##### 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, 2009.
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to .
 Commission file number: 0-13585
 INTEGRA BANK CORPORATION
  INDIANA
    
    35-1632155(State or other jurisdiction of incorporation or organization)
    
    (IRS Employee Identification No.)PO BOX 868, EVANSVILLE, INDIANA
    
    47705-0868(Address of principal executive offices)
    
    (Zip Code)
  þ o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ
  CLASS
    
    OUTSTANDING AT JULY 31, 2009(Common stock, $1.00 Stated Value)
    
    20,949,025




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##### 



INTEGRA BANK CORPORATION
 INDEX
 PAGE NO.PART I  FINANCIAL INFORMATIONItem 1. Unaudited Financial StatementsConsolidated balance sheets-
June 30, 2009 and December 31, 2008
    
    
    3Consolidated statements of income-

Three months and six months ended June 30, 2009 and 2008
    
    
    4Consolidated statements of comprehensive income-

Three months and six months ended June 30, 2009 and 2008
    
    
    6Consolidated statements of changes in shareholders equity-
Six months ended June 30, 2009
    
    
    7Consolidated statements of cash flow-
Six months ended June 30, 2009 and 2008
    
    
    8Notes to unaudited consolidated financial statements
    
    
    10Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    34Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    48Item 4. Controls and Procedures
    
    
    49PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    50Item 1A. Risk Factors
    
    
    50Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    51Item 3. Defaults Upon Senior Securities
    
    
    51Item 4. Submissions of Matters to a Vote of Security Holders
    
    
    51Item 5. Other Information
    
    
    51Item 6. Exhibits
    
    
    51Signatures
    
    
    52Exhibit 3.1Exhibit 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
 June 30,
    
    
    December 31,2009
    
    
    2008ASSETSCash and due from banks
    
    $
    312,233
    
    
    $
    62,354Federal funds sold and other short-term investments
    
    
    745
    
    
    
    419Total cash and cash equivalents
    
    
    312,978
    
    
    
    62,773Loans held for sale (at lower of cost or fair value)
    
    
    10,535
    
    
    
    5,776Securities available for sale
    
    
    426,059
    
    
    
    561,739Securities held for trading
    
    
    21,574
    
    
    
    Regulatory stock
    
    
    29,137
    
    
    
    29,155Loans, net of unearned income
    
    
    2,349,472
    
    
    
    2,490,243Less: Allowance for loan losses
    
    
    (82,309
    )
    
    
    (64,437
    )Net loans
    
    
    2,267,163
    
    
    
    2,425,806Premises and equipment
    
    
    45,944
    
    
    
    48,500Other intangible assets
    
    
    9,085
    
    
    
    9,928Other assets
    
    
    223,787
    
    
    
    213,423TOTAL ASSETS
    
    $
    3,346,262
    
    
    $
    3,357,100LIABILITIESDeposits:Non-interest-bearing demand
    
    $
    278,418
    
    
    $
    284,032Interest-bearing:Savings, interest checking and money market accounts
    
    
    1,045,568
    
    
    
    901,785Time deposits of $100 or more
    
    
    634,945
    
    
    
    603,519Other interest-bearing
    
    
    515,424
    
    
    
    550,856Total deposits
    
    
    2,474,355
    
    
    
    2,340,192Short-term borrowings
    
    
    240,918
    
    
    
    415,006Long-term borrowings
    
    
    372,212
    
    
    
    360,917Other liabilities
    
    
    35,313
    
    
    
    36,194TOTAL LIABILITIES
    
    
    3,122,798
    
    
    
    3,152,309Commitments and contingent liabilities (Note 9)
    
    
    
    
    
    
    SHAREHOLDERS EQUITYPreferred stock  no par, $1,000 per share liquidation preference:Shares authorized: 1,000,000Shares outstanding: 83,586
    
    
    81,844
    
    
    
    Common stock  $1.00 stated value:Shares authorized: 129,000,000Shares outstanding: 20,708,555 and 20,748,880 respectively
    
    
    20,709
    
    
    
    20,749Additional paid-in capital
    
    
    217,194
    
    
    
    208,732Retained earnings
    
    
    (93,468
    )
    
    
    (15,754
    )Accumulated other comprehensive income (loss)
    
    
    (2,815
    )
    
    
    (8,936
    )TOTAL SHAREHOLDERS EQUITY
    
    
    223,464
    
    
    
    204,791TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    3,346,262
    
    
    $
    3,357,100
   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 30,2009
    
    
    2008
    
    
    2009
    
    
    2008INTEREST INCOMEInterest and fees on loans:Taxable
    
    $
    25,287
    
    
    $
    35,676
    
    
    $
    51,036
    
    
    $
    74,377Tax-exempt
    
    
    202
    
    
    
    101
    
    
    
    405
    
    
    
    182Interest and dividends on securities:Taxable
    
    
    5,027
    
    
    
    5,840
    
    
    
    10,493
    
    
    
    12,320Tax-exempt
    
    
    825
    
    
    
    1,114
    
    
    
    1,833
    
    
    
    2,426Dividends on regulatory stock
    
    
    157
    
    
    
    409
    
    
    
    678
    
    
    
    785Interest on loans held for sale
    
    
    127
    
    
    
    90
    
    
    
    230
    
    
    
    193Interest on federal funds sold and other short-term investments
    
    
    174
    
    
    
    30
    
    
    
    267
    
    
    
    68Total interest income
    
    
    31,799
    
    
    
    43,260
    
    
    
    64,942
    
    
    
    90,351INTEREST EXPENSEInterest on deposits
    
    
    11,759
    
    
    
    12,851
    
    
    
    23,946
    
    
    
    29,243Interest on short-term borrowings
    
    
    583
    
    
    
    1,955
    
    
    
    1,346
    
    
    
    4,121Interest on long-term borrowings
    
    
    2,683
    
    
    
    3,288
    
    
    
    5,393
    
    
    
    8,303Total interest expense
    
    
    15,025
    
    
    
    18,094
    
    
    
    30,685
    
    
    
    41,667NET INTEREST INCOME
    
    
    16,774
    
    
    
    25,166
    
    
    
    34,257
    
    
    
    48,684Provision for loan losses
    
    
    32,536
    
    
    
    6,003
    
    
    
    63,930
    
    
    
    9,637Net interest income after provision for loan losses
    
    
    (15,762
    )
    
    
    19,163
    
    
    
    (29,673
    )
    
    
    39,047NON-INTEREST INCOMEService charges on deposit accounts
    
    
    5,035
    
    
    
    5,059
    
    
    
    9,448
    
    
    
    9,758Other service charges and fees
    
    
    761
    
    
    
    874
    
    
    
    1,597
    
    
    
    1,872Commissions on annuities
    
    
    190
    
    
    
    441
    
    
    
    447
    
    
    
    1,022Debit card income-interchange
    
    
    1,373
    
    
    
    1,376
    
    
    
    2,630
    
    
    
    2,619Trust income
    
    
    563
    
    
    
    554
    
    
    
    1,022
    
    
    
    1,113Net securities gains (losses)
    
    
    1,479
    
    
    
    3
    
    
    
    1,479
    
    
    
    27Gain on sale of other assets
    
    
    (22
    )
    
    
    (12
    )
    
    
    2,474
    
    
    
    (12
    )Other than temporary loss:Total impairment losses
    
    
    (19,164
    )
    
    
    (6,302
    )
    
    
    (20,334
    )
    
    
    (6,302
    )Reclassification of loss from other comprehensive income
    
    
    (1,150
    )
    
    
    
    
    
    
    (1,150
    )
    
    
    Net impairment loss recognized in earnings
    
    
    (20,314
    )
    
    
    (6,302
    )
    
    
    (21,484
    )
    
    
    (6,302
    )Warrant fair value adjustment
    
    
    (1,407
    )
    
    
    
    
    
    
    (6,145
    )
    
    
    Cash surrender value life insurance
    
    
    394
    
    
    
    575
    
    
    
    1,084
    
    
    
    1,218Other
    
    
    964
    
    
    
    444
    
    
    
    1,956
    
    
    
    2,431Total non-interest income
    
    
    (10,984
    )
    
    
    3,012
    
    
    
    (5,492
    )
    
    
    13,746NON-INTEREST EXPENSESalaries and employee benefits
    
    
    11,561
    
    
    
    12,446
    
    
    
    23,636
    
    
    
    24,840Occupancy
    
    
    2,378
    
    
    
    2,541
    
    
    
    4,959
    
    
    
    5,101Equipment
    
    
    808
    
    
    
    955
    
    
    
    1,657
    
    
    
    1,883Professional fees
    
    
    2,057
    
    
    
    1,317
    
    
    
    3,787
    
    
    
    2,535Communication and transportation
    
    
    1,091
    
    
    
    1,371
    
    
    
    2,252
    
    
    
    2,593Processing
    
    
    734
    
    
    
    704
    
    
    
    1,491
    
    
    
    1,422Software
    
    
    627
    
    
    
    528
    
    
    
    1,247
    
    
    
    1,087Marketing
    
    
    424
    
    
    
    611
    
    
    
    840
    
    
    
    1,093Loan and OREO expense
    
    
    1,888
    
    
    
    430
    
    
    
    7,336
    
    
    
    882FDIC assessment
    
    
    3,005
    
    
    
    76
    
    
    
    3,955
    
    
    
    154Low income housing project losses
    
    
    473
    
    
    
    723
    
    
    
    1,163
    
    
    
    1,374Debt prepayment penalities
    
    
    1,511
    
    
    
    
    
    
    
    1,511
    
    
    
    Amortization of intangible assets
    
    
    422
    
    
    
    431
    
    
    
    843
    
    
    
    862Other
    
    
    2,190
    
    
    
    2,044
    
    
    
    3,965
    
    
    
    4,472Total non-interest expense
    
    
    29,169
    
    
    
    24,177
    
    
    
    58,642
    
    
    
    48,298Income (Loss) before income taxes
    
    
    (55,915
    )
    
    
    (2,002
    )
    
    
    (93,807
    )
    
    
    4,495Income tax expense (benefit)
    
    
    (7,451
    )
    
    
    (1,103
    )
    
    
    (17,282
    )
    
    
    421Net income (loss)
    
    
    (48,464
    )
    
    
    (899
    )
    
