##### 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, 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 NOVEMBER 1, 2007(Common stock, $1.00 Stated Value)
    
    20,650,165




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##### 



INTEGRA BANK CORPORATION
 INDEX
 PAGE NO.PART I  FINANCIAL INFORMATIONItem 1. Unaudited Financial StatementsConsolidated balance sheets-September 30, 2007 and December 31, 2006
    
    
    3Consolidated statements of income-Three months and nine months ended September 30, 2007 and 2006
    
    
    4Consolidated statements of comprehensive income-
Three months and nine months ended September 30, 2007 and 2006
    
    
    5Consolidated statements of changes in shareholders equity-
Nine months ended September 30, 2007
    
    
    6Consolidated statements of cash flow-
Nine months ended September 30, 2007 and 2006
    
    
    7Notes to unaudited consolidated financial statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    32Item 4. Controls and Procedures
    
    
    33PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    34Item1A. Risk Factors
    
    
    34Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3. Defaults Upon Senior Securities
    
    
    34Item 4. Submissions of Matters to a Vote of Security Holders
    
    
    34Item 5. Other Information
    
    
    34Item 6. Exhibits
    
    
    35Signatures
    
    
    36Exhibit 10.1Exhibit 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 31,2007
    
    
    2006ASSETSCash and due from banks
    
    $
    64,079
    
    
    $
    65,400Federal funds sold and other short-term investments
    
    
    7,895
    
    
    
    3,998Total cash and cash equivalents
    
    
    71,974
    
    
    
    69,398Loans held for sale (at lower of cost or fair value)
    
    
    6,711
    
    
    
    1,764Securities available for sale
    
    
    589,384
    
    
    
    614,718Regulatory stock
    
    
    29,187
    
    
    
    24,410Loans, net of unearned income
    
    
    2,299,988
    
    
    
    1,790,976Less: Allowance for loan losses
    
    
    (26,401
    )
    
    
    (21,155
    )Net loans
    
    
    2,273,587
    
    
    
    1,769,821Premises and equipment
    
    
    51,297
    
    
    
    46,157Goodwill
    
    
    123,309
    
    
    
    44,491Other intangible assets
    
    
    12,106
    
    
    
    6,832Other assets
    
    
    159,765
    
    
    
    106,888TOTAL ASSETS
    
    $
    3,317,320
    
    
    $
    2,684,479LIABILITIESDeposits:Non-interest-bearing demand
    
    $
    269,441
    
    
    $
    252,851Interest-bearing:Savings, interest checking and money market accounts
    
    
    903,405
    
    
    
    794,280Time deposits of $100 or more
    
    
    542,036
    
    
    
    372,356Other interest-bearing
    
    
    669,071
    
    
    
    534,365Total deposits
    
    
    2,383,953
    
    
    
    1,953,852Short-term borrowings
    
    
    222,422
    
    
    
    217,518Long-term borrowings
    
    
    327,167
    
    
    
    254,521Other liabilities
    
    
    58,688
    
    
    
    23,114TOTAL LIABILITIES
    
    
    2,992,230
    
    
    
    2,449,005Commitments and contingent liabilities (See Note 8)
    
    
    
    
    
    
    SHAREHOLDERS EQUITYPreferred stock - 1,000,000 shares authorizedNone outstandingCommon stock  $1.00 stated value:Shares authorized: 29,000,000Shares outstanding: 20,649,165 and 17,794,289 respectively
    
    
    20,649
    
    
    
    17,794Additional paid-in capital
    
    
    206,582
    
    
    
    135,054Retained earnings
    
    
    102,815
    
    
    
    88,355Accumulated other comprehensive income (loss)
    
    
    (4,956
    )
    
    
    (5,729
    )TOTAL SHAREHOLDERS EQUITY
    
    
    325,090
    
    
    
    235,474TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    3,317,320
    
    
    $
    2,684,479
   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 30,2007
    
    
    2006
    
    
    2007
    
    
    2006INTEREST INCOMEInterest and fees on loans:Taxable
    
    $
    43,488
    
    
    $
    32,731
    
    
    $
    116,903
    
    
    $
    92,333Tax-exempt
    
    
    98
    
    
    
    105
    
    
    
    299
    
    
    
    311Interest and dividends on securities:Taxable
    
    
    5,909
    
    
    
    6,710
    
    
    
    18,269
    
    
    
    20,089Tax-exempt
    
    
    1,385
    
    
    
    1,107
    
    
    
    3,809
    
    
    
    3,327Dividends on regulatory stock
    
    
    314
    
    
    
    298
    
    
    
    941
    
    
    
    1,151Interest on loans held for sale
    
    
    77
    
    
    
    44
    
    
    
    150
    
    
    
    109Interest on federal funds sold and other short-term investments
    
    
    56
    
    
    
    40
    
    
    
    165
    
    
    
    271Total interest income
    
    
    51,327
    
    
    
    41,035
    
    
    
    140,536
    
    
    
    117,591INTEREST EXPENSEInterest on deposits
    
    
    19,790
    
    
    
    14,901
    
    
    
    54,491
    
    
    
    39,283Interest on short-term borrowings
    
    
    2,648
    
    
    
    2,418
    
    
    
    6,930
    
    
    
    6,427Interest on long-term borrowings
    
    
    4,191
    
    
    
    2,899
    
    
    
    10,521
    
    
    
    10,203Total interest expense
    
    
    26,629
    
    
    
    20,218
    
    
    
    71,942
    
    
    
    55,913NET INTEREST INCOME
    
    
    24,698
    
    
    
    20,817
    
    
    
    68,594
    
    
    
    61,678Provision for loan losses
    
    
    723
    
    
    
    950
    
    
    
    1,913
    
    
    
    2,203Net interest income after provision for loan losses
    
    
    23,975
    
    
    
    19,867
    
    
    
    66,681
    
    
    
    59,475NON-INTEREST INCOMEService charges on deposit accounts
    
    
    5,408
    
    
    
    4,946
    
    
    
    15,034
    
    
    
    14,037Other service charges and fees
    
    
    1,286
    
    
    
    976
    
    
    
    3,623
    
    
    
    3,216Debit card income-interchange
    
    
    1,136
    
    
    
    809
    
    
    
    3,095
    
    
    
    2,347Trust income
    
    
    588
    
    
    
    576
    
    
    
    1,804
    
    
    
    1,766Net securities gains (losses)
    
    
    219
    
    
    
    (13
    )
    
    
    441
    
    
    
    (12
    )Gain on sale of other assets
    
    
    (5
    )
    
