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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003.
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 incorporation or organization) (IRS Employee Identification No.)
PO BOX 868, EVANSVILLE, INDIANA 47705-0868
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (812) 464-9677
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 1, 2003
(Common stock, $1.00 Stated Value) 17,291,368
INTEGRA BANK CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
PAGE NO.
Item 1. Unaudited Financial Statements
Consolidated balance sheets-
March 31, 2003, December 31, 2002, and March 31, 2002 3
Consolidated statements of income-
Three months ended March 31, 2003 and 2002 4
Consolidated statements of comprehensive income-
Three months ended March 31, 2003 and 2002 6
Consolidated statements of changes in shareholders equity-
Three months ended March 31, 2003 7
Consolidated statements of cash flow-
Three months ended March 31, 2003 and 2002 8
Notes to consolidated financial statements 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
Item 4. Controls and Procedures 26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes In Securities and Use of Proceeds 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Submissions of Matters to a Vote of Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
Certifications 29
2
PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
INTEGRA BANK CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands, except for per share data)
March 31, December 31, March 31,
2003 2002 2002
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 71,249 $ 70,045 $ 54,935
Federal funds sold and other short-term investments 39 488 45,374
- --------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 71,288 70,533 100,309
Loans held for sale (at lower of cost or fair value) 3,465 13,767 32,734
Securities available for sale 1,001,940 982,263 1,019,941
Loans, net of unearned income 1,644,898 1,606,155 1,589,111
Less: Allowance for loan losses (24,521) (24,632) (24,330)
- --------------------------------------------------------------------------------------------------------------------------------
Net loans 1,620,377 1,581,523 1,564,781
Premises and equipment 53,103 53,537 53,971
Goodwill 44,159 44,159 44,159
Other intangibles 11,523 11,928 13,142
Other assets 95,815 100,028 94,173
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,901,670 $ 2,857,738 $ 2,923,210
================================================================================================================================
LIABILITIES
Deposits:
Non-interest-bearing demand $ 215,603 $ 213,405 $ 204,056
Interest-bearing:
Savings, interest checking and money market accounts 722,257 722,486 711,696
Time deposits of $100,000 or more 263,385 239,243 222,278
Other interest-bearing 598,076 606,814 690,140
- --------------------------------------------------------------------------------------------------------------------------------
Total deposits 1,799,321 1,781,948 1,828,170
Federal funds borrowed and securities sold
under repurchase agreements 266,871 161,784 239,920
Other borrowings 531,055 536,042 560,644
Guaranteed preferred beneficial interests
in the Corporation's subordinated debentures 52,500 52,500 52,500
Other liabilities 16,746 92,864 20,199
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,666,493 2,625,138 2,701,433
- --------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock - 1,000 shares authorized - None outstanding
Common stock - $1.00 stated value -29,000 shares authorized 17,291 17,291 17,284
Capital surplus 125,467 125,467 125,334
Retained earnings 81,877 82,011 79,180
Unearned compensation (117) (147) (240)
Accumulated other comprehensive income 10,659 7,978 219
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 235,177 232,600 221,777
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,901,670 $ 2,857,738 $ 2,923,210
================================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
3
INTEGRA BANK CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share data)
Three Months Ended
March 31,
- ----------------------------------------------------------------------------------------------------
2003 2002
- ----------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans:
Taxable $ 25,193 $ 28,482
Tax-exempt 245 307
Interest and dividends on securities:
Taxable 8,989 11,881
Tax-exempt 1,737 1,833
Interest on loans held for sale 151 632
Interest on federal funds sold and other investments 14 586
- ----------------------------------------------------------------------------------------------------
Total interest income 36,329 43,721
INTEREST EXPENSE
Interest on deposits 8,407 12,898
Interest on federal funds purchased and securities sold
under repurchase agreements 1,317 2,295
Interest on other borrowings 9,115 9,526
- ----------------------------------------------------------------------------------------------------
Total interest expense 18,839 24,719
NET INTEREST INCOME 17,490 19,002
Provision for loan losses 1,235 650
- ----------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 16,255 18,352
- ----------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts 2,789 2,117
Other service charges and fees 1,615 1,379
Mortgage servicing income 453 248
Investment services income 222 295
Trust income 506 523
Securities gains 325 378
Other 1,620 1,721
- ----------------------------------------------------------------------------------------------------
Total non-interest income 7,530 6,661
NON-INTEREST EXPENSE
Salaries and employee benefits 10,881 9,421
Occupancy 1,550 1,333
Equipment 1,108 1,089
Professional fees 1,136 985
Communication and transportation 1,042 1,030
Processing 1,209 1,258
Marketing 344 454
Loans held for sale expense 1 943
Amortization of intangible assets 405 407
Other 2,695 1,799
- ----------------------------------------------------------------------------------------------------
Total non-interest expense 20,371 18,719
- ----------------------------------------------------------------------------------------------------
Income before income taxes 3,414 6,294
Income (benefit) taxes (515) 987
- ----------------------------------------------------------------------------------------------------
NET INCOME $ 3,929 $ 5,307
====================================================================================================
Unaudited Consolidated Statements of Income are continued on next page.
4
INTEGRA BANK CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(In thousands, except for per share data)
Three Months Ended
March 31,
- ----------------------------------------------------------------------------------------------------
2003 2002
- ----------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 0.23 $ 0.31
Diluted 0.23 0.31
Weighted average shares outstanding:
Basic 17,281 17,269
Diluted 17,282 17,275
The accompanying notes are an integral part of the consolidated financial
statements.
5
INTEGRA BANK CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Three Months Ended
March 31,
- ---------------------------------------------------------------------------------------------------------------
2003 2002
- ---------------------------------------------------------------------------------------------------------------
Net income $ 3,929 $ 5,307
Other comprehensive income, net of tax:
Unrealized gain (loss) on securities:
Unrealized gain (loss) arising in period 2,699 (737)
Reclassification of realized amounts (193) (225)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on securities 2,506 (962)
- ---------------------------------------------------------------------------------------------------------------
Unrealized gain on derivative hedging instruments arising in period 175 367
- ---------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss), recognized in other comprehensive income 2,681 (595)
- ---------------------------------------------------------------------------------------------------------------
Comprehensive income $ 6,610 $ 4,712
===============================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
6
INTEGRA BANK CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, Except for Share Data)
Accumulated
Other
Common Common Capital Retained Unearned Comprehensive
Shares Stock Surplus Earnings Compensation Income Total
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002 17,291,368 17,291 125,467 82,011 (147) 7,978 232,600
- ----------------------------------------------------------------------------------------------------------------------------------
Net income - - - 3,929 - - 3,929
Cash dividend declared ($0.235 per share) - - - (4,063) - - (4,063)
Change in unrealized gain/loss on:
Securities - - - - - 2,506 2,506
Interest rate swaps - - - - - 175 175
Unearned compensation amortization - - - - 30 - 30
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2003 17,291,368 $ 17,291 $125,467 $ 81,877 $ (117) $ 10,659 $235,177
- ----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
7
INTEGRA BANK CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
Three Months Ended
March 31,
2003 2002
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,929 $ 5,307
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Federal Home Loan Bank stock dividends - (47)
Amortization and depreciation 3,203 4,069
Employee benefit expenses 30 30
Provision for loan losses 1,235 650
Net securities gains (325) (378)
Gain on sale of premises and equipment (85) -
(Gain) loss on sale of other real estate owned (26) 65
Loss on low-income housing investments 170 136
Decrease in loans held for sale 10,302 -
Decrease in other assets 3,110 918
Decrease in other liabilities (77,372) (2,501)
- ------------------------------------------------------------------------------------------------------------------
Net cash flows provided by (used in) operating activities (55,829) 8,249
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 45,762 92,149
Proceeds from sales of securities available for sale 52,295 196,074
Purchase of securities available for sale (114,388) (301,202)
(Increase) decrease in loans made to customers (40,163) 35,597
Purchase of premises and equipment (712) (941)
Proceeds from sale of premises and equipment 152 -
Proceeds from sale of other real estate owned 228 507
- ------------------------------------------------------------------------------------------------------------------
Net cash flows provided by (used in) investing activities (56,826) 22,184
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 17,373 (100,242)
Net payments in federal funds purchased and securities sold 105,087 (4,112)
under repurchase agreement
Proceeds from other borrowings 6,000 -
Repayment of other borrowings (10,987) (3,804)
Dividends paid (4,063) (4,062)
- ------------------------------------------------------------------------------------------------------------------
Net cash flows provided by (used in) financing activities 113,410 (112,220)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 755 (81,787)
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 70,533 182,096
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 71,288 $ 100,309
==================================================================================================================
Unaudited Consolidated Statements of Cash Flow are continued on next page.
