Back to GetFilings.com
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
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
(Exact name of registrant as specified in its charter)
Indiana 35-1632155
(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
21 S.E. Third Street, P.O. Box 868, Evansville, IN 47705-0868
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 812-464-9677
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 STATED VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the closing sales price of March 1, 2001, the aggregate market value of
the voting stock held by non-affiliates of the registrant was approximately
$350,462,000.
The number of shares outstanding of the registrant's common stock was 17,379,051
at March 1, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 2001 Annual Meeting of
Shareholders. (Part III)
2
INTEGRA BANK CORPORATION
2000 FORM 10-K ANNUAL REPORT
Table of Contents
PAGE
NUMBER
PART I
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 24
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures 56
PART III
Item 10. Directors and Executive Officers of the Registrant 56
Item 11. Executive Compensation 56
Item 12. Security Ownership of Certain Beneficial Owners and Management 56
Item 13. Certain Relationships and Related Transactions 56
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 57
Signatures
2
3
FORM 10-K
INTEGRA BANK CORPORATION
December 31, 2000
PART I
ITEM 1. BUSINESS
Integra Bank Corporation (the "Corporation"), was organized in 1985 as an
Indiana corporation to engage in the business of a bank holding company. Based
in Evansville, Indiana, the Corporation owns Integra Bank NA, a national banking
association (the "Bank") operating a total of seventy-seven banking centers. The
Corporation also owns a property management company and has a controlling
interest in Integra Capital Trust I, a trust securities affiliate.
The Bank provides a wide range of financial services to the communities it
serves in Indiana, Kentucky, Illinois and Southwestern Ohio. These services
include various types of deposit accounts; safe deposit boxes; safekeeping of
securities; automated teller machines; consumer, mortgage, and commercial loans;
mortgage loan sales and servicing; letters of credit; accounts receivable
management (financing, accounting, billing and collecting); and complete
personal and corporate trust services. The Bank's wholly-owned subsidiary, IBNK
Leasing Corp., operates as a full service equipment and real property leasing
company offering its services to all commercial clients of the Bank.
Twenty-One Southeast Third Corporation ("TSTC") is the Corporation's property
management subsidiary. TSTC is the entity through which the Corporation
constructed a nine-story addition to the main office of the Bank. The Bank and
the Corporation occupy five floors of the building and the remaining floors have
been sold or leased as condominiums. TSTC serves in a property management
capacity for this facility.
At December 31, 2000, the Corporation and its subsidiaries had 801 full-time
equivalent employees. The Corporation and its subsidiaries provide a wide range
of employee benefits and management considers employee relations to be
excellent.
COMPETITION
The Corporation has active competition in all areas in which it presently
engages in business. The Bank competes for commercial and individual deposits
and loans with commercial banks, thrift institutions, credit unions connected
with local businesses, and other non-banking institutions. IBNK Leasing Corp.
competes with bank and non-bank leasing companies as well as finance
subsidiaries of major equipment vendors.
FOREIGN OPERATIONS
The Corporation and its subsidiaries have no foreign branches or significant
business with foreign obligors or depositors.
REGULATION AND SUPERVISION
General
The Corporation is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended ("BHCA"), and as such is subject to regulation
by the Board of Governors of the Federal Reserve System ("FRB"). The Corporation
files periodic reports with the FRB regarding the business operations of the
Corporation and its subsidiaries, and is subject to examination by the FRB.
The Bank is supervised and regulated primarily by the Office of the Comptroller
of the Currency ("OCC"). It is also a member of the Federal Reserve System and
subject to the applicable provisions of the Federal Reserve Act and subject to
the provisions of the Federal Deposit Insurance Act.
The federal banking agencies have broad enforcement powers, including the power
to terminate deposit insurance, impose substantial fines and other civil and
criminal penalties, and appoint a conservator or receiver. Failure to comply
with applicable laws, regulations, and supervisory agreements could subject the
Corporation, the Bank, as well as their officers, directors, and other
institution-affiliated parties, to administrative sanctions and potentially
substantial civil money penalties. In addition to the measures discussed under
"Deposit Insurance", the appropriate federal banking agency may appoint the FDIC
as conservator or receiver for a banking institution (or the FDIC may appoint
itself, under certain circumstances) if any one or more of a number of
circumstances exist, including, without limitation, the banking institution
becoming undercapitalized and having no reasonable prospect of becoming
adequately capitalized, it fails to become adequately capitalized when required
to do so, it fails
3
4
to submit a timely and acceptable capital restoration plan, or it materially
fails to implement an accepted capital restoration plan.
Supervision and regulation of bank holding companies and their subsidiaries is
intended primarily for the protection of depositors, the deposit insurance funds
of the FDIC, and the banking system as a whole, not for the protection of bank
holding company shareholders or creditors.
Acquisitions and Changes in Control
Under the BHCA, without the prior approval of the FRB, the Corporation may not
acquire direct or indirect control of more than 5% of the voting stock or
substantially all of the assets of any company, including a bank, and may not
merge or consolidate with another bank holding company. In addition, the BHCA
generally prohibits the Corporation from engaging in any nonbanking business
unless such business is determined by the FRB to be so closely related to
banking as to be a proper incident thereto. Under the BHCA, the FRB has the
authority to require a bank holding company to terminate any activity or
relinquish control of a non-bank subsidiary (other than a nonbank subsidiary of
a bank) upon the FRB's determination that such activity or control constitutes a
serious risk to the financial soundness and stability of any bank subsidiary of
the bank holding company.
The Change in Bank Control Act (the "CBCA") prohibits a person or group of
persons from acquiring "control" of a bank holding company unless the FRB has
been notified and has not objected to the transaction. Under a rebuttable
presumption established by the FRB, the acquisition of 10% or more of a class of
voting stock of a bank holding company with a class of securities registered
under Section 12 of the Securities Exchange Act of 1934, as amended, such as the
Corporation, would, under the circumstances set forth in the presumption,
constitute acquisition of control of the Corporation. In addition, any company
is required to obtain the approval of the FRB under the BHCA before acquiring
25% (5% in the case of an acquiror that is a bank holding company) or more of
the outstanding common stock of the Corporation, or otherwise obtaining control
or a "controlling influence" over the Corporation.
Dividends and Other Relationships with Affiliates
The Corporation is a legal entity separate and distinct from its subsidiaries.
The source of the Corporation's cash flow, including cash flow to pay dividends
on the Corporation's common stock, is the payment of dividends to the
Corporation by the Bank. Generally, such dividends are limited to the lesser of
(i) undivided profits (less bad debts in excess of the allowance for credit
losses) and (ii) absent regulatory approval, the net profits for the current
year combined with retained net profits for the preceding two years. Further, a
depository institution may not pay a dividend if (i) it would thereafter be
"undercapitalized" as determined by federal banking regulatory agencies or
(ii) if, in the opinion of the appropriate banking regulator, the payment of
dividends would constitute an unsafe or unsound practice.
The Bank is subject to additional restrictions on its transactions with
affiliates, including the Corporation. State and federal statutes limit credit
transactions with affiliates, prescribing forms and conditions deemed consistent
with sound banking practices, and imposing limits on permitted collateral for
credit extended.
Under FRB policy, the Corporation is expected to serve as a source of financial
and managerial strength to the Bank. The FRB requires the Corporation to stand
ready to use its resources to provide adequate capital funds during periods of
financial stress or adversity. This support may be required by the FRB at times
when the Corporation may not have the resources to provide it or, for other
reasons, would not be inclined to provide it. Additionally, under the Federal
Deposit Insurance Corporation Improvements Act of 1991 ("FDICIA"), the
Corporation may be required to provide limited guarantee of compliance of any
insured depository institution subsidiary that may become "undercapitalized" (as
defined in the statute) with the terms of any capital restoration plan filed by
such subsidiary with its appropriate federal banking agency.
4
5
Regulatory Capital Requirements
The Corporation and the Bank are subject to risk-based and leverage capital
requirements imposed by the appropriate primary bank regulator. Both complied
with applicable minimums as of December 31, 2000, and the Bank qualified as well
capitalized under the regulatory framework for prompt corrective action. See
Item 8, footnote 15.
Failure to meet capital requirements could result in a variety of enforcement
remedies, including the termination of deposit insurance or measures by banking
regulators to correct the deficiency in the manner least costly to the deposit
insurance fund.
Deposit Insurance
The Bank is subject to federal deposit insurance assessments by the FDIC. The
assessment rate is based on classification of a depository institution into a
risk assessment category. Such classification is based upon the institution's
capital level and certain supervisory evaluations of the institution by its
primary regulator. The Bank is currently assessed at the most favorable rate
charged.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management of the Corporation is not aware of any
activity or condition that could result in termination of the deposit insurance
of the Bank.
Community Reinvestment Act
The Community Reinvestment Act of 1977 ("CRA") requires financial institutions
to meet the credit needs of their entire communities, including low-income and
moderate-income areas. CRA regulations impose a performance-based evaluation
system, which bases the CRA rating on an institution's actual lending, service,
and investment performance. Federal banking agencies may take CRA compliance
into account when regulating a bank or bank holding company's activities; for
example, CRA performance may be considered in approving proposed bank
acquisitions.
Gramm-Leach-Bliley Act
On November 12, 1999, the Gramm-Leach-Bliley Act (the "Act") was signed into
law, breaking down the last remaining barriers to full convergence of the
banking, securities, and insurance industries. The major provisions of the Act
took effect on March 12, 2000.
The Act enables a broad-scale consolidation among banks, securities firms, and
insurance companies by creating a new type of financial services company called
a "financial holding company," a bank holding company with dramatically expanded
powers. Financial holding companies can offer virtually any type of financial
service, including banking, securities underwriting, insurance (both agency and
underwriting), and merchant banking. Activities that U. S. banking organizations
are currently permitted to conduct both domestically and overseas can be
conducted by financial holding companies domestically (they include a broad
range of financial activities, including operating a travel agency). In
addition, the Act permits the FRB and the Treasury Department to authorize
additional activities for financial holding companies, but only if they jointly
determine that such activities are "financial in nature" or "complementary to
financial activities."
The FRB serves as the primary "umbrella" regulator of financial holding
companies, with jurisdiction over the parent company and more limited oversight
over its subsidiaries. The primary regulator of each subsidiary of a financial
holding company depends on the activities conducted by the subsidiary. A
financial holding company need not obtain FRB approval prior to engaging, either
de novo or through acquisitions, in financial activities previously determined
to be permissible by the FRB. Instead, a financial holding company need only
provide notice to the FRB within 30 days after commencing the new activity or
consummating the acquisition.
The Corporation is currently contemplating whether to become a financial holding
company.
5
6
Additional Regulation, Government Policies, and Legislation
In addition to the restrictions discussed above, the activities and operations
of the Corporation and the Bank are subject to a number of additional detailed,
complex, and sometimes overlapping laws and regulations. These include state
usury and consumer credit laws, state laws relating to fiduciaries, the Federal
Truth-in-Lending Act, the Federal Equal Credit Opportunity Act, the Fair Credit
Reporting Act, the Truth-in-Savings Act, anti-redlining legislation, and
antitrust laws.
The actions and policies of banking regulatory authorities have had a
significant effect on the operating results of the Corporation and the Bank in
the past and are expected to do so in the future.
Finally, the earnings of the Bank are strongly affected by the attempts of the
FRB to regulate aggregate national credit and the money supply through such
means as open market dealings in securities, establishment of the discount rate
on member bank borrowings, and changes in reserve requirements against member
bank deposits. The FRB's policies may be influenced by many factors, including
inflation, unemployment, short-term and long-term changes in the international
trade balance and fiscal policies of the United States Government. The effects
of various FRB actions on future performance cannot be predicted.
STATISTICAL DISCLOSURE
The statistical disclosure on the Corporation and the Bank, on a consolidated
basis, included in response to Item 7 of this report is hereby incorporated by
reference herein.
6
7
EXECUTIVE OFFICERS OF THE CORPORATION
Certain information concerning the Executive Officers of the Corporation as of
March 1, 2001, is set forth in the following table.
NAME AGE OFFICE AND BUSINESS EXPERIENCE
- ----------------------- --- ----------------------------------------------
Michael T. Vea 42 Chairman of the Board, President, and Chief
Executive Officer of the Corporation (January
2000 to present); Chairman of the Board and
Chief Executive Officer of the Corporation
(September 1999 to January 2000); President
and Chief Executive Officer, Bank One,
Cincinnati, Inc. (1995-1999).
James E. Adams 56 Executive Vice President, Chief Financial
Officer, and Secretary of the Corporation
(December 1999 to present); Executive Vice
President and Chief Financial Officer,
Mainstreet Financial Corporation (1994-1999).
John A. Crumrine 54 Executive Vice President, Retail Manager of
the Corporation (December 1999 to present);
Retail Market Manager, Bank One, Lexington,
Inc. (1996-1999); Executive Vice President -
Retail Manager, Bank One, Cincinnati, Inc.
(1991-1996).
D. Michael Kramer 42 Executive Vice President, Chief Technology and
Operations Manager of the Corporation
(December 1999 to Present); President and
Chief Operating Officer, Target Media (1996 to
1999); Senior Vice President and Manager of
Financial Institutions Division, Star Bank,
N.A. (1990-1996).
Curtis D. Ritterling 44 Executive Vice President - Credit Risk Manager
of the Corporation (September 1999 to
present); Executive Vice President of the
Corporation (1997 to 1999); Senior Vice
President and Commercial Market Executive,
State of Illinois, Nations Bank, (1996 to
1997); Chairman, President, and Chief
Executive Officer, Boatmen's Bank of Marshall
(1990 to 1995).
Nancy Epperson 56 Senior Vice President, Human Resources
Director of the Corporation (October 1985 to
present)
7
8
ITEM 2. PROPERTIES
The net investment of the Corporation and its subsidiaries in real estate and
equipment at December 31, 2000, was $49.4 million. The Corporation's offices are
located at 21 S.E. Third Street in downtown Evansville, Indiana, in a building
owned by TSTC. The main and all branch offices of the Bank, the leasing company,
and the property management company are located on premises either owned or
leased. None of the property is subject to any major encumbrance.
A nine-story addition to the Bank's main office was completed in 1998 at a total
cost of approximately $18.0 million. The Bank and the Corporation occupy five
floors of the building and the other floors have been sold or leased to third
parties. The Corporation's share of the building cost was approximately $10.0
million. There are no material commitments for capital expenditures.
ITEM 3. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are involved in legal proceedings from time
to time arising in the ordinary course of business. None of such legal
proceedings are, in the opinion of management, expected to have a materially
adverse effect on the Corporation's consolidated financial position or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Corporation's common stock is traded on the Nasdaq Stock Market under the
symbol IBNK.
The following table lists the stock price for the past two years and dividend
information for the Corporation's common stock. Stock prices and dividends have
been retroactively adjusted to reflect all stock dividends.
RANGE OF STOCK PRICE
------------------------- DIVIDENDS
QUARTER LOW HIGH DECLARED
------- ------- ------- ---------
2000
- ----
1st $ 18.50 $ 28.00 $ 0.2100
2nd 16.38 22.63 0.2100
3rd 16.25 22.19 0.2100
4th 20.38 27.38 0.2350
1999
- ----
1st $ 22.86 $ 36.19 $ 0.1905
2nd 23.10 33.33 0.1905
3rd 22.80 32.26 0.1905
4th 23.33 29.88 0.2100
The Corporation has historically paid quarterly cash dividends and through 1999,
annual stock dividends. The Corporation depends upon the dividends from the Bank
to pay cash dividends to its shareholders. The ability of the Bank to pay such
dividends is limited by banking laws and regulations.
As of March 1, 2001, there were approximately 2,805 holders of record of common
stock.
8
9
ITEM 6. SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Data, Ratios and Other Data)
2000 1999 1998 1997 1996
FOR THE YEAR
Net interest income $ 91,856 $ 89,817 $ 87,897 $ 81,338 $ 75,618
Provision for loan losses 4,138 12,497 7,143 2,703 3,705
Noninterest income 20,266 13,639 16,621 14,102 12,437
Noninterest expense 63,573 60,406 67,289 53,498 48,096
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 44,411 30,553 30,086 39,239 36,254
Income taxes 13,920 7,909 7,970 11,071 11,541
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 30,491 $ 22,644 $ 22,116 $ 28,168 $ 24,713
PER COMMON SHARE*
Net income per share:
Basic $ 1.77 $ 1.28 $ 1.26 $ 1.61 $ 1.41
Diluted 1.77 1.27 1.25 1.60 1.41
Book value 12.94 12.73 12.34 12.02 10.99
Cash dividends 0.87 0.78 0.68 0.58 0.50
YEAR-END
Total assets $ 3,068,818 $ 2,203,477 $ 2,195,224 $ 1,985,178 $ 1,816,935
Securities** 997,494 332,359 365,841 424,963 413,604
Loans, net of unearned income 1,689,290 1,700,833 1,648,296 1,400,959 1,254,691
Deposits 1,871,036 1,694,661 1,734,585 1,532,804 1,455,356
Shareholders' equity 205,517 223,088 218,280 211,237 188,003
SELECTED FINANCIAL RATIOS
Return on average assets 1.23% 1.05% 0.99% 1.44% 1.42%
Return on average equity 13.45 9.90 9.86 13.95 13.11
Cash dividends payout 49.15 60.94 53.97 36.02 35.46
Average equity to average assets 9.06 10.62 10.08 10.30 10.82
OTHER DATA
Weighted average shares:
Basic* 17,233,413 17,701,235 17,602,440 17,458,199 17,558,356
Diluted* 17,254,335 17,794,188 17,719,649 17,602,483 17,576,201
Shares outstanding at year-end* 15,880,999 17,518,117 17,687,818 17,581,723 17,102,790
Average assets $ 2,511,947 $ 2,154,168 $ 2,158,314 $ 1,911,525 $ 1,741,476
Average equity 227,573 228,740 217,524 196,909 188,490
Dividends declared 14,800 13,807 12,813 10,074 8,488
* Restated to reflect all stock dividends and the two-for-one stock split in
1996
** 1996 does not include nonmarketable equity securities
9
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
INTRODUCTION
The discussion and analysis which follows is presented to assist in the
understanding and evaluation of the financial condition and results of
operations of Integra Bank Corporation (the "Corporation") and its subsidiaries
as presented in the following consolidated financial statements and related
notes. The text of this review is supplemented with various financial data and
statistics. All information has been restated to include bank acquisitions
accounted for using the pooling of interests method and to give effect to all
stock dividends. Unless otherwise noted all dollar amounts other than share and
per share data are in thousands (000's).
