##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2009.
 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
    
    35-1632155(State or other jurisdiction of incorporation or organization)
    
    (IRS Employee Identification No.)PO BOX 868, EVANSVILLE, INDIANA
    
    47705-0868(Address of principal executive offices)
    
    (Zip Code)
  þ o
  o o
  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
  CLASS
    
    OUTSTANDING AT OCTOBER 30, 2009(Common stock, $1.00 Stated Value)
    
    20,932,790




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##### 



INTEGRA BANK CORPORATION
  
 INDEX
 PAGE NO.PART I  FINANCIAL INFORMATIONItem 1. Unaudited Financial StatementsConsolidated balance sheets 
September 30, 2009 and December 31, 2008
    
    
    3Consolidated statements of income 
Three months and nine months ended September 30, 2009 and 2008
    
    
    4Consolidated statements of comprehensive income 
Three months and nine months ended September 30, 2009 and 2008
    
    
    6Consolidated statements of changes in shareholders equity 
Nine months ended September 30, 2009
    
    
    7Consolidated statements of cash flow 
Nine months ended September 30, 2009 and 2008
    
    
    8Notes to unaudited consolidated financial statements
    
    
    10Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    34Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    51Item 4. Controls and Procedures
    
    
    53PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    54Item 1A. Risk Factors
    
    
    54Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    55Item 3. Defaults Upon Senior Securities
    
    
    55Item 4. Submissions of Matters to a Vote of Security Holders
    
    
    55Item 5. Other Information
    
    
    55Item 6. Exhibits
    
    
    56Signatures
    
    
    57Exhibit 10.2Exhibit 31.1Exhibit 31.2Exhibit 32
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1.
    
    Unaudited Financial Statements
 INTEGRA BANK CORPORATION and Subsidiaries
 
 Unaudited Consolidated Balance Sheets
 September 30,
    
    
    December 31,2009
    
    
    2008ASSETSCash and due from banks
    
    $
    391,171
    
    
    $
    62,354Federal funds sold and other short-term investments
    
    
    49,946
    
    
    
    419Total cash and cash equivalents
    
    
    441,117
    
    
    
    62,773Loans held for sale (at lower of cost or fair value)
    
    
    41,253
    
    
    
    5,776Securities available for sale
    
    
    342,240
    
    
    
    561,739Securities held for trading
    
    
    13,237
    
    
    
    Regulatory stock
    
    
    29,124
    
    
    
    29,155Loans, net of unearned income
    
    
    2,205,661
    
    
    
    2,490,243Less: Allowance for loan losses
    
    
    (79,364
    )
    
    
    (64,437
    )Net loans
    
    
    2,126,297
    
    
    
    2,425,806Premises and equipment
    
    
    45,296
    
    
    
    48,500Other intangible assets
    
    
    8,664
    
    
    
    9,928Other assets
    
    
    211,097
    
    
    
    213,423TOTAL ASSETS
    
    $
    3,258,325
    
    
    $
    3,357,100LIABILITIESDeposits:Non-interest-bearing demand
    
    $
    287,723
    
    
    $
    284,032Interest-bearing:Savings, interest checking and money market accounts
    
    
    1,070,942
    
    
    
    901,785Time deposits of $100 or more
    
    
    627,732
    
    
    
    603,519Other interest-bearing
    
    
    486,365
    
    
    
    550,856Total deposits
    
    
    2,472,762
    
    
    
    2,340,192Short-term borrowings
    
    
    188,011
    
    
    
    415,006Long-term borrowings
    
    
    361,364
    
    
    
    360,917Other liabilities
    
    
    33,656
    
    
    
    36,194TOTAL LIABILITIES
    
    
    3,055,793
    
    
    
    3,152,309Commitments
and contingent liabilities (Note 10)
    
    
    
    
    
    
    SHAREHOLDERS EQUITYPreferred stock  no par, $1,000 per share liquidation preference:Shares authorized: 1,000,000Shares outstanding: 83,586
    
    
    81,928
    
    
    
    Common stock  $1.00 stated value:Shares authorized: 129,000,000Shares outstanding: 20,937,184 and 20,748,880, respectively
    
    
    20,937
    
    
    
    20,749Additional paid-in capital
    
    
    217,205
    
    
    
    208,732Retained earnings
    
    
    (114,320
    )
    
    
    (15,754
    )Accumulated other comprehensive income (loss)
    
    
    (3,218
    )
    
    
    (8,936
    )TOTAL SHAREHOLDERS EQUITY
    
    
    202,532
    
    
    
    204,791TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    3,258,325
    
    
    $
    3,357,100
   3




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##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
 
 Unaudited Consolidated Statements of Income
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008INTEREST INCOMEInterest and fees on loans:Taxable
    
    $
    24,374
    
    
    $
    35,079
    
    
    $
    75,410
    
    
    $
    109,456Tax-exempt
    
    
    192
    
    
    
    122
    
    
    
    597
    
    
    
    304Interest and dividends on securities:Taxable
    
    
    3,265
    
    
    
    5,514
    
    
    
    13,736
    
    
    
    17,264Tax-exempt
    
    
    592
    
    
    
    1,091
    
    
    
    2,425
    
    
    
    3,517Interest on securities held for trading
    
    
    81
    
    
    
    
    
    
    
    103
    
    
    
    570Dividends on regulatory stock
    
    
    337
    
    
    
    385
    
    
    
    1,015
    
    
    
    1,170Interest on loans held for sale
    
    
    89
    
    
    
    88
    
    
    
    319
    
    
    
    281Interest on federal funds sold and other short-term investments
    
    
    272
    
    
    
    26
    
    
    
    539
    
    
    
    94Total interest income
    
    
    29,202
    
    
    
    42,305
    
    
    
    94,144
    
    
    
    132,656INTEREST EXPENSEInterest on deposits
    
    
    10,356
    
    
    
    12,888
    
    
    
    34,302
    
    
    
    42,131Interest on short-term borrowings
    
    
    268
    
    
    
    1,995
    
    
    
    1,614
    
    
    
    6,116Interest on long-term borrowings
    
    
    2,528
    
    
    
    3,562
    
    
    
    7,921
    
    
    
    11,865Total interest expense
    
    
    13,152
    
    
    
    18,445
    
    
    
    43,837
    
    
    
    60,112NET INTEREST INCOME
    
    
    16,050
    
    
    
    23,860
    
    
    
    50,307
    
    
    
    72,544Provision for loan losses
    
    
    18,913
    
    
    
    17,978
    
    
    
    82,843
    
    
    
    27,615Net interest income after provision for loan losses
    
    
    (2,863
    )
    
    
    5,882
    
    
    
    (32,536
    )
    
    
    44,929NON-INTEREST INCOMEService charges on deposit accounts
    
    
    5,335
    
    
    
    5,884
    
    
    
    14,783
    
    
    
    15,642Other service charges and fees
    
    
    825
    
    
    
    880
    
    
    
    2,422
    
    
    
    2,752Commissions on annuities
    
    
    273
    
    
    
    223
    
    
    
    720
    
    
    
    1,245Debit card income-interchange
    
    
    1,368
    
    
    
    1,358
    
    
    
    3,998
    
    
    
    3,977Trust income
    
    
    630
    
    
    
    573
    
    
    
    1,652
    
    
    
    1,686Net securities gains (losses)
    
    
    6,578
    
    
    
    13
    
    
    
    8,057
    
    
    
    40Gain on sale of other assets
    
    
    (219
    )
    
    
    (47
    )
    
    
    2,255
    
    
    
    (59
    )Other than temporary loss:Total impairment losses
    
    
    
    
    
    
    
    
    
    
    (20,334
    )
    
    
    (6,302
    )Reclassification of loss from other comprehensive income
    
    
    
    
    
    
    
    
    
    
    (1,150
    )
    
    
    Net impairment loss recognized in earnings
    
    
    
    
    
    
    
    
    
    
    (21,484
    )
    
    
    (6,302
    )Warrant fair value adjustment
    
    
    
    
    
    
    
    
    
    
    (6,145
    )
    
    
    Cash surrender value of life insurance
    
    
    (397
    )
    
    
    574
    
    
    
    687
    
    
    
    1,792Other
    
    
    434
    
    
    
    726
    
    
    
    2,390
    
    
    
    3,157Total non-interest income
    
    
    14,827
    
    
    
    10,184
    
    
    
    9,335
    
    
    
    23,930NON-INTEREST EXPENSESalaries and employee benefits
    
    
    10,187
    
    
    
    12,125
    
    
    
    33,823
    
    
    
    36,965Occupancy
    
    
    2,348
    
    
    
    2,621
    
    
    
    7,307
    
    
    
    7,722Equipment
    
    
    749
    
    
    
    974
    
    
    
    2,406
    
    
    
    2,857Professional fees
    
    
    1,699
    
    
    
    1,390
    
    
    
    5,486
    
    
    
    3,925Communication and transportation
    
    
    1,126
    
    
    
    1,223
    
    
    
    3,378
    
    
    
    3,816Processing
    
    
    647
    
    
    
    715
    
    
    
    2,138
    
    
    
    2,137Software
    
    
    654
    
    
    
    673
    
    
    
    1,901
    
    
    
    1,760Marketing
    
    
    312
    
    
    
    453
    
    
    
    1,152
    
    
    
    1,546Loan and OREO expense
    
    
    2,545
    
    
    
    870
    
    
    
    9,881
    
    
    
    1,752FDIC assessment
    
    
    1,721
    
    
    
    163
    
    
    
    5,676
    
    
    
    317Low income housing project losses
    
    
    161
    
    
    
    556
    
    
    
    1,324
    
    
    
    1,930Debt prepayment penalities
    
    
    27
    
    
    
    
    
    
    
    1,538
    
    
    
    Amortization of intangible assets
    
    
    421
    
    
    
    431
    
    
    
    1,264
    
    
    
    1,293Goodwill impairment
    
    
    
    
    
    
    48,000
    
    
    
    
    
    
    
    48,000Other
    
    
    1,772
    
    
    
    1,993
    
    
    
    5,737
    
    
    
    6,465Total non-interest expense
    
    
    24,369
    
    
    
    72,187
    
    
    
    83,011
    
    
    