    
    (76,525
    )
    
    
    4,074Preferred stock dividends and discount accretion
    
    
    1,139
    
    
    
    
    
    
    
    1,552
    
    
    
    Net income (loss) available to common shareholders
    
    $
    (49,603
    )
    
    $
    (899
    )
    
    $
    (78,077
    )
    
    $
    4,074
   4




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##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
Unaudited Consolidated Statements of Income (Continued)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Earnings (Loss) per share:Basic
    
    $
    (2.39
    )
    
    $
    (0.04
    )
    
    $
    (3.77
    )
    
    $
    0.20Diluted
    
    
    (2.39
    )
    
    
    (0.04
    )
    
    
    (3.77
    )
    
    
    0.20Weighted average shares outstanding:Basic
    
    
    20,715
    
    
    
    20,554
    
    
    
    20,717
    
    
    
    20,545Diluted
    
    
    20,715
    
    
    
    20,554
    
    
    
    20,717
    
    
    
    20,569Dividends per common share
    
    $
    0.01
    
    
    $
    0.18
    
    
    $
    0.02
    
    
    $
    0.36
   5




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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 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    (48,464
    )
    
    $
    (899
    )
    
    $
    (76,525
    )
    
    $
    4,074Other comprehensive income, net of tax:Unrealized gain (loss) on securities:Unrealized gain (loss) arising in period
(net of tax of $(5,240), $(6,715), $(3,641) and $(4,776),
respectively)
    
    
    (8,622
    )
    
    
    (11,362
    )
    
    
    (5,991
    )
    
    
    (8,082
    )Reclassification of amounts realized through impairment charges
and
sales (net of tax of $7,120, $2,340, $7,562 and $2,331,
respectively)
    
    
    11,715
    
    
    
    3,959
    
    
    
    12,443
    
    
    
    3,944Net unrealized gain (loss) on securities
    
    
    3,093
    
    
    
    (7,403
    )
    
    
    6,452
    
    
    
    (4,138
    )Change in net pension plan liability
(net of tax of $10, $14, $19 and $29, respectively)
    
    
    16
    
    
    
    25
    
    
    
    31
    
    
    
    50Unrealized gain (loss) on derivative hedging instruments arising in period
(net of tax of $(114), $(135), $(220) and $50, respectively)
    
    
    (187
    )
    
    
    (243
    )
    
    
    (362
    )
    
    
    131Net unrealized gain (loss), recognized in other comprehensive income
    
    
    2,922
    
    
    
    (7,621
    )
    
    
    6,121
    
    
    
    (3,957
    )Comprehensive income (loss)
    
    $
    (45,542
    )
    
    $
    (8,520
    )
    
    $
    (70,404
    )
    
    $
    117
   6




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##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
 
 Unaudited Consolidated Statements of Changes In Shareholders Equity
  AccumulatedShares of
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    OtherPreferred
    
    
    Common
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveStock
    
    
    Stock
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBALANCE AT DECEMBER 31, 2008
    
    $
    
    
    
    
    20,748,880
    
    
    $
    20,749
    
    
    $
    208,732
    
    
    $
    (15,754
    )
    
    $
    (8,936
    )
    
    $
    204,791Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,525
    )
    
    
    
    
    
    
    (76,525
    )Cash dividend declared ($0.02 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (415
    )
    
    
    
    
    
    
    (415
    )Net change, net of tax, in accumulated
other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,184
    
    
    
    6,184Cumulative effect of change in accounting principles,
adoption of FSP FAS 115-2 and 124-2 (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    778
    
    
    
    (778
    )
    
    
    Change in unrealized gains (losses) on securities available-
for-sale for which a portion of an other-than temporary
impairment has been recognized in earnings, net of
reclassification and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    715
    
    
    
    715Preferred stock
    
    
    83,586
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,586Common stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,999
    
    
    
    
    
    
    
    
    
    
    
    7,999Discount on preferred stock
    
    
    (1,855
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,855
    )Preferred stock dividend and discount accretion
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,552
    )
    
    
    
    
    
    
    (1,439
    )Vesting of restricted shares, net
    
    
    
    
    
    
    (8,766
    )
    
    
    (8
    )
    
    
    (307
    )
    
    
    
    
    
    
    
    
    
    
    (315
    )Grant of restricted stock, net of forfeitures
    
    
    
    
    
    
    (31,559
    )
    
    
    (32
    )
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    738
    
    
    
    
    
    
    
    
    
    
    
    738BALANCE AT JUNE 30, 2009
    
    $
    81,844
    
    
    
    20,708,555
    
    
    $
    20,709
    
    
    $
    217,194
    
    
    $
    (93,468
    )
    
    $
    (2,815
    )
    
    $
    223,464
   7




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##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries
 
 Unaudited Consolidated Statements of Cash Flow
  Six Months EndedJune 30,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    (76,525
    )
    
    $
    4,074Adjustments to reconcile net income (loss) to
net cash provided by operating activities:Amortization and depreciation
    
    
    3,510
    
    
    
    3,609Provision for loan losses
    
    
    63,930
    
    
    
    9,637Income tax valuation allowance
    
    
    18,504
    
    
    
    Net securities (gains) losses
    
    
    (1,479
    )
    
    
    6,275Impairment charge on available for sale securities
    
    
    21,484
    
    
    
    Net held for trading (gains) losses
    
    
    (235
    )
    
    
    (321
    )(Gain) loss on sale of other real estate owned
    
    
    77
    
    
    
    14Gain on sale of branches
    
    
    (2,549
    )
    
    
    Loss on low-income housing investments
    
    
    1,163
    
    
    
    1,374Proceeds from maturity of held for trading securities
    
    
    
    
    
    
    1,684Proceeds from sale of held for trading securities
    
    
    
    
    
    
    52,419Purchase of held for trading securities
    
    
    (19,745
    )
    
    
    Increase (decrease) in deferred taxes
    
    
    (29,506
    )
    
    
    Net gain on sale of loans held for sale
    
    
    (439
    )
    
    
    (469
    )Proceeds from sale of loans held for sale
    
    
    73,250
    
    
    
    66,405Origination of loans held for sale
    
    
    (77,570
    )
    
    
    (66,053
    )Debt prepayment fees
    
    
    1,511
    
    
    
    Change in other operating
    
    
    6,776
    
    
    
    (8,281
    )Net cash flows provided by (used in) operating activities
    
    
    (17,843
    )
    
    
    70,367CASH FLOWS FROM INVESTING ACTIVITIESProceeds from maturities of securities available for sale
    
    
    70,674
    
    
    
    76,883Proceeds from sales of securities available for sale
    
    
    64,304
    
    
    
    17,758Purchase of securities available for sale
    
    
    (9,538
    )
    
    
    (89,563
    )(Increase) decrease in loans made to customers
    
    
    52,740
    
    
    
    (106,781
    )Decrease in loans from sale of branches
    
    
    26,940
    
    
    
    Purchase of premises and equipment
    
    
    (578
    )
    
    
    (1,580
    )Proceeds from sale of premises and equipment from branch sale
    
    
    1,148
    
    
    
    Proceeds from sale of premises and equipment
    
    
    11
    
    
    
    21Proceeds from sale of other real estate owned
    
    
    2,951
    
    
    
    33Net cash flows provided by (used in) investing activities
    
    
    208,652
    
    
    
    (103,229
    )CASH FLOWS FROM FINANCING ACTIVITIESNet increase (decrease) in deposits
    
    
    184,889
    
    
    
    (16,579
    )Decrease in deposits from sale of branches
    
    
    (50,796
    )
    
    
    Net increase (decrease) in short-term borrowed funds
    
    
    (174,088
    )
    
    
    98,643Proceeds from long-term borrowings
    
    
    50,000
    
    
    
    50,000Repayment of long-term borrowings
    
    
    (38,703
    )
    
    
    (67,114
    )Proceeds from issuance of TARP preferred stock and warrants
    
    
    89,843
    
    
    
    Accretion of discount on TARP preferred stock
    
    
    (113
    )
    
    
    Dividends paid on TARP preferred stock
    
    
    (906
    )
    
    
    Dividends paid on common stock
    
    
    (415
    )
    
    
    (7,435
    )Proceeds from vesting of restricted shares, net
    
    
    (315
    )
    
    
    Net cash flows provided by (used in) financing activities
    
    
    59,396
    
    
    
    57,515Net increase in cash and cash equivalents
    
    
    250,205
    
    
    
    24,653Cash and cash equivalents at beginning of period
    
    
    62,773
    
    
    
    75,990Cash and cash equivalents at end of period
    
    $
    312,978
    
    
    $
    100,643
   8




---



##### Table of Contents



INTEGRA BANK CORPORATION and Subsidiaries

Unaudited Consolidated Statements of Cash Flow (Continued)
 Six Months EndedJune 30,2009
    
    
    2008SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONSOther real estate acquired in settlement of loans
    
    
    15,033
    
    
    
    3,088Dividends for common shareholders declared and not paid
    
    
    207
    
    
    
    3,737Dividends accrued not paid on preferred stock
    
    
    1,439
    
    
    
    
   9




---



##### Table of Contents



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




---



##### Table of Contents



RECENT ACCOUNTING PRONOUNCEMENTS:
         11




---



##### Table of Contents



FAIR VALUE MEASUREMENT
  Level 1:
 Level 2:
 Level 3:
  Securities:
   12




---



##### Table of Contents




    
    Credit quality of the collateral is estimated using average risk-neutral probability
of default values for each industry (i.e. banks, real estate investment trusts and
insurance companies are evaluated separately);
 
    
    Asset defaults are generated by accounting for both the probability of default of the
asset and an assumed level of correlation among the assets (e.g. banks with other
banks);
 
    
    A higher level of correlation is assumed among assets from the same industry (e.g.
banks with other banks);
 
    
    Loss given default was assumed to be 95% (i.e. a 5% recovery);
 
    
    Cash flows were forecast for underlying collateral and applied to each CDO tranche to
determine the resulting distribution among the securities;
 
    
    The calculations were modeled in several thousand scenarios using a Monte Carlo
engine;
 
    
    The expected cash flows for each scenario were discounted at the risk-free rate plus
200 basis points (for illiquidity) to calculate the present value of the security; and
 