8
INTEGRA BANK CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
(In thousands)
Three Months Ended
March 31, March 31,
2003 2002
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Change in allowance for unrealized (gain)/loss on securities available for sale $ 4,216 $ (1,617)
Change in deferred taxes attributable to securities available for sale 1,708 405
Change in fair value of derivative instruments - (617)
Other real estate acquired in settlement of loans 74 672
The accompanying notes are an integral part of the consolidated financial
statements.
9
INTEGRA BANK CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of Integra Bank Corporation and its subsidiaries (the
"Corporation"). At March 31, 2003, the Corporation's subsidiaries consisted of
Integra Bank N.A. (the "Bank"), a property management company, and two Delaware
statutory business trusts. All significant intercompany transactions are
eliminated in consolidation.
The financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). While the
financial statements are unaudited, they do reflect all adjustments which, in
the opinion of management, are necessary for a fair statement of the financial
position, results of operations, and cash flows for the interim periods. All
such adjustments are of a normal recurring nature. Pursuant to SEC rules,
certain information and note disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America ("GAAP") have been condensed or omitted from
these financial statements unless significant changes have taken place since the
end of the most recent fiscal year. The accompanying financial statements and
notes thereto should be read in conjunction with the Corporation's financial
statements and notes for the year ended December 31, 2002 included in the
Corporation's Annual Report on Form 10-K filed with the SEC.
Because the results from commercial banking operations are so closely related
and responsive to changes in economic conditions, the results for any interim
period are not necessarily indicative of the results that can be expected for
the entire year.
RECENT ACCOUNTING PRONOUNCEMENTS:
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, Accounting for
Stock-Based Compensation -- Transition and Disclosure, an amendment of SFAS No.
123, Accounting for Stock-Based Compensation. SFAS No. 148 provides alternative
methods of transition for a change to the fair value based method of accounting
for stock-based employee compensation. SFAS No. 148 also provides for
disclosures in interim financial statements as well as compensation and the
effect of the method used on reported net income. SFAS No. 148 is effective for
fiscal years ending after December 15, 2002. The Corporation is currently
analyzing the impact of the adoption.
Stock options are accounted for following Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees and related interpretations.
Had compensation costs been determined based on fair values of awards on the
grant date (the method described in SFAS No. 123) reported net income and
earnings per common share would have been reduced to the pro forma amounts shown
below.
For the Quarter Ended March 31, 2003 2002
- ------------------------------------------------------------------------------------------------------
Net income:
As reported $ 3,929 $ 5,307
Pro forma 3,889 4,746
Earnings per share:
Basic
As reported $ 0.23 $ 0.31
Pro forma 0.23 0.27
Diluted
As reported $ 0.23 $ 0.31
Pro forma 0.23 0.27
In January 2003, the FASB issued Interpretation ("FIN") No. 46, Consolidation of
Variable Interest Entities ("VIEs"). FIN 46 provides that business enterprises
that represent the primary beneficiary of another entity by retaining a
controlling financial interest in that entity's assets, liabilities, and results
of operating activities must consolidate the entity in their financial
statements. Prior to the issuance of FIN 46, consolidation generally occurred
when an enterprise controlled another entity through voting interest. Certain
VIEs that are qualifying special purpose entities subject to the reporting
requirements of SFAS No. 140, Accounting for Transfers and
10
Servicing of Financial Assets and Extinguishment of Liabilities, will not be
required to be consolidated under the provisions of FIN 46. The consolidation
provisions of FIN 46 apply to VIEs created or entered into after January 31,
2003, and for pre-existing VIEs in the first reporting period beginning after
June 15, 2003. Management is currently assessing the impact of FIN 46 and does
not expect a material effect on the Corporation's consolidated results of
operations, financial position or cash flows.
NOTE 2. EARNINGS PER SHARE
The calculation of earnings per share for the three months ended March 31, 2003
and 2002 is summarized as follows:
Three Months Ended
March 31,
--------------------------
2003 2002
- -----------------------------------------------------------------------------------------
Net income $ 3,929 $ 5,307
=========================================================================================
Weighted average shares outstanding - Basic 17,281 17,269
Stock option adjustment 1 6
- -----------------------------------------------------------------------------------------
Average shares outstanding - Diluted 17,282 17,275
=========================================================================================
Earnings per share-Basic $ 0.23 $ 0.31
Effect of stock options - -
- -----------------------------------------------------------------------------------------
Earnings per share-Diluted $ 0.23 $ 0.31
=========================================================================================
NOTE 3. SECURITIES
Amortized cost and fair value of securities classified as available for sale as
of March 31, 2003 and 2002 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------
March 31, 2003
U.S. Government agencies $ 15,000 $ 129 $ - $ 15,129
Mortgage-backed securities 305,316 5,410 110 310,616
Collateralized mortgage obligations 423,528 2,941 - 426,469
States & political subdivisions 137,253 6,966 642 143,577
Federal Reserve stock 4,905 - - 4,905
Federal Home Loan Bank stock 27,858 - - 27,858
Other securities 69,147 4,377 138 73,386
- -----------------------------------------------------------------------------------------------------------
Total $983,007 $19,823 $890 $1,001,940
===========================================================================================================
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------
March 31, 2002
U.S. Government agencies $ 80,376 $ - $1,321 $ 79,055
Mortgage-backed securities 670,075 5,809 6,306 669,578
Collateralized mortgage obligations 2,592 3 79 2,516
States & political subdivisions 144,836 2,955 1,145 146,646
Federal Reserve stock 4,905 - - 4,905
Federal Home Loan Bank stock 29,812 - - 29,812
Other securities 86,105 1,540 216 87,429
- -----------------------------------------------------------------------------------------------------------
Total $1,018,701 $10,307 $9,067 $1,019,941
===========================================================================================================
11
The amortized cost and fair value of the securities as of March 31, 2003, by
contractual maturity, except for mortgaged-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.
Maturity of securities available for sale:
Maturity 1 - 5 Years 5 - 10 Years Over 10 Years
Under 1 Year Maturity Maturity Maturity Total
------------------ --------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- ------------------------------------------------------------------------------------------------------------------------------------
U. S. Government agencies $ - -% $ 15,000 3.05% $ - -% $ - -% $ 15,000 3.05%
Mortgage-backed securities 13,973 7.60% 240,772 4.73% 43,468 4.83% 7,103 5.02% 305,316 4.88%
Collateralized mortgage
obligations - -% 384,718 3.84% 38,810 3.87% - -% 423,528 3.84%
States & subdivisions 9,080 4.59% 22,919 6.77% 33,720 6.75% 71,534 7.15% 137,253 6.82%
Federal Reserve stock - -% - -% - -% 4,905 6.00% 4,905 6.00%
Federal Home Loan
Bank stock - -% - -% - -% 27,858 5.65% 27,858 5.65%
Other securities - -% 500 12.00% - -% 68,647 6.72% 69,147 6.76%
- ------------------------------------------------------------------------------------------------------------------------------------
Amortized Cost $ 23,053 6.41% $663,909 4.25% $115,998 5.07% $180,047 6.64% $ 983,007 4.84%
====================================================================================================================================
Fair Value $ 23,581 $671,766 $118,469 $188,124 $1,001,940
====================================================================================================================================
Note: The yield is calculated on a fully-tax-equivalent basis.
At March 31, 2003 and December 31, 2002, the carrying value of securities
pledged to secure public deposits, trust funds, securities sold under repurchase
agreements and other borrowings was $617,429 and $539,775, respectively.
