##### 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 June 30, 2007.
 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 þ o
 o þ
  CLASS
    
    OUTSTANDING AT JULY 31, 2007(Common stock, $1.00 Stated Value)
    
    20,648,665




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##### 



INTEGRA BANK CORPORATION
 INDEX
 PAGE NO.PART I  FINANCIAL INFORMATIONItem 1. Unaudited Financial StatementsConsolidated balance sheets-
June 30, 2007 and December 31, 2006
    
    
    3Consolidated statements of income-
Three months and six months ended June 30, 2007 and 2006
    
    
    4Consolidated statements of comprehensive income-
Three months and six months ended June 30, 2007 and 2006
    
    
    5Consolidated statements of changes in shareholders equity-
Six months ended June 30, 2007
    
    
    6Consolidated statements of cash flow-
Six months ended June 30, 2007 and 2006
    
    
    7Notes to unaudited consolidated financial statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    31PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    32Item1A. Risk Factors
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities
    
    
    32Item 4. Submissions of Matters to a Vote of Security Holders
    
    
    32Item 5. Other Information
    
    
    33Item 6. Exhibits
    
    
    33Signatures
    
    
    34Exhibit 10.3Exhibit 10.4Exhibit 10.5Exhibit 10.6Exhibit 10.7Exhibit 10.8Exhibit 10.9Exhibit 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
  June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCash and due from banks
    
    $
    72,058
    
    
    $
    65,400Federal funds sold and other short-term investments
    
    
    3,744
    
    
    
    3,998Total cash and cash equivalents
    
    
    75,802
    
    
    
    69,398Loans held for sale (at lower of cost or fair value)
    
    
    5,437
    
    
    
    1,764Securities available for sale
    
    
    609,145
    
    
    
    614,718Regulatory stock
    
    
    25,967
    
    
    
    24,410Loans, net of unearned income
    
    
    2,218,227
    
    
    
    1,790,976Less: Allowance for loan losses
    
    
    (26,390
    )
    
    
    (21,155
    )Net loans
    
    
    2,191,837
    
    
    
    1,769,821Premises and equipment
    
    
    51,497
    
    
    
    46,157Goodwill
    
    
    119,775
    
    
    
    44,491Other intangible assets
    
    
    12,561
    
    
    
    6,832Other assets
    
    
    122,341
    
    
    
    106,888TOTAL ASSETS
    
    $
    3,214,362
    
    
    $
    2,684,479LIABILITIESDeposits:Non-interest-bearing demand
    
    $
    281,028
    
    
    $
    252,851Interest-bearing:Savings, interest checking and money market accounts
    
    
    905,403
    
    
    
    794,280Time deposits of $100 or more
    
    
    502,206
    
    
    
    372,356Other interest-bearing
    
    
    726,982
    
    
    
    534,365Total deposits
    
    
    2,415,619
    
    
    
    1,953,852Short-term borrowings
    
    
    207,863
    
    
    
    217,518Long-term borrowings
    
    
    242,759
    
    
    
    254,521Other liabilities
    
    
    31,808
    
    
    
    23,114TOTAL LIABILITIES
    
    
    2,898,049
    
    
    
    2,449,005SHAREHOLDERS EQUITYPreferred stock - 1,000,000 shares authorizedNone outstandingCommon stock  $1.00 stated value:Shares authorized: 29,000,000Shares outstanding: 20,628,904 and 17,794,289
respectively
    
    
    20,629
    
    
    
    17,794Additional paid-in capital
    
    
    206,114
    
    
    
    135,054Retained earnings
    
    
    97,326
    
    
    
    88,355Accumulated other comprehensive income (loss)
    
    
    (7,756
    )
    
    
    (5,729
    )TOTAL SHAREHOLDERS EQUITY
    
    
    316,313
    
    
    
    235,474TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    3,214,362
    
    
    $
    2,684,479
   3




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##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
 
 Unaudited Consolidated Statements of Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006INTEREST INCOMEInterest and fees on loans:Taxable
    
    $
    41,386
    
    
    $
    30,972
    
    
    $
    73,415
    
    
    $
    59,602Tax-exempt
    
    
    100
    
    
    
    105
    
    
    
    201
    
    
    
    206Interest and dividends on securities:Taxable
    
    
    6,114
    
    
    
    6,761
    
    
    
    12,360
    
    
    
    13,379Tax-exempt
    
    
    1,381
    
    
    
    1,100
    
    
    
    2,424
    
    
    
    2,220Dividends on regulatory stock
    
    
    281
    
    
    
    447
    
    
    
    627
    
    
    
    853Interest on loans held for sale
    
    
    45
    
    
    
    34
    
    
    
    73
    
    
    
    65Interest on federal funds sold and other short-term
investments
    
    
    60
    
    
    
    23
    
    
    
    109
    
    
    
    231Total interest income
    
    
    49,367
    
    
    
    39,442
    
    
    
    89,209
    
    
    
    76,556INTEREST EXPENSEInterest on deposits
    
    
    20,017
    
    
    
    13,329
    
    
    
    34,701
    
    
    
    24,382Interest on short-term borrowings
    
    
    2,264
    
    
    
    2,249
    
    
    
    4,282
    
    
    
    4,009Interest on long-term borrowings
    
    
    3,519
    
    
    
    3,121
    
    
    
    6,330
    
    
    
    7,304Total interest expense
    
    
    25,800
    
    
    
    18,699
    
    
    
    45,313
    
    
    
    35,695NET INTEREST INCOME
    
    
    23,567
    
    
    
    20,743
    
    
    
    43,896
    
    
    
    40,861Provision for loan losses
    
    
    455
    
    
    
    859
    
    
    
    1,190
    
    
    
    1,253Net interest income after provision for loan losses
    
    
    23,112
    
    
    
    19,884
    
    
    
    42,706
    
    
    
    39,608NON-INTEREST INCOMEService charges on deposit accounts
    
    
    5,408
    
    
    
    5,036
    
    
    
    9,626
    
    
    
    9,091Other service charges and fees
    
    
    1,133
    
    
    
    1,066
    
    
    
    2,337
    
    
    
    2,240Debit card income-interchange
    
    
    1,064
    
    
    
    800
    
    
    
    1,959
    
    
    
    1,538Trust income
    
    
    602
    
    
    
    558
    
    
    
    1,216
    
    
    
    1,190Net securities gains (losses)
    
    
    56
    
    
    
    1
    
    
    
    222
    
    
    
    1Gain on sale of other assets
    
    
    60
    
    
    
    35
    
    
    
    599
    
    
    
    126Bank-owned life insurance income
    
    
    498
    
    
    
    442
    
    
    
    912
    
    
    
    873Other
    
    
    1,110
    
    
    
    1,179
    
    
    
    2,275
    
    
    
    2,119Total non-interest income
    
    
    9,931
    
    
    
    9,117
    
    
    
    19,146
    
    
    
    17,178NON-INTEREST EXPENSESalaries and employee benefits
    
    
    11,693
    
    
    
    9,960
    
    
    