    
    The average price was used for valuation purposes.
   Loans held for sale:
 Derivatives:
 Impaired Loans:
 Other Real Estate Owned:
  13




---



##### Table of Contents



Quoted Pricesin ActiveMarkets for
    
    
    SignificantIdentical
    
    
    Other
    
    
    SignificantAssets and
    
    
    Observable
    
    
    UnobservableLiabilities
    
    
    Inputs
    
    
    Inputs
    
    
    Balance as of(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    June 30, 2009AssetsSecurities, available for saleU.S. Government agencies
    
    $
    
    
    
    $
    434
    
    
    $
    
    
    
    $
    434Collateralized mortgage obligations:Agency
    
    
    
    
    
    
    205,960
    
    
    
    
    
    
    
    205,960Private Label
    
    
    
    
    
    
    26,710
    
    
    
    
    
    
    
    26,710Mortgage backed securities
    
    
    
    
    
    
    91,181
    
    
    
    
    
    
    
    91,181Trust Preferred
    
    
    
    
    
    
    6,910
    
    
    
    2,483
    
    
    
    9,393State & political subdivisions
    
    
    
    
    
    
    83,750
    
    
    
    
    
    
    
    83,750Other securities
    
    
    
    
    
    
    8,631
    
    
    
    
    
    
    
    8,631Total securities, available for sale
    
    $
    
    
    
    $
    423,576
    
    
    $
    2,483
    
    
    $
    426,059Securities, held for tradingU.S. Treasuries
    
    $
    
    
    
    $
    19,980
    
    
    $
    
    
    
    $
    19,980Trust Preferred
    
    
    
    
    
    
    1,594
    
    
    
    
    
    
    
    1,594Total securities, held for trading
    
    $
    
    
    
    $
    21,574
    
    
    $
    
    
    
    $
    21,574Derivatives
    
    
    
    
    
    
    7,601
    
    
    
    
    
    
    
    7,601LiabilitiesDerivatives
    
    $
    
    
    
    $
    7,749
    
    
    $
    
    
    
    $
    7,749
  Quoted Pricesin ActiveMarkets for
    
    
    SignificantIdentical
    
    
    Other
    
    
    SignificantAssets and
    
    
    Observable
    
    
    UnobservableLiabilities
    
    
    Inputs
    
    
    Inputs
    
    
    Balance as of(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    December 31, 2008AssetsSecurities, available for sale
    
    $
    
    
    
    $
    544,204
    
    
    $
    17,535
    
    
    $
    561,739Derivatives
    
    
    
    
    
    
    12,296
    
    
    
    
    
    
    
    12,296LiabilitiesDerivatives
    
    $
    
    
    
    $
    11,851
    
    
    $
    
    
    
    $
    11,851
  14




---



##### Table of Contents



Quoted Pricesin ActiveMarkets for
    
    
    SignificantIdentical
    
    
    Other
    
    
    SignificantAssets and
    
    
    Observable
    
    
    UnobservableLiabilities
    
    
    Inputs
    
    
    Inputs
    
    
    Balance as of(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    June 30, 2009AssetsImpaired loans
    
    $
    
    
    
    $
    
    
    
    $
    95,245
    
    
    $
    95,245Loans held for sale
    
    
    
    
    
    
    10,535
    
    
    
    
    
    
    
    10,535Other real estate owned
    
    
    
    
    
    
    
    
    
    
    24,520
    
    
    
    24,520Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  Quoted Pricesin ActiveMarkets for
    
    
    SignificantIdentical
    
    
    Other
    
    
    SignificantAssets and
    
    
    Observable
    
    
    UnobservableLiabilities
    
    
    Inputs
    
    
    Inputs
    
    
    Balance as of(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    December 31, 2008AssetsImpaired loans
    
    $
    
    
    
    $
    
    
    
    $
    69,590
    
    
    $
    69,590Loans held for sale
    
    
    
    
    
    
    5,776
    
    
    
    
    
    
    
    5,776Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)SecuritiesAvailable for sale
    
    
    TotalThree months ended June 30, 2009Beginning Balance at April 1, 2009
    
    $
    15,837
    
    
    $
    15,837Transfers in and/or out of Level 3
    
    
    (250
    )
    
    
    (250
    )Gains (Losses) included in other comprehensive income
    
    
    1,554
    
    
    
    1,554Gains (Losses) included in earnings
    
    
    (14,658
    )
    
    
    (14,658
    )Ending Balance
    
    $
    2,483
    
    
    $
    2,483
  15




---



##### Table of Contents



Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)SecuritiesAvailable for sale
    
    
    TotalSix months ended June 30, 2009Beginning Balance at January 1, 2009
    
    $
    17,535
    
    
    $
    17,535Transfers in and/or out of Level 3
    
    
    (250
    )
    
    
    (250
    )Gains (Losses) included in other comprehensive income
    
    
    1,026
    
    
    
    1,026Gains (Losses) included in earnings
    
    
    (15,828
    )
    
    
    (15,828
    )Ending Balance
    
    $
    2,483
    
    
    $
    2,483
   June 30, 2009
    
    
    December 31, 2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial Assets:Cash and short-term investments
    
    $
    312,978
    
    
    $
    312,978
    
    
    $
    62,773
    
    
    $
    62,773Loans-net of allowance
    
    
    2,171,918
    
    
    
    2,214,558
    
    
    
    2,356,216
    
    
    
    2,415,290Accrued interest receivable
    
    
    11,034
    
    
    
    11,034
    
    
    
    14,114
    
    
    
    14,114Financial Liabilities:Deposits
    
    $
    2,474,355
    
    
    $
    2,495,956
    
    
    $
    2,340,192
    
    
    $
    2,367,354Short-term borrowings
    
    
    240,918
    
    
    
    241,085
    
    
    
    415,006
    
    
    
    415,542Long-term borrowings
    
    
    372,212
    
    
    
    372,046
    
    
    
    360,917
    
    
    
    362,848Accrued interest payable
    
    
    8,980
    
    
    
    8,980
    
    
    
    10,560
    
    
    
    10,560
   STOCK OPTION PLAN AND AWARDS
    16




---



##### Table of Contents



June 30, 2009
    
    
    Weighted AverageWeighted Average
    
    
    Remaining TermShares
    
    
    Exercise Price
    
    
    (In years)Options/SARs outstanding at December 31, 2008
    
    
    1,415,433
    
    
    $
    20.53Options/SARs granted
    
    
    5,000
    
    
    
    2.13Options/SARs exercised
    
    
    
    
    
    
    Options/SARs forfeited/expired
    
    
    (18,833
    )
    
    
    16.92Options/SARs outstanding at June 30, 2009
    
    
    1,401,600
    
    
    $
    20.51
    
    
    
    5.2Options/SARs exercisable at June 30, 2009
    
    
    1,214,504
    
    
    $
    20.99
    
    
    
    4.7
    Weighted-AverageGrant-DateShares
    
    
    Fair ValueRestricted shares outstanding, December 31,
2008
    
    
    179,613
    
    
    $
    17.57Shares granted
    
    
    3,000Shares vested
    
    
    (57,767
    )Shares forfeited
    
    
    (34,559
    )Restricted shares outstanding, June 30, 2009
    
    
    90,287
    
    
    $
    16.47
    17




---



##### Table of Contents



NOTE 2. EARNINGS PER SHARE
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    (48,464
    )
    
    $
    (899
    )
    
    $
    (76,525
    )
    
    $
    4,074Preferred dividends and discount accretion
    
    
    (1,139
    )
    
    
    
    
    
    
    (1,552
    )Net income (loss) available to common shareholders
    
    $
    (49,603
    )
    
    $
    (899
    )
    
    $
    (78,077
    )
    
    $
    4,074Weighted average shares outstanding  Basic
    
    
    20,714,521
    
    
    
    20,553,528
    
    
    
    20,716,728
    
    
    
    20,545,144Incremental shares related to stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,721Average shares outstanding  Diluted
    
    
    20,714,521
    
    
    
    20,553,528
    
    
    
    20,716,728
    
    
    
    20,568,865Earnings (Loss) per share  Basic
    
    $
    (2.39
    )
    
    $
    (0.04
    )
    
    $
    (3.77
    )
    
    $
    0.20Effect of incremental shares related to stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Earnings (Loss) per share  Diluted
    
    $
    (2.39
    )
    
    $
    (0.04
    )
    
    $
    (3.77
    )
    
    $
    0.20
    NOTE 3. SECURITIES
    18




---



##### Table of Contents



Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueJune 30, 2009:U.S. Government agencies
    
    $
    427
    
    
    $
    9
    
    
    $
    2
    
    
    $
    434Collateralized mortgage obligations:Agency
    
    
    201,810
    
    
    
    4,371
    
    
    
    221
    
    
    
    205,960Private label
    
    
    30,149
    
    
    
    
    
    
    
    3,439
    
    
    
    26,710Mortgage-backed securities  residential
    
    
    88,991
    
    
    
    2,199
    
    
    
    9
    
    
    
    91,181Trust preferred
    
    
    17,231
    
    
    
    
    
    
    
    7,838
    
    
    
    9,393States & political subdivisions
    
    
    81,551
    
    
    
    2,548
    
    
    
    349
    
    
    
    83,750Other securities
    
    
    8,641
    
    
    
    
    
    
    
    10
    
    
    
    8,631Total
    
    $
    428,800
    
    
    $
    9,127
    
    
    $
    11,868
    
    
    $
    426,059
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2008:U.S. Government agencies
    
    $
    742
    
    
    $
    19
    
    
    $
    
    
    
    $
    761Collateralized mortgage obligations:Agency
    
    
    272,038
    
    
    
    3,040
    
    
    
    1,002
    
    
    
    274,076Private label
    
    
    35,341
    
    
    
    
    
    
    
    6,731
    
    
    
    28,610Mortgage-backed securities  residential
    
    
    130,367
    
    
    
    1,179
    
    
    
    293
    
    
    
    131,253Trust preferred
    
    
    38,759
    
    
    
    969
    
    
    
    11,327
    
    
    
    28,401States & political subdivisions
    
    
    88,765
    
    
    
    1,710
    
    
    
    447
    
    
    
    90,028Other securities
    
    
    8,641
    
    
    
    
    
    
    
    31
    
    
    
