<PAGE> 1
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 June 30, 2000.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to .
---------------------- ----------------------
Commission file number: 0-13585
INTEGRA BANK CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1632155
(State or other jurisdiction (I.R.S. Employee
of incorporation or organization) 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
NATIONAL CITY BANCSHARES, INC.
(Former name if changed since last report)
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 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT August 10, 2000
(Common stock, $1.00 Stated Value) 17,369,478
<PAGE> 2
INTEGRA BANK CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
PAGE NO.
Item 1. Unaudited Financial Statements
Condensed consolidated statements of financial
position-June 30, 2000, December 31, 1999,
and June 30, 1999 3
Condensed consolidated statements of income
three months and six months ended June 30, 2000
and 1999 4
Condensed consolidated statements of comprehensive
income-three and six months ended June 30, 2000
and 1999 5
Condensed consolidated statements of cash flows-six months
ended June 30, 2000 and 1999 6
Notes to condensed consolidated financial statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 17
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. Unaudited Financial Statements
INTEGRA BANK CORPORATION and Subsidiaries
Unaudited Condensed Consolidated Statements of Financial Position
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
2000 1999 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 52,367 $ 72,935 $ 56,616
Federal funds sold 1,601 748 628
Securities available for sale 641,942 332,359 345,644
Loans 1,660,372 1,700,833 1,632,824
Less: Allowance for loans losses (25,158) (25,155) (18,987)
---------------------------------------------------------------------------------------------------------------
Loans-net 1,635,214 1,675,678 1,613,837
Premises and equipment, net 45,796 45,393 45,679
Intangible assets 34,685 36,522 38,351
Other assets 56,594 39,842 33,840
---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,468,199 $ 2,203,477 $ 2,134,595
==============================================================================================================
LIABILITIES
Deposits:
Noninterest-bearing demand $ 184,898 $ 207,782 $ 197,717
Interest-bearing savings and time 1,450,299 1,486,879 1,439,438
---------------------------------------------------------------------------------------------------------------
Total deposits 1,635,197 1,694,661 1,637,155
Short-term borrowings 243,015 89,989 82,595
Other borrowings 304,457 138,371 130,394
Guaranteed preferred beneficial interests
in the Corporation's subordinated debentures 34,500 34,500 34,500
Dividends payable 3,646 3,679 3,378
Other liabilities 17,856 16,409 13,350
---------------------------------------------------------------------------------------------------------------
Total liabilities 2,238,671 1,977,609 1,901,372
COMMON STOCK OWNED BY ESOP (subject to put option) -- 2,780 4,168
SHAREHOLDERS' EQUITY
Preferred stock-1,000,000 shares authorized
None outstanding
Common stock - $1.00 stated value:
6/30/00 12/31/99 6/30/99
Shares authorized 29,000,000 29,000,000 29,000,000
Shares outstanding 17,369,478 17,518,117 17,735,857 17,369 17,518 17,736
Capital surplus 135,305 138,893 145,013
Retained earnings 79,661 71,299 69,783
Accumulated other comprehensive loss (2,807) (1,842) 691
Common stock owned by ESOP (subject to put option) -- (2,780) (4,168)
---------------------------------------------------------------------------------------------------------------
Total shareholders' equity 229,528 223,088 229,055
---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,468,199 $ 2,203,477 $ 2,134,595
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 4
INTEGRA BANK CORPORATION and Subsidiaries
Unaudited Condensed Consolidated Statements of Income
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------------------------------------------------------------
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 37,628 $ 35,491 $ 74,440 $ 70,969
Interest and dividends on securities 9,092 4,914 14,362 9,934
Interest on federal funds sold 195 169 301 409
Interest on other investments 17 12 95 30
-----------------------------------------------------------------------------------------------------
Total interest income 46,932 40,586 89,198 81,342
INTEREST EXPENSE
Interest on deposits 16,290 14,889 32,592 30,405
Interest on short-term borrowings 1,633 392 2,353 731
Interest on other borrowings 5,847 2,878 9,110 5,647
-----------------------------------------------------------------------------------------------------
Total interest expense 23,770 18,159 44,055 36,783
NET INTEREST INCOME 23,162 22,427 45,143 44,559
Provision for loan losses 863 841 1,913 2,100
-----------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 22,299 21,586 43,230 42,459
NONINTEREST INCOME
Trust income 564 631 1,108 1,151
Service charges on deposit accounts 1,970 1,962 3,754 3,789
Other service charges and fees 1,204 1,019 2,345 2,058
Securities gains (losses) 546 (641) 509 (638)
Other 93 249 2,072 672
-----------------------------------------------------------------------------------------------------
Total noninterest income 4,377 3,220 9,788 7,032
NONINTEREST EXPENSE
