INTEGRA BANK CORP - 10-Q Quarterly Report

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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 September 30, 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 (IRS Employee Identification No.)
incorporation or organization)

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.

INTEGRA BANK CORPORATION

INDEX

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)

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)

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)

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)

The accompanying notes are an integral part of the consolidated financial
statements.

6

INTEGRA BANK CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except for per share data)

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)

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)

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 certain subsidiaries (the
"Company"). At September 30, 2003, the Company's subsidiaries included in the
consolidated financial statements consisted of a commercial bank, Integra Bank
N.A. (the "Bank"), a reinsurance company, and a statutory business trust that
has issued mandatory redeemable preferred capital securities (trust preferred
securities) which are unconditionally guaranteed by the Company. In May 2003,
the Company merged its property management company into the parent company and
also formed a reinsurance company. 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 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 of the Company beginning July 1,
2003. SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, was issued in May 2003. This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. On October 9, 2003 the FASB delayed full implementation of FIN 46 until
the end of the first interim or annual period ending after December 15, 2003. If
a variable interest entity was created after January 31, 2003, FIN 46 treatment
will apply for that entity. As of July 1, 2003 the Company adopted FIN 46 and
SFAS 150 for Integra Statutory Capital Trust III, the statutory business trust
it created in June, 2003 to issue additional trust preferred securities that
were used to redeem an earlier issue of trust preferred securities. As a result
of FIN 46 and SFAS 150 the June 2003 trust preferred securities are treated as
debt in the September 30, 2003 financials. Earlier periods will have the
statutory business trust that issued the trust preferred securities redeemed on
June 2003 included in the consolidated financial statements. 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 presentation 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 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 Company's financial statements
and notes for the year ended December 31, 2002 included in the Company'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 market 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 on an elective basis. The Company is
currently assessing its possible 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 market 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.

10

NOTE 2. EARNINGS PER SHARE

The calculation of earnings per share is summarized as follows:

On September 30, 2003, there were vested options outstanding to purchase up to
555 shares of the Company's common stock. The exercise price of all the vested
options except for 38 shares exceeded the stock's closing price as of September
30, 2003.

NOTE 3. SECURITIES

All investment securities are held as available for sale. Amortized cost and
market value of securities classified as available for sale as of September 30,
2003 and December 31, 2002 are as follows:

The amortized cost and market value of the securities as of September 30, 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 because certain securities may be called or prepaid in
part or in whole without penalties.

Maturity of securities available for sale:

Note: The yield is calculated on a federal-tax-equivalent basis.

At September 30, 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 $618,910 and $539,775, respectively.

NOTE 4. INTANGIBLE ASSETS

Intangible assets at September 30, 2003 were:

All of the intangible assets relate to the banking operating segment.

NOTE 5. SHORT-TERM BORROWINGS

Short-term borrowings include Federal funds purchased, Federal Home Loan Bank
("FHLB") advances, and securities sold under repurchase agreements with
remaining maturities of less than one year, short-term bank lines and other
short-term borrowing facilities. On September 30, 2003, the Company had
short-term borrowings totalling $288,833.

12

NOTE 6. LONG-TERM BORROWINGS

Long-term borrowings totaled $620,895 at September 30, 2003. Included in
long-term borrowings are $481,768 in FHLB advances, with remaining maturities of
over one year, to fund investments, loan programs and to satisfy certain other
funding needs. The Bank at September 30, 2003 had pledged collateral in the form
of mortgage-backed securities and mortgage loans to secure these advances and
satisfy collateral requirements. The following table summarizes the FHLB
advances with remaining maturities of over one year:

An aggregate of $412,000 of these are advances that may be converted at the
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. While
the maturity date of these advances will not change, if any of these advances
are converted into floating rate advances, the Bank 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 conversion date:

Also included in long-term borrowings are $85,000 in repurchase agreements with
remaining maturities of longer than one year. The Bank borrows these funds under
a master repurchase agreement. The following table summarizes information on
these repurchase agreements, including amount outstanding, maturity date and
interest rate:

13

Long-term borrowings also include $10,000 of subordinated debt which matures on
April 24, 2013.

During the second quarter of 2003, the Company issued $35,568 of Floating Rate
Capital Securities as a participant in a Pooled Trust Preferred Fund through
Integra Capital Statutory Trust III. The issue matures on June 26, 2033. The
Company has the right to call these securities at par effective June 25, 2008.
The funds were used to redeem $34,500 of trust preferred securities which had a
fixed rate of 8.25%.