    120,485Income (Loss) before income taxes
    
    
    (12,405
    )
    
    
    (56,121
    )
    
    
    (106,212
    )
    
    
    (51,626
    )Income tax expense (benefit)
    
    
    7,330
    
    
    
    (22,794
    )
    
    
    (9,952
    )
    
    
    (22,373
    )Net income (loss)
    
    
    (19,735
    )
    
    
    (33,327
    )
    
    
    (96,260
    )
    
    
    (29,253
    )Preferred stock dividends and discount accretion
    
    
    1,117
    
    
    
    
    
    
    
    2,669
    
    
    
    Net income (loss) available to common shareholders
    
    $
    (20,852
    )
    
    $
    (33,327
    )
    
    $
    (98,929
    )
    
    $
    (29,253
    )
   4




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##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
Unaudited Consolidated Statements of Income (Continued)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Earnings (Loss) per share:Basic
    
    $
    (1.01
    )
    
    $
    (1.62
    )
    
    $
    (4.78
    )
    
    $
    (1.42
    )Diluted
    
    
    (1.01
    )
    
    
    (1.62
    )
    
    
    (4.78
    )
    
    
    (1.42
    )Weighted average shares outstanding:Basic
    
    
    20,707
    
    
    
    20,567
    
    
    
    20,713
    
    
    
    20,553Diluted
    
    
    20,707
    
    
    
    20,567
    
    
    
    20,713
    
    
    
    20,553Dividends per share
    
    $
    
    
    
    $
    0.01
    
    
    $
    0.03
    
    
    $
    0.37
   5




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##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
 
 Unaudited Consolidated Statements of Comprehensive Income
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (Loss)
    
    $
    (19,735
    )
    
    $
    (33,327
    )
    
    $
    (96,260
    )
    
    $
    (29,253
    )Other comprehensive income (loss), net of tax:Unrealized gain (loss) on securities:Unrealized gain (loss) arising in period
(net of tax of $2,246, $(5,774), $(1,395) and $(10,550), respectively)
    
    
    3,695
    
    
    
    (9,769
    )
    
    
    (2,295
    )
    
    
    (17,851
    )Reclassification of amounts realized through impairment charges and
sales (net of tax of $(2,487), $(5), $5,076 and $2,326, respectively)
    
    
    (4,091
    )
    
    
    (8
    )
    
    
    8,351
    
    
    
    3,936Net unrealized gain (loss) on securities
    
    
    (396
    )
    
    
    (9,777
    )
    
    
    6,056
    
    
    
    (13,915
    )Change in net pension plan liability
(net of tax of $9, $14, $28 and $43 respectively)
    
    
    15
    
    
    
    23
    
    
    
    46
    
    
    
    73Unrealized gain (loss) on derivative hedging instruments arising in period
(net of tax of $(13), $(2), $(233) and $76, respectively)
    
    
    (22
    )
    
    
    (4
    )
    
    
    (384
    )
    
    
    127Net unrealized gain (loss), recognized in other comprehensive income (loss)
    
    
    (403
    )
    
    
    (9,758
    )
    
    
    5,718
    
    
    
    (13,715
    )Comprehensive income (loss)
    
    $
    (20,138
    )
    
    $
    (43,085
    )
    
    $
    (90,542
    )
    
    $
    (42,968
    )
   6




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##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
 
 Unaudited Consolidated Statements of Changes In Shareholders Equity
 AccumulatedShares of
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    OtherPreferred
    
    
    Common
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveStock
    
    
    Stock
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBALANCE AT DECEMBER 31, 2008
    
    $
    
    
    
    
    20,748,880
    
    
    $
    20,749
    
    
    $
    208,732
    
    
    $
    (15,754
    )
    
    $
    (8,936
    )
    
    $
    204,791Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (96,260
    )
    
    
    
    
    
    
    (96,260
    )Cash dividend declared ($0.02 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (415
    )
    
    
    
    
    
    
    (415
    )Net change, net of tax, in accumulated
other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,781
    
    
    
    5,781Cumulative effect of change in accounting principles,
adoption of FSP FAS 115-2 and 124-2 (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    778
    
    
    
    (778
    )
    
    
    Change in unrealized gains (losses) on securities available-
for-sale for which a portion of an other-than temporary
impairment has been recognized in earnings, net of
reclassification and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    715
    
    
    
    715Preferred stock
    
    
    83,586
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,586Common stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,999
    
    
    
    
    
    
    
    
    
    
    
    7,999Discount on preferred stock
    
    
    (1,855
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,855
    )Preferred stock dividend and discount accretion
    
    
    197
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,669
    )
    
    
    
    
    
    
    (2,472
    )Vesting of restricted shares, net
    
    
    
    
    
    
    (9,296
    )
    
    
    (9
    )
    
    
    (307
    )
    
    
    
    
    
    
    
    
    
    
    (316
    )Grant of restricted stock, net of forfeitures
    
    
    
    
    
    
    197,600
    
    
    
    197
    
    
    
    (197
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    978
    
    
    
    
    
    
    
    
    
    
    
    978BALANCE AT SEPTEMBER 30, 2009
    
    $
    81,928
    
    
    
    20,937,184
    
    
    $
    20,937
    
    
    $
    217,205
    
    
    $
    (114,320
    )
    
    $
    (3,218
    )
    
    $
    202,532
   7




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##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
 
 Unaudited Consolidated Statements of Cash Flow
 Nine Months EndedSeptember 30,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    (96,260
    )
    
    $
    (29,253
    )Adjustments to reconcile net income (loss) to
net cash provided by operating activities:Amortization and depreciation
    
    
    5,214
    
    
    
    5,443Provision for loan losses
    
    
    82,843
    
    
    
    27,615Income tax valuation allowance
    
    
    25,357
    
    
    
    Net securities (gains) losses
    
    
    (8,057
    )
    
    
    (40
    )Impairment charge on available for sale securities
    
    
    21,484
    
    
    
    6,302Net held for trading (gains) losses
    
    
    1,002
    
    
    
    (321
    )(Gain) loss on sale of premises and equipment
    
    
    68
    
    
    
    (2
    )(Gain) loss on sale of other real estate owned
    
    
    227
    
    
    
    61Gain on sale of branches
    
    
    (2,549
    )
    
    
    Loss on low-income housing investments
    
    
    1,324
    
    
    
    1,930Proceeds from maturity of held for trading securities
    
    
    
    
    
    
    1,684Proceeds from sale of held for trading securities
    
    
    7,100
    
    
    
    52,419Purchase of held for trading securities
    
    
    (19,745
    )
    
    
    Increase (decrease) in deferred taxes
    
    
    (3,461
    )
    
    
    (22,902
    )Net gain on sale of loans held for sale
    
    
    (1,277
    )
    
    
    (555
    )Proceeds from sale of loans held for sale
    
    
    148,833
    
    
    
    86,147Origination of loans held for sale
    
    
    (102,352
    )
    
    
    (86,343
    )Goodwill impairment
    
    
    
    
    
    
    48,000Debt prepayment fees
    
    
    1,538
    
    
    
    Change in other operating
    
    
    (13,384
    )
    
    
    (5,693
    )Net cash flows provided by (used in) operating activities
    
    
    47,905
    
    
    
    84,492CASH FLOWS FROM INVESTING ACTIVITIESProceeds from maturities of securities available for sale
    
    
    98,580
    
    
    
    101,446Proceeds from sales of securities available for sale
    
    
    296,671
    
    
    
    17,758Purchase of securities available for sale
    
    
    (180,189
    )
    
    
    (89,663
    )(Increase) decrease in loans made to customers
    
    
    89,658
    
    
    
    (167,457
    )Decrease in loans from sale of branches
    
    
    26,940
    
    
    
    Purchase of premises and equipment
    
    
    (977
    )
    
    
    (2,563
    )Proceeds from sale of premises and equipment from branch sale
    
    
    1,148
    
    
    
    Proceeds from sale of premises and equipment
    
    
    17
    
    
    
    21Proceeds from sale of other real estate owned
    
    
    5,830
    
    
    
    228Net cash flows provided by (used in) investing activities
    
    
    337,678
    
    
    
    (140,230
    )
   8




---



##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
Unaudited Consolidated Statements of Cash Flow (Continued)
 Nine Months EndedSeptember 30,2009
    
    
    2008CASH FLOWS FROM FINANCING ACTIVITIESNet increase (decrease) in deposits
    
    
    183,260
    
    
    
    45,532Decrease in deposits from sale of branches
    
    
    (50,796
    )
    
    
    Net increase (decrease) in short-term borrowed funds
    
    
    (226,995
    )
    
    
    33,912Proceeds from long-term borrowings
    
    
    50,000
    
    
    
    50,000Repayment of long-term borrowings
    
    
    (49,550
    )
    
    
    (68,027
    )Proceeds from issuance of common stock warrants
    
    
    7,999
    
    
    
    Proceeds from issuance of TARP preferred stock
    
    
    81,928
    
    
    
    Accreton of discount on TARP preferred stock
    
    
    (197
    )
    
    
    Dividends paid on TARP preferred stock
    
    
    (1,950
    )
    
    
    Dividends paid on common stock
    
    
    (622
    )
    
    
    (11,172
    )Proceeds from vesting of restricted shares, net
    
    
    (316
    )
    
    
    Net cash flows provided by (used in) financing activities
    
    
    (7,239
    )
    
    
    50,245Net increase in cash and cash equivalents
    
    
    378,344
    
    
    
    (5,493
    )Cash and cash equivalents at beginning of period
    
    
    62,773
    
    
    
    75,990Cash and cash equivalents at end of period
    
    $
    441,117
    
    
    $
    70,497
 Nine Months EndedSeptember 30,2009
    
    
    2008SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSOther real estate acquired in settlement of loans
    
    
    19,387
    
    
    
    4,961Dividends for common shareholders declared and not paid
    
    
    
    
    
    
    207Dividends accrued not paid on preferred stock
    
    
    522
    
    
    