    22,458
    
    
    
    20,423Occupancy
    
    
    2,388
    
    
    
    2,071
    
    
    
    4,495
    
    
    
    4,068Equipment
    
    
    822
    
    
    
    856
    
    
    
    1,646
    
    
    
    1,701Professional fees
    
    
    893
    
    
    
    762
    
    
    
    2,030
    
    
    
    1,482Communication and transportation
    
    
    1,303
    
    
    
    1,222
    
    
    
    2,474
    
    
    
    2,480Processing
    
    
    624
    
    
    
    602
    
    
    
    1,134
    
    
    
    1,046Software
    
    
    499
    
    
    
    379
    
    
    
    966
    
    
    
    812Marketing
    
    
    570
    
    
    
    588
    
    
    
    1,158
    
    
    
    1,052Low income housing project losses
    
    
    506
    
    
    
    629
    
    
    
    1,123
    
    
    
    1,257Amortization of intangible assets
    
    
    419
    
    
    
    233
    
    
    
    652
    
    
    
    466Other
    
    
    2,153
    
    
    
    1,958
    
    
    
    3,901
    
    
    
    3,631Total non-interest expense
    
    
    21,870
    
    
    
    19,260
    
    
    
    42,037
    
    
    
    38,418Income before income taxes
    
    
    11,173
    
    
    
    9,741
    
    
    
    19,815
    
    
    
    18,368Income tax expense
    
    
    2,840
    
    
    
    2,351
    
    
    
    4,126
    
    
    
    4,421NET INCOME
    
    $
    8,333
    
    
    $
    7,390
    
    
    $
    15,689
    
    
    $
    13,947Earnings per share:Basic
    
    $
    0.41
    
    
    $
    0.42
    
    
    $
    0.83
    
    
    $
    0.80Diluted
    
    
    0.41
    
    
    
    0.42
    
    
    
    0.82
    
    
    
    0.80Weighted average shares outstanding:Basic
    
    
    20,331
    
    
    
    17,466
    
    
    
    19,012
    
    
    
    17,450Diluted
    
    
    20,407
    
    
    
    17,562
    
    
    
    19,107
    
    
    
    17,543Dividends per share
    
    $
    0.18
    
    
    $
    0.17
    
    
    $
    0.35
    
    
    $
    0.33
   4




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##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
 
 Unaudited Consolidated Statements of Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    8,333
    
    
    $
    7,390
    
    
    $
    15,689
    
    
    $
    13,947Other comprehensive income, net of tax:Unrealized gain (loss) on securities:Unrealized gain (loss) arising in period
(net of tax of $(2,428), $(2,920), $(1,313) and $(4,213),
respectively)
    
    
    (3,521
    )
    
    
    (4,236
    )
    
    
    (1,838
    )
    
    
    (5,947
    )Reclassification of realized amounts
(net of tax of $(23) and $(90) respectively for 2007)
    
    
    (33
    )
    
    
    (1
    )
    
    
    (132
    )
    
    
    (1
    )Net unrealized gain (loss) on securities
    
    
    (3,554
    )
    
    
    (4,237
    )
    
    
    (1,970
    )
    
    
    (5,948
    )Unrealized gain on derivative hedging instruments arising in period
(net of tax of $(44) and $(41) for 2007)
    
    
    (63
    )
    
    
    
    
    
    
    (57
    )
    
    
    Net unrealized gain (loss), recognized in other comprehensive income
    
    
    (3,617
    )
    
    
    (4,237
    )
    
    
    (2,027
    )
    
    
    (5,948
    )Comprehensive income
    
    $
    4,716
    
    
    $
    3,153
    
    
    $
    13,662
    
    
    $
    7,999
   5




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##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
 
 Unaudited Consolidated Statements of Changes In Shareholders Equity
  AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBALANCE AT DECEMBER 31, 2006
    
    
    17,794,289
    
    
    $
    17,794
    
    
    $
    135,054
    
    
    $
    88,355
    
    
    $
    (5,729
    )
    
    $
    235,474Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,689
    
    
    
    
    
    
    
    15,689Cash dividend declared ($0.35 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,718
    )
    
    
    
    
    
    
    (6,718
    )Repurchase of outstanding shares
    
    
    (404,450
    )
    
    
    (404
    )
    
    
    (9,152
    )
    
    
    
    
    
    
    
    
    
    
    (9,556
    )Change, net of tax, in unrealized gain
(loss) on:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,970
    )
    
    
    (1,970
    )Interest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57
    )
    
    
    (57
    )Exercise of stock options
    
    
    10,000
    
    
    
    10
    
    
    
    202
    
    
    
    
    
    
    
    
    
    
    
    212Issuance of stock for acquisition
    
    
    3,149,157
    
    
    
    3,149
    
    
    
    79,296
    
    
    
    
    
    
    
    
    
    
    
    82,445Grant of restricted stock, net of forfeitures
    
    
    79,908
    
    
    
    80
    
    
    
    (80
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    794
    
    
    
    
    
    
    
    
    
    
    
    794BALANCE AT JUNE 30, 2007
    
    
    20,628,904
    
    
    $
    20,629
    
    
    $
    206,114
    
    
    $
    97,326
    
    
    $
    (7,756
    )
    
    $
    316,313
   6




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##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
 
 Unaudited Consolidated Statements of Cash Flow
  Six Months EndedJune 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    15,689
    
    
    $
    13,947Adjustments to reconcile net income to
net cash provided by operating activities:Amortization and depreciation
    
    
    3,272
    
    
    
    3,086Provision for loan losses
    
    
    1,190
    
    
    
    1,253Net securities (gains) losses
    
    
    (222
    )
    
    
    (1
    )(Gain) loss on sale of premises and equipment
    
    
    
    
    
    
    (92
    )(Gain) loss on sale of other real estate owned
    
    
    (35
    )
    
    
    (34
    )(Gain) loss on sale of other assets
    
    
    12
    
    
    
    Gain on sale of mortgage servicing rights
    
    
    (576
    )
    
    
    Loss on low-income housing investments
    
    
    1,123
    
    
    
    1,257Increase (decrease) in deferred taxes
    
    
    (43
    )
    
    
    1,148Net gain on sale of loans held for sale
    
    
    (416
    )
    
    
    (249
    )Proceeds from sale of loans held for sale
    
    
    36,582
    
    
    
    26,591Origination of loans held for sale
    
    
    (39,838
    )
    
    
    (26,487
    )Change in other operating
    
    
    5,246
    
    
    
    (1,534
    )Net cash flows provided by operating activities
    
    
    21,984
    
    
    
    18,885CASH FLOWS FROM INVESTING ACTIVITIESProceeds from maturities of securities available for sale
    
    
    58,899
    
    
    
    61,308Proceeds from sales of securities available for sale
    
    
    36,653
    
    
    
    Purchase of securities available for sale
    
    
    (6,619
    )
    
    
    (43,767
    )(Increase) decrease in loans made to customers
    
    
    1,909
    
    
    