Salaries, wages and other employee benefits 7,638 6,475 15,490 13,937
Occupancy expense 908 893 1,813 1,765
Furniture and equipment expense 1,119 1,093 2,093 2,026
Amortization of intangibles 850 976 1,870 1,998
Other 4,760 4,323 8,841 8,894
-----------------------------------------------------------------------------------------------------
Total noninterest expense 15,275 13,760 30,107 28,620
-----------------------------------------------------------------------------------------------------
Income before income taxes 11,401 11,046 22,911 20,871
Income taxes 3,603 3,569 7,231 6,689
-----------------------------------------------------------------------------------------------------
NET INCOME $ 7,798 $ 7,477 $ 15,680 $ 14,182
=====================================================================================================
Earnings per share:
Basic $ 0.45 $ 0.42 $ 0.90 $ 0.90
Diluted 0.45 0.42 0.90 0.79
Weighted average shares outstanding:
Basic 17,413,209 17,733,154 17,452,656 17,707,924
Diluted 17,425,766 17,798,208 17,475,963 17,775,387
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 5
INTEGRA BANK CORPORATION and Subsidiaries
Unaudited Condensed Consolidated Statements Comprehensive Income
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 7,798 $ 7,477 $ 15,680 $ 14,182
Other comprehensive income, net of tax:
Unrealized loss arising in period (762) (3,214) (660) (4,127)
Reclassification of realized amounts (328) 385 (305) 382
-------------------------------------------------------------------------------------------------------------------
Net unrealized loss, recognized in other comprehensive income (1,090) (2,829) (965) (3,745)
-------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 6,708 $ 4,648 $ 14,715 $ 10,437
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE> 6
INTEGRA BANK CORPORATION and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flow
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 22,430 $ 17,808
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest-bearing time deposits in banks -- 142
Proceeds from matured securities available for sale 35,478 61,562
Proceeds from sales of securities available for sale 55,670 3,227
Proceeds from called investments -- 15,343
Purchases of securities available for sale (401,957) (66,611)
(Increase) decrease in federal funds sold (853) 9,803
Decrease in loans made to customers 38,372 13,916
Increase in cash surrender value life insurance (16,961) (40)
Increase in other investments -- (2,054)
Capital expenditures (3,211) (1,558)
Proceeds from sale of premises and equipment 1,036 313
Proceeds from sale of other real estate owned 869 535
-----------------------------------------------------------------------------------------------
Net cash flows (used in) provided by investing activities (291,557) 34,578
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (59,464) (97,430)
Net increase in short-term borrowings 153,026 49,213
Proceeds from other borrowings 265,150 90
Payments on other borrowings (99,064) (9,241)
Dividends paid (7,352) (6,737)
Repurchase of common stock (4,600) --
Proceeds from exercise of stock options 863 946
-----------------------------------------------------------------------------------------------
Net cash flows provided by (used in) financing activities 248,559 (63,159)
-----------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (20,568) (10,773)
-----------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 72,935 67,389
-----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 52,367 $ 56,616
===============================================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Change in allowance for unrealized
loss on securities available for sale $ (1,699) $ (6,006)
Increase in deferred taxes attributable
to securities available for sale (734) (2,261)
Other real estate acquired in settlement of loans 1,234 926
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE> 7
INTEGRA BANK CORPORATION and Subsidiaries
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying unaudited condensed consolidated financial statements include
the accounts of Integra Bank Corporation (formerly National City Bancshares,
Inc.) and its subsidiaries (collectively, the "Corporation"). At June 30, 2000,
the Corporation had as subsidiaries, eight commercial banks, a leasing
corporation, a property management company, and a Delaware statutory business
trust. 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 flow for the interim periods. All such
adjustments are of a normal recurring nature. Pursuant to SEC rules, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States 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, 1999 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.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133,(SFAS 133) "Accounting for
Derivative Instruments and Hedging Activities". SFAS 133 established a new model
for accounting for derivatives and hedging activities and supersedes and amends
a number of existing standards. SFAS 133 is effective for fiscal years beginning
after June 15, 2000, but earlier application is permitted as of the beginning of
any fiscal quarters subsequent to June 15, 1998. Upon the statement's initial
application, all derivatives are required to be recognized in the statement of
financial position as either assets or liabilities and measured at fair value.