    8,610Total
    
    $
    574,653
    
    
    $
    6,917
    
    
    $
    19,831
    
    
    $
    561,739
  June 30, 2009Amortized
    
    
    FairCost
    
    
    ValueAvailable-for-saleMaturityWithin one year
    
    $
    10,005
    
    
    $
    10,093One to five years
    
    
    235,127
    
    
    
    237,319Five to ten years
    
    
    102,187
    
    
    
    104,410Beyond ten years
    
    
    81,481
    
    
    
    74,237Total
    
    $
    428,800
    
    
    $
    426,059
  19




---



##### Table of Contents



Less than 12 Months
    
    
    12 Months or More
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedJune 30, 2009
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesU.S. Government agencies
    
    $
    98
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    98
    
    
    $
    2Collateralized mortgage obligations:Agency
    
    
    18,656
    
    
    
    221
    
    
    
    
    
    
    
    
    
    
    
    18,656
    
    
    
    221Private label
    
    
    
    
    
    
    
    
    
    
    26,710
    
    
    
    3,439
    
    
    
    26,710
    
    
    
    3,439Mortgage-backed securities  residential
    
    
    3,261
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    3,261
    
    
    
    9Trust preferred
    
    
    695
    
    
    
    27
    
    
    
    8,698
    
    
    
    7,811
    
    
    
    9,393
    
    
    
    7,838State & political subdivisions
    
    
    9,429
    
    
    
    238
    
    
    
    1,005
    
    
    
    111
    
    
    
    10,434
    
    
    
    349Other securities
    
    
    2,683
    
    
    
    3
    
    
    
    18
    
    
    
    7
    
    
    
    2,701
    
    
    
    10Total
    
    $
    34,822
    
    
    $
    500
    
    
    $
    36,431
    
    
    $
    11,368
    
    
    $
    71,253
    
    
    $
    11,868
    (At Fair Value)
    
    June 30, 2009Trust Preferred
    
    $
    1,594U.S. Treasury Notes
    
    
    19,980Total
    
    $
    21,574
    20




---



##### Table of Contents



Ratings
 Issuer
    
    Ratings as of March 31, 2009
    
    Ratings as of June 30, 2009Pooled Trust Preferred CDOsPreTSL VI
    
    Caa1 (Moodys) / A+ (Fitch)
    
    Caa1 (Moodys) / CCC (Fitch)PreTSL XIV
    
    Ca (Moodys) / A (Fitch)
    
    Ca (Moodys) /CC (Fitch)Alesco 10A C1
    
    Ca (Moodys) / A- (Fitch)
    
    Ca (Moodys) / CC (Fitch)Trapeza 11A D1
    
    BB+ (Fitch)
    
    C (Fitch)Trapeza 12A D1
    
    A- (Fitch)
    
    C (Fitch)US Capital Funding
    
    Caa3 (Moodys) / A- (Fitch)
    
    Caa3 (Moodys) / CC (Fitch)Single Issue Trust PreferredBank
One Cap Tr VI (JP Morgan)
    
    A1(Moodys)
    
    A1(Moodys)Colonial Cap IV
    
    Caa1(Moodys)/CCC(S&P)/B+(Fitch)
    
    Caa3(Moodys)/CC(S&P)/C(Fitch)First Citizen Bancshare
    
    Non-Rated
    
    Non-RatedFirst
Union Instit Cap I (Wells Fargo)
    
    A3(Moodys)/A(S&P)/AA-(Fitch)
    
    A3(Moodys)/A-(S&P)/AA-(Fitch)Sky Financial Cap Trust III (Huntington)
    
    BB(S&P)
    
    BB(S&P)Private Label CMOsCWHL 2003-58 2A1
    
    Aaa(Moodys)/AAA(S&P)
    
    Aaa(Moodys)/AAA(S&P)CMSI 2004-4 A2
    
    AAA(S&P)/AAA(Fitch)
    
    AAA(S&P)/AAA(Fitch)GSR 2003-10 2A1
    
    Aaa(Moodys)/AAA(S&P)
    
    Aaa(Moodys)/AAA(S&P)RAST 2003-A15 1A1
    
    AAA(S&P)/AAA(Fitch)
    
    AAA(S&P)/AAA(Fitch)SASC 2003-31A 3A
    
    Aaa(Moodys)/AAA(S&P)
    
    A1(Moodys)/AAA(S&P)WFMBS 2006-8 A13
    
    Baa1(Moodys)/AAA(Fitch)
    
    B3(Moodys)/AA(Fitch)
        21




---



##### Table of Contents



22




---



##### Table of Contents



Amortized
    
    
    
    
    
    
    UnrealizedSecurity
    
    Par
    
    
    Cost
    
    
    Market
    
    
    gain/(loss)Pooled Trust Preferred CDOs (AFS)PreTSL VI Class B
    
    $
    1,036
    
    
    $
    721
    
    
    $
    694
    
    
    $
    (27
    )PreTSL XIV Class B1
    
    
    2,500
    
    
    
    2,500
    
    
    
    1,789
    
    
    
    (711
    )CDOs AFS subtotal
    
    $
    3,536
    
    
    $
    3,221
    
    
    $
    2,483
    
    
    $
    (738
    )Pooled Trust Preferred CDOs (Trading)Alesco Preferred Funding 10A C1
    
    
    8,214
    
    
    
    
    
    
    
    103
    
    
    
    Trapeza 11A D1
    
    
    7,872
    
    
    
    
    
    
    
    12
    
    
    
    Trapeza 12A D1
    
    
    6,041
    
    
    
    
    
    
    
    15
    
    
    
    US Capital Funding V Class B1
    
    
    3,003
    
    
    
    
    
    
    
    120
    
    
    
    CDOs Trading subtotal
    
    $
    25,130
    
    
    $
    
    
    
    $
    250
    
    
    $
    
 Total
    
    
    Collateral
    
    
    Percentage ofNumber
    
    
    Number
    
    
    Number
    
    
    remaining
    
    
    balance for
    
    
    class to totalSecurity
    
    of issuers
    
    
    of deferrals
    
    
    of defaults
    
    
    collateral
    
    
    our class
    
    
    collateralPooled Trust Preferred CDOs (AFS)PreTSL VI Class B
    
    
    5
    
    
    
    1
    
    
    
    0
    
    
    $
    40,750
    
    
    $
    25,888
    
    
    
    63.5
    %PreTSL XIV Class B1
    
    
    65
    
    
    
    9
    
    
    
    1
    
    
    
    477,350
    
    
    
    117,000
    
    
    
    24.5
    %Pooled Trust Preferred CDOs (Trading)Alesco Preferred Funding 10A C1
    
    
    85
    
    
    
    9
    
    
    
    5
    
    
    
    950,000
    
    
    
    101,192
    
    
    
    10.7
    %Trapeza 11A D1
    
    
    58
    
    
    
    7
    
    
    
    4
    
    
    
    505,000
    
    
    
    23,616
    
    
    
    4.7
    %Trapeza 12A D1
    
    
    50
    
    
    
    6
    
    
    
    4
    
    
    
    500,000
    
    
    
    15,104
    
    
    
    3.0
    %US Capital Funding V Class B1
    
    
    44
    
    
    
    10
    
    
    
    4
    
    
    
    349,198
    
    
    
    48,053
    
    
    
    13.8
    %
 Amortized
    
    
    
    
    
    
    UnrealizedSecurity
    
    Par
    
    
    Cost
    
    
    Market
    
    
    gain/(loss)Single Issue Trust Preferred (AFS)Bank One Cap
Tr VI (JP Morgan)
    
    $
    1,000
    
    
    $
    1,000
    
    
    $
    920
    
    
    $
    (80
    )First Citizen Bancshare
    
    
    5,000
    
    
    
    5,021
    
    
    
    1,500
    
    
    
    (3,521
    )First Union
Instit Cap I (Wells Fargo)
    
    
    3,000
    
    
    
    2,989
    
    
    
    2,490
    
    
    
    (499
    )Sky Financial Cap Trust III (Huntington)
    
    
    5,000
    
    
    
    5,000
    
    
    
    2,000
    
    
    
    (3,000
    )Trust Preferred subtotal
    
    $
    14,000
    
    
    $
    14,010
    
    
    $
    6,910
    
    
    $
    (7,100
    )Single Issue Trust Preferred (Trading)Colonial Cap IV
    
    
    7,000
    
    
    
    
    
    
    
    1,344
    
    
    
    Private Label CMOsCWHL 2003-58 2A1
    
    $
    3,427
    
    
    $
    3,427
    
    
    $
    2,833
    
    
    $
    (594
    )CMSI 2004-4 A2
    
    
    1,649
    
    
    
    1,604
    
    
    
    1,635
    
    
    
    31GSR 2003-10 2A1
    
    
    9,025
    
    
    
    8,935
    
    
    
    8,166
    
    
    
    (769
    )RAST 2003-A15 1A1
    
    
    5,922
    
    
    
    5,946
    
    
    
    5,503
    
    
    
    (443
    )SASC 2003-31A 3A
    
    
    7,071
    
    
    
    7,084
    
    
    
    5,920
    
    
    
    (1,164
    )WFMBS 2006-8 A13
    
    
    3,169
    
    
    
    3,153
    
    
    
    2,653
    
    
    
    (500
    )Private Label CMOs Total
    
    $
    30,263
    
    
    $
    30,149
    
    
    $
    26,710
    
    
    $
    (3,439
    )
  Amount of other-than-temporary-impairment
related to credit loss at April 1, 2009
    
    $
    10,531Addition
    
    
    20,314Amount of other-than-temporary-impairment
related to credit loss at June 30, 2009
    
    $
    30,845
  23




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##### Table of Contents



NOTE 4. ALLOWANCE FOR LOAN LOSSES
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Beginning Balance
    
    $
    78,525
    
    
    $
    28,590
    
    
    $
    64,437
    
    
    $
    27,261Loans charged off
    
    
    (29,194
    )
    
    
    (3,128
    )
    
    
    (46,830
    )
    
    
    (5,882
    )Recoveries
    
    
    442
    
    
    
    315
    
    
    
    772
    
    
    
    764Provision for loan losses
    
    
    32,536
    
    
    
    6,003
    
    
    
    63,930
    
    
    