    (47,852
    )Purchase of premises and equipment
    
    
    (1,467
    )
    
    
    (351
    )Proceeds from sale of premises and equipment
    
    
    
    
    
    
    119Proceeds from sale of other real estate owned
    
    
    505
    
    
    
    375Acquisition of Prairie Financial Corp, net of cash acquired
    
    
    (30,541
    )
    
    
    Net cash flows provided by (used in) investing
activities
    
    
    59,339
    
    
    
    (30,168
    )CASH FLOWS FROM FINANCING ACTIVITIESNet increase (decrease) in deposits
    
    
    (7,920
    )
    
    
    236,848Excess income tax benefit from employee stock-based awards
    
    
    9
    
    
    
    Net decrease in short-term borrowed funds
    
    
    (14,545
    )
    
    
    (88,496
    )Proceeds from long-term borrowings
    
    
    76,619
    
    
    
    Repayment of long-term borrowings
    
    
    (113,708
    )
    
    
    (113,733
    )Repurchase of common stock
    
    
    (9,556
    )
    
    
    Dividends paid
    
    
    (6,030
    )
    
    
    (5,592
    )Proceeds from exercise of stock options
    
    
    212
    
    
    
    799Net cash flows used in financing activities
    
    
    (74,919
    )
    
    
    29,826Net increase in cash and cash equivalents
    
    
    6,404
    
    
    
    18,543Cash and cash equivalents at beginning of period
    
    
    69,398
    
    
    
    62,755Cash and cash equivalents at end of period
    
    $
    75,802
    
    
    $
    81,298
   7




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##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
Unaudited Consolidated Statements of Cash Flow (Continued)
 Six Months EndedJune 30,2007
    
    
    2006SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSChange in allowance for unrealized (gain) loss on securities
available for sale
    
    $
    3,471
    
    
    $
    (10,408
    )Change in deferred taxes attributable to securities available for sale
    
    
    (1,444
    )
    
    
    (4,214
    )Change in fair value of derivative hedging instruments, net of tax
    
    
    (57
    )
    
    
    Other real estate acquired in settlement of loans
    
    
    3,097
    
    
    
    667Dividends declared and not paid
    
    
    3,713
    
    
    
    2,982
   8




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##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 BASIS OF PRESENTATION
    RECENT ACCOUNTING PRONOUNCEMENTS:
     9




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##### Table of Contents



STOCK-BASED COMPENSATION:
     10




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##### Table of Contents



2007
    
    
    2006Number of options and SARs granted
    
    
    175,964
    
    
    
    259,106Stock price
    
    $
    20.71
    
    
    $
    23.17Risk-free interest rate
    
    
    4.76
    %
    
    
    4.99
    %Expected life, in years
    
    
    6
    
    
    
    6Expected volatility
    
    
    21.10
    %
    
    
    24.49
    %Expected dividend yield
    
    
    2.94
    %
    
    
    2.80
    %Estimated fair value per option
    
    $
    6.54
    
    
    $
    5.65
   Weighted AverageShares
    
    
    Exercise PriceOptions/SARs outstanding at December 31,
2006
    
    
    1,266,511
    
    
    $
    21.91Options/SARs granted
    
    
    175,964
    
    
    
    20.71Options/SARs exercised
    
    
    (10,000
    )
    
    
    21.16Options/SARs forfeited/expired
    
    
    (6,882
    )
    
    
    22.88Options/SARs outstanding at June 30, 2007
    
    
    1,425,593
    
    
    $
    21.76Options/SARs exercisable at June 30, 2007
    
    
    1,097,543
    
    
    $
    21.29
     June 30,2007SharesRestricted shares outstanding, December 31, 2006
    
    
    62,865Shares granted
    
    
    88,624Shares vested
    
    
    (25,478
    )Shares forfeited
    
    
    (8,716
    )Restricted shares outstanding, June 30, 2007
    
    
    117,295Weighted-average fair value per share
at date of grant
    
    $
    22.90
  11




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##### Table of Contents



NOTE 2. ACQUISITION OF PRAIRIE FINANCIAL CORPORATION
      Securities available for sale
    
    $
    86,409Loans, net
    
    
    428,213Goodwill
    
    
    75,284Core deposit and other intangibles
    
    
    6,380Other assets
    
    
    27,242Total assets acquired
    
    $
    623,528Deposits
    
    $
    469,745Other liabilities
    
    
    35,390Total liabilities assumed
    
    $
    505,135Net assets acquired
    
    $
    118,393
  12




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##### Table of Contents



Six Months Ended
    
    
    Year EndedJune 30, 2007
    
    
    December 31, 2006Net interest income
    
    $
    49,094
    
    
    $
    102,901Non-interest income
    
    
    19,637
    
    
    
    38,050Total Revenue
    
    $
    68,731
    
    
    $
    140,951Net income
    
    $
    15,916
    
    
    $
    25,146Basic earnings per share
    
    $
    0.84
    
    
    $
    1.22Diluted earnings per share
    
    
    0.83
    
    
    
    1.21
 NOTE 3. EARNINGS PER SHARE
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    8,333
    
    
    $
    7,390
    
    
    $
    15,689
    
    
    $
    13,947Weighted average shares outstanding  Basic
    
    
    20,330,795
    
    
    
    17,466,095
    
    
    
    19,011,965
    
    
    
    17,450,118Incremental shares related to stock compensation
    
    
    75,966
    
    
    
    96,031
    
    
    
    95,027
    
    
    
    92,862Average shares outstanding  Diluted
    
    
    20,406,761
    
    
    
    17,562,126
    
    
    
    19,106,992
    
    
    
    17,542,980Earnings per share  Basic
    
    $
    0.41
    
    
    $
    0.42
    
    
    $
    0.83
    
    
    $
    0.80Effect of incremental shares related to stock
compensation
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    Earnings per share  Diluted
    
    $
    0.41
    
    
    $
    0.42
    
    
    $
    0.82
    
    
    $
    0.80
   13




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##### Table of Contents



NOTE 4. SECURITIES
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueJune 30, 2007:U.S. Government agencies
    
    $
    16,175
    
    
    $
    
    
    
    $
    76
    
    
    $
    16,099Mortgage-backed securities
    
    
    124,592
    
    
    
    249
    
    
    
    1,959
    
    
    
    122,882Collateralized Mortgage
Obligations
    
    
    294,309
    
    
    
    
    
    
    
    11,242
    
    
    
    283,067States & political subdivisions
    
    
    109,227
    
    
    
    1,652
    
    
    
    660
    
    
    
    110,219Other securities
    
    
    76,825
    
    
    
    335
    
    
    
    282
    
    
    
    76,878Total
    
    $
    621,128
    
    
    $
    2,236
    
    
    $
    14,219
    
    
    $
    609,145
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2006:U.S. Government agencies
    
    $
    16,175
    
    
    $
    24
    
    
    $
    34
    
    
    $
    16,165Mortgage-backed securities
    
    
    135,885
    
    
    
    265
    
    
    
    2,520
    
    
    