    
    (39
    )
    
    
    594
    
    
    
    87Cash surrender value life insurance
    
    
    633
    
    
    
    870
    
    
    
    1,545
    
    
    
    1,744Other
    
    
    1,122
    
    
    
    1,081
    
    
    
    3,397
    
    
    
    3,199Total non-interest income
    
    
    10,387
    
    
    
    9,206
    
    
    
    29,533
    
    
    
    26,384NON-INTEREST EXPENSESalaries and employee benefits
    
    
    11,319
    
    
    
    10,003
    
    
    
    33,777
    
    
    
    30,426Occupancy
    
    
    2,474
    
    
    
    1,971
    
    
    
    6,969
    
    
    
    6,039Equipment
    
    
    832
    
    
    
    898
    
    
    
    2,478
    
    
    
    2,599Professional fees
    
    
    1,073
    
    
    
    614
    
    
    
    3,103
    
    
    
    2,096Communication and transportation
    
    
    1,490
    
    
    
    1,235
    
    
    
    3,964
    
    
    
    3,715Processing
    
    
    690
    
    
    
    518
    
    
    
    1,824
    
    
    
    1,564Software
    
    
    488
    
    
    
    426
    
    
    
    1,454
    
    
    
    1,238Marketing
    
    
    627
    
    
    
    507
    
    
    
    1,785
    
    
    
    1,559Low income housing project losses
    
    
    635
    
    
    
    555
    
    
    
    1,758
    
    
    
    1,812Amortization of intangible assets
    
    
    454
    
    
    
    233
    
    
    
    1,106
    
    
    
    699Other
    
    
    2,160
    
    
    
    1,639
    
    
    
    6,061
    
    
    
    5,270Total non-interest expense
    
    
    22,242
    
    
    
    18,599
    
    
    
    64,279
    
    
    
    57,017Income before income taxes
    
    
    12,120
    
    
    
    10,474
    
    
    
    31,935
    
    
    
    28,842Income tax expense
    
    
    2,914
    
    
    
    2,274
    
    
    
    7,040
    
    
    
    6,695NET INCOME
    
    $
    9,206
    
    
    $
    8,200
    
    
    $
    24,895
    
    
    $
    22,147Earnings per share:Basic
    
    $
    0.45
    
    
    $
    0.47
    
    
    $
    1.28
    
    
    $
    1.27Diluted
    
    
    0.45
    
    
    
    0.46
    
    
    
    1.27
    
    
    
    1.26Weighted average shares outstanding:Basic
    
    
    20,527
    
    
    
    17,589
    
    
    
    19,523
    
    
    
    17,496Diluted
    
    
    20,545
    
    
    
    17,752
    
    
    
    19,583
    
    
    
    17,644Dividends per share
    
    $
    0.18
    
    
    $
    0.17
    
    
    $
    0.53
    
    
    $
    0.50
   4




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INTEGRA BANK CORPORATION and Subsidiaries
 
 Unaudited Consolidated Statements of Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    9,206
    
    
    $
    8,200
    
    
    $
    24,895
    
    
    $
    22,147Other comprehensive income, net of tax:Unrealized gain (loss) on securities:Unrealized gain arising in period
(net of tax of $1,961, $4,299, $647 and $85, respectively)
    
    
    2,808
    
    
    
    6,162
    
    
    
    970
    
    
    
    215Reclassification of realized amounts
(net of tax of $(89), $5, $(179) and $5, respectively)
    
    
    (131
    )
    
    
    8
    
    
    
    (263
    )
    
    
    7Net unrealized gain on securities
    
    
    2,677
    
    
    
    6,170
    
    
    
    707
    
    
    
    222Unrealized gain on derivative hedging instruments arising in period
(net of tax of $82, $39, $42 and $39, respectively)
    
    
    123
    
    
    
    57
    
    
    
    66
    
    
    
    57Net unrealized gain, recognized in other comprehensive income
    
    
    2,800
    
    
    
    6,227
    
    
    
    773
    
    
    
    279Comprehensive income
    
    $
    12,006
    
    
    $
    14,427
    
    
    $
    25,668
    
    
    $
    22,426
   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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,895
    
    
    
    
    
    
    
    24,895Cash dividend declared ($0.53 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,435
    )
    
    
    
    
    
    
    (10,435
    )Repurchase of outstanding shares
    
    
    (404,450
    )
    
    
    (404
    )
    
    
    (9,152
    )
    
    
    
    
    
    
    
    
    
    
    (9,556
    )Change, net of tax, in unrealized gain (loss) on:Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    707
    
    
    
    707Interest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66
    
    
    
    66Exercise of stock options
    
    
    29,761
    
    
    
    30
    
    
    
    321
    
    
    
    
    
    
    
    
    
    
    
    351Issuance of stock for acquisition
    
    
    3,149,157
    
    
    
    3,149
    
    
    
    79,296
    
    
    
    
    
    
    
    
    
    
    
    82,445Grant of restricted stock, net of forfeitures
    
    
    80,408
    
    
    
    80
    
    
    
    (80
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,143
    
    
    
    
    
    
    
    
    
    
    
    1,143BALANCE AT SEPTEMBER 30, 2007
    
    
    20,649,165
    
    
    $
    20,649
    
    
    $
    206,582
    
    
    $
    102,815
    
    
    $
    (4,956
    )
    
    $
    325,090
   6




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##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
 
 Unaudited Consolidated Statements of Cash Flow
  Nine Months EndedSeptember 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    24,895
    
    
    $
    22,147Adjustments to reconcile net income to
net cash provided by operating activities:Amortization and depreciation
    
    
    5,020
    
    
    
    4,530Provision for loan losses
    
    
    1,913
    
    
    
    2,203Net securities (gains) losses
    
    
    (441
    )
    
    
    12(Gain) loss on sale of premises and equipment
    
    
    
    
    
    
    (77
    )(Gain) loss on sale of other real estate owned
    
    
    (27
    )
    
    
    (10
    )(Gain) loss on sale of other assets
    
    
    12
    
    
    
    Gain on sale of mortgage servicing rights
    
    
    (576
    )
    
    
    Loss on low-income housing investments
    
    
    1,684
    
    
    
    1,812Increase (decrease) in deferred taxes
    
    
    (43
    )
    
    
    1,547Net gain on sale of loans held for sale
    
    
    (572
    )
    
    
    (444
    )Proceeds from sale of loans held for sale
    
    
    61,008
    
    
    
    44,794Origination of loans held for sale
    
    
    (65,383
    )
    
    
    (45,227
    )Change in other operating
    
    
    5,111
    
    
    
