technological Change.
  
   
   
   
    16




---



##### Table of Contents



Range of Stock Price
    
    
    DividendsQuarter
    
    
    High
    
    
    Low
    
    
    Declared2008
    
    1st
    
    $
    17.32
    
    
    $
    12.50
    
    
    $
    0.182nd
    
    
    17.09
    
    
    
    7.82
    
    
    
    0.183rd
    
    
    10.33
    
    
    
    5.50
    
    
    
    0.014th
    
    
    8.74
    
    
    
    1.27
    
    
    
    0.012007
    
    1st
    
    $
    27.88
    
    
    $
    21.65
    
    
    $
    0.172nd
    
    
    23.92
    
    
    
    21.26
    
    
    
    0.183rd
    
    
    22.29
    
    
    
    16.28
    
    
    
    0.184th
    
    
    19.97
    
    
    
    14.03
    
    
    
    0.18
     17




---



##### Table of Contents



Period EndingIndex
    
    12/31/03
    
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/06
    
    
    12/31/07
    
    
    12/31/08Integra Bank Corporation
    
    
    100.00
    
    
    
    108.44
    
    
    
    103.11
    
    
    
    136.65
    
    
    
    72.73
    
    
    
    7.34NASDAQ Composite
    
    
    100.00
    
    
    
    108.59
    
    
    
    110.08
    
    
    
    120.56
    
    
    
    132.39
    
    
    
    78.72SNL Midwest Bank
    
    
    100.00
    
    
    
    112.84
    
    
    
    108.73
    
    
    
    125.68
    
    
    
    97.96
    
    
    
    64.44
  18




---



##### Table of Contents



(In Thousands, Except Per Share Data and Ratios)
 YEAR ENDED DECEMBER 31,
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Net interest income
    
    $
    93,981
    
    
    $
    93,249
    
    
    $
    82,306
    
    
    $
    82,621
    
    
    $
    84,467Provision for loan losses
    
    
    65,784
    
    
    
    4,193
    
    
    
    20,294
    
    
    
    5,764
    
    
    
    1,305Non-interest income
    
    
    29,689
    
    
    
    37,071
    
    
    
    35,827
    
    
    
    35,878
    
    
    
    33,607Non-interest expense
    
    
    220,053
    
    
    
    87,650
    
    
    
    75,877
    
    
    
    77,557
    
    
    
    138,180Income (Loss) before income taxes
    
    
    (162,167
    )
    
    
    38,477
    
    
    
    21,962
    
    
    
    35,178
    
    
    
    (21,411
    )Income taxes (benefit)
    
    
    (51,292
    )
    
    
    7,767
    
    
    
    2,415
    
    
    
    7,879
    
    
    
    (14,791
    )Net income (loss)
    
    $
    (110,875
    )
    
    $
    30,710
    
    
    $
    19,547
    
    
    $
    27,299
    
    
    $
    (6,620
    )PER COMMON SHARENet income (loss):Basic
    
    $
    (5.39
    )
    
    $
    1.55
    
    
    $
    1.11
    
    
    $
    1.57
    
    
    $
    (0.38
    )Diluted
    
    
    (5.39
    )
    
    
    1.55
    
    
    
    1.11
    
    
    
    1.56
    
    
    
    (0.38
    )Cash dividends declared
    
    
    0.38
    
    
    
    0.71
    
    
    
    0.67
    
    
    
    0.64
    
    
    
    0.72Book value
    
    
    9.87
    
    
    
    15.87
    
    
    
    13.23
    
    
    
    12.60
    
    
    
    12.05Weighted average shares:Basic
    
    
    20,557
    
    
    
    19,778
    
    
    
    17,546
    
    
    
    17,382
    
    
    
    17,318Diluted
    
    
    20,557
    
    
    
    19,812
    
    
    
    17,658
    
    
    
    17,468
    
    
    
    17,318AT YEAR-ENDTotal assets
    
    $
    3,357,100
    
    
    $
    3,350,126
    
    
    $
    2,684,479
    
    
    $
    2,708,142
    
    
    $
    2,757,165Securities
    
    
    561,739
    
    
    
    636,736
    
    
    
    614,718
    
    
    
    681,030
    
    
    
    801,059Loans, net of unearned income
    
    
    2,490,243
    
    
    
    2,311,378
    
    
    
    1,790,976
    
    
    
    1,750,192
    
    
    
    1,665,324Deposits
    
    
    2,340,192
    
    
    
    2,340,137
    
    
    
    1,953,852
    
    
    
    1,808,503
    
    
    
    1,896,541Shareholders equity
    
    
    204,791
    
    
    
    327,804
    
    
    
    235,474
    
    
    
    220,098
    
    
    
    209,291Shares outstanding
    
    
    20,749
    
    
    
    20,650
    
    
    
    17,794
    
    
    
    17,465
    
    
    
    17,375AVERAGE BALANCESTotal assets
    
    $
    3,379,110
    
    
    $
    3,104,951
    
    
    $
    2,719,056
    
    
    $
    2,746,425
    
    
    $
    2,758,924Securities, at amortized cost
    
    
    593,579
    
    
    
    621,199
    
    
    
    659,142
    
    
    
    757,694
    
    
    
    810,716Loans, net of unearned income
    
    
    2,407,677
    
    
    
    2,128,551
    
    
    
    1,782,918
    
    
    
    1,688,547
    
    
    
    1,644,471Interest-bearing deposits
    
    
    2,066,435
    
    
    
    2,021,531
    
    
    
    1,725,655
    
    
    
    1,618,027
    
    
    
    1,613,000Shareholders equity
    
    
    313,699
    
    
    
    300,457
    
    
    
    230,017
    
    
    
    216,278
    
    
    
    210,280FINANCIAL RATIOSReturn on average assets
    
    
    (3.28
    )%
    
    
    0.99
    %
    
    
    0.72
    %
    
    
    0.99
    %
    
    
    (0.24
    )%Return on average equity
    
    
    (35.34
    )
    
    
    10.22
    
    
    
    8.50
    
    
    
    12.62
    
    
    
    (3.15
    )Net interest margin
    
    
    3.18
    
    
    
    3.46
    
    
    
    3.43
    
    
    
    3.44
    
    
    
    3.52Cash dividends payout
    
    
    N/M
    *
    
    
    43.83
    
    
    
    59.26
    
    
    
    40.82
    
    
    
    N/M
    *Average shareholders equity to
average assets
    
    
    9.28
    
    
    
    9.68
    
    
    
    8.46
    
    
    
    7.87
    
    
    
    7.62
 *
    
    Number is not meaningful.  19




---



##### Table of Contents



20




---



##### Table of Contents




    
    pursue opportunities to raise additional capital to maintain well capitalized status,
and then begin the process of rebuilding capital levels to fortress levels;
 
    
    stabilize and then improve our credit profile (as measured by non performing assets);
 
    
    return to profitability, then to future acceptable and sustainable profitability;
 
    
    grow core deposits faster than loans; and
 
    
    generate positive operating leverage (revenue growth that exceeds expense growth).
   Allowance for Loan Losses:
   21




---



##### Table of Contents



Estimation of Fair Value:
   Other-than-temporary securities impairment:
    22




---



##### Table of Contents



Income Taxes:
    23




---



##### Table of Contents



2008
    
    
    2007
    
    
    2006Average
    
    
    Interest
    
    
    Yield/
    
    
    Average
    
    
    Interest
    
    
    Yield/
    
    
    Average
    
    
    Interest
    
    
    Yield/Year Ended December 31,
    
    Balances
    
    
    & Fees
    
    
    Cost
    
    
    Balances
    
    
    & Fees
    
    
    Cost
    
    
    Balances
    
    
    & Fees
    
    
    CostEARNING ASSETS:Interest-bearing deposits in banks
    
    $
    4,511
    
    
    $
    90
    
    
    
    2.00
    %
    
    $
    3,427
    
    
    $
    167
    
    
    
    4.87
    %
    
    $
    1,718
    
    
    $
    81
    
    
    
    4.71
    %Federal funds sold & other
short-term investments
    
    
    683
    
    
    
    14
    
    
    
    2.05
    %
    
    
    1,578
    
    
    
    58
    
    
    
    3.68
    %
    
    
    5,437
    
    
    
    252
    
    
    
    4.63
    %Loans held for sale
    
    
    5,936
    
    
    
    366
    
    
    
    6.17
    %
    
    
    3,346
    
    
    
    235
    
    
    
    7.02
    %
    
    
    1,950
    
    
    
    140
    
    
    
    7.18
    %Securities:Taxable
    
    
    494,080
    
    
    
    23,581
    
    
    
    4.77
    %
    
    
    510,129
    
    
    
    24,588
    
    
    
    4.82
    %
    
    
    567,452
    
    
    
    26,525
    
    
    
    4.67
    %Tax-exempt
    
    
    99,499
    
    
    
    7,048
    
    
    
    7.08
    %
    
    
    111,070
    
    
    
    7,949
    
    
    
    7.16
    %
    
    
    91,690
    
    
    
    6,853
    
    
    
    7.47
    %Total securities
    
    
    593,579
    
    
    
    30,629
    
    
    
    5.16
    %
    
    
    621,199
    
    
    
    32,537
    
    
    
    5.24
    %
    
    
    659,142
    
    
    
    33,378
    
    
    
    5.06
    %Regulatory Stock
    
    
    29,179
    
    
    
    1,273
    
    
    
    4.36
    %
    
    
    26,389
    
    
    
    1,286
    
    
    
    4.87
    %
    
    
    29,368
    
    
    
    1,479
    
    
    
    5.04
    %Loans
    
    
    2,407,677
    
    
    
    143,260
    
    
    
    5.95
    %
    
    
    2,128,551
    
    
    
    160,630
    
    
    
    7.55
    %
    
    
    1,782,918
    
    
    
    125,728
    
    
    
    7.05
    %Total earning assets
    
    
    3,041,565
    
    
    $
    175,632
    
    
    
    5.77
    %
    
    
    2,784,490
    
    
    $
    194,913
    
    
    
    7.00
    %
    
    
    2,480,533
    
    
    $
    161,058
    
    
    
    6.49
    %Fair value adjustment on
securities available for sale
    
    
    (13,341
    )
    
    
    
    
    
    
    
    
    
    
    (7,996
    )
    
    
    
    
    
    
    
    
    
    
    (13,767
    )Allowance for loan loss
    
    
    (34,641
    )
    
    
    
    
    
    
    
    
    
    
    (25,088
    )
    
    
    
    
    
    
    
    
    
    
    (21,990
    )Other non-earning assets
    
    
    385,527
    
    
    
    
    
    
    
    
    
    
    
    353,545
    
    
    
    
    
    
    
    
    
    
    
    274,280TOTAL ASSETS
    
    $
    3,379,110
    
    
    
    
    
    
    
    
    
    
    $
    3,104,951
    
    
    
    
    
    
    
    
    
    
    $
    2,719,056INTEREST-BEARING LIABILITIES:DepositsSavings and interest-bearing demand
    
    $
    560,420
    
    
    $
    5,056
    
    
    
    0.90
    %
    
    $
    506,144
    
    
    $
    4,903
    
    
    
    0.97
    %
    
    $
    497,237
    
    
    $
    4,197
    
    
    
    0.84
    %Money market accounts
    
    
    370,099
    
    
    
    8,296
    
    
    
    2.24
    %
    
    
    370,953
    
    
    
    15,114
    
    
    
    4.07
    %
    
    
    281,480
    
    
    
    10,589
    
    
    
    3.76
    %Certificates of deposit and other time
    
    
    1,135,916
    
    
    
    42,311
    
    
    
    3.72
    %
    
    
    1,144,434
    
    
    
    53,725
    
    
    
    4.69
    %
    
    
    946,938
    
    
    
    39,635
    
    
    
    4.19
    %Total interest-bearing deposits
    
    
    2,066,435
    
    
    
    55,663
    
    
    
    2.69
    %
    
    
    2,021,531
    
    
    
    73,742
    
    
    
    3.65
    %
    
    
    1,725,655
    
    
    
    54,421
    
    
    
    3.15
    %Short-term borrowings
    
    
    314,212
    
    
    
    7,563
    
    
    
    2.41
    %
    
    
    194,033
    
    
    
    9,431
    
    
    
    4.86
    %
    
    
    178,976
    
    
    
    8,574
    
    
    
    4.79
    %Long-term borrowings
    
    
    373,306
    
    
    
    15,693
    
    
    
    4.20
    %
    
    
    285,925
    
    
    
    15,498
    
    
    
    5.42
    %
    
    
    305,881
    
    
    
    13,092
    
    
    
    4.28
    %Total interest-bearing liabilities
    
    
    2,753,953
    
    
    $
    78,919
    
    
    
    2.87
    %
    
    
    2,501,489
    
    
    $
    98,671
    
    
    
    3.94
    %
    
    
    2,210,512
    
    
    $
    76,087
    
    
    
    3.44
    %Non-interest bearing deposits
    
    
    281,647
    
    
    
    
    
    
    
    
    
    
    
    272,175
    
    
    
    
    
    
    
    
    
    
    
    257,625Other noninterest-bearing liabilities and
shareholders equity
    
    
    343,510
    
    
    
    
    
    
    
    
    
    
    
    331,287
    
    
    
    
    
    
    
    
    
    
    
    250,919TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    3,379,110
    
    
    
    
    
    
    
    
    
    
    $
    3,104,951
    
    
    
    
    
    
    
    
    
    
    $
    2,719,056Interest income/earning assets
    
    
    
    
    
    $
    175,632
    
    
    
    5.77
    %
    
    
    
    
    
    $
    194,913
    
    
    
    7.00
    %
    
    
    
    
    
    $
    161,058
    
    
    
    6.49
    %Interest expense/earning assets
    
    
    
    
    
    
    78,919
    
    
    
    2.59
    %
    
    
    
    
    
    
    98,671
    
    
    
    3.54
    %
    
    
    
    
    
    
    76,087
    
    
    
    3.06
    %Net interest income/earning assets
    
    
    
    
    
    $
    96,713
    
    
    
    3.18
    %
    
    
    
    
    
    $
    96,242
    
    
    
    3.46
    %
    
    
    
    
    
    $
    84,971
    
    
    
    3.43
    %
 Note:
    