    133,630Collateralized Mortgage
Obligations
    
    
    322,666
    
    
    
    68
    
    
    
    9,317
    
    
    
    313,417States & political subdivisions
    
    
    73,580
    
    
    
    2,566
    
    
    
    3
    
    
    
    76,143Other securities
    
    
    74,924
    
    
    
    560
    
    
    
    121
    
    
    
    75,363Total
    
    $
    623,230
    
    
    $
    3,483
    
    
    $
    11,995
    
    
    $
    614,718
  Less than 12 Months
    
    
    12 Months or More
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedJune 30, 2007
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesU.S. government agencies
    
    $
    5,117
    
    
    $
    8
    
    
    $
    10,782
    
    
    $
    68
    
    
    $
    15,899
    
    
    $
    76Mortgage-backed securities
    
    
    3,264
    
    
    
    61
    
    
    
    106,875
    
    
    
    1,898
    
    
    
    110,139
    
    
    
    1,959Collateralized mortgage
obligations
    
    
    10,933
    
    
    
    132
    
    
    
    272,134
    
    
    
    11,110
    
    
    
    283,067
    
    
    
    11,242State & political subdivisions
    
    
    33,791
    
    
    
    658
    
    
    
    169
    
    
    
    2
    
    
    
    33,960
    
    
    
    660Other securities
    
    
    27,699
    
    
    
    189
    
    
    
    2,333
    
    
    
    93
    
    
    
    30,032
    
    
    
    282Total
    
    $
    80,804
    
    
    $
    1,048
    
    
    $
    392,293
    
    
    $
    13,171
    
    
    $
    473,097
    
    
    $
    14,219
   14




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##### Table of Contents



NOTE 5. INCOME TAXES
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Federal income tax computed at the statutory rates
    
    $
    3,911
    
    
    $
    3,409
    
    
    $
    6,936
    
    
    $
    6,429Adjusted for effects of:Tax refunds
    
    
    
    
    
    
    
    
    
    
    (886
    )
    
    
    Tax exempt interest
    
    
    (472
    )
    
    
    (376
    )
    
    
    (823
    )
    
    
    (757
    )Nondeductible expenses
    
    
    87
    
    
    
    56
    
    
    
    147
    
    
    
    110Low income housing credit
    
    
    (495
    )
    
    
    (595
    )
    
    
    (1,040
    )
    
    
    (1,204
    )Cash surrender value of life insurance policies
    
    
    (167
    )
    
    
    (155
    )
    
    
    (312
    )
    
    
    (306
    )Dividend received deduction
    
    
    (45
    )
    
    
    (54
    )
    
    
    (96
    )
    
    
    (108
    )State taxes, net of federal tax benefit
    
    
    26
    
    
    
    74
    
    
    
    76
    
    
    
    140Other differences
    
    
    (5
    )
    
    
    (8
    )
    
    
    124
    
    
    
    117Total income taxes
    
    $
    2,840
    
    
    $
    2,351
    
    
    $
    4,126
    
    
    $
    4,421
  NOTE 6. SHORT-TERM BORROWINGS
  June 30,
    
    
    December 31,2007
    
    
    2006Federal funds purchased
    
    $
    40,600
    
    
    $
    45,700Securities sold under agreements to repurchase
    
    
    117,263
    
    
    
    131,818Short-term Federal Home Loan Bank advances
    
    
    50,000
    
    
    
    40,000Total short-term borrowed funds
    
    $
    207,863
    
    
    $
    217,518
   15




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##### Table of Contents



NOTE 7. LONG-TERM BORROWINGS
  June 30,
    
    
    December 31,2007
    
    
    2006Federal Home Loan Bank (FHLB) AdvancesFixed maturity advances (weighted average rate of 5.05% and
2.64% as of June 30, 2007 and December 31, 2006, respectively)
    
    $
    51,017
    
    
    $
    102,500Amortizing and other advances (weighted average rate of 5.40% and
5.55% as of June 30, 2007 and December 31, 2006, respectively)
    
    
    2,353
    
    
    
    3,079Total FHLB Advances
    
    
    53,370
    
    
    
    105,579Securities sold under repurchase agreements with maturities
at various dates through 2008 (weighted average fixed rate of 2.84%
and 2.78% as of June 30, 2007 and December 31, 2006, respectively)
    
    
    65,000
    
    
    
    75,000Notes payable, secured by equipment, with a fixed interest rate of 7.26%,
due at various dates through 2012
    
    
    5,335
    
    
    
    5,817Term note, with an interest rate equal to three-month LIBOR plus 0.875%,
with a maturity date of April 1, 2012
    
    
    20,000
    
    
    
    Subordinated 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
effective June 26, 2008 at par
    
    
    35,568
    
    
    
    35,568Floating 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
    
    
    
    Floating 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
    
    
    
    Total long-term borrowings
    
    $
    242,759
    
    
    $
    254,521
      16




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##### Table of Contents



NOTE 8. COMMITMENTS AND CONTINGENCIES
    June 30,
    
    
    December 31,2007
    
    
    2006Commitments to extend credit
    
    $
    721,476
    
    
    $
    570,421Standby letters of credit
    
    
    22,781
    
    
    
    17,535Non-reimbursable standby letters of credit
    
    
    2,200
    
    
    
    2,380
 NOTE 9. INTEREST RATE CONTRACTS
       17




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##### Table of Contents



NOTE 10. SEGMENT INFORMATION
   For three months ended June 30, 2007
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    49,297
    
    
    $
    70
    
    
    $
    49,367Interest expense
    
    
    23,549
    
    
    
    2,251
    
    
    
    25,800Net interest income (loss)
    
    
    25,748
    
    
    
    (2,181
    )
    
    
    23,567Provision for loan losses
    
    
    455
    
    
    
    
    
    
    
    455Other income
    
    
    9,878
    
    
    
    53
    
    
    
    9,931Other expense
    
    
    21,458
    
    
    
    412
    
    
    
    21,870Earnings before income taxes
    
    
    13,713
    
    
    
    (2,540
    )
    
    
    11,173Income tax expense (benefit)
    
    
    3,787
    
    
    
    (947
    )
    
    
    2,840Net income
    
    $
    9,926
    
    
    $
    (1,593
    )
    
    $
    8,333
 For six months ended June 30, 2007
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    89,087
    
    
    $
    122
    
    
    $
    89,209Interest expense
    
    
    41,591
    
    
    
    3,722
    
    
    
    45,313Net interest income (loss)
    
    
    47,496
    
    
    
    (3,600
    )
    
    
    43,896Provision for loan losses
    
    
    1,190
    
    
    
    
    
    
    
    1,190Other income
    
    
    18,959
    
    
    
    187
    
    
    
    19,146Other expense
    
    
    41,364
    
    
    
    673
    
    
    
    42,037Earnings before income taxes
    
    
    23,901
    
    
    
    (4,086
    )
    
    
    19,815Income tax expense (benefit)
    
    
    5,664
    
    
    
    (1,538
    )
    