On July 16, 2001, the Company issued $18,000 of Floating Rate Capital Securities
as a participant in a Pooled Trust Preferred Fund through Integra Capital Trust
II. The issue matures on July 25, 2031. The Company has the right to call these
securities at par effective July 16, 2011.

NOTE 7. COMMITMENTS AND CONTINGENCIES

The Company 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 Company.

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 Company uses the same credit policies in
making commitments and conditional obligations as it does for other related
instruments.

The commitments and contingent liabilities not reflected in the consolidated
financial statements were $273,507 and $379,207 at September 30, 2003 and
December 31, 2002, respectively.

NOTE 8. INTEREST RATE CONTRACTS

During 2001, the Company 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 Company 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 Company
terminated these swaps in the period of June and July 2002. The cost, net of
tax, to terminate these transactions was $1,121. This cost is recorded as a
component of accumulated other comprehensive income and will be amortized over
the remaining original term of the agreement. As of September 30, 2003, the
remaining balance in accumulated other comprehensive income was $322.

During the second quarter of 2002, the Company 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 freestanding 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 Company entered into $75,000 notional
amount of interest rate swap contracts to convert a portion of its long-term
repurchase agreements from fixed rate to variable rate as part of its balance
sheet management strategy. The interest rate swaps require the Company 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.

14

NOTE 9. SEGMENT INFORMATION

The Company operates one reporting line of business: Banking. Banking services
include various types of deposit accounts; safe deposit boxes; safekeeping of
securities; automated teller machines; consumer, mortgage and commercial loans;
mortgage loan sales and servicing; letters of credit; corporate cash management
services; brokerage and annuity products and services; and complete personal and
corporate trust services. Other includes the operating results of the Parent
Company and its non-bank subsidiaries, including, Integra Reinsurance Company
LTD (formed in May 2003), and its property management company, Twenty-One
Southeast Third Corporation (merged into the parent company in May 2003). The
Company 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.

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 "Company") 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
Company'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
Company 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 risk adjusted rate of return 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. Progress may occur through some combination of de novo banking center
building, selective acquisitions or sales, 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 or profitability characteristics. This strategy would
also include optimizing 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 and other considerations.

OVERVIEW

Net income for the quarter ended September 30, 2003 was $4,654 compared to
$4,915 for the same period of 2002. Earnings per share, on a diluted basis, were
$0.27 for the third quarter of 2003 compared to $0.28 in 2002.

Net income for the nine months ended September 30, 2003 was $12,896 compared to
$16,359 for the same period of 2002. Earnings per share, on a diluted basis,
were $0.75 for the first nine months of 2003 compared to $0.95 in 2002.

Annualized returns on average assets and equity for the three months ended
September 30, 2003 were 0.62% and 7.88%, respectively, compared with 0.68% and
8.29% in the same period of 2002.

Net interest income was $18,413 during the three months ended September 30, 2003
compared to $17,516 for the three months ended September 30, 2002, representing
an increase of 5.1%. Loan growth and improved net interest margin were the
primary drivers for the increase. The net interest margin increased 5 basis
points to 2.87% during the third quarter of 2003 from 2.82% during the third
quarter of 2002 as a result of improvements in product pricing discipline and
balance sheet management. Provision for loan losses was $1,110 for the three
months ended September 30, 2003 compared to $930 for the same period one year
ago. Non-interest income decreased $4,525 to $8,582 compared to the third
quarter of 2002, primarily due to lower gains from securities sales.
Non-interest expense decreased $2,852 to $21,090 from the same period in 2002
due to lower costs from debt extinguishment and loan sales.

16

On a year-to-date basis, net interest income was $53,394 for the nine-month
period ending September 30, 2003, a decrease of $3,005, or 5.3%, compared to
$56,399 for the first nine months of 2002. The net interest margin was 2.82%
during the first nine months of 2003 compared to 2.99% during the first nine
months of 2002. Provision for loan losses was $3,945 for the nine months ended
September 30, 2003 compared to $1,760 for the same period one year ago.
Non-interest income decreased $1,419, or 5.4%, to $24,999 compared to the first
nine months of 2002. Non-interest expenses increased $1,134 to $62,439 for the
same period.

Annualized returns on average assets and equity for the first nine months of
2003 were 0.59% and 7.31%, respectively, compared with 0.75% and 9.57%,
respectively in the same period of 2002.