    
   9




---



##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 BASIS OF PRESENTATION
    ACCOUNTING ESTIMATES:
      10




---



##### Table of Contents



RECENT ACCOUNTING PRONOUNCEMENTS:
       11




---



##### Table of Contents



FAIR VALUE MEASUREMENT
  Level 1:
 Level 2:
 Level 3:
  Securities
   New
    
    
    PriorDefault Probabilities
    
    Issuer Specific
    
    
    Industry AveragePrepayments
    
    
    0%
    
    
    
    1%Recovery
    
    
    0%
    
    
    
    5%Spread to Libor
    
    
    300 basis points
    
    
    
    200 basis pointsCorrelation within Same Industry
    
    
    50%
    
    
    
    30%Correlation Between Industries
    
    
    30%
    
    
    
    20%
     12




---



##### Table of Contents



Loans held for sale
 Derivatives
 Impaired Loans
 Other Real Estate Owned
  13




---



##### Table of Contents



Assets and Liabilities Measured on a Recurring Basis:
   Quoted Pricesin ActiveMarkets for
    
    
    SignificantIdentical
    
    
    Other
    
    
    SignificantAssets and
    
    
    Observable
    
    
    UnobservableLiabilities
    
    
    Inputs
    
    
    Inputs
    
    
    Balance as of(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    September 30, 2009AssetsSecurities, available for saleU.S. Government agencies
    
    $
    
    
    
    $
    408
    
    
    $
    
    
    
    $
    408Collateralized mortgage obligations:Agency
    
    
    
    
    
    
    115,390
    
    
    
    
    
    
    
    115,390Private Label
    
    
    
    
    
    
    25,607
    
    
    
    
    
    
    
    25,607Mortgage backed securities
    
    
    
    
    
    
    155,180
    
    
    
    
    
    
    
    155,180Trust Preferred
    
    
    
    
    
    
    7,866
    
    
    
    2,016
    
    
    
    9,882State & political subdivisions
    
    
    
    
    
    
    27,099
    
    
    
    
    
    
    
    27,099Other securities
    
    
    
    
    
    
    8,674
    
    
    
    
    
    
    
    8,674Total securities, available for sale
    
    $
    
    
    
    $
    340,224
    
    
    $
    2,016
    
    
    $
    342,240Securities, held for tradingU.S. Treasuries
    
    $
    
    
    
    $
    13,115
    
    
    $
    
    
    
    $
    13,115Trust Preferred
    
    
    
    
    
    
    122
    
    
    
    
    
    
    
    122Total securities, held for trading
    
    $
    
    
    
    $
    13,237
    
    
    $
    
    
    
    $
    13,237Derivatives
    
    
    
    
    
    
    8,499
    
    
    
    
    
    
    
    8,499LiabilitiesDerivatives
    
    $
    
    
    
    $
    8,504
    
    
    $
    
    
    
    $
    8,504
  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
  14




---



##### Table of Contents



Assets and Liabilities Measured on a Non-Recurring Basis:
   Quoted Pricesin ActiveMarkets for
    
    
    SignificantIdentical
    
    
    Other
    
    
    SignificantAssets and
    
    
    Observable
    
    
    UnobservableLiabilities
    
    
    Inputs
    
    
    Inputs
    
    
    Balance as of(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    September 30, 2009AssetsImpaired loans
    
    $
    
    
    
    $
    
    
    
    $
    98,310
    
    
    $
    98,310Loans held for sale
    
    
    
    
    
    
    41,253
    
    
    
    
    
    
    
    41,253Other real estate owned
    
    
    
    
    
    
    
    
    
    
    23,281
    
    
    
    23,281Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  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
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)SecuritiesAvailable for sale
    
    
    TotalThree months ended September 30, 2009Beginning Balance at July 1, 2009
    
    $
    2,483
    
    
    $
    2,483Transfers in and/or out of Level 3
    
    
    
    
    
    
    Gains (Losses) included in other comprehensive income
    
    
    (467
    )
    
    
    (467
    )Gains (Losses) included in earnings
    
    
    
    
    
    
    Ending Balance
    
    $
    2,016
    
    
    $
    2,016
  15




---



##### Table of Contents



Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)SecuritiesAvailable for sale
    
    
    TotalNine months ended September 30, 2009Beginning Balance at January 1, 2009
    
    $
    17,535
    
    
    $
    17,535Transfers in and/or out of Level 3
    
    
    (250
    )
    
    
    (250
    )Gains (Losses) included in other comprehensive income
    
    
    559
    
    
    
    559Gains (Losses) included in earnings
    
    
    (15,828
    )
    
    
    (15,828
    )Ending Balance
    
    $
    2,016
    
    
    $
    2,016
   September 30, 2009
    
    
    December 31, 2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial Assets:Cash and short-term investments
    
    $
    441,117
    
    
    $
    441,117
    
    
    $
    62,773
    
    
    $
    62,773Loans-net of allowance
    
    
    2,027,987
    
    
    
    2,065,205
    
    
    
    2,356,216
    
    
    
    2,415,290Accrued interest receivable
    
    
    10,215
    
    
    
    10,215
    
    
    
    14,114
    
    
    
    14,114Financial Liabilities:Deposits
    
    $
    2,472,762
    
    
    $
    2,495,464
    
    
    $
    2,340,192
    
    
    $
    2,367,354Short-term borrowings
    
    
    188,011
    
    
    
    188,050
    
    
    
    415,006
    
    
    
    415,542Long-term borrowings
    
    
    361,364
    
    
    
    363,156
    
    
    
    360,917
    
    
    
    362,848Accrued interest payable
    
    
    8,001
    
    
    
    8,001
    
    
    
    10,560
    
    
    
    10,560
   STOCK OPTION PLAN AND AWARDS
   16




---



##### Table of Contents



September 30, 2009
    
    
    Weighted AverageWeighted Average
    
    
    Remaining TermShares
    
    
    Exercise Price
    
    
    (In years)Options/SARs outstanding at December 31, 2008
    
    
    1,415,433
    
    
    $
    20.53Options/SARs granted
    
    
    5,000
    
    
    
    2.13Options/SARs exercised
    
    
    
    
    
    
    Options/SARs forfeited/expired
    
    
    (173,967
    )
    
    
    22.07Options/SARs outstanding at September 30, 2009
    
    
    1,246,466
    
    
    $
    20.24
    
    
    
    5.3Options/SARs exercisable at September 30, 2009
    
    
    1,067,119
    
    
    $
    20.72
    
    
    
    4.8
    Weighted-AverageGrant-DateShares
    
    
    Fair ValueRestricted shares outstanding, December 31, 2008
    
    
    179,613
    
    
    $
    17.57Shares granted
    
    
    241,750Shares vested
    
    
    (59,300
    )Shares forfeited
    
    
    (44,150
    )Restricted shares outstanding, September 30, 2009
    
    
    317,913
    
    
    $
    5.10
     17




---



##### Table of Contents



BANK OWNED LIFE INSURANCE
  NOTE 2. EARNINGS PER SHARE
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    (19,735
    )
    
    $
    (33,327
    )
    
    $
    (96,260
    )
    
    $
    (29,253
    )Preferred dividends and discount accretion
    
    
    (1,117
    )
    
    
    
    
    
    
    (2,669
    )
    
    
    Net income (loss) available to common shareholders
    
    $
    (20,852
    )
    
    $
    (33,327
    )
    
    $
    (98,929
    )
    
    $
    (29,253
    )Weighted average shares outstanding  Basic
    
    
    20,706,560
    
    
    
    20,567,252
    
    
    
    20,713,301
    
    
    
    20,552,567Incremental shares related to stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average shares outstanding  Diluted
    
    
    20,706,560
    
    
    
    20,567,252
    
    
    
    20,713,301
    
    
    
    20,552,567Earnings (Loss) per share  Basic
    
    $
    (1.01
    )
    
    $
    (1.62
    )
    
    $
    (4.78
    )
    
    $
    (1.42
    )Effect of incremental shares related to stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Earnings (Loss) per share  Diluted
    
    $
    (1.01
    )
    
    $
    (1.62
    )
    
    $
    (4.78
    )
    
    $
    (1.42
    )
    NOTE 3. SECURITIES
    18




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##### Table of Contents



Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSeptember 30, 2009U.S. Government agencies
    
    $
    402
    
    
    $
    8
    
    
    $
    2
    
    
    $
    408Collateralized mortgage obligations:Agency
    
    
    113,249
    
    
    
    2,157
    
    
    
    16
    
    
    
    115,390Private label
    
    
    27,053
    
    
    
    
    
    
    
    1,446
    
    
    
    25,607Mortgage-backed securities  residential
    
    
    153,763
    
    
    
    1,425
    
    
    
    8
    
    
    
    155,180Trust preferred
    
    
    17,231
    
    
    
    
    
    
    
    7,349
    
    
    
    9,882States & political subdivisions
    
    
    25,309
    
    
    
    1,841
    
    
    
    51
    
    
    
    27,099Other securities
    
    
    8,641
    
    
    
    38
    
    
    
    5
    
    
    
    8,674Total
    
    $
    345,648
    
    
    $
    5,469
    
    
    $
    8,877
    
    
    $
    342,240
 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  residential
    
    
    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
  September 30, 2009Amortized
    
    
    FairCost
    
    
    ValueMaturityAvailable-for-saleWithin one year
    
    $
    9,299
    
    
    $
    8,948One to five years
    
    
    91,888
    
    
    
    93,103Five to ten years
    
    
    93,053
    
    
    
    94,270Beyond ten years
    
    
    151,408
    
    
    
    145,919Total
    
    $
    345,648
    
    
    $
    342,240
  19




---



##### Table of Contents



Less than 12 Months
    
    
    12 Months or More
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesSeptember 30, 2009U.S. Government agencies
    
    $
    99
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    99
    
    
    $
    2Collateralized mortgage obligations:Agency
    
    
    13,291
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    13,291
    
    
    
    16Private label
    
    
    
    
    
    
    
    
    
    
    25,607
    
    
    
    1,446
    
    
    
    25,607
    
    
    
    1,446Mortgage-backed securities  residential
    
    
    18,658
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    18,658
    
    
    
    8Trust preferred
    
    
    
    
    
    
    
    
    
    
    9,158
    
    
    
    7,349
    
    
    
    9,158
    
    
    
    7,349State & political subdivisions
    
    
    1,545
    
    
    
    11
    
    
    
    1,079
    
    
    