    9,637Ending Balance
    
    $
    82,309
    
    
    $
    31,780
    
    
    $
    82,309
    
    
    $
    31,780Percent of total loans
    
    
    3.50
    %
    
    
    1.32
    %
    
    
    3.50
    %
    
    
    1.32
    %Annualized % of average loans:Net charge-offs
    
    
    4.80
    %
    
    
    0.48
    %
    
    
    3.82
    %
    
    
    0.44
    %Provision for loan losses
    
    
    5.43
    %
    
    
    1.02
    %
    
    
    5.31
    %
    
    
    0.82
    %
     June 30,
    
    
    December 31,2009
    
    
    2008Nonaccrual loans
    
    $
    175,840
    
    
    $
    150,00290 days or more past due loans
    
    
    6,573
    
    
    
    897Total non-performing loans
    
    
    182,413
    
    
    
    150,899Other real estate owned
    
    
    29,286
    
    
    
    19,396Total non-performing assets
    
    $
    211,699
    
    
    $
    170,295Ratios:Non-performing Loans to Loans
    
    
    7.76
    %
    
    
    6.06
    %Non-performing Assets to Loans and Other Real Estate Owned
    
    
    8.90
    %
    
    
    6.79
    %Allowance for Loan Losses to Non-performing Loans
    
    
    45.12
    %
    
    
    42.70
    %
 NOTE 5. BRANCH DIVESTITURES
   24




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##### Table of Contents



NOTE 6. INCOME TAXES
        
    
    Earnings forecasts were prepared for the remainder of 2009 through 2012. These
forecasts include projections of net interest income that are obtained from our
asset/liability management model as well as projections of credit related information that
are obtained from our Chief Credit and Risk Officer. The credit related information
includes estimates of specific and general reserves for the provision for loan losses,
non-performing loans and assets, net charge-offs and the allowance for loan losses as a
percentage of both total and non-performing loans.
 
    
    Non-interest income and expense forecasts were updated quarterly as part of our regular
rolling four quarter reforecast process, as were estimates of earning asset balances and
the liabilities that fund them.
 
    
    The income before tax amounts were discounted by 15% to reflect the uncertainty
contained in the projections. We arrived at this discount amount after reviewing the risk
of further adverse developments in asset quality in our loan and investment security
portfolios. We then combined the adjusted income before tax amount with anticipated
permanent and timing differences to determine projected taxable income. We assumed pretax
income would increase 4.25% after 2012.
 
    
    The valuation allowance was computed as the total of tax credits expiring more than nine
years from December 31, 2009, plus net operating loss carryforwards not expected to be
realized in the next four years.
  25




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##### Table of Contents




    
    OTTI of $20,334 was recognized during the first six months of 2009, while none was
originally forecast at December 31, 2008. We did not anticipate the extent of
deterioration experienced by some of the trust preferred securities we hold, all of which
are tied to the financial results of other financial institutions, specifically as
evidenced by the increasing number of deferrals and defaults on those securities.
 
    
    Our loan to Peoples
Community Bancorp Inc. (Peoples) of $17,500 was charged
off due to developments since January 1, 2009. A
total of $17,000 was charged off during the second quarter of 2009, with $8,250 of the
related provision expense occurring in the same quarter. We had not previously believed
that this would become necessary.
 
    
    The majority of the remainder of the excess of our net loss before tax over our
projected loss is within the provision for loan losses, especially in the portion of the
allowance determined by using the principles of SFAS 5, Accounting for Contingencies, or
the FAS 5 reserve. That portion of the allowance has increased more than anticipated
during 2009 as the macro economic factors we utilize in its preparation, in particular real
estate values and unemployment rates, have deteriorated more severely than we anticipated.
 
    
    Warrant fair value adjustments totaling $6,145 were recorded during the six months ended
June 30, 2009. These adjustments are not tax deductible and were necessary only because we
had to classify the Treasury Warrant underlying the preferred shares issued to the Treasury
Department as a liability during the first and for part of the second quarters until the
number of authorized shares necessary to make the Warrant exercisable were approved by our
shareholders in the second quarter.
 
    
    Net interest income was less than the amount projected at December 31, 2008, largely due
to near historic lows in the adjustable rate indexes we use to price our earning assets,
especially one and three month LIBOR and the national prime lending rate. While declines
in LIBOR benefited us on the liability side of our balance sheet, the impact on our earning
assets was far greater and impacted us more quickly, since our balance sheet remains asset
sensitive. Additionally, the spread between 30 and 90 day LIBOR was at historic levels,
which negatively impacted us as our LIBOR based assets tend to be based on 30 day LIBOR and
our LIBOR based liabilities tend to be based on 90 day LIBOR. Our forecasts assume only
modest increases in our net interest margin for the foreseeable future from increases in
rates and from lower nonperforming assets.
  Federal
    
    
    StateBalance at September 30, 2008
    
    $
    
    
    
    $
    Addition
    
    
    
    
    
    
    3,180Balance at December 31, 2008
    
    
    
    
    
    
    3,180Addition
    
    
    4,239
    
    
    
    776Balance at March 31, 2009
    
    
    4,239
    
    
    
    3,956Addition
    
    
    13,025
    
    
    
    464Balance at June 30, 2009
    
    $
    17,264
    
    
    $
    4,420
    26




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##### Table of Contents




    
    we have experienced net losses in each of the last five quarters, and
 
    
    we did not meet our forecasted levels of earnings in the first and second quarters of
2009; and
 
    
    forecasting the pace and amount of improvement in asset quality has been difficult,
particularly in the current macroeconomic environment.
     
    
    To the best of our knowledge, we have never had a credit or net operating loss expire.
 
    
    Our core community banking
franchise, exclusive of Chicago, has historically been profitable and continues to
be profitable and has not been affected by the current economy to the extent our land
acquisition and development and commercial real estate based lending operations have. From
2005 to 2007, our earnings per share were $1.55, $1.11 and $1.56, a cumulative three year
total of $4.22. Our projected earnings levels in our earnings forecast for 2010 through
2012 conservatively assume less than 25% of that three year total.
 
    
    Our valuation allowance assumes that we do not realize any of our general business tax
credit carryforwards and that we are unable to realize any of our net operating loss
carryforwards that cannot be realized within five years, despite a 20 year carryforward
period for both. The amount of our net operating loss carryforward included in our
deferred tax asset, net of the related valuation allowance, totaled only $4,770 at June 30,
2009, with $4,560 of that being federal and $210 being state. Our
federal net operating loss
carryforwards expire in 2028 and 2029, while our state net operating
losses begin to expire in 2017.
 
    
    The risk of further
other-than-temporary-impairment (OTTI) has been reduced, as unrealized losses in our trust preferred
securities portfolio totaled $7,838 at June 30, 2009. This compares to net unrealized
losses in that portfolio of $14,044 at March 31, 2009 and $10,358 at December 31, 2008.
Trust preferred securities held in our available for sale portfolio totaled $9,393 at June
30, 2009, compared to $23,667 at
March 31, 2009 and $28,401 at December 31, 2008. All of the OTTI we have recognized since
2007 has been in our trust preferred securities portfolio.
   27




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##### Table of Contents



NOTE 7. SHORT-TERM BORROWINGS
 June 30,
    
    
    December 31,2009
    
    
    2008Federal funds purchased
    
    $
    
    
    
    $
    25,000Securities sold under agreements to repurchase
    
    
    75,918
    
    
    
    88,106Short-term Federal Home Loan Bank advances
    
    
    90,000
    
    
    
    125,000Other short-term borrowed funds
    
    
    75,000
    
    
    
    176,900Total short-term borrowed funds
    
    $
    240,918
    
    
    $
    415,006
    28




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##### Table of Contents



NOTE 8. LONG-TERM BORROWINGS
  June 30,
    
    
    December 31,2009
    
    
    2008Federal Home Loan Bank (FHLB) AdvancesFixed maturity advances (weighted average rate of 2.79% and 3.02%
as of June 30, 2009 and December 31, 2008, respectively)
    
    $
    136,007
    
    
    $
    136,009Amortizing and other advances (weighted average rate of 4.73% and
4.98% as of June 30, 2009 and December 31, 2008, respectively)
    
    
    560
    
    
    
    706Total FHLB Advances
    
    
    136,567
    
    
    
    136,715Securities sold under repurchase agreements with maturities
at various dates through 2013 (weighted average rate of 1.01%
and 3.30% as of June 30, 2009 and December 31, 2008, respectively)
    
    
    80,000
    
    
    
    100,000Note payable, secured by equipment, with a fixed interest rate of 7.26%,
due at various dates through 2012
    
    
    3,223
    
    
    
    3,780Note payable, unsecured, with a floating interest rate equal to one-month
LIBOR plus 0.875%, with a maturity date of April 1, 2012
    
    
    
    
    
    
    18,000Subordinated debt, unsecured, with a floating interest rate equal to three-
month LIBOR plus 3.20%, with a maturity date of April 24, 2013
    
    
    10,000
    
    
    
    10,000Subordinated debt, unsecured, with a floating interest rate equal to three-
month LIBOR plus 2.85%, with a maturity date of April 7, 2014
    
    
    4,000
    
    
    
    4,000Floating Rate Capital Securities, with an interest rate equal to six-month
LIBOR plus 3.75%, with a maturity date of July 25, 2031, and callable
effective July 25, 2011, at par
    
    
    18,557
    
    
    
    18,557Floating Rate Capital Securities, with an interest rate equal to three-month
LIBOR plus 3.10%, with a maturity date of June 26, 2033, and callable
quarterly, at par
    
    
    35,568
    
    
    
    35,568Floating Rate Capital Securities, with an interest rate equal to three-month
LIBOR plus 1.57%, with a maturity date of June 30, 2037, and callable
effective June 30, 2012, at par
    
    
    20,619
    
    
    
    20,619Floating Rate Capital Securities, with an interest rate equal to three-month
LIBOR plus 1.70%, with a maturity date of December 15, 2036, and callable
effective December 15, 2011, at par
    
    
    10,310
    
    
    
    10,310Senior unsecured debt guaranteed by FDIC under the TLGP, with a fixed
rate of 2.625%, with a maturity date of March 30, 2012
    
    
    50,000
    
    
    
    Other
    
    
    3,368
    
    
    