During the third quarter, the Company sold $17,431 municipal securities
resulting in a gain of $1,233 and prepaid $15,000 in FHLB borrowing incurring a
prepayment charge of $1,243.

Total assets at September 30, 2003 grew $122,623 to $2,983,401 from $2,860,778
at September 30, 2002.

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company 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 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 Company 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 Company 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
market value of the collateral, less estimated cost to liquidate. In measuring
the market 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, economic conditions,
historical loss experience and the conditions of the various markets in which
the collateral may be liquidated affect the required level of the allowance for
loan losses and the associated provision for loan losses.

Estimation of Market Value: The estimation of market value is significant to
several of the Company's assets, including loans held for sale, investment
securities available for sale, mortgage servicing rights, other real estate
owned, as well as market values associated with derivative financial instruments
and goodwill and other intangibles. These are all recorded at either market
value or the lower of cost or market value. Market values are determined based
on third party sources, when available. Furthermore, GAAP requires disclosure of
the market value of financial instruments as a part of the notes to the
consolidated financial statements. Market 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.

Market values for securities available for sale are based on quoted market
prices, when available. If a quoted market price is not available, market values
are estimated using quoted market prices for similar securities provided by
third parties. The market values for loans held for sale are based upon quoted
market values, when available, or values were provided by a third party. The
market values of mortgage servicing rights are based on discounted cash flow
analysis utilizing dealer consensus prepayment speeds and market discount rates.
The market values of other real estate owned are typically determined based on
appraisals by third parties, less estimated costs to sell. The market values of
derivative financial instruments are estimated based on current market quotes.
The market value of goodwill is estimated based on the reporting assets of the
combined entity. Goodwill is tested annually for impairment. Intangible assets
other than goodwill that have finite useful lives continue to be amortized over
the useful lives.

17

NET INTEREST INCOME

Net interest income was $18,413 for the three months ended September 30, 2003
compared with $17,516 for the same period in 2002. Loan growth, pricing
discipline and improved balance sheet management were the drivers of the
improvement. On a year-to-date basis; however, net interest income was $53,394
for the nine months ended September 30, 2003, or $3,005 lower than the same
period in 2002. The net interest margin for the three months ended September 30,
2003 was 2.87% compared to 2.82% for the same period one year ago. The net
interest margin for the nine months ended September 30, 2003 was 2.82% compared
to 2.99% for the same period one year ago. The decline in both the year-to-date
net interest income and margin is largely attributable to the Company's asset
sensitive interest rate risk position throughout most of 2002.

Average earning assets were $2,725,582 for the third quarter of 2003 compared to
$2,615,567 for the third quarter of 2002 an increase of $110,015. Larger loan
balances offset reductions in portfolio and short-term investments. Yields on
earning assets decreased from 6.18% to 5.37% for the same period, reflecting
lower interest rates throughout most of the period. Average earning assets
increased $8,414 from $2,681,801 for the first nine months of 2002 to $2,690,215
for the first nine months of 2003.

Average loan balances were $1,690,072 during the third quarter of 2003 compared
to $1,600,694 during the third quarter of 2002. All loan categories had
increases for the third quarter of 2003 compared to the same period for 2002:
Commercial loans increased $9,065 to $913,073, Consumer loans increased $44,629
to $364,194, and Mortgage loans increased $35,684 to $412,805. Total interest
income on loans decreased $2,399 during the third quarter of 2003 compared to
2002 as the decline in loan yields more than offset the impact of greater
volume. The yield on loans was 5.93% for the third quarter of 2003 compared to
6.90% for the same period of 2002. This was a result of customers refinancing
higher yielding loans to obtain lower rates, loan yields tied to floating rate
indices falling, and maturing loans repricing at lower rates. Average loans were
$1,662,395 during the first nine months of 2003 compared to $1,591,950 during
the first nine months of 2002, an increase of $70,445 or 4.4%. Consumer loan and
mortgage loan average balances grew $43,466 and $28,746, respectively, for the
nine months of 2003 compared to the same period of 2002, while commercial loans,
on average, decreased $1,767 for the same periods. The yield on loans was 6.12%
for the first nine months of 2003 compared to 7.11% for the same period of 2002.