    40
    
    
    
    2,624
    
    
    
    51Other securities
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    5
    
    
    
    20
    
    
    
    5Total
    
    $
    33,593
    
    
    $
    37
    
    
    $
    35,864
    
    
    $
    8,840
    
    
    $
    69,457
    
    
    $
    8,877
 Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDecember 31, 2008
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Government agencies
    
    $
    125
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    125
    
    
    $
    Collateralized mortgage obligations:Agency
    
    
    43,710
    
    
    
    256
    
    
    
    31,834
    
    
    
    746
    
    
    
    75,544
    
    
    
    1,002Private Label
    
    
    20,674
    
    
    
    5,792
    
    
    
    7,936
    
    
    
    939
    
    
    
    28,610
    
    
    
    6,731Mortgage-backed
securities 
residential
    
    
    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
    
    
    $
    19,831
       20




---



##### Table of Contents



Ratings
 Issuer
    
    Ratings as of June 30, 2009
    
    Ratings as of September 30, 2009Pooled Trust Preferred CDOsPreTSL VI
    
    Caa1 (Moodys) / CCC (Fitch)
    
    Caa1 (Moodys) / CCC (Fitch)PreTSL XIV
    
    Ca (Moodys) /CC (Fitch)
    
    Ca (Moodys) /CC (Fitch)Pooled Trust Preferred CDOs (Held For Trading)Alesco 10A C1
    
    Ca (Moodys) / CC (Fitch)
    
    Ca (Moodys) / CC (Fitch)Trapeza 11A D1
    
    C (Fitch)
    
    C (Fitch)Trapeza 12A D1
    
    C (Fitch)
    
    C (Fitch)US Capital Funding
    
    Caa3 (Moodys) / CC (Fitch)
    
    Caa3 (Moodys) / CC (Fitch)Single Issue Trust PreferredBank One Cap Tr VI (JP Morgan)
    
    A1(Moodys)
    
    A1(Moodys)First Citizens Bancshares
    
    Non-Rated
    
    Non-RatedFirst Union Instit Cap I (Wells Fargo)
    
    A3(Moodys)/A-(S&P)/AA-(Fitch)
    
    A3(Moodys)/A-(S&P)/A(Fitch)*Sky Financial Cap Trust III
(Huntington)
    
    BB(S&P)
    
    B(S&P)*Private Label CMOsCWHL 2003-58 2A1
    
    Aaa(Moodys)/AAA(S&P)
    
    Aaa(Moodys)/AAA(S&P)CMSI 2004-4 A2
    
    AAA(S&P)/AAA(Fitch)
    
    AAA(S&P)/AAA(Fitch)GSR 2003-10 2A1
    
    Aaa(Moodys)/AAA(S&P)
    
    Aaa(Moodys)/AAA(S&P)RAST 2003-A15 1A1
    
    AAA(S&P)/AAA(Fitch)
    
    AAA(S&P)/AAA(Fitch)SASC 2003-31A 3A
    
    A1(Moodys)/AAA(S&P)
    
    A1(Moodys)/AAA(S&P)WFMBS 2006-8 A13
    
    B3(Moodys)/AA(Fitch)
    
    B3(Moodys)/B(Fitch)*
         21




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##### Table of Contents



Amortized
    
    
    
    
    
    
    UnrealizedSecurity
    
    Par
    
    
    Cost
    
    
    Market
    
    
    gain/(loss)Pooled Trust Preferred CDOs (AFS)PreTSL VI Class B
    
    $
    1,038
    
    
    $
    724
    
    
    $
    724
    
    
    $
    PreTSL XIV Class B1
    
    
    2,500
    
    
    
    2,500
    
    
    
    1,292
    
    
    
    (1,208
    )CDOs AFS subtotal
    
    $
    3,538
    
    
    $
    3,224
    
    
    $
    2,016
    
    
    $
    (1,208
    )Pooled Trust Preferred CDOs (Trading)Alesco Preferred Funding 10A C1
    
    
    8,253
    
    
    
    
    
    
    
    41
    
    
    
    Trapeza 11A D1
    
    
    7,930
    
    
    
    
    
    
    
    20
    
    
    
    Trapeza 12A D1
    
    
    6,080
    
    
    
    
    
    
    
    31
    
    
    
    US Capital Funding V Class B1
    
    
    3,021
    
    
    
    
    
    
    
    30
    
    
    
    CDOs Trading subtotal
    
    $
    25,284
    
    
    $
    
    
    
    $
    122
    
    
    $
    
  22




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##### Table of Contents



Total
    
    
    Collateral
    
    
    Percentage ofNumber
    
    
    Number
    
    
    Number
    
    
    remaining
    
    
    balance for
    
    
    class to totalSecurity
    
    of issuers
    
    
    of deferrals
    
    
    of defaults
    
    
    collateral
    
    
    our class
    
    
    collateralPooled Trust Preferred CDOs (AFS)PreTSL VI Class B
    
    
    5
    
    
    
    1
    
    
    
    0
    
    
    $
    40,750
    
    
    $
    25,946
    
    
    
    63.7
    %PreTSL XIV Class B1
    
    
    65
    
    
    
    12
    
    
    
    2
    
    
    
    477,350
    
    
    
    117,000
    
    
    
    24.5
    %Pooled Trust Preferred CDOs (Trading)Alesco Preferred Funding 10A C1
    
    
    85
    
    
    
    11
    
    
    
    9
    
    
    
    950,000
    
    
    
    101,832
    
    
    
    10.7
    %Trapeza 11A D1
    
    
    58
    
    
    
    5
    
    
    
    7
    
    
    
    505,000
    
    
    
    23,790
    
    
    
    4.7
    %Trapeza 12A D1
    
    
    50
    
    
    
    6
    
    
    
    6
    
    
    
    500,000
    
    
    
    15,200
    
    
    
    3.0
    %US Capital Funding V Class B1
    
    
    44
    
    
    
    12
    
    
    
    7
    
    
    
    353,909
    
    
    
    48,330
    
    
    
    13.7
    %
 Amortized
    
    
    
    
    
    
    UnrealizedSecurity
    
    Par
    
    
    Cost
    
    
    Market
    
    
    gain/(loss)Single Issue Trust Preferred (AFS)Bank One Cap Tr VI (JP Morgan)
    
    $
    1,000
    
    
    $
    1,000
    
    
    $
    990
    
    
    $
    (10
    )First Citizens Bancshares
    
    
    5,000
    
    
    
    5,018
    
    
    
    1,500
    
    
    
    (3,518
    )First Union Instit Cap I (Wells Fargo)
    
    
    3,000
    
    
    
    2,989
    
    
    
    2,876
    
    
    
    (113
    )Sky Financial Cap Trust III (Huntington)
    
    
    5,000
    
    
    
    5,000
    
    
    
    2,500
    
    
    
    (2,500
    )Trust Preferred subtotal
    
    $
    14,000
    
    
    $
    14,007
    
    
    $
    7,866
    
    
    $
    (6,141
    )Private Label CMOsCWHL 2003-58 2A1
    
    $
    3,047
    
    
    $
    3,047
    
    
    $
    2,712
    
    
    $
    (335
    )CMSI 2004-4 A2
    
    
    1,589
    
    
    
    1,545
    
    
    
    1,571
    
    
    
    26GSR 2003-10 2A1
    
    
    7,969
    
    
    
    7,894
    
    
    
    7,649
    
    
    
    (245
    )RAST 2003-A15 1A1
    
    
    5,651
    
    
    
    5,673
    
    
    
    5,333
    
    
    
    (340
    )SASC 2003-31A 3A
    
    
    6,139
    
    
    
    6,148
    
    
    
    5,764
    
    
    
    (384
    )WFMBS 2006-8 A13
    
    
    2,759
    
    
    
    2,746
    
    
    
    2,578
    
    
    
    (168
    )Private Label CMOs Total
    
    $
    27,154
    
    
    $
    27,053
    
    
    $
    25,607
    
    
    $
    (1,446
    )
  Amount of OTTI related to credit loss at April 1, 2009
    
    $
    10,531Addition
    
    
    20,314Amount of OTTI related to credit loss at June 30, 2009
    
    
    30,845Addition
    
    
    Amount of OTTI related to credit loss at September 30, 2009
    
    $
    30,845
  23




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##### Table of Contents



NOTE 4. ALLOWANCE FOR LOAN LOSSES
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Beginning balance
    
    $
    82,309
    
    
    $
    31,780
    
    
    $
    64,437
    
    
    $
    27,261Loans charged off
    
    
    (22,396
    )
    
    
    (8,456
    )
    
    
    (69,226
    )
    
    
    (14,337
    )Recoveries
    
    
    538
    
    
    
    464
    
    
    
    1,310
    
    
    
    1,227Provision for loan losses
    
    
    18,913
    
    
    
    17,978
    
    
    
    82,843
    
    
    
    27,615Ending balance
    
    $
    79,364
    
    
    $
    41,766
    
    
    $
    79,364
    
    
    $
    41,766Percent of total loans
    
    
    3.60
    %
    
    
    1.70
    %
    
    
    3.60
    %
    
    
    1.70
    %Annualized % of average loans:Net charge-offs
    
    
    3.74
    %
    
    
    1.31
    %
    
    
    3.80
    %
    
    
    0.74
    %Provision for loan losses
    
    
    3.24
    %
    
    
    2.94
    %
    
    
    4.63
    %
    
    
    1.55
    %
       September 30,
    
    
    December 31,2009
    
    
    2008Nonaccrual loans
    
    $
    185,558
    
    
    $
    150,00290 days or more past due loans
    
    
    4,339
    
    
    
    897Total non-performing loans
    
    
    189,897
    
    
    
    150,899Other real estate owned
    
    
    26,435
    
    
    
    19,396Total non-performing assets
    
    $
    216,332
    
    
    $
    170,295Ratios:Non-performing Loans to Loans
    
    
    8.61
    %
    
    
    6.06
    %Non-performing Assets to Loans and Other Real Estate Owned
    
    
    9.69
    %
    
    
    6.79
    %Allowance for Loan Losses to Non-performing Loans
    
    
    41.79
    %
    
    
    42.70
    %
  24




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##### Table of Contents



NOTE 5. BRANCH DIVESTITURES AND LOAN SALES
      NOTE 6. DEPOSITS
  2009
    
    $
    306,4482010
    
    
    546,0622011
    
    
    188,2172012
    
    
    31,7822013 and thereafter
    
    
    41,588Total
    
    $
    1,114,097
  NOTE 7. INCOME TAXES
      25




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##### Table of Contents




    
    Earnings forecasts were prepared for the remainder of 2009 through 2012. These
forecasts include projections of net interest income that are obtained from our
asset/liability management model as well as projections of credit related information that
are obtained from our Chief Credit and Risk Officer. The credit related information
includes estimates of specific and general reserves for the provision for loan losses,
non-performing loans and assets, net charge-offs and the allowance for loan losses as a
percentage of both total and non-performing loans.
 