NOTE 4. INTANGIBLE ASSETS
Intangible assets at March 31, 2003 were: Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
--------------------------------------------------
Core deposits (Amortizing) $ 17,080 $ (5,557) $ 11,523
Goodwill (Non-amortizing) 44,159 - 44,159
--------------------------------------------------
Total intangible assets $ 61,239 $ (5,557) $ 55,682
==================================================
All of the intangible assets relate to the banking operating segment.
Estimated intangible asset amortization expense for each of the succeeding years is as follows:
Year ending December 31,
2003 $ 1,619
2004 1,619
2005 1,612
2006 933
2007 933
2008 933
NOTE 5. FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Included in Federal funds purchased and securities sold under repurchase
agreements are $85,000 of national market repurchase agreements with original
maturity dates greater than one year.
The Corporation borrows these funds under a master repurchase agreement. The
Corporation must maintain collateral with a value equal to 103% of the
repurchase price of the securities transferred. Certain holders have an option
on a specific date to put the collateral back to the Corporation at the
repurchase price. The following table summarizes information on these national
market repurchase agreements, including amount outstanding, maturity date,
interest rate and the optional repurchase date:
12
Optional
Amount Maturity Date Interest Rate Repurchase Date (a)
- -----------------------------------------------------------------------------------------------------------------
$ 25,000 03/13/06 4.98% N/A
25,000 05/03/06 4.70% N/A
10,000 05/07/06 4.66% 05/07/03
25,000 05/22/06 4.75% N/A
- -----------------------------------------------------------------------------------------------------------------
$ 85,000 4.79%
=================================================================================================================
(a) The right to repurchase must be exercised on the optional repurchase date.
NOTE 6. OTHER BORROWINGS
Included in Other borrowings are $506,962 in advances from the Federal Home Loan
Bank ("FHLB") to fund investments, loan programs and to satisfy certain other
funding needs. The Corporation must pledge collateral in the form of
mortgage-backed securities and mortgage loans to secure these advances. At March
31, 2003, the Corporation had sufficient collateral pledged to satisfy the
FHLB's requirements.
FEDERAL HOME LOAN BANK ADVANCES March 31, 2003
- ----------------------------------------------------------------------------
Convertible advances $427,000
Fixed maturity advances 55,000
Amortizing and other advances 24,962
- ----------------------------------------------------------------------------
Total Federal Home Loan Bank advances $506,962
============================================================================
Of these, an aggregate of $427,000 FHLB advances are at a fixed rate that may be
converted at the FHLB's option to a three-month LIBOR based, floating rate
advance. The FHLB may exercise this option effective on the first conversion
date and quarterly thereafter. While the maturity date of these advances will
not change, if any of these advances are converted into floating rate advances,
the Corporation has the option to prepay such converted advances at par value.
The following table summarizes key information relating to these advances,
including amount outstanding, maturity date, interest rate and first conversion
date:
Amount Maturity Date Interest Rate First Conversion Date
- ----------------------------------------------------------------------------------------------------------
$ 25,000 09/26/05 6.00% 09/26/01
25,000 10/05/05 5.95% 10/05/01
25,000 11/30/05 5.65% 02/28/01
25,000 03/01/06 6.28% 09/04/01
25,000 03/03/06 6.37% 09/04/01
30,000 03/29/06 6.44% 10/01/01
15,000 02/02/07 6.50% 02/04/02
5,000 02/14/07 6.60% 02/14/02
10,000 02/14/07 6.60% 02/14/02
10,000 02/14/07 6.60% 02/14/02
30,000 05/05/07 6.65% 05/06/02
25,000 05/14/07 6.65% 11/14/01
25,000 10/15/07 6.00% 10/15/02
25,000 10/29/07 5.85% 10/28/02
25,000 02/05/08 4.63% 08/05/02
2,000 02/25/08 5.60% 02/25/03
25,000 08/16/10 6.10% 08/16/02
25,000 08/23/10 6.10% 08/21/02
25,000 09/08/10 5.93% 09/09/02
25,000 10/27/10 5.98% 10/27/01
25,000 07/28/07 6.50% No longer convertible
30,000 05/01/09 6.63% No longer convertible
- ----------------------------------------------------------------------------------------------------------
$ 482,000 6.15%
==========================================================================================================
Advances totaling $55,000 were not converted following their only conversion
date. These advances have a weighted average fixed rate of 6.57% with final
maturities ranging from 2007 through 2009.
13
NOTE 7. COMMITMENTS AND CONTINGENCIES
The Corporation is party to legal actions that 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.
In the normal course of business, there are additional outstanding commitments
and contingent liabilities that are not reflected in the accompanying
consolidated financial statements. The Corporation uses the same credit policies
in making commitments and conditional obligations as it does for other
instruments.
The commitments and contingent liabilities not reflected in the consolidated
financial statements were $303,203 and $379,207 at March 31, 2003 and December
31, 2002, respectively.
NOTE 8. INTEREST RATE CONTRACTS
During 2001, the Corporation entered into $75,000 notional amount of interest
rate swap agreements to convert a portion of its liabilities from variable rate
to fixed rate to assist in managing its interest rate sensitivity. The interest
rate swaps required the Corporation to pay fixed rates of interest ranging from
4.56% to 4.92% and receive a variable rate based on one-month LIBOR. The swaps
were scheduled to mature on or prior to September 10, 2004. The Corporation
terminated these swaps in the period of June and July 2002. The cost to
terminate these transactions was $1,121, net of tax, and is recorded as a
component of accumulated other comprehensive income. This expense will be
amortized into earnings over the remaining original term of the agreement.
During the second quarter of 2002, the Corporation purchased a $200,000 notional
interest rate floor contract for $195. The interest rate floor was indexed to
one-month LIBOR with a contract strike rate of 2.00% and had a termination date
of May 17, 2004. This transaction was accounted for as a free-standing
derivative with cash flows and changes in market value recorded in current
period earnings. The floor was terminated on October 25, 2002 with a market
value of $920.
During the first quarter of 2003, the Corporation entered into $75,000 notional
amount of interest rate swap contracts to convert a portion of its liabilities
from fixed rate to variable rate as part of its balance sheet management
strategy. The interest rate swaps require the Corporation to pay a variable rate
based on three-month LIBOR and receive a fixed rate of interest ranging from
2.60% to 2.72%. The interest rate swaps expire on or prior to May 22, 2006.
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
obligations under the agreements.
14
NOTE 9. SEGMENT INFORMATION
The Corporation reports only one major line of business, Banking. Banking
services include various types of deposit accounts; safe deposit boxes;
securities safekeeping; consumer, mortgage and commercial loans and leases;
mortgage loan sales and servicing; letters of credit; corporate cash management
services; brokerage and annuity products and services; and complete personal and
corporate trust services; credit cards; selected insurance products; and
correspondent banking. The Other category includes the operating results of the
Parent Company and its non-bank subsidiaries, including Integra Capital Trust I,
Integra Capital Trust II and its property management company, Twenty-One
Southeast Third Corporation. 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.
Three months ended March 31, 2003 Banking Other Eliminations Total
- -----------------------------------------------------------------------------------------------------------------------------------
Interest income $ 36,304 $ 1,101 $ (1,076) $ 36,329
Interest expense 17,826 2,089 (1,076) 18,839
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income (loss) 18,478 (988) - 17,490
Provision for loan losses 1,235 - - 1,235
Non-interest income 7,544 4,639 (4,653) 7,530
Non-interest expense 20,155 230 (14) 20,371
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes $ 4,632 $ 3,421 $ (4,639) $ 3,414
===================================================================================================================================
Other segment information:
Segment assets at March 31, 2003 $ 2,895,705 $ 357,347 $ (351,382) $ 2,901,670
===================================================================================================================================
Three months ended March 31, 2002 Banking Other Eliminations Total
- -----------------------------------------------------------------------------------------------------------------------------------
Interest income $ 43,660 $ 1,358 $ (1,297) $ 43,721
Interest expense 23,715 2,301 (1,297) 24,719
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income (loss) 19,945 (943) - 19,002
Provision for loan losses 650 - - 650
Non-interest income 6,665 6,045 (6,049) 6,661
Non-interest expense 18,511 223 (15) 18,719
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes $ 7,449 $ 4,879 $ (6,034) $ 6,294
===================================================================================================================================
Other segment information:
Segment assets at March 31, 2002 $ 2,902,775 $ 357,024 $ (336,589) $ 2,923,210
===================================================================================================================================
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollar amounts in thousands except for share data)
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 and its subsidiaries (the "Corporation")
as presented in the preceding condensed consolidated financial statements and
related notes. The text of this review is supplemented with various financial
data and statistics.