Average investment securities were $1,019,522 during the third quarter of 2003
compared to $940,813 during the third quarter of 2002. This includes a market
value adjustment of $14,941 and $19,868, respectively, for each quarter. The
yield on securities declined to 4.43% during the third quarter of 2003 from
5.23% during the same period in 2002. The Company sold $17.4 million in
municipal securities during the third quarter of 2003, which generated a gain of
$1,233. Average investment securities increased $24,528, or 2.5%, to $1,013,588
during the first nine months of 2003 compared to $989,060 during the first nine
months of 2002. The yield on securities declined to 4.62% during the first nine
months of 2003 from 5.78% during the first nine months of 2002.

As the Company has strengthened its liquidity, the need to hold short-term
investments for that purpose was reduced, allowing the Company to reduce its
short-term investments. Other earning assets decreased $58,072 during the third
quarter of 2003 compared to the same period of 2002. The decline in other
earning assets resulted primarily from a $58,376 reduction in short term
investments. Other earning assets were $86,559 lower during the first nine
months of 2003 compared to the same period of 2002. This decline resulted
primarily from a $64,266 reduction in short-term investments and a $22,293
reduction in loans held for sale.

Average interest-bearing liabilities were $2,511,124 and $2,390,100 for the
three months ended September 30, 2003 and 2002, respectively, an increase of
$121,024; while the cost of these funds decreased from 3.68% to 2.70% for the
same period. The greater balances are due to success in growing transaction
deposits augmented by additional funding from third party sources. Average
interest-bearing liabilities were $2,474,038 and $2,467,495 for the nine months
ended September 30, 2003 and 2002, respectively.

Average interest-bearing deposits increased $44,794 from $1,558,907 to
$1,603,701 while average non-interest-bearing demand deposits increased $13,867,
or 6.7%, from $207,003 to $220,870 for the third quarter of 2003 compared to the
same period in 2002. As higher rate promotional certificates of deposit matured
in 2002, the Company offered many single service CD customers an opportunity to
move their deposits into money market, interest checking and savings accounts
along with various annuity products. The declining rate environment and change
in deposit product mix resulted in the cost of deposits decreasing from 2.67% to
1.74% for the third quarter of 2003 compared to the third quarter of 2002.
Average interest-bearing deposits were $1,600,334 during the first nine months
of 2003 compared to $1,615,178 during the first nine months of 2002.
Non-interest-bearing deposits increased $8,407, or 4.1%, while interest-bearing
deposits decreased $14,844, or 0.9%, during this period. The cost of deposits
decreased to 1.95% during the first nine months of 2003 from 2.87% during the
first nine months of 2002.

Average short-term borrowings increased $159,624 from $95,650 to $255,274 for
the third quarter of 2003 compared to the same period in 2002. The increase
reflects funding to support loan growth and an effort to reduce certain
long-term liabilities offset, in part, by deposit growth. The cost of short-term
borrowings declined 138 basis points during this period, to 0.65% for the third
quarter of

18

2003. For the first nine months of 2003 average short-term borrowings increased
$121,537 from $94,773 for the first nine months of 2002 to $216,310. For the
nine-month period of 2003 and 2002, the cost of short-term borrowings was 0.79%
and 2.30%, respectively. The decline in short-term borrowing yields was the
result of repricing of federal funds purchased and short-term repurchase
agreements to lower market rates throughout 2003.

Average long-term borrowings decreased $83,394 from $735,543 to $652,149 for the
third quarter of 2003 compared to the same period in 2002. The Company has
reduced high-coupon, long-term debt on an opportunistic basis in the past five
quarters. The cost of long-term borrowings decreased 16 basis points from 6.03%
during the third quarter of 2002 to 5.87% for the same period of 2003. For the
first nine months of 2003 average long-term borrowings decreased $100,150 from
$757,544 in 2002 to $657,394 and long-term borrowing costs were 5.96% and 6.06%,
respectively, for the same time periods. In April 2003, the Company issued
$10,000 of subordinated debt which had a floating rate of 4.32% at the end of
the third quarter of 2003. In late June 2003, the Company called $34,500 of
trust preferred securities at par which had a fixed rate of 8.25%. The Company
financed the call by issuing $35,568 of new, floating rate trust preferred
securities, which had an interest rate on September 30, 2003 of 4.24%.

NON-INTEREST INCOME

Non-interest income for the three months ended September 30, 2003, was $8,582
compared to $13,107 from the same period in 2002. The decrease of $4,525 is
primarily attributable to three third quarter events. First, securities gains
were $4,031 lower than the same quarter of 2002. Second, in the third quarter of
2002 the Company had a gain on the sale of derivatives of $1,184 and none in
2003. Third, the impact from these two items was partially offset by a $489
increase in gains on sale of loans in the third quarter of 2003.