    3,368Total long-term borrowings
    
    $
    372,212
    
    
    $
    360,917
    29




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##### Table of Contents



NOTE 9. COMMITMENTS AND CONTINGENCIES
    June 30,
    
    
    December 31,2009
    
    
    2008Commitments to extend credit
    
    $
    548,964
    
    
    $
    684,245Standby letters of credit
    
    
    24,462
    
    
    
    22,320Non-reimbursable standby letters of credit and commitments
    
    
    1,600
    
    
    
    2,574
   30




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##### Table of Contents



NOTE 10. INTEREST RATE CONTRACTS
        June 30, 2009
    
    
    December 31, 2008Assets
    
    
    (Liabilities)
    
    
    Derivative
    
    
    Assets
    
    
    (Liabilities)
    
    
    DerivativeCarrying
    
    
    Carrying
    
    
    Net Carrying
    
    
    Carrying
    
    
    Carrying
    
    
    Net CarryingValue
    
    
    Value
    
    
    Value
    
    
    Value
    
    
    Value
    
    
    ValueDerivatives designated as
hedging instruments:Interest rate contracts
    
    $
    7,369
    
    
    $
    (7,625
    )
    
    $
    (256
    )
    
    $
    12,080
    
    
    $
    (11,835
    )
    
    $
    245Derivatives not designated
as hedging instruments:Mortgage banking derivatives
    
    
    232
    
    
    
    (156
    )
    
    
    76
    
    
    
    216
    
    
    
    (16
    )
    
    
    200
     31




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##### Table of Contents



NOTE 11. SEGMENT INFORMATION
   For three months ended June 30, 2009
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    31,764
    
    
    $
    35
    
    
    $
    31,799Interest expense
    
    
    14,070
    
    
    
    955
    
    
    
    15,025Net interest income (loss)
    
    
    17,694
    
    
    
    (920
    )
    
    
    16,774Provision for loan losses
    
    
    32,536
    
    
    
    
    
    
    
    32,536Other income
    
    
    (9,647
    )
    
    
    (1,337
    )
    
    
    (10,984
    )Other expense
    
    
    28,473
    
    
    
    696
    
    
    
    29,169Earnings (Loss) before income taxes
    
    
    (52,962
    )
    
    
    (2,953
    )
    
    
    (55,915
    )Income tax expense (benefit)
    
    
    (6,890
    )
    
    
    (561
    )
    
    
    (7,451
    )Net income (loss)
    
    $
    (46,072
    )
    
    $
    (2,392
    )
    
    $
    (48,464
    )
 For six months ended June 30, 2009
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    64,873
    
    
    $
    69
    
    
    $
    64,942Interest expense
    
    
    28,665
    
    
    
    2,020
    
    
    
    30,685Net interest income (loss)
    
    
    36,208
    
    
    
    (1,951
    )
    
    
    34,257Provision for loan losses
    
    
    63,930
    
    
    
    
    
    
    
    63,930Other income
    
    
    494
    
    
    
    (5,986
    )
    
    
    (5,492
    )Other expense
    
    
    57,672
    
    
    
    970
    
    
    
    58,642Earnings (Loss) before income taxes
    
    
    (84,900
    )
    
    
    (8,907
    )
    
    
    (93,807
    )Income tax expense (benefit)
    
    
    (16,270
    )
    
    
    (1,012
    )
    
    
    (17,282
    )Net income (loss)
    
    $
    (68,630
    )
    
    $
    (7,895
    )
    
    $
    (76,525
    )Segment assets
    
    $
    3,334,386
    
    
    $
    11,876
    
    
    $
    3,346,262
 For three months ended June 30, 2008
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    43,206
    
    
    $
    54
    
    
    $
    43,260Interest expense
    
    
    16,535
    
    
    
    1,559
    
    
    
    18,094Net interest income (loss)
    
    
    26,671
    
    
    
    (1,505
    )
    
    
    25,166Provision for loan losses
    
    
    6,003
    
    
    
    
    
    
    
    6,003Other income
    
    
    2,938
    
    
    
    74
    
    
    
    3,012Other expense
    
    
    23,946
    
    
    
    231
    
    
    
    24,177Earnings (Loss) before income taxes
    
    
    (340
    )
    
    
    (1,662
    )
    
    
    (2,002
    )Income tax expense (benefit)
    
    
    (475
    )
    
    
    (628
    )
    
    
    (1,103
    )Net income (loss)
    
    $
    135
    
    
    $
    (1,034
    )
    
    $
    (899
    )
 For six months ended June 30, 2008
    
    Banking
    
    
    Other
    
    
    TotalInterest income
    
    $
    90,233
    
    
    $
    118
    
    
    $
    90,351Interest expense
    
    
    38,116
    
    
    
    3,551
    
    
    
    41,667Net interest income (loss)
    
    
    52,117
    
    
    
    (3,433
    )
    
    
    48,684Provision for loan losses
    
    
    9,637
    
    
    
    
    
    
    
    9,637Other income
    
    
    13,580
    
    
    
    166
    
    
    
    13,746Other expense
    
    
    47,770
    
    
    
    528
    
    
    
    48,298Earnings (Loss) before income taxes
    
    
    8,290
    
    
    
    (3,795
    )
    
    
    4,495Income tax expense (benefit)
    
    
    1,853
    
    
    
    (1,432
    )
    
    
    421Net income (loss)
    
    $
    6,437
    
    
    $
    (2,363
    )
    
    $
    4,074Segment assets
    
    $
    3,391,215
    
    
    $
    9,995
    
    
    $
    3,401,210
  32




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##### Table of Contents



NOTE 12. REGULATORY CAPITAL
   Regulatory Guidelines
    
    
    ActualMinimum
    
    
    Well-
    
    
    June 30,
    
    
    December 31,Requirements
    
    
    Capitalized
    
    
    2009
    
    
    2008Integra Bank Corporation:Total Capital (to Risk-Weighted Assets)
    
    
    8.00
    %
    
    
    N/A
    
    
    
    10.42
    %
    
    
    9.75
    %Tier 1 Capital (to Risk-Weighted Assets)
    
    
    4.00
    %
    
    
    N/A
    
    
    
    8.58
    %
    
    
    7.68
    %Tier 1 Capital (to Average Assets)
    
    
    4.00
    %
    
    
    N/A
    
    
    
    6.48
    %
    
    
    6.41
    %Integra Bank N.A.:Total Capital (to Risk-Weighted Assets)
    
    
    8.00
    %
    
    
    10.00
    %
    
    
    9.84
    %
    
    
    10.07
    %Tier 1 Capital (to Risk-Weighted Assets)
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    8.56
    %
    
    
    8.81
    %Tier 1 Capital (to Average Assets)
    
    
    4.00
    %
    
    
    5.00
    %
    
    
    6.47
    %
    
    
    7.37
    %
  33




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 INTRODUCTION
   OVERVIEW
        
    
    developing and implementing a staffing plan for the loan work-out department;
 
    
    adopting, implementing and adhering to a written program to reduce criticized assets;
 
    
    conducting robust guarantor analyses for certain commercial and industrial loans and
commercial real estate loans;
 
    
    enhancing the loan management information system to allow for split classifications for
portions of single credits;
  34




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##### Table of Contents




    
    establishing a process to identify and correct the root causes of untimely
identification of problem credits by relationship managers; and
 
    
    revising and maintaining a comprehensive liquidity risk management program which
assesses the Banks current and projected
funding needs.
           35




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##### Table of Contents




    
    Improving our regulatory capital and tangible capital levels;
 
    
    stabilizing and then improving our credit profile (as measured by non-performing
assets);
 
    
    returning to profitability;
 
    
    growing core deposits faster than loans; and
 
    
    improving our efficiency, primarily through execution of our profit improvement program
and ongoing expense management.
 CRITICAL ACCOUNTING POLICIES
   NET INTEREST INCOME
   
    
    Average loan yields decreased 176 basis points to 4.23% for the quarter ended June 30,
2009, from 5.99% in the quarter ended June 30, 2008, led by a decrease in commercial loan
yields, including loan fees of 208 basis points to 3.61%. Commercial loan yields fell as
loans repriced in response to declines in prime and LIBOR. At June 30, 2009, approximately
39% of our variable rate loans are tied to prime, 51% to LIBOR and 10% to other floating
rate indices. During the twelve months ended June 30, 2009, the national prime lending
rate declined 175 basis points, while one and three month LIBOR declined 216 and 220 basis
points, respectively. Approximately 69% of our loans were variable rate at June 30, 2009.
Commercial loan yields also declined in large part because of the increase in
non-performing loans we experienced during the past four quarters. The impact of total
non-performing assets on the net interest margin has increased since early 2008, and was 42
basis points for the second quarter of 2009.
  36




---



##### Table of Contents




    
    Changes in our earning asset mix adversely impacted both the net interest margin
and net interest income. Total average commercial loan balances increased $109,251, or
6.4% from the year ago quarter, while the average balance of higher yielding residential
mortgage loan balances decreased $67,881, or 27.1%, as did the average balance of higher
yielding securities, which decreased $86,012, or 14.3%. The higher percentage of
commercial loans positively impacted our net interest margin for the first part of 2008,
but has negatively impacted it since then reflecting the declines in prime and LIBOR rates
and higher average balances of non-accrual loans. Total commercial loan average balances
represented 61.2% of total earning assets in the second quarter of 2009, up from 56.4% for
the second quarter of 2008. The 208 basis point decline in commercial loan yields for the
second quarter of 2009 outpaced declines in more stable residential mortgage loans and
securities yields of 61 and 14 basis points, respectively. We took steps to increase our
liquidity and as a result, average cash and due from bank balances increased by $300,364.
The increase in these cash reserves also had a negative impact on the net interest margin.
 