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements to be materially different from the results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: management's ability to
effectively implement the Corporation's strategic plan; general, regional and
local economic conditions which may affect interest rates and net interest
income; credit risks and risks from concentrations (geographic and by industry)
within the loan portfolio; changes in regulations affecting financial
institutions; and competition.
BUSINESS DESCRIPTION
Integra Bank Corporation is an Indiana corporation based in Evansville, Indiana,
which was established in 1985 to engage in the business of a bank holding
company. The Corporation has a wholly owned banking subsidiary, Integra Bank
NA, which operates seventy-seven banking centers. The Corporation also has a
real estate property management company and a trust securities affiliate.
Integra Bank provides a wide range of financial services to the communities it
serves in Indiana, Kentucky, Illinois, and Southwestern Ohio. These services
include various types of deposit accounts; safe deposit boxes; safekeeping of
securities; automated teller machines; consumer, mortgage, and commercial loans;
mortgage loan sales and servicing; letters of credit; accounts receivable
management (financing, accounting, billing, and collecting); and complete
personal and corporate trust services. Integra Bank's wholly owned subsidiary,
IBNK Leasing Corp., operates as a full service equipment and real property
leasing company offering its services to all commercial clients of the Bank.
On November 16, 2000, the Corporation acquired four banking offices in Bowling
Green and Franklin, Kentucky with approximately $99,000 in loans and assumed
deposit liabilities of approximately $165,000 from AmSouth Bank. The resulting
intangible assets of approximately $22,025 are being amortized over periods up
to 25 years. The acquisition was accounted for under the purchase method of
accounting.
In 2000, the Corporation announced a merger agreement with Webster Bancorp,
Inc., parent company for West Kentucky Bank, Madisonville, Kentucky. At December
31, 2000, West Kentucky Bank had total assets and shareholders' equity of
$293,906 and $19,749, respectively. The acquisition, accounted for under the
purchase method of accounting, was completed on January 31, 2001.
Also during 2000, the Corporation completed its charter consolidation project,
combining twelve subsidiary banks into Integra Bank.
10
11
The Corporation made no acquisitions during 1999. The following table summarizes
acquisitions made by the Corporation during 1998. Assets acquired are measured
as of the date of each acquisition.
Date Accounting Assets Resulting
Entity Acquired Method Acquired Intangible Asset
- -----------------------------------------------------------------------------------------------------------------
Mayfield Branch of Republic Bank and Trust January 8, 1998 Purchase $ 65,639 $ 4,521
Vernois Bancshares, Inc. March 6, 1998 Purchase 179,156 16,551
Illinois One Bancorp, Inc. May 31, 1998 Pooling 86,100 -
Community First Financial, Inc. August 31, 1998 Pooling 134,800 -
Trigg Bancorp, Inc. August 31, 1998 Pooling 95,000 -
1st Bancorp Vienna, Inc. October 1, 1998 Pooling 38,200 -
Hoosier Hills Financial Corporation October 1, 1998 Pooling 117,100 -
Commonwealth Commercial Corporation October 31, 1998 Pooling 23,000 -
Downstate Banking Co. October 31, 1998 Pooling 21,600 -
Princeton Federal Savings Bank, fsb November 30, 1998 Pooling 32,300 -
Progressive Bancshares, Inc. December 1, 1998 Pooling 144,800 -
Management continues to evaluate acquisition opportunities as they arise.
11
12
FINANCIAL CONDITION
Total assets at December 31, 2000, were $3,068,818, compared to $2,203,477 at
December 31, 1999. Deposits increased $176,375 from $1,694,661 at December 31,
1999 to $1,871,036 at December 31, 2000. Shareholders' equity decreased from
$223,088 at December 31, 1999, to $205,517 at December 31, 2000 primarily as a
result of the stock buy back program associated with the acquisition of Webster
Bancorp, Inc. During 2000, book value per share increased by $0.21 to $12.94 and
the ratio of average equity capital to average assets was 9.06%.
Average earning assets increased $345,995 during 2000 to $2,352,041. During 2000
average total securities increased $297,328, or 86.2%; average loans increased
$32,671, or 2.0%; and average other earning assets increased $15,996. The mix of
earning assets shifted as average loans to average earning assets decreased from
82.1% in 1999 to 71.4% in 2000 and average securities to average earning assets
increased from 17.2% in 1999 to 27.3% in 2000. This shift is primarily the
result of a leverage program implemented by the Corporation during 2000, to more
effectively utilize excess capital and increase earnings.
Average interest-bearing deposit balances increased by $55,591, or 3.8%, in 2000
and average non-interest-bearing deposits decreased $25,783, or 12.1%. During
2000, average federal funds purchased and securities sold under agreements to
repurchase increased $143,404 and average other borrowings increased $189,811.
The increase in borrowings was necessary to fund the leveraged increase in
earning assets.
SECURITIES PORTFOLIO
Total average securities comprised 27.3% of average earning assets in 2000
compared to 17.2% and 21.1% in 1999 and 1998, respectively. They represent the
second largest earning asset component after loans. Average securities increased
$297,328, or 86.2%, during 2000 as the Corporation pursued various investment
alternatives to better employ capital and enhance revenues while maintaining
conservative interest rate and credit risk exposure. The portfolio shifted
toward investments in mortgage-backed securities, as these generally yield
70-100 basis points more than comparable U.S. Treasury securities. Inherent in
mortgage-backed securities is prepayment risk, which occurs when borrowers
prepay their obligations due to market fluctuations and rates. Prepayment rates
generally can be expected to increase during periods of lower interest rates as
some of the underlying mortgages are refinanced at lower rates. Mortgage-backed
securities represented 59.1% of the investment portfolio at December 31, 2000 as
compared to 13.6% and 18.0% at December 31, 1999 and 1998, respectively.
SECURITIES PORTFOLIO Carrying Value at December 31,
-----------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------
U.S. Treasury securities $ - $ 5,966 $ 15,200
U.S. Government agencies 226,231 67,410 53,167
Mortgage-backed securities 589,419 45,283 65,737
State & political subdivisions 134,836 184,605 199,480
Other securities 47,008 29,095 32,257
- -------------------------------------------------------------------------------
Total $997,494 $332,359 $365,841
===============================================================================
12
13
LOANS
The Corporation utilizes a centralized credit administration function and loan
policies ratified by the board of directors. Board oversight of the lending
function resides in the Credit Risk Committee. This committee, which meets
monthly, includes members of Integra Bank's executive management as well as
outside directors. The committee monitors credit quality through its review of
information such as delinquencies, problem loans, and charge-offs. The lending
policies address risks associated with each type of lending, including
collateralization, loan-to-value ratios, loan concentrations, insider lending,
and other pertinent matters and are regularly reviewed to ensure that they
remain appropriate for the current lending environment. In addition, the credit
risk functions are monitored by bank credit review personnel, regulatory
agencies, and independent accountants, for compliance as well as loan quality.
Loans, net of unearned income at December 31, 2000 totaled $1,689,290 compared
to $1,700,833 at year-end 1999, reflecting a decrease of $11,543 or .7%. During
the second quarter of 2000, the Corporation securitized approximately $38,000 of
its residential real estate loans and retained the resulting mortgage-backed
securities in its investment portfolio. The purchase of four branches during the
fourth quarter added approximately $99,000 in loans, consisting of $56,000 of
commercial loans, $30,000 of consumer loans and $13,000 of real estate loans.
During the fourth quarter of 1999 management performed an extensive credit risk
assessment of the portfolio. The results of management's assessment led to a
revision in underwriting policies, primarily in commercial loans and consumer
loans.
LOAN PORTFOLIO AT YEAR END, FIVE-YEAR SUMMARY
2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Real estate loans $1,156,089 $1,122,398 $ 964,493 $ 801,611 $ 710,250
Commercial, industrial, and
agricultural loans 353,318 355,485 415,579 363,727 325,691
Economic development loans and
other obligations of state and
political subdivisions 25,120 22,331 19,780 15,492 12,260
Consumer loans 138,230 165,246 223,377 198,615 192,475
Direct lease financing 8,932 11,598 12,988 13,146 12,336
Leveraged leases 5,554 5,382 5,102 4,661 -
All other loans 2,190 18,937 7,606 5,017 3,154
- -------------------------------------------------------------------------------------------------------------------
Total loans 1,689,433 1,701,377 1,648,925 1,402,269 1,256,166
Less: unearned income 143 544 629 1,310 1,475
- -------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income $1,689,290 $1,700,833 $1,648,296 $1,400,959 $1,254,691
===================================================================================================================
Allowance for loan losses $ 25,264 $ 25,155 $ 18,443 $ 13,854 $ 12,539
===================================================================================================================
The various categories of loans are subject to varying levels of risk.
Management mitigates this risk through portfolio diversification as well as
geographic diversification. The Corporation concentrates its lending activity in
the geographic market areas that it serves, primarily Indiana, Illinois,
Kentucky and Southwestern Ohio. The loan portfolio is diversified by type of
loan and industry. The loan portfolio's mix at December 31, 2000 consisted of
68.4% real estate loans, 23.3% commercial loans and consumer loans at 8.3%.
The Corporation lends to commercial customers in various industries including
manufacturing, agricultural, health and other services, transportation, mining,
wholesale, and retail. There is no concentration of loans in any single industry
exceeding 10% of its portfolio nor does its portfolio contain any loans to
finance speculative transactions, such as large, highly leveraged buyouts or
loans to foreign countries.
13
14
LOANS (continued)
LOAN MATURITIES AND RATE SENSITIVITIES AT DECEMBER 31, 2000
ON AGRICULTURAL, COMMERCIAL, AND TAX-EXEMPT LOANS
After 1 Year
Within But Within Over
Rate sensitivities: 1 Year 5 Years 5 Years Total
- --------------------------------------------------------------------------------
Fixed rate loans $ 27,130 $93,898 $21,522 $142,550
Variable rate loans 221,677 2,599 66 224,342
- --------------------------------------------------------------------------------
Subtotal $248,807 $96,497 $21,588 366,892
====================================================================
Percent of total 67.81% 26.30% 5.88%
Nonaccrual loans 11,546
--------
Total loans $378,438
========
NON-PERFORMING ASSETS
Non-performing assets consist of defaulted municipal securities, nonaccrual
loans, restructured loans, loans past due 90 days or more, and other real estate
owned. Defaulted municipal securities are those which have defaulted on interest
payments. Nonaccrual loans are loans on which interest recognition has been
suspended because of doubts as to the borrower's ability to repay principal or
interest. Loans are generally placed on nonaccrual status after becoming 90 days
past due if the ultimate collectibility of the loan is in question. Loans which
are current, but as to which serious doubt exists about repayment ability, may
also be placed on nonaccrual status. Restructured loans are loans where the
terms have been changed to provide a reduction or deferral of principal or
interest because of the borrower's financial position. Past-due loans are loans
that are continuing to accrue interest but are contractually past due 90 days or
more as to interest or principal payments. Other real estate owned represents
properties obtained for debts previously contracted. Management is not aware of
any loans which have not been disclosed as non-performing assets that represent
or result from unfavorable trends or uncertainties which management reasonably
believes will materially adversely affect future operating results, liquidity,
or capital resources, or represent material credits as to which management has
serious doubt as to the ability of such borrower to comply with loan repayment
terms.
Nonaccrual, restructured and past due loans were 2.19% and 2.05% of loans, net
of unearned income at the end of 2000 and 1999, respectively. Additional
interest income that would have been recorded, if nonaccrual and restructured
loans had been current in accordance with their original terms, was $3,481,
$1,093, and $646, in 2000, 1999, and 1998, respectively. The interest recognized
on nonaccrual loans was approximately $133, $31, and $130, in 2000, 1999, and
1998, respectively.
In addition to those loans classified as non-performing, management was
monitoring loans of approximately $74,025 and $73,460 as of December 31, 2000
and 1999, respectively, for the borrowers' abilities to comply with present loan
repayment terms. All impaired loans discussed in Note 6 to the financial
statements in this report are included in non-performing or closely monitored
loans.
NON-PERFORMING ASSETS AT YEAR END, FIVE-YEAR SUMMARY
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------
Non-performing loans:
Nonaccrual $ 33,079 $ 32,025 $ 9,782 $ 6,184 $ 3,717
Restructured 160 1,275 374 293 481
90 days past due 3,760 1,629 1,610 2,011 2,264
- -----------------------------------------------------------------------------------------
Total non-performing loans 36,999 34,929 11,766 8,488 6,462
Defaulted municipal securities - - - 61 31
Other real estate owned 1,522 936 715 180 215
- -----------------------------------------------------------------------------------------
Total non-performing assets $ 38,521 $ 35,865 $ 12,481 $ 8,729 $ 6,708
=========================================================================================
14
15
NON-PERFORMING ASSETS (continued)
The Corporation monitors credit quality through a periodic review and analysis
of the loan portfolio. On a quarterly basis, the Corporation performs an
evaluation of the adequacy of the allowance for loan losses. The evaluation
includes an analysis of past due loans, loans criticized during regulatory
examinations, internally classified loans, delinquency trends,
and other relevant factors. The results of these evaluations are used by the
Corporation to determine the adequacy of the allowance for loan losses.
CREDIT MANAGEMENT
The allowance for loan losses is that amount which, in management's opinion, is
adequate to absorb estimated loan losses as determined by management's periodic
evaluation of the loan portfolio. The evaluation by management is based upon
consideration of various factors including growth of the portfolio, an analysis
of individual credits, adverse situations that could affect a borrower's ability
to repay, prior and current loss experience, the results of recent regulatory
examinations and economic conditions. Loans that are deemed to be uncollectible
are charged to the allowance, while recoveries of previously charged off amounts
are credited to the allowance. A provision for loan losses is charged to
operations at levels deemed necessary to provide assurance that the allowance
for loan losses is sufficient to absorb estimated losses based on management's
periodic evaluation of the factors previously mentioned as well as any other
pertinent factors.
The adequacy of the allowance for loan losses is based on ongoing quarterly
assessments of the probable estimated losses inherent in the credit portfolios.
The Corporation's methodology for assessing the appropriate reserve level
consists of several key elements.
A periodic review of selected commercial loans (based on loan size) is conducted
to identify loans with heightened risk or inherent losses. The primary
responsibility for this review rests with management assigned accountability for
the credit relationship. This review is supplemented with periodic reviews by
the credit review function and regulatory agencies. These reviews provide
information which assists in the timely identification of problems and potential
problems and in deciding whether the credit represents a probable loss or risk
which should be recognized. Where appropriate, an allocation is made to the
allowance for individual loans based on management's estimate of the borrower's
ability to repay the loan given the availability of collateral, other sources of
cash flow and legal options available to the Corporation.
Included in the review of individual loans are those that are impaired as
provided in Statement of Financial Accounting Standards No. 114. Loans are
considered impaired when, based on current information and events, it is
probable the Corporation will not be able to collect all amounts due in
accordance with the contractual terms. The allowance established for impaired
loans is determined based on the fair value of the investment measured using
either the present value of expected cash flows based on the initial effective
interest rate on the loan or the fair value of the collateral if the loan is
collateral dependent.
Historical loss ratios are applied to other commercial loans not subject to
specific allowance allocations. Homogeneous pools of loans, such as consumer
installment and residential real estate loans, are not individually reviewed. An
allowance is established for each pool of loans based upon historical loss
ratios based on the average net charge-off history by loan category. In
addition, the allowance reflects other risks affecting the loan portfolio, such
as economic conditions in the Corporation's geographic areas, specific industry
financial conditions, and other factors.
The unallocated portion of the allowance is determined based on management's
assessment of economic conditions and specific economic factors in the
individual markets in which the Corporation operates. The unallocated portion of
the allowance is maintained to recognize the imprecision in estimating and
measuring loss when evaluating the allowance for pools of loans.