    
    4,126Net income
    
    $
    18,237
    
    
    $
    (2,548
    )
    
    $
    15,689Segment assets
    
    $
    3,206,414
    
    
    $
    7,948
    
    
    $
    3,214,362
  18




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##### Table of Contents



For three months ended June 30, 2006
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    39,394
    
    
    $
    48
    
    
    $
    39,442Interest expense
    
    
    17,284
    
    
    
    1,415
    
    
    
    18,699Net interest income (loss)
    
    
    22,110
    
    
    
    (1,367
    )
    
    
    20,743Provision for loan losses
    
    
    859
    
    
    
    
    
    
    
    859Other income
    
    
    9,042
    
    
    
    75
    
    
    
    9,117Other expense
    
    
    18,867
    
    
    
    393
    
    
    
    19,260Earnings before income taxes
    
    
    11,426
    
    
    
    (1,685
    )
    
    
    9,741Income tax expense (benefit)
    
    
    3,033
    
    
    
    (682
    )
    
    
    2,351Net income
    
    $
    8,393
    
    
    $
    (1,003
    )
    
    $
    7,390
 For six months ended June 30, 2006
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    76,463
    
    
    $
    93
    
    
    $
    76,556Interest expense
    
    
    32,950
    
    
    
    2,745
    
    
    
    35,695Net interest income (loss)
    
    
    43,513
    
    
    
    (2,652
    )
    
    
    40,861Provision for loan losses
    
    
    1,253
    
    
    
    
    
    
    
    1,253Other income
    
    
    16,995
    
    
    
    183
    
    
    
    17,178Other expense
    
    
    37,700
    
    
    
    718
    
    
    
    38,418Earnings before income taxes
    
    
    21,555
    
    
    
    (3,187
    )
    
    
    18,368Income tax expense (benefit)
    
    
    5,676
    
    
    
    (1,255
    )
    
    
    4,421Net income
    
    $
    15,879
    
    
    $
    (1,932
    )
    
    $
    13,947Segment assets
    
    $
    2,716,957
    
    
    $
    26,551
    
    
    $
    2,743,508
  19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 INTRODUCTION
   OVERVIEW
   
    
    Add new customers and do more with them as we continue our growth initiatives;
    
    Increase our presence in faster growing metro markets by recruiting successful and
experienced lending and product teams and executing selective acquisitions;
    
    Improve our net interest income by growing commercial loans and lower cost deposits,
while allowing our residential mortgage and indirect marine and recreational vehicle loans
to amortize;
    
    Improve operating leverage (grow revenue faster than expenses) by reducing expenses in
lower growth and lower profitability lines of business and by investing in higher growth
and higher return lines of business; and
    
    Allocate capital to the most profitable uses to increase total shareholder returns, and
return excess capital to shareholders through dividends and stock repurchases.
    
    
    The successful integration of Prairie Financial Corporation. The integration of
Prairie was successfully completed within two weeks of the effective date of the
acquisition. This process included centralization of backroom support areas, including
data processing, as well as early stage implementation of our retail banking strategies in
the Chicago market.
  20




---



##### Table of Contents




    
    Our earning asset mix continued to improve, driven by the Prairie acquisition and
continued commercial loan growth. Higher yielding commercial loan average balances
were 49.7% of earning assets for the second quarter of 2007, compared to 42.3% for the
first quarter of 2007. Commercial loan average balances, exclusive of the Chicago market,
increased $45,412, or 17.8% on an annualized basis, from the first quarter of 2007, and
reflect continued successful execution of this key component of our strategy to improve our
loan mix and overall yields. The second quarter growth came from several areas, including
commercial real estate, Cincinnati commercial, business banking and agricultural lending.
 
    
    Net interest income increased $3,238 from the first quarter of 2007, while the
margin declined 8 basis points to 3.40%. The increase in yield on earning assets of 25
basis points was driven by the improved asset mix, higher loan fees and higher yields on
commercial loans. The increase in the cost of interest bearing liabilities of 34 basis
points was driven by replacing $102,500 of fixed rate long-term debt with a coupon of 2.64%
that matured in March 2007 with other funding sources at market rates, which resulted in a
12 basis point reduction in the margin. In addition, time deposit rates increased 18 basis
points and interest costs were incurred in connection with the debt used to finance the
cash portion of the Prairie acquisition.
 
    
    Non-interest income increased $716, or 7.8%, from the first quarter of 2007.
The increase included an increase in deposit service charges of $1,190, or 28.2%, as well
as an increase in debit card interchange fees of $169, or 18.9%. The first quarter of 2007
included two non-recurring items: a gain on the sale of our mortgage servicing portfolio
of $555 and $152 of interest income on an income tax refund.
 
    
    Credit quality results were stable, with net charge-offs totaling 22 basis
points. The provision for loan losses was $455, or $757 less than net charge-offs.
This resulted primarily from a reduction in the required levels of specific reserves due to
the charge-off of a fully reserved $480 credit, and payoffs of two loans carrying specific
reserves of $423. The allowance coverage to total loans increased 1 basis point to 1.19%,
while the allowance to non-performing loans decreased from 239% to 192%. The increase in
non-performing loans was due almost entirely to non-performing loans acquired as part of
the Prairie transaction.
 
    
    Non-interest expense increased $1,703, or 8.4%, from the first quarter of 2007.
This increase included $1,398 of expense for the new Chicago region, higher intangible
asset amortization of $186, and $229 of one-time acquisition related expenses.
    CRITICAL ACCOUNTING POLICIES
   21




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##### Table of Contents



NET INTEREST INCOME
   
    
    Continued improvement in our earning asset mix contributed positively to both the net
interest margin and net interest income. Total average commercial loans represented 49.7%
of earning assets for the second quarter of 2007, compared to 39.6% for the second quarter
of 2006, evidencing the improvement in our mix of earning assets to higher yielding assets.
The yield during the second quarter of 2007 for commercial loans of 7.90% was 38 basis
points higher than the yield on total loans of 7.52%, and 274 basis points higher than the
yield on investment securities of 5.16%. Average yields for consumer and residential
mortgage loans were 7.29% and 6.25%, respectively. Securities balances declined $36,091
from the second quarter of 2006, or 5.3%. Lower yielding indirect consumer loans and
residential mortgage loan balances declined $15,618 or 12.0% and $26,535 or 7.2%,
respectively, from the second quarter of 2006. We have not originated any indirect
consumer loans since December 2006.
 
    
    Increases in interest income and the resulting margin were due largely to higher average
loan yields, which increased 54 basis points to 7.52% from 6.98%, and were driven by an
increase in commercial loan yields, including loan fees, of 55 basis points to 7.90%. The
increases in yields for commercial, and to a lesser extent residential mortgage and
consumer loans continued to reflect, increases in market interest rates which resulted in
changes to our pricing for new loans and upward interest rate adjustments on existing
variable rate products.
 