    Tax exempt income presented on a tax equivalent basis based on a 35% federal tax rate.Loans include loan fees of $3,668, $2,786, and $1,881 for 2008, 2007, and 2006, respectively, and nonaccrual loans.Securities yields are calculated on an amortized cost basis.Federal tax equivalent adjustments on securities are $2,467, $2,782, and $2,441 for 2008, 2007, and 2006, respectively.Federal tax equivalent adjustments on loans are $265, $211, and $224 for 2008, 2007, and 2006, respectively.  24




---



##### Table of Contents



2008 Compared to 2007
    
    
    2007 Compared to 2006Change Due to
    
    
    
    
    
    
    Change Due toa Change in
    
    
    Total
    
    
    a Change in
    
    
    TotalIncrease (decrease)
    
    Volume
    
    
    Rate
    
    
    Change
    
    
    Volume
    
    
    Rate
    
    
    ChangeInterest incomeLoans
    
    $
    19,397
    
    
    $
    (36,767
    )
    
    $
    (17,370
    )
    
    $
    25,553
    
    
    $
    9,349
    
    
    $
    34,902Securities
    
    
    (1,420
    )
    
    
    (488
    )
    
    
    (1,908
    )
    
    
    (1,986
    )
    
    
    1,145
    
    
    
    (841
    )Regulatory Stock
    
    
    129
    
    
    
    (142
    )
    
    
    (13
    )
    
    
    (145
    )
    
    
    (48
    )
    
    
    (193
    )Loans held for sale
    
    
    162
    
    
    
    (31
    )
    
    
    131
    
    
    
    98
    
    
    
    (3
    )
    
    
    95Other short-term investments
    
    
    9
    
    
    
    (130
    )
    
    
    (121
    )
    
    
    (97
    )
    
    
    (11
    )
    
    
    (108
    )Total interest income
    
    
    18,277
    
    
    
    (37,558
    )
    
    
    (19,281
    )
    
    
    23,423
    
    
    
    10,432
    
    
    
    33,855Interest expenseDeposits
    
    
    1,615
    
    
    
    (19,694
    )
    
    
    (18,079
    )
    
    
    10,033
    
    
    
    9,288
    
    
    
    19,321Short-term borrowings
    
    
    4,212
    
    
    
    (6,080
    )
    
    
    (1,868
    )
    
    
    730
    
    
    
    127
    
    
    
    857Long-term borrowings
    
    
    4,130
    
    
    
    (3,935
    )
    
    
    195
    
    
    
    (899
    )
    
    
    3,305
    
    
    
    2,406Total interest expense
    
    
    9,957
    
    
    
    (29,709
    )
    
    
    (19,752
    )
    
    
    9,864
    
    
    
    12,720
    
    
    
    22,584Net interest income
    
    $
    8,320
    
    
    $
    (7,849
    )
    
    $
    471
    
    
    $
    13,559
    
    
    $
    (2,288
    )
    
    $
    11,271
    
    
    Average earning assets increased $257,075, or 9.2%. An increase in commercial loan
average balances of $356,730 was slightly offset by lower residential mortgage loan average
balances of $81,067, lower securities average balances of $27,620 and lower indirect
consumer loan average balances of $23,035. The increase in commercial loan average
balances was largely due to growth during 2008, but also included a full year of the
Chicago region, while 2007 included approximately 8 1/2 months of activity. The change in
the composition of earning assets was in line with our strategy throughout 2007 and most of
2008 to improve our mix of earning assets by reducing lower yielding securities,
residential mortgage loan and indirect consumer loan balances and increasing the amount of
higher yielding commercial loans. The increase in average commercial loan balances for
2008 was driven by increases in commercial real estate loans of $291,308 and commercial and
industrial loans of $65,422.
 
    
    The average rate of commercial loans decreased 221 basis points, as LIBOR and prime
rates declined throughout 2008 and the level of non-accrual loans increased. Our asset
sensitivity (meaning that a change in prevailing interest rates impacts our assets more
quickly than our liabilities), resulted in our asset yields declining faster and more than
the cost of the liabilities funding those assets. Approximately 44% of our variable rate
loans are tied to prime, 45% to a LIBOR index and 11% to other floating rate indexes.
Prime decreased 400 basis points during 2008, while one-month and three-month LIBOR rates
decreased 416 and 328 basis points, respectively. The impact of non-accrual loans on the
net interest margin was 21 basis points, or approximately 20 cents of earnings per share.
Approximately half of the 36 basis point decline in the margin during the fourth quarter of
2008 was due to the increased level of non-performing loans. Non-accruing interest for
loans in non-accrual status at December 31, 2008 approximated 30 basis points. The impact
to our net interest margin from the higher percentage of commercial loans positively
impacted our net interest margin for the first months of 2008, but then negatively impacted
it later in the year when prime and LIBOR rates declined. Total average commercial loans
represented 57.2% of total earning assets for 2008, up from 49.7% for 2007. The yield on
commercial loans for the fourth quarter of 2008 was 34 basis points lower than the yield on
securities during the fourth quarter of 2008, a 259 basis point change from the fourth
quarter of 2007, when commercial loan yields were 225 basis points higher than more stable
securities yields.
  25




---



##### Table of Contents




    
    Non-interest bearing deposit average balances increased $9,472, while the average
balances of savings and interest-bearing demand deposits, which have an average cost of 90
basis points, increased $54,409.
 
    
    The increase in the average balance of earning assets was funded by the increase in low
cost deposits, along with increases in short-term Federal Home Loan Bank advances of
$95,613, long-term advances of $57,117, brokered deposits of $56,620 and federal funds
purchased of $21,586. This was partially offset by a decline in retail certificates of
deposit of $65,138. The average cost of funds for Federal Home Loan Bank advances
declined 137 basis points to 3.24%, money market declined 183 basis points to 2.24% and
time deposits declined 97 basis points to 3.72%.
   
    
    Average earning assets increased $303,957, or 12.3%. Loans from the Chicago region
contributed $303,975 to the average, including average balances of $284,189 of higher
yielding commercial loans. Increases in the average balances of commercial loans of
$387,650 more than offset planned declines in residential mortgage loans of $40,768,
indirect consumer loans of $18,170 and securities of $37,943. This change in the
composition of earning assets was in line with our previous strategy of improving our mix
of earning assets by reducing lower yielding securities, residential mortgage loan and
indirect consumer loan balances and increasing the amount of higher yielding commercial
loans. The increase in average commercial loan balances for 2007 was driven by increases
in commercial real estate loans of $345,627, and also from loans originated by our
commercial lending group located in Cincinnati, Ohio. Average balances for this group
increased $50,453.
 
    
    The average rate of commercial loans increased 47 basis points, as yields continued to
reflect consistent increases for most of the year in market interest rates, which resulted
in changes to our pricing for new loans and upward interest rate adjustments on existing
variable rate products. This trend reversed during the fourth quarter for variable rate
loans tied to prime rate indexes, as well as for new originations.
 
    
    Non-interest bearing deposit average balances increased $14,550, while the average
balances of savings and interest-bearing demand deposits, which have an average cost of 97
basis points, increased $8,907. The average balance of non-interest bearing deposits for
the Chicago region was $23,279, while the average for savings and interest bearing demand
was $23,042.
 
    
    The increase in the average balance of earning assets was funded primarily by increases
in time deposits of $197,496 and money market accounts of $89,473. These funding sources
carried an average rate of 4.69% and 4.07% in 2007, compared to 4.19% and 3.76% in 2006.
The pricing of retail certificates acquired in the Prairie transaction were higher than
those in our other markets. During the second through fourth quarters, the balances of
those retail certificates declined, as we were able to secure deposits at lower costs in
other regions.
    
    
    Continued increasing trends of the amount and number of purchases charged to debit cards
by our customers led to an increase in debit card interchange fees of 20.1%.
 
    
    The increase in deposit service charges continues to be a result of the success of our
High Performance Checking initiative. Increased customer activity, coupled with increases
in non-sufficient funds fees, resulted in the increased fee income.
  26




---



##### Table of Contents




    
    Life insurance income increased in part due to the full-year impact of additional
insurance policies purchased during 2007, coupled with death benefits of $414, offset by
lower crediting rates on some policies.
 
    
    The increase in annuity commissions resulted from a change in customer preferences that
started during 2007 and continued into 2008, due in part to the impact of declining
interest rates on alternative products.
 
    
    Securities losses of $10,571 included other-than-temporary impairment charges of $10,612
on four securities. The Securities Available for Sale and Trading Securities section of
Management Discussion and Analysis, as well as Note 4 of the Notes to the Consolidated
Financial Statements provides additional information on the other-than-temporary
impairment.
   
    
    The increase in deposit service charges continued to be a result of the success of our
High Performance Checking initiative, coupled with the impact of the Prairie acquisition.
This program has resulted in a net increase of approximately 21,000 checking accounts since
we initiated it in early 2005. The greater number of accounts, coupled with increased
customer activity and increases in non-sufficient funds fees, resulted in the increased fee
income. The new Chicago region contributed $899 of deposit service charges.
 
    
    The increase in number of checking accounts, coupled with greater usage of debit cards
as a method of payment by our customers, resulted in higher interchange fees. The increase
in debit card interchange fees was 32.7%. The new Chicago region contributed only slightly
to this increase, due to that regions relatively low number of checking accounts.
 
    
    The increase in annuity commissions resulted from a change in customer preferences,
coupled with increased training initiatives and more consistent sales efforts.
 
    
    Securities losses of $2,277 included a gain on the sale of Mastercard stock of $1,038,
other-than-temporary impairment charges of $2,726, and net losses on sales of other
securities of $589. The losses on sales of securities of $819 were largely the
consequences of worsening economic conditions, and statements and actions by the Federal
Open Market Committee (in particular, the decision to lower the Fed funds target rate in
mid September 2007), and our desire to position the securities portfolio (liquidity,
interest rate risk, and earnings) over the long term. During the third quarter of 2007, we
sold 7,831 shares of Mastercard Class B common stock for $1,038 by converting those shares
to Class A shares and then selling them through a voluntary program offered by MasterCard
Incorporated. We received the Mastercard stock in 2006 as a result of Mastercards public
offering. Prior to the third quarter of 2007, these shares did not have a readily
determinable fair value and were carried at cost. During the fourth quarter of 2007, we
recognized an other-than-temporary impairment charge of $2,726 for four investment grade
Federal Home Loan Mortgage Corporation, or Freddie Mac securities classified as available
for sale securities. Note 4 of the Notes to the Consolidated Financial Statements provides
additional information on the other-than-temporary impairment.
 
    
    Life insurance income increased $92, or 4.2% from 2006. This increase was the net of
higher levels of bank owned life insurance in 2007, offset by receipt of a bank owned life
insurance death benefit in 2006 of $448.
     27




---



##### Table of Contents




    
    The increase in personnel expense of $2,526, or 5.5%, was a result of an increase in
salaries of $2,746, or 8.2%, stock-based compensation expense of $578, or 43.2%, and a
decline in deferred personnel costs of $148, or 11.7%, offset by lower incentives of $695,
or 26.9%, and severance of $346. The increase in salaries was due in part to the full year
of the Chicago region, compared to approximately 8 1/2 months in 2007, additional staffing in loan
collections and related areas, 2008 pay rate increases and a lower vacancy rate because of a
low rate of personnel turnover. The increase in stock based compensation expense included
$193 of forfeiture adjustments. At December 31, 2008, we had 870 full-time equivalent
employees or FTEs, compared to 848 FTEs in 2007.
 
    
    Loan and OREO expenses increased $2,213, or 390.3%. This increase is attributed to
higher levels of real estate owned and related expenses, expenses incurred in connection
with loan workout and collection activities, and loan portfolio management expenses, such
as the cost of obtaining new appraisals on real estate securing some of our commercial real
estate loans.
 
    
    Occupancy expenses increased $949, or 10.1%, due to the full year of the Chicago
locations, increases in building maintenance and repairs, and higher utilities.
 
    
    Fraud and other losses increased $697, or 124.7%, due primarily to higher check kiting
losses.
 
    
    Sales and franchise taxes increased $684, or 62.2%, due to increases in Kentucky and
Ohio franchise taxes because of a change in apportionment ratios resulting from the
Prairie acquisition, coupled with sales tax liabilities resulting from an audit by the
Indiana Department of Revenue.
 
    
    Communication and transportation expenses increased $542, or 12.0%, due primarily to an
increase of $475 in telephone expense related to a data line upgrade that included start up
costs and a short period of time where both expense from the old and new lines was being
incurred, as well as, the addition of two new locations and a full year of expense in
Chicago.
 
    
    Software expense increased $448, or 22.1%, because of additional investments in remote
branch capture, treasury management, account opening, budgeting and payroll processing
software and maintenance.
 
    
    Processing expense increased $397, or 16.1%, primarily in the areas of ATM and debit
card processing, in large part due to the impact of a full year of expense from the Chicago
region, coupled with higher debit card costs attributed to higher levels of debit card
usage.
    
    
    The increase in personnel expense of $5,891, or 14.7%, was a result of the addition of
the Chicago region, higher health insurance, incentive and stock-based compensation
expenses and investments in personnel in our commercial banking line of business.
Incentives and commissions increased $604, in part due to commissions and incentives paid
as a result of increases in revenues. Stock-based compensation expense increased $716, or
115.5%, due to the adoption of Statement of Financial Accounting Standards No. 123(R), or
SFAS 123(R), in 2006. The expense associated with both the 2006 and 2007 grants was amortized, while 2006 included only one years grant amortization. At December 31,
2007, we had 848 full-time equivalent employees or FTEs compared to 802 FTEs in 2006.
 
    
    Occupancy expenses increased $1,248, or 15.3%, due to the $1,007 impact of the addition
of the five Chicago banking centers and the addition of a new banking center in Union,
Kentucky, which added $80 in expense.
  28




---



##### Table of Contents




    
    Professional fees increased $1,657, or 56.1%, due primarily to $650 of non-routine
collection expenses and legal fees related to a fourth quarter 2006 charge-off and $585 of
investment banking, legal, accounting and other professional fees we incurred in connection
with the proposed acquisition of Peoples Bancorp, Inc., or Peoples, a thrift holding
company based in Cincinnati, Ohio. The parties terminated the agreement for the
acquisition in January 2008. The remainder of the increase was related to the acquisition
of Prairie, including systems conversion and merger integration related expenses
and higher legal, external audit and examination fees.
 
    
    The increase of intangibles expense of $627, or 67.2%, was entirely due to core deposit
and customer relationship intangible amortization expense recorded with the Prairie
acquisition. Core deposit and customer relationship intangibles totaling $6,380 are being
amortized on an accelerated basis over ten and five years, respectively.
 