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. When used in this report, the words "may," "will," "should," "would,"
"anticipate," "estimate," "expect," "plan," "believe," "predict," "potential,"
"intend," and similar expressions are intended to identify forward-looking
statements. 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 reduce and
effectively manage interest rate risk; fluctuations in the value of the
Corporation's investment securities; 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. The Corporation undertakes no obligation to release revisions to
these forward-looking statements or to reflect events or conditions occurring
after the date of this report.
As discussed in our 2002 annual report Integra Bank Corporation continuously
strives to build a better company. There are four primary strategies currently
employed in this endeavor. The first strategy focuses on continuous improvement
of our banking operations or our "core bank". Execution of this strategy will be
evidenced by achieving an acceptable credit risk -- reward tradeoff within the
loan portfolio, acceptable loan and deposit growth trends and pricing,
refinement and enhancement of existing products, the development of new products
to meet our customers evolving needs, and disciplined expense management. The
second strategy focuses on continuous improvement of our balance sheet
management and other financial management functions. Progress will be
demonstrated through net interest margin stability and predictability, and
strong liquidity and capital management. The third strategy focuses on expanding
our product and service distribution into higher growth and/or more diversified
markets than our more traditional markets. Progress may occur through some
combination of de novo branch building, selective acquisitions, and through
developing and enhancing delivery channels that transcend physical limitations.
The fourth strategy focuses on identifying and developing new lines of
businesses or services that provide superior growth characteristics. This
strategy would also include leveraging existing or potential synergies that
exist within our current or potential customer base.
Management monitors and modifies these strategies depending on evolving market
conditions, customer needs or preferences or other considerations.
OVERVIEW
Net income for the quarter ended March 31, 2003 was $3,929 compared to $5,307
for the same period of 2002. Earnings per share, on a diluted basis, were $0.23
for the first quarter of 2003 compared to $0.31 for the first quarter of 2002.
Net interest income was $17,490 for three months ended March 31, 2003 compared
to $19,002 for the three months ended March 31, 2002, a decrease of $1,512, or
8.0%. The net interest margin declined to 2.84% during the first quarter of 2003
from 2.98% during the first quarter of 2002. Net interest income fell because
average earning assets were $112,637 lower and because of the reduced net
interest margin. Yield on earning assets dropped 87 basis points and cost of
funds was 73 basis points lower than the prior year period. The decline in
interest rates was a contributing factor in the reduction in net interest
margin. Loan yields decreased as a result of market rates falling and customer
refinancing activity. The Corporation adjusted its rates to the lower rate
environment resulting in a decrease in deposit rates. Provision for loan losses
was $1,235 for the three months ended March 31, 2003 compared to $650 for the
same period one year ago. Non-interest income increased $869 to $7,530 in the
first quarter 2003 compared to $6,661 for the first quarter of 2002. Non-
interest expense was $20,371 for the first quarter of 2003 compared to $18,719
for the same period of 2002.
Annualized returns on average assets and equity for the three months ended March
31, 2003 were 0.55% and 6.78%, respectively, compared with 0.72% and 9.56% in
the same period of 2002.
CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of the Corporation conform with accounting
principles generally accepted in the United States of America ("GAAP") and
general practices within the financial services industry. The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. These estimates, assumptions, and judgements
are based on information available as of the date of
16
the financial statements; accordingly, as this information changes, the
financial statements could reflect different estimates, assumptions, and
judgements. Certain policies inherently have a greater reliance on the use of
estimates, assumptions, and judgements and as such have a greater possibility of
producing results that could be materially different than originally reported.
The Corporation considers its critical accounting policies to include the
following:
Allowance for Loan Losses: The allowance for loan losses represents management's
best estimate of probable losses inherent in the existing loan portfolio. The
allowance for loan losses is increased by the provision for losses, on losses
charged to expense and reduced by loans charged off, net of recoveries. The
provision for loan losses is determined based on management's assessment of
several factors: 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.
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 measurement of impaired loans is
generally based on the present value of expected future cash flows discounted at
the historical effective interest rate stipulated in the loan agreement, except
that all collateral-dependent loans are measured for impairment based on the
fair value of the collateral, less estimated cost to liquidate. In measuring the
fair value of the collateral, management uses assumptions and methodologies
consistent with those that would be utilized by unrelated third parties.
Changes in the financial condition of individual borrowers, in economic
conditions, in historical loss experience and in the conditions of the various
markets in which the collateral may be liquidated may all affect the required
level of the allowance for loan losses and the associated provision for loan
losses.
Estimation of Fair Value: The estimation of fair value is significant to several
of the Corporation's assets, including loans held for sale, investment
securities available for sale, mortgage servicing rights, other real estate
owned, as well as fair values associated with derivative financial instruments
and goodwill and other intangibles. These are all recorded at either fair value
or the lower of cost or fair value. Fair values are determined based on third
party sources, when available. Furthermore, GAAP requires disclosure of the fair
value of financial instruments as a part of the notes to the consolidated
financial statements. Fair values are volatile and may be influenced by a number
of factors, including market interest rates, prepayment speeds, discount rates
and the shape of yield curves.
Fair values for securities available for sale are based on quoted market prices.
If a quoted market price is not available, fair values are estimated using
quoted market prices for similar securities. The fair values for loans held for
sale are based upon quoted market values while the fair values of mortgage
servicing rights are based on discounted cash flow analysis utilizing dealer
consensus prepayment speeds and market discount rates. The fair values of other
real estate owned are typically determined based on appraisals by third parties,
less estimated costs to sell. The fair values of derivative financial
instruments are estimated based on current market quotes. The fair value of
goodwill is estimated based on the reporting assets or the combined entity.
Goodwill is tested annually for impairment. Intangible assets that have finite
useful lives continue to be amortized over the useful lives.
NET INTEREST INCOME
Net interest income was $17,490 for the three months ended March 31, 2003
compared with $19,002 for the same period in 2002. Average earning assets were
$2,637,948 for the first quarter of 2003 compared to $2,750,585 for the first
quarter of 2002. Average interest-bearing liabilities were $2,423,472 and
$2,551,417 for the three months ended March 31, 2003 and 2002, respectively. The
net interest margin for the three months ended March 31, 2003 was 2.84% compared
to 2.98% for the same period one year ago. The decrease in net interest income
was the result of a reduction in rates and a decrease in earning assets.
Although rates on interest-bearing liabilities decreased by 73 basis points,
rates on earnings assets dropped by 87 basis points resulting in a 14 basis
point decrease of the net interest margin.
Average earning assets decreased $112,637, or 4.1%, from the first quarter of
2002 compared with the first quarter of 2003. Average loans increased $44,041,
or 2.8%; average investment securities decreased $3,513, or 0.3%; other earning
assets decreased $153,166 during the same period. The balance of average loans
to total average assets increased to 56.3% compared to 52.5% during the first
quarter of 2002. The percentage of average earning assets to total average
assets increased slightly from 91.4% to 91.5% for the same period in 2002. The
percentage of average total investments to total average assets fell to 35.2%
this quarter from 39.0% for the same period in 2002.
Average loans were $1,622,599 during the first quarter of 2003 compared to
$1,578,558 during the first quarter of 2002. The growth in loans has primarily
been in home equity and adjustable rate mortgage loans. The significant drop in
interest rates, which began in 2001, increased prepayments in fixed-rate loans
and as mortgage rates continue at 40-year lows, consumers have continued to
refinance residential mortgages. The Corporation offers a broad suite of
mortgage products. Generally, it is the Corporation's intention to retain
adjustable rate mortgages in its loan portfolio and sell fixed rate mortgages in
the secondary market. Loan yields declined 96 basis points to 6.32% for the
first quarter of 2003 compared to 7.28% for the same period in 2002.