    4,287Net cash flows provided by operating activities
    
    
    32,601
    
    
    
    35,574CASH FLOWS FROM INVESTING ACTIVITIESProceeds from maturities of securities available for sale
    
    
    89,682
    
    
    
    93,987Proceeds from sales of securities available for sale
    
    
    51,668
    
    
    
    282Purchase of securities available for sale
    
    
    (28,852
    )
    
    
    (49,868
    )Purchase of bank owned life insurance
    
    
    (13,628
    )
    
    
    Decrease in loans made to customers
    
    
    (81,403
    )
    
    
    (54,806
    )Purchase of premises and equipment
    
    
    (2,411
    )
    
    
    (418
    )Proceeds from sale of premises and equipment
    
    
    
    
    
    
    125Proceeds from sale of other real estate owned
    
    
    832
    
    
    
    386Acquisition of Prairie Financial Corp, net of cash acquired
    
    
    (34,533
    )
    
    
    Net cash flows used in investing activities
    
    
    (18,645
    )
    
    
    (10,312
    )CASH FLOWS FROM FINANCING ACTIVITIESNet increase (decrease) in deposits
    
    
    (39,776
    )
    
    
    183,362Excess income tax benefit from employee stock-based awards
    
    
    10
    
    
    
    Net increase (decrease) in short-term borrowed funds
    
    
    14
    
    
    
    (84,450
    )Proceeds from long-term borrowings
    
    
    161,619Repayment of long-term borrowings
    
    
    (114,299
    )
    
    
    (114,702
    )Repurchase of common stock
    
    
    (9,556
    )
    
    
    Dividends paid
    
    
    (9,743
    )
    
    
    (8,574
    )Proceeds from exercise of stock options
    
    
    351
    
    
    
    4,204Net cash flows used in financing activities
    
    
    (11,380
    )
    
    
    (20,160
    )Net increase in cash and cash equivalents
    
    
    2,576
    
    
    
    5,102Cash and cash equivalents at beginning of period
    
    
    69,398
    
    
    
    62,755Cash and cash equivalents at end of period
    
    $
    71,974
    
    
    $
    67,857
   7




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##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
Unaudited Consolidated Statements of Cash Flow (Continued)
 Nine Months EndedSeptember 30,2007
    
    
    2006SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSChange in allowance for unrealized (gain) loss on securities available for sale
    
    $
    (1,149
    )
    
    $
    133Change in deferred taxes attributable to securities available for sale
    
    
    510
    
    
    
    (90
    )Change in fair value of derivative hedging instruments, net of tax
    
    
    66
    
    
    
    57Other real estate acquired in settlement of loans
    
    
    3,935
    
    
    
    791Dividends declared and not paid
    
    
    3,717
    
    
    
    3,010
   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
    
    
    (29,761
    )
    
    
    11.80Options/SARs forfeited/expired
    
    
    (7,882
    )
    
    
    22.75Options/SARs outstanding at September 30, 2007
    
    
    1,404,832
    
    
    $
    21.97Options/SARs exercisable at September 30, 2007
    
    
    1,081,031
    
    
    $
    21.55
     11




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##### Table of Contents



September 30,2007SharesRestricted shares outstanding, December 31, 2006
    
    
    62,865Shares granted
    
    
    90,424Shares vested
    
    
    (27,395
    )Shares forfeited
    
    
    (10,016
    )Restricted shares outstanding, September 30, 2007
    
    
    115,878Weighted-average fair value per share
at date of grant
    
    $
    22.86
  NOTE 2. BUSINESS COMBINATIONS
      12




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##### Table of Contents



Securities available for sale
    
    $
    86,409Loans, net
    
    
    428,213Goodwill
    
    
    78,818Core deposit and other intangibles
    
    
    6,380Other assets
    
    
    27,240Total assets acquired
    
    $
    627,060Deposits
    
    $
    469,745Other liabilities
    
    
    38,828Total liabilities assumed
    
    $
    508,573Net assets acquired
    
    $
    118,487
  Nine Months Ended
    
    
    Six Months Ended
    
    
    Year EndedSeptember 30, 2007
    
    
    June 30, 2007
    
    
    December 31, 2006Net interest income
    
    $
    74,686
    
    
    $
    49,094
    
    
    $
    102,901Non-interest income
    
    
    30,395
    
    
    
    19,637
    
    
    
    38,050Total Revenue
    
    $
    105,081
    
    
    $
    68,731
    
    
    $
    140,951Net income
    
    $
    24,276
    
    
    $
    15,916
    
    
    $
    25,146Basic earnings per share
    
    $
    1.24
    
    
    $
    0.84
    
    
    $
    1.22Diluted earnings per share
    
    
    1.24
    
    
    
    0.83
    
    
    
    1.21
    13




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##### Table of Contents



NOTE 3. EARNINGS PER SHARE
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    9,206
    
    
    $
    8,200
    
    
    $
    24,895
    
    
    $
    22,147Weighted average shares outstanding  Basic
    
    
    20,527,189
    
    
    
    17,588,933
    
    
    
    19,522,590
    
    
    
    17,495,602Incremental shares related to stock compensation
    
    
    17,858
    
    
    
    163,194
    
    
    
    60,243
    
    
    
    148,007Average shares outstanding  Diluted
    
    
    20,545,047
    
    
    
    17,752,127
    
    
    
    19,582,833
    
    
    
    17,643,609Earnings per share  Basic
    
    $
    0.45
    
    
    $
    0.47
    
    
    $
    1.28
    
    
    $
    1.27Effect of incremental shares related to stock
compensation
    
    
    
    
    
    
    0.01
    
    
    
    0.01
    
    
    
    0.01Earnings per share  Diluted
    
    $
    0.45
    
    
    $
    0.46
    
    
    $
    1.27
    
    
    $
    1.26
  NOTE 4. SECURITIES
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSeptember 30, 2007:U.S. Government agencies
    
    $
    16,175
    
    
    $
    70
    
    
    $
    10
    
    
    $
    16,235Mortgage-backed securities
    
    
    127,653
    
    
    
    483
    
    
    
    1,214
    
    
    
    126,922Collateralized Mortgage Obligations
    
    
    272,856
    
    
    
    186
    
    
    
    6,755
    
    
    
    266,287States & political subdivisions
    
    
    107,446
    
    
    
    1,843
    
    
    
    283
    
    
    
    109,006Other securities
    
    
    72,617
    
    
    
    403
    
    
    
    2,086
    
    
    