    
    Travel and meals increased $333, or 43.6%, largely because of expenses associated with
travel to Chicago, both before and after the effective date of the Prairie acquisition, as
well as because of travel expenses incurred in connection with due diligence and merger
integration planning for the Peoples acquisition that was later terminated.
 
    
    Postage and courier expense increased $309, or 9.1%, because of the use of courier
services to and from the new Chicago region, coupled with higher postage expense related to
mailings for our High Performance Checking program.
 
    
    Sales and franchise taxes increased as a higher level of income was apportioned to
states in which we pay franchise tax, particularly Ohio, coupled with receipt in 2006 of a
franchise tax refund claim for a prior year.
        29




---



##### Table of Contents



2008Three months ended
    
    December 31(4)
    
    
    September 30
    
    
    June 30
    
    
    March 31Interest income
    
    $
    40,244
    
    
    $
    42,305
    
    
    $
    43,260
    
    
    $
    47,091Interest expense
    
    
    18,807
    
    
    
    18,445
    
    
    
    18,094
    
    
    
    23,573Net interest income
    
    
    21,437
    
    
    
    23,860
    
    
    
    25,166
    
    
    
    23,518Provision for loan losses
    
    
    38,169
    
    
    
    17,978
    (1)
    
    
    6,003
    
    
    
    3,634Non-interest income
    
    
    5,759
    
    
    
    10,184
    
    
    
    3,012
    (2)
    
    
    10,734Non-interest expense
    
    
    99,568
    
    
    
    72,187
    (3)
    
    
    24,177
    
    
    
    24,121Income (Loss) before
income taxes
    
    
    (110,541
    )
    
    
    (56,121
    )
    
    
    (2,002
    )
    
    
    6,497Income taxes (benefits)
    
    
    (28,919
    )
    
    
    (22,794
    )
    
    
    (1,103
    )
    
    
    1,524NET INCOME (LOSS)
    
    $
    (81,622
    )
    
    $
    (33,327
    )
    
    $
    (899
    )
    
    $
    4,973Earnings (Loss) per share:Basic
    
    $
    (3.97
    )
    
    $
    (1.62
    )
    
    $
    (0.04
    )
    
    $
    0.24Diluted
    
    
    (3.97
    )
    
    
    (1.62
    )
    
    
    (0.04
    )
    
    
    0.24Average shares:Basic
    
    
    20,569
    
    
    
    20,567
    
    
    
    20,554
    
    
    
    20,537Diluted
    
    
    20,569
    
    
    
    20,567
    
    
    
    20,554
    
    
    
    20,5442007Three months ended
    
    December 31(4)
    
    
    September 30
    
    
    June 30
    
    
    March 31Interest income
    
    $
    51,384
    
    
    $
    51,327
    
    
    $
    49,367
    
    
    $
    39,842Interest expense
    
    
    26,729
    
    
    
    26,629
    
    
    
    25,800
    
    
    
    19,513Net interest income
    
    
    24,655
    
    
    
    24,698
    
    
    
    23,567
    
    
    
    20,329Provision for loan losses
    
    
    2,280
    
    
    
    723
    
    
    
    455
    
    
    
    735Non-interest income
    
    
    7,538
    
    
    
    10,387
    
    
    
    9,931
    
    
    
    9,215Non-interest expense
    
    
    23,371
    
    
    
    22,242
    
    
    
    21,870
    
    
    
    20,167Income (loss) before
income taxes
    
    
    6,542
    
    
    
    12,120
    
    
    
    11,173
    
    
    
    8,642Income taxes (benefits)
    
    
    727
    
    
    
    2,914
    
    
    
    2,840
    
    
    
    1,286NET INCOME (LOSS)
    
    $
    5,815
    
    
    $
    9,206
    
    
    $
    8,333
    
    
    $
    7,356Earnings per share:Basic
    
    $
    0.28
    
    
    $
    0.45
    
    
    $
    0.41
    
    
    $
    0.42Diluted
    
    
    0.28
    
    
    
    0.45
    
    
    
    0.41
    
    
    
    0.41Average shares:Basic
    
    
    20,535
    
    
    
    20,527
    
    
    
    20,331
    
    
    
    17,678Diluted
    
    
    20,542
    
    
    
    20,545
    
    
    
    20,407
    
    
    
    17,786
  (1)
    
    Increase in provision in loan loss during the third quarter of 2008 occurred as
non-performing loans increased.(2)
    
    Includes $6,302 of other-than-temporary securities impairment.(3)
    
    Includes goodwill impairment of $48,000.(4)
    
    See below discussion on fourth quarter 2008 results for additional details.  30




---



##### Table of Contents



31




---



##### Table of Contents



SECURITIES AVAILABLE FOR SALE
    
    December 31,(At Fair Value)
    
    2008
    
    
    2007
    
    
    2006U.S. Government agencies
    
    $
    761
    
    
    $
    16,142
    
    
    $
    16,165Collateralized Mortgage Obligations:Agency
    
    
    274,076
    
    
    
    234,664
    
    
    
    267,321Private Label
    
    
    28,610
    
    
    
    41,319
    
    
    
    46,096Mortgage-backed securities
    
    
    131,253
    
    
    
    122,811
    
    
    
    133,630FHLMC Preferred stock
    
    
    
    
    
    
    9,973
    
    
    
    14,774Trust Preferred
    
    
    28,401
    
    
    
    46,244
    
    
    
    21,167State & political subdivisions
    
    
    90,028
    
    
    
    106,819
    
    
    
    76,143Other securities
    
    
    8,610
    
    
    
    4,982
    
    
    
    39,422Total
    
    $
    561,739
    
    
    $
    582,954
    
    
    $
    614,718
  Available for Sale Securities
    
    Fair ValueDue in one year or less
    
    $
    24,957Due from one to five years
    
    
    259,738Due from five to ten years
    
    
    176,510Due after ten years
    
    
    100,534Total
    
    $
    561,739
 SECURITIES HELD FOR TRADING(At Fair Value)
    
    December 31, 2007Mortgage-backed securities
    
    $
    18,385Collateralized Mortgage Obligations
    
    
    35,397Total
    
    $
    53,782
    32




---



##### Table of Contents



th
  33




---



##### Table of Contents



34




---



##### Table of Contents



35




---



##### Table of Contents



36




---



##### Table of Contents



2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Commercial, industrial and
agricultural loans
    
    $
    748,446
    
    
    $
    689,504
    
    
    $
    568,841
    
    
    $
    572,936
    
    
    $
    563,382Economic development loans and
other obligations of state and
political subdivisions
    
    
    24,502
    
    
    
    7,227
    
    
    
    7,179
    
    
    
    8,422
    
    
    
    13,195Lease financing
    
    
    5,397
    
    
    
    5,291
    
    
    
    5,495
    
    
    
    5,740
    
    
    
    5,731Commercial mortgages
    
    
    436,336
    
    
    
    298,151
    
    
    
    180,249
    
    
    
    180,907
    
    
    
    224,066Construction and development
    
    
    641,460
    
    
    
    609,858
    
    
    
    260,314
    
    
    
    186,177
    
    
    
    72,517Residential mortgages
    
    
    309,397
    
    
    
    380,429
    
    
    
    436,309
    
    
    
    447,250
    
    
    
    456,007Home equity lines of credit
    
    
    171,241
    
    
    
    145,403
    
    
    
    132,704
    
    
    
    135,685
    
    
    
    143,037Consumer loans
    
    
    153,464
    
    
    
    175,516
    
    
    
    199,887
    
    
    
    213,079
    
    
    
    187,395Total loans
    
    
    2,490,243
    
    
    
    2,311,379
    
    
    
    1,790,978
    
    
    
    1,750,196
    
    
    
    1,665,330Less: unearned income
    
    
    
    
    
    
    1
    
    
    
    2
    
    
    
    4
    
    
    
    6Loans, net of unearned income
    
    $
    2,490,243
    
    
    $
    2,311,378
    
    
    $
    1,790,976
    
    
    $
    1,750,192
    
    
    $
    1,665,324
     After 1 YearWithin
    
    
    But Within
    
    
    OverRate sensitivities:
    
    1 Year
    
    
    5 Years
    
    
    5 Years
    
    
    TotalFixed rate loans
    
    $
    82,352
    
    
    $
    411,551
    
    
    $
    256,667
    
    
    $
    750,570Variable rate loans
    
    
    1,444,686
    
    
    
    136,456
    
    
    
    8,529
    
    
    
    1,589,671Subtotal
    
    $
    1,527,038
    
    
    $
    548,007
    
    
    $
    265,196
    
    
    
    2,340,241Percent of total
    
    
    65.25
    %
    
    
    23.42
    %
    
    
    11.33
    %Nonaccrual loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,002Total loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,490,243
  37




---



##### Table of Contents



After 1 YearWithin
    
    
    But Within
    
    
    Over1 Year
    
    
    5 Years
    
    
    5 Years
    
    
    TotalCommercial, industrial and
agriculture loans
    
    $
    457,313
    
    
    $
    218,671
    
    
    $
    45,755
    
    
    $
    721,739Economic development loans and
other obligations of state and
political subdivisions
    
    
    15,030
    
    
    
    8,764
    
    
    
    708
    
    
    
    24,502Construction and development
    
    
    556,013
    
    
    
    10,111
    
    
    
    197
    
    
    
    566,321Total
    
    $
    1,028,356
    
    
    $
    237,546
    
    
    $
    46,660
    
    
    $
    1,312,562Fixed rate
    
    $
    48,581
    
    
    $
    210,209
    
    
    $
    44,327
    
    
    $
    303,117Variable rate
    
    
    979,775
    
    
    
    27,337
    
    
    
    2,333
    
    
    
    1,009,445Subtotal
    
    $
    1,028,356
    
    
    $
    237,546
    
    
    $
    46,660
    
    
    
    1,312,562Percent of total
    
    
    78.35
    %
    
    
    18.10
    %
    
    
    3.55
    %Nonaccrual loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,846Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,414,408
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Non-performing loans:(1)Nonaccrual
    
    $
    150,002
    
    
    $
    18,549
    
    
    $
    8,625
    
    
    $
    25,013
    
    
    $
    17,97190 days past due and still accruing interest
    
    
    897
    
    
    
    4,118
    
    
    
    228
    
    
    
    40
    
    
    
    576Total non-performing loans
    
    
    150,899
    
    
    
    22,667
    
    
    
    8,853
    
    
    
    25,053
    
    
    
    18,547Other real estate owned
    
    
    19,396
    
    
    
    2,923
    
    
    
    936
    
    
    
    440
    
    
    
    243Total non-performing assets
    
    $
    170,295
    
    
    $
    25,590
    
    
    $
    9,789
    
    
    $
    25,493
    
    
    $
    18,790
 (1)
    
    Includes non-performing loans classified as loans held for sale.   38




---



##### Table of Contents



39




---



##### Table of Contents



40




---



##### Table of Contents



41




---



##### Table of Contents




    
    During 2008, we obtained new appraisals covering approximately 35% of the properties
securing our Chicago area non-performing loans and we used those appraisals to help
determine the need for and amount of specific reserves within the allowance for loan losses.
Since April 1, 2008 we have obtained new appraisals on approximately 78% of the properties
securing our Chicago area non-performing loans. We plan to continue to order new or updated
appraisals for any commercial real estate loans that warrant it as this cycle continues.
    
    We are directing our Chicago lending staff to manage non-performing loans in their
portfolio and have hired additional personnel to assist with managing the more troubled
relationships.
    
    We discontinued pursuing new CRE opportunities, regardless of property type, starting in
the third quarter. We expect our CRE balances will continue to grow in the short-term,
however, as we fund committed credit facilities. As this credit cycle unfolds, we will
continue to evaluate the size of this portfolio.
    
    We have instituted a new additional portfolio review process in which relationship
managers are required to present selected loans in their portfolio to credit administration
and executive management. The loans to be presented are selected by credit administration
based upon a number of factors, including the size and age of the loan, product type,
industry type and delinquency.
    
    We have implemented other policy and process changes, including actions to reduce our
concentration risk as well as tightening our loan approval standards and processes.
  42




---



##### Table of Contents



2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Allowance for loan losses, January 1
    
    $
    27,261
    
    
    $
    21,155
    
    
    $
    24,392
    
    
    $
    23,794
    
    
    $
    25,403Allowance associated with purchase acquisitions
    
    
    
    
    
    
    5,982
    
    
    
    
    
    
    
    
    
    
    
    Loans charged off:Commercial, industrial and agriculture
    
    
    8,338
    
    
    
    1,244
    
    
    
    21,509
    
    
    
    3,461
    
    
    
    1,550Commercial mortgages
    
    
    3,257
    
    
    
    54
    
    
    
    66
    
    
    
    620
    
    
    
    859Construction and development
    
    
    12,368
    
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    13Residential mortgages
    
    
    1,485
    
    
    
    797
    
    
    
    704
    
    
    
    589
    
    
    
    1,321Home Equity
    
    
    352
    
    
    
    246
    
    
    
    397
    
    
    
    130
    
    
    
    154Consumer
    
    
    4,412
    
    
    
    2,900
    
    
    
    2,665
    
    
    
    1,818
    
    
    
    961Total
    
    
    30,212
    
    
    
    5,441
    
    
    
    25,341
    
    
    
    6,618
    
    
    
    4,858Recoveries on charged off loans:Commercial, industrial and agriculture
    
    
    280
    
    
    
    315
    
    
    
    633
    
    
    
    621
    
    
    
    1,386Commercial mortgages
    
    
    20
    
    
    
    18
    
    
    
    174
    
    
    
    32
    
    
    
    242Construction and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Residential mortgages
    
    
    184
    
    
    
    154
    
    
    
    171
    
    
    
    166
    
    
    
    249Home Equity
    
    
    11
    
    
    
    105
    
    
    
    41
    
    
    
    64
    
    
    
    24Consumer
    
    
    1,109
    
    
    
    780
    
    
    
    791
    
    
    
    569
    
    
    
    394Total
    
    
    1,604
    
    
    
    1,372
    
    
    
    1,810
    
    
    
    1,452
    
    
    
    2,319Net charge-offs
    
    
    28,608
    
    
    
    4,069
    
    
    
    23,531
    
    
    
    5,166
    
    
    
    2,539Provision for loan losses
    
    
    65,784
    
    
    
    4,193
    
    
    
    20,294
    
    
    
    5,764
    
    
    
    1,305Allowance related to loans sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (299
    )Transfer to reserve for unfunded commitments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76
    )Allowance for loan losses, December 31
    