    
    The decline in interest rates throughout the second half of 2008 and the first six
months of 2009 resulted in lower liabilities costs. The average rate paid on interest
bearing liabilities was 2.06% for the second quarter of 2009, a 61 basis point decline from
the second quarter of 2008. Time deposit rates declined 76 basis points and money market
rates declined 70 basis points. Savings deposit rates increased 70 basis points, leading
to higher average balances. The average rate paid on sources of funds other than time and
transaction deposits, which include repurchase agreements, Federal Home Loan Bank or FHLB
advances and other sources, decreased from 2.95% to 2.02% for the quarter ended June 30,
2009, as compared to the quarter ended June 30, 2008. Changes in funding sources included
TAF borrowings, which averaged $81,044 during the second quarter of 2009 compared to none
during the second quarter of 2008, the borrowing we executed in the first quarter of 2009
of $50,000 under the FDICs Temporary Loan Guaranty Program, or TLGP, and increases in time
deposits and savings average balances of $170,459 and $153,504. These increases were
partially offset by declines in federal funds purchased of $80,245, FHLB advances of
$77,518 and money market deposits of $54,143.
  2009
    
    
    2008Average
    
    
    Interest
    
    
    Yield/
    
    
    Average
    
    
    Interest
    
    
    Yield/For Three Months Ended June 30,
    
    Balances
    
    
    & Fees
    
    
    Cost
    
    
    Balances
    
    
    & Fees
    
    
    CostEARNING ASSETS:Short-term investments
    
    $
    574
    
    
    $
    174
    
    
    
    121.50
    %
    
    $
    6,408
    
    
    $
    30
    
    
    
    1.83
    %Loans held for sale
    
    
    10,493
    
    
    
    127
    
    
    
    4.86
    %
    
    
    5,835
    
    
    
    90
    
    
    
    6.18
    %Securities
    
    
    517,244
    
    
    
    6,296
    
    
    
    4.87
    %
    
    
    603,256
    
    
    
    7,554
    
    
    
    5.01
    %Regulatory Stock
    
    
    29,137
    
    
    
    157
    
    
    
    2.15
    %
    
    
    29,181
    
    
    
    409
    
    
    
    5.61
    %Loans
    
    
    2,404,068
    
    
    
    25,598
    
    
    
    4.23
    %
    
    
    2,377,745
    
    
    
    35,832
    
    
    
    5.99
    %Total earning assets
    
    
    2,961,516
    
    
    $
    32,352
    
    
    
    4.38
    %
    
    
    3,022,425
    
    
    $
    43,915
    
    
    
    5.84
    %Allowance for loan loss
    
    
    (81,217
    )
    
    
    
    
    
    
    
    
    
    
    (29,552
    )Other non-earning assets
    
    
    633,110
    
    
    
    
    
    
    
    
    
    
    
    379,071TOTAL ASSETS
    
    $
    3,513,409
    
    
    
    
    
    
    
    
    
    
    $
    3,371,944INTEREST-BEARING LIABILITIES:DepositsSavings and interest-bearing demand
    
    $
    708,583
    
    
    $
    1,742
    
    
    
    0.99
    %
    
    $
    564,866
    
    
    $
    1,194
    
    
    
    0.85
    %Money market accounts
    
    
    336,338
    
    
    
    1,169
    
    
    
    1.39
    %
    
    
    390,481
    
    
    
    2,029
    
    
    
    2.09
    %Certificates of deposit and other time
    
    
    1,237,139
    
    
    
    8,848
    
    
    
    2.87
    %
    
    
    1,066,680
    
    
    
    9,628
    
    
    
    3.63
    %Total
interest-bearing
deposits
    
    
    2,282,060
    
    
    
    11,759
    
    
    
    2.07
    %
    
    
    2,022,027
    
    
    
    12,851
    
    
    
    2.56
    %Short-term borrowings
    
    
    251,287
    
    
    
    583
    
    
    
    0.92
    %
    
    
    346,565
    
    
    
    1,955
    
    
    
    2.23
    %Long-term borrowings
    
    
    388,201
    
    
    
    2,683
    
    
    
    2.73
    %
    
    
    359,841
    
    
    
    3,288
    
    
    
    3.61
    %Total interest-bearing liabilities
    
    
    2,921,548
    
    
    $
    15,025
    
    
    
    2.06
    %
    
    
    2,728,433
    
    
    $
    18,094
    
    
    
    2.67
    %Non-interest bearing deposits
    
    
    293,369
    
    
    
    
    
    
    
    
    
    
    
    285,582Other noninterest-bearing liabilities and
shareholders equity
    
    
    298,492
    
    
    
    
    
    
    
    
    
    
    
    357,929TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    3,513,409
    
    
    
    
    
    
    
    
    
    
    $
    3,371,944Interest income/earning assets
    
    
    
    
    
    $
    32,352
    
    
    
    4.38
    %
    
    
    
    
    
    $
    43,915
    
    
    
    5.84
    %Interest expense/earning assets
    
    
    
    
    
    
    15,025
    
    
    
    2.04
    %
    
    
    
    
    
    
    18,094
    
    
    
    2.41
    %Net interest income/earning assets
    
    
    
    
    
    $
    17,327
    
    
    
    2.34
    %
    
    
    
    
    
    $
    25,821
    
    
    
    3.43
    %
     37




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##### Table of Contents



2009
    
    
    2008Average
    
    
    Interest
    
    
    Yield/
    
    
    Average
    
    
    Interest
    
    
    Yield/For Six Months Ended June 30,
    
    Balances
    
    
    & Fees
    
    
    Cost
    
    
    Balances
    
    
    & Fees
    
    
    CostEARNING ASSETS:Short-term investments
    
    $
    535
    
    
    $
    267
    
    
    
    100.63
    %
    
    $
    5,638
    
    
    $
    68
    
    
    
    2.42
    %Loans held for sale
    
    
    9,426
    
    
    
    230
    
    
    
    4.88
    %
    
    
    6,226
    
    
    
    193
    
    
    
    6.20
    %Securities
    
    
    538,308
    
    
    
    13,313
    
    
    
    4.95
    %
    
    
    623,386
    
    
    
    16,053
    
    
    
    5.15
    %Regulatory Stock
    
    
    29,146
    
    
    
    678
    
    
    
    4.65
    %
    
    
    29,180
    
    
    
    785
    
    
    
    5.38
    %Loans
    
    
    2,429,947
    
    
    
    51,659
    
    
    
    4.24
    %
    
    
    2,355,402
    
    
    
    74,657
    
    
    
    6.30
    %Total earning assets
    
    
    3,007,362
    
    
    $
    66,147
    
    
    
    4.43
    %
    
    
    3,019,832
    
    
    $
    91,756
    
    
    
    6.10
    %Allowance for loan loss
    
    
    (74,077
    )
    
    
    
    
    
    
    
    
    
    
    (28,791
    )Other non-earning assets
    
    
    573,656
    
    
    
    
    
    
    
    
    
    
    
    381,863TOTAL ASSETS
    
    $
    3,506,941
    
    
    
    
    
    
    
    
    
    
    $
    3,372,904INTEREST-BEARING LIABILITIES:DepositsSavings and interest-bearing demand
    
    $
    663,916
    
    
    $
    3,107
    
    
    
    0.94
    %
    
    $
    550,495
    
    
    $
    2,440
    
    
    
    0.89
    %Money market accounts
    
    
    331,346
    
    
    
    2,346
    
    
    
    1.43
    %
    
    
    391,185
    
    
    
    4,806
    
    
    
    2.47
    %Certificates of deposit and other time
    
    
    1,255,841
    
    
    
    18,493
    
    
    
    2.97
    %
    
    
    1,097,276
    
    
    
    21,997
    
    
    
    4.03
    %Total
interest-bearing
deposits
    
    
    2,251,103
    
    
    
    23,946
    
    
    
    2.15
    %
    
    
    2,038,956
    
    
    
    29,243
    
    
    
    2.88
    %Short-term borrowings
    
    
    306,671
    
    
    
    1,346
    
    
    
    0.87
    %
    
    
    304,376
    
    
    
    4,121
    
    
    
    2.68
    %Long-term borrowings
    
    
    371,382
    
    
    
    5,393
    
    
    
    2.89
    %
    
    
    387,887
    
    
    
    8,303
    
    
    
    4.23
    %Total interest-bearing liabilities
    
    
    2,929,156
    
    
    $
    30,685
    
    
    
    1.98
    %
    
    
    2,731,219
    
    
    $
    41,667
    
    
    
    3.07
    %Non-interest bearing deposits
    
    
    293,471
    
    
    
    
    
    
    
    
    
    
    
    279,196Other noninterest-bearing liabilities and
shareholders equity
    
    
    284,314
    
    
    
    
    
    
    
    
    
    
    
    362,489TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    3,506,941
    
    
    
    
    
    
    
    
    
    
    $
    3,372,904Interest income/earning assets
    
    
    
    
    
    $
    66,147
    
    
    
    4.43
    %
    
    
    
    
    
    $
    91,756
    
    
    
    6.10
    %Interest expense/earning assets
    
    
    
    
    
    
    30,685
    
    
    
    2.06
    %
    
    
    
    
    
    
    41,667
    
    
    
    2.78
    %Net interest income/earning assets
    
    
    
    
    
    $
    35,462
    
    
    
    2.37
    %
    
    
    
    
    
    $
    50,089
    
    
    
    3.32
    %
    NON-INTEREST INCOME
  
    
    An OTTI charge of $20,314 was taken during the second quarter of 2009 on six securities,
compared to a charge of $6,302 taken during the second quarter of 2008 on two securities.
This is discussed in more detail in the financial statements included in this document,
specifically Note 3. A gain on sale of securities of $1,479 partially offset the
impairment charge.
 
    
    A $1,407 reduction to non-interest income reflects a non-tax deductible mark-to-market
adjustment for the Treasury Warrant. The Treasury Warrant was reflected as a liability at
March 31, 2009, because it was not fully exercisable at the time of issuance. In April
2009, our shareholders approved an increase in the authorized shares of common stock and
the issuance of the shares underlying the Treasury Warrant, at which point we began
accounting for the Treasury Warrant as equity, in accordance with Emerging Issues Task
Force 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Companys Own Stock. The second quarter fair value adjustment reflects the
change in value of the Treasury Warrant from March 31, 2009, through the date it was
reclassified to equity.
  38




---



##### Table of Contents




    
    Losses on free standing derivatives of $369 occurred during the second quarter of 2008,
compared to none during the second quarter of 2009.
 
    
    The second quarter of 2009 included trading gains of $235, compared to none during the
second quarter of 2008. The gains reflected the increase in value of U.S. Treasury
securities purchased during June 2009.
 
    
    Annuity income decreased $252 from the year ago quarter, reflecting a change in customer
preferences.
 