The provision for loan losses is the amount necessary to adjust the allowance
for loan losses to an amount that is adequate to absorb estimated loan losses as
determined by management's periodic evaluations of the loan portfolio. This
evaluation by management is based upon consideration of actual loss experience,
changes in composition of the loan portfolio, evaluation of specific borrowers
and collateral, current economic conditions, trends in past-due and non-accrual
loan balances and the results of recent regulatory examinations.
The provision for loan losses totaled $4,138 in 2000, a decrease of $8,359 from
the $12,497 provided in 1999. During the fourth quarter of 1999, management
centralized the process for evaluating the adequacy of the allowance for loan
losses. As part of this process, and also in response to unfavorable trends in
delinquencies and non-performing assets, the Corporation performed an extensive
credit risk assessment of the Corporation's loan portfolio. The results of this
assessment revealed the need to increase the allowance for loan losses.
Accordingly, the Corporation recorded a provision for loan losses of $9.2
million in the fourth quarter of 1999. At the end of 2000, the allowance for
loan losses as a percentage of loans was 1.50% as compared to 1.48% as of
year-end 1999. During 2000, the Corporation's ratio of net charge-offs to
average loans was 31 basis points compared to 35 basis points in 1999. The
allowance for loan losses to non-performing loans at December 31 was 68.28% in
2000 and 72.02% in 1999.
15
16
CREDIT MANAGEMENT (continued)
SUMMARY OF LOAN LOSS EXPERIENCE (ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES)
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses, January 1 $ 25,155 $ 18,443 $ 13,854 $ 12,539 $ 10,937
Allowance associated with purchase acquisitions 1,103 - 1,086 516 379
Loans charged off:
Commercial 1,722 1,859 875 763 1,129
Real estate mortgage 1,658 2,539 687 505 634
Consumer 3,065 3,256 3,411 1,867 1,536
Direct lease financing 48 10 42 8 74
- ------------------------------------------------------------------------------------------------------------------------
Total 6,493 7,664 5,015 3,143 3,373
Recoveries on charged-off loans:
Commercial 242 534 307 367 172
Real estate mortgage 235 251 541 424 302
Consumer 871 1,094 516 448 412
Direct lease financing 13 - 11 - 5
- ------------------------------------------------------------------------------------------------------------------------
Total 1,361 1,879 1,375 1,239 891
- ------------------------------------------------------------------------------------------------------------------------
Net charge-offs 5,132 5,785 3,640 1,904 2,482
Provision for loan losses 4,138 12,497 7,143 2,703 3,705
- ------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses, December 31 $ 25,264 $ 25,155 $ 18,443 $ 13,854 $ 12,539
- ------------------------------------------------------------------------------------------------------------------------
Total loans at year end $1,689,290 $1,700,833 $ 1,648,296 $1,400,959 $1,254,691
Average loans 1,679,881 1,647,210 1,556,113 1,338,131 1,207,403
As a percent of year-end loans:
Net charge-offs 0.30% 0.34% 0.22% 0.14% 0.20%
Provision for loan losses 0.24% 0.73% 0.43% 0.19% 0.30%
Year-end allowance balance 1.50% 1.48% 1.12% 0.99% 1.00%
As a percent of average loans:
Net charge-offs 0.31% 0.35% 0.23% 0.14% 0.21%
Provision for loan losses 0.25% 0.76% 0.46% 0.20% 0.31%
Year-end allowance balance 1.50% 1.53% 1.19% 1.04% 1.04%
Allowance for loan losses as a
percent of underperforming loans 68.28% 72.02% 156.75% 163.22% 194.04%
Total underperforming loans $ 36,999 $ 34,929 $ 11,766 $ 8,488 $ 6,462
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES AT DECEMBER 31
Allowance Applicable to Percent of Loans to Total Gross Loans
- --------------------------------------------------------------------------------------------------------------------------------
Loan Type 2000 1999 1998 1997 1996 2000 1999 1998 1997 1996
Commercial $ 6,042 $ 7,252 $ 6,037 $ 4,861 $ 4,137 23% 22% 27% 28% 27%
Real estate mortgage 9,508 9,291 3,656 3,689 3,632 68% 66% 58% 57% 57%
Leases 3,184 3,230 97 21 - 1% 1% 1% 1% 1%
Consumer 2,690 3,217 5,461 2,842 2,321 8% 11% 14% 14% 15%
- --------------------------------------------------------------------------------------------------------------------------------
Allocated 21,424 22,990 15,251 11,413 10,090 100% 100% 100% 100% 100%
===========================================
Unallocated 3,840 2,165 3,192 2,441 2,449
- ---------------------------------------------------------------------------------
Total $ 25,264 $ 25,155 $ 18,443 $ 13,854 $ 12,539
=================================================================================
16
17
DEPOSITS
The Asset/Liability Committee manages deposits to achieve a balance between
deposit growth and the cost of funds. Average deposits increased $29,960, or
1.8%, during 2000, compared to a decrease of $28,289, or 1.7%, during 1999.
Deposits of approximately $165,000 were assumed with the purchase of four
branches from AmSouth during the fourth quarter of 2000. This acquisition
resulted in increased average deposits in 2000 of approximately $20,000. During
2000, customer preferences continued to shift to money market and
interest-bearing demand accounts due in part to the interest rate environment
and as a result of the Corporation offering competitive pricing on these
products. Average time deposits of $100,000 or more increased $83,250 and
provided a source of funding to support the asset growth as described in the
discussion of Securities.
AVERAGE DEPOSITS
2000 1999 1998
--------------------- ------------------- -------------------
Amount Rate Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------------------------------
Non-interest-bearing demand $ 187,275 - $ 212,906 - $ 227,391 -
Money market accounts 141,964 5.04% 116,681 3.81% 112,385 3.91%
Interest-bearing demand 273,771 1.73% 266,991 1.97% 252,201 2.31%
Savings 139,775 2.32% 171,769 2.87% 165,016 2.83%
Time deposits of $100,000 or more 314,360 6.28% 231,110 5.31% 224,598 5.58%
Other time deposits 642,424 5.28% 670,152 5.01% 716,307 5.37%
- -----------------------------------------------------------------------------------------------------------------
Total average deposits $ 1,699,569 $1,669,609 $ 1,697,898
=================================================================================================================
TIME DEPOSITS OF $100,000 OR MORE AT DECEMBER 31, 2000
- ---------------------------------------------------------------
Maturing:
3 months or less $ 149,095
Over 3 to 6 months 149,272
Over 6 to 12 months 38,868
Over 12 months 8,132
- ---------------------------------------------------------------
Total $ 345,367
===============================================================
BORROWINGS
Short-term borrowings include federal funds purchased, securities sold under
agreements to repurchase and notes payable to the U.S. Treasury. Total
short-term borrowings totaled $383,735 at December 31, 2000, an increase of
$293,746 over year-end 1999. Federal funds purchased, overnight borrowings from
other financial institutions, totaled $3,300 at December 31, 2000 compared to
$59,000 at year-end 1999. Securities sold under agreements to repurchase are
collateralized transactions acquired in national markets as well as from the
Corporation's commercial customers as a part of a cash management service.
Repurchase agreements generally provide the Corporation with a lower interest
cost than similar sources of funds and were $380,435 at December 31, 2000
compared to $30,984 one-year prior. This increase was used primarily to fund the
purchase of securities, as discussed earlier.
SHORT-TERM BORROWINGS AT DECEMBER 31,
2000 1999 1998
- ---------------------------------------------------------------------------------
Federal funds purchased $ 3,300 $ 59,000 $ -
Securities sold under agreements to repurchase 380,435 30,984 33,382
Notes payable U.S. Treasury - 5 -
- ---------------------------------------------------------------------------------
Total $383,735 $ 89,989 $ 33,382
=================================================================================
17
18
BORROWINGS (Continued)
Securities
Sold Under
Federal Agreements
Funds to
Purchased Repurchase
- ------------------------------------------------------------------------------
2000
Average amount outstanding $ 14,402 $ 192,744
Maximum amount at any month end 46,000 380,435
Weighted average interest rate:
During the year 5.65% 6.16%
End of year 6.00% 6.69%
1999
Average amount outstanding $ 32,296 $ 31,446
Maximum amount at any month end 82,500 30,984
Weighted average interest rate:
During the year 5.01% 4.07%
End of year 6.09% 4.18%
1998
Average amount outstanding $ 20,853 $ 36,770
Maximum amount at any month end 50,950 52,615
Weighted average interest rate:
During the year 4.65% 4.47%
End of year - 3.31%
Other borrowings generally provide longer term funding and include advances from
the Federal Home Loan Bank (FHLB) and term notes from other financial
institutions. Other borrowings increased $402,133 during 2000 to $540,504. Of
this increase, FHLB advances account for $392,959. These borrowings were also
used to fund the growth in the Corporation's total assets.
CAPITAL RESOURCES
At the end of 2000, shareholders' equity totaled $205,517, a decrease of
$17,571, or 7.9%, from 1999. The amount of net earnings retained after the
declaration of cash dividends was $15,691 in 2000 compared to $8,837 in the
prior year. The dividend payout ratio for 2000 was 49.15%, compared to 60.94% in
1999. During 2000, 1999 and 1998, the Corporation repurchased $41,897, $6,690
and $1,385, respectively, of its common stock. During 2000 the Corporation
completed its previously announced stock repurchase programs by purchasing
1,693,773 shares. Included in this amount was 1,488,479 shares repurchased in
connection with the acquisition of Webster Bancorp, Inc. The average equity to
average asset ratio was 9.06% and 10.62% for 2000 and 1999, respectively.
As of December 31, 2000, there were no material commitments for capital
expenditures.
The Corporation and the banking industry are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can elicit certain mandatory actions by
regulators that, if undertaken, could have a direct material effect on the
Corporation's financial statements. Capital adequacy in the banking industry is
evaluated primarily by the use of ratios that measure capital against assets and
certain off-balance sheet items. Certain ratios weight these assets based on
risk characteristics according to regulatory accounting practices. At December
31, 2000, the Corporation and its banking subsidiary exceeded the regulatory
minimums and the banking subsidiary met the regulatory definition of well
capitalized.
18
19
LIQUIDITY
Liquidity of a banking institution reflects the ability to provide funds to meet
loan requests, to accommodate possible outflows in deposits, and to take
advantage of interest rate market opportunities. Funding loan requests,
providing for liability outflows, and managing interest rate fluctuations
require continuous analysis in order to match maturities of specific categories
of short-term and long-term loans and investments with specific types of
deposits and borrowings. Bank liquidity is thus normally considered in terms of
the nature of mix of the banking institution's sources and uses of funds.
For the Corporation, the primary sources of short-term liquidity have been
federal funds sold, commercial paper, interest-bearing deposits in banks, and
U.S. Government and agency securities available for sale. In addition to these
sources, short-term liquidity is provided by maturing loans and securities. The
balance between these sources and needs to fund loan demand and deposit
withdrawals is monitored under the Corporation's asset/liability management
program. When these sources are not adequate, the Corporation may use federal
funds purchased, brokered deposits, and its lines with Federal Home Loan Banks
as alternative sources of liquidity. Additionally, the Corporation's
underwriting standards for its mortgage loan portfolio comply with standards
established by government housing agencies; as a result, a portion of the
mortgage loan portfolio could be sold to provide additional liquidity. At
December 31, 2000 and 1999, respectively, federal funds sold were $23,647 and
$748, interest-bearing deposits in banks were $967 and $-0-, and U.S. Government
and agency securities available for sale were $226,231 and $73,376.
These sources and other liquid assets also satisfy long-term liquidity needs.
Long-term liquidity is managed in the same way, only with longer maturities, to
provide for future needs while maintaining interest margins. In 1998, the
Corporation increased its use of Federal Home Loan Bank lines to reduce
dependence on short-term federal funds borrowings. At December 31, 2000, the
Corporation had $137,000 available from unused federal funds purchased
agreements and in excess of $243,000 of available borrowing capacity from
Federal Home Loan Bank lines. In addition, the Corporation has an unsecured line
of credit available which permits it to borrow up to $50,000 at variable rates
adjusted with changes in LIBOR through June 29, 2001. At December 31, 2000,
$38,000 remained available for future use. The Corporation's trust securities
affiliate issued $34,500 in Trust Preferred Securities in 1998, primarily, to
fund the purchase of a subsidiary bank and a branch.
The Corporation has guaranteed the debt of subsidiaries totaling $17,201. At
December 31, 2000, the Corporation was not in compliance with a financial
covenant requiring that the Corporation maintain, on a consolidated basis, a
leverage ratio in excess of 8.00%. The Corporation received a waiver, dated
March 12, 2001.
The ability of the Corporation to pay cash dividends to its shareholders is
dependent on the receipt of dividends from its subsidiaries. Banking regulations
impose restrictions on the ability of subsidiaries to pay dividends to the
Corporation. The amount of dividends that could be paid is further restricted by
management to maintain prudent capital levels.
INTEREST RATE SENSITIVITY
The Corporation's exposure to market risk is reviewed on a regular basis by the
Asset/Liability Committee. Interest rate risk is the most significant market
risk affecting the Corporation. Other types of market risk do not arise in the
normal course of the Corporation's business activities. Interest rate risk is
the potential economic loss due to future interest rate changes. This economic
loss can be reflected as a loss of future net interest income and/or a loss of
current fair market values.
The Corporation's net income is dependent, to a significant degree, on its net
interest income. Net interest income is susceptible to interest rate risk to the
degree that interest-bearing liabilities reprice or mature on a different basis
than interest-earning assets. When interest-bearing liabilities reprice or
mature more quickly than interest-earning assets, an increase in market rates
could adversely affect net interest income. Conversely, if interest-earning
assets reprice or mature more quickly than interest-bearing liabilities, a
decrease in market rates could adversely affect net interest income. Changes in
market rates can cause fluctuations in the current fair market values of
financial instruments.
In order to manage its exposure to changes in interest rates, the Corporation
monitors interest rate risk through analysis of standard gap reports and
interest rate shock simulation reports on the effect of changes in interest
rates on net interest income and on the economic value of equity (the present
value of expected cash flows from existing assets minus the present value of
expected cash flows from existing liabilities). The following tables set forth,
at December 31, 2000, an analysis of the Corporation's interest rate risk as
measured by the estimated change in economic value of equity (EVE) and net
interest income (NII) following parallel shifts in the yield curve.
19
20
INTEREST RATE SENSITIVITY (continued)
Certain assumptions were employed in preparing data in the following tables.
These assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios.
(Decrease) in EVE (Decrease) in NII
Changes in Estimated -------------------- Estimated --------------------
Interest Rates EVE Amount Amount Percent NII Amount Amount Percent
- ---------------------------------------------------------- ----------------------------------
(Basis Points)
+200 $ 220,684 $ (39,384) (15.1)% $ 110,180 $ 3,008 2.8 %
- 260,068 - - 107,172 - -
-200 271,800 11,732 4.5 103,608 (3,564) (3.3)
Even if interest rates change in the designated amounts, there can be no
assurance that the Corporation's assets and liabilities would perform as set
forth. In addition, a change in U.S. Treasury rates in the designated amounts
accompanied by a change in the shape of the Treasury yield curve would cause
significantly different changes to the EVE or NII than indicated above.
Financial instruments used to manage interest rate risk include on-balance sheet
investment securities and off-balance sheet interest rate derivatives, which
include interest rate caps and exchange traded option contracts. Financial
instruments with off-balance-sheet risk at December 31, 2000 are discussed more
thoroughly in Notes 18 and 19 of the consolidated financial statements.
FINANCIAL REVIEW
Net income for 2000 was $30,491, reflecting a $7,847, or 34.7%, increase over
the $22,644 earned in 1999. Diluted net income per share of $1.77 in 2000
represented an increase of 39% over 1999. The increase in earnings was the
result of increased net interest income and fee income, reduced provision for
loan losses and controlled expense growth. Net interest income increased by
$2,039, or 2.3%, in 2000 primarily the result of a leverage program implemented
by the Corporation during 2000. Non-interest income was $20,266 in 2000 compared
to $13,639 in 1999. A gain of $1,808 from the sale of mortgage servicing is
included in 2000. Excluding the servicing gain and securities gains and losses,
non-interest income increased $1,900 or 12.6%. Non-interest expenses increased
$3,167, or 5.2%, in 2000. Provision for loan losses decreased $8,359 in 2000.
The Corporation recorded an additional $7,800 provision during the fourth
quarter of 1999 as a result of a credit risk assessment of the loan portfolio.
Net income for 1999 increased $528, or 2.4%, from 1998. The 1999 results were
negatively impacted by increased provision for loan loss and lower non-interest
income as compared to 1998. Excluding securities gains and losses, non-interest
income decreased $400. Non-interest expense decreased $6,883 in 1999. Expenses
associated with consolidation of the Corporation's back office operations and
acquisition activity of $6,649 were recorded in 1998.
Net interest income is the difference between interest income on earning assets,
such as loans and investments, and interest expense paid on liabilities such as
deposits and borrowings. Net interest income is affected by the general level of
interest rates, changes in interest rates and by changes in the amount and
composition of interest-earning assets and interest-bearing liabilities. Changes
in net interest income for the last two years are presented in the following
schedule. In addition to this schedule, at the end of Management's Discussion
and Analysis is a three-year balance sheet analysis on an average basis and an
analysis of net interest income.