In addition, all hedging relationships must be designated, reassessed, and
documented pursuant to the provisions of SFAS 133. Adoption of SFAS 133, as
amended by SFAS 138, is not expected to have a material financial statement
impact on the Corporation's financial position or operating results.
NOTE 2
The Corporation and its subsidiaries are parties to legal actions which arise in
the normal course of their business activities. In the opinion of management,
the ultimate resolution of these matters is not expected to have a materially
adverse effect on the financial position or on the results of operations of the
Corporation and its subsidiaries.
In the normal course of business, there are various other outstanding
commitments and contingent liabilities which are not reflected in the
accompanying financial statements. The Corporation uses the same credit policies
in making commitments and conditional obligations as it does for other
instruments.
The following table reflects commitments and contingent liabilities not
reflected in the financial statements with dollars in thousands:
June 30, 2000 December 31, 1999
----------------------------------------------------------------------------
Standby letters of credit $ 15,201 $ 15,156
Commitments to extend credit $ 317,258 $ 281,074
7
<PAGE> 8
NOTE 3
A five percent stock dividend was paid on December 7, 1999 to shareholders of
record on November 21, 1999. All weighted average shares, shares outstanding and
per share data presented herein have been restated for the effects of this stock
dividend.
NOTE 4
The calculation of earnings per share as of June 30 is summarized as follows
with dollars in thousands except per share data:
<TABLE>
<CAPTION>
Quarter-to-Date Year-to-Date
--------------------------- ----------------------------
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 7,798 $ 7,477 $ 15,680 $ 14,182
Basic earnings per share:
Weighted average shares outstanding 17,413,209 17,733,154 17,452,656 17,707,924
Basic earnings per share $ 0.45 $ 0.42 $ 0.90 $ 0.80
Diluted earnings per share:
Weighted average shares outstanding 17,413,209 17,733,154 17,452,656 17,707,924
Common stock equivalents due to stock options 12,557 65,054 23,307 67,463
Adjusted shares outstanding 17,425,766 17,798,208 17,475,963 17,775,387
Diluted earnings per share $ 0.45 $ 0.42 $ 0.90 $ 0.79
</TABLE>
NOTE 5
The following table shows the schedule of dividends declared for the six months
ending June 30:
<TABLE>
<CAPTION>
DATE RECORD DATE DIVIDEND
2000 DECLARED DATE PAID PAID
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
May 17 June 21 July 7 $0.21
February 16 March 21 April 7 $0.21
DATE RECORD DATE DIVIDEND
1999 DECLARED DATE PAID PAID
------------------------------------------------------------------------------------------------------------------------
May 19 June 21 July 7 $0.19
February 17 March 21 April 7 $0.19
</TABLE>
8
<PAGE> 9
NOTE 6
The Corporation has identified its reportable segments on the basis of the
geographic areas served by the Corporation. Banking services offered are similar
in each geographic area served. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies in the
Corporation's annual report for the year ended December 31, 1999. The
Corporation evaluates performance based on profit or loss from operations before
income taxes not including nonrecurring gains and losses. Operating statistics
for each reporting segment with dollars in thousands are as follows:
For the six months ended
<TABLE>
<CAPTION>
Southwest Western Southern Northern
June 30, 2000 Indiana Kentucky Illinois Kentucky Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 46,237 $ 12,692 $ 13,735 $ 17,585 $ 90,249
Interest expense 24,570 5,866 5,930 7,697 44,063
-------------------------------------------------------------------------------------------
Net interest income 21,667 6,826 7,805 9,888 46,186
Provision for loan losses 1,131 219 294 269 1,913
Other income 6,451 944 1,118 1,278 9,791
Other expense 15,310 3,503 5,159 4,397 28,369
-------------------------------------------------------------------------------------------
Net income before tax 11,677 4,048 3,470 6,500 25,695
Income tax 4,045 924 1,162 2,233 8,364
-------------------------------------------------------------------------------------------
Net income $ 7,632 $ 3,124 $ 2,308 $ 4,267 $ 17,331
===========================================================================================
Segment assets $1,410,531 $ 303,301 $ 394,153 $ 416,380 $2,524,365
</TABLE>
<TABLE>
<CAPTION>
Southwest Western Southern Northern
June 30, 1999 Indiana Kentucky Illinois Kentucky Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 38,902 $ 12,185 $ 14,143 $ 16,864 $ 82,094
Interest expense 17,361 5,910 6,440 7,073 36,784