Non-interest income for the nine months ended September 30, 2003 was $24,999
compared to $26,418 from the same period in 2002. In addition to the above
mentioned items, deposit service charges and other service charges grew and the
Company recognized a $1,056 gain from the sale of a branch which offset lower
revenue in trust, investment services, and other income.

19

Service charges on deposit accounts increased $698, or 8.8% during the first
nine months of 2003 compared to the same period one year ago. This was caused by
new fee sources, including an enhanced overdraft protection service which was
initiated in the second quarter of 2002, greater product and service usage, and
reduced deposit fee waivers.

Other service charges and fees increased $366, from $3,870 for the first nine
months of 2002 to $4,236 for the first nine months of 2003. Mortgage servicing
income for the nine months ended September 30, 2003 was $1,359 compared to $767
for the comparable period of 2002 due to demand for new and refinanced
residential mortgages.

Revenues from the sale of investment services, brokerage and annuity products,
decreased $158 during the first nine months of 2003 compared to 2002. In the
first nine months of 2002, higher rate promotional certificates of deposit
matured and due to the low interest rate environment some depositors'
preferences shifted to annuities.

Gain on sale of loans increased $1,203 from $632 for the first nine months of
2002 to $1,835 for the same period in 2003 as a result of a strong residential
mortgage market.

The gain on sale of other assets increased $1,042 during the first nine months
of 2003 compared to the first nine months of 2002. This is primarily due to a
branch in the second quarter of 2003.

Securities gains were a less meaningful component of non-interest income
decreasing by $3,341 from $5,856 in the first nine months of 2002 to $2,515 in
the same period of 2003.

Other non-interest income decreased $1,759 from $3,290 for the nine months of
2002 to $1,531 for the period ending September 30, 2003. In 2002 the Company
wrote covered call option contracts and recorded fee income for the first nine
months of 2002 of $402. Effective April 30, 2002, the Company ceased writing
covered call option contracts. The Company also had $1,184 of gains on sale of
derivatives in 2002 and none in 2003.

NON-INTEREST EXPENSE

Non-interest expense was lowered by $2,852 in the third quarter of 2003 compared
to the same period in 2002. On a year-to-date basis, non-interest expense
increased $1,134 in the first nine months of 2003 compared to the first nine
months of 2002.

Employee compensation costs increased $749 for the three months ended September
30, 2003 and $2,874 for nine months ended September 30, 2003 compared to the
same periods of 2002. This increase was comprised of higher performance-based
commissions and incentives, which rose $734 and $1,488 for the third quarter and
the first nine months of 2003, respectively, compared to the same periods of
2002. These performance-based awards are tied to sales of fee-based services and
origination of loan and deposit products. Employee benefits expense decreased
$46 for the third quarter and increased $1,102 for nine months comparing 2003 to
2002. This was primarily due to additional health care expense, greater employee
participation in deferred contribution retirement plans and the additional taxes
on the increase in the commissions and incentives. Health insurance rose $127
for the third quarter and $1,177 for the nine months ended September 30, 2003
compared to the same periods in 2002.

20

Occupancy expense increased $99 for the third quarter of 2003 and $592 for the
first nine months of 2003 compared to the same periods of 2002. The Company
sublet a portion of the headquarters building to a third party in 2002. This
rental income offset occupancy expense. In the second quarter of 2002 the third
party moved and Integra Bank N.A. (the "Bank") occupied the floor.

Low Income Housing Project ("LIHP") operating losses increased $478 to $643 for
the third quarter of 2003 compared to $165 for the same period of 2002. For the
nine months ended September 30, 2003, LIHP operating losses were $2,076 compared
to $488 for the same period in 2002. In the fourth quarter of 2002 the Company
increased its investment in a LIHP. As of September 30, 2003, the Company had
$18,300 in LIHP investments. An investment grade third party guarantees the
investments' overall return. This operating loss is more than offset by a tax
credit, thus lowering the Company's tax liability and effective tax rate.

In the fourth quarter of 2001, the Company wrote down and designated $58,571 in
loans as available for sale. In the third quarter of 2002, the Company recorded
$1,294 of expenses related to the sale of some of these loans and $2,733 for the
nine months of 2002. In the third quarter of 2003, there was no expense recorded
relating to the loan sale project and only $1 for the first nine months of 2003.

In the second quarter of 2003, the Company issued $35,568 of floating rate trust
preferred securities. The Company used the proceeds to redeem $34,500 of fixed
rate trust preferred securities. The expenses associated with this redemption
were $1,400.