20
21
FINANCIAL REVIEW (continued)
CHANGES IN NET INTEREST INCOME (INTEREST ON A FEDERAL-TAX-EQUIVALENT BASIS)
2000 Compared to 1999 1999 Compared to 1998
------------------------------------------- -----------------------------------------
Change Due to Change Due to
a Change in a Change in
------------------------------- ------------------------------
Total Total
Interest income increase (decrease) Volume Rate Mix Change Volume Rate Mix Change
------------------------------------------ -----------------------------------------
Loans $ 2,875 $ 2,965 $ (48) $ 5,792 $ 8,344 $ (5,542) $ (324) $ 2,478
Securities 21,586 1,483 1,303 24,372 (5,496) 845 (156) (4,807)
Other short-term investments 589 408 473 1,470 (706) (266) 140 (832)
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income 25,050 4,856 1,728 31,634 2,142 (4,963) (340) (3,161)
Interest expense increase (decrease)
Deposits 2,307 5,681 205 8,193 (619) (4,830) 46 (5,403)
Borrowings 20,326 715 1,034 22,075 1,133 (49) (4) 1,080
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 22,633 6,396 1,239 30,268 514 (4,879) 42 (4,323)
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income increase (decrease) $ 2,417 $ (1,540) $ 489 $ 1,366 $ 1,628 $ (84) $ (382) $ 1,162
===================================================================================================================================
The following discussion of results of operations is on a federal-tax-equivalent
basis, whereby tax-exempt income, such as interest on securities of state and
political subdivisions, has been increased to an amount that would have been
earned had such income been taxable. In 2000 and 1999, net interest income
increased $1,366 and $1,162, respectively. The improvement in 2000's net
interest income is a result of average earning asset growth of 17.2% partially
offset by a 64 basis point decline in net interest margin to 4.15% in 2000 from
4.79% in 1999. This decline in net interest margin compares to a 7 basis point
improvement from 1998 to 1999.
Average loans increased $32,671, or 2.0%, during 2000 compared to an increase of
$91,097, or 5.9%, during 1999. During the second quarter of 2000, the
Corporation securitized approximately $38,000 of its residential real estate
loans and retained the resulting mortgage-backed securities in its investment
portfolio. All fixed-rate mortgage loans with original maturities exceeding 15
years are sold while other residential mortgage loans may be sold or held in the
loan portfolio, depending on market conditions at the time the loan is
originated. Loan income increased 4.0% in 2000 as a result of the increased
average balance and an 18 basis point increase in loan yields. The average yield
on loans was 8.98% in 2000 versus 8.80% in 1999.
Average securities increased $297,328, or 86.2% in 2000 primarily as a result of
the Corporation's leverage program. The yield on securities increased from 7.33%
in 1999 to 7.68% in 2000. The increase in average balances coupled with
increased yields resulted in income from securities increasing $24,372. Average
securities decreased by $77,822 in 1999 to $344,999 as proceeds from securities
maturities and sales were used to fund loan growth.
The positive effects of higher asset yields were offset by a 63 basis point
increase in the cost of interest-bearing liabilities resulting from faster
repricing on borrowed funds and higher deposit rates to attract and retain
deposit accounts. The average cost of interest-bearing deposits was 4.54% in
2000 and 4.15% in 1999. Average total interest-bearing deposits increased
$55,591, or 3.8%, during 2000. The acquisition of four offices from AmSouth Bank
accounted for approximately $11.5 million of the increase. Interest-bearing
deposits decreased $13,804, or 0.9%, during 1999. Average borrowings, including
federal funds purchased, repurchase agreements and long-term borrowings,
increased $333,215 during 2000 primarily to fund the asset growth resulting from
the Corporation's leverage program. Interest expense on borrowings increased
$22,075 in 2000 and $1,080 in 1999.
NON-INTEREST INCOME
Non-interest income totaled $20,266 for the twelve months ended December 31,
2000 compared to $13,639 for 1999 and $16,621 for 1998. Included in the results
for 2000 is a $1,808 gain on the sale of mortgage loan investor servicing.
Excluding this gain and gains or losses on securities transactions, non-interest
income totaled $16,969 in 2000, $15,061 in 1999 and $15,461 in 1998.
Non-interest income continues to be an increasingly significant portion of
revenue for the Corporation and has grown to represent 14.8% of net FTE revenues
in 2000 as compared to 13.6% in 1999 and 14.0% in 1998, excluding gains and
losses from the sale of securities and mortgage servicing.
21
22
NON-INTEREST INCOME (Continued)
Trust income for 2000 was $2,437, an increase of 7.2% over 1999. Total trust
assets under management increased $30 million, or 7.1%, from $424 million in
1999 to $454 million in 2000. Service charges on deposit accounts increased 2.2%
in 2000. Growth in these fees resulted from an increased number of deposit
accounts, higher activity fees and new fee sources. Other service charges and
fees and other non-interest income increased $3,378 from $5,074 in 1999 to
$8,452 in 2000. Included in 2000 are gains of $1,808 from the sale of mortgage
servicing, $910 from income on corporate-owned life insurance, $750 from the
expiration of covered call option contracts and $672 from net securities trading
account income. Mortgage loan servicing revenues decreased $244 in 2000
primarily as a result of the first quarter sale of servicing.
Securities transactions resulted in gains of $1,497 in 2000 versus losses of
$1,422 in 1999. During 2000, the Corporation was able to successfully take
advantage of certain hedging activities involved with its leveraged portfolio
activity during the year.
NONINTEREST EXPENSE
Noninterest expense for 2000 totaled $63,573, an increase of $3,167 or 5.2%
compared to the prior year.
Salaries and employee benefits accounted for 49.4% of the Corporation's
non-interest expense excluding acquisition and conversion expense, in 2000
compared to 48.8% in 1999 and 52.5% in 1998. Increasing $1,932, or 6.5%,
salaries and employee benefits totaled $31,433 in 2000 compared to $29,501 in
1999. Several key leadership positions were added to the Corporation during 2000
resulting in additional salary expense of $478. The acquisition of four banking
centers in Bowling Green and Franklin, Kentucky added an additional $156 to
salary expense. In 1999, the Corporation realized a gain of $877 on the
termination of its defined benefit pension plan, which reduced employment
expenses. Salary and benefits expense was $31,862 in 1998, and included
approximately $1,600 in severance and merger related employment expenses.
Equipment expense and occupancy expense for 2000 were $4,582 and $3,635,
respectively, compared to $3,960 and $3,689, respectively in 1999. As of
year-end 2000, the Corporation was operating 77 offices compared to 66 offices
one-year prior. Equipment expense was also impacted by the centralization of
banking charters as new equipment was installed to support common operating
system processes. Equipment expense decreased $677 in 1999 compared to 1998
primarily due to the consolidation of back office operations as duplicate data
processing equipment was eliminated.
Professional fees and communication and transportation expenses increased $305
and $160, respectively in 2000 due to generally higher levels of business
activity.
Marketing expense was $2,943 in 2000 compared to $1,203 in 1999 and $1,182 in
1998. Advertising expense increased due to increased marketing efforts related
to loan and deposit promotions and corporate identity promotions related to the
change in name to Integra and acquisition of the banking centers.
Processing expenses decreased $1,050 in 2000 after increasing $849 in 1999
compared to 1998. Preparations for centralization of banking charters and Year
2000 testing and programming negatively impacted processing expenses in 1999.
Other non-interest expenses were $7,505 in 2000, decreasing $270, or 3.5%, from
the prior year. Included in other expense for 2000 was approximately $691 in
pre-tax operating losses related to the Corporation's investment in low-income
housing projects compared to $1,013 in 1999. Income tax expense includes the
related income tax benefit and tax credits from the low-income housing projects
of approximately $900 and $1,600 in 2000 and 1999, respectively.
In 1998, the Corporation incurred expenses associated with acquisitions and
consolidation of its back-office operations functions totaling $6,649. The
Corporation incurred additional costs of approximately $1,800 during 2000
relating to costs associated with the name change to Integra and the combination
of the twelve banking subsidiaries.
22
23
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Average Interest Yield/ Average Interest Yield/ Average Interest Yield/
EARNING ASSETS: Balances & Fees Cost Balances & Fees Cost Balances & Fees Cost
---------------------------- ---------------------------- -----------------------------
Interest-bearing deposits in banks $ 1,522 $ 136 8.94% $ 1,112 $ 49 4.41% $ 4,745 $ 304 6.41%
Federal funds sold & other
short-term investments 28,311 1,843 6.51% 12,725 460 3.61% 24,466 1,037 4.24%
Securities:
Taxable 492,288 36,793 7.47% 154,195 9,677 6.28% 222,716 13,619 6.11%
Tax-exempt 151,491 12,633 8.34% 187,620 15,377 8.20% 193,027 16,241 8.41%
- -----------------------------------------------------------------------------------------------------------------------------------
Securities before market value
adjustment 643,779 49,426 7.68% 341,815 25,054 7.33% 415,743 29,860 7.18%
Market value adjustment on
securities available for sale (1,452) 3,184 7,078
Total securities 642,327 344,999 422,821
Loans 1,679,881 150,798 8.98% 1,647,210 145,006 8.80% 1,556,113 142,529 9.16%
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 2,352,041 $202,203 8.60% 2,006,046 $170,569 8.50% 2,008,145 $173,730 8.65%
======== ======== ========
Non-earning assets 159,906 148,122 150,169
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,511,947 $2,154,168 $2,158,314
===================================================================================================================================
INTEREST-BEARING LIABILITIES:
Deposits:
Savings and interest-bearing demand $ 413,546 $ 7,985 1.93% $ 438,760 $ 10,200 2.32% $ 417,217 $ 10,495 2.52%
Money market accounts 141,964 7,160 5.04% 116,681 4,451 3.81% 112,385 4,391 3.91%
Certificates of deposit and other time 956,784 53,534 5.60% 901,262 45,835 5.09% 940,905 51,003 5.42%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 1,512,294 68,679 4.54% 1,456,703 60,486 4.15% 1,470,507 65,889 4.48%
Federal funds purchased 14,402 813 5.65% 32,296 1,617 5.01% 20,853 969 4.65%
Repurchase agreements 192,744 11,868 6.16% 31,446 1,281 4.07% 36,770 1,644 4.47%
Other borrowings 356,810 23,465 6.58% 166,999 11,173 6.69% 154,605 10,378 6.71%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 2,076,250 $104,825 5.05% 1,687,444 $ 74,557 4.42% 1,682,735 $ 78,880 4.69%
======== ======== ========
Noninterest-bearing liabilities and
shareholders' equity 435,697 466,724 475,579
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $2,511,947 $2,154,168 $2,158,314
===================================================================================================================================
Interest income/earning assets $202,203 8.60% $170,569 8.50% $173,730 8.65%
Interest expense/earning assets 104,825 4.45% 74,557 3.71% 78,880 3.93%
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income/earning assets $ 97,378 4.15% $ 96,012 4.79% $ 94,850 4.72%
===================================================================================================================================
Note: Income is on a federal-tax-equivalent basis using a 35% tax rate.
Average loans include nonaccrual loans.
23
24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the discussion of Interest Rate Sensitivity in Item 7.
24
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Integra Bank Corporation
In our opinion, the accompanying consolidated statements of financial position
and the related consolidated statements of income, of comprehensive income, of
changes in shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Integra Bank Corporation
("Integra") and its subsidiaries at December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of Integra's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
- --------------------------------
PricewaterhouseCoopers LLP
Memphis, Tennessee
January 17, 2001
25
26
INTEGRA BANK CORPORATION and Subsidiaries
Consolidated Statements of Financial Position
(In Thousands, Except for Share Data)
December 31,
2000 1999
- ----------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 73,934 $ 72,935
Federal funds sold and other short-term investments 164,329 748
- ----------------------------------------------------------------------------------------------
Total cash and cash equivalents 238,263 73,683
Securities available for sale 997,494 332,359
Loans, net of unearned income 1,689,290 1,700,833
Less: Allowance for loan losses (25,264) (25,155)
- ----------------------------------------------------------------------------------------------
Net loans 1,664,026 1,675,678
Premises and equipment 49,390 45,393
Intangible assets 55,012 36,522
Other assets 64,633 39,842
- ----------------------------------------------------------------------------------------------
TOTAL ASSETS $ 3,068,818 $ 2,203,477
==============================================================================================
LIABILITIES
Deposits:
Non-interest-bearing demand $ 199,226 $ 207,782
Interest-bearing:
Savings, interest checking and money market accounts 609,144 546,846
Time deposits of $100,000 or more 345,367 290,271
Other interest-bearing 717,299 649,762
- ----------------------------------------------------------------------------------------------
Total deposits 1,871,036 1,694,661
Short-term borrowings 383,735 89,989
Other borrowings 540,504 138,371
Guaranteed preferred beneficial interests
in the Corporation's subordinated debentures 34,500 34,500
Other liabilities 33,526 20,088
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,863,301 1,977,609
Commitments and contingent liabilities (Note 18)
Common stock owned by ESOP - 2,780
SHAREHOLDERS' EQUITY
Preferred stock - 1,000,000 shares authorized
None outstanding
Common stock - $1.00 stated value:
Shares authorized: 29,000,000
Shares outstanding: 15,880,999 and 17,518,117, respectively 15,881 17,518
Capital surplus 99,497 138,893
Retained earnings 86,990 71,299
Accumulated other comprehensive income (loss) 3,149 (1,842)
Common stock owned by ESOP - (2,780)
- ----------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 205,517 223,088
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,068,818 $ 2,203,477
==============================================================================================
See Accompanying Notes to Consolidated Financial Statements.
26
27
INTEGRA BANK CORPORATION and Subsidiaries
Consolidated Statements of Income
(In Thousands, Except for Share Data)
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans:
Taxable $ 148,582 $ 142,729 $ 139,832
Tax-exempt 1,278 1,464 1,895
Interest and dividends on securities:
Taxable 36,793 9,677 13,619
Tax-exempt 8,049 9,995 10,090
Interest on federal funds sold and other short-term
investments 1,979 509 1,341
- ----------------------------------------------------------------------------------------------------------
Total interest income 196,681 164,374 166,777
INTEREST EXPENSE
Interest on deposits 68,679 60,486 65,889
Interest on short-term borrowings 12,681 2,898 2,613
Interest on other borrowings 23,465 11,173 10,378
- ----------------------------------------------------------------------------------------------------------
Total interest expense 104,825 74,557 78,880
NET INTEREST INCOME 91,856 89,817 87,897
Provision for loan losses 4,138 12,497 7,143
- ----------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 87,718 77,320 80,754
- ----------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Trust income 2,437 2,274 2,209
Service charges on deposit accounts 7,880 7,713 7,946
Other service charges and fees 4,762 4,168 3,859
Securities gains (losses) 1,497 (1,422) 1,160
Other 3,690 906 1,447
- ----------------------------------------------------------------------------------------------------------
Total non-interest income 20,266 13,639 16,621
NON-INTEREST EXPENSE
Salaries, wages and other employee benefits 31,433 29,501 31,862
Furniture and equipment expense 4,582 3,960 4,637
Professional fees 4,469 4,164 1,998
Occupancy expense 3,635 3,689 3,723
Amortization of intangible assets 3,439 3,657 3,098
Marketing 2,943 1,203 1,182
Communication and transportation 2,885 2,725 2,485
Processing 2,682 3,732 2,883
Acquisition and consolidation expense - - 6,649
Other 7,505 7,775 8,772
- ----------------------------------------------------------------------------------------------------------
Total non-interest expense 63,573 60,406 67,289
- ----------------------------------------------------------------------------------------------------------
Income before income taxes 44,411 30,553 30,086
Income taxes 13,920 7,909 7,970
- ----------------------------------------------------------------------------------------------------------
NET INCOME $ 30,491 $ 22,644 $ 22,116
==========================================================================================================
Earnings per share:
Basic $ 1.77 $ 1.28 $ 1.26
Diluted 1.77 1.27 1.25
Weighted average shares outstanding:
Basic 17,233,413 17,701,235 17,602,440
Diluted 17,254,335 17,794,188 17,719,649
See Accompanying Notes to Consolidated Financial Statements.
27
28
INTEGRA BANK CORPORATION and Subsidiaries
Consolidated Statements of Comprehensive Income
(In Thousands, Except for Share Data)
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Net income $ 30,491 $ 22,644 $ 22,116
Other comprehensive income, net of tax:
Unrealized gain (loss) arising in period 5,881 (7,124) 597
Reclassification of realized amounts (890) 846 (696)
- ----------------------------------------------------------------------------------------------------------
Net unrealized gain (loss), recognized in other comprehensive income 4,991 (6,278) (99)
- ----------------------------------------------------------------------------------------------------------
Comprehensive income $ 35,482 $ 16,366 $ 22,017
==========================================================================================================
See Accompanying Notes to Consolidated Financial Statements.