17
Average long-term investment securities were $1,000,602 yielding 4.83% for the
first quarter of 2003 compared to $1,004,115 yielding 5.99% for the first
quarter of 2002. The 116 basis point decline in securities yields resulted from
reinvesting cash flows in the current lower interest rate environment and making
a shift in portfolio strategy to invest in securities with shorter duration and
less convexity; both of which, lowered the overall portfolio yield, but provide
for a more stable and predictable return going forward.
Short-term investments declined, as part of the Corporation's liquidity
management plan, utilizing the federal funds and repurchase agreement market
when needed rather than continuously holding short-term investments. Average
short-term investments decreased $153,166 from $167,913 for the first quarter of
2002 to $14,747 for the first quarter of 2003.
Average deposits decreased from $1,893,906 during the first quarter of 2002 to
$1,803,520 during the first quarter of 2003. Non-interest-bearing deposits
decreased $767, or 0.4%, and interest-bearing deposits decreased $89,619, or
5.3%, during this period. The current low interest rate environment and a
marketing effort focused on reducing single product relationships shifted
depositors' preferences to short-term liquid deposit products or annuities as
opposed to long-term certificates of deposit. Average core deposits, defined as
non-interest bearing deposits, interest checking, money market and savings
accounts, increased $8,947, or 1.0%, from $923,989 at March 31, 2002 to $932,936
at March 31, 2003. The cost of deposits decreased to 2.14% during the first
quarter of 2003 from 3.10% during the first quarter of 2002. This decline was
due to the Corporation's continued pricing discipline, the low interest rate
environment and changes in product mix.
Other interest-bearing liabilities consist of repurchase agreements, FHLB
advances, trust preferred securities and other long-term borrowings. The average
balance declined $38,326 or 4.4% from $866,236 during the first quarter of 2002
to $827,910 for the same period of 2003. Repurchase agreements on average were
repriced to lower market rates throughout the first quarter of 2003 causing the
cost of these funds to decrease by 42 basis points.
Three Months Ended
March 31, March 31,
Net Interest Margin Analysis 2003 2002
- ------------------------------------------------------------------------------------------------
Yields (federal-tax-equivalent)
Loans 6.32 % 7.28 %
Securities 4.83 5.99
Other earning assets 4.49 2.08
- ------------------------------------------------------------------------------------------------
Total earning assets 5.75 6.62
Cost of funds
Interest bearing deposits 2.14 3.10
Other interest bearing liabilities 5.11 5.53
Total interest bearing liabilities 3.15 3.93
- ------------------------------------------------------------------------------------------------
Total interest expense to earning assets 2.91 3.64
- ------------------------------------------------------------------------------------------------
Net interest margin 2.84 % 2.98 %
================================================================================================
NON-INTEREST INCOME
Non-interest income for the three months ended March 31, 2003, was $7,530
compared to $6,661 for the first quarter of 2002. This increase is attributable
to an increase in service charges on deposit accounts, other service charges and
fees, mortgage serving income and gain on sale of loans offset by a decrease in
other non-interest income. Service charges on deposits rose $672, or 31.7%,
primarily due to an increase in activity fees on new deposit products and
reduced deposit fee waivers. Other service charges increased $236 due to an
increase in insurance commissions, merchant, credit and debit card fees and
mortgage servicing revenue. This increase was partially offset by a decrease in
fees on letters of credit, official checks and check cashing services.
Trust revenues, based primarily on the market values of assets under management,
totaled $506 for the first quarter of 2003 compared to $523 for the first
quarter of 2002. The market value of assets under management declined from
$389,789 at March 31, 2002 to $341,567 at March 31, 2003 as a result of the
general decline in investment values over the past year.
Gain on sale of loans increased $220, or 67.1%, during the first quarter of 2003
as favorable market interest rates prompted a continued high level of consumer
refinance activity of 1-4 family residential loans. The Corporation sells the
majority of the fixed rate mortgage loans in the secondary market. As the
interest rates stabilize or increase, the Corporation expects mortgage
refinancing activity to slow which could push loan sale revenue lower.
Other non-interest income decreased $244 from $828 for the first quarter of 2002
to $584 for the period ending March 31, 2003. In 2002 the Corporation wrote
covered call option contracts and recorded fee income for the first quarter of
2002 of $402. Effective April
18
30, 2002, the Corporation ceased writing covered call option contracts. Due to
the low interest rate environment, consumers have continued to refinance their
mortgages in record numbers. While the Corporation has experienced an increase
in mortgage loan originations, many of these loans have been sold with mortgage
servicing rights retained. Therefore mortgage servicing rights revenue have
increased $205 compared to the same period in 2002.
Three Months Ended
March 31, Increase
Non-Interest Income 2003 2002 (Decrease)
- -------------------------------------------------------------------------------------------
Service charges on deposit accounts $ 2,789 $ 2,117 $ 672
Other service charges and fees 1,615 1,379 236
Mortgage servicing income 453 248 205
Investment services income 222 295 (73)
Trust income 506 523 (17)
Gain on sale of loans 548 328 220
CSV life insurance income 488 565 (77)
Securities gains 325 378 (53)
Other 584 828 (244)
- -------------------------------------------------------------------------------------------
Total non-interest income $ 7,530 $ 6,661 $ 869
===========================================================================================
NON-INTEREST EXPENSE
Non-interest expense increased by $1,652, or 8.8%, to $20,371 in the first
quarter of 2003 compared to the same period in 2002.
Salaries and employee benefits increased $1,460, or 15.5%, for the three months
ended March 31, 2003 compared to the same period of 2002. This increase was
comprised of higher activity based commissions and incentives, annual salary
adjustments, payroll taxes, and health insurance. Performance-based incentives
and commissions increased $575 to $1,074 during the first quarter of 2003. The
Corporation has initiated performance-based awards tied to sales of fee-based
services and origination of loan and deposit products. Salaries increased $217,
or 2.9%, and payroll taxes increased $159, or 25.5%, from the same period of
2002. In the first quarter of 2003, approximately half of the payroll tax
increase was attributable to a refund received by the Corporation in 2002.
Employee health benefits expense increased $506 as the Corporation adjusted the
claim account for losses and more employees participated in the Corporation's
medical plan.
Occupancy expense increased $217, or 16.3%, compared to the first quarter of
2002. An increase in utilities, maintenance, taxes and depreciation accounted
for $194 of this increase.
Low Income Housing Project ("LIHP") operating losses increased $586 to $722 for
the first quarter of 2003 compared to $136 for the same period of 2002. In the
fourth quarter of 2002 the Corporation increased its investment in a LIHP.
Currently, the Corporation has $19,654 in LIHP investment. An investment grade
third party guarantees the investment's overall return. This operating loss is
more than offset by a tax credit, thus lowering the Corporation's tax liability
and effective tax rate.
The Corporation from time to time segregates loans to sell in the secondary
market. In the fourth quarter of 2001, the Corporation wrote down and designated
$58,571 in loans as available for sale. In the first quarter of 2002 the
Corporation recorded $943 of expenses related to the sale of some of these
loans. In the first quarter of 2003, there was only $1 of loan sale expenses.
Goodwill and certain other intangible assets having indefinite lives are no
longer amortized to earnings, but rather are subject to testing for impairment.
For the first quarter of 2003 the Corporation experienced no impairment. The
Corporation continues to amortize core deposit intangibles.
19
Three Months Ended
March 31, Increase
Non-Interest Expense 2003 2002 (Decrease)
- -------------------------------------------------------------------------------------------
Salaries and employee benefits $ 10,881 $ 9,421 $ 1,460
Occupancy 1,550 1,333 217
Equipment 1,108 1,089 19
Professional fees 1,136 985 151
Communication and transportation 1,042 1,030 12
Marketing 344 454 (110)
Processing 1,209 1,258 (49)
LIHP operating losses 722 136 586
Loans held for sale expense 1 943 (942)
Amortization of intangible assets 405 407 (2)
Other 1,973 1,663 310
- -------------------------------------------------------------------------------------------
Total non-interest expense $ 20,371 $ 18,719 $ 1,652
===========================================================================================
INCOME TAX EXPENSE
Income tax benefit was $515 for the three months ended March 31, 2003 compared
with a $987 expense for the same period in 2002. The effective tax rates were
(15.1%) and 15.7% for the three months ended March 31, 2003 and 2002,
respectively. Income from tax exempt or tax-preferred sources, including
interest on municipal loans and investments, bank-owned life insurance and
dividends on tax-preferred securities increased in terms of percent of total
pretax income to 85.2% in the first three months of 2003 compared to 54.3% in
the first three months of 2002. The Corporation increased its investment in LIHP
during late 2002 which has generated a credit of $819 for the period ending
March 31, 2003 compared to $268 for first quarter 2002.