    
    The increase in funding costs from 3.37% to 4.02% was due to several items. Higher
market interest rates increased costs for money market accounts, retail certificates of
deposit and short-term borrowings. Long-term borrowing costs increased 138 basis points
from the second quarter of 2006 largely due to the replacement of $102,500 of funds that
matured in March 2007. We incurred additional debt in the Prairie acquisition. The
additional debt of $50,929 consisted of funds used to finance the cash portion of the
Prairie consideration paid to Prairie stockholders and trust preferred debt assumed in the
transaction priced at three-month LIBOR plus 0.875% to 1.70%, as well as $51,017 of Federal
Home Loan Bank advances, costing 5.05% at June 30, 2007, and a higher level of retail
certificates of deposit.
 
    
    A decline in non-interest bearing deposits, exclusive of the newly added Chicago region,
of $12,962.
  22




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##### Table of Contents



2007
    
    
    2006Average
    
    
    Interest
    
    
    Yield/
    
    
    Average
    
    
    Interest
    
    
    Yield/For Three Months Ended June 30,
    
    Balances
    
    
    & Fees
    
    
    Cost
    
    
    Balances
    
    
    & Fees
    
    
    CostEARNING ASSETS:Short-term investments
    
    $
    6,184
    
    
    $
    60
    
    
    
    3.90
    %
    
    $
    2,763
    
    
    $
    23
    
    
    
    3.24
    %Loans held for sale
    
    
    2,957
    
    
    
    45
    
    
    
    6.08
    %
    
    
    1,909
    
    
    
    34
    
    
    
    7.21
    %Securities
    
    
    638,691
    
    
    
    8,239
    
    
    
    5.16
    %
    
    
    674,782
    
    
    
    8,475
    
    
    
    5.02
    %Regulatory Stock
    
    
    25,826
    
    
    
    281
    
    
    
    4.36
    %
    
    
    31,359
    
    
    
    447
    
    
    
    5.71
    %Loans
    
    
    2,193,288
    
    
    
    41,540
    
    
    
    7.52
    %
    
    
    1,774,532
    
    
    
    31,133
    
    
    
    6.98
    %Total earning assets
    
    
    2,866,946
    
    
    $
    50,165
    
    
    
    7.01
    %
    
    
    2,485,345
    
    
    $
    40,112
    
    
    
    6.43
    %Allowance for loan loss
    
    
    (26,504
    )
    
    
    
    
    
    
    
    
    
    
    (21,291
    )Other non-earning assets
    
    
    358,539
    
    
    
    
    
    
    
    
    
    
    
    261,756TOTAL ASSETS
    
    $
    3,198,981
    
    
    
    
    
    
    
    
    
    
    $
    2,725,810INTEREST-BEARING LIABILITIES:DepositsSavings and interest-bearing demand
    
    $
    515,443
    
    
    $
    1,230
    
    
    
    0.96
    %
    
    $
    507,404
    
    
    $
    1,023
    
    
    
    0.80
    %Money market accounts
    
    
    384,219
    
    
    
    3,983
    
    
    
    4.16
    %
    
    
    273,986
    
    
    
    2,506
    
    
    
    3.67
    %Certificates of deposit and other
time
    
    
    1,251,950
    
    
    
    14,804
    
    
    
    4.74
    %
    
    
    964,046
    
    
    
    9,800
    
    
    
    4.08
    %Total interest-bearing deposits
    
    
    2,151,612
    
    
    
    20,017
    
    
    
    3.73
    %
    
    
    1,745,436
    
    
    
    13,329
    
    
    
    3.06
    %Short-term borrowings
    
    
    181,480
    
    
    
    2,264
    
    
    
    4.93
    %
    
    
    192,672
    
    
    
    2,249
    
    
    
    4.61
    %Long-term borrowings
    
    
    239,086
    
    
    
    3,519
    
    
    
    5.82
    %
    
    
    278,276
    
    
    
    3,121
    
    
    
    4.44
    %Total interest-bearing liabilities
    
    
    2,572,178
    
    
    $
    25,800
    
    
    
    4.02
    %
    
    
    2,216,384
    
    
    $
    18,699
    
    
    
    3.37
    %Non-interest bearing deposits
    
    
    284,070
    
    
    
    
    
    
    
    
    
    
    
    265,806Other noninterest-bearing liabilities
and
shareholders equity
    
    
    342,733
    
    
    
    
    
    
    
    
    
    
    
    243,620TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    3,198,981
    
    
    
    
    
    
    
    
    
    
    $
    2,725,810Interest income/earning assets
    
    
    
    
    
    $
    50,165
    
    
    
    7.01
    %
    
    
    
    
    
    $
    40,112
    
    
    
    6.43
    %Interest expense/earning assets
    
    
    
    
    
    
    25,800
    
    
    
    3.61
    %
    
    
    
    
    
    
    18,699
    
    
    
    3.01
    %Net interest income/earning assets
    
    
    
    
    
    $
    24,365
    
    
    
    3.40
    %
    
    
    
    
    
    $
    21,413
    
    
    
    3.42
    %
     23




---



##### Table of Contents



2007
    
    
    2006Average
    
    
    Interest
    
    
    Yield/
    
    
    Average
    
    
    Interest
    
    
    Yield/For Six Months Ended June 30,
    
    Balances
    
    
    & Fees
    
    
    Cost
    
    
    Balances
    
    
    & Fees
    
    
    CostEARNING ASSETS:Short-term investments
    
    $
    4,887
    
    
    $
    109
    
    
    
    4.47
    %
    
    $
    10,577
    
    
    $
    231
    
    
    
    4.38
    %Loans held for sale
    
    
    2,286
    
    
    
    73
    
    
    
    6.41
    %
    
    
    1,846
    
    
    
    65
    
    
    
    7.17
    %Securities
    
    
    623,244
    
    
    
    16,090
    
    
    
    5.16
    %
    
    
    675,459
    
    
    
    16,822
    
    
    
    5.01
    %Regulatory Stock
    
    
    25,097
    
    
    
    627
    
    
    
    5.00
    %
    
    
    32,226
    
    
    
    853
    
    
    
    5.32
    %Loans
    
    
    1,987,909
    
    
    
    73,724
    
    
    
    7.40
    %
    
    
    1,762,614
    
    
    
    59,919
    
    
    
    6.79
    %Total earning assets
    
    
    2,643,423
    
    
    $
    90,623
    
    
    
    6.89
    %
    
    
    2,482,722
    
    
    $
    77,890
    
    
    
    6.27
    %Allowance for loan loss
    
    
    (23,831
    )
    
    
    
    
    
    
    
    
    
    
    (22,720
    )Other non-earning assets
    
    
    310,783
    
    
    
    
    
    
    
    
    
    
    
    262,070TOTAL ASSETS
    
    $
    2,930,375
    
    
    
    
    
    
    
    
    
    
    $
    2,722,072INTEREST-BEARING LIABILITIES:DepositsSavings and interest-bearing demand
    
    $
    502,533
    
    
    $
    2,332
    
    
    
    0.94
    %
    
    $
    506,727
    
    
    $
    1,974
    
    
    
    0.76
    %Money market accounts
    
    
    345,798
    
    
    