    70,934Total
    
    $
    596,747
    
    
    $
    2,985
    
    
    $
    10,348
    
    
    $
    589,384
 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
  14




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##### Table of Contents



Less than 12 Months
    
    
    12 Months or More
    
    
    TotalSeptember 30, 2007
    
    Fair Value
    
    
    Unrealized Losses
    
    
    Fair Value
    
    
    Unrealized Losses
    
    
    Fair Value
    
    
    Unrealized LossesU.S. Government agencies
    
    $
    
    
    
    $
    
    
    
    $
    766
    
    
    $
    10
    
    
    $
    766
    
    
    $
    10Mortgage-backed securities
    
    
    8,621
    
    
    
    64
    
    
    
    74,697
    
    
    
    1,150
    
    
    
    83,318
    
    
    
    1,214Collateralized Mortgage Obligations
    
    
    2,868
    
    
    
    89
    
    
    
    244,330
    
    
    
    6,666
    
    
    
    247,198
    
    
    
    6,755State & political subdivisions
    
    
    24,200
    
    
    
    282
    
    
    
    168
    
    
    
    1
    
    
    
    24,368
    
    
    
    283Other securities
    
    
    47,818
    
    
    
    2,020
    
    
    
    2,359
    
    
    
    66
    
    
    
    50,177
    
    
    
    2,086Total
    
    $
    83,507
    
    
    $
    2,455
    
    
    $
    322,320
    
    
    $
    7,893
    
    
    $
    405,827
    
    
    $
    10,348
     NOTE 5. INCOME TAXES
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Federal income tax computed at the statutory rates
    
    $
    4,241
    
    
    $
    3,666
    
    
    $
    11,177
    
    
    $
    10,095Adjusted for effects of:Tax refunds
    
    
    
    
    
    
    
    
    
    
    (886
    )
    
    
    Tax exempt interest
    
    
    (472
    )
    
    
    (378
    )
    
    
    (1,295
    )
    
    
    (1,135
    )Nondeductible expenses
    
    
    91
    
    
    
    65
    
    
    
    238
    
    
    
    175Low income housing credit
    
    
    (622
    )
    
    
    (562
    )
    
    
    (1,662
    )
    
    
    (1,766
    )Cash surrender value of life insurance policies
    
    
    (214
    )
    
    
    (304
    )
    
    
    (526
    )
    
    
    (610
    )Dividend received deduction
    
    
    (46
    )
    
    
    (54
    )
    
    
    (142
    )
    
    
    (162
    )State taxes, net of federal tax benefit
    
    
    1
    
    
    
    76
    
    
    
    77
    
    
    
    216Other differences
    
    
    (65
    )
    
    
    (235
    )
    
    
    59
    
    
    
    (118
    )Total income taxes
    
    $
    2,914
    
    
    $
    2,274
    
    
    $
    7,040
    
    
    $
    6,695
   15




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##### Table of Contents



NOTE 6. SHORT-TERM BORROWINGS
  September 30,
    
    
    December 31,2007
    
    
    2006Federal funds purchased
    
    $
    55,000
    
    
    $
    45,700Securities sold under agreements to repurchase
    
    
    92,422
    
    
    
    131,818Short-term Federal Home Loan Bank advances
    
    
    75,000
    
    
    
    40,000Total short-term borrowed funds
    
    $
    222,422
    
    
    $
    217,518
   16




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##### Table of Contents



NOTE 7. LONG-TERM BORROWINGS
  September 30,
    
    
    December 31,2007
    
    
    2006Federal Home Loan Bank (FHLB) AdvancesFixed maturity advances (weighted average rate of 4.71% and
2.64% as of September 30, 2007 and December 31, 2006, respectively)
    
    $
    86,015
    
    
    $
    102,500Amortizing and other advances (weighted average rate of 5.28% and
5.55% as of September 30, 2007 and December 31, 2006, respectively)
    
    
    2,010
    
    
    
    3,079Total FHLB Advances
    
    
    88,025
    
    
    
    105,579Securities sold under repurchase agreements with maturities
    
    
    115,000
    
    
    
    75,000at various dates through 2008 (weighted average fixed rate of 3.70%
and 2.78% as of September 30, 2007 and December 31, 2006, respectively)Notes payable, secured by equipment, with a fixed interest rate of 7.26%,
    
    
    5,088
    
    
    
    5,817due at various dates through 2012Term note, with an interest rate equal to three-month LIBOR plus 0.875%,
    
    
    20,000
    
    
    
    with a maturity date of April 1, 2012Subordinated debt, unsecured, with a floating interest rate equal to three-
    
    
    10,000
    
    
    
    10,000month LIBOR plus 3.20%, with a maturity date of April 24, 2013Subordinated debt, unsecured, with a floating interest rate equal to three-
    
    
    4,000
    
    
    
    4,000month LIBOR plus 2.85%, with a maturity date of April 7, 2014Floating Rate Capital Securities, with an interest rate equal to six-month
    
    
    18,557
    
    
    
    18,557LIBOR plus 3.75%, with a maturity date of July 25, 2031, and callable
effective July 25, 2011 at parFloating Rate Capital Securities, with an interest rate equal to three-month
    
    
    35,568
    
    
    
    35,568LIBOR plus 3.10%, with a maturity date of June 26, 2033 and callable
effective June 26, 2008 at parFloating Rate Capital Securities, with an interest rate equal to three-month
    
    
    10,310
    
    
    
    LIBOR plus 1.70% with a maturity date of December 15, 2036 and callable
effective December 15, 2011 at parFloating Rate Capital Securities, with an interest rate equal to three-month
    
    
    20,619
    
    
    
    LIBOR plus 1.57%, with a maturity date of June 30, 2037 and callable
effective June 30, 2012 at parTotal long-term borrowings
    
    $
    327,167
    
    
    $
    254,521
      17




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##### Table of Contents



NOTE 8. COMMITMENTS AND CONTINGENCIES
    September 30,
    
    
    December 31,2007
    
    
    2006Commitments to extend credit
    
    $
    717,024
    
    
    $
    570,421Standby letters of credit
    
    
    17,144
    
    
    
    17,535Non-reimbursable standby letters of credit
    
    
    2,240
    
    
    
    2,380
 NOTE 9. INTEREST RATE CONTRACTS
       18




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##### Table of Contents



NOTE 10. SEGMENT INFORMATION
   For three months ended September 30, 2007
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    51,257
    
    
    $
    70
    
    
    $
    51,327Interest expense
    
    
    24,263
    
    
    
    2,366
    
    
    
    26,629Net interest income (loss)
    