    
    Non-interest income and expense forecasts were updated quarterly as part of our regular
rolling four quarter reforecast process, as were estimates of earning asset balances and
the liabilities that fund them.
 
    
    The income before tax amounts were discounted by 15% to reflect the uncertainty
contained in the projections. We arrived at this discount amount earlier in 2009 after
reviewing the risk of further adverse developments in asset quality in our loan and
investment security portfolios. We then combined the adjusted income before tax amount
with anticipated permanent and timing differences to determine projected taxable income.
We assumed pretax income would increase 4.25% after 2012.
 
    
    The valuation allowance was computed as the total of all of the tax credits included in
our deferred income tax inventory, plus net operating loss carryforwards.
   
    
    We recognized OTTI charges of $21,484 during the first nine months of 2009, while none
was originally forecast at December 31, 2008. We did not anticipate the extent of
deterioration experienced by some of the trust preferred securities we hold, all of which
are tied to the financial results of other financial institutions, specifically as
evidenced by the increasing number of deferrals and defaults on those securities. The OTTI
charges were partially offset by securities gains of $8,057.
 
    
    We charged off our $17,500 loan to Peoples Community Bancorp Inc. (Peoples) due to
developments since January 1, 2009. A total of $17,000 was charged off during the second
quarter of 2009, with $8,250 of the related provision expense occurring in the same
quarter, while the remainder was charged off during the third quarter.
  26




---



##### Table of Contents




    
    The majority of the remainder of the excess of our net loss before tax over our
projected loss is within the provision for loan losses, especially in the portion of the
allowance determined by using the principles of SFAS 5, Accounting for Contingencies, or
the FAS 5 reserve. That portion of the allowance has increased more than anticipated
during 2009 as the macro economic factors we utilize in its preparation, in particular real
estate values and unemployment rates, have deteriorated more severely than we anticipated.
Higher than expected specific reserves and charge-offs for loans in our Chicago and
commercial real estate portfolios have also resulted in a higher than expected provision.
A higher than anticipated level of non-performing assets has also led to higher loan and
other real estate owned expenses than we expected.
 
    
    Warrant fair value adjustments totaling $6,145 were recorded during the six months ended
June 30, 2009. These adjustments are not tax deductible and were necessary only because we
had to classify the Treasury Warrant underlying the preferred shares issued to the Treasury
Department as a liability during the first and for part of the second quarters until the
number of authorized shares necessary to make the Warrant exercisable were approved by our
shareholders in the second quarter.
 
    
    Net interest income was less than the amount projected at December 31, 2008, largely due
to near historic lows in the adjustable rate indexes we use to price our earning assets,
especially one and three month LIBOR and the national prime lending rate. While declines
in LIBOR benefited us on the liability side of our balance sheet, the impact on our earning
assets was far greater and impacted us more quickly, since our balance sheet remains asset
sensitive. Additionally, the spread between 30 and 90 day LIBOR was at historic levels,
which negatively impacted us as our LIBOR based assets tend to be based on 30 day LIBOR and
our LIBOR based liabilities tend to be based on 90 day LIBOR. Our forecasts assume some
increases in our net interest margin for the foreseeable future from increases in rates and
from lower nonperforming assets. These forecasts are in part based on an increase in
interest rates beginning in the third quarter of 2010, which will benefit us since we are
asset sensitive.
  Federal
    
    
    StateBalance at September 30, 2008
    
    $
    
    
    
    $
    Addition
    
    
    
    
    
    
    3,180Balance at December 31, 2008
    
    
    
    
    
    
    3,180Addition
    
    
    4,239
    
    
    
    776Balance at March 31, 2009
    
    
    4,239
    
    
    
    3,956Addition
    
    
    13,025
    
    
    
    464Balance at June 30, 2009
    
    
    17,264
    
    
    
    4,420Addition
    
    
    6,437
    
    
    
    416Balance at September 30, 2009
    
    $
    23,701
    
    
    $
    4,836
    
    
    we have experienced net losses in each of the last six quarters, and
 
    
    we did not meet our forecasted levels of earnings in each of the first three quarters of
2009, although the difference for the third quarter of 2009 to net income before taxes was
significantly less than in the first and second quarters and totaled $2,849, and
 
    
    our intent to defer payment of dividends and distributions on our outstanding
securities; and
 
    
    forecasting the pace and amount of improvement in asset quality has been difficult,
particularly in the current macroeconomic environment, resulting in lower forecasted levels
of earnings in 2010.
  27




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##### Table of Contents




    
    To the best of our knowledge, we have never had a credit or net operating loss expire.
    
    Our core community banking franchise, exclusive of Chicago, has historically been
profitable and continues to be profitable and has not been affected by the current economy
to the extent our land acquisition and development and commercial real estate based lending
operations have. From 2005 to 2007, our earnings per share were $1.56, $1.11 and $1.55, a
cumulative three year total of $4.22. Our projected earnings levels in our earnings
forecast for 2010 through 2012 assume less than 15% of that three year total for this
recovery period, and then a return to more normalized earnings levels.
    
    Our valuation allowance assumes that we do not realize any of our general business tax
credit or net operating loss carryforwards, despite a 20 year carryforward period for both.
Our federal net operating loss carryforwards expire in 2029, while our state net
operating losses begin to expire in 2017.
    
    The risk of further OTTI charges has been reduced, as unrealized losses in our trust
preferred securities portfolio totaled $7,349 at September 30, 2009, down from $7,838 at
June 30, 2009. This compares to net unrealized losses in that portfolio of $14,044 at
March 31, 2009 and $10,358 at December 31, 2008. Trust preferred securities held in our
available for sale portfolio totaled $9,882 at September 30, 2009, compared to $9,393 at
June 30, 2009, $23,667 at March 31, 2009 and $28,401 at December 31, 2008. All of the OTTI
charges we have recognized since 2007 has been in our trust preferred securities portfolio.
      28




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##### Table of Contents



NOTE 8. SHORT-TERM BORROWINGS
 September 30,
    
    
    December 31,2009
    
    
    2008Federal funds purchased
    
    $
    
    
    
    $
    25,000Securities sold under agreements to repurchase
    
    
    63,011
    
    
    
    88,106Short-term Federal Home Loan Bank advances
    
    
    40,000
    
    
    
    125,000Federal Reserve Term Auction Facility (TAF) borrowings
    
    
    85,000
    
    
    
    176,900Total short-term borrowed funds
    
    $
    188,011
    
    
    $
    415,006
    29




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##### Table of Contents



NOTE 9. LONG-TERM BORROWINGS
  September 30,
    
    
    December 31,2009
    
    
    2008Federal Home Loan Bank (FHLB) AdvancesFixed maturity advances with maturities at various dates
through 2016 (weighted average rate of 2.63% and 3.02%
as of September 30, 2009 and December 31, 2008, respectively)
    
    $
    126,005
    
    
    $
    136,009Amortizing and other advances
(weighted average rate of 4.98%
as of December 31, 2008)
    
    
    
    
    
    
    706Total FHLB Advances
    
    
    126,005
    
    
    
    136,715Securities sold under repurchase agreements with maturities
at various dates through 2013 (weighted average rate of 2.11%
and 3.30% as of September 30, 2009 and December 31, 2008, respectively)
    
    
    80,000
    
    
    
    100,000Note payable, secured by equipment, with a fixed interest rate of 7.26%,
due at various dates through 2012
    
    
    2,937
    
    
    
    3,780Note payable, unsecured, with a floating interest rate equal to one-month
LIBOR plus 0.875%, with a maturity date of April 1, 2012
    
    
    
    
    
    
    18,000Subordinated 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
    
    
    
    10,310Senior unsecured debt guaranteed by FDIC under the TLGP, with a fixed
rate of 2.625%, with a maturity date of March 30, 2012
    
    
    50,000
    
    
    
    Other
    
    
    3,368
    
    
    
    3,368Total long-term borrowings
    
    $
    361,364
    
    
    $
    360,917
      30




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##### Table of Contents



NOTE 10. COMMITMENTS AND CONTINGENCIES
    September 30,
    
    
    December 31,2009
    
    
    2008Commitments to extend credit
    
    $
    504,527
    
    
    $
    684,245Standby letters of credit
    
    
    20,400
    
    
    
    22,320Non-reimbursable standby letters of credit and commitments
    
    
    1,660
    
    
    
    2,574
 NOTE 11. INTEREST RATE CONTRACTS
     31




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##### Table of Contents



September 30, 2009
    
    
    December 31, 2008Assets
    
    
    (Liabilities)
    
    
    Derivative
    
    
    Assets
    
    
    (Liabilities)
    
    
    DerivativeCarrying
    
    
    Carrying
    
    
    Net Carrying
    
    
    Carrying
    
    
    Carrying
    
    
    Net CarryingValue
    
    
    Value
    
    
    Value
    
    
    Value
    
    
    Value
    
    
    ValueDerivatives designated as
hedging instruments:Interest rate contracts
    
    $
    8,170
    
    
    $
    (8,504
    )
    
    $
    (334
    )
    
    $
    12,080
    
    
    $
    (11,835
    )
    
    $
    245Derivatives not designated
as hedging instruments:Mortgage banking derivatives
    
    
    334
    
    
    
    (5
    )
    
    
    329
    
    
    
    216
    
    
    
    (16
    )
    
    
    200
    NOTE 12. SEGMENT INFORMATION
   32




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##### Table of Contents



For three months ended September 30, 2009
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    29,172
    