    $
    64,437
    
    
    $
    27,261
    
    
    $
    21,155
    
    
    $
    24,392
    
    
    $
    23,794Total loans at year-end, net of unearned income
    
    $
    2,490,243
    
    
    $
    2,311,378
    
    
    $
    1,790,976
    
    
    $
    1,750,192
    
    
    $
    1,665,324Average loans
    
    
    2,407,677
    
    
    
    2,128,551
    
    
    
    1,782,918
    
    
    
    1,688,547
    
    
    
    1,644,471Total non-performing loans
    
    
    150,899
    
    
    
    22,667
    
    
    
    8,853
    
    
    
    25,053
    
    
    
    18,547Net charge-offs to average loans
    
    
    1.19
    %
    
    
    0.19
    %
    
    
    1.32
    %
    
    
    0.31
    %
    
    
    0.15
    %Provision for loan losses to average loans
    
    
    2.73
    
    
    
    0.20
    
    
    
    1.14
    
    
    
    0.34
    
    
    
    0.08Allowance for loan losses to loans
    
    
    2.59
    
    
    
    1.18
    
    
    
    1.18
    
    
    
    1.39
    
    
    
    1.43Allowance for loan losses to non-performing loans
    
    
    42.70
    
    
    
    120.27
    
    
    
    238.96
    
    
    
    97.36
    
    
    
    128.29
  43




---



##### Table of Contents



Allowance Applicable to
    
    
    Percent of Loans to Total Gross LoansLoan Type
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Commercial, industrial and agriculture
    
    $
    17,675
    
    
    $
    8,060
    
    
    $
    7,337
    
    
    $
    11,713
    
    
    $
    10,326
    
    
    
    30
    %
    
    
    30
    %
    
    
    32
    %
    
    
    33
    %
    
    
    34
    %Economic development loans
and other obligations of
state and political
subdivisions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86
    
    
    
    1
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    %Lease financing
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    56
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial mortgages
    
    
    9,274
    
    
    
    3,076
    
    
    
    1,804
    
    
    
    2,173
    
    
    
    3,127
    
    
    
    18
    %
    
    
    13
    %
    
    
    10
    %
    
    
    10
    %
    
    
    14
    %Construction and
development
    
    
    22,038
    
    
    
    7,150
    
    
    
    2,537
    
    
    
    1,904
    
    
    
    763
    
    
    
    26
    %
    
    
    26
    %
    
    
    15
    %
    
    
    11
    %
    
    
    4
    %Residential mortgages
    
    
    3,083
    
    
    
    3,287
    
    
    
    3,688
    
    
    
    4,105
    
    
    
    3,622
    
    
    
    12
    %
    
    
    17
    %
    
    
    24
    %
    
    
    26
    %
    
    
    27
    %Home equity
    
    
    1,776
    
    
    
    1,082
    
    
    
    1,172
    
    
    
    885
    
    
    
    1,059
    
    
    
    7
    %
    
    
    6
    %
    
    
    8
    %
    
    
    8
    %
    
    
    9
    %Consumer
    
    
    4,655
    
    
    
    3,963
    
    
    
    3,434
    
    
    
    3,246
    
    
    
    2,291
    
    
    
    6
    %
    
    
    8
    %
    
    
    11
    %
    
    
    12
    %
    
    
    11
    %Allocated
    
    
    58,502
    
    
    
    26,619
    
    
    
    19,973
    
    
    
    24,082
    
    
    
    21,337
    
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Unallocated
    
    
    5,935
    
    
    
    642
    
    
    
    1,182
    
    
    
    310
    
    
    
    2,457Total
    
    $
    64,437
    
    
    $
    27,261
    
    
    $
    21,155
    
    
    $
    24,392
    
    
    $
    23,794
      TIME DEPOSITS OF $100 OR MORE AT DECEMBER 31, 2008Maturing:3 months or less
    
    $
    204,694Over 3 to 6 months
    
    
    136,953Over 6 to 12 months
    
    
    139,127Over 12 months
    
    
    122,745Total
    
    $
    603,519
    44




---



##### Table of Contents



Less than
    
    
    1 to 3
    
    
    3 to 5
    
    
    After 5As of December 31, 2008
    
    Total
    
    
    One Year
    
    
    Years
    
    
    Years
    
    
    YearsContractual On Balance Sheet ObligationsTime Deposits
    
    $
    1,154,375
    
    
    $
    887,816
    
    
    $
    223,954
    
    
    $
    27,606
    
    
    $
    14,999Long-term debt
    
    
    360,917
    
    
    
    13,545
    
    
    
    30,549
    
    
    
    212,530
    
    
    
    104,293Operating leases
    
    
    17,755
    
    
    
    2,499
    
    
    
    4,162
    
    
    
    3,748
    
    
    
    7,346Total contractual cash obligations
    
    $
    1,533,047
    
    
    $
    903,860
    
    
    $
    258,665
    
    
    $
    243,884
    
    
    $
    126,638Off Balance Sheet ObligationsLines of credit
    
    $
    445,516
    
    
    $
    215,241
    
    
    $
    84,036
    
    
    $
    7,251
    
    
    $
    138,988Standby letters of credit
    
    
    24,204
    
    
    
    11,596
    
    
    
    11,985
    
    
    
    30
    
    
    
    593Other commitments
    
    
    263,881
    
    
    
    77,533
    
    
    
    153,529
    
    
    
    28,226
    
    
    
    4,593Total other commitments
    
    $
    733,601
    
    
    $
    304,370
    
    
    $
    249,550
    
    
    $
    35,507
    
    
    $
    144,174
  45




---



##### Table of Contents




    
    Improving and retaining our level of earnings;
    
    Reducing CRE lending; we may also sell non-core assets to reduce the size of our
balance sheet;
    
    Issuing new capital in an opportunistic basis as we feel necessary and as conditions
warrant; and
    
    Delevering through the sales of loans and securities.
     46




---



##### Table of Contents



Participation in Capital Purchase Program
    47




---



##### Table of Contents



Earnings at Risk (EAR).
  Estimated Change in EAR from the Base Interest Rate Scenario-200 basis points
    
    
    -100 basis points
    
    
    +200 basis pointsDecember 31, 2008
    
    
    -12.63
    %
    
    
    -5.72
    %
    
    
    4.35
    %December 31, 2007
    
    
    -2.55
    %
    
    
    0.02
    %
    
    
    -1.44
    %
  48




---



##### Table of Contents



Economic Value of Equity (EVE).
   Estimated Change in EVE from the Base Interest Rate Scenario-200 basis points
    
    
    -100 basis points
    
    
    +200 basis pointsDecember 31, 2008
    
    
    -13.35
    %
    
    
    -6.07
    %
    
    
    0.57
    %December 31, 2007
    
    
    -0.91
    %
    
    
    0.35
    %
    
    
    -4.32
    %
   49




---



##### Table of Contents




    
    Pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets;
    
    Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and
    
    Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the
financial statements.
     /s/ Michael T. Vea

Chairman of the Board, President
    
    
    
    /s/ Martin M. Zorn

Chief Operating Officer andand Chief Executive Officer
    
    
    
    Chief Financial Officer
  50




---



##### Table of Contents



51




---



##### Table of Contents



December 31,2008
    
    
    2007ASSETSCash and due from banks
    
    $
    62,354
    
    
    $
    72,360Federal funds sold and other short-term investments
    
    
    419
    
    
    
    3,630Total cash and cash equivalents
    
    
    62,773
    
    
    
    75,990Loans held for sale (at lower of cost or fair value)
    
    
    5,776
    
    
    
    5,928Securities available for sale
    
    
    561,739
    
    
    
    582,954Securities held for trading
    
    
    
    
    
    
    53,782Regulatory stock
    
    
    29,155
    
    
    
    29,179Loans, net of unearned income
    
    
    2,490,243
    
    
    
    2,311,378Less: Allowance for loan losses
    
    
    (64,437
    )
    
    
    (27,261
    )Net loans
    
    
    2,425,806
    
    
    
    2,284,117Premises and equipment
    
    
    48,500
    
    
    
    50,552Goodwill
    
    
    
    
    
    
    123,050Other intangible assets
    
    
    9,928
    
    
    
    11,652Other assets
    
    
    213,423
    
    
    
    132,922TOTAL ASSETS
    
    $
    3,357,100
    
    
    $
    3,350,126LIABILITIESDeposits:Non-interest-bearing demand
    
    $
    284,032
    
    
    $
    265,554Interest-bearing:Savings, interest checking and money market accounts
    
    
    901,785
    
    
    
    918,023Time deposits of $100 or more
    
    
    603,519
    
    
    
    505,491Other interest-bearing
    
    
    550,856
    
    
    
    651,069Total deposits
    
    
    2,340,192
    
    
    
    2,340,137Short-term borrowings
    
    
    415,006
    
    
    
    272,270Long-term borrowings
    
    
    360,917
    
    
    
    376,707Other liabilities
    
    
    36,194
    
    
    
    33,208TOTAL LIABILITIES
    
    
    3,152,309
    
    
    
    3,022,322Commitments and contingent liabilities (Note 18)
    
    
    
    
    
    
    SHAREHOLDERS EQUITYPreferred stock  1,000,000 shares authorizedNone outstandingCommon stock  $1.00 stated value:Shares authorized: 29,000,000Shares outstanding: 20,748,880 and 20,650,165 respectively
    
    
    20,749
    
    
    
    20,650Additional paid-in capital
    
    
    208,732
    
    
    
    206,991Retained earnings
    
    
    (15,754
    )
    
    
    104,913Accumulated other comprehensive income (loss)
    
    
    (8,936
    )
    
    
    (4,750
    )TOTAL SHAREHOLDERS EQUITY
    
    
    204,791
    
    
    
    327,804TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    3,357,100
    
    
    $
    3,350,126
 See Accompanying Notes to Consolidated Financial Statements.
  52




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006INTEREST INCOMEInterest and fees on loans:Taxable
    
    $
    142,502
    
    
    $
    160,026
    
    
    $
    125,088Tax-exempt
    
    
    493
    
    
    
    393
    
    
    
    416Interest and dividends on securities:Taxable
    
    
    23,581
    
    
    
    24,588
    
    
    
    26,525Tax-exempt
    
    
    4,581
    
    
    
    5,167
    
    
    
    4,412Dividends on regulatory stock
    
    
    1,273
    
    
    
    1,286
    
    
    
    1,479Interest on loans held for sale
    
    
    366
    
    
    
    235
    
    
    
    140Interest on federal funds sold and other short-term investments
    
    
    104
    
    
    
    225
    
    
    
    333Total interest income
    
    
    172,900
    
    
    
    191,920
    
    
    
    158,393INTEREST EXPENSEInterest on deposits
    
    
    55,663
    
    
    
    73,742
    
    
    
    54,421Interest on short-term borrowings
    
    
    7,563
    
    
    
    9,431
    
    
    
    8,574Interest on long-term borrowings
    
    
    15,693
    
    
    
    15,498
    
    
    
    13,092Total interest expense
    
    
    78,919
    
    
    
    98,671
    
    
    
    76,087NET INTEREST INCOME
    
    
    93,981
    
    
    
    93,249
    
    
    
    82,306Provision for loan losses
    
    
    65,784
    
    
    
    4,193
    
    
    
    20,294Net interest income after provision for loan losses
    
    
    28,197
    
    
    
    89,056
    
    
    
    62,012NON-INTEREST INCOMEService charges on deposit accounts
    
    
    21,078
    
    
    
    20,317
    
    
    
    18,879Other service charges and fees
    
    
    5,139
    
    
    
    4,662
    
    
    
    4,155Debit card income-interchange
    
    
    5,258
    
    
    
    4,379
    
    
    
    3,301Trust income
    
    
    2,156
    
    
    
    2,391
    
    
    
    2,361Net securities gains (losses)
    
    
    (10,571
    )
    
    
    (2,277
    )
    
    
    577Cash surrender value life insurance
    
    
    2,684
    
    
    
    2,258
    
    
    
    2,166Other
    
    
    3,945
    
    
    
    5,341
    
    
    
    4,388Total non-interest income
    
    
    29,689
    
    
    
    37,071
    
    
    
    35,827NON-INTEREST EXPENSESalaries and employee benefits
    
    
    48,407
    
    
    
    45,881
    
    
    
    39,990Occupancy
    
    
    10,379
    
    
    
    9,430
    
    
    
    8,182Equipment
    
    
    3,732
    
    
    
    3,443
    
    
    
    3,412Professional fees
    
    
    5,741
    
    
    
    5,520
    
    
    
    3,826Communication and transportation
    
    
    5,064
    
    
    
    4,522
    
    
    
    4,062Processing
    
    
    2,861
    
    
    
    2,464
    
    
    
    2,083Software
    
    
    2,476
    
    
    
    2,028
    
    
    
    1,684Marketing
    
    
    2,140
    
    
    
    2,305
    
    
    
    1,941Loan and OREO expense
    
    
    2,780
    
    
    
    567
    
    
    
    843Low income housing project losses
    
    
    2,503
    
    
    
    2,318
    
    
    
    2,526Amortization of intangible assets
    
    
    1,724
    
    
    
    1,560
    
    
    
    933Goodwill impairment
    
    
    122,824
    
    
    
    
    
    
    
    Other
    
    
    9,422
    
    
    
    7,612
    
    
    
    6,395Total non-interest expense
    
    
    220,053
    
    
    
    87,650
    
    
    
    75,877Income (Loss) before income taxes
    
    
    (162,167
    )
    
    
    38,477
    
    
    
    21,962Income taxes (benefit)
    
    
    (51,292
    )
    
    
    7,767
    
    
    
    2,415NET INCOME (LOSS)
    
    $
    (110,875
    )
    
    $
    30,710
    
    
    $
    19,547Earnings (Loss) per share:Basic
    
    $
    (5.39
    )
    
    $
    1.55
    
    
    $
    1.11Diluted
    
    
    (5.39
    )
    
    
    1.55
    
    
    
    1.11Weighted average shares outstanding:Basic
    
    
    20,557
    
    
    
    19,778
    
    
    
    17,546Diluted
    
    
    20,557
    
    
    
    19,812
    
    
    
    17,658
 See Accompanying Notes to Consolidated Financial Statements.
  53




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006Net income (Loss)
    
    $
    (110,875
    )
    
    $
    30,710
    
    
    $
    19,547Other comprehensive income (loss), net of tax:Unrealized gain (loss) on securities:Unrealized gain (loss) arising in period
(net of tax of $(6,979), $(51), and $955, respectively)
    