Goodwill and certain other intangible assets having indefinite lives are not
amortized to earnings, but rather are subject to testing for impairment. For the
first nine months of 2003 the Company experienced no impairment. The Company
continues to amortize core deposit intangibles.

INCOME TAX EXPENSE

Income tax expense (benefit) was $141 and $887 for the three months and nine
months ended September 30, 2003, respectively, compared with a $836 and $3,393
expense for the same period in 2002. The effective tax rates were (7.4)% and
17.2% for the nine months ended September 30, 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

21

total pretax income to 70.9% in the first nine months of 2003 compared to 48.9%
in the first nine months of 2002. The Company increased its investment in LIHP
near the end of 2002 which has generated a credit of $2,391 for the period
ending September 30, 2003 compared to $814 for first nine months of 2002.

FINANCIAL POSITION

Total assets at September 30, 2003 were $2,983,401, an increase of $125,663
compared to $2,857,738 at December 31, 2002.

SECURITIES

Total investment securities available for sale were $1,031,233 on September 30,
2003 and $982,263 at December 31, 2002. These securities represent the second
largest earning asset component after loans. The Company currently has no
investment securities classified as held to maturity. The market value of the
investment securities available for sale on September 30, 2003 was $11,078
higher than the amortized cost and $14,718 at December 31, 2002. During the
third quarter, the portfolio composition has been managed to balance prepayment
and extension risks with acceptable returns. The majority of portfolio holdings
are in adjustable rate mortgage passthrough securities and collateralized
mortgage obligations. Inherent in these products are prepayment risk, which
occurs when borrowers prepay their obligations. Changes in interest rates
contribute to the borrower's decision 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 Company's management
constantly reviews the composition of the securities portfolio, taking into
account market risks and the interest rate environment.

LOANS

Total loans at September 30, 2003, were $1,701,461 compared to $1,606,155 at
December 31, 2002. Loans secured by real estate have increased $7,497 since
year-end 2002 as customers continue to take advantage of lower mortgage rates
and refinancing opportunities. Commercial, industrial and agricultural loans
increased $36,291, or 11.7%, since year-end. Management believes that the
Company's improved underwriting process has resulted in the origination of
higher quality commercial loans. Consumer loans increased $36,319, or 24.6%
since December 31, 2002.

LOAN PORTFOLIO

The Company is beginning two initiatives designed to expand, diversify and
augment lending activity primarily in its metropolitan markets. First, the
Company anticipates entering the wholesale mortgage market in select
metropolitan markets within or adjacent to our existing footprint. This
initiative will be evaluated over a six to nine month horizon for profitability,
cross-sales potential and scalability. Second, the Company has hired several
commercial lenders in select metropolitan markets adjacent to or in relative
proximity to our existing footprint. The primary focus of these efforts will be
to identify and cultivate relationships within these new markets.

22

ASSET QUALITY

The allowance for loan losses is the amount which, in management's opinion, is
adequate to absorb probable inherent loan losses as determined by management's
ongoing evaluation of the loan portfolio. The evaluation by management is based
upon consideration of various factors including growth of the portfolio, an
analysis of individual credits, adverse situations that could affect a
borrower's ability to repay, prior and current loss experience, the results of
recent regulatory examinations and current economic conditions. Loans that are
deemed to be uncollectible are charged-off to 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
losses based on management's ongoing evaluation of the loan portfolio.

The allowance for loan losses was $25,520 at September 30, 2003, representing
1.50% of total loans compared with $24,554 at September 30, 2002 which
represented 1.53% of total loans. Annualized net charge-offs to average loans
was 0.11% during the third quarter of 2003 compared to 0.20% for the same period
of 2002. On a year-to-date basis, annualized net charge-offs to average loans
was 0.25% during the first nine months of 2003 compared to 0.09% for the same
period of 2002. In late 2001, the Company identified $78,312 of performing and
non-performing loans which it intended to sell. These loans were recorded at the
lower of cost or market resulting in a write down in 2001. The sale of these
loans was culminated in 2002. The provision for the first nine months of 2003
was $3,945, which was an increase compared to 2002 and exceeded net charge-offs
by $888. The provision for loan losses totaled $1,760 for the first nine months
of 2002, exceeding net charge-offs by $686. The allowance for loan losses to
non-performing loans was 151.0% at September 30, 2003 compared to 110.1% at
December 31, 2002.