-------------------------------------------------------------------------------------------
Net interest income 21,541 6,275 7,703 9,791 45,310
Provision for loan losses 1,188 411 119 327 2,045
Other income 4,201 836 1,279 1,286 7,602
Other expense 11,708 3,849 5,477 5,140 26,174
-------------------------------------------------------------------------------------------
Net income before tax 12,846 2,851 3,386 5,610 24,693
Income tax 4,281 796 1,119 1,912 8,108
-------------------------------------------------------------------------------------------
Net income $ 8,565 $ 2,055 $ 2,267 $ 3,698 $ 16,585
===========================================================================================
Segment assets $1,033,124 $ 307,858 $ 421,114 $ 412,852 $2,174,948
</TABLE>
9
<PAGE> 10
Note 6 (continued)
For the three months ended
<TABLE>
<CAPTION>
Southwest Western Southern Northern
June 30, 2000 Indiana Kentucky Illinois Kentucky Total
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 25,294 $ 6,321 $ 6,944 $ 8,858 $ 47,417
Interest expense 14,122 2,789 2,937 3,898 23,746
--------------------------------------------------------------------------------------------------------
Net interest income 11,172 3,532 4,007 4,960 23,671
Provision for loan losses 471 170 155 70 866
Other income 2,822 466 503 670 4,461
Other expense 8,418 1,410 2,438 2,319 14,585
--------------------------------------------------------------------------------------------------------
Net income before tax 5,105 2,418 1,917 3,241 12,681
Income tax 1,910 459 650 1,117 4,136
--------------------------------------------------------------------------------------------------------
Net income $ 3,195 $ 1,959 $ 1,267 $ 2,124 $ 8,545
========================================================================================================
Segment assets $ 1,410,531 $ 303,301 $ 394,153 $ 416,380 $ 2,524,365
<CAPTION>
Southwest Western Southern Northern
June 30, 1999 Indiana Kentucky Illinois Kentucky Total
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 19,411 $ 5,991 $ 7,064 $ 8,495 $ 40,961
Interest expense 8,651 2,867 3,152 3,526 18,196
--------------------------------------------------------------------------------------------------------
Net interest income 10,760 3,124 3,912 4,969 22,765
Provision for loan losses 468 84 81 200 833
Other income 2,067 421 637 624 3,749
Other expense 5,834 1,931 2,698 2,591 13,054
--------------------------------------------------------------------------------------------------------
Net income before tax 6,525 1,530 1,770 2,802 12,627
Income tax 2,175 437 582 960 4,154
--------------------------------------------------------------------------------------------------------
Net income $ 4,350 $ 1,093 $ 1,188 $ 1,842 $ 8,473
========================================================================================================
Segment assets $ 1,033,124 $ 307,858 $ 421,114 $ 412,852 $ 2,174,948
</TABLE>
10
<PAGE> 11
NOTE 6 (continued)
A reconciliation of revenues, net income, and assets of the reported segments to
the consolidated financial statements with dollars in thousands is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income:
Total net interest income for reportable segments $ 23,671 $ 22,765 $ 46,186 $ 45,310
Non-bank entities (509) (337) (1,043) (750)
Eliminations - (1) - (1)
-------------------------------------------------------------------------------------------------------
Total consolidated net interest income $ 23,162 $ 22,427 $ 45,143 $ 44,559
=======================================================================================================
Net income:
Total net income for reportable segments $ 8,545 $ 8,473 17,331 16,585
Non-bank entities (747) (996) (1,651) (2,403)
Eliminations - - - -
-------------------------------------------------------------------------------------------------------
Total consolidated net income $ 7,798 $ 7,477 $ 15,680 $ 14,182
=======================================================================================================
Assets:
Total assets for reportable segments $2,524,365 $2,174,948
Non-bank entities 85,267 99,867
Eliminations (141,433) (140,220)
-------------------------------------------------------------------------------------------------------
Total consolidated assets $2,468,199 $2,134,595
=======================================================================================================
</TABLE>
The Corporation is in process of consolidating its subsidiary banks into one
banking charter which is expected to be completed by the end of the third
quarter. As a result, the Corporation is changing its organizational structure
from a geographical structure to a structure organized around lines of business.