    
    Bank owned life insurance income declined $181 and resulted from lower crediting rates.
   NON-INTEREST EXPENSE
  
    
    FDIC insurance premiums increased $2,929 to $3,005 for three reasons. Rates charged by
the FDIC during the first quarter of 2009 increased, our insured deposit balances
increased, our one-time credit was fully utilized during the first quarter of 2009 and a
special 5 basis point assessment totaling $1,623 was expensed during the second quarter of
2009.
 
    
    Loan and other real estate owned expenses increased $1,458 to $1,888, consisting of
increases in loan collection costs of $527, other real estate owned related costs of $600
and $158 of other real estate owned write-downs. The primary component of the loan
collection and real estate owned collection costs are the accrual of real estate taxes for
properties we own or for properties securing non-performing loans.
 
    
    During the second quarter of 2009, we incurred debt prepayment penalties of $1,511. The
penalties were incurred when we repaid a $20,000 structured repurchase agreement prior to
maturity. The rate on this agreement was set to convert to 4.83% in August 2009. The
repurchase agreement was repaid simultaneously with the sale of mortgage backed securities
that yielded a gain of $1,465.
 
    
    Professional fees increased $740, or 56.2%, consisting of higher legal fees of $226 and
consulting fees of $395.
     39




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##### Table of Contents



INCOME TAX EXPENSE (BENEFIT)
   FINANCIAL POSITION
  SECURITIES
    REGULATORY STOCK
  LOANS HELD FOR SALE
  LOANS
    40




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##### Table of Contents



41




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##### Table of Contents



June 30,
    
    
    December 31,2009
    
    
    2008Commercial, industrial and
agricultural loans
    
    $
    696,216
    
    
    $
    748,446Economic development loans and
other obligations of state and
political subdivisions
    
    
    26,087
    
    
    
    24,502Lease financing
    
    
    5,476
    
    
    
    5,397Total commercial
    
    
    727,779
    
    
    
    778,345Commercial real estateCommercial mortgages
    
    
    572,450
    
    
    
    436,336Construction and development
    
    
    473,836
    
    
    
    641,460Total commercial real estate
    
    
    1,046,286
    
    
    
    1,077,796Residential mortgages
    
    
    263,960
    
    
    
    309,397Home equity
    
    
    170,001
    
    
    
    171,241Consumer loans
    
    
    141,446
    
    
    
    153,464Total loans
    
    $
    2,349,472
    
    
    $
    2,490,243
 ASSET QUALITY
    42




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Beginning Balance
    
    $
    78,525
    
    
    $
    28,590
    
    
    $
    64,437
    
    
    $
    27,261Loans charged off
    
    
    (29,194
    )
    
    
    (3,128
    )
    
    
    (46,830
    )
    
    
    (5,882
    )Recoveries
    
    
    442
    
    
    
    315
    
    
    
    772
    
    
    
    764Provision for loan losses
    
    
    32,536
    
    
    
    6,003
    
    
    
    63,930
    
    
    
    9,637Ending Balance
    
    $
    82,309
    
    
    $
    31,780
    
    
    $
    82,309
    
    
    $
    31,780Percent of total loans
    
    
    3.50
    %
    
    
    1.32
    %
    
    
    3.50
    %
    
    
    1.32
    %Annualized % of average loans:Net charge-offs
    
    
    4.80
    %
    
    
    0.48
    %
    
    
    3.82
    %
    
    
    0.44
    %Provision for loan losses
    
    
    5.43
    %
    
    
    1.02
    %
    
    
    5.31
    %
    
    
    0.82
    %
     43




---



##### Table of Contents




    
    We continue to obtain new appraisals on properties securing our Chicago area
non-performing loans and have used those appraisals to help determine the need for and
amount of specific reserves within the allowance for loan losses. In addition, we are
continuing to order new or updated appraisals for any CRE loans as warranted.
 
    
    We reorganized our Chicago staff and have dedicated additional resources to reducing the
Chicago portfolio.
 
    
    We shifted the credit analysis effort for our Chicago portfolio from Chicago to our
centralized Business Service Center in Evansville.
 
    
    We discontinued pursuing new CRE opportunities, regardless of property type, starting in
the third quarter of 2008. In addition, we offered a discount to many of our commercial
real estate customers in exchange for early repayment in an effort to reduce our commercial
real estate balances.
 
    
    We instituted a new portfolio review process in which relationship managers are required
to present selected loans in their portfolio to credit administration and executive
management. The loans to be presented are selected by credit administration based upon a
number of factors, including the size and age of the loan, product type, industry type and
delinquency. The frequency of these reviews depends upon the portfolio with reviews of the
commercial real estate portfolio conducted most frequently.
 
    
    We implemented other policy and process changes, including actions to reduce our
concentration risk, as well as, tightening our loan underwriting and approval standards and
processes.
  44




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##### Table of Contents



June 30,
    
    
    December 31,2009
    
    
    2008Nonaccrual loans
    
    $
    175,840
    
    
    $
    150,00290 days or more past due loans
    
    
    6,573
    
    
    
    897Total non-performing loans
    
    
    182,413
    
    
    
    150,899Other real estate owned
    
    
    29,286
    
    
    
    19,396Total non-performing assets
    
    $
    211,699
    
    
    $
    170,295Ratios:Non-performing Loans to Loans
    
    
    7.76
    %
    
    
    6.06
    %Non-performing Assets to Loans and Other Real
Estate Owned
    
    
    8.90
    %
    
    
    6.79
    %Allowance for Loan Losses to Non-performing Loans
    
    
    45.12
    %
    
    
    42.70
    %
 DEPOSITS
   SHORT-TERM BORROWINGS
   LONG-TERM BORROWINGS
   CAPITAL EXPENDITURES
  OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS
   45




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##### Table of Contents



June 30,
    
    
    December 31,2009
    
    
    2008Commitments to extend credit
    
    $
    548,964
    
    
    $
    684,245Standby letters of credit
    
    
    24,462
    
    
    
    22,320Non-reimbursable standby letters of credit and commitments
    
    
    1,600
    
    
    
    2,574
   CAPITAL RESOURCES AND LIQUIDITY
  Regulatory Guidelines
    
    
    ActualMinimum
    
    
    Well-
    
    
    June 30,
    
    
    December 31,Requirements
    
    
    Capitalized
    
    
    2009
    
    
    2008Integra Bank Corporation:Total Capital (to Risk-Weighted Assets)
    
    
    8.00
    %
    
    
    N/A
    
    
    
    10.42
    %
    
    
    9.75
    %Tier 1 Capital (to Risk-Weighted
Assets)
    
    
    4.00
    %
    
    
    N/A
    
    
    
    8.58
    %
    
    
    7.68
    %Tier 1 Capital (to Average Assets)
    
    
    4.00
    %
    
    
    N/A
    
    
    
    6.48
    %
    
    
    6.41
    %Integra Bank N.A.:Total Capital (to Risk-Weighted Assets)
    
    
    8.00
    %
    
    
    10.00
    %
    
    
    9.84
    %
    
    
    10.07
    %Tier 1 Capital (to Risk-Weighted
Assets)
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    8.56
    %
    
    
    8.81
    %Tier 1 Capital (to Average Assets)
    
    
    4.00
    %
    
    
    5.00
    %
    
    
    6.47
    %
    
    
    7.37
    %
    46




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##### Table of Contents




    
    Reducing risk weighted assets through delevering through the sales of loans and
securities;
 
    
    Selling non core assets;
 
    
    Improving our level of earnings;
 
    
    Reducing CRE lending; and
 
    
    Issuing new capital in an opportunistic basis.
        47




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##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
     Earnings at Risk (EAR).
  48




---



##### Table of Contents



Estimated Change in EAR from the Base Interest Rate Scenario-200 basis points
    
    
    -100 basis points
    
    
    +200 basis pointsJune 30, 2009
    
    
    -6.62
    %
    
    
    -2.26
    %
    
    
    7.55
    %December 31, 2008
    
    
    -12.63
    %
    
    
    -5.72
    %
    
    
    4.35
    %
 Economic Value of Equity (EVE).
   Estimated Change in EVE from the Base Interest Rate Scenario-200 basis points
    
    
    -100 basis points
    
    
    +200 basis pointsJune 30, 2009
    
    
    -5.64
    %
    
    
    -2.98
    %
    
    
    0.81
    %December 31, 2008
    
    
    -13.35
    %
    
    
    -6.07
    %
    
    
    0.57
    %
  
 Item 4.
    
    Controls and Procedures
    49




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1.
    
    LEGAL PROCEEDINGS
   
 Item 1A.
    
    RISK FACTORS
  We Are Subject to the Risk of Additional Impairment Charges Relating to Our Securities Portfolio.
  Our Ability to Fully Utilize the Value of Our Deferred Tax Asset Is Uncertain.
  Failure to comply with the May 20, 2009 agreement with the OCC may have a material adverse effect
on our business
  We May Not Succeed in Our Efforts to Maintain Regulatory Capital at Desired Levels.
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##### Table of Contents



Item 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 Item 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 Item 4.
    
    SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Item 5.
    
    OTHER INFORMATION
  
 Item 6.
    
    EXHIBITS
  3.1
    
    
    Amended and Restated By-Laws of Integra Bank Corporation as amended through June 17, 200910.1
    
    
    Agreement dated May 20, 2009 between Integra Bank N.A. and the Office of the
Comptroller of the Currency (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K-A filed May 26, 2009)31.1
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief
Executive Officer31.2
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief
Financial Officer32
    
    
    Certification of Chief Executive Officer and Chief Financial Officer
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##### Table of Contents



SIGNATURES
  INTEGRA BANK CORPORATIONBy
    
    /s/ Michael J. AlleyMichael J. AlleyInterim Chairman of the Board 
and Chief Executive OfficerAugust 12, 2009/s/ Martin M. ZornMartin M. ZornChief Operating Officer and 
Chief Financial OfficerAugust 12, 2009
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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1
    
    
    Amended and Restated By-Laws of Integra Bank Corporation as amended through June 17, 200910.1
    
    
    Agreement dated May 20, 2009 between Integra Bank N.A. and the Office of the
Comptroller of the Currency (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K-A filed May 26, 2009)31.1
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief
Executive Officer31.2
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief
Financial Officer32
    
    
    Certification of Chief Executive Officer and Chief Financial Officer
  53