SUMMARY OF ALLOWANCE FOR LOAN LOSSES

As of September 30, 2003, total non-performing assets decreased $6,082 from
December 31, 2002. Non-performing loans, consisting of nonaccrual, restructured
and 90 days or more past due loans, were 0.99% and 1.39% of total loans at
September 30, 2003 and December 31, 2002, respectively. A municipal obligation
included in securities available for sale with an approximate amortized cost of
$3,000 is in default. Management expects to realize a full recovery after legal
resolution of a utility rate issue.

Listed below is a comparison of non-performing assets.

23

DEPOSITS

Total deposits were $1,807,156, at September 30, 2003, compared to $1,781,948 at
December 31, 2002. Total non-interest-bearing deposits increased $7,619, or 3.6%
to $221,024 since year-end. Savings, interest checking and money market accounts
increased by $8,841, or 1.2% during this same period to $731,327. Other
interest-bearing deposits, which includes time deposits less than $100 and IRA
certificate of deposits, declined $53,876, or 8.9%, from December 31, 2002 to
$552,938 at September 30, 2003.

SHORT-TERM BORROWINGS

Federal funds purchased and securities sold under repurchase agreements totaled
$361,195 at September 30, 2003 compared to $161,784 at December 31, 2002. Of
these, $276,195 have remaining maturities of less than one year, while $85,000
have maturities greater than one year. Securities sold under repurchase
agreements are collateralized transactions acquired in national markets as well
as from the Company's commercial customers as part of a cash management service.
The long-term repurchase agreements have a weighted average interest rate of
4.79%. Additional short-term borrowings include short-term advances from FHLB,
Treasury Tax & Loan, and advances against outstanding bank lines.

At September 30, 2003, the Company had a $15,000 line of credit available of
which $5,000 was drawn. The Company also had the capacity to borrow in excess of
$440,000 from the Federal Reserve Bank discount window. The Company also had in
excess of $239,000 in marketable securities eligible for pledging to repurchase
contracts that were available at the end of the third quarter 2003.

LONG-TERM BORROWINGS

Other long-term borrowings generally provide longer term funding and include
FHLB advances, term notes, or other obligations. Included in other long-term
borrowings are $481,768 of FHLB advances to fund investments, loans and to
satisfy other funding needs. The Company must pledge collateral in the form of
mortgage-backed securities and mortgage loans to secure these advances and at
September 30, 2003, was in compliance with those requirements. The largest
component of the FHLB advances include an aggregate of $412,000 advances which
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, the Company 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 the third quarter of 2003
the Company prepaid $15 million of 6.00% FHLB advances originally scheduled to
mature in 2005.

On April 10, 2003, the Company issued $10,000 of subordinated debt which will
mature on April 10, 2013. Issuance costs of $331 were paid by the Company and
are being amortized over the life of the securities.

During the second quarter of 2003, the Company issued Floating Rate Capital
Securities of $35,568 as a participant in a Pooled Trust Preferred Fund with a
floating interest rate. The issue matures on June 26, 2033. Issuance costs of
$1,025 were paid by the Company and are being amortized over the life of the
securities. The Company has the right to call these securities at par effective
June 25, 2008. The funds were used to redeem $34,500 of trust preferred
securities which had a fixed rate of 8.25%.

24

Management continuously reviews the Company's liability composition. Any
modifications could adversely affect the profitability and capital levels of the
Company over the near term, but would be undertaken if management determines
that restructuring the balance sheet will improve the Company's interest rate
risk and liquidity risk profile on a longer-term basis.

TRUST PREFERRED SECURITIES

On July 16, 2001, the Company 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 issue matures on July 25, 2031. Issuance costs of $581
were paid by the Company and are being amortized over the life of the
securities. The Company has the right to call these securities at par effective
July 16, 2011.

On March 30, 1998, the Company issued through a subsidiary, Integra Capital
Trust I, $34,500 of 8.25% Cumulative Trust Preferred Securities which were
scheduled to mature on March 31, 2028. The Company called these securities at
par on June 25, 2003 and paid the redemption price in full on June 30, 2003.

CAPITAL EXPENDITURES

The Company is currently planning to build four new banking centers over the
next six to 12 months. The banking centers will be located in Evansville,
Indiana and in Bowling Green, Florence and Georgetown, Kentucky. Capital
expenditures for the new banking centers were $598 in the third quarter of 2003
and are expected to total between $5,500 and $7,500 over the next twelve months.

OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS

There have been no material changes in off-balance sheet arrangements and
contractual obligations since the first quarter of 2003.

CAPITAL RESOURCES AND LIQUIDITY

The Company 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.

Liquidity of a banking institution reflects the ability to provide funds to meet
loan requests, accommodate possible outflows in deposits and other borrowings,
and take advantage of interest rate market opportunities. The Company
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 Company'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 or access to the Federal Reserve Bank
discount window as alternative sources of liquidity.

For the Company, liquidity is provided by dividends from the Bank, cash
balances, credit line availability, liquid assets and proceeds from capital
market transactions. Federal banking law limits the amount of capital
distributions that national banks can make to their holding companies without
obtaining prior regulatory approval. A national bank's dividend paying capacity
is affected by several factors, including the amount of its net profits (as
defined by statute) for the two previous calendar years, and net profits for the
current year up to the date of dividend declaration. As previously disclosed,
until recently, the Bank was limited in its ability to pay dividends or make
other capital distributions to the Company without prior regulatory approval.
During the third quarter 2003, the Bank was advised that its dividend paying
capacity was restored. The Company has an unsecured line of credit available
which permits it to borrow up to $15,000. At September 30, 2003 the Company had
$10,000 available for future use. Management believes that the Company 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 Company is comprised of several components. The components include (1) Board
of Directors' oversight, (2) executive 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 the interest rate
risk management processes to manage the impact of interest rate volatility on
earnings and capital.

At the Company, interest rate risk is managed by executive 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.

Interest rate risk is measured and monitored on a proactive basis by utilizing a
simulation model. The Company uses several key methodologies to measure interest
rate risk.

25

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 Company 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 September 30,
2003, the Company would experience a negative 6.80% change in EAR, if interest
rates moved downward 200 basis points. A parallel upward 200 basis points should
result in a negative 5.80% change in net interest income. Both simulation
results are within the policy limits established by Board ALCO. The increase in
EAR at September 30, 2003 was primarily due to a modeling enhancement that
increased the sensitivity of certain money market product rates to changes in
other key short-term interest rates. The impact was to increase the EAR risk in
a rising rate environment by approximately 3.4 percent. Prior periods are not
restated from previously reported figures.

Trends in Earnings at Risk

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 Company uses a

26

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 Company 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%. At September 30,
2003, the Company would experience a positive 0.20% change in EVE if interest
rates moved downward 200 basis points. If interest rates moved upward 200 basis
points, the Company would experience a negative 14.60% change in EVE. Both of
these measures are within Board approved policy limits. The increase from June
30 is driven primarily by a proportionate increase in floating rate debt and the
absolute low level of interest rates. The Company modified its EVE at risk
calculations during the quarter to include trust preferred securities in the
equity account for the purpose of reporting market value of equity. The impact
on EVE at risk was to reduce the forecasted adverse effect on EVE in an upward
200 basis point rate shock by approximately 4.0 percent at September 30, 2003.
Prior periods are not restated from previously reported figures.

Trends in Economic Value of Equity

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 Company's disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2003,
the Company'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 changes in our internal controls over financial reporting
that occurred during the quarter ended September 30, 2003 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.

27

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company 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
Company 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(a)* Employment Agreement dated July 28, 2003, between Integra Bank
Corporation and Archie M. Brown, Jr.

10(b)* Employment Agreement dated July 28, 2003, between Integra Bank
Corporation and D. Michael Kramer

10(c)* Employment Agreement dated July 28, 2003, between Integra Bank
Corporation and Martin M. Zorn

10(d)* Employment Agreement dated July 28, 2003, between Integra Bank
Corporation and Charles A. Caswell

31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 of Chief Executive Officer

31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 of Chief Financial Officer

32 Certification of Chief Executive Officer and Chief Financial
Officer

* The indicated exhibit is a management contract, compensatory plan or
arrangement required to be filed by Item 601 of Regulation S-K.

(b) Reports on Form 8-K.

On July 1, 2003, under Item 9, the Company furnished a press release to the
Securities and Exchange Commission containing information on the redemption
of trust preferred securities, the issuance of new floating-rate trust
preferred securities and other second quarter developments.

On July 22, 2003, under Item 9, the Company furnished a press release the
the Securities and Exchange Commission containing earnings information for
the period ending June 30, 2003.

28

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
November 13, 2003

/s/ Charles A. Caswell
------------------------------------
Chief Financial Officer and
Executive Vice President
November 13, 2003

29