28
29
INTEGRA BANK CORPORATION and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 30,491 $ 22,644 $ 22,116
Adjustments to reconcile net income to
net cash provided by operating activities:
Federal Home Loan Bank stock dividends (378) (293) (122)
Amortization and depreciation 6,417 8,094 7,259
Employee benefit expenses - 482 2,017
Provision for loan losses 4,138 12,497 7,143
Write-down of other real estate owned 16 60 51
Securities (gains) losses (1,497) 1,422 (1,160)
Loss on low-income housing investments 691 1,013 -
Gain on sale of premises and equipment (151) (95) (54)
Loss on sale of other real estate owned 82 117 34
Increase in deferred taxes 371 1,103 1,003
Increase in other assets (1,172) (5,249) (788)
Increase (decrease) in other liabilities 8,847 (2,677) (640)
- ----------------------------------------------------------------------------------------------------------------
Net cash flows provided by operating activities 47,855 39,118 36,859
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 169,215 116,781 139,001
Proceeds from sales of securities available for sale 326,043 4,092 41,398
Purchases of securities available for sale (1,149,235) (101,093) (83,396)
Increase (decrease) in loans made to customers 103,130 (58,321) (143,355)
(Increase) decrease in cash surrender value of life insurance (23,438) (95) 245
Purchase of premises and equipment (8,244) (8,659) (7,140)
Proceeds from sale of premises and equipment 4,105 5,967 222
Proceeds from sale of other real estate owned 1,851 1,380 400
Net cash and cash equivalents from acquisitions 41,405 - 45,032
- ----------------------------------------------------------------------------------------------------------------
Net cash flows used in investing activities (535,168) (39,948) (7,593)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 11,631 (39,924) 8,395
Net proceeds (payments) on short-term borrowings 293,746 56,607 (59,167)
Net proceeds (payments) on other borrowings 402,133 (1,174) (5,482)
Trust preferred securities, net of executory costs - - 32,992
Dividends paid (14,584) (13,496) (11,470)
Repurchase of common stock (41,897) (6,690) (1,385)
Sale of common stock - - 1,185
Proceeds from exercise of stock options 864 1,228 1,726
- ----------------------------------------------------------------------------------------------------------------
Net cash flows provided by (used in) financing activities 651,893 (3,449) (33,206)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 164,580 (4,279) (3,940)
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 73,683 77,962 81,902
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 238,263 $ 73,683 $ 77,962
================================================================================================================
Consolidated Statements of Cash Flows are continued on the following page.
29
30
INTEGRA BANK CORPORATION and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(In Thousands)
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year:
Interest $ 98,600 $ 75,447 $ 78,667
Income taxes 13,695 6,601 7,971
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Change in allowance for unrealized loss on securities available for sale $ 8,141 $ (10,042) $ (148)
Change in deferred taxes attributable to securities available for sale (3,150) 3,764 49
Other real estate acquired in settlement of loans 2,535 1,973 792
Purchase of subsidiaries:
- ----------------------------------------------------------------------------------------------------------------
Assets acquired:
Securities $ - $ 39,223
Loans 98,150 106,536
Premises and equipment 3,397 2,856
Other assets 22,645 23,700
Liabilities assumed:
Deposits (164,744) (193,386)
Short-term borrowings - (10,510)
Other borrowings - (11,100)
Deferred taxes payable - (71)
Other liabilities (853) (2,280)
- ----------------------------------------------------------------------------------------------------------------
Net cash and cash equivalents from acquisitions $ 41,405 $ 45,032
================================================================================================================
See Accompanying Notes to Consolidated Financial Statements.
30
31
INTEGRA BANK CORPORATION and Subsidiaries
Consolidated Statements of Changes In Shareholders' Equity
(In Thousands, Except for Share Data)
For the Years Ended Accumulated Common
December 31, 2000, 1999, and 1998 Other Unearned Stock
Common Common Capital Retained Comprehensive ESOP Owned
Shares Stock Surplus Earnings Income Shares By ESOP
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 15,994,826 $ 15,995 $ 92,432 $ 103,101 $ 4,535 $ (487) $ (4,339)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - 22,116 - - -
Cash dividend declared - - - (12,813) - - -
Repurchase of outstanding shares (33,376) (33) (1,352) - - - -
Shares issued in Dividend Reinvestment Program 26,552 26 1,082 - - - -
Change in unrealized gain (loss) on securities - - - - (99) - -
Stock dividend 741,400 741 28,204 (28,945) - - -
Exercise of stock options 113,054 113 2,212 - - - -
Employee Stock Ownership Plan - - 983 - - 435 (435)
Market value and shares issued adjustment - - - - - - (5,269)
Add for change in fiscal year of pooling companies - - - 77 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 16,842,456 16,842 123,561 83,536 4,436 (52) (10,043)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - 22,644 - - -
Cash dividend declared - - - (13,807) - - -
Repurchase of outstanding shares (235,011) (235) (6,455) - - - -
Change in unrealized gain (loss) on securities - - - - (6,278) - -
Stock dividend 840,714 841 20,200 (21,074) - - -
Exercise of stock options 69,958 70 1,474 - - - -
Employee Stock Ownership Plan - - 113 - - 52 (52)
Market value and shares issued adjustment - - - - - - 7,315
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 17,518,117 17,518 138,893 71,299 (1,842) - (2,780)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - 30,491 - - -
Cash dividend declared - - - (14,800) - - -
Repurchase of outstanding shares (1,693,773) (1,694) (40,203) - - - -
Change in unrealized gain (loss) on securities - - - - 4,991 - -
Exercise of stock options 56,655 57 807 - - - -
Market value and shared issued adjustment - - - - - - 2,780
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 15,880,999 $ 15,881 $ 99,497 $ 86,990 $ 3,149 $ - $ -
- ------------------------------------------------------------------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements.
31
32
INTEGRA BANK CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
(In Thousands, Except for Share Data)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Integra Bank Corporation (Corporation) is a bank holding company which provides
a full range of banking services to individual and corporate customers in
Indiana, Illinois, Kentucky, and Southwestern Ohio through its wholly-owned
banking subsidiary. During 2000, the Corporation combined the charters of its
twelve subsidiary banks into one national bank charter under the name of Integra
Bank NA. The bank is subject to competition from other financial institutions
and non-financial institutions providing financial products. Additionally, the
Corporation and banking subsidiary are subject to the regulations of certain
regulatory agencies and undergo periodic examinations by those regulatory
agencies.
The consolidated financial statements of the Corporation have been prepared in
conformity with accounting principles generally accepted in the United States of
America and conform to predominate practice within the banking industry.
Following is a description of the more significant of these policies.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Corporation and its wholly owned subsidiaries: Integra Bank NA, Integra Capital
Trust I and Twenty-One Southeast Third Corporation. All significant intercompany
transactions and balances have been eliminated. The Corporation and its
subsidiaries utilize the accrual basis of accounting. During 2000, the
Corporation changed its definition of cash and cash equivalents to include those
accounts denoted in the Cash Flows section below. Prior periods have been
restated to reflect this change. Certain other prior period amounts have been
reclassified to conform with the 2000 financial reporting presentation.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements. Significant estimates which are particularly
susceptible to change in a short period of time include valuation of the
securities portfolio, the determination of the allowance for loan losses and
valuation of real estate and other properties acquired in connection with
foreclosures or in satisfaction of amounts due from borrowers on loans. Actual
results could differ from those estimates.
CASH FLOWS
Cash and cash equivalents include cash on hand, amounts due from banks,
short-term investments, commercial paper and federal funds sold.
Interest-bearing deposits in banks, regardless of maturity, are considered
short-term investments. At December 31, 2000, federal funds sold and commercial
paper totaled $23,647 and $139,715, respectively, compared to $748 and $0,
respectively, at December 31, 1999.
TRUST ASSETS
Property held for customers in fiduciary or agency capacities, other than trust
cash on deposit at the bank, is not included in the accompanying consolidated
financial statements since such items are not assets of the Corporation or its
subsidiaries.
SECURITIES
Securities classified as trading are those debt and equity securities that the
Corporation bought and principally held for the purpose of selling them in the
near future. Gains and losses on sales and fair-value adjustments are included
as a component of net income.
Securities classified as held to maturity are those securities the Corporation
has both the intent and ability to hold to maturity regardless of changes in
market conditions, liquidity needs, or changes in general economic conditions.
These securities are carried at cost adjusted for amortization of premium and
accretion of discount, computed by the interest method over their contractual
lives.
32
33
Securities classified as available for sale are those debt and equity securities
that the Corporation intends to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as available
for sale would be based on various factors, including significant movements in
interest rates, changes in the maturity mix of assets and liabilities, liquidity
needs, regulatory capital considerations, and other similar factors. Securities
available for sale are carried at fair value. Unrealized gains or losses are
reported as increases or decreases in shareholders' equity, net of the related
deferred tax effect. Realized gains or losses, determined on the basis of the
cost of specific securities sold, are included as a component of net income.
ASSET SECURITIZATION
When the Corporation sells loans in securitizations, it may retain one or more
subordinated tranches, servicing rights and in some cases a cash reserve
account, all of which are retained interests in the securitized loans. Gain or
loss on sale of the loans depends in part on the previous carrying amount of the
financial assets involved in the transfer, allocated between the assets sold and
the retained interests based on their relative fair value at the date of
transfer. To obtain fair values, quoted market prices are used if available. If
quotes are not available for retained interests, the Corporation estimates fair
value based on the present value of future expected cash flows estimated using
management's best estimates of the key assumptions - credit losses, prepayment
speeds, forward yield curves and discount rates commensurate with the risks
involved.
LOANS
Loans are stated at the principal amount outstanding, less unearned interest
income and an allowance for loan losses. Unearned income on certain installment
loans is recognized as income based on the sum-of-the-months digits method,
which approximates the interest method. Interest income on substantially all
other loans is credited to income based on the principal balances of loans
outstanding.
The Corporation's policy is to discontinue the accrual of interest income on any
loan when, in the opinion of management, there is reasonable doubt as to the
timely collectibility of interest or principal. Upon discontinuance of interest
accrual, unpaid accrued interest is reversed. Interest income on these loans is
recognized to the extent interest payments are received and the principal is
considered fully collectible. Nonaccrual loans are returned to accrual status
when, in the opinion of management, the financial position of the borrower
indicates there is no longer any reasonable doubt as to the timely
collectibility of interest and principal.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is that amount which, in management's opinion, is
adequate to absorb estimated loan losses as determined by management's periodic
evaluation of the loan portfolio. The evaluation by management is based upon
consideration of various factors including growth of the portfolio, an analysis
of individual credits, adverse situations that could affect a borrower's ability
to repay, prior and current loss experience, the results of recent regulatory
examinations and economic conditions. Loans that are deemed to be uncollectible
are charged to the allowance, while recoveries of previously charged-off amounts
are credited to the allowance. A provision for loan losses is charged to
operations based upon management's periodic evaluation of the factors previously
mentioned as well as any other pertinent factors.
The adequacy of the allowance for loan losses is based on ongoing quarterly
assessments of the probable estimated losses inherent in the loan portfolio. The
Corporation's methodology for assessing the appropriate reserve level consists
of several key elements.
A periodic review of selected commercial loans (based on loan size) is conducted
to identify loans with heightened risk or inherent losses. The primary
responsibility for this review rests with management assigned accountability for
the credit relationship. This review is supplemented with periodic reviews by
the bank's credit review function, regulatory agencies, and the Corporation's
independent accountants. These reviews provide information which assists in the
timely identification of problems and potential problems and in deciding whether
the credit represents a probable loss or risk which should be recognized. Where
appropriate, an allocation is made to the allowance for individual loans based
on management's estimate of the borrower's ability to repay the loan given the
availability of collateral, other sources of cash flow and legal options
available to the Corporation.
Included in the review of individual loans are those that are impaired as
provided in Statement of Financial Accounting Standards No. 114. Loans are
considered impaired when, based on current information and events, it is
probable the Corporation will not be able to collect all amounts due. The
allowance established for impaired loans is determined based on the fair value
of the investment measured using either the present value of expected cash flows
based on the initial effective interest rate on the loan or the fair value of
the collateral if the loan is collateral dependent.
33
34
Historical loss ratios are applied to other commercial loans not subject to
specific allowance allocations. Homogeneous pools of loans, such as consumer
installment and residential real estate loans, are not individually reviewed. In
addition, the allowance reflects other risks affecting the loan portfolio, such
as economic conditions in the bank's geographic areas, specific industry
financial conditions, and other factors.
The unallocated portion of the allowance is determined based on management's
assessment of economic conditions and specific economic factors in the
individual markets in which the Corporation operates. The unallocated portion of
the allowance is maintained to recognize the imprecision in estimating and
measuring loss when evaluating the allowance for pools of loans.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation expense is computed using the straight-line method and is charged
to operating expense over the estimated useful lives of the assets. Depreciation
expense has been computed principally using estimated lives of up to thirty-one
and one-half years for premises and five to ten years for furniture and
equipment. Costs of major additions and improvements are capitalized.
Expenditures for maintenance and repairs are charged to operations as incurred.
INTANGIBLE ASSETS
Costs in excess of fair value of net assets acquired consist primarily of
goodwill and core deposit intangibles. Goodwill and other intangibles are
amortized to expense over varying periods up to 25 years using the straight-line
method. Management periodically evaluates the carrying value of intangibles
based upon facts and circumstances surrounding the associated assets. In the
event that facts and circumstances indicate that the carrying value of
intangibles may be impaired, an evaluation of recoverability would be performed,
using the estimated future undiscounted cash flows associated with the asset as
compared to the carrying value.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are generally treated as
collateralized financing transactions and are recorded at the amounts at which
the securities were sold plus accrued interest. Securities, generally U.S.
government and Federal agency securities, pledged as collateral under these
financing arrangements cannot be sold or repledged by the secured party. The
fair value of collateral provided to a third party is continually monitored and
additional collateral provided, obtained or requested to be returned to the
Corporation as deemed appropriate.
INTEREST RATE CONTRACTS
During 2000, the Corporation began a program to reduce the potential impact of
changing interest rates on its costs to acquire liabilities that fund
investments through interest rate contracts, including interest rate caps (caps)
and covered call option contracts.
Premiums paid for caps are included in the carrying amounts of those liabilities
being hedged. The amounts are amortized as an adjustment to interest expense of
the related liabilities on a straight-line method over the contractual terms of
the caps. Interest expense is reduced on a current basis as amounts are earned
from counterparties when the index rate exceeds the rate contractually specified
in the cap agreements.
Covered call options provide the option buyer with the right to sell to, or
purchase from, another party some financial instrument at a stated price on a
specified future date. Fees received from the sale of written options are
deferred until the option expires, is terminated, or is exercised, at which
point the fees are included in current operations. There were no outstanding
covered call option contracts at December 31, 2000.
INCOME TAXES
The Corporation and its subsidiaries file a consolidated Federal income tax
return with each organization computing its taxes on a separate company basis.
The provision for income taxes is based on income as reported in the financial
statements. Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future. The
deferred tax assets and liabilities are computed based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to an amount expected to be realized. Income
34
35
tax expense is the tax payable or refundable for the period plus or minus the
change during the period in deferred tax assets and liabilities.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 established a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing standards. SFAS 133 is effective for fiscal years beginning
after June 15, 2000, but earlier application is permitted as of the beginning of
any fiscal quarters subsequent to June 15, 1998. Upon the statement's initial
application, all derivatives are required to be recognized in the statement of
financial position as either assets or liabilities and measured at fair value.
In addition, all hedging relationships must be designated, reassessed, and
documented pursuant to the provisions of SFAS 133. Upon adoption of SFAS 133 on
January 1, 2001, the statement did not have a material financial statement
impact on the Corporation's financial position or operating results.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", was issued in September 2000 and revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures. The statement supersedes
SFAS No. 125, although it retains most of SFAS No. 125's provisions without
modification. SFAS No. 140 is effective for transactions occurring after March
31, 2001 and is not expected to have a material effect on the Corporation's
results of operations, financial position or liquidity. Disclosure regarding
securitizations are effective for all fiscal years ending after December 15,
2000.
35
36
NOTE 2. BUSINESS COMBINATIONS
Consideration
---------------------
Common
Date Accounting Shares
Entity Location Completed Method Cash Issued
- -------------------------------------------------------------------------------------------------------------------------------
Mayfield Branch of Republic Bank and Trust Mayfield, KY 1/8/98 Purchase $ 4,854 -
Vernois Bancshares, Inc. Mt. Vernon, IL 3/6/98 Purchase 27,500 -
Illinois One Bancorp, Inc. Shawneetown, IL 5/31/98 Pooling - 572,737
Community First Financial, Inc. Maysville, KY 8/31/98 Pooling - 1,432,202
Trigg Bancorp, Inc. Cadiz, KY 8/31/98 Pooling - 736,278
1st Bancorp Vienna, Inc. Vienna, IL 10/1/98 Pooling - 289,134
Hoosier Hills Financial Corporation Osgood, IN 10/1/98 Pooling - 729,936
Commonwealth Commercial Corporation Crittenden, KY 10/31/98 Pooling - 190,000
Downstate Banking Co. Brookport, IL 10/31/98 Pooling - 102,648
Princeton Federal Savings Bank, fsb Princeton, KY 11/30/98 Pooling - 223,211
Progressive Bancshares, Inc. Lawrenceburg, KY 12/1/98 Pooling - 1,025,572
The assets, liabilities, and shareholders' equity of the pooled entities were
recorded on the books of the Corporation at their values as reported on the
books of the pooled entities immediately prior to the consummation of the merger
with the Corporation. This presentation required the restatements of prior
periods as if the companies had been combined for all years presented.