    
    (11,484
    )
    
    
    (75
    )
    
    
    1,433Reclassification of amounts realized through impairment charges
and sales (net of tax of $3,996, $923, and $(234), respectively)
    
    
    6,575
    
    
    
    1,354
    
    
    
    (343
    )Net unrealized gain (loss) on securities
    
    
    (4,909
    )
    
    
    1,279
    
    
    
    1,090Change in net pension plan liability
(net of tax of $330 and $(302) for 2008 and 2007, respectively)
    
    
    568
    
    
    
    (510
    )
    
    
    Unrealized gain (loss) on derivative hedging instruments arising in period
(net of tax of $78, $144 and $13, respectively)
    
    
    155
    
    
    
    210
    
    
    
    19Net unrealized gain (loss), recognized in other comprehensive income (loss)
    
    
    (4,186
    )
    
    
    979
    
    
    
    1,109Comprehensive income (loss)
    
    $
    (115,061
    )
    
    $
    31,689
    
    
    $
    20,656
 See Accompanying Notes to Consolidated Financial Statements.
  54




---



##### Table of Contents



AccumulatedShares of
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    TotalCommon
    
    
    Common
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersStock
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBALANCE AT JANUARY 1, 2006
    
    
    17,464,948
    
    
    $
    17,465
    
    
    $
    127,980
    
    
    $
    80,622
    
    
    $
    (5,969
    )
    
    $
    220,098Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,547
    
    
    
    
    
    
    
    19,547Cash dividend declared ($0.67 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,814
    )
    
    
    
    
    
    
    (11,814
    )Net change, net of tax, in accumulated
other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,109
    
    
    
    1,109Adjustment to initially apply
SFAS No. 158, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (869
    )
    
    
    (869
    )Exercise of stock options
    
    
    289,862
    
    
    
    290
    
    
    
    6,075
    
    
    
    
    
    
    
    
    
    
    
    6,365Grant of restricted stock, net of forfeitures
    
    
    39,479
    
    
    
    39
    
    
    
    (39
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,038
    
    
    
    
    
    
    
    
    
    
    
    1,038BALANCE AT DECEMBER 31, 2006
    
    $
    17,794,289
    
    
    $
    17,794
    
    
    $
    135,054
    
    
    $
    88,355
    
    
    $
    (5,729
    )
    
    $
    235,474Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,710
    
    
    
    
    
    
    
    30,710Cash dividend declared ($0.71 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,152
    )
    
    
    
    
    
    
    (14,152
    )Repurchase of outstanding shares
    
    
    (404,450
    )
    
    
    (404
    )
    
    
    (9,152
    )
    
    
    
    
    
    
    
    
    
    
    (9,556
    )Net change, net of tax, in accumulated
other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    979
    
    
    
    979Exercise of stock options
    
    
    29,761
    
    
    
    30
    
    
    
    331
    
    
    
    
    
    
    
    
    
    
    
    361Issuance of stock for acquisition
    
    
    3,149,157
    
    
    
    3,149
    
    
    
    79,296
    
    
    
    
    
    
    
    
    
    
    
    82,445Grant of restricted stock, net of forfeitures
    
    
    81,408
    
    
    
    81
    
    
    
    (81
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,543
    
    
    
    
    
    
    
    
    
    
    
    1,543BALANCE AT DECEMBER 31, 2007
    
    
    20,650,165
    
    
    $
    20,650
    
    
    $
    206,991
    
    
    $
    104,913
    
    
    $
    (4,750
    )
    
    $
    327,804Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (110,875
    )
    
    
    
    
    
    
    (110,875
    )Cash dividend declared ($0.38 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,870
    )
    
    
    
    
    
    
    (7,870
    )Net change, net of tax, in accumulated
other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,186
    )
    
    
    (4,186
    )Initial adoption of EITF 06-4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,922
    )
    
    
    
    
    
    
    (1,922
    )Exercise of stock options and
restricted shares, net
    
    
    (4,823
    )
    
    
    (5
    )
    
    
    (56
    )
    
    
    
    
    
    
    
    
    
    
    (61
    )Grant of restricted stock, net of forfeitures
    
    
    103,538
    
    
    
    104
    
    
    
    (104
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,901
    
    
    
    
    
    
    
    
    
    
    
    1,901BALANCE AT DECEMBER 31, 2008
    
    
    20,748,880
    
    
    $
    20,749
    
    
    $
    208,732
    
    
    $
    (15,754
    )
    
    $
    (8,936
    )
    
    $
    204,791
 See Accompanying Notes to Consolidated Financial Statements.
  55




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    (110,875
    )
    
    $
    30,710
    
    
    $
    19,547Adjustments to reconcile net income (loss) to net cash provided by operating activitiesAmortization and depreciation
    
    
    7,294
    
    
    
    6,852
    
    
    
    5,950Provision for loan losses
    
    
    65,784
    
    
    
    4,193
    
    
    
    20,294Net securities (gains) losses
    
    
    (41
    )
    
    
    (449
    )
    
    
    (577
    )Impairment charge on available for sale securities
    
    
    10,612
    
    
    
    2,726
    
    
    
    Net held for trading (gains) losses
    
    
    (321
    )
    
    
    (123
    )
    
    
    (Gain) loss on sale of premises and equipment
    
    
    76
    
    
    
    
    
    
    
    (65
    )Gain on sale of other real estate owned
    
    
    (13
    )
    
    
    (77
    )
    
    
    (28
    )Loss on sale of other assets
    
    
    
    
    
    
    12
    
    
    
    Gain on sale of mortgage servicing rights
    
    
    
    
    
    
    (577
    )
    
    
    Loss on low-income housing investments
    
    
    2,503
    
    
    
    2,318
    
    
    
    2,526Proceeds from maturities of held for trading securities
    
    
    1,684
    
    
    
    471
    
    
    
    Net change in held for trading securities
    
    
    52,419
    
    
    
    (54,130
    )
    
    
    Increase (decrease) in deferred taxes
    
    
    (49,330
    )
    
    
    (2,219
    )
    
    
    (3,461
    )Net gain on sale of loans held for sale
    
    
    (723
    )
    
    
    (803
    )
    
    
    (640
    )Proceeds from sale of loans held for sale
    
    
    104,266
    
    
    
    84,817
    
    
    
    58,683Origination of loans held for sale
    
    
    (103,391
    )
    
    
    (88,178
    )
    
    
    (59,285
    )Goodwill impairment
    
    
    122,824
    
    
    
    
    
    
    
    Change in other operating
    
    
    (8,722
    )
    
    
    6,267
    
    
    
    5,283Net cash flows provided by (used in) operating activities
    
    
    94,046
    
    
    
    (8,190
    )
    
    
    48,227CASH FLOWS FROM INVESTING ACTIVITIESProceeds from maturities of securities available for sale
    
    
    123,421
    
    
    
    117,510
    
    
    
    126,535Proceeds from sales of securities available for sale
    
    
    18,158
    
    
    
    51,815
    
    
    
    7,904Purchase of securities available for sale
    
    
    (137,740
    )
    
    
    (51,743
    )
    
    
    (66,132
    )Purchase of bank owned life insurance
    
    
    
    
    
    
    (13,628
    )
    
    
    Increase in loans made to customers
    
    
    (224,402
    )
    
    
    (94,846
    )
    
    
    (65,389
    )Purchase of premises and equipment
    
    
    (2,826
    )
    
    
    (2,870
    )
    
    
    (292
    )Proceeds from sale of premises and equipment
    
    
    51
    
    
    
    
    
    
    
    125Proceeds from sale of other real estate owned
    
    
    670
    
    
    
    2,630
    
    
    
    516Acquisition of Prairie Financial Corp, net of cash acquired
    
    
    
    
    
    
    (34,250
    )
    
    
    Net cash flows provided by (used in) investing activities
    
    
    (222,668
    )
    
    
    (25,382
    )
    
    
    3,267CASH FLOWS FROM FINANCING ACTIVITIESNet increase (decrease) in deposits
    
    
    (106
    )
    
    
    (83,905
    )
    
    
    145,349Excess income tax benefit from employee stock-based awards
    
    
    
    
    
    
    10
    
    
    
    416Net increase in short-term borrowed funds
    
    
    142,736
    
    
    
    49,862
    
    
    
    15,284Proceeds from long-term borrowings
    
    
    53,368
    
    
    
    211,619
    
    
    
    10,000Repayment of long-term borrowings
    
    
    (69,153
    )
    
    
    (114,757
    )
    
    
    (210,266
    )Repurchase of common stock
    
    
    
    
    
    
    (9,556
    )
    
    
    Dividends paid
    
    
    (11,379
    )
    
    
    (13,460
    )
    
    
    (11,583
    )Proceeds from exercise of stock options and restricted shares, net
    
    
    (61
    )
    
    
    351
    
    
    
    5,949Net cash flows provided by (used in) financing activities
    
    
    115,405
    
    
    
    40,164
    
    
    
    (44,851
    )Net increase (decrease) in cash and cash equivalents
    
    
    (13,217
    )
    
    
    6,592
    
    
    
    6,643Cash and cash equivalents at beginning of year
    
    
    75,990
    
    
    
    69,398
    
    
    
    62,755Cash and cash equivalents at end of year
    
    $
    62,773
    
    
    $
    75,990
    
    
    $
    69,398
 Consolidated Statements of Cash Flows are continued on the following page.
  56




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid during the year:Interest
    
    $
    83,607
    
    
    $
    93,600
    
    
    $
    73,722Income taxes
    
    
    6,196
    
    
    
    6,666
    
    
    
    7,920SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSOther real estate acquired in settlement of loans
    
    
    16,976
    
    
    
    4,590
    
    
    
    1,074Dividends declared and not paid
    
    
    207
    
    
    
    3,717
    
    
    
    3,025
 See Accompanying Notes to Consolidated Financial Statements.
  57




---



##### Table of Contents



58




---



##### Table of Contents



59




---



##### Table of Contents



60




---



##### Table of Contents



61




---



##### Table of Contents



62




---



##### Table of Contents



2008
    
    
    2007
    
    
    2006Number of options/SARs granted
    
    
    211,198
    
    
    
    178,464
    
    
    
    259,106Stock price
    
    $
    13.85
    
    
    $
    20.68
    
    
    $
    23.17Risk-free interest rate
    
    
    3.32
    %
    
    
    4.75
    %
    
    
    4.99
    %Expected life, in years
    
    
    6
    
    
    
    6
    
    
    
    6Expected volatility
    
    
    22.47
    %
    
    
    21.10
    %
    
    
    24.49
    %Expected dividend yield
    
    
    5.13
    %
    
    
    2.95
    %
    
    
    2.80
    %Estimated fair value per option/SAR
    
    $
    1.79
    
    
    $
    6.49
    
    
    $
    5.65
     63




---



##### Table of Contents



64




---



##### Table of Contents



65




---



##### Table of Contents



Securities available for sale
    
    $
    86,418Loans, net
    
    
    428,195Goodwill
    
    
    78,333Core deposit and other intangibles
    
    
    6,140Other assets
    
    
    27,221Total assets acquired
    
    $
    626,307Deposits
    
    $
    470,379Other liabilities
    
    
    38,763Total liabilities assumed
    
    $
    509,142Net assets acquired
    
    $
    117,165
  Year Ended
    
    
    Year EndedDecember 31, 2007
    
    
    December 31, 2006Net interest income
    
    $
    99,341
    
    
    $
    102,901Non-interest income
    
    
    37,933
    
    
    
    38,050Total Revenue
    
    $
    137,274
    
    
    $
    140,951Net income
    
    $
    30,091
    
    
    $
    25,146Basic earnings per share
    
    $
    1.52
    
    
    $
    1.22Diluted earnings per share
    
    
    1.52
    
    
    
    1.21
      66




---



##### Table of Contents



For the Year Ended December 31,
    
    2008
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    (110,875
    )
    
    $
    30,710
    
    
    $
    19,547Weighted average shares outstanding  Basic
    
    
    20,556,702
    
    
    
    19,777,780
    
    
    
    17,546,260Stock option adjustment
    
    
    
    
    
    
    33,784
    
    
    
    99,820Restricted stock adjustment
    
    
    
    
    
    
    516
    
    
    
    12,381Average shares outstanding  Diluted
    
    
    20,556,702
    
    
    
    19,812,080
    
    
    
    17,658,461Earnings per share-Basic
    
    $
    (5.39
    )
    
    $
    1.55
    
    
    $
    1.11Effect of stock options and restricted shares
    
    
    
    
    
    
    
    
    
    
    Earnings per share  Diluted
    
    $
    (5.39
    )
    
    $
    1.55
    
    
    $
    1.11
   67




---



##### Table of Contents



Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2008:U.S. Government agencies
    
    $
    742
    
    
    $
    19
    
    
    $
    
    
    
    $
    761Collateralized Mortgage Obligations:Agency
    
    
    272,038
    
    
    
    3,040
    
    
    
    1,002
    
    
    
    274,076Private Label
    
    
    35,341
    
    
    
    
    
    
    
    6,731
    
    
    
    28,610Mortgage-backed securities
    
    
    130,367
    
    
    
    1,179
    
    
    
    293
    
    
    
    131,253Trust Preferred
    
    
    38,759
    
    
    
    969
    
    
    
    11,327
    
    
    
    28,401States & political subdivisions
    
    
    88,765
    
    
    
    1,710
    
    
    
    447
    
    
    
    90,028Other securities
    
    
    8,641
    
    
    

    
    
    
    31
    
    
    
    8,610Total
    
    $
    574,653
    
    
    $
    6,917
    
    
    $
    19,831
    
    
    $
    561,739
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2007:U.S. Government agencies
    
    $
    16,074
    
    
    $
    69
    
    
    $
    1
    
    
    $
    16,142Collateralized Mortgage Obligations:Agency
    
    
    238,608
    
    
    
    486
    
    
    
    4,430
    
    
    
    234,664Private Label
    
    
    41,936
    
    
    
    90
    
    
    
    707
    
    
    
    41,319Mortgage-backed securities
    
    
    122,976
    
    
    
    661
    
    
    
    826
    
    
    
    122,811FHLMC Preferred stock
    
    
    9,973
    
    
    
    
    
    
    
    
    
    
    
    9,973Trust Preferred
    
    
    49,860
    
    
    
    110
    
    
    
    3,726
    
    
    
    46,244States & political subdivisions
    
    
    104,528
    
    
    