FINANCIAL POSITION
Total assets at March 31, 2003 were $2,901,670 an increase of $43,932 compared
to $2,857,738 at December 31, 2002. Total assets were $2,923,210 at March 31,
2002.
SECURITIES
Total investment securities available for sale were $1,001,940 on March 31,
2003, $982,263 at December 31, 2002 and $1,019,941 at March 31, 2002. These
securities represent the second largest earning asset component after loans. The
Corporation currently has no investment securities classified as held to
maturity. The market value of the investment securities available for sale on
March 31, 2003 was $18,933 higher than the amortized cost. During the quarter,
the portfolio composition has been managed to reduce prepayment and extension
risks. Inherent in mortgage-backed securities and collateralized mortgage
obligations ("CMO") are prepayment risk, which occurs when borrowers prepay
their obligations. Changes in interest rates contribute to the borrower's
decision as to whether or not to prepay the mortgage. Prepayment rates generally
can be expected to increase during periods of lower interest rates as underlying
mortgages are refinanced at lower rates. The Corporation's management constantly
reviews the composition of the securities portfolio, taking into account market
risks and the interest rate environment.
LOANS
Total loans at March 31, 2003 were $1,644,898 compared to $1,606,155 and
$1,589,111 at December 31, 2002 and March 31, 2002, respectively. Loans secured
by real estate have increased by $22,856, or 2.1%, for the last 12 months.
Consumer loans increased $17,156, or 12.6%, while commercial, industrial and
agricultural loans increased $14,518, or 4.9%, since March 31, 2002. All other
loans increased $3,925 for the twelve month period ending March 31, 2003. Demand
for home equity based loans remains strong.
20
LOAN PORTFOLIO
March 31, December 31, March 31,
2003 2002 2002
- ------------------------------------------------------------------------------------------------------
Real estate loans $ 1,122,274 $ 1,113,404 $ 1,099,418
Commercial, industrial, and
agricultural loans 311,272 310,740 296,754
Economic development loans and
other obligations of state and
political subdivisions 29,519 18,104 31,656
Consumer loans 153,719 147,597 136,563
Leasing 7,149 7,366 7,680
All other loans 20,965 8,944 17,040
- ------------------------------------------------------------------------------------------------------
Total loans $ 1,644,898 $ 1,606,155 $ 1,589,111
======================================================================================================
ASSET QUALITY
The allowance for loan losses is the amount which, in management's opinion, is
adequate to absorb probable incurred loan losses as determined by an ongoing
evaluation of the loan portfolio. The evaluation is based upon consideration of
various factors including growth of the portfolio, changes in portfolio mix,
products, policy and people, 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 current
economic conditions. Loans that are deemed to be uncollectible are charged-off
against the allowance, while recoveries of previously charged-off amounts are
credited to the allowance. A provision for loan losses is expensed to operations
at levels deemed necessary to provide assurance that the allowance for loan
losses is sufficient to absorb probable incurred losses based on management's
evaluation of the loan portfolio. Depending on changes in circumstances, future
assessments of credit risk may yield different results, which may require an
increase or decrease in the allowance for loan losses.
The allowance for loan losses was $24,521 at March 31, 2003, representing 1.49%
of total loans compared with $24,330 at March 31, 2002 which represented 1.53%
of total loans. Annualized net charge-offs to average loans was 0.34% during the
first quarter of 2002 compared to 0.05% for the same period of 2002. The
Corporation recorded a $630 in recoveries for the period ending March 31, 2003
compared to $640 during the same period of 2002. In 2001 the Corporation
segregated a group of loans and identified them as held for sale. These loans
were marked to market in late 2001 and sold in 2002. In the first quarter of
2002 the Corporation completed a portion of this transaction. Therefore the net
loan charged offs in the first quarter of 2002 were low because of the
segregation of loans as held for sale in the previous quarter. The Corporation,
however, incurred non-interest expense of $943 which offset the benefit of
temporarily lower net charge offs related to the loan sale in the first quarter
of 2002. During the same period of 2003, the provision for loan losses was
$1,235 compared to $650 during the three months ended March 31, 2002. The
allowance for loan losses to non-performing loans was 119.45% at March 31, 2003
compared to 110.08% at December 31, 2002 and 124.76% at March 31, 2002.
SUMMARY OF ALLOWANCE FOR LOAN LOSSES
Three Months Ended
March 31,
2003 2002
- -------------------------------------------------------------------------------------------------------
Beginning balance $ 24,632 $ 23,868
Loans charged off (1,976) (828)
Recoveries 630 640
Provision for loan losses 1,235 650
- -------------------------------------------------------------------------------------------------------
Ending balance $ 24,521 $ 24,330
=======================================================================================================
Percent of total loans 1.49% 1.53%
=======================================================================================================
Annualized % of average loans:
Net charge-offs 0.34% 0.05%
Provision for loan losses 0.31% 0.16%
As of March 31, 2003 total non-performing loans were $20,529 which is $1,848
lower than the level at December 31, 2002 and $1,028 higher than at March 31,
2002. Non-performing loans, consisting of nonaccrual, restructured and 90 days
or more past due loans, were 1.25%, 1.39% and 1.23% of total loans at March 31,
2003, December 31, 2002 and March 31, 2002, respectively. Management believes
that the improvement in the non-performing loan to total loan ratio is due to
better management of problem loans. A
21
municipal obligation with an approximate value of $3,000 is in default.
Management expects to realize a full recovery after the courts resolve a rate
issue currently on appeal.
Listed below is a comparison of non-performing assets.
March 31, December 31, March 31,
2003 2002 2002
- ------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans $18,806 $20,010 $17,355
90 days or more past due loans 1,723 2,367 2,146
- ------------------------------------------------------------------------------------------------------------------------
Total non-performing loans 20,529 22,377 19,501
Other real estate owned 2,132 2,286 2,965
Investment securities 2,396 2,536 -
- ------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $25,057 $27,199 $22,466
========================================================================================================================
Ratios:
Non-performing Loans to Loans 1.25% 1.39% 1.23%
Non-performing Loans to Loans and Other Real Estate Owned 1.52% 1.69% 1.41%
Allowance for Loan Losses to Non-performing Loans 119.45% 110.08% 124.76%
DEPOSITS
Total deposits were $1,799,321 at March 31, 2003, compared to $1,781,948 and
$1,828,170 at December 31, 2002 and March 31, 2002, respectively. Total core
deposits, including non-interest, interest bearing, money market and savings
deposits, increased $22,108 to $937,860 at March 31, 2003 from $915,752 on March
2002 and $1,969 from $935,891 at December 31, 2002. During the current low rate
environment, customer preferences have shifted to shorter term, liquid deposit
products and to deposit alternatives, including annuities. Time deposits greater
than $100 have increased $24,142, or 10.1%, since December 31, 2002 while other
time deposits decreased $8,738, or 1.4%, for this same period. From March 31,
2002 time deposits greater than $100 or more increased $41,107, or 18.5%, and
other time deposits decreased $92,064, or 13.3%, by March 31, 2003.
March 31, December 31, March 31,
Deposits 2003 2002 2002
- ------------------------------------------------------------------------------------------------------------
Non-interest-bearing demand $215,603 $213,405 $204,056
Interest-bearing demand 404,277 436,268 361,654
Money market 184,854 156,910 218,461
Savings 133,126 129,308 131,581
Time deposits of $100 or more 263,385 239,243 222,278
Other time deposits 598,076 606,814 690,140
- ------------------------------------------------------------------------------------------------------------
Total deposits $1,799,321 $1,781,948 $1,828,170
============================================================================================================
BORROWINGS
Federal funds purchased and securities sold under repurchase agreements totaled
$266,871 at March 31, 2003 compared to $161,784 and $239,920 at December 31,
2002 and March 31, 2002, respectively. Of these, $181,617 have remaining
maturities of less than one year, while $85,254 have maturities greater than one
year. Securities sold under repurchase agreements are collateralized
transactions acquired in national markets as well as from the Corporation's
commercial customers as part of a cash management service. The long-term
repurchase agreements have a weighted average interest rate of 4.79%. A total of
$10,000 of the long-term repurchase agreements have an option for the holder to
put the collateral back to the Corporation at the repurchase price in May 2003.