    
    $
    30
    
    
    $
    29,202Interest expense
    
    
    12,304
    
    
    
    848
    
    
    
    13,152Net interest income (loss)
    
    
    16,868
    
    
    
    (818
    )
    
    
    16,050Provision for loan losses
    
    
    18,913
    
    
    
    
    
    
    
    18,913Other income
    
    
    14,770
    
    
    
    57
    
    
    
    14,827Other expense
    
    
    24,056
    
    
    
    313
    
    
    
    24,369Earnings (Loss) before income taxes
    
    
    (11,331
    )
    
    
    (1,074
    )
    
    
    (12,405
    )Income tax expense (benefit)
    
    
    2,192
    
    
    
    5,138
    
    
    
    7,330Net income (loss)
    
    $
    (13,523
    )
    
    $
    (6,212
    )
    
    $
    (19,735
    )
 For nine months ended September 30, 2009
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    94,045
    
    
    $
    99
    
    
    $
    94,144Interest expense
    
    
    40,969
    
    
    
    2,868
    
    
    
    43,837Net interest income (loss)
    
    
    53,076
    
    
    
    (2,769
    )
    
    
    50,307Provision for loan losses
    
    
    82,843
    
    
    
    
    
    
    
    82,843Other income
    
    
    15,264
    
    
    
    (5,929
    )
    
    
    9,335Other expense
    
    
    81,728
    
    
    
    1,283
    
    
    
    83,011Earnings (Loss) before income taxes
    
    
    (96,231
    )
    
    
    (9,981
    )
    
    
    (106,212
    )Income tax expense (benefit)
    
    
    (14,078
    )
    
    
    4,126
    
    
    
    (9,952
    )Net income (loss)
    
    $
    (82,153
    )
    
    $
    (14,107
    )
    
    $
    (96,260
    )Segment assets
    
    $
    3,251,530
    
    
    $
    6,795
    
    
    $
    3,258,325
 For three months ended September 30, 2008
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    42,253
    
    
    $
    52
    
    
    $
    42,305Interest expense
    
    
    16,865
    
    
    
    1,580
    
    
    
    18,445Net interest income (loss)
    
    
    25,388
    
    
    
    (1,528
    )
    
    
    23,860Provision for loan losses
    
    
    17,978
    
    
    
    
    
    
    
    17,978Other income
    
    
    10,120
    
    
    
    64
    
    
    
    10,184Other expense
    
    
    71,843
    
    
    
    344
    
    
    
    72,187Earnings (Loss) before income taxes
    
    
    (54,313
    )
    
    
    (1,808
    )
    
    
    (56,121
    )Income tax expense (benefit)
    
    
    (22,118
    )
    
    
    (676
    )
    
    
    (22,794
    )Net income (loss)
    
    $
    (32,195
    )
    
    $
    (1,132
    )
    
    $
    (33,327
    )
 For nine months ended September 30, 2008
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    132,486
    
    
    $
    170
    
    
    $
    132,656Interest expense
    
    
    54,981
    
    
    
    5,131
    
    
    
    60,112Net interest income (loss)
    
    
    77,505
    
    
    
    (4,961
    )
    
    
    72,544Provision for loan losses
    
    
    27,615
    
    
    
    
    
    
    
    27,615Other income
    
    
    23,700
    
    
    
    230
    
    
    
    23,930Other expense
    
    
    119,613
    
    
    
    872
    
    
    
    120,485Earnings (Loss) before income taxes
    
    
    (46,023
    )
    
    
    (5,603
    )
    
    
    (51,626
    )Income tax expense (benefit)
    
    
    (20,265
    )
    
    
    (2,108
    )
    
    
    (22,373
    )Net income (loss)
    
    $
    (25,758
    )
    
    $
    (3,495
    )
    
    $
    (29,253
    )Segment assets
    
    $
    3,343,706
    
    
    $
    13,136
    
    
    $
    3,356,842
  33




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##### Table of Contents



NOTE 13. REGULATORY CAPITAL
    Regulatory Guidelines
    
    
    ActualMinimum
    
    
    Well-
    
    
    September 30,
    
    
    December 31,Requirements
    
    
    Capitalized
    
    
    2009
    
    
    2008Integra Bank Corporation:Total Capital (to Risk-Weighted Assets)
    
    
    8.00
    %
    
    
    N/A
    
    
    
    10.44
    %
    
    
    9.75
    %Tier 1 Capital (to Risk-Weighted Assets)
    
    
    4.00
    %
    
    
    N/A
    
    
    
    8.21
    %
    
    
    7.68
    %Tier 1 Capital (to Average Assets)
    
    
    4.00
    %
    
    
    N/A
    
    
    
    6.06
    %
    
    
    6.41
    %Integra Bank N.A.:Total Capital (to Risk-Weighted Assets)
    
    
    8.00
    %
    
    
    10.00
    %
    
    
    10.20
    %
    
    
    10.07
    %Tier 1 Capital (to Risk-Weighted Assets)
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    8.92
    %
    
    
    8.81
    %Tier 1 Capital (to Average Assets)
    
    
    4.00
    %
    
    
    5.00
    %
    
    
    6.61
    %
    
    
    7.37
    %
  
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 INTRODUCTION
   OVERVIEW
   34




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##### Table of Contents




    
    developing and implementing a staffing plan for the loan work-out department;
    
    adopting, implementing and adhering to a written program to reduce criticized assets;
    
    conducting robust guarantor analyses for certain commercial and industrial loans and
commercial real estate loans;
    
    enhancing the loan management information system to allow for split classifications for
portions of single credits;
    
    establishing a process to identify and correct the root causes of untimely
identification of problem credits by relationship managers; and
    
    revising and maintaining a comprehensive liquidity risk management program which
assesses the Banks current and projected funding needs.
       35




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##### Table of Contents



36




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##### Table of Contents




    
    improving our regulatory capital levels;
    
    stabilizing and then improving our credit profile (as measured by non-performing
assets);
    
    returning to profitability;
    
    growing core deposits faster than loans;
    
    improving our efficiency, primarily through continued execution of our profit
improvement program and ongoing expense management; and
    
    enhancing liquidity at the parent company level by suspending dividends and
distributions on our outstanding securities.
 CRITICAL ACCOUNTING POLICIES
   NET INTEREST INCOME
   37




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##### Table of Contents




    
    Average loan yields decreased 152 basis points to 4.18% for the quarter ended September
30, 2009, from 5.70% in the quarter ended September 30, 2008, led by a decrease in
commercial loan yields, including loan fees of 174 basis points to 3.62%. Commercial loan
yields fell as loans repriced in response to declines in prime and LIBOR. At September 30,
2009, approximately 38% of our variable rate loans are tied to prime, 52% to LIBOR and 10%
to other floating rate indices. During the twelve months ended September 30, 2009, the
national prime lending rate declined 175 basis points, while one and three month LIBOR
declined 376 and 387 basis points, respectively. Approximately 60% of our loans were
variable rate at September 30, 2009. Commercial loan yields also declined in large part
because of the increase in non-performing loans we experienced during the past four
quarters. The impact of total non-performing assets on the net interest margin has
increased since early 2008, and was 44 basis points for the third quarter of 2009.
 
    
    Changes in our earning asset mix adversely impacted both the net interest margin and net
interest income, as average balances for higher yielding earning assets have declined more
quickly than lower yielding assets. Total average commercial loan balances decreased
$30,444, or 1.7% from the year ago quarter, while the average balance of higher yielding
residential mortgage loan balances decreased $57,257, or 25.0%, as did the average balance
of higher yielding securities, which decreased $174,878, or 31.1%. The higher percentage
of commercial loans positively impacted our net interest margin for the first part of 2008,
but has negatively impacted it since then reflecting the declines in prime and LIBOR rates
and higher average balances of non-accrual loans. Total commercial loan average balances
represented 62.6% of total earning assets in the third quarter of 2009, up from 58.5% for
the third quarter of 2008. The 174 basis point decline in commercial loan yields for the
third quarter of 2009 outpaced declines in more stable residential mortgage loans and
securities yields of 67 and 70 basis points, respectively. In addition, we took steps to
increase our liquidity and as a result, average cash and cash equivalent balances increased
by $337,314. The increase in these cash reserves also had a negative impact on the net
interest margin.
 
    
    The decline in interest rates throughout the second half of 2008 and the first nine
months of 2009 resulted in lower liabilities costs. The average rate paid on interest
bearing liabilities was 1.86% for the third quarter of 2009, a 81 basis point decline from
the third quarter of 2008. Time deposit rates declined 79 basis points and money market
rates declined 78 basis points. Savings deposit rates increased 35 basis points, leading
to higher average balances. The average rate paid on sources of funds other than time and
transaction deposits, which include repurchase agreements, Federal Home Loan Bank or FHLB
advances and other sources, decreased from 3.18% to 1.92% for the quarter ended September
30, 2009, as compared to the quarter ended September 30, 2008. Changes in funding sources
included borrowings under the Federal Reserves Term Auction Facility, or TAF, which
averaged $83,370 during the third quarter of 2009 compared to none during the third quarter
of 2008, the borrowing we executed in the first quarter of 2009 of $50,000 under the FDICs
Temporary Loan Guaranty Program, or TLGP, and increases in savings and time deposit average
balances of $214,924 and $30,148. These increases were partially offset by declines in
FHLB advances of $131,135, money market deposits of $63,687, federal funds purchased of
$55,880, and repurchase agreements of $44,916.
  38




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##### Table of Contents



2009
    
    
    2008Average
    
    
    Interest
    
    
    Yield/
    
    
    Average
    
    
    Interest
    
    
    Yield/For Three Months Ended September 30,
    
    Balances
    
    
    & Fees
    
    
    Cost
    
    
    Balances
    
    
    & Fees
    
    
    CostEARNING ASSETS:Short-term investments
    
    $
    46,270
    
    
    $
    272
    
    
    
    2.33
    %
    
    $
    8,726
    
    
    $
    26
    
    
    
    1.21
    %Loans held for sale
    
    
    8,977
    
    
    
    89
    
    
    
    3.97
    %
    
    
    5,460
    
    
    
    88
    
    
    