On November 16, 2000, the Corporation acquired four banking offices in Bowling
Green and Franklin, Kentucky with approximately $99,000 in loans and assumed
deposit liabilities of approximately $165,000 from AmSouth Bank. Intangible
assets of approximately $22,025 are being amortized over periods up to 25 years.
The acquisition was accounted for under the purchase method of accounting and,
accordingly, the consolidated financial statements include the assets and
liabilities and results of operations from the acquisition date forward. Pro
forma disclosure of prior period operating results is not presented as the
information is not available.
NOTE 3. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income for the year by the
weighted average number of shares outstanding. Diluted earnings per share is
computed as above, adjusted for the effects of stock options. Weighted average
shares of common stock have been increased for the assumed exercise of stock
options with proceeds used to purchase treasury stock at the average market
price for the period.
The following provides a reconciliation of basic and diluted earnings per share:
2000 1999 1998
- ------------------------------------------------------------------------------------
Net income $ 30,491 $ 22,644 $ 22,116
Weighted average shares outstanding:
Basic 17,233,413 17,701,235 17,602,440
Diluted 17,254,335 17,794,188 17,719,649
Earnings per share-Basic $ 1.77 $ 1.28 $ 1.26
Effect of stock options - (0.01) (0.01)
- ------------------------------------------------------------------------------------
Earnings per share-Diluted $ 1.77 $ 1.27 $ 1.25
- ------------------------------------------------------------------------------------
NOTE 4. CASH AND DUE FROM BANKS
Aggregate cash and due from bank balances were maintained in satisfaction of the
statutory reserve requirements of the Federal Reserve Bank of St. Louis of
$26,274 and $17,283 as of December 31, 2000 and 1999, respectively.
36
37
NOTE 5. SECURITIES
Amortized cost and fair value of securities classified as available for sale are
as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------
December 31, 2000:
U.S. Government agencies $ 225,938 $ 435 $ 142 $ 226,231
Mortgage-backed securities 586,228 3,748 557 589,419
States & political subdivisions 133,372 2,129 665 134,836
Other securities 46,660 415 67 47,008
- --------------------------------------------------------------------------------
Total $ 992,198 $ 6,727 $ 1,431 $ 997,494
================================================================================
December 31, 1999:
U.S. Treasury securities $ 5,954 $ 18 $ 6 $ 5,966
U.S. Government agencies 68,152 3 745 67,410
Mortgage-backed securities 45,867 149 733 45,283
States & political subdivisions 186,089 1,408 2,892 184,605
Other securities 29,143 77 125 29,095
- --------------------------------------------------------------------------------
Total $ 335,205 $ 1,655 $ 4,501 $ 332,359
================================================================================
The amortized cost and fair value of the securities as of December 31, 2000, by
contractual maturity, except for mortgage-backed securities which are based on
estimated average lives, are shown below. Expected maturities may differ from
contractual maturities in mortgage-backed securities, because certain mortgages
may be called or prepaid without penalties.
Amortized Cost Fair Value
- --------------------------------------------------------------------------------
Less than 1 year $ 187,489 $ 187,339
1 year to 5 years 169,840 170,950
5 years to 10 years 332,768 334,119
Over 10 years 302,101 305,086
- --------------------------------------------------------------------------------
Total $ 992,198 $ 997,494
================================================================================
Securities gains and (losses) are summarized as follows:
2000 1999 1998
- -------------------------------------------------------------------------------
Gross realized gains $2,103 $ 55 $1,192
Gross realized losses (606) (1,477) (32)
- -------------------------------------------------------------------------------
Total $1,497 $(1,422) $1,160
===============================================================================
At December 31, 2000 and 1999, the carrying value of securities pledged to
secure public deposits, trust funds and short-term borrowings was $586,196 and
$133,818, respectively. Of the amount pledged by the Corporation at December 31,
2000, $157,840 represents encumbered securities for which the secured party has
the right to sell or repledge. Included in securities classified as available
for sale is $28,052 and $18,734 of nonmarketable equity securities, primarily
Federal Home Loan Bank and Federal Reserve Bank stock at December 31, 2000 and
1999, respectively.
During 2000, the Corporation securitized residential mortgage loans with a
market value of $37,842, effectively transferring the underlying mortgages from
loans to investment securities. The securities, guaranteed by FHLMC (Federal
Home Loan Mortgage Corporation), are carried at fair value as determined by
market quotes. Key assumptions used in measuring the retained interests at the
date of securitization, included prepayment speed of 11.70%, discount rate of
7.62% and weighted average life of 4.4 years. At December 31, 2000, the
remaining retained interest in the securitized asset totaled $5,693. Assuming an
immediate adverse change of 10% and 20% in the prepayment speed and discount
rate, the change in fair value of the retained interest was immaterial.
37
38
NOTE 6. LOANS
A summary of loans as of December 31 follows:
2000 1999
- -------------------------------------------------------------------------------
Real estate loans $1,156,089 $1,122,398
Commercial, industrial, and agricultural loans 353,318 355,485
Economic development loans and other
obligations of state and political subdivisions 25,120 22,331
Consumer loans 138,230 165,246
Direct lease financing 8,932 11,598
Leveraged leases 5,554 5,382
All other loans 2,190 18,937
- -------------------------------------------------------------------------------
Total loans 1,689,433 1,701,377
Less: unearned income on loans 143 544
- -------------------------------------------------------------------------------
Loans - net of unearned income $1,689,290 $1,700,833
===============================================================================
Allowance for loan losses $ 25,264 $ 25,155
===============================================================================
The following table presents data on impaired loans at December 31:
2000 1999 1998
- ----------------------------------------------------------------------------------------------------
Impaired loans for which there is a related allowance for loan losses $20,345 $24,201 $3,696
Impaired loans for which there is no related allowance for loan losses 3,263 2,739 2,982
- ----------------------------------------------------------------------------------------------------
Total impaired loans 23,608 26,940 6,678
Less: Government guaranteed portion of impaired loans (1,584) (2,357) -
====================================================================================================
Net $22,024 $24,583 $6,678
====================================================================================================
Allowance for loan losses for impaired loans
included in the allowance for loan losses $10,213 $10,114 $ 990
Average recorded investment in impaired loans 26,076 27,975 6,915
Interest income recognized from impaired loans 254 423 622
Cash basis interest income recognized from impaired loans 272 614 300
The amount of loans serviced by the Corporation for the benefit of others is not
included in the accompanying Consolidated Statements of Financial Position. The
amount of unpaid principal balances of these loans was $44,693, $196,872 and
$191,018 as of December 31, 2000, 1999 and 1998, respectively. During the first
quarter of 2000, the Corporation sold approximately $189 million of serviced
mortgages.
38
39
NOTE 6. LOANS (continued)
In the normal course of business, Integra Bank makes loans to its executive
officers and directors and to companies and individuals affiliated with officers
and directors of Integra Bank and the Corporation. The activity in these loans
during 2000 is as follows:
- -------------------------------------------------------------------------------
Balance as of January 1, 2000 $ 44,954
New loans 10,805
Repayments (12,911)
Director and officer changes (18,213)
- -------------------------------------------------------------------------------
Balance as of December 31, 2000 $ 24,635
===============================================================================
In 1995, IBNK Leasing Corp., Integra Bank's wholly-owned leasing subsidiary
(IBNK Leasing) entered into a transaction with a company for which Mr. Reherman,
a director of the Corporation, is also a director of the company and its parent.
IBNK Leasing acquired plant and equipment and leased the plant and equipment to
the company under a lease with a term of 15 years. Although the company has made
all payments required under the lease to date, management concluded that
uncertainties with respect to the company's ability to meet its obligation under
the lease required the lease to be placed on a non-accrual basis. At December
31, 2000, the Corporation's net investment in this lease was $3,714 and that
amount is included in the impaired loan total as of December 31, 2000 as set
forth in the previous impaired loan table.
NOTE 7. LEASE FINANCING
The Corporation's leasing operations include both direct financing and leveraged
leasing. The direct financing leasing activity involves the leasing of various
types of office, data processing, and transportation equipment. These equipment
leases have lives of three to seven years.
Under the direct financing method of accounting for leases, the total net
rentals receivable under the lease contracts, initial direct costs (net of
fees), and the estimated unguaranteed residual value of the leased equipment,
net of unearned income, are recorded as a net investment in direct financing
leases, and the unearned income on each lease is recognized each month at a
constant periodic rate of return on the unrecovered investment.
The composition of the net investment in direct lease financing at December 31
is as follows:
2000 1999
- -------------------------------------------------------------------------------
Minimum lease payments receivable $10,312 $ 13,091
Less: allowance for uncollectible leases 3,199 3,230
- -------------------------------------------------------------------------------
Net minimum lease payments receivable 7,113 9,861
Add estimated residual values of leased equipment 2,309 2,593
Add initial direct costs 40 111
Deduct unearned lease income (3,729) (4,197)
- -------------------------------------------------------------------------------
Net investment in direct lease financing $ 5,733 $ 8,368
- -------------------------------------------------------------------------------
At December 31, 2000, the minimum future lease payments due under the direct
financing leases are as follows:
- -------------------------------------------------------------------------------
2001 $ 2,207
2002 1,802
2003 1,418
2004 981
Thereafter 3,904
- -------------------------------------------------------------------------------
Total minimum future lease payments $10,312
===============================================================================
39
40
NOTE 7. LEASE FINANCING (Continued)
In 1997 IBNK Leasing entered into two leveraged leases with a regional air
carrier for aircraft, which have an estimated economic life of 23 years, and
were leased for a term of 16.5 years. The equity investment in the aircraft
represented 22% of the purchase price; the remaining 78% was furnished by
third-party financing in the form of long-term debt with no recourse against the
lessor and is secured by a first lien on the aircraft. At the end of the lease
term, the aircraft will be turned back to the lessor. The residual value at that
time is estimated to be 32% of the cost. For federal income tax purposes, the
lessor receives the benefit of tax deductions for depreciation on the entire
leased asset and for the interest on the long-term debt. Since during the early
years of the lease those deductions exceeded the lease rental income, excess
deductions are available to offset other taxable income. In the later years of
the lease, rental income will exceed the deductions, which will increase taxable
income. Deferred taxes are provided to reflect this reversal of tax deductions.
The net investment in leveraged leases at December 31 is composed of the
following elements:
2000 1999
- --------------------------------------------------------------------------------------------
Rentals receivable (net of principal and interest on nonrecourse debt) $ 1,841 $ 1,841
Estimated residual value of leased assets 5,722 5,722
Less: unearned and deferred income (2,009) (2,181)
- --------------------------------------------------------------------------------------------
Investment in leveraged leases 5,554 5,382
Less: deferred taxes arising from leveraged leases 3,782 3,915
- --------------------------------------------------------------------------------------------
Net investment in leveraged leases $ 1,772 $ 1,467
============================================================================================
NOTE 8. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows during the three years
ended December 31:
2000 1999 1998
- -------------------------------------------------------------------------------
Balance at beginning of year $25,155 $18,443 $13,854
Allowance associated with acquisition 1,103 - 1,086
Provision charged to operations 4,138 12,497 7,143
Recoveries credited to allowance 1,361 1,879 1,375
Loans charged to allowance (6,493) (7,664) (5,015)
- -------------------------------------------------------------------------------
Balance at end of year $25,264 $25,155 $18,443
===============================================================================
NOTE 9. PREMISES AND EQUIPMENT
Premises and equipment as of December 31 consist of:
2000 1999
- -------------------------------------------------------------------------------
Land, buildings and lease improvements $ 56,489 $ 52,730
Equipment 28,085 27,073
Construction in progress 1,842 1,117
- -------------------------------------------------------------------------------
Total cost 86,416 80,920
Less accumulated depreciation (37,026) (35,527)
- -------------------------------------------------------------------------------
Net premises and equipment $ 49,390 $ 45,393
===============================================================================
Depreciation expense for 2000, 1999, and 1998 was $3,689, $3,794, and $3,763,
respectively.
40
41
NOTE 10. DEPOSITS
As of December 31, 2000, the scheduled maturities of time deposits are as
follows:
2000
- -------------------------------------------------------------------------------
2001 $ 794,828
2002 178,490
2003 43,251
2004 14,426
2005 and thereafter 31,671
- -------------------------------------------------------------------------------
Total $1,062,666
- -------------------------------------------------------------------------------
NOTE 11. INCOME TAXES
The components of income tax expense for the years ended December 31 are as
follows:
2000 1999 1998
- -------------------------------------------------------------------------------
Federal:
Current $11,861 $7,661 $ 7,903
Deferred (6) (931) (1,286)
- -------------------------------------------------------------------------------
Total 11,855 6,730 6,617
State:
Current 2,430 1,351 1,070
Deferred (365) (172) 283
- -------------------------------------------------------------------------------
Total 2,065 1,179 1,353
- -------------------------------------------------------------------------------
Total income taxes $13,920 $7,909 $ 7,970
- -------------------------------------------------------------------------------
The portion of the tax provision (benefit) relating to realized securities gains
and losses amounted to $607, $(576) and $464 for 2000, 1999 and 1998,
respectively.
A reconciliation of income taxes in the statement of income, with the amount
computed by applying the statutory rate of 35%, is as follows:
2000 1999 1998
- --------------------------------------------------------------------------------------
Federal income tax computed at the statutory rates $ 15,544 $10,694 $10,530
Elimination of S Corporation earnings - - (929)
Adjusted for effects of:
Nontaxable municipal interest (2,817) (3,498) (3,658)
Goodwill amortization 865 934 767
Nondeductible expenses 540 578 1,591
State income taxes, net of federal tax benefits 1,342 738 880
Benefit of income taxed at lower rates - - (143)
Low income housing credit (835) (998) -
Other (719) (539) (1,068)
- --------------------------------------------------------------------------------------
Total income taxes $ 13,920 $ 7,909 $ 7,970
======================================================================================
41
42
NOTE 11. INCOME TAXES (continued)
The net deferred tax asset (liability) in the accompanying balance sheet
includes the following amounts of deferred tax assets and liabilities:
2000 1999
- -------------------------------------------------------------------------------
Deferred tax liability $(13,515) $(10,992)
Deferred tax asset 11,691 12,073
Valuation allowance for deferred tax assets (151) (113)
- -------------------------------------------------------------------------------
Net deferred tax asset (liability) $ (1,975) $ 968
- -------------------------------------------------------------------------------
The tax effects of principal temporary differences are shown in the following
table:
2000 1999
- -------------------------------------------------------------------------------
Allowance for loan losses $ 8,734 $ 8,952
Direct financing and leveraged leases 2,957 2,117
Prepaid pension costs (410) (1,095)
Premises and equipment (10,361) (9,609)
Unrealized (gain) loss on securities available for sale (2,146) 1,004
Other (598) (288)
- -------------------------------------------------------------------------------
Net temporary differences (1,824) 1,081
- -------------------------------------------------------------------------------
Valuation allowances (151) (113)
- -------------------------------------------------------------------------------
Net deferred tax asset (liability) $ (1,975) $ 968
- -------------------------------------------------------------------------------
NOTE 12. SHORT-TERM BORROWINGS
Information concerning short-term borrowings as of the years ended December 31
was as follows:
2000 1999
- -------------------------------------------------------------------------------
Federal funds purchased:
Average amount outstanding $ 14,402 $32,296
Maximum amount at any month end 46,000 82,500
Weighted average interest rate:
During year 5.65% 5.01%
End of year 6.00% 6.09%
Securities sold under agreements to repurchase:
Average amount outstanding $192,744 $31,446
Maximum amount at any month end 380,435 30,984
Weighted average interest rate:
During year 6.16% 4.07%
End of year 6.69% 4.18%
42
43
NOTE 13. OTHER BORROWINGS
Other borrowings at December 31 consist of the following:
2000 1999
- ------------------------------------------------------------------------------------------------------
Parent Company:
Unsecured notes payable, variable rate adjusted with changes
LIBOR, due in 2001 (7.20% at December 31, 2000) $ 12,000 $ -
Subsidiaries:
Federal Home Loan Bank advances, due at various dates through 2018, 511,303 118,344
secured by mortgage-backed securities and mortgage loans
(weighted average rates of 6.20% and 5.87% at December 31, 2000 and
1999, respectively)
Unsecured note payable, 8.10%, payable $83 plus interest monthly 11,417 12,417
through 2003 with a final balloon payment of $9,083
Notes payable secured by equipment and an investment in a leveraged 5,784 7,610
lease, due at various dates through 2004, interest rates varying from
5.97% to 8.16%
- ------------------------------------------------------------------------------------------------------
$540,504 $138,371
======================================================================================================
At December 31, 2000, the Corporation was not in compliance with a financial
covenant related to the subsidiaries' note payable and unsecured note payable,
requiring that the Corporation maintain, on a consolidated basis, a leverage
ratio in excess of 8.00%. The Corporation received a waiver, dated March 12,
2001, of the covenant until June 30, 2001. The Corporation intends to seek
additional waivers of the covenant and/or use additional sources of cash and/or
debt financing to refinance the debt if additional waivers cannot be obtained.