    
    26,994
    
    
    
    (2,296
    )
    
    
    24,698Provision for loan losses
    
    
    723
    
    
    
    
    
    
    
    723Other income
    
    
    10,311
    
    
    
    76
    
    
    
    10,387Other expense
    
    
    21,965
    
    
    
    277
    
    
    
    22,242Earnings before income taxes
    
    
    14,617
    
    
    
    (2,497
    )
    
    
    12,120Income tax expense (benefit)
    
    
    3,842
    
    
    
    (928
    )
    
    
    2,914Net income
    
    $
    10,775
    
    
    $
    (1,569
    )
    
    $
    9,206
 For nine months ended September 30, 2007
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    140,344
    
    
    $
    192
    
    
    $
    140,536Interest expense
    
    
    65,854
    
    
    
    6,088
    
    
    
    71,942Net interest income (loss)
    
    
    74,490
    
    
    
    (5,896
    )
    
    
    68,594Provision for loan losses
    
    
    1,913
    
    
    
    
    
    
    
    1,913Other income
    
    
    29,270
    
    
    
    263
    
    
    
    29,533Other expense
    
    
    63,329
    
    
    
    950
    
    
    
    64,279Earnings before income taxes
    
    
    38,518
    
    
    
    (6,583
    )
    
    
    31,935Income tax expense (benefit)
    
    
    9,506
    
    
    
    (2,466
    )
    
    
    7,040Net income
    
    $
    29,012
    
    
    $
    (4,117
    )
    
    $
    24,895Segment assets
    
    $
    3,309,093
    
    
    $
    8,227
    
    
    $
    3,317,320
 For three months ended September 30, 2006
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    40,983
    
    
    $
    52
    
    
    $
    41,035Interest expense
    
    
    18,710
    
    
    
    1,508
    
    
    
    20,218Net interest income (loss)
    
    
    22,273
    
    
    
    (1,456
    )
    
    
    20,817Provision for loan losses
    
    
    950
    
    
    
    
    
    
    
    950Other income
    
    
    9,155
    
    
    
    51
    
    
    
    9,206Other expense
    
    
    18,313
    
    
    
    286
    
    
    
    18,599Earnings before income taxes
    
    
    12,165
    
    
    
    (1,691
    )
    
    
    10,474Income tax expense (benefit)
    
    
    2,875
    
    
    
    (601
    )
    
    
    2,274Net income
    
    $
    9,290
    
    
    $
    (1,090
    )
    
    $
    8,200
  19




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##### Table of Contents



For nine months ended September 30, 2006
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    117,446
    
    
    $
    145
    
    
    $
    117,591Interest expense
    
    
    51,660
    
    
    
    4,253
    
    
    
    55,913Net interest income (loss)
    
    
    65,786
    
    
    
    (4,108
    )
    
    
    61,678Provision for loan losses
    
    
    2,203
    
    
    
    
    
    
    
    2,203Other income
    
    
    26,150
    
    
    
    234
    
    
    
    26,384Other expense
    
    
    56,012
    
    
    
    1,005
    
    
    
    57,017Earnings before income taxes
    
    
    33,721
    
    
    
    (4,879
    )
    
    
    28,842Income tax expense (benefit)
    
    
    8,551
    
    
    
    (1,856
    )
    
    
    6,695Net income
    
    $
    25,170
    
    
    $
    (3,023
    )
    
    $
    22,147Segment assets
    
    $
    2,703,797
    
    
    $
    7,509
    
    
    $
    2,711,306
  20




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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 (which is the difference between percentage growth in total
revenue less percentage growth in non-interest expense) 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.
   21




---



##### Table of Contents




    
    The integration of Prairie Financial Corporation was completed. We completed
the acquisition of Prairie Financial Corporation (Prairie) which we had acquired the
beginning of the second quarter. Prairie had five offices which now represent our Chicago
region.
 
    
    Commercial loan average balances grew $75,991 or 21.2% annualized. The third
quarter growth came primarily from the commercial real estate line of business and the
commercial lending group in our Cincinnati market. Higher yielding commercial loan average
balances were 52.1% of earning assets for the third quarter of 2007, compared to 49.7% for
the second quarter of 2007 and 42.3% for the first quarter of 2007. The strong growth in
commercial loans was supplemented by growth in direct consumer loans of $4,808, or 12.1%
annualized, and more than offset planned declines in lower yielding indirect consumer and
residential mortgage loans.
 
    
    Net interest income increased $1,131 from the second quarter of 2007, while the
margin increased 12 basis points to 3.52%. The increase in yield on earning assets of
18 basis points was driven by the improved asset mix and higher yields on commercial loans.
An increase in the cost of interest bearing liabilities of only 5 basis points was driven
by a shift in funding from higher rate retail certificates to lower costing wholesale
repurchase agreements and Federal Home Loan Bank advances, slightly offset by higher money
market and savings rates. We were able to reprice higher cost retail certificates of
deposit that matured from the Chicago region elsewhere in our footprint at lower rates.
 
    
    Net charge-offs remained low, totaling 13 basis points for the third quarter of 2007
and 17 basis points for the nine months ended September 30, 2007. The provision for
loan losses was $723, or $11 more than net charge-offs. The allowance coverage to total
loans decreased 4 basis points to 1.15%, while the allowance to non-performing loans
decreased from 192% to 165%. The increase in non-performing loans of $2,275 was due almost
entirely to non-performing loans to customers in the Chicago region, and in particular, the
residential builders portfolio, which consists principally of loans for the construction
of single-family residences and small condominium projects. The risk in our non-performing
loan portfolio is granular, with no individual loan exceeding $1,250 and only three
exceeding $500.
 
    
    Operating leverage was 3.0%, reflecting that revenue growth was outpacing expense
growth from the second quarter of 2007. The $1,131 increase in net interest income
contributed to an increase in total revenue of $1,587, or 4.7%, outpacing an increase in
non-interest expense of $372 or 1.7%. This positive operating leverage reflects good core
expense control and revenue growth, as well as the positive leverage from integrating the
Chicago operations we acquired in our acquisition of Prairie in April 2007.
 
    
    Non-interest income increased $456, or 4.6%, from the second quarter of 2007.
The increase included increases in net securities gains of $163, life insurance income of
$135 and annuity income of $103. Deposit service charges were $5,408 for both the second
and third quarters of 2007.
 