    6.46
    %Securities
    
    
    386,384
    
    
    
    4,257
    
    
    
    4.42
    %
    
    
    561,511
    
    
    
    7,192
    
    
    
    5.12
    %Regulatory Stock
    
    
    29,137
    
    
    
    337
    
    
    
    4.63
    %
    
    
    29,182
    
    
    
    385
    
    
    
    5.27
    %Loans
    
    
    2,319,141
    
    
    
    24,669
    
    
    
    4.18
    %
    
    
    2,434,064
    
    
    
    35,267
    
    
    
    5.70
    %Total earning assets
    
    
    2,789,909
    
    
    $
    29,624
    
    
    
    4.22
    %
    
    
    3,038,943
    
    
    $
    42,958
    
    
    
    5.63
    %Allowance for loan loss
    
    
    (81,746
    )
    
    
    
    
    
    
    
    
    
    
    (33,023
    )Other non-earning assets
    
    
    641,296
    
    
    
    
    
    
    
    
    
    
    
    371,341TOTAL ASSETS
    
    $
    3,349,459
    
    
    
    
    
    
    
    
    
    
    $
    3,377,261INTEREST-BEARING LIABILITIES:DepositsSavings and interest-bearing demand
    
    $
    772,901
    
    
    $
    1,684
    
    
    
    0.86
    %
    
    $
    566,259
    
    
    $
    1,275
    
    
    
    0.90
    %Money market accounts
    
    
    303,573
    
    
    
    943
    
    
    
    1.23
    %
    
    
    367,260
    
    
    
    1,855
    
    
    
    2.01
    %Certificates of deposit and other time
    
    
    1,157,820
    
    
    
    7,729
    
    
    
    2.65
    %
    
    
    1,127,672
    
    
    
    9,758
    
    
    
    3.44
    %Total
interest-bearing
deposits
    
    
    2,234,294
    
    
    
    10,356
    
    
    
    1.84
    %
    
    
    2,061,191
    
    
    
    12,888
    
    
    
    2.49
    %Short-term borrowings
    
    
    203,646
    
    
    
    268
    
    
    
    0.52
    %
    
    
    326,742
    
    
    
    1,995
    
    
    
    2.39
    %Long-term borrowings
    
    
    366,917
    
    
    
    2,528
    
    
    
    2.70
    %
    
    
    358,859
    
    
    
    3,562
    
    
    
    3.88
    %Total interest-bearing liabilities
    
    
    2,804,857
    
    
    $
    13,152
    
    
    
    1.86
    %
    
    
    2,746,792
    
    
    $
    18,445
    
    
    
    2.67
    %Non-interest bearing deposits
    
    
    286,154
    
    
    
    
    
    
    
    
    
    
    
    283,836Other noninterest-bearing liabilities and
shareholders equity
    
    
    258,448
    
    
    
    
    
    
    
    
    
    
    
    346,633TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    3,349,459
    
    
    
    
    
    
    
    
    
    
    $
    3,377,261Interest income/earning assets
    
    
    
    
    
    $
    29,624
    
    
    
    4.22
    %
    
    
    
    
    
    $
    42,958
    
    
    
    5.63
    %Interest expense/earning assets
    
    
    
    
    
    
    13,152
    
    
    
    1.87
    %
    
    
    
    
    
    
    18,445
    
    
    
    2.41
    %Net interest income/earning assets
    
    
    
    
    
    $
    16,472
    
    
    
    2.35
    %
    
    
    
    
    
    $
    24,513
    
    
    
    3.22
    %
     39




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##### Table of Contents



2009
    
    
    2008Average
    
    
    Interest
    
    
    Yield/
    
    
    Average
    
    
    Interest
    
    
    Yield/For Nine Months Ended September 30,
    
    Balances
    
    
    & Fees
    
    
    Cost
    
    
    Balances
    
    
    & Fees
    
    
    CostEARNING ASSETS:Short-term investments
    
    $
    15,948
    
    
    $
    539
    
    
    
    4.52
    %
    
    $
    6,675
    
    
    $
    94
    
    
    
    1.89
    %Loans held for sale
    
    
    9,274
    
    
    
    319
    
    
    
    4.59
    %
    
    
    5,969
    
    
    
    281
    
    
    
    6.28
    %Securities
    
    
    487,110
    
    
    
    17,570
    
    
    
    4.81
    %
    
    
    602,611
    
    
    
    23,245
    
    
    
    5.14
    %Regulatory Stock
    
    
    29,143
    
    
    
    1,015
    
    
    
    4.64
    %
    
    
    29,181
    
    
    
    1,170
    
    
    
    5.34
    %Loans
    
    
    2,392,606
    
    
    
    76,328
    
    
    
    4.23
    %
    
    
    2,381,814
    
    
    
    109,924
    
    
    
    6.09
    %Total earning assets
    
    
    2,934,081
    
    
    $
    95,771
    
    
    
    4.36
    %
    
    
    3,026,250
    
    
    $
    134,714
    
    
    
    5.94
    %Allowance for loan loss
    
    
    (76,661
    )
    
    
    
    
    
    
    
    
    
    
    (30,212
    )Other non-earning assets
    
    
    596,450
    
    
    
    
    
    
    
    
    
    
    
    378,329TOTAL ASSETS
    
    $
    3,453,870
    
    
    
    
    
    
    
    
    
    
    $
    3,374,367INTEREST-BEARING LIABILITIES:DepositsSavings and interest-bearing demand
    
    $
    700,643
    
    
    $
    4,791
    
    
    
    0.91
    %
    
    $
    555,788
    
    
    $
    3,715
    
    
    
    0.89
    %Money market accounts
    
    
    321,987
    
    
    
    3,289
    
    
    
    1.37
    %
    
    
    383,152
    
    
    
    6,661
    
    
    
    2.32
    %Certificates of deposit and other time
    
    
    1,222,809
    
    
    
    26,222
    
    
    
    2.87
    %
    
    
    1,107,482
    
    
    
    31,755
    
    
    
    3.83
    %Total
interest-bearing
deposits
    
    
    2,245,439
    
    
    
    34,302
    
    
    
    2.04
    %
    
    
    2,046,422
    
    
    
    42,131
    
    
    
    2.75
    %Short-term borrowings
    
    
    271,951
    
    
    
    1,614
    
    
    
    0.78
    %
    
    
    311,886
    
    
    
    6,116
    
    
    
    2.58
    %Long-term borrowings
    
    
    369,878
    
    
    
    7,921
    
    
    
    2.82
    %
    
    
    378,140
    
    
    
    11,865
    
    
    
    4.12
    %Total interest-bearing liabilities
    
    
    2,887,268
    
    
    $
    43,837
    
    
    
    2.03
    %
    
    
    2,736,448
    
    
    $
    60,112
    
    
    
    2.94
    %Non-interest bearing deposits
    
    
    291,005
    
    
    
    
    
    
    
    
    
    
    
    280,754Other noninterest-bearing liabilities and
shareholders equity
    
    
    275,597
    
    
    
    
    
    
    
    
    
    
    
    357,165TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    3,453,870
    
    
    
    
    
    
    
    
    
    
    $
    3,374,367Interest income/earning assets
    
    
    
    
    
    $
    95,771
    
    
    
    4.36
    %
    
    
    
    
    
    $
    134,714
    
    
    
    5.94
    %Interest expense/earning assets
    
    
    
    
    
    
    43,837
    
    
    
    2.00
    %
    
    
    
    
    
    
    60,112
    
    
    
    2.65
    %Net interest income/earning assets
    
    
    
    
    
    $
    51,934
    
    
    
    2.36
    %
    
    
    
    
    
    $
    74,602
    
    
    
    3.29
    %
     40




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##### Table of Contents



NON-INTEREST INCOME
  
    
    The third quarter of 2009 included trading losses of $1,237, compared to none during the
third quarter of 2008. These losses included a loss of $1,268 on a Colonial BancGroup
trust preferred CDO, on which we had previously taken OTTI charges of $5,656 during the
second quarter of 2009. The security was sold during the third quarter of 2009.
 
    
    Deposit service charges declined $549, or 9.33% for the third quarter of 2009, in part
due to the sale of five banking centers during the first quarter of 2009, including $50,796
of deposits.
 
    
    Bank owned life insurance includes a loss on the transfer of $63,150 of our bank owned
life insurance to bank owned life insurance held for surrender or sale. During the third
quarter of 2009, we evaluated the potential sale or surrender of our policies, primarily
for the purposes of reducing regulatory higher risk-weighted assets and improving our
regulatory capital ratios. In October 2009, we made the decision to sell $40,048 of these
policies and to surrender $23,102 of them. As a result, we recorded the expected loss on
sale of $788, as well as an estimate of the surrender penalty of $241 at September 30,
2009. The penalty was recorded in tax expense and cannot be offset by a net operating
loss. We also recorded tax expense totaling $5,603 on the taxable gain on sale and the
taxable gain on the surrender.
   NON-INTEREST EXPENSE
  
    
    FDIC insurance premiums increased $1,558 to $1,721, as rates charged by the FDIC
increased substantially, our insured deposit balances increased and our one-time credit was
fully utilized during the first quarter of 2009.
 
    
    Loan and other real estate owned expenses increased $1,675 to $2,545, as writedowns
taken on other real estate owned properties increased $1,860 to $2,179 during the third
quarter of 2009. Loan expenses include loan collection costs, costs incurred to maintain
other real estate owned and deferred origination costs. The primary component of the loan
collection and real estate owned collection costs are the accrual of real estate taxes for
properties we own or for properties securing non-performing loans.
 
    
    Personnel expense declined $1,938, or 16.0%. The decrease included declines in salaries
of $1,133, or 12.5%, 401(k) plan expense of $302, medical insurance of $253, or 27.3%, and
incentives of $213, or 36.8%. The decline in salaries is due to the sale of five banking
centers in the first quarter of 2009, as well as a reduction in work force that occurred
during the second and third quarters of 2009 as part of our profit improvement program.
The reduction in 401(k) plan expense reflects the suspension of our matching 401(k)
contribution in an effort to control personnel expense.
 
    
    Low income housing project operating losses declined $395, or 71.1%, as actual losses
were less than those projected in earlier periods.
 