At December 31, 2000, the Corporation had $137,000 available from unused federal
funds purchased agreements and in excess of $243,000 of available borrowing
capacity from the Federal Home Loan Bank. In addition, the Corporation has an
unsecured line of credit available which permits it to borrow up to $50,000 at
variable rates adjusted with changes in LIBOR through June 29, 2001. At December
31, 2000, $38,000 remained available for future use.
Aggregate maturities required on other borrowings at December 31, 2000 are due
in future years as follows:
2001 $ 25,550
2002 14,930
2003 26,227
2004 4,957
2005 106,021
Thereafter 362,819
- -------------------------------------------------------------------------------
Total principal payments $540,504
===============================================================================
43
44
NOTE 14. TRUST PREFERRED SECURITIES
On March 30, 1998, Integra Capital Trust I (Trust), a Delaware statutory
business trust created by the Corporation, issued $34.5 million of 8.25%
Cumulative Trust Preferred Securities (Securities) which will mature on March
31, 2028, subject to extension or earlier redemption in certain events. The
principal asset of the Trust is a $35.6 million subordinated debenture of the
Corporation. The subordinated debenture bears interest at the rate of 8.25%
and matures on March 31, 2028, subject to extension or earlier redemption in
certain events. The Corporation owns all of the common securities of the
Trust. The Securities, the assets of the Trust, and the common securities issued
by the Trust are redeemable in whole or in part on or after March 31, 2003, or
at any time in whole, but not in part, from the date of issuance upon the
occurrence of certain events. The Securities are included in Tier 1 capital
for regulatory capital adequacy determination purposes, subject to certain
limitations.
The obligations of the Corporation with respect to the issuance of the
Securities constitute a full and unconditional guarantee by the Corporation of
the Trust's obligation with respect to the Securities.
Subject to certain exceptions and limitations, the Corporation may, from time to
time, defer subordinated debenture interest payments, which would result in a
deferral of distribution payments on the related Securities and, with certain
exceptions, prevent the Corporation from declaring or paying cash distributions
on the Corporation's common stock or debt securities that rank pari passu or
junior to the subordinated debenture.
NOTE 15. CAPITAL RATIOS
The Corporation and Integra Bank are subject to various regulatory capital
requirements administered by federal and state banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
materially adverse effect on the Corporation's financial condition. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, a bank must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and Integra Bank to maintain minimum amounts and ratios
(set forth in the following table) of total and Tier 1 capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
2000, that the Corporation and its subsidiary bank met all capital adequacy
requirements to which they were subject.
As of December 31, 2000, the most recent notification from the federal and state
regulatory agencies categorized the subsidiary bank as well capitalized under
the regulatory framework for prompt corrective action. The bank must maintain
the minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as
set forth in the table. There are no conditions or events since that
notification that management believes has changed the categorization of Integra
Bank.
44
45
NOTE 15. CAPITAL RATIOS (Continued)
The following table presents the actual capital amounts and ratios for the
Corporation, on a consolidated basis, and Integra Bank:
To Be Well Capitalized
Minimum Ratios For Capital Under Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
- -----------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------------------------
As of December 31, 2000:
Total Capital (to Risk Weighted Assets)
Consolidated $ 206,197 10.59% $ 155,777 8.00% N/A N/A
Integra Bank 213,828 11.08% 154,417 8.00% $ 193,021 10.00%
Tier I Capital (to Risk Weighted Assets)
Consolidated $ 181,856 9.34% $ 77,888 4.00% N/A N/A
Integra Bank 191,763 9.93% 77,208 4.00% $ 115,813 6.00%
Tier I Capital (to Average Assets)
Consolidated $ 181,856 6.44% $ 112,868 4.00% N/A N/A
Integra Bank 191,763 6.84% 112,135 4.00% $ 140,168 5.00%
As of December 31, 1999:
Total Capital (to Risk Weighted Assets)
Consolidated $ 246,214 15.04% $ 130,997 8.00% N/A N/A
Integra Bank 220,204 13.64% 129,165 8.00% $ 161,457 10.00%
Tier I Capital (to Risk Weighted Assets)
Consolidated $ 225,688 13.78% $ 65,498 4.00% N/A N/A
Integra Bank 200,022 12.39% 64,583 4.00% $ 96,874 6.00%
Tier I Capital (to Average Assets)
Consolidated $ 225,688 10.47% $ 86,214 4.00% N/A N/A
Integra Bank 200,022 9.42% 84,906 4.00% $ 106,132 5.00%
45
46
NOTE 16. STOCK OPTION PLAN
The Corporation's 1999 Stock Option and Incentive Plan currently reserves shares
of common stock for issuance upon the exercise of options granted as incentive
awards to directors and key employees of the Corporation. Awards may be
incentive stock options or non-qualified stock options. All options granted
under the Plan or its predecessor (the "Plans") are required to be exercised
within ten years of the date granted. The exercise price of options granted
under the Plans cannot be less than the fair value of the common stock on the
date of grant. At December 31, 2000, 475,800 shares were available for the
granting of additional options.
In 1999, the Corporation also granted non-qualified options to purchase 31,500
shares of common stock at an exercise price of $25.83, outside of the Plans, in
connection with the employment of its new Chairman and CEO. Such options vest
over a two-year period and must be exercised within ten years. At December 31,
2000, all 31,500 options remained outstanding and 15,750 were exercisable.
A summary of the status of the options granted under the Plans by the
Corporation, adjusted for all stock dividends, as of December 31, 2000, 1999,
and 1998, and changes during the years ending on those dates is presented below:
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
Options outstanding, beginning of year 576,022 $26.38 592,161 $34.14 533,237 $22.75
Options granted 186,000 21.32 140,700 26.39 179,633 33.92
Options exercised 58,207 15.49 66,101 19.50 113,254 15.85
Options forfeited 95,354 31.37 90,738 36.71 7,455 36.85
- -----------------------------------------------------------------------------------------------------------------------------------
Options outstanding, end of year 608,461 $25.09 576,022 $26.38 592,161 $34.14
===================================================================================================================================
Options exercisable 343,662 428,252 409,734
Weighted-average fair value of options
granted during the year $ 11.33 $ 6.93 $ 12.03
All options granted prior to 1999 vest one year from the grant date. Subsequent
grants, except the special grant noted above, vest one-third in each year
following the date of the grant.
The following table summarizes information about options granted under the Plans
the were outstanding at December 31, 2000.
Weighted Average
Remaining
Exercise Number Contractual Life Number
Price Outstanding (in years) Exercisable
- -------------------------------------------------------------------------------
$ 38.00 58,454 6.8 58,454
33.92 78,266 7.8 78,266
28.98 20,000 8.9 6,667
28.00 20,000 8.9 6,667
25.83 78,750 9.0 26,250
25.13 12,500 9.0 4,167
24.09 3,500 9.2 -
24.00 1,000 9.2 -
23.80 9,450 8.8 3,150
23.24 43,976 5.8 43,976
21.25 166,500 9.3 -
17.33 116,065 4.8 116,065
------------------------------------------------------
608,461 7.7 343,662
======================================================
46
47
NOTE 16. STOCK OPTION PLAN (continued)
Stock options are accounted for following Accounting Principles Board Opinion
No. 25 and related Interpretations. Had compensation costs been determined based
on the grant date fair values of awards (the method described in SFAS 123),
reported net income and earnings per common share would have been reduced to the
proforma amounts shown below.
2000 1999 1998
---- ---- ----
Net income:
As reported $30,491 $22,644 $22,116
Proforma 29,256 22,059 20,767
Earnings per share:
Basic
As reported $ 1.77 $ 1.28 $ 1.26
Proforma 1.70 1.25 1.14
Diluted
As reported $ 1.77 $ 1.27 $ 1.25
Proforma 1.70 1.24 1.13
The fair value of the stock options granted under the Plans has been estimated
using the Black-Scholes options pricing model with the following weighted
average assumptions.
2000 1999 1998
- --------------------------------------------------------------------------------
Number of options granted 186,000 172,200 179,633
Risk-free interest rate 6.49% 6.44% 4.97%
Expected life, in years 10 10 10
Expected volatility 51.05% 24.55% 25.25%
Expected dividend yield 3.95% 3.34% 2.14%
Estimated fair value per option $ 11.33 $ 6.93 $ 12.03
NOTE 17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table reflects a comparison of the carrying amounts and fair
values of financial instruments of the Corporation at December 31:
2000 1999
- --------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------------------------
Assets:
Cash and short-term investments $ 238,263 $ 238,263 $ 73,683 $ 73,683
Securities available for sale 997,494 997,494 332,359 332,359
Loans-net of allowance 1,664,026 1,656,414 1,675,678 1,667,551
Liabilities:
Deposits $1,871,035 $1,810,835 $1,694,661 $1,689,353
Short-term borrowings 383,735 383,735 89,989 89,989
Other borrowings 540,504 548,045 138,371 136,533
Guaranteed preferred beneficial interests in
the Corporation's subordinated debenture 34,500 34,500 34,500 32,775
The above fair value information was derived using the information described
below for the groups of instruments listed. It should be noted the fair values
disclosed in this table do not represent market values of all assets and
liabilities of the Corporation and, thus, should not be interpreted to represent
a market or liquidation value for the Corporation.
47
48
NOTE 17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
CASH AND SHORT-TERM INVESTMENTS
Cash and short-term investments include cash and due from banks,
interest-bearing deposits in banks, short-term money market investments,
commercial paper and federal funds sold. For cash and other short-term
investments, the carrying amount is a reasonable estimate of fair value.
SECURITIES
For securities, fair value equals quoted market price, if available. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities. Fair values for nonmarketable equity securities
are equal to cost, as there is no readily determinable fair value. Carrying
amount of accrued interest receivable approximates fair value.
LOANS
For certain homogeneous categories of loans, such as some residential mortgages,
fair value is estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics. The fair value
of other types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities. Carrying amount of accrued
interest receivable approximates fair value.
DEPOSITS
The fair value of demand deposits, savings accounts, money market deposits, and
variable rate certificates of deposit is the amount payable on demand at the
reporting date. The fair value of other time deposits is estimated using the
rates currently offered for deposits of similar remaining maturities. Carrying
amount of accrued interest payable approximates fair value.
SHORT-TERM DEBT
Rates currently available to the Corporation for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt. These
instruments adjust on a periodic basis and thus the carrying amount represents
fair value. Carrying amount of accrued interest payable approximates fair value.
LONG-TERM DEBT
Rates currently available for debt with similar terms and maturities are used to
estimate fair value of existing debt. Carrying amount of accrued interest
payable approximates fair value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
guarantees and letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date. Because all
commitments and standby letters of credit reflect current fees and interest
rates, no unrealized gains or losses are reflected in the summary of fair
values.
NOTE 18. COMMITMENTS, CONTINGENCIES, AND CREDIT RISK
Most of the business activity of the Corporation and its subsidiaries is
conducted with customers located in the immediate geographic area of their
offices. These areas are comprised of Indiana, Illinois, Kentucky, and
Southwestern Ohio. The Corporation maintains a diversified loan portfolio which
contains no concentration of credit risk from borrowers engaged in the same or
similar industries exceeding 10% of total loans.
The Corporation and its subsidiaries evaluate each credit request of their
customers in accordance with established lending policies. Based on these
evaluations and the underlying policies, the amount of required collateral (if
any) is established. Collateral held varies but may include negotiable
instruments, accounts receivable, inventory, property, plant and equipment,
income producing properties, residential real estate, and vehicles. The lenders'
access to these collateral items is generally established through the
maintenance of recorded liens or, in the case of negotiable instruments,
possession.
The Corporation and its subsidiaries are parties to legal actions which arise in
the normal course of their business activities. In the opinion of management,
the ultimate resolution of these matters is not expected to have a materially
adverse effect on the financial position or on the results of operations of the
Corporation and its subsidiaries.
48
49
NOTE 18. COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (continued)
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The
contractual or notional amounts of those instruments reflect the extent of
involvement the Corporation has in particular classes of financial instruments.
The Corporation's exposure to credit loss, in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit, is represented by the contractual notional amount of
those instruments. The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for other on-balance sheet
instruments. Financial instruments whose contract amounts represent credit risk
at December 31, 2000, follows:
Ranges of Rates
Variable Rate Fixed Rate Total on Fixed Rate
2000 Commitment Commitment Commitment Commitments
- --------------------------------------------------------------------------------------------------
Commitments to extend credit $ 192,525 $76,624 $ 269,149 5.23%-16.90%
Standby letters of credit - - 11,243 -
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit written are conditional commitments issued by the
banks to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
NOTE 19. INTEREST RATE CONTRACTS
The Corporation has entered into interest rate contracts as a hedge against the
interest costs of repurchase agreements to manage its interest rate sensitivity.
At December 31, 2000, the notional value of the interest rate caps was $200,000.
The caps are indexed to LIBOR with contract strike prices of 7% and mature prior
to 2003. The caps had a carrying value and related market value of $527 and $86
at December 31, 2000, respectively.
The Corporation is exposed to losses if a counterparty fails to make its
payments under a contract in which the Corporation is in a receiving status.
Although collateral or other security is not obtained, the Corporation minimizes
its credit risk by monitoring the credit standing of the counterparties and
anticipates that the counterparties will be able to fully satisfy their
obligation under the agreements.
NOTE 20. EMPLOYEE RETIREMENT PLANS
The Corporation maintains a noncontributory cash balance plan in which
substantially all full-time employees are eligible to participate upon the
completion of one year of service. The Corporation previously maintained a
noncontributory pension plan, which was curtailed during 1997 and was terminated
in 1999. The excess of plan assets over benefit obligations of the pension plan
was transferred to the cash balance plan.
In establishing the amounts reflected in the financial statements, the following
significant assumption rates were used:
2000 1999 1998
- --------------------------------------------------------------------------------
Discount rate 6.15% 5.25% 6.00%
Increase in compensation rate 5.00% 5.00% 5.00%
Expected long-term rate of return 6.50% 6.50% 7.00%
49
50
NOTE 20. EMPLOYEE RETIREMENT PLANS (continued)
The following summary reflects the plan's funded status and the amounts
reflected on the Corporation's financial statements. Actuarial present values of
benefit obligations at December 31 are:
2000 1999
- --------------------------------------------------------------------------------
Change in Fair Value of Plan Assets:
Balance at beginning of measurement period $ 3,157 $10,389
Actual return on plan assets (228) 284
Benefits paid (381) (7,516)
- --------------------------------------------------------------------------------
Balance at end of measurement period 2,548 3,157
- --------------------------------------------------------------------------------
Change in Benefit Obligation:
Balance at beginning of measurement period 1,507 7,676
Service cost 926 756
Interest costs 78 27
Actuarial (gains) losses - 564
Benefits paid (381) (7,516)
- --------------------------------------------------------------------------------
Balance at end of measurement period 2,130 1,507
- --------------------------------------------------------------------------------
Funded status 418 1,650
Unrecognized net actuarial loss 657 477
- --------------------------------------------------------------------------------
Prepaid benefit cost $ 1,075 $ 2,127
================================================================================
Net periodic pension cost (credit) included the following components for the
years ended December 31:
2000 1999 1998
- --------------------------------------------------------------------------------
Service cost - benefits earned during the period $ 926 $ 756 $ 626
Interest cost on projected benefit obligation 78 27 576
Return on assets (190) (284) (339)
Net amortization and deferral 239 76 (574)
Termination settlement gain - (877) -
- --------------------------------------------------------------------------------
Net periodic pension cost (credit) $1,053 $(302) $ 289
================================================================================
Substantially all employees are eligible to contribute a portion of their pretax
salary to a defined contribution plan. The Corporation may make contributions to
the plan in varying amounts depending on the level of employee contributions.
The Corporation's expense related to this plan was $599, $538, and $377 for
2000, 1999 and 1998, respectively.
Certain of the Corporation's subsidiaries sponsored an employee stock ownership
plan (ESOP) that covered certain eligible employees. During the first quarter of
2000, the Corporation made the final distribution of all shares from the ESOP
and closed out the plan.
As the result of previous mergers and subsequent amendment of the Corporation's
pension and profit-sharing plans to include employees of the other subsidiaries,
retirement plans previously maintained by those subsidiaries have been
terminated or frozen.
50
51
NOTE 20. EMPLOYEE RETIREMENT PLANS (continued)
Contribution expense for the ESOP was $175 and $1,418 for the years ended
December 31, 1999 and 1998. The ESOP shares were as follows as of December 31:
2000 1999 1998
- ------------------------------------------------------------------------------------
Allocated shares 110,658 263,745 224,466
Shares released for allocation - 5,405 39,279
Unearned shares - - 5,405
Less: Shares distributed to participants (110,658) (158,492) -
- ------------------------------------------------------------------------------------
Total ESOP shares - 110,658 269,150
====================================================================================
Fair value of unearned shares at December 31, $ - $ - $ 202
- ------------------------------------------------------------------------------------
In the case of a distribution of ESOP shares which are not readily tradeable on
an established securities market, the plan provides the participant with a put
option that complies with the requirements of Section 490(h) of the Internal
Revenue Code. The Corporation has classified outside of permanent equity the
fair value of earned and unearned ESOP shares (net of the debit balance
representing unearned ESOP shares) subject to the put option in accordance with
the Securities and Exchange Commission Accounting Series Release #268.