    2,385
    
    
    
    94
    
    
    
    106,819Other securities
    
    
    5,013
    
    
    
    
    
    
    
    31
    
    
    
    4,982Total
    
    $
    588,968
    
    
    $
    3,801
    
    
    $
    9,815
    
    
    $
    582,954
  Available for Sale Securities
    
    Fair ValueDue in one year or less
    
    $
    24,957Due from one to five years
    
    
    259,738Due from five to ten years
    
    
    176,510Due after ten years
    
    
    100,534Total
    
    $
    561,739
  2008
    
    
    2007
    
    
    2006Gross realized gains
    
    $
    73
    
    
    $
    1,272
    
    
    $
    597Gross realized losses
    
    
    (32
    )
    
    
    (823
    )
    
    
    (20
    )Other-than-temporary impairment
    
    
    (10,612
    )
    
    
    (2,726
    )
    
    
    Total
    
    $
    (10,571
    )
    
    $
    (2,277
    )
    
    $
    577
  68




---



##### Table of Contents



Less than 12 Months
    
    
    12 Months or More
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedDecember 31, 2008
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesU.S. Government agencies
    
    $
    125
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    125
    
    
    $
    Collateralized Mortgage ObligationsAgency
    
    
    43,710
    
    
    
    256
    
    
    
    31,834
    
    
    
    746
    
    
    
    75,544
    
    
    
    1,002Private Label
    
    
    20,674
    
    
    
    5,792
    
    
    
    7,936
    
    
    
    939
    
    
    
    28,610
    
    
    
    6,731Mortgage-backed securities
    
    
    54,912
    
    
    
    271
    
    
    
    8,229
    
    
    
    22
    
    
    
    63,141
    
    
    
    293Trust Preferred
    
    
    6,616
    
    
    
    4,372
    
    
    
    6,609
    
    
    
    6,955
    
    
    
    13,225
    
    
    
    11,327State & political subdivisions
    
    
    17,594
    
    
    
    388
    
    
    
    433
    
    
    
    59
    
    
    
    18,027
    
    
    
    447Other securities
    
    
    2,662
    
    
    
    23
    
    
    
    16
    
    
    
    8
    
    
    
    2,678
    
    
    
    31Total
    
    $
    146,293
    
    
    $
    11,102
    
    
    $
    55,057
    
    
    $
    8,729
    
    
    $
    201,350
    
    
    $
    19,831Less than 12 Months
    
    
    12 Months or More
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedDecember 31, 2007
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesU.S. Government agencies
    
    $
    50
    
    
    $
    
    
    
    $
    400
    
    
    $
    1
    
    
    $
    450
    
    
    $
    1Collateralized Mortgage ObligationsAgency
    
    
    196
    
    
    
    
    
    
    
    181,019
    
    
    
    4,430
    
    
    
    181,215
    
    
    
    4,430Private Label
    
    
    13,346
    
    
    
    313
    
    
    
    23,048
    
    
    
    394
    
    
    
    36,394
    
    
    
    707Mortgage-backed securities
    
    
    26,969
    
    
    
    85
    
    
    
    43,909
    
    
    
    741
    
    
    
    70,878
    
    
    
    826Trust Preferred
    
    
    36,148
    
    
    
    3,726
    
    
    
    
    
    
    
    
    
    
    
    36,148
    
    
    
    3,726State & political subdivisions
    
    
    7,349
    
    
    
    93
    
    
    
    30
    
    
    
    1
    
    
    
    7,379
    
    
    
    94Other securities
    
    
    21
    
    
    
    4
    
    
    
    2,398
    
    
    
    27
    
    
    
    2,419
    
    
    
    31Total
    
    $
    84,079
    
    
    $
    4,221
    
    
    $
    250,804
    
    
    $
    5,594
    
    
    $
    334,883
    
    
    $
    9,815
   (At Fair Value)
    
    December 31, 2007Mortgage-backed securities
    
    $
    18,385Collateralized Mortgage Obligations
    
    
    35,397Total
    
    $
    53,782
     69




---



##### Table of Contents



th
    70




---



##### Table of Contents



71




---



##### Table of Contents



2008
    
    
    2007CommercialCommercial, industrial and
agricultural loans
    
    $
    748,446
    
    
    $
    689,504Economic development loans and
other obligations of state and
political subdivisions
    
    
    24,502
    
    
    
    7,227Lease financing
    
    
    5,397
    
    
    
    5,291Total commercial
    
    
    778,345
    
    
    
    702,022Commercial real estateCommercial mortgages
    
    
    436,336
    
    
    
    298,151Construction and development
    
    
    641,460
    
    
    
    609,858Total commercial real estate
    
    
    1,077,796
    
    
    
    908,009Residential mortgages
    
    
    309,397
    
    
    
    380,429Home equity
    
    
    171,241
    
    
    
    145,403Consumer loans
    
    
    153,464
    
    
    
    175,516Total loans
    
    
    2,490,243
    
    
    
    2,311,379Less: unearned income
    
    
    
    
    
    
    1Loans, net of unearned income
    
    $
    2,490,243
    
    
    $
    2,311,378
  2008
    
    
    2007
    
    
    2006Nonaccrual
    
    $
    150,002
    
    
    $
    18,549
    
    
    $
    8,62590 days past due
    
    
    897
    
    
    
    4,118
    
    
    
    228Total non-performing loans
    
    $
    150,899
    
    
    $
    22,667
    
    
    $
    8,853
  2008
    
    
    2007
    
    
    2006Impaired loans for which there is a related allowance for loan losses
    
    $
    141,301
    
    
    $
    11,527
    
    
    $
    338Impaired loans for which there is no related allowance for loan losses
    
    
    1,195
    
    
    
    568
    
    
    
    2,316Total impaired loans
    
    $
    142,496
    
    
    $
    12,095
    
    
    $
    2,654Allowance for loan losses for impaired loans
included in the allowance for loan losses
    
    $
    24,561
    
    
    $
    752
    
    
    $
    233Average recorded investment in impaired loans
    
    
    71,255
    
    
    
    7,685
    
    
    
    6,083Interest income recognized from impaired loans
    
    
    172
    
    
    
    407
    
    
    
    87Cash basis interest income recognized from impaired loans
    
    
    7
    
    
    
    14
    
    
    
    13
    72




---



##### Table of Contents



2008
    
    
    2007Balance as of January 1
    
    $
    4,495
    
    
    $
    3,382New loans
    
    
    8,170
    
    
    
    2,885Repayments
    
    
    (5,024
    )
    
    
    (2,795
    )Director and officer changes
    
    
    (1,209
    )
    
    
    1,023Balance as of December 31
    
    $
    6,432
    
    
    $
    4,495The balance of related party deposits as of December 31
    
    $
    12,195
    
    
    $
    13,668
   2008
    
    
    2007
    
    
    2006Balance at beginning of year
    
    $
    27,261
    
    
    $
    21,155
    
    
    $
    24,392Allowance associated with acquisition
    
    
    
    
    
    
    5,982
    
    
    
    Loans charged to allowance
    
    
    (30,212
    )
    
    
    (5,441
    )
    
    
    (25,341
    )Recoveries credited to allowance
    
    
    1,604
    
    
    
    1,372
    
    
    
    1,810Net charge-offs
    
    
    (28,608
    )
    
    
    (4,069
    )
    
    
    (23,531
    )Provision for loan losses
    
    
    65,784
    
    
    
    4,193
    
    
    
    20,294Balance at end of year
    
    $
    64,437
    
    
    $
    27,261
    
    
    $
    21,155
   2008
    
    
    2007Land
    
    $
    9,017
    
    
    $
    9,076Buildings and lease improvements
    
    
    69,650
    
    
    
    68,912Equipment
    
    
    24,382
    
    
    
    22,918Construction in progress
    
    
    598
    
    
    
    462Total cost
    
    
    103,647
    
    
    
    101,368Less accumulated depreciation
    
    
    55,147
    
    
    
    50,816Net premises and equipment
    
    $
    48,500
    
    
    $
    50,552
   73




---



##### Table of Contents



December 31, 2008
    
    
    December 31, 2007Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountGoodwill (Non-amortizing)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    123,050
    
    
    $
    
    
    
    $
    123,050Core deposits (Amortizing)
    
    
    23,320
    
    
    
    (13,455
    )
    
    
    9,865
    
    
    
    23,320
    
    
    
    (11,766
    )
    
    
    11,554Customer Relationship (Amortizing)
    
    
    140
    
    
    
    (77
    )
    
    
    63
    
    
    
    140
    
    
    
    (42
    )
    
    
    98Total intangible assets
    
    $
    23,460
    
    
    $
    (13,532
    )
    
    $
    9,928
    
    
    $
    146,510
    
    
    $
    (11,808
    )
    
    $
    134,702
        74




---



##### Table of Contents



Year Ending December 31,2009
    
    $
    1,6862010
    
    
    1,6482011
    
    
    1,6102012
    
    
    1,5652013
    
    
    1,460Thereafter
    
    
    1,959
   2009
    
    $
    887,8162010
    
    
    171,7542011
    
    
    52,2002012
    
    
    8,5012013 and thereafter
    
    
    34,104Total
    
    $
    1,154,375
    2008
    
    
    2007
    
    
    2006Federal:Current
    
    $
    (1,536
    )
    
    $
    5,247
    
    
    $
    5,874Deferred
    
    
    (46,195
    )
    
    
    2,583
    
    
    
    (3,227
    )Total
    
    
    (47,731
    )
    
    
    7,830
    
    
    
    2,647State:Current
    
    $
    
    
    
    $
    301
    
    
    $
    Deferred
    
    
    (6,741
    )
    
    
    (364
    )
    
    
    (232
    )Total
    
    
    (6,741
    )
    
    
    (63
    )
    
    
    (232
    )Change in valuation allowance
    
    
    3,180
    
    
    
    
    
    
    
    Total income taxes (benefit)
    
    $
    (51,292
    )
    
    $
    7,767
    
    
    $
    2,415
   75




---



##### Table of Contents



December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Federal income tax computed at the statutory rates
    
    $
    (56,758
    )
    
    $
    13,467
    
    
    $
    7,687Adjusted for effects of:Tax refunds
    
    
    
    
    
    
    (886
    )
    
    
    Tax exempt interest
    
    
    (1,730
    )
    
    
    (1,757
    )
    
    
    (1,475
    )Nondeductible expenses
    
    
    293
    
    
    
    335
    
    
    
    241Low income housing credit
    
    
    (1,968
    )
    
    
    (2,240
    )
    
    
    (2,389
    )Cash surrender value of life insurance policies
    
    
    (909
    )
    
    
    (768
    )
    
    
    (758
    )Dividend received deduction
    
    
    (46
    )
    
    
    (189
    )
    
    
    (215
    )Nondeductible goodwill impairment
    
    
    11,003
    
    
    
    
    
    
    
    State taxes, net of federal benefit
    
    
    (4,382
    )
    
    
    (41
    )
    
    
    (151
    )Change in valuation allowance
    
    
    3,180
    
    
    
    
    
    
    
    Other differences
    
    
    25
    
    
    
    (154
    )
    
    
    (525
    )Total income taxes
    
    $
    (51,292
    )
    
    $
    7,767
    
    
    $
    2,415
  December 31,
    
    
    December 31,2008
    
    
    2007Allowance for loan losses
    
    $
    24,344
    
    
    $
    12,221Alternative minimum tax credit carryforward
    
    
    3,135
    
    
    
    3,018Low income housing tax credit carryforward
    
    
    11,119
    
    
    
    9,121Net operating loss carryforward
    
    
    3,195
    
    
    
    2,506Other-than-temporary impairment
    
    
    4,011
    
    
    
    1,182Postretirement liability
    
    
    962
    
    
    
    1,206Unrealized loss on securities available for sale
    
    
    4,884
    
    
    
    2,437Goodwill and core deposit intangibles
    
    
    27,469
    
    
    
    Interest on non-accrual loans
    
    
    1,509
    
    
    
    41Other, net
    
    
    2,010
    
    
    
    1,292Total deferred tax assets
    
    
    82,638
    
    
    
    33,024Direct financing and leveraged leases
    
    
    (4,009
    )
    
    
    (4,310
    )Fair value adjustments from acquisitions
    
    
    (361
    )
    
    
    (452
    )FHLB dividend
    
    
    (1,493
    )
    
    
    (1,477
    )Goodwill and core deposit intangibles
    
    
    
    
    
    
    (5,028
    )Partnership income
    
    
    (1,737
    )
    
    
    (1,589
    )Premises and equipment
    
    
    (4,051
    )
    
    
    (4,156
    )Total deferred tax liabilities
    
    
    (11,651
    )
    
    
    (17,012
    )Net temporary differences
    
    
    70,987
    
    
    
    16,012Valuation allowances
    
    
    (3,180
    )
    
    
    Net deferred tax asset (liability)
    
    $
    67,807
    
    
    $
    16,012
    76




---



##### Table of Contents



2008
    
    
    2007Federal funds purchased
    
    $
    25,000
    
    
    $
    55,100Securities sold under agreements to repurchase
    
    
    88,106
    
    
    
    97,170Short-term Federal Home Loan Bank advances
    
    
    125,000
    
    
    
    120,000Other short-term borrowed funds
    
    
    176,900
    
    
    
    Total short-term borrowed funds
    
    $
    415,006
    
    
    $
    272,270A summary of selected data related to short-term borrowed funds follows:Average amount outstanding
    
    $
    314,212
    
    
    $
    194,033Maximum amount at any month-end
    
    
    415,006
    
    
    
    272,270Weighted average interest rate:During year
    
    
    2.41
    %
    
    
    4.86
    %End of year
    
    
    1.20
    %
    
    
    4.26
    %
   77




---



##### Table of Contents



2008
    
    
    2007Federal Home Loan Bank (FHLB) AdvancesFixed maturity advances (weighted average rate of 3.02% and 4.57%
as of December 31, 2008 and 2007, respectively)
    
    $
    136,009
    
    
    $
    86,211Amortizing and other advances (weighted average rate of 4.98% and
5.11% as of December 31, 2008 and 2007, respectively)
    
    
    706
    
    
    
    1,607Total FHLB Advances
    
    
    136,715
    
    
    
    87,818Securities sold under repurchase agreements with maturities
at various dates through 2013 (weighted average rate of 3.30%
and 3.94% as of December 31, 2008 and 2007, respectively)
    
    
    100,000
    
    
    
    165,000Note payable, secured by equipment, with a fixed interest rate of 7.26%,
due at various dates through 2012
    