    
    Non-interest expense was stable compared to the second quarter of 2007, increasing
only $372, or 1.7%. A decline in personnel expenses of $374 was offset by increases in
professional fees of $180, postage and courier of $145, low income housing investment
losses of $129 and loan expense of $106.
     22




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
  NET INTEREST INCOME
   
    
    Continued improvement in our earning asset mix in each of the four quarters since the
third quarter of 2006 contributed positively to both the net interest margin and net
interest income. Total average commercial loans represented 52.1% of earning assets for the
third quarter of 2007, compared to 40.6% for the third quarter of 2006, evidencing the
improvement in our mix of earning assets to higher yielding assets. The yield during the
third quarter of 2007 for commercial loans of 7.98% was 31 basis points higher than the
yield on total loans of 7.67%, and 270 basis points higher than the yield on investment
securities of 5.28%. Average yields for consumer and residential mortgage loans were 7.46%
and 6.46%, respectively. Securities balances declined $48,313 from the third quarter of
2006, or 7.3%. Lower yielding indirect consumer loans and residential mortgage loan
balances declined $22,231 or 17.1% and $48,302 or 13.4%, respectively, from the third
quarter of 2006. We have not originated any indirect consumer loans since December 2006.
 
    
    The increase in earning asset yields of 56 basis points to 7.19% was due largely to
higher average loan yields, which increased 46 basis points to 7.67% from 7.21%, and were
driven by an increase in commercial loan yields, including loan fees, of 39 basis points to
7.98%. The increases in yields for commercial, and to a lesser extent residential mortgage
and consumer loans continued to reflect, consistent 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 of 47 basis points to 4.07% was due to several items. The
Chicago market acquisition and higher market interest rates increased costs for money
market accounts, retail certificates of deposit, savings accounts and short-term
borrowings. Long-term borrowing costs increased 121 basis points from the third quarter of
2006 largely due to the replacement of $102,500 of funds that matured in March 2007.
Additional debt incurred in the Prairie acquisition 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 4.94% at September
30, 2007, and a higher level of retail certificates of deposit.
  23




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##### Table of Contents



For Three Months Ended September 30,
    
    2007
    
    
    2006Average
    
    
    Interest
    
    
    Yield/
    
    
    Average
    
    
    Interest
    
    
    Yield/Balances
    
    
    & Fees
    
    
    Cost
    
    
    Balances
    
    
    & Fees
    
    
    CostEARNING ASSETS:Short-term investments
    
    $
    4,591
    
    
    $
    56
    
    
    
    4.85
    %
    
    $
    2,749
    
    
    $
    40
    
    
    
    5.89
    %Loans held for sale
    
    
    4,085
    
    
    
    77
    
    
    
    7.58
    %
    
    
    2,366
    
    
    
    44
    
    
    
    7.32
    %Securities
    
    
    609,026
    
    
    
    8,039
    
    
    
    5.28
    %
    
    
    657,339
    
    
    
    8,433
    
    
    
    5.13
    %Regulatory Stock
    
    
    26,138
    
    
    
    314
    
    
    
    4.80
    %
    
    
    27,145
    
    
    
    298
    
    
    
    4.40
    %Loans
    
    
    2,238,572
    
    
    
    43,639
    
    
    
    7.67
    %
    
    
    1,798,153
    
    
    
    32,893
    
    
    
    7.21
    %Total earning assets
    
    
    2,882,412
    
    
    $
    52,125
    
    
    
    7.19
    %
    
    
    2,487,752
    
    
    $
    41,708
    
    
    
    6.63
    %Allowance for loan loss
    
    
    (26,244
    )
    
    
    
    
    
    
    
    
    
    
    (21,155
    )Other non-earning assets
    
    
    376,750
    
    
    
    
    
    
    
    
    
    
    
    258,044TOTAL ASSETS
    
    $
    3,232,918
    
    
    
    
    
    
    
    
    
    
    $
    2,724,641INTEREST-BEARING LIABILITIES:DepositsSavings and interest-bearing demand
    
    $
    510,155
    
    
    $
    1,307
    
    
    
    1.02
    %
    
    $
    488,656
    
    
    $
    1,117
    
    
    
    0.91
    %Money market accounts
    
    
    387,962
    
    
    
    4,156
    
    
    
    4.25
    %
    
    
    293,638
    
    
    
    2,933
    
    
    
    3.96
    %Certificates of deposit and other time
    
    
    1,195,543
    
    
    
    14,327
    
    
    
    4.75
    %
    
    
    989,754
    
    
    
    10,851
    
    
    
    4.35
    %Total
interest-bearing
deposits
    
    
    2,093,660
    
    
    
    19,790
    
    
    
    3.75
    %
    
    
    1,772,048
    
    
    
    14,901
    
    
    
    3.34
    %Short-term borrowings
    
    
    211,344
    
    
    
    2,648
    
    
    
    4.90
    %
    
    
    192,316
    
    
    
    2,418
    
    
    
    4.92
    %Long-term borrowings
    
    
    290,241
    
    
    
    4,191
    
    
    
    5.65
    %
    
    
    255,530
    
    
    
    2,899
    
    
    
    4.44
    %Total interest-bearing liabilities
    
    
    2,595,245
    
    
    $
    26,629
    
    
    
    4.07
    %
    
    
    2,219,894
    
    
    $
    20,218
    
    
    
    3.60
    %Non-interest bearing deposits
    
    
    284,002
    
    
    
    
    
    
    
    
    
    
    
    253,749Other noninterest-bearing liabilities and
shareholders equity
    
    
    353,671
    
    
    
    
    
    
    
    
    
    
    
    250,998TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    3,232,918
    
    
    
    
    
    
    
    
    
    
    $
    2,724,641Interest income/earning assets
    
    
    
    
    
    $
    52,125
    
    
    
    7.19
    %
    
    
    
    
    
    $
    41,708
    
    
    
    6.63
    %Interest expense/earning assets
    
    
    
    
    
    
    26,629
    
    
    
    3.67
    %
    
    
    
    
    
    
    20,218
    
    
    
    3.22
    %Net interest income/earning assets
    
    
    
    
    
    $
    25,496
    
    
    
    3.52
    %
    
    
    
    
    
    $
    21,490
    
    
    
    3.41
    %
 
  24




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##### Table of Contents



For Nine Months Ended September 30,
    
    2007
    
    
    2006Average
    
    
    Interest
    
    
    Yield/
    
    
    Average
    
    
    Interest
    
    
    Yield/Balances
    
    
    & Fees
    
    
    Cost
    
    
    Balances
    
    
    & Fees
    
    
    CostEARNING ASSETS:Short-term investments
    
    $
    4,788
    
    
    $
    165
    
    
    