51
52
NOTE 21. UNAUDITED INTERIM FINANCIAL DATA
The following table reflects summarized quarterly data for the periods described
(unaudited):
2000
- --------------------------------------------------------------------------------------------
December 31 September 30 June 30 March 31
- --------------------------------------------------------------------------------------------
Interest income $ 56,678 $ 50,805 $ 46,932 $ 42,266
Interest expense 32,873 27,897 23,770 20,285
- --------------------------------------------------------------------------------------------
Net interest income 23,805 22,908 23,162 21,981
Provision for loan losses 1,175 1,050 863 1,050
Non-interest income 5,698 4,781 4,377 5,410
Non-interest expense 17,112 16,354 15,275 14,832
- --------------------------------------------------------------------------------------------
Income before income taxes 11,216 10,285 11,401 11,509
Provision for income taxes 3,425 3,265 3,603 3,627
- --------------------------------------------------------------------------------------------
Net income $ 7,791 $ 7,020 $ 7,798 $ 7,882
============================================================================================
Earnings per share:
Basic $ 0.47 $ 0.40 $ 0.45 $ 0.45
Diluted 0.47 0.40 0.45 0.45
Weighted average shares:
Basic 16,665,132 17,367,975 17,413,209 17,492,103
Diluted 16,707,076 17,373,085 17,425,766 17,553,665
1999
- --------------------------------------------------------------------------------------------
December 31 September 30 June 30 March 31
- --------------------------------------------------------------------------------------------
Interest income $ 42,038 $ 40,993 $ 40,586 $ 40,757
Interest expense 19,422 18,351 18,159 18,625
- --------------------------------------------------------------------------------------------
Net interest income 22,616 22,642 22,427 22,132
Provision for loan losses 9,247 1,149 841 1,260
Non-interest income 2,558 4,048 3,220 3,813
Non-interest expense 16,119 15,667 13,760 14,860
- --------------------------------------------------------------------------------------------
Income before income taxes (192) 9,874 11,046 9,825
Provision for income taxes (1,236) 2,456 3,569 3,120
- --------------------------------------------------------------------------------------------
Net income $ 1,044 $ 7,418 $ 7,477 $ 6,705
============================================================================================
Earnings per share:
Basic $ 0.06 $ 0.42 $ 0.42 $ 0.38
Diluted 0.06 0.42 0.42 0.37
Weighted average shares:
Basic 17,643,367 17,745,481 17,733,154 17,682,413
Diluted 17,733,970 17,830,715 17,798,208 17,752,313
52
53
NOTE 22. SEGMENT INFORMATION
The Corporation operates only one major line of business, Banking. Banking
services include various types of deposit accounts; safe deposit boxes;
safekeeping of securities; automated teller machines; consumer, mortgage, and
commercial loans; mortgage loan sales and servicing; letters of credit; accounts
receivable management (financing, accounting, billing, and collecting); and
complete personal and corporate trust services. During the third quarter of
2000, the Corporation completed its centralization of banking charters and
consolidation of operations. Due to the change in organizational structure, the
Corporation changed its segments from geographic boundaries to Banking, as
presented below. The accounting policies of the segment are the same as those
described in the summary of significant accounting policies. The Corporation
evaluates performance based on profit or loss from operations before income
taxes excluding nonrecurring gains and losses. The following tables present
selected segment information for Banking and other operating units.
December 31, 2000 Banking Other Eliminations Total
- --------------------------------------------------------------------------------
Interest income $ 197,720 $ 5,152 $ (6,191) $ 196,681
Interest expense 103,703 7,311 (6,189) 104,825
- --------------------------------------------------------------------------------
Net interest income 94,017 (2,159) (2) 91,856
Provision for loan losses 4,134 4 - 4,138
Other income 20,223 41,530 (41,487) 20,266
Other expense 62,183 10,067 (8,677) 63,573
- --------------------------------------------------------------------------------
Earnings before income taxes $ 47,923 $ 29,300 $ (32,812) $ 44,411
================================================================================
Segment assets $3,049,705 $ 323,826 $(304,713) $3,068,818
================================================================================
December 31, 1999 Banking Other Eliminations Total
- --------------------------------------------------------------------------------
Interest income $ 165,948 $ 5,849 $ (7,423) $ 164,374
Interest expense 74,556 7,422 (7,421) 74,557
- --------------------------------------------------------------------------------
Net interest income 91,392 (1,573) (2) 89,817
Provision for loan losses 9,353 3,144 - 12,497
Other income 15,293 34,117 (35,771) 13,639
Other expense 53,696 13,637 (6,927) 60,406
- --------------------------------------------------------------------------------
Earnings before income taxes $ 43,636 $ 15,763 $ (28,846) $ 30,553
================================================================================
Segment assets $2,259,134 $ 325,423 $(381,080) $2,203,477
================================================================================
December 31, 1998 Banking Other Eliminations Total
- --------------------------------------------------------------------------------
Interest income $ 167,603 $ 4,876 $ (5,702) $ 166,777
Interest expense 78,086 6,494 (5,700) 78,880
- --------------------------------------------------------------------------------
Net interest income 89,517 (1,618) (2) 87,897
Provision for loan losses 7,034 109 - 7,143
Other income 16,718 34,823 (34,920) 16,621
Other expense 57,046 15,854 (5,611) 67,289
- --------------------------------------------------------------------------------
Earnings before income taxes $ 42,155 $ 17,242 $ (29,311) $ 30,086
================================================================================
Segment assets $2,230,525 $ 331,704 $(367,005) $2,195,224
================================================================================
53
54
NOTE 23. FINANCIAL INFORMATION OF PARENT COMPANY
The principal source of income for Integra Bank Corporation is dividends from
its subsidiary bank. Banking regulations impose restrictions on the ability of
Integra Bank to pay dividends to the Corporation. The amount of dividends that
could be paid is further restricted by management to maintain prudent capital
levels.
Condensed financial data for Integra Bank Corporation (parent company only)
follows:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
December 31,
2000 1999
- --------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 7,815 $ 15,199
Investment in subsidiaries 251,661 238,151
Securities available for sale 1,020 1,678
Property and equipment 71 1,520
Other assets 8,816 11,205
- --------------------------------------------------------------------------------
TOTAL ASSETS $269,383 $267,753
================================================================================
LIABILITIES
Other borrowings $ 47,567 $ 35,567
Dividends payable 3,894 3,679
Other liabilities 12,405 2,639
- --------------------------------------------------------------------------------
Total liabilities 63,866 41,885
Common stock owned by ESOP (subject to put option) - 2,780
SHAREHOLDERS' EQUITY
Common stock 15,881 17,518
Capital surplus 99,497 138,893
Retained earnings 86,990 71,299
Accumulated other comprehensive income (loss) 3,149 (1,842)
Common stock owned by ESOP (subject to put option) - (2,780)
- --------------------------------------------------------------------------------
Total shareholders' equity 205,517 223,088
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $269,383 $267,753
================================================================================
CONDENSED STATEMENTS OF INCOME Year Ended December 31,
2000 1999 1998
- --------------------------------------------------------------------------------------
Dividends from subsidiaries $23,300 $19,850 $39,744
Other income 9,456 6,300 5,854
- --------------------------------------------------------------------------------------
Total income 32,756 26,150 45,598
Interest expense 2,976 2,847 2,433
Other expenses 10,063 13,444 15,286
- --------------------------------------------------------------------------------------
Total expenses 13,039 16,291 17,719
- --------------------------------------------------------------------------------------
Income before income taxes and equity in
undistributed earnings of subsidiaries 19,717 9,859 27,879
Income tax benefit 1,255 3,789 4,008
- --------------------------------------------------------------------------------------
Income before equity in undistributed
earnings of subsidiaries 20,972 13,648 31,887
Equity in undistributed earnings (loss) of subsidiaries 9,519 8,996 (9,771)
- --------------------------------------------------------------------------------------
Net income $30,491 $22,644 $22,116
======================================================================================
54
55
NOTE 23. FINANCIAL INFORMATION OF PARENT COMPANY (continued)
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31,
- ---------------------------------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 30,491 $ 22,644 $ 22,116
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization and depreciation 588 1,185 702
Employee benefit expenses - 482 2,017
Undistributed (earnings) loss of subsidiaries (9,519) (8,996) 9,771
Securities (gains) losses (62) 1,240 (103)
Gain on sale of premises and equipment (14) - (16)
Increase (decrease) in deferred taxes 195 (92) (391)
(Increase) decrease in other assets 2,021 (3,574) (2,502)
Increase (decrease) in other liabilities 9,570 (603) 1,246
- ---------------------------------------------------------------------------------------------
Net cash flows provided by operating activities 33,270 12,286 32,840
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 1,741 2,296 848
Purchases of securities (1,020) (3) (5,484)
Payments on notes receivable - - 243
Purchase of property and equipment (908) (542) (866)
Proceeds from sale of property and equipment 2,150 - 70
Capital contributions from (to) subsidiaries 1,000 (3,074) (33,359)
- ---------------------------------------------------------------------------------------------
Net cash flows provided by (used in) investing activities 2,963 (1,323) (38,548)
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (14,584) (13,496) (11,470)
Proceeds from other borrowings 12,000 - 68,067
Payments on other borrowings - (52) (35,322)
Repurchase of common stock (41,897) (6,690) (1,385)
Sale of common stock - - 1,185
Proceeds from exercise of stock options 864 1,228 1,726
- ---------------------------------------------------------------------------------------------
Net cash flows provided by (used in) financing activities (43,617) (19,010) 22,801
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (7,384) (8,047) 17,093
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 15,199 23,246 6,153
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 7,815 $ 15,199 $ 23,246
=============================================================================================
NOTE 24. SUBSEQUENT EVENT (UNAUDITED)
On January 31, 2001, the Corporation issued 1,500,000 shares of common stock in
exchange for all of the outstanding shares of Webster Bancorp, Inc., parent
company for West Kentucky Bank, headquartered in Madisonville, Kentucky. At
December 31, 2000, West Kentucky Bank had total assets and shareholders' equity
of $293,906 and $19,749, respectively. Goodwill of approximately $11,264 will be
amortized on a straight-line basis over 25 years. The acquisition was accounted
for under the purchase method of accounting, and accordingly, the consolidated
financial statements will include the assets and liabilities and results of
operations from the acquisition date forward.
55
56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are no changes in or disagreements with accountants on accounting and
financial disclosures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the heading "Election of Directors and Information with
Respect to Directors and Officers" and also the information under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Corporation's
Proxy Statement for its 2001 Annual Meeting of Shareholders is hereby
incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information under the heading "Compensation of Executive Officers" in the
Corporation's Proxy Statement for its 2001 Annual Meeting of Shareholders is
hereby incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the heading "Voting Securities" in the Corporation's Proxy
Statement for its 2001 Annual Meeting of Shareholders is hereby incorporated by
reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the heading "Transactions with Management" in the
Corporation's Proxy Statement for its 2001 Annual Meeting of Shareholders is
hereby incorporated by reference herein.
56
57
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Documents Filed as Part of Form 10-K
1. Financial Statements
Report of Independent Accountants
Consolidated Statements of Financial Position at December 31, 2000 and
1999
Consolidated Statements of Income for the years ended December 31,
2000, 1999, and 1998
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999, and 1998
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
2. Exhibits
Exhibit Index is on page 60.
Reports on Form 8-K
The Corporation filed no reports on Form 8-K during the last quarter of
the year ended December 31, 2000.
57
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the dates indicated.
INTEGRA BANK CORPORATION
/s/ MICHAEL T. VEA 2/21/2001
------------------------------- -------------
Michael T. Vea Date
Chairman of the Board, Chief
Executive Officer and President
/s/ JAMES E. ADAMS 2/21/2001
------------------------------- -------------
James E. Adams Date
Executive Vice President, Chief
Financial Officer and Secretary
("Principal Financial and
Accounting Officer")
58
59
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ JANICE L. BEESLEY 2/21/2001
- ------------------------------------ -------------
Janice L. Beesley Date
Director
/s/ BEN L. CUNDIFF 2/21/2001
- ------------------------------------ -------------
Ben L. Cundiff Date
Director
/s/ SUSANNE R. EMGE 2/21/2001
- ------------------------------------ -------------
Susanne R. Emge Date
Director
/s/ DONALD G. HARRIS 2/21/2001
- ------------------------------------ -------------
Donald G. Harris Date
Director
/s/ H. RAY HOOPS 2/21/2001
- ------------------------------------ -------------
H. Ray Hoops Date
Director
/s/ JOHN D. LIPPERT 2/21/2001
- ------------------------------------ -------------
John D. Lippert Date
Director
/s/ GEORGE D. MARTIN 2/21/2001
- ------------------------------------ -------------
George D. Martin Date
Director
/s/ RONALD G. REHERMAN 2/21/2001
- ------------------------------------ -------------
Ronald G. Reherman Date
Director
/s/ LAURENCE R. STEENBERG 2/21/2001
- ------------------------------------ -------------
Laurence R. Steenberg Date
Director
/s/ ROBERT D. VANCE 2/21/2001
- ------------------------------------ -------------
Robert D. Vance Date
Director
/s/ MICHAEL T. VEA 2/21/2001
- ------------------------------------ -------------
Michael T. Vea Date
Chairman, CEO, President and Director
/s/ RICHARD F. WELP 2/21/2001
- ------------------------------------ -------------
Richard F. Welp Date
59
60
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- -----------------------------------------------------------
3(a)(i) Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to Form 8-A/A dated June 12, 1998)
3(a)(ii) Articles of Amendment dated May 17, 2000 (incorporated by
reference to Exhibit 3(a) to Quarterly Report on Form 10-Q
for the period ending September 30, 2000)
3 (b) By-Laws (incorporated by reference to Exhibit 3 (ii) to
Quarterly Report on Form 10-Q for the period ending
March 31, 1999)
10 (a) Term Loan Agreement, dated as of June 26, 1996 between
Twenty-One Southeast Third Corporation, National City
Bancshares, Inc. and The Northern Trust Company
(incorporated by reference to Exhibit 10 (a) to Quarterly
Report on Form 10-Q for the period ending June 30, 1996)
10 (b)* Incentive Stock Option Plan (incorporated by reference to
Exhibit 10 (b) to Quarterly Report on Form 10-Q for the
period ending June 30, 1996)
10 (c)* Incentive Stock Option Plan, First Amendment, dated as of
December 18, 1996 (incorporated by reference to Exhibit 10
(c) to Annual Report on Form 10-K for the fiscal year ended
December 31, 1996)
10 (d)* Incentive Stock Option Plan, Second Amendment, dated as of
March 19, 1997 (incorporated by reference to Exhibit 10 (d)
to Annual Report on Form 10-K for the fiscal year ended
December 31, 1996)
10 (e)* 1999 Stock Option and Incentive Plan (incorporated by
reference to Exhibit A to Definitive Proxy Materials filed
April 24, 1999)
10 (f)* Termination Benefits Agreements dated as of September 16,
1998, between National City Bancshares, Inc. and Curtis D.
Ritterling (incorporated by reference to Exhibit 10.2 to
Quarterly Report on Form 10-Q for the period ending
September 30, 1998)
10 (g)* Contract of Employment dated August 23, 1999, between
National City Bancshares, Inc. and Michael T. Vea
(incorporated by reference to Exhibit 10.1 to Quarterly
Report on Form 10-Q for the period ending September 30,
1999)
10 (h)* Amendment to Contract of Employment dated September 20,
2000 between Integra Bank Corporation and Michael T. Vea
10 (i)* Nonqualified Stock Option Agreement dated September 7,
1999, between National City Bancshares, Inc. and Michael T.
Vea (incorporated by reference to Exhibit 10.2 to Quarterly
Report on Form 10-Q for the period ending September 30,
1999)
10 (j)* Nonqualified Stock Option Agreement (Non Plan) dated
September 7, 1999, between National City Bancshares, Inc.
and Michael T. Vea (incorporated by reference to
Exhibit 10.3 to Quarterly Report on Form 10-Q for the
period ending September 30, 1999)
10 (k)* Termination Benefits Agreement dated December 15, 1999,
between National City Bancshares, Inc. and James E. Adams
(incorporated by reference to Exhibit 10(p) to Annual
Report on Form 10K for the fiscal year ended December 31,
2000)
10 (l)* Termination Benefits Agreement dated December 15, 1999,
between National City Bancshares, Inc. and John D. Crumrine
(incorporated by reference to Exhibit 10(q) to Annual
Report on Form 10K for the fiscal year ended December 31,
2000)
10 (m)* Termination Benefits Agreement dated December 31, 1999,
between National City Bancshares, Inc. and D. Michael
Kramer (incorporated by reference to Exhibit 10(s) to
Annual Report on Form 10K for the fiscal year ended
December 31, 2000)
10 (n) Credit Agreement dated June 30, 2000 between Integra Bank
Corporation, Bank One N.A., The Northern Trust Company and
Firstar Bank N.A. (incorporated by reference to
Exhibit 10(t) to Quarterly Report on Form 10-Q for the
period ending June 30, 2000)
21 Subsidiaries of the Registrant
23 Consent of PricewaterhouseCoopers LLP
* The indicated exhibit is a management contract, compensatory plan, or
arrangement required to be filed by Item 601 of Regulation S-K.
60