    7,052
    
    
    
    4.11
    %
    
    
    266,778
    
    
    
    4,649
    
    
    
    3.51
    %Certificates of deposit and other
time
    
    
    1,094,383
    
    
    
    25,317
    
    
    
    4.66
    %
    
    
    910,480
    
    
    
    17,759
    
    
    
    3.93
    %Total interest-bearing deposits
    
    
    1,942,714
    
    
    
    34,701
    
    
    
    3.60
    %
    
    
    1,683,985
    
    
    
    24,382
    
    
    
    2.91
    %Short-term borrowings
    
    
    173,205
    
    
    
    4,282
    
    
    
    4.92
    %
    
    
    175,970
    
    
    
    4,009
    
    
    
    4.52
    %Long-term borrowings
    
    
    245,501
    
    
    
    6,330
    
    
    
    5.13
    %
    
    
    357,402
    
    
    
    7,304
    
    
    
    4.07
    %Total interest-bearing liabilities
    
    
    2,361,420
    
    
    $
    45,313
    
    
    
    3.87
    %
    
    
    2,217,357
    
    
    $
    35,695
    
    
    
    3.23
    %Non-interest bearing deposits
    
    
    266,612
    
    
    
    
    
    
    
    
    
    
    
    260,958Other noninterest-bearing liabilities
and
shareholders equity
    
    
    302,343
    
    
    
    
    
    
    
    
    
    
    
    243,757TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    2,930,375
    
    
    
    
    
    
    
    
    
    
    $
    2,722,072Interest income/earning assets
    
    
    
    
    
    $
    90,623
    
    
    
    6.89
    %
    
    
    
    
    
    $
    77,890
    
    
    
    6.27
    %Interest expense/earning assets
    
    
    
    
    
    
    45,313
    
    
    
    3.45
    %
    
    
    
    
    
    
    35,695
    
    
    
    2.89
    %Net interest income/earning assets
    
    
    
    
    
    $
    45,310
    
    
    
    3.44
    %
    
    
    
    
    
    $
    42,195
    
    
    
    3.38
    %
    NON-INTEREST INCOME
  
    
    An increase in deposit service charges of $372, or 7.4%, to $5,408. The increases in
deposit service charges reflect continuing growth in the number of accounts. The new
Chicago region contributed $292 of deposit service charges.
 
    
    An increase in debit card interchange income of $264, or 33.0%, to $1,064. This
increase was driven by the increased number of transaction accounts, continuing customer
preferences towards greater usage of debit cards as a method of payment, and activity from
the accounts acquired in the Prairie acquisition.
 
    
    An increase in gain on sale of loans of $117, or 82.9% to $258, as well as an increase
in annuity revenue of $63, or 27.1% to $294.
  24




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##### Table of Contents



NON-INTEREST EXPENSE
  
    
    The acquisition of Prairie. The newly acquired Chicago region had $1,398 of direct
expense during the second quarter, primarily in the area of personnel expense. Intangible
asset amortization increased $186 as a result of amortizing core deposit and customer
relationship intangibles recorded at the closing. One time merger integration related
expenses, including travel, courier, programming, supplies, temporary signage, and other
expense, was $229. The percentage increase in total non-interest expense of 13.6% compares
favorably to the increase in average assets of approximately $500,000 or 18.8%, as
reflected in the positive operating leverage during the quarter of 4.9%.
 
    
    An increase in salaries and employee benefits expense of $1,733, or 17.4%. The net
increase resulted primarily from salaries and benefits for employees who joined us from
Prairie, as well as supplemental executive retirement plan expenses for certain officers
from the Chicago region. Stock-based compensation expense increased due to the adoption of
FAS 123(R) in 2006. The expense associated with both the 2006 and 2007 grants is being
amortized. Lastly, the expense of the commercial loan production team added during the
second and third quarters of 2006 less efficiencies gained in other areas increased
salaries and benefits expense. These increases were partially offset by lower incentives
expense. The average number of full time equivalent employees for the second quarter of
2007 was 865 compared to 803 for the second quarter of 2006.
    
    Increases in occupancy expense of $317, or 15.3% due primarily to the addition of the Chicago banking centers.
    
    Higher professional fees of $131, which were offset by lower low income housing project investment losses of $123.
  INCOME TAX EXPENSE
    
  25




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##### Table of Contents



FINANCIAL POSITION
  SECURITIES
     REGULATORY STOCK
  LOANS HELD FOR SALE
  LOANS
      26




---



##### Table of Contents



June 30,
    
    
    December 31,2007
    
    
    2006Commercial, industrial and
agricultural loans
    
    $
    653,635
    
    
    $
    568,841Economic development loans and
other obligations of state and
political subdivisions
    
    
    7,123
    
    
    
    7,179Lease financing
    
    
    5,255
    
    
    
    5,495Total commercial
    
    
    666,013
    
    
    
    581,515Commercial real estateCommercial mortgages
    
    
    269,468
    
    
    
    180,249Construction and development
    
    
    539,112
    
    
    
    260,314Total commercial real estate
    
    
    808,580
    
    
    
    440,563Residential mortgages
    
    
    416,100
    
    
    
    436,309Home equity
    
    
    142,950
    
    
    
    132,704Consumer loans
    
    
    184,586
    
    
    
    199,887Total loans
    
    
    2,218,229
    
    
    
    1,790,978Less: unearned income
    
    
    2
    
    
    
    2Loans, net of unearned income
    
    $
    2,218,227
    
    
    $
    1,790,976
 ASSET QUALITY
       27




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Beginning Balance
    
    $
    21,165
    
    
    $
    23,234
    
    
    $
    21,155
    
    
    $
    24,392Allowance associated with
purchase acquisitions
    
    
    5,982
    
    
    
    
    
    
    
    5,982
    
    
    
    Loans charged off
    
    
    (1,638
    )
    
    
    (3,679
    )
    
    
    (2,711
    )
    
    
    (5,605
    )Recoveries
    
    
    426
    
    
    
    629
    
    
    
    774
    
    
    
    1,003Provision for loan losses
    
    
    455
    
    
    
    859
    
    
    
    1,190
    
    
    
    1,253Ending Balance
    
    $
    26,390
    
    
    $
    21,043
    
    
    $
    26,390
    
    
    $
    21,043Percent of total loans
    
    
    1.19
    %
    
    
    1.17
    %
    
    
    1.19
    %
    
    
    1.17
    %Annualized % of average loans:Net charge-offs
    
    
    0.22
    %
    
    
    0.69
    %
    
    
    0.20
    %
    
    
    0.53
    %Provision for loan losses
    
    
    0.08
    %
    
    
    0.19
    %
    
    
    0.12
    %
    
    
    0.14
    %
   June 30,
    
    
    December 31,2007
    
    
    2006Nonaccrual loans
    
    $
    12,975
    
    
    $
    8,62590 days or more past due loans
    
    
    801
    
    
    
    228Total non-performing loans
    
    
    13,776
    
    
    