    4.59
    %
    
    $
    7,939
    
    
    $
    271
    
    
    
    4.55
    %Loans held for sale
    
    
    2,892
    
    
    
    150
    
    
    
    6.96
    %
    
    
    2,021
    
    
    
    109
    
    
    
    6.66
    %Securities
    
    
    618,452
    
    
    
    24,129
    
    
    
    5.20
    %
    
    
    669,353
    
    
    
    25,255
    
    
    
    4.52
    %Regulatory Stock
    
    
    25,448
    
    
    
    941
    
    
    
    4.93
    %
    
    
    30,513
    
    
    
    1,151
    
    
    
    4.51
    %Loans
    
    
    2,072,381
    
    
    
    117,363
    
    
    
    7.49
    %
    
    
    1,774,591
    
    
    
    92,812
    
    
    
    6.93
    %Total earning assets
    
    
    2,723,961
    
    
    $
    142,748
    
    
    
    7.00
    %
    
    
    2,484,417
    
    
    $
    119,598
    
    
    
    6.39
    %Allowance for loan loss
    
    
    (24,644
    )
    
    
    
    
    
    
    
    
    
    
    (22,193
    )Other non-earning assets
    
    
    333,014
    
    
    
    
    
    
    
    
    
    
    
    260,713TOTAL ASSETS
    
    $
    3,032,331
    
    
    
    
    
    
    
    
    
    
    $
    2,722,937INTEREST-BEARING LIABILITIES:DepositsSavings and interest-bearing demand
    
    $
    505,102
    
    
    $
    3,639
    
    
    
    0.96
    %
    
    $
    500,637
    
    
    $
    3,091
    
    
    
    0.83
    %Money market accounts
    
    
    360,007
    
    
    
    11,208
    
    
    
    4.16
    %
    
    
    275,830
    
    
    
    7,582
    
    
    
    3.68
    %Certificates of deposit and other time
    
    
    1,128,473
    
    
    
    39,644
    
    
    
    4.70
    %
    
    
    937,194
    
    
    
    28,610
    
    
    
    4.08
    %Total
interest-bearing
deposits
    
    
    1,993,582
    
    
    
    54,491
    
    
    
    3.65
    %
    
    
    1,713,661
    
    
    
    39,283
    
    
    
    3.06
    %Short-term borrowings
    
    
    186,058
    
    
    
    6,930
    
    
    
    4.91
    %
    
    
    181,478
    
    
    
    6,427
    
    
    
    4.66
    %Long-term borrowings
    
    
    260,578
    
    
    
    10,521
    
    
    
    5.32
    %
    
    
    323,072
    
    
    
    10,203
    
    
    
    4.17
    %Total interest-bearing liabilities
    
    
    2,440,218
    
    
    $
    71,942
    
    
    
    3.94
    %
    
    
    2,218,211
    
    
    $
    55,913
    
    
    
    3.36
    %Non-interest bearing deposits
    
    
    272,472
    
    
    
    
    
    
    
    
    
    
    
    258,529Other noninterest-bearing liabilities and
shareholders equity
    
    
    319,641
    
    
    
    
    
    
    
    
    
    
    
    246,197TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    3,032,331
    
    
    
    
    
    
    
    
    
    
    $
    2,722,937Interest income/earning assets
    
    
    
    
    
    $
    142,748
    
    
    
    7.00
    %
    
    
    
    
    
    $
    119,598
    
    
    
    6.39
    %Interest expense/earning assets
    
    
    
    
    
    
    71,942
    
    
    
    3.53
    %
    
    
    
    
    
    
    55,913
    
    
    
    3.00
    %Net interest income/earning assets
    
    
    
    
    
    $
    70,806
    
    
    
    3.47
    %
    
    
    
    
    
    $
    63,685
    
    
    
    3.39
    %
 
 NON-INTEREST INCOME
  
    
    An increase in deposit service charges of $462, or 9.3%, to $5,408. The increases in
deposit service charges reflect continuing growth in the number of accounts, as well as a
slight fee increase implemented in April 2007. The new Chicago region contributed $309 of
deposit service charges.
 
    
    An increase in debit card interchange income of $327, or 40.4%, to $1,136. 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.
  25




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##### Table of Contents




    
    An increase in annuity commissions of $220 or 124.6% to $397. The increase in annuity
commissions is attributed to changes in customer preferences and improved sales efforts.
 
    
    An increase in gains on sales of securities of $232. The net gain for the third quarter
of 2007 of $219 included a gain on the sale of Mastercard stock of $1,038, less losses on
sales of other securities of $819.
 
    
    A decrease in bank owned life insurance income of $237. The third quarter of 2006
included settlement of a $448 death claim, while the third quarter of 2007 includes income
on policies acquired in the Prairie acquisition, as well as additional policies purchased
during the third quarter.
  NON-INTEREST EXPENSE
  
    
    The newly acquired Chicago region had $1,276 of direct expense during the third quarter,
primarily in the area of personnel expense. One time merger integration related expenses,
including travel, courier, programming, supplies, temporary signage, and other expense,
were $65.
 
    
    An increase in salaries and employee benefits expense of $1,316, or 13.2%, with salaries
making up $1,003 of that amount. 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 and additional health
insurance and other company benefits. 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, while 2006 included only one years grant amortization. This
added $125 to third quarter 2007 expense. The average number of full time equivalent
employees for the third quarter of 2007 was 834 compared to 797 for the third quarter of
2006.
 
    
    An increase in occupancy expense of $503, or 25.5% due primarily to the addition of the
five Chicago banking centers.
 
    
    Higher professional fees of $459, or 74.8%. A $190 increase in legal fees was
attributed to several items including lower than normal legal expenses during the third
quarter of 2006, higher collection costs, and legal expenses from the new Chicago region.
The third quarter of 2007 also includes $65 of systems conversion related expenses
attributable to the Prairie acquisition, $66 of ongoing Prairie related expenses and
slightly higher internal audit, external audit and examination fees.
 
    
    An increase in intangible asset amortization of $221. This increase is due to
amortization of the core deposit and customer relationship intangible assets recorded as
part of the Prairie acquisition.
 
    
    An increase in postage and courier expenses of $183, due in part to the new Chicago
region as well as the timing of direct mail marketing efforts.
 