    
    Professional fees increased $309, or 22.2%, consisting of higher legal fees of $340,
offset by net decreases in other areas.
 
    
    Occupancy and equipment
expenses declined $273, or 10.4%, and $225, or 23.1%,
respectively, in part due to the first quarter sale of five banking centers and also due to
a lower level of capital expenditures.
   41




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##### Table of Contents



INCOME TAX EXPENSE (BENEFIT)
    FINANCIAL POSITION
  SECURITIES
   REGULATORY STOCK
  LOANS HELD FOR SALE
  LOANS
    42




---



##### Table of Contents



43




---



##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008Commercial, industrial and
agricultural loans
    
    $
    599,951
    
    
    $
    748,446Economic development loans and
other obligations of state and
political subdivisions
    
    
    26,574
    
    
    
    24,502Lease financing
    
    
    5,524
    
    
    
    5,397Total commercial
    
    
    632,049
    
    
    
    778,345Commercial real estateCommercial mortgages
    
    
    558,886
    
    
    
    436,336Construction and development
    
    
    456,334
    
    
    
    641,460Total commercial real estate
    
    
    1,015,220
    
    
    
    1,077,796Residential mortgages
    
    
    252,025
    
    
    
    309,397Home equity
    
    
    171,345
    
    
    
    171,241Consumer loans
    
    
    135,022
    
    
    
    153,464Total loans
    
    $
    2,205,661
    
    
    $
    2,490,243
  44




---



##### Table of Contents



ASSET QUALITY
       45




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Beginning balance
    
    $
    82,309
    
    
    $
    31,780
    
    
    $
    64,437
    
    
    $
    27,261Loans charged off
    
    
    (22,396
    )
    
    
    (8,456
    )
    
    
    (69,226
    )
    
    
    (14,337
    )Recoveries
    
    
    538
    
    
    
    464
    
    
    
    1,310
    
    
    
    1,227Provision for loan losses
    
    
    18,913
    
    
    
    17,978
    
    
    
    82,843
    
    
    
    27,615Ending balance
    
    $
    79,364
    
    
    $
    41,766
    
    
    $
    79,364
    
    
    $
    41,766Percent of total loans
    
    
    3.60
    %
    
    
    1.70
    %
    
    
    3.60
    %
    
    
    1.70
    %Annualized % of average loans:Net charge-offs
    
    
    3.74
    %
    
    
    1.31
    %
    
    
    3.80
    %
    
    
    0.74
    %Provision for loan losses
    
    
    3.24
    %
    
    
    2.94
    %
    
    
    4.63
    %
    
    
    1.55
    %
      46




---



##### Table of Contents




    
    We continue to obtain new appraisals on properties securing our commercial real estate
non-performing loans and have used those appraisals to help determine the need for and
amount of specific reserves within the allowance for loan losses. As new appraisals are
received on properties securing non-performing loans, charge-offs are recognized, and
specific reserves are adjusted as appropriate. In addition, we are continuing to order new
or updated appraisals for other CRE loans as warranted.
 
    
    We reorganized our Chicago staff and have dedicated additional resources to reducing
the Chicago portfolio.
 
    
    We shifted the credit analysis effort for our Chicago portfolio from Chicago to our
centralized Business Service Center in Evansville.
 
    
    We discontinued pursuing new CRE opportunities, regardless of property type. In
addition, we offered a discount to some of our commercial real estate customers in exchange
for early repayment in an effort to reduce our commercial real estate balances.
 
    
    We instituted a new 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. The frequency of these reviews depends upon the portfolio with reviews of the
commercial real estate portfolio conducted most frequently.
 
    
    We implemented other policy and process changes, including actions to reduce our
concentration risk, as well as tightening our loan underwriting and approval standards and
processes.
  47




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##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008Nonaccrual loans
    
    $
    185,558
    
    
    $
    150,00290 days or more past due loans
    
    
    4,339
    
    
    
    897Total non-performing loans
    
    
    189,897
    
    
    
    150,899Other real estate owned
    
    
    26,435
    
    
    
    19,396Total non-performing assets
    
    $
    216,332
    
    
    $
    170,295Ratios:Non-performing Loans to Loans
    
    
    8.61
    %
    
    
    6.06
    %Non-performing Assets to Loans and Other Real Estate Owned
    
    
    9.69
    %
    
    
    6.79
    %Allowance for Loan Losses to Non-performing Loans
    
    
    41.79
    %
    
    
    42.70
    %
 DEPOSITS
   SHORT-TERM BORROWINGS
   LONG-TERM BORROWINGS
   CAPITAL EXPENDITURES
  OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS
   48




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September 30,
    
    
    December 31,2009
    
    
    2008Commitments to extend credit
    
    $
    504,527
    
    
    $
    684,245Standby letters of credit
    
    
    20,400
    
    
    
    22,320Non-reimbursable standby letters of credit and commitments
    
    
    1,660
    
    
    
    2,574
  CAPITAL RESOURCES AND LIQUIDITY
    Regulatory Guidelines
    
    
    ActualMinimum
    
    
    Well-
    
    
    September 30,
    
    
    December 31,Requirements
    
    
    Capitalized
    
    
    2009
    
    
    2008Integra Bank Corporation:Total Capital (to Risk-Weighted Assets)
    
    
    8.00
    %
    
    
    N/A
    
    
    
    10.44
    %
    
    
    9.75
    %Tier 1 Capital (to Risk-Weighted Assets)
    
    
    4.00
    %
    
    
    N/A
    
    
    
    8.21
    %
    
    
    7.68
    %Tier 1 Capital (to Average Assets)
    
    
    4.00
    %
    
    
    N/A
    
    
    
    6.06
    %
    
    
    6.41
    %Integra Bank N.A.:Total Capital (to Risk-Weighted Assets)
    
    
    8.00
    %
    
    
    10.00
    %
    
    
    10.20
    %
    
    
    10.07
    %Tier 1 Capital (to Risk-Weighted Assets)
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    8.92
    %
    
    
    8.81
    %Tier 1 Capital (to Average Assets)
    
    
    4.00
    %
    
    
    5.00
    %
    
    
    6.61
    %
    
    
    7.37
    %
    49




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##### Table of Contents




    
    Continuing to reduce risk weighted assets through delevering through reduction of
targeted loans and bank owned life insurance;
 
    
    Selling non core assets, including branches;
 
    
    Improving our level of earnings;
 
    
    Reducing construction and development and CRE lending;
 
    
    Conserving cash by suspending cash dividends on common and preferred stock and
deferring distributions on our trust preferred securities; and
 
    
    Issuing new capital in an opportunistic basis.
        50




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##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
      51




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##### 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 pointsSeptember 30, 2009
    
    
    -10.58
    %
    
    
    -4.46
    %
    
    
    10.42
    %December 31, 2008
    
    
    -12.63
    %
    
    
    -5.72
    %
    
    
    4.35
    %
 Economic Value of Equity (EVE).
   Estimated Change in EVE from the Base Interest Rate Scenario-200 basis points
    
    
    -100 basis points
    
    
    +200 basis pointsSeptember 30, 2009
    
    
    -6.46
    %
    
    
    -3.30
    %
    
    
    1.60
    %December 31, 2008
    
    
    -13.35
    %
    
    
    -6.07
    %
    
    
    0.57
    %
   52




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##### Table of Contents



Item 4.
    
    Controls and Procedures
    53




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1.
    
    LEGAL PROCEEDINGS
  
 Item 1A.
    
    RISK FACTORS
  We Are Subject to the Risk of Additional Impairment Charges Relating to Our Securities Portfolio.
  Our Ability to Fully Utilize the Value of Our Deferred Tax Asset Is Uncertain.
  Failure to Comply With Both the Agreement With the OCC and the Memorandum of Understanding With the
Federal Reserve Bank of St. Louis May Have a Material Adverse Effect on Our Business
   We May Not Succeed in Our Efforts to Maintain Regulatory Capital at Desired Levels.
   54




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##### Table of Contents



The Impact of Pending Legislation in the Senate Could Significantly Reduce our Deposit Service
Charge Income.
   We are not paying cash dividends on our common and preferred stock and are deferring interest
payments on the junior subordinated debentures that relate to our trust preferred securities, and
we are restricted in our ability to resume such payments. The failure to resume paying dividends
and distributions on our securities may adversely affect us.
   
 Item 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 Item 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 Item 4.
    
    SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Item 5.
    
    OTHER INFORMATION
   55




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##### Table of Contents



Item 6.
    
    EXHIBITS
  10.1
    
    
    Separation and Release Agreement between the Company and Michael T. Vea dated August
28, 2009 (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K filed September 1, 2009)10.2
    
    
    Memorandum of Understanding with the Federal Reserve Board of St. Louis dated
September 16, 2009.10.3
    
    
    Form of Restricted Stock Agreement (CPP) (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K filed July 20, 2009)10.4
    
    
    Form of Restricted Stock Agreement (Employee) (incorporated by reference to Exhibit
10.2 to the Current Report on Form 8-K filed July 20, 2009)31.1
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief
Executive Officer31.2
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief
Financial Officer32
    
    
    Certification of Chief Executive Officer and Chief Financial Officer
  56




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##### Table of Contents



SIGNATURES
  INTEGRA BANK CORPORATIONBy
    /s/ Michael J. AlleyMichael J. AlleyInterim Chairman of the Board and 
Chief Executive Officer 
November 4, 2009/s/ Martin M. ZornMartin M. ZornChief Operating Officer and
Chief Financial Officer 
November 4, 2009  57




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    
    Separation and Release Agreement between the Company and Michael T. Vea dated August
28, 2009 (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K filed September 1, 2009)10.2
    
    
    Memorandum of Understanding with the Federal Reserve Board of St. Louis dated
September 16, 2009.10.3
    
    
    Form of Restricted Stock Agreement (CPP) (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K filed July 20, 2009)10.4
    
    
    Form of Restricted Stock Agreement (Employee) (incorporated by reference to Exhibit
10.2 to the Current Report on Form 8-K filed July 20, 2009)31.1
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief
Executive Officer31.2
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief
Financial Officer32
    
    
    Certification of Chief Executive Officer and Chief Financial Officer