    8,853Other real estate owned
    
    
    3,563
    
    
    
    936Total non-performing assets
    
    $
    17,339
    
    
    $
    9,789Ratios:Non-performing Loans to Loans
    
    
    0.62
    %
    
    
    0.49
    %Non-performing Assets to Loans and Other Real
Estate Owned
    
    
    0.78
    %
    
    
    0.55
    %Allowance for Loan Losses to Non-performing Loans
    
    
    191.57
    %
    
    
    238.96
    %
 DEPOSITS
     28




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##### Table of Contents



SHORT-TERM BORROWINGS
   LONG-TERM BORROWINGS
    CAPITAL EXPENDITURES
  OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS
  CAPITAL RESOURCES AND LIQUIDITY
  Regulatory Guidelines
    
    
    ActualMinimum
    
    
    Well-
    
    
    June 30,
    
    
    December 31,Requirements
    
    
    Capitalized
    
    
    2007
    
    
    2006Integra Bank Corporation:Total Capital (to Risk-Weighted Assets)
    
    
    8.00
    %
    
    
    N/A
    
    
    
    11.76
    %
    
    
    12.51
    %Tier 1 Capital (to Risk-Weighted
Assets)
    
    
    4.00
    %
    
    
    N/A
    
    
    
    9.41
    %
    
    
    10.80
    %Tier 1 Capital (to Average Assets)
    
    
    4.00
    %
    
    
    N/A
    
    
    
    7.75
    %
    
    
    8.42
    %Integra Bank N.A.:Total Capital (to Risk-Weighted Assets)
    
    
    8.00
    %
    
    
    10.00
    %
    
    
    12.22
    %
    
    
    11.91
    %Tier 1 Capital (to Risk-Weighted
Assets)
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    11.17
    %
    
    
    10.88
    %Tier 1 Capital (to Average Assets)
    
    
    4.00
    %
    
    
    5.00
    %
    
    
    9.21
    %
    
    
    8.49
    %
   29




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
     Earnings at Risk (EAR).
  At June 30, 2007Estimated
    
    
    EstimatedEstimated
    
    
    Change
    
    
    ChangeChange in Interest Rates
    
    EAR Amount
    
    
    Amount
    
    
    Percent+200 basis points
    
    $
    107,343
    
    
    
    1,704
    
    
    
    1.60
    %Flat
    
    
    105,639-200 basis points
    
    
    103,192
    
    
    
    (2,446
    )
    
    
    -2.30
    %
   30




---



##### Table of Contents



Economic Value of Equity (EVE).
    At June 30, 2007Estimated
    
    
    EstimatedEstimated
    
    
    Change
    
    
    ChangeChange in Interest Rates
    
    EVE Amount
    
    
    Amount
    
    
    Percent+200 basis points
    
    $
    532,921
    
    
    
    (24,838
    )
    
    
    -4.50
    %Flat
    
    
    557,759-200 basis points
    
    
    565,983
    
    
    
    8,224
    
    
    
    1.50
    %
  
 Item 4: Controls and Procedures
    31




---



##### Table of Contents



PART II   OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
  
 Item 1A. RISK FACTORS
  Our Acquisition of Prairie Financial Corporation May Not Produce the Results We Expect.
  
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number of
    
    
    ApproximateShares Purchased
    
    
    Dollar Value ofas Part of
    
    
    Shares that MayTotal Number
    
    
    
    
    
    
    Publicly
    
    
    Yet be Purchasedof Shares
    
    
    Average Price
    
    
    Announced Plans
    
    
    Under PlansPurchased
    
    
    Paid per Share
    
    
    or Programs
    
    
    or ProgramsJanuary 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    10,000February 2007
    
    
    117,350
    
    
    
    24.51
    
    
    
    117,350
    
    
    
    7,119March 2007
    
    
    5,100
    
    
    
    23.87
    
    
    
    5,100
    
    
    
    6,997April 2007
    
    
    95,000
    
    
    
    22.93
    
    
    
    95,000
    
    
    
    4,815May 2007
    
    
    187,000
    
    
    
    23.34
    
    
    
    187,000
    
    
    
    444June 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,500Total
    
    
    404,450
    
    
    $
    23.59
    
    
    
    404,450
  
 Item 3. DEFAULTS UPON SENIOR SECURITIES
  
 Item 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
   32




---



##### Table of Contents



Abstain &Broker Non-Affirmative
    
    
    Negative
    
    
    VotesRoxy M. Baas
    
    
    13,843,680
    
    
    
    175,439
    
    
    
    770,635Dr. H. Ray Hoops
    
    
    13,722,079
    
    
    
    211,288
    
    
    
    856,387Robert W. Swan
    
    
    13,808,724
    
    
    
    214,675
    
    
    
    766,355Robert D. Vance
    
    
    12,819,852
    
    
    
    44,151
    
    
    
    704,650
  2008
    
    2009George D. Martin
    
    Sandra Clark BerryWilliam E. Vieth
    
    Thomas W. MillerDaniel T. Wolfe
    
    Richard M. StiversMichael T. Vea
   Affirmative
    
    Negative
    
    Abstain14,033,056
    
    685,332
    
    71,365
 
 Item 5. OTHER INFORMATION
  
 Item 6. EXHIBITS
              
 *
    
    The indicated exhibit is a management contract, compensatory plan or arrangement required
to be filed by Item 601 of Regulation S-K.  33




---



##### Table of Contents



SIGNATURES
  INTEGRA BANK CORPORATIONBy
    /s/ Michael T. VeaChairman of the Board, Chief Executive Officer and President
August 8, 2007/s/ Martin M. ZornExecutive Vice President, Chief Financial Officer
August 8, 2007  34




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Description10.1*
    
    Integra Bank Corporation 2007 Equity Incentive Plan (incorporated
by reference to Exhibit A to Proxy Statement on Schedule 14A filed
March 16, 2007)10.2*
    
    Integra Bank Corporation Annual Cash Incentive Plan (incorporated
by reference to Exhibit B to Proxy Statement on Schedule 14A filed
March 16, 2007)10.3*
    
    Employment Agreement dated May 22, 2007, between Integra Bank
Corporation and Archie M. Brown Jr.10.4*
    
    Employment Agreement dated May 22, 2007, between Integra Bank
Corporation and Martin M. Zorn10.5*
    
    Change in Control Benefits Agreement dated May 22, 2007, between
Integra Bank Corporation and Roger M. Duncan10.6*
    
    Change in Control Benefits Agreement dated May 22, 2007, between
Integra Bank Corporation and Roger D. Watson10.7*
    
    Change in Control Benefits Agreement dated May 22, 2007, between
Integra Bank Corporation and Raymond D. Beck10.8*
    
    Change in Control Benefits Agreement dated May 22, 2007, between
Integra Bank Corporation and Michael B. Carroll10.9*
    
    Revised Summary Sheet of 2007 Compensation31.1
    
    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
 
 *
    
    The indicated exhibit is a management contract, compensatory plan or arrangement required to
be filed by Item 601 of Regulation S-K.  35