    
    3,780
    
    
    
    4,835Note payable, unsecured, with a floating interest rate equal to one-month
LIBOR plus 0.875%, with a maturity date of April 1, 2012
    
    
    18,000
    
    
    
    20,000Subordinated debt, unsecured, with a floating interest rate equal to
three-month LIBOR plus 3.20%, with a maturity date of April 24, 2013
    
    
    10,000
    
    
    
    10,000Subordinated debt, unsecured, with a floating interest rate equal to
three-month LIBOR plus 2.85%, with a maturity date of April 7, 2014
    
    
    4,000
    
    
    
    4,000Floating Rate Capital Securities, with an interest rate equal to six-month
LIBOR plus 3.75%, with a maturity date of July 25, 2031, and callable
effective July 25, 2011, at par
    
    
    18,557
    
    
    
    18,557Floating Rate Capital Securities, with an interest rate equal to three-month
LIBOR plus 3.10%, with a maturity date of June 26, 2033, and callable
quarterly, at par
    
    
    35,568
    
    
    
    35,568Floating Rate Capital Securities, with an interest rate equal to three-month
LIBOR plus 1.57%, with a maturity date of June 30, 2037, and callable
effective June 30, 2012, at par
    
    
    20,619
    
    
    
    20,619Floating Rate Capital Securities, with an interest rate equal to three-month
LIBOR plus 1.70%, with a maturity date of December 15, 2036, and callable
effective December 15, 2011, at par
    
    
    10,310
    
    
    
    10,310Other
    
    
    3,368
    
    
    
    Total long-term borrowings
    
    $
    360,917
    
    
    $
    376,707
  2009
    
    $
    13,5452010
    
    
    15,2332011
    
    
    15,3162012
    
    
    99,1532013
    
    
    113,377Thereafter
    
    
    104,293Total principal payments
    
    $
    360,917
   78




---



##### Table of Contents



79




---



##### Table of Contents



MinimumMinimum Ratios For Capital
    
    
    Capital RatiosActual

    
    
    Adequacy Purposes
    
    
    To Be Well CapitalizedAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAs of December 31, 2008Total Capital (to Risk Weighted Assets)Consolidated
    
    $
    272,514
    
    
    
    9.75
    %
    
    $
    223,692
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AIntegra Bank
    
    
    281,254
    
    
    
    10.07
    %
    
    
    223,347
    
    
    
    8.00
    %
    
    
    279,184
    
    
    
    10.00
    %Tier 1 Capital (to Risk Weighted Assets)Consolidated
    
    $
    214,720
    
    
    
    7.68
    %
    
    $
    111,846
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AIntegra Bank
    
    
    245,956
    
    
    
    8.81
    %
    
    
    111,674
    
    
    
    4.00
    %
    
    
    167,510
    
    
    
    6.00
    %Tier 1 Capital (to Average Assets)Consolidated
    
    $
    214,720
    
    
    
    6.41
    %
    
    $
    134,081
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AIntegra Bank
    
    
    245,956
    
    
    
    7.37
    %
    
    
    133,575
    
    
    
    4.00
    %
    
    
    166,969
    
    
    
    5.00
    %As of December 31, 2007Total Capital (to Risk Weighted Assets)Consolidated
    
    $
    305,723
    
    
    
    11.52
    %
    
    $
    212,342
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AIntegra Bank
    
    
    315,030
    
    
    
    11.89
    %
    
    
    211,937
    
    
    
    8.00
    %
    
    
    264,921
    
    
    
    10.00
    %Tier 1 Capital (to Risk Weighted Assets)Consolidated
    
    $
    247,906
    
    
    
    9.34
    %
    
    $
    106,171
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AIntegra Bank
    
    
    287,632
    
    
    
    10.86
    %
    
    
    105,968
    
    
    
    4.00
    %
    
    
    158,953
    
    
    
    6.00
    %Tier 1 Capital (to Average Assets)Consolidated
    
    $
    247,906
    
    
    
    7.81
    %
    
    $
    126,998
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AIntegra Bank
    
    
    287,632
    
    
    
    9.08
    %
    
    
    126,688
    
    
    
    4.00
    %
    
    
    158,361
    
    
    
    5.00
    %
    80




---



##### Table of Contents



December 31, 2008Weighted AverageWeighted Average
    
    
    Remaining TermShares
    
    
    Exercise Price
    
    
    (In years)Options/SARs outstanding, beginning of year
    
    
    1,386,983
    
    
    $
    21.74Options/SARs granted
    
    
    211,198
    
    
    
    13.85Options/SARs exercised
    
    
    
    
    
    
    Options/SARs forfeited or expired
    
    
    (182,748
    )
    
    
    22.03Options/SARs outstanding, end of year
    
    
    1,415,433
    
    
    $
    20.53
    
    
    
    5.8Options/SARs exercisable
    
    
    1,055,517
    
    
    
    21.26
    
    
    
    4.8
     81




---



##### Table of Contents



Weighted-AverageGrant-DateShares
    
    
    Fair ValueRestricted shares outstanding, beginning of year
    
    
    113,962
    
    
    $
    22.80Shares granted
    
    
    113,398Shares vested
    
    
    (37,887
    )Shares forfeited
    
    
    (9,860
    )Restricted shares outstanding, end of year
    
    
    179,613
    
    
    $
    17.57
    Level 1:
 Level 2:
 Level 3:
  Securities:
  82




---



##### Table of Contents




    
    Estimation of the credit quality of the collateral using average probability of
default values for each issuer (adjusted for rating levels);
 
    
    Consideration of the potential for correlation of default probabilities among
issuers within the same industry (e.g. banks with other banks);
 
    
    Assumption of loss given default was assumed of 95% (i.e. a 5% recovery);
 
    
    Forecasting of cash flows for the underlying collateral and application to each
collateralized debt obligation (CDO) tranche to determine the resulting distribution
among securities;
 
    
    The discounting of expected cash flows to calculate the present value of the
security;
 
    
    Modeling of the calculations were modeled in several thousand scenarios using a
Monte Carlo engine with use of the average price for valuation purposes.
  
    
    The one and five year default probability was determined for each issuer in the
pool based on the Kamakura Risk Information Services model;
 
    
    The default probability for insurance issuers was developed using 22 macro
factors which drive the default for mid-size insurance companies through the use of
a logistic regression model;
 
    
    Twenty-seven macro factors were candidate variable for macro driven default
rates; and
 
    
    100,000 Monte-Carlo simulations were run in annual time stops until maturity to
derive a fair market value.
    Loans held for sale:
  83




---



##### Table of Contents



Derivatives:
 Impaired Loans:
  Quoted Pricesin ActiveMarkets for
    
    
    SignificantIdentical
    
    
    Other
    
    
    SignificantAssets and
    
    
    Observable
    
    
    UnobservableLiabilities
    
    
    Inputs
    
    
    Inputs
    
    
    Balance as of(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    December 31, 2008AssetsSecurities, available for sale
    
    $
    
    
    
    $
    544,204
    
    
    $
    17,535
    
    
    $
    561,739Derivatives
    
    
    
    
    
    
    12,296
    
    
    
    
    
    
    
    12,296LiabilitiesDerivatives
    
    $
    
    
    
    $
    11,851
    
    
    $
    
    
    
    $
    11,851
  Quoted Pricesin ActiveMarkets for
    
    
    SignificantIdentical
    
    
    Other
    
    
    SignificantAssets and
    
    
    Observable
    
    
    UnobservableLiabilities
    
    
    Inputs
    
    
    Inputs
    
    
    Balance as of(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    December 31, 2008AssetsImpaired loans
    
    $
    
    
    
    $
    
    
    
    $
    69,590
    
    
    $
    69,590Loans held for sale
    
    
    
    
    
    
    5,776
    
    
    
    
    
    
    
    5,776Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
   84




---



##### Table of Contents



SecuritiesAvailable for sale
    
    
    TotalBeginning Balance at January 1, 2008
    
    $
    
    
    
    $
    Transfers in and/or out of Level 3
    
    
    25,840
    
    
    
    25,840Gains (Losses) included in other comprehensive income
    
    
    (3,996
    )
    
    
    (3,996
    )Gains (Losses) included in earnings
    
    
    (4,309
    )
    
    
    (4,309
    )Ending Balance
    
    $
    17,535
    
    
    $
    17,535
    2008
    
    
    2007Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial Assets:Cash and short-term investments
    
    $
    62,773
    
    
    $
    62,773
    
    
    $
    75,990
    
    
    $
    75,990Securities held for trading
    
    
    
    
    
    
    
    
    
    
    53,782
    
    
    
    53,782Loans-net of allowance
    
    
    2,356,216
    
    
    
    2,415,290
    
    
    
    2,284,117
    
    
    
    2,312,017Accrued interest receivable
    
    
    14,114
    
    
    
    14,114
    
    
    
    18,549
    
    
    
    18,549Financial Liabilities:Deposits
    
    $
    2,340,192
    
    
    $
    2,367,354
    
    
    $
    2,340,137
    
    
    $
    2,355,379Short-term borrowings
    
    
    415,006
    
    
    
    415,542
    
    
    
    272,270
    
    
    
    272,640Long-term borrowings
    
    
    360,917
    
    
    
    362,848
    
    
    
    376,707
    
    
    
    385,944Accrued interest payable
    
    
    10,560
    
    
    
    10,560
    
    
    
    15,248
    
    
    
    15,248
    85




---



##### Table of Contents



Year Ending December 31,2009
    
    $
    2,4992010
    
    
    2,1782011
    
    
    1,9842012
    
    
    1,9092013
    
    
    1,839Thereafter
    
    
    7,346Total
    
    $
    17,755
      Ranges of RatesVariable Rate
    
    
    Fixed Rate
    
    
    Total
    
    
    on Fixed RateCommitment
    
    
    Commitment
    
    
    Commitment
    
    
    CommitmentsCommitments to extend credit
    
    $
    622,296
    
    
    $
    61,949
    
    
    $
    684,245
    
    
    
    1.78%  21.00
    %Standby letters of credit
    
    
    15,680
    
    
    
    6,640
    
    
    
    22,320
    
    
    
    0.00%  10.00
    %
   86




---



##### Table of Contents



87




---



##### Table of Contents



Postretirement Benefits2008
    
    
    2007Change in Fair Value of Plan Assets:Balance at beginning of year
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    
    
    
    
    Employer contributions
    
    
    184
    
    
    
    177Benefits paid, net of retiree contributions
    
    
    (184
    )
    
    
    (177
    )Balance at end of year
    
    $
    
    
    
    $
    Change in Accumulated Projected Benefit Obligation:Balance at beginning of year
    
    $
    3,248
    
    
    $
    2,247Service cost
    
    
    277
    
    
    
    150Interest costs
    
    
    199
    
    
    
    118Actuarial (gains) losses
    
    
    (875
    )
    
    
    910Adjustment for prior year benefits paid
    
    
    (238
    )
    
    
    Benefits paid, net of retiree contributions
    
    
    (184
    )
    
    
    (177
    )Balance at end of year
    
    $
    2,427
    
    
    $
    3,248Funded status-(accrued) prepaid benefit cost
    
    $
    (2,427
    )
    
    $
    (3,248
    )
   88




---



##### Table of Contents



Postretirement Benefits2008
    
    
    2007
    
    
    2006Service cost  benefits earned during the period
    
    $
    277
    
    
    $
    150
    
    
    $
    99Interest cost on projected benefit obligation
    
    
    199
    
    
    
    118
    
    
    
    99Amortization of prior service costs
    
    
    34
    
    
    
    34
    
    
    
    34Amortization of net (gain) loss
    
    
    122
    
    
    
    64
    
    
    
    47Net periodic benefit cost
    
    
    632
    
    
    
    366
    
    
    
    279Net loss (gain)
    
    
    (875
    )
    
    
    910
    
    
    
    Prior service (cost) credit
    
    
    (34
    )
    
    
    (34
    )
    
    
    Amortization of gain (loss)
    
    
    (122
    )
    
    
    (64
    )
    
    
    Total recognized in other comprehensive income
    
    
    (1,031
    )
    
    
    812
    
    
    
    Total recognized in net periodic benefit cost and
other comprehensive income
    
    $
    (399
    )
    
    $
    1,178
    
    
    $
    279
   Year Ending December 31,2009
    
    $
    1532010
    
    
    1772011
    
    
    2092012
    
    
    2162013
    
    
    224Thereafter
    
    
    1,430
    89




---



##### Table of Contents



For the Year EndedDecember 31, 2008
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    172,667
    
    
    $
    233
    
    
    $
    172,900Interest expense
    
    
    72,077
    
    
    
    6,842
    
    
    
    78,919Net interest income
    
    
    100,590
    
    
    
    (6,609
    )
    
    
    93,981Provision for loan losses
    
    
    65,784
    
    
    
    
    
    
    
    65,784Other income
    
    
    29,390
    
    
    
    299
    
    
    
    29,689Other expense
    
    
    218,840
    
    
    
    1,213
    
    
    
    220,053Earnings (Loss) before income taxes
    
    
    (154,644
    )
    
    
    (7,523
    )
    
    
    (162,167
    )Income taxes (benefit)
    
    
    (48,293
    )
    
    
    (2,999
    )
    
    
    (51,292
    )Net income (loss)
    
    $
    (106,351
    )
    
    $
    (4,524
    )
    
    $
    (110,875
    )Segment assets
    
    $
    3,348,776
    
    
    $
    8,324
    
    
    $
    3,357,100
 For the Year EndedDecember 31, 2007
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    191,657
    
    
    $
    263
    
    
    $
    191,920Interest expense
    
    
    90,226
    
    
    
    8,445
    
    
    
    98,671Net interest income
    
    
    101,431
    
    
    
    (8,182
    )
    
    
    93,249Provision for loan losses
    
    
    4,193
    
    
    
    
    
    
    
    4,193Other income
    
    
    36,754
    
    
    
    317
    
    
    
    37,071Other expense
    
    
    85,904
    
    
    
    1,746
    
    
    
    87,650Earnings before income taxes
    
    
    48,088
    
    
    
    (9,611
    )
    
    
    38,477Income taxes (benefit)
    
    
    11,374
    
    
    
    (3,607
    )
    
    
    7,767Net income (loss)
    
    $
    36,714
    
    
    $
    (6,004
    )
    
    $
    30,710Segment assets
    
    $
    3,336,034
    
    
    $
    14,092
    
    
    $
    3,350,126
 For the Year EndedDecember 31, 2006
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    158,194
    