If the holder exercises this option, the Corporation has sufficient liquidity to
repurchase the collateral.
Other borrowings totaled $531,055 at March 31, 2003 compared to $536,042 and
$560,644 at December 31, 2002 and March 31, 2002, respectively. Other borrowings
generally provide longer term funding and include FHLB advances and term notes
from other financial institutions. Included in other borrowings is $506,962 in
FHLB advances to fund investments, loans and to satisfy other funding needs. The
Corporation must pledge collateral in the form of mortgage-backed securities and
mortgage loans to secure these advances. At March 31, 2003, the Corporation had
sufficient collateral pledged to satisfy the requirements associated with these
borrowings. An aggregate of $427,000 of the FHLB advances may be converted at
the sole option of the FHLB, from fixed rate advances to 3-month LIBOR based
floating rate advances starting on the first conversion date and quarterly
thereafter. Any conversion would not change the maturity date of these advances.
If any of these advances are converted into floating rate advances,
22
the Corporation has the option to prepay any of such converted advances at par
value. These advances carry a weighted average interest rate of 6.10% with final
maturities occurring from 2005 through 2010. In addition, advances totaling
$55,000 were not converted following their only conversion date. These advances
carry a weighted average interest rate of 6.57% with final maturities in 2007
and in 2009.
The Corporation has an unsecured line of credit available which permits it to
borrow up to $7,500. At March 31, 2003 the Corporation had $1,500 available for
future use. The Corporation repaid the balance during April 2003 and currently
has $7,500 available for future use.
Management continuously reviews the Corporation's liability composition and may
modify it over the next several quarters. Those modifications could adversely
affect the profitability and capital levels of the Corporation over the near
term, but would be undertaken if management determines that restructuring the
balance sheet will improve the Corporation's interest rate risk and liquidity
risk profile subject to the impact on earnings and capital.
TRUST PREFERRED SECURITIES AND OTHER SUBORDINATED DEBT
On July 16, 2001, the Corporation issued $18,000 of Floating Rate Capital
Securities as a participant in a Pooled Trust Preferred Fund through a
subsidiary, Integra Capital Trust II. The Corporation has the right to call
these securities at par effective July 16, 2011.
On March 30, 1998, the Corporation issued through a subsidiary, Integra Capital
Trust I, $34,500 of 8.25% Cumulative Trust Preferred Securities which will
mature on March 31, 2028. The Corporation has the right to call these securities
at par. Management anticipates that it is possible that some or all of these may
be called in the future.
On April 10, 2003, the Corporation issued $10,000 of subordinated debt with a
variable rate equal to 3-month LIBOR plus 3.20% payable quarterly which will
mature on April 10, 2013. Issuance costs of $331 were paid by the Corporation
and are being amortized over the life of the securities.
OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS
AS OF MARCH 31, 2003 LESS THAN 1 TO 3 3 TO 5 AFTER 5
TOTAL ONE YEAR YEARS YEARS YEARS
-------------- -------------- ------------ ------------- -------------
CONTRACTUAL ON BALANCE SHEET OBLIGATIONS
Long-term debt $ 610,055 $ 14,510 $ 190,861 $ 263,642 $ 141,042
Guaranteed preferred beneficial interests
in the Corporations subordinated debentures 52,500 - - - 52,500
Operating leases 9,084 1,725 1,781 1,310 4,268
-------------- -------------- ------------ ------------- -------------
Total contractual cash obligations $ 671,639 $ 16,235 $ 192,642 $ 264,952 $ 197,810
============== ============== ============ ============= =============
OFF BALANCE SHEET OBLIGATIONS
Lines of credit 212,105 90,100 5,371 2,114 114,520
Commitments to fund low income housing
developments 600 600 - - -
Standby letters of credit 7,764 7,529 85 - 150
Other commitments 71,241 53,835 9,570 1,605 6,231
-------------- -------------- ------------ ------------- -------------
Total other commitments $ 291,710 $152,064 $ 15,026 $ 3,719 $ 120,901
============== ============== ============ ============= =============
Commitments to extend credit are primarily loan commitments, which assure a
borrower of financing for a specified period of time at a specified rate. An
approved but unfunded loan commitment represents a potential credit risk once
the funds are advanced to the customer.
Standby letters of credit are bank-issued conditional guarantees of payment.
Standby letters of credit are often used to support many types of domestic and
international payment and performance instruments such as bid bonds, performance
bonds, lease obligations, or repayment of loans.
23
CAPITAL RESOURCES AND LIQUIDITY
The Corporation and the Bank have capital ratios that substantially exceed all
regulatory requirements, including the regulatory guidelines for
"well-capitalized" that apply to the Bank. It is management's intent for the
Bank to remain well capitalized at all times. The regulatory capital ratios for
Integra Bank Corporation and the Bank are shown below.
Regulatory Guidelines
-------------------------------
Minimum Well- March 31, December 31, March 31,
Requirements Capitalized 2003 2002 2002
- -------------------------------------------------------------------------------------------------------------------------------
Integra Bank Corporation:
Total Capital (to Risk-Weighted Assets) 8.00% 13.14% 13.16% 13.35%
Tier 1 Capital (to Risk-Weighted Assets) 4.00% 11.89% 11.90% 12.10%
Tier 1 Capital (to Average Assets) 4.00% 7.87% 7.94% 7.37%
Integra Bank N.A.:
Total Capital (to Risk-Weighted Assets) 8.00% 10.00% 12.75% 12.52% 11.89%
Tier 1 Capital (to Risk-Weighted Assets) 4.00% 6.00% 11.50% 11.27% 10.64%
Tier 1 Capital (to Average Assets) 4.00% 5.00% 7.60% 7.52% 6.48%
Liquidity of a banking institution reflects the ability to provide funds to meet
loan requests, to accommodate possible outflows in deposits and other
borrowings, and to take advantage of interest rate market opportunities. The
Corporation continuously analyzes its current and prospective business activity
in order to match maturities of specific categories of short-term and long-term
loans and investments with specific types of deposits and borrowings.
For the Bank, the primary sources of short-term liquidity are federal funds
sold, commercial paper, interest-bearing deposits and readily marketable and
unencumbered investment securities that can be sold or pledged to a repurchase
agreement. In addition liquidity is provided by loan and investment cash flows.
The balance between these sources and demands on liquidity is monitored under
the Corporation's asset/liability management program. When these sources are not
adequate, the Bank may purchase federal funds, solicit brokered deposits, access
the capital markets, or use its FHLB lines as alternative sources of liquidity.
During the first quarter of 2003, the Bank made a decision to hold fewer
short-term investments as part of its overall liquidity management strategy. At
March 31, 2003 short-term investments were $39 compared to $45,374 for March 31,
2002.
Liquidity for the Corporation is provided by dividends from the Bank, cash
balances, credit line availability, liquid assets and proceeds from capital
market transactions. Applicable laws and regulations limit the dividend amount
which commercial banks may pay. The dividend amount that could be paid is
further restricted by management to maintain prudent capital levels. As of March
31, 2003, the Bank could not pay any dividends to the Corporation without prior
regulatory approval. Based upon its current analysis, management believes that
prior regulatory approval of dividends will be required through the third
quarter of 2003. The Corporation has an unsecured line of credit available which
permits it to borrow up to $7,500. At March 31, 2003 the Corporation had $1,500
available for future use. During April 2003, the Corporation repaid the amount
outstanding and currently has $7,500 available for future use. On April 10,
2003, the Corporation issued $10,000 of subordinated debt which will mature on
April 10, 2013. Management believes that the Corporation has adequate liquidity
to meet its foreseeable needs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk is the exposure of earnings and capital to changes in
interest rates. Fluctuations in rates affect earnings by changing net interest
income and other interest-sensitive income and expense levels. Interest rate
changes affect capital by altering the underlying value of assets, liabilities
and off balance sheet instruments. The interest rate risk management program for
the Corporation is comprised of several components. The components include (1)
Board of Directors' oversight, (2) senior management's oversight, (3) risk
limits and control, (4) risk identification and measurement, (5) risk monitoring
and reporting and (6) independent review. It is the objective of our interest
rate risk management processes to manage the impact of interest rate volatility
on earnings and capital.