    
    An increase in processing expense of $159, again related primarily to costs incurred to
process transactions for the new Chicago region.
   26




---



##### Table of Contents



INCOME TAX EXPENSE
     FINANCIAL POSITION
  SECURITIES
         27




---



##### Table of Contents



REGULATORY STOCK
  LOANS HELD FOR SALE
  LOANS
       28




---



##### Table of Contents



September 30,
    
    
    December 31,2007
    
    
    2006Commercial, industrial and
agricultural loans
    
    $
    686,016
    
    
    $
    568,841Economic development loans and
other obligations of state and
political subdivisions
    
    
    6,170
    
    
    
    7,179Lease financing
    
    
    5,273
    
    
    
    5,495Total commercial
    
    
    697,459
    
    
    
    581,515Commercial real estateCommercial mortgages
    
    
    301,472
    
    
    
    180,249Construction and development
    
    
    581,878
    
    
    
    260,314Total commercial real estate
    
    
    883,350
    
    
    
    440,563Residential mortgages
    
    
    396,145
    
    
    
    436,309Home equity
    
    
    143,082
    
    
    
    132,704Consumer loans
    
    
    179,954
    
    
    
    199,887Total loans
    
    
    2,299,990
    
    
    
    1,790,978Less: unearned income
    
    
    2
    
    
    
    2Loans, net of unearned income
    
    $
    2,299,988
    
    
    $
    1,790,976
 ASSET QUALITY
       29




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Beginning balance
    
    $
    26,390
    
    
    $
    21,043
    
    
    $
    21,155
    
    
    $
    24,392Allowance associated with purchase acquisitions
    
    
    
    
    
    
    
    
    
    
    5,982
    
    
    
    Loans charged off
    
    
    (1,074
    )
    
    
    (933
    )
    
    
    (3,785
    )
    
    
    (6,538
    )Recoveries
    
    
    362
    
    
    
    343
    
    
    
    1,136
    
    
    
    1,346Provision for loan losses
    
    
    723
    
    
    
    950
    
    
    
    1,913
    
    
    
    2,203Ending balance
    
    $
    26,401
    
    
    $
    21,403
    
    
    $
    26,401
    
    
    $
    21,403Percent of total loans
    
    
    1.15
    %
    
    
    1.19
    %
    
    
    1.15
    %
    
    
    1.19
    %Annualized % of average loans:Net charge-offs
    
    
    0.13
    %
    
    
    0.13
    %
    
    
    0.17
    %
    
    
    0.39
    %Provision for loan losses
    
    
    0.13
    %
    
    
    0.21
    %
    
    
    0.12
    %
    
    
    0.17
    %
    September 30,
    
    
    December 31,2007
    
    
    2006Nonaccrual loans
    
    $
    14,543
    
    
    $
    8,62590 days or more past due loans
    
    
    1,508
    
    
    
    228Total non-performing loans
    
    
    16,051
    
    
    
    8,853Other real estate owned
    
    
    4,016
    
    
    
    936Total non-performing assets
    
    $
    20,067
    
    
    $
    9,789Ratios:Non-performing Loans to Loans
    
    
    0.70
    %
    
    
    0.49
    %Non-performing Assets to Loans and Other Real Estate Owned
    
    
    0.87
    %
    
    
    0.55
    %Allowance for Loan Losses to Non-performing Loans
    
    
    164.48
    %
    
    
    238.96
    %
 DEPOSITS
    30




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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
   31




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##### Table of Contents



Regulatory Guidelines
    
    
    ActualMinimum
    
    
    Well-
    
    
    September 30,
    
    
    December 31,Requirements
    
    
    Capitalized
    
    
    2007
    
    
    2006Integra Bank Corporation:Total Capital (to Risk-Weighted Assets)
    
    
    8.00
    %
    
    
    N/A
    
    
    
    11.52
    %
    
    
    12.51
    %Tier 1 Capital (to Risk-Weighted Assets)
    
    
    4.00
    %
    
    
    N/A
    
    
    
    9.30
    %
    
    
    10.80
    %Tier 1 Capital (to Average Assets)
    
    
    4.00
    %
    
    
    N/A
    
    
    
    7.85
    %
    
    
    8.42
    %Integra Bank N.A.:Total Capital (to Risk-Weighted Assets)
    
    
    8.00
    %
    
    
    10.00
    %
    
    
    11.88
    %
    
    
    11.91
    %Tier 1 Capital (to Risk-Weighted Assets)
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    10.86
    %
    
    
    10.88
    %Tier 1 Capital (to Average Assets)
    
    
    4.00
    %
    
    
    5.00
    %
    
    
    9.18
    %
    
    
    8.49
    %
    
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
     Earnings at Risk (EAR).
  32




---



##### Table of Contents



Estimated Change in EAR from the Base Interest Rate Scenario-200 basis points
    
    
    +200 basis pointsSeptember 30, 2007
    
    
    -1.50
    %
    
    
    -1.50
    %June 30, 2007
    
    
    -2.30
    %
    
    
    +1.60
    %March 31, 2007
    
    
    -3.50
    %
    
    
    +1.70
    %December 31, 2006
    
    
    +0.28
    %
    
    
    -1.78
    %
  Economic Value of Equity (EVE).
   Estimated Change in EVE from the Base Interest Rate Scenario-200 basis points
    
    
    +200 basis pointsSeptember 30, 2007
    
    
    +0.58
    %
    
    
    -4.59
    %June 30, 2007
    
    
    +1.50
    %
    
    
    -4.50
    %March 31, 2007
    
    
    +0.90
    %
    
    
    -5.60
    %December 31, 2006
    
    
    +0.97
    %
    
    
    -6.58
    %
  
 Item 4: Controls and Procedures
    33




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##### Table of Contents



PART II   OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
  
 Item 1A. RISK FACTORS
  
 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,500July 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,500August 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,500September 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
  
 Item 5. OTHER INFORMATION
   34




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##### Table of Contents



Item 6. EXHIBITS
  2.1
    
    Agreement and Plan of Merger by and between Integra Bank Corporation and Peoples
Community Bancorp, Inc. dated as of September 12, 2007 (incorporated by reference
to Exhibit 2.1 to Current Report on Form 8-K filed September 13, 2007)3.b
    
    By-Laws of Integra Bank Corporation (as amended through October 17, 2007) (incorporated
by reference to Exhibit 3.b to Current Report on Form 8-K filed October 19, 2007)10.1*
    
    Fourth Amendment to Integra Bank Corporation Employees 401(K) Plan dated August 15, 200731.1
    
    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




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##### Table of Contents



SIGNATURES
  INTEGRA BANK CORPORATIONBy
    /s/ Michael T. VeaChairman of the Board, ChiefExecutive Officer and PresidentNovember 8, 2007/s/ Martin M. ZornExecutive Vice President, Chief FinancialOfficerNovember 8, 2007  36