    
    $
    199
    
    
    $
    158,393Interest expense
    
    
    70,326
    
    
    
    5,761
    
    
    
    76,087Net interest income
    
    
    87,868
    
    
    
    (5,562
    )
    
    
    82,306Provision for loan losses
    
    
    20,294
    
    
    
    
    
    
    
    20,294Other income
    
    
    35,553
    
    
    
    274
    
    
    
    35,827Other expense
    
    
    74,662
    
    
    
    1,215
    
    
    
    75,877Earnings before income taxes
    
    
    28,465
    
    
    
    (6,503
    )
    
    
    21,962Income taxes (benefit)
    
    
    4,878
    
    
    
    (2,463
    )
    
    
    2,415Net income (loss)
    
    $
    23,587
    
    
    $
    (4,040
    )
    
    $
    19,547Segment assets
    
    $
    2,672,217
    
    
    $
    12,262
    
    
    $
    2,684,479
  90




---



##### Table of Contents



December 31,2008
    
    
    2007ASSETSCash and cash equivalents
    
    $
    6,572
    
    
    $
    5,885Investment in banking subsidiaries
    
    
    309,128
    
    
    
    433,075Investment in other subsidiaries
    
    
    536
    
    
    
    965Securities available for sale
    
    
    2,554
    
    
    
    2,554Other assets
    
    
    4,676
    
    
    
    9,999TOTAL ASSETS
    
    $
    323,466
    
    
    $
    452,478LIABILITIESLong-term borrowings
    
    $
    117,054
    
    
    $
    119,054Dividends payable
    
    
    207
    
    
    
    3,717Other liabilities
    
    
    1,414
    
    
    
    1,903Total liabilities
    
    
    118,675
    
    
    
    124,674SHAREHOLDERS EQUITYCommon stock
    
    
    20,749
    
    
    
    20,650Additional paid-in capital
    
    
    208,732
    
    
    
    206,991Retained earnings
    
    
    (15,754
    )
    
    
    104,913Accumulated other comprehensive income (loss)
    
    
    (8,936
    )
    
    
    (4,750
    )Total shareholders equity
    
    
    204,791
    
    
    
    327,804TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    323,466
    
    
    $
    452,478
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Dividends from banking subsidiaries
    
    $
    11,350
    
    
    $
    20,750
    
    
    $
    12,000Dividends from other subsidiaries
    
    
    600
    
    
    
    
    
    
    
    Other income
    
    
    163
    
    
    
    257
    
    
    
    161Total income
    
    
    12,113
    
    
    
    21,007
    
    
    
    12,161Interest expense
    
    
    6,847
    
    
    
    8,505
    
    
    
    5,783Other expenses
    
    
    1,033
    
    
    
    1,551
    
    
    
    1,138Total expenses
    
    
    7,880
    
    
    
    10,056
    
    
    
    6,921Income before income taxes and equity in
undistributed earnings of subsidiaries
    
    
    4,233
    
    
    
    10,951
    
    
    
    5,240Income tax benefit
    
    
    3,032
    
    
    
    3,640
    
    
    
    2,506Income before equity in undistributed earnings of subsidiaries
    
    
    7,265
    
    
    
    14,591
    
    
    
    7,746Equity in undistributed earnings of subsidiaries
    
    
    (118,140
    )
    
    
    16,119
    
    
    
    11,801Net income (loss)
    
    $
    (110,875
    )
    
    $
    30,710
    
    
    $
    19,547
  91




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    (110,875
    )
    
    $
    30,710
    
    
    $
    19,547Adjustments to reconcile net income (loss) to
net cash provided by operating activities:Amortization and depreciation
    
    
    154
    
    
    
    153
    
    
    
    154Employee benefit expenses
    
    
    2,029
    
    
    
    1,508
    
    
    
    817Excess distributions (undistributed) earnings of subsidiaries
    
    
    118,140
    
    
    
    (16,120
    )
    
    
    (11,801
    )Decrease in deferred taxes
    
    
    (406
    )
    
    
    (845
    )
    
    
    (101
    )(Increase) decrease in other assets
    
    
    5,574
    
    
    
    (107
    )
    
    
    (1,303
    )(Decrease) increase in other liabilities
    
    
    (489
    )
    
    
    536
    
    
    
    (224
    )Net cash flows provided by (used in) operating activities
    
    
    14,127
    
    
    
    15,835
    
    
    
    7,089CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of Prairie Financial Corp, net of cash acquired
    
    
    
    
    
    
    (35,331
    )
    
    
    Payments for investments in and advances to subsidiaries
    
    
    
    
    
    
    (619
    )
    
    
    Net cash flows provided by (used in) investing activities
    
    
    
    
    
    
    (35,950
    )
    
    
    CASH FLOWS FROM FINANCING ACTIVITIESRepurchase of common stock
    
    
    
    
    
    
    (9,556
    )
    
    
    Excess income tax benefit from employee stock-based awards
    
    
    
    
    
    
    10
    
    
    
    Dividends paid
    
    
    (11,379
    )
    
    
    (13,460
    )
    
    
    (11,583
    )Proceeds from long-term borrowings
    
    
    
    
    
    
    40,619
    
    
    
    Repayment of long-term borrowings
    
    
    (2,000
    )
    
    
    
    
    
    
    Proceeds from exercise of stock options and restricted shares, net
    
    
    (61
    )
    
    
    351
    
    
    
    5,949Net cash flows provided by (used in) financing activities
    
    
    (13,440
    )
    
    
    17,964
    
    
    
    (5,634
    )Net increase (decrease) in cash and cash equivalents
    
    
    687
    
    
    
    (2,151
    )
    
    
    1,455Cash and cash equivalents at beginning of year
    
    
    5,885
    
    
    
    8,036
    
    
    
    6,581Cash and cash equivalents at end of year
    
    $
    6,572
    
    
    $
    5,885
    
    
    $
    8,036
  92




---



##### Table of Contents



93




---



##### Table of Contents



1.
    
    Financial StatementsReport of Independent Registered Public Accounting FirmConsolidated Balance Sheets at December 31, 2008 and 2007Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006Consolidated Statements of Comprehensive Income for the years ended December 31, 2008, 2007 and 2006Consolidated Statements of Changes in Shareholders Equity for the years ended December 31, 2008, 2007 and 2006Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006Notes to Consolidated Financial Statements2.
    
    SchedulesNo schedules are included because they are not applicable or the required information is shown in the
financial statements or the notes thereto.3.
    
    ExhibitsExhibit Index is on page 97.
  94




---



##### Table of Contents



INTEGRA BANK CORPORATION/s/ MICHAEL T. VEA

Michael T. Vea
    
    
    
    3/4/2009

DateChairman of the Board, Chief Executive Officer and President/s/ MARTIN M. ZORN
    
    
    
    3/4/2009Martin M. Zorn
    
    
    
    DateChief Operating Officer and Chief Financial Officer/s/ MICHAEL B. CARROLL
    
    
    
    3/4/2009Michael B. Carroll
    
    
    
    DateExecutive Vice President, Controller
  95




---



##### Table of Contents



/s/ SANDRA CLARK BERRY

Sandra Clark Berry
    
    
    
    3/4/2009

DateDirector/s/ ROBERT L. GOOCHER
    
    
    
    3/4/2009Robert L. Goocher
    
    
    
    DateDirector/s/ H. RAY HOOPS
    
    
    
    3/4/2009H. Ray Hoops
    
    
    
    DateDirector/s/ THOMAS W. MILLER
    
    
    
    3/4/2009Thomas W. Miller
    
    
    
    DateDirector/s/ ARTHUR D. PRINGLE, III
    
    
    
    3/4/2009Arthur D. Pringle, III
    
    
    
    DateDirector/s/ BRADLEY M. STEVENS
    
    
    
    3/4/2009Bradley M. Stevens
    
    
    
    DateDirector/s/ RICHARD M. STIVERS
    
    
    
    3/4/2009Richard M. Stivers
    
    
    
    DateDirector/s/ ROBERT W. SWAN
    
    
    
    3/4/2009Robert W. Swan
    
    
    
    DateDirector/s/ DANIEL T. WOLFE
    
    
    
    3/4/2009Daniel T. Wolfe
    
    
    
    DateDirector
  96




---



##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION OF EXHIBIT3
    (a)(i)
    
    Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form 8-A/A dated
June 12, 1998)3
    (a)(ii)
    
    Articles of Amendment dated May 17, 2000 (incorporated by reference to Exhibit 3(a) to Quarterly
Report on Form 10-Q for the period ending September 30, 2000)3
    (a)(iii)
    
    Articles of Amendment dated July 18, 2001 (incorporated by reference to Exhibit 1 to the Current
Report on Form 8-K dated July 18, 2001)3
    (a)(iv)
    
    Articles of Amendment dated February 25, 2009 (incorporated by reference to Exhibit 3.1 to the
Current Report on Form 8-K dated March 2, 2009)3
    (b)
    
    By-Laws (as amended through February 25, 2009)4
    (a)
    
    Form of Certificate for the Fixed Rate Cumulative Perpetual Preferred Stock, Series B
(incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K dated March 2, 2009)4
    (b)
    
    Warrant for the Purchase of Shares of Common Stock of Integra Bank Corporation (incorporated
by reference to Exhibit 4.2 to the Current Report on Form 8-K dated March 2, 2009)10
    (a)*
    
    Integra Bank Corporation Employees 401(K) Plan (2003 Restatement) (incorporated by reference
to Exhibit 10(a) to Annual Report on Form 10-K for the fiscal year ended December 31, 2006)10
    (b)*
    
    Contract of Employment dated August 23, 1999, between National City Bancshares, Inc. and
Michael T. Vea (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for
the period ending September 30, 1999)10
    (c)*
    
    Amendment to Contract of Employment dated September 20, 2000 between Integra Bank
Corporation and Michael T. Vea (incorporated by reference to Exhibit 10(h) to Annual Report on
Form 10-K for the fiscal year ended December 31, 2000)10
    (d)*
    
    Amendment to Contract of Employment dated December 30, 2008 between Integra Bank
Corporation and Michael T. Vea10
    (e)*
    
    Nonqualified Stock Option Agreement (Non Plan) dated September 7, 1999, between National City
Bancshares, Inc. and Michael T. Vea (incorporated by reference to Exhibit 10.3 to Quarterly Report
on Form 10-Q for the period ending September 30, 1999)10
    (f)*
    
    Amended Employment Agreement dated October 15, 2008, between Integra Bank Corporation and
Martin M. Zorn10
    (g)*
    
    Employment Agreement dated October 15, 2008, between Integra Bank Corporation and Raymond D.
Beck10
    (h)*
    
    Change in Control Benefits Agreement dated May 22, 2007, between Integra Bank Corporation and
Roger M. Duncan (incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q
for the period ending June 30, 2007)10
    (i)*
    
    Change in Control Benefits Agreement dated May 22, 2007, between Integra Bank Corporation and
Roger D. Watson (incorporated by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q
for the period ending June 30, 2007)10
    (j)*
    
    Change in Control Benefits Agreement dated October 15, 2008, between Integra Bank Corporation and
Michael B. Carroll10
    (k)*
    
    Employment Agreement with effective date of April 9, 2007, between Integra Bank Corporation
and Bradley M. Stevens (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q
for the period ending March 31, 2007)10
    (l)*
    
    First Amendment to Integra Bank Corporation Employees 401 (K) Plan dated January 1, 2003
(incorporated by reference to Exhibit 10(h) to Annual Report on Form 10-K for the fiscal year
ended December 31, 2006)10
    (m)*
    
    Second Amendment to Integra Bank Corporation Employees 401 (K) Plan dated March 28, 2005
(incorporated by reference to Exhibit 10(i) to Annual Report on Form 10-K for the fiscal year
ended December 31, 2006)10
    (n)*
    
    Third Amendment to Integra Bank Corporation Employees 401 (K) Plan dated January 1, 2006
(incorporated by reference to Exhibit 10(j) to Annual Report on Form 10-K for the fiscal year
ended December 31, 2006)
  97




---



##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION OF EXHIBIT10
    (o)*
    
    Fourth Amendment to Integra Bank Corporation Employees 401 (K) Plan dated July 1, 2007
(incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the period
ending September 30, 2007)10
    (p)*
    
    Integra Bank Corporation 2007 Equity Incentive Plan (incorporated by reference to Exhibit A
to Proxy Statement on Schedule 14A filed March 16, 2007)10
    (q)*
    
    Integra Bank Corporation Annual Cash Incentive Plan (incorporated by reference to Exhibit B
to Proxy Statement on Schedule 14A filed March 16, 2007)10
    (r)*
    
    Form of Restricted Stock Agreement (Director) under 2007 Equity Incentive Plan (incorporated
by reference to Exhibit 10.3 to the Current Report on Form 8-K dated April 18, 2007)10
    (s)*
    
    Form of Restricted Stock Agreement (Employee) under 2007 Equity Incentive Plan (incorporated
by reference to Exhibit 10.4 to the Current Report on Form 8-K dated April 18, 2007)10
    (t)*
    
    Form of Nonqualified Stock Option Agreement under 2007 Equity Incentive Plan (incorporated
by reference to Exhibit 10.5 to the Current Report on Form 8-K dated April 18, 2007)10
    (u)*
    
    Form of Stock Appreciation Right Agreement under 2007 Equity Incentive Plan (incorporated
by reference to Exhibit 10.6 to the Current Report on Form 8-K dated April 18, 2007)10
    (v)*
    
    Summary Sheet of 2009 Compensation10
    (w)*
    
    Letter Agreement, dated February 27, 2009, between Integra Bank Corporation and the United States
Department of Treasury, which includes the Securities Purchase Agreement-Standard Terms
attached thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K
dated March 2, 2009)10
    (x)*
    
    Form of Senior Officer Letter Agreement (incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K dated March 2, 2009)10
    (y)*
    
    Form of Waiver (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K
dated March 2, 2009)10
    (z)*
    
    ARRA Letter Agreement, dated February 27, 2009, between Integra Bank Corporation and the
United States Department of the Treasury (incorporated by reference to Exhibit 10.4 to the Current
Report on Form 8-K dated March 2, 2009)21
    
    
    Subsidiaries of the Registrant23
    
    
    Consent of Crowe Horwath LLP31
    (a)
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer31
    (b)
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer32
    
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 *
    
    The indicated exhibit is a management contract, compensatory plan or arrangement required to be
filed by Item 601 of Regulation S-K.  98