At the Corporation, interest rate risk is managed by senior management through
the Corporate Asset and Liability Committee ("Corporate ALCO") with oversight by
the Board ALCO and Finance Committee ("Board ALCO"). Board ALCO meets monthly
and is responsible for the establishment of policies, risk limits and
authorization levels. Corporate ALCO meets each month and is responsible for
implementing policies and procedures that translate these goals, objectives, and
risk limits into operating standards, overseeing the entire interest rate risk
management process and establishing internal controls.
24
Interest rate risk is measured and monitored on a proactive basis by utilizing a
simulation model. The Corporation uses several key methodologies to measure
interest rate risk.
EARNINGS AT RISK (EAR). Management considers EAR to be the best method of
measuring short-term interest rate risk (one year time frame). This measure
reflects the dollar amount of net interest income that will be impacted by
changes in interest rates. The Corporation uses a simulation model to run
immediate and parallel changes in interest rates from a "Base" scenario using
implied forward interest rates. The standard simulation analysis assesses the
impact on net interest income over a 24-month horizon by shocking the implied
forward yield curve up and down 100, 200, and 300 basis points. Additional yield
curve scenarios are tested from time to time to assess the risk to changes in
the slope of the yield curve and changes in basis relationships. These interest
rate scenarios are executed against a balance sheet utilizing projected growth
and composition. Additional simulations are run from time to time to assess the
risk to earnings and liquidity from balance sheet growth occurring faster or
slower than anticipated as well as the impact of faster or slower prepayments in
the loan and securities portfolio. This simulation model projects the net
interest income forecasted under each scenario and calculates the percentage
change from the "Base" interest rate scenario. Board ALCO has approved policy
limits for changes in one year EAR from the "Base" interest rate scenario of
minus 10 percent to a 200 basis point rate shock in either direction. At March
31, 2003, the Corporation would experience a negative 9.34% change in EAR, if
interest rates moved downward 200 basis points. If interest rates moved upward
200 basis points, the Corporation would experience a positive 3.32% change in
net interest income. Both simulation results are within the policy limits
established by Board ALCO. Prior to December 2002, the Corporation used the
simulation model to calculate these changes assuming that rates and balance
sheet composition remain unchanged.
Trends in Earnings at Risk
Estimated Change in EAR from the Flat Interest Rate Scenario
---------------------------------------------------------------------
-200 basis points +200 basis points
- ------------------------------------------------------------------------------------------------------------
March 31, 2003 -9.34% 3.32%
- ------------------------------------------------------------------------------------------------------------
December 31, 2002 -7.96% 5.82%
- ------------------------------------------------------------------------------------------------------------
September 30, 2002 -4.09% 2.30%
- ------------------------------------------------------------------------------------------------------------
ECONOMIC VALUE OF EQUITY (EVE). Management considers EVE at risk to be its best
analytical tool for measuring long-term interest rate risk. This measure
reflects the dollar amount of net equity that will be impacted by changes in
interest rates. The Corporation uses a simulation model to run immediate and
parallel changes in interest rates ranging from a "Base" scenario using implied
forward rates. The standard simulation analysis assesses the impact on EVE by
shocking the implied forward yield curve up and down 100, 200 and 300 basis
points. Additional yield curve scenarios are tested from time to time to assess
the EVE risk to changes in the slope of the yield curve. This simulation model
projects the estimated economic value of assets and liabilities under each
scenario. The difference between the economic value of total assets and the
economic value of total liabilities is referred to as the economic value of
equity. The simulation model calculates the percentage change from the "Base"
interest rate scenario.
Board ALCO has approved policy limits for changes in EVE. The variance limit for
EVE is measured in an environment in which the "Base" interest rate scenario is
shocked up or down 200 basis points. The Corporation uses a graduated monitoring
system in determining the appropriate course of action for a given level of
risk.
The current EVE at risk policy allows Corporate ALCO to manage EVE risk to a 200
basis point rate shock within a range of plus or minus 15%. If EVE risk to a 200
basis point rate shock is greater than 15%, but less than 20%, management must
present an explanation of reasons and causes of the variance and present
alternative strategies or actions to reduce risk exposure to acceptable levels
over time. If EVE risk to a 200 basis point rate shock is greater than 20%,
management must bring Board ALCO recommendations on specific actions to reduce
the risk exposure to below 20% by a specific date. Upon review and approval by
Board ALCO the action plan is implemented. Subsequent risk measurement will
assess the effectiveness of the action plan and report to Board and Corporate
ALCO significant deviations in updated risk measures compared to the action
plan's anticipated results.
At March 31, 2003, the Corporation would experience a negative 6.21% change in
EVE if interest rates moved downward 200 basis points. If interest rates moved
upward 200 basis points, the Corporation would experience a negative 8.27%
change in EVE. Both of these measures are within Board approved policy limits.
The impact of a 200 basis point rate increase on EVE has decreased in 2003
largely due to the balance sheet restructuring activities. Prior to December
2002, the Corporation used the simulation model to calculate these changes
assuming that rates remain unchanged.
25
Trends in Economic Value of Equity
Estimated Change in EVE from the Base Interest Rate Scenario
--------------------------------------------------------------------
-200 basis points +200 basis points
- -----------------------------------------------------------------------------------------------------------
March 31, 2003 -6.21% -8.27%
- -----------------------------------------------------------------------------------------------------------
December 31, 2002 -2.69% -12.35%
- -----------------------------------------------------------------------------------------------------------
September 30, 2002 -9.44% -13.76%
- -----------------------------------------------------------------------------------------------------------
The assumptions in any of these simulation runs are inherently uncertain, and
any simulation cannot precisely estimate net interest income or economic value
of the assets and liabilities or predict the impact of higher or lower interest
rates on net interest income or on the economic value of the assets and
liabilities. Actual results will differ from simulated results due to the
timing, magnitude and frequency of interest-rate changes, the difference between
actual experience and the characteristics assumed, as well as changes in market
conditions and management strategies.
ITEM 4: CONTROLS AND PROCEDURES
Based on an evaluation of the Corporation's disclosure controls and procedures
(as defined in Sections 240.13a-14(c) and 240.15b-14(c)) as of May 1, 2003, the
Corporation's principal executive officer and principal financial officer have
concluded that such disclosure controls and procedures were effective as of that
date.
There have been no significant changes in the Corporation's internal controls
and other factors that could significantly affect these controls subsequent to
May 1, 2003, including any corrective actions with regard to significant
deficiencies and material weaknesses.
26
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are parties to legal actions that 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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following documents are filed as exhibits to this report:
10.1 Integra Bank Corporation 2003 Stock Option and Incentive Plan
(incorporated by reference to Exhibit B to the Registrant's Proxy
Statement filed with the Commission on March 20, 2003).
99.1 Certification pursuant to 18 U.S.C. Section 1350 of the Chief
Executive Officer, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350 by the Chief
Financial Officer, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
None
27
SIGNATURES
Pursuant to the requirements 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.
INTEGRA BANK CORPORATION
By /s/ Michael T. Vea
------------------
Chairman of the Board, Chief
Executive Officer and President
May 13, 2003
/s/ Charles A. Caswell
----------------------
Executive Vice President and
Chief Financial Officer
May 13, 2003
28
CERTIFICATIONS
I, Michael T. Vea, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Integra Bank
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 13, 2003 /s/ Michael T. Vea
------------------
Michael T. Vea, Chairman of the Board, Chief
Executive Officer and President
29
CERTIFICATIONS
I, Charles A. Caswell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Integra Bank
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 13, 2003 /s/ Charles A. Caswell
----------------------
Charles A. Caswell,
Executive Vice President
and Chief Financial Officer
30