The structure will consist of three lines of business divisions, Retail Banking,
Commercial Banking, and Trust and Investment Services. This transition to the
new organizational structure is currently underway and is expected to be
completed on or before January 1, 2001. The change in structure will also result
in a change in reportable segments in future financial reporting periods.
NOTE 7
A subsidiary of the Corporation sponsored an employee stock ownership plan
(ESOP) that covered certain eligible employees. During the first quarter of
2000, the Corporation made the final distribution of all shares from the ESOP
and closed out the plan.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 as presented in the
condensed consolidated financial statements and related notes. The text of this
review is supplemented with various financial data and statistics. All
information has been restated to include bank acquisitions accounted for using
the pooling of interests method and to give effect to all stock dividends.
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements to be materially different from the results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: management's ability to
effectively implement the Corporation's strategic plan; general, regional and
local economic conditions which may affect interest rates and net interest
income; credit risks and risks from concentrations (geographic and by industry)
within the loan portfolio; changes in regulations affecting financial
institutions; and competition.
The Corporation has devoted significant resources in 2000 towards the
combination of its banking subsidiaries into one bank under the name Integra.
The Corporation has established a three phase plan for completion of the
project. The first phase of the project was completed on May 19, 2000, the
second phase was completed on July 14, 2000 and the final phase is scheduled to
be completed September 15, 2000. It is anticipated that the Corporation will
incur total costs of approximately $1.8 million in connection with the
consolidation and the name change.
On July 5, 2000 the Corporation announced that it had signed a definitive
agreement to acquire Webster Bancorp, Inc. (Webster), headquartered in Clay,
Kentucky. At March 31, 2000, Webster reported total assets of $294.0 million,
deposits of $251.0 million and shareholders' equity of $20.0 million. Under the
terms of the agreement the Corporation would exchange approximately 1,750,000
shares of its common stock for all of the issued and outstanding shares of
Webster. The transaction is subject to regulatory approval, approval by
Webster's shareholders, and certain other conditions. The transaction is
expected to close in the first quarter of 2001 and will be accounted for as a
purchase. The Corporation also announced that its Board of Directors had
approved the purchase of approximately 1,750,000 shares of its common stock in
the open market and in private transactions to facilitate the purchase.
NET INCOME
Net income for the quarter ended June 30, 2000 was $7.8 million compared to $7.5
million in the second quarter of 1999, an increase of $0.3 million, or 4.3%.
Basic earnings per share for the second quarter were $0.45 in 2000 compared to
$0.42 in 1999. Earnings per share, on a diluted basis was $0.45 for the second
quarter of 2000 compared to $0.42 in 1999.
For the six months ended June 30, 2000, net income was $15.7 million compared to
$14.2 million in the prior year, an increase of $1.5 million, or 10.6%. Basic
earnings per share for the first six months were $0.90 in 2000 compared to $0.80
in 1999. Earnings per share, on a diluted basis, were $0.90 for 2000 compared to
$0.79 in 1999.
The basic weighted average number of shares outstanding was 17,413,209 and
17,452,656 for the three and six months, respectively, ended June 30, 2000,
compared to 17,733,154 and 17,707,924 during the same periods last year. The
weighted average number of shares outstanding, assuming dilution, was 17,425,766
and 17,475,963 for the three and six months ended June 30, 2000, respectively,
compared to 17,798,208 and 17,775,387 during the same periods in the prior year.
The reduction in the number of average shares outstanding is due to the
Corporation's purchase of approximately 440,000 shares of common stock under its
stock repurchase program which was announced in October 1999.
The average return on equity for the second quarter of 2000 was 13.76%
reflecting a 0.71% increase from the second quarter of 1999. The average return
on equity for the six months ended June 30 was 13.94% and 12.67% in 2000 and
1999, respectively.
12
<PAGE> 13
NET INTEREST INCOME
Net interest income, on a taxable equivalent basis, for the quarter ended June
30, 2000 was $24.5 million, reflecting an increase of $463,000 or 1.9% compared
to the same period in 1999. The increase was principally due to an increase in
average earning assets in the second quarter of 2000, compared to same quarter
of the prior year. Average earning assets were $2,241.2 million for the second
quarter of 2000 compared to $1,988.9 million for the same quarter of the prior
year. The majority of the increase in earning assets was in the securities
portfolio, which increased $190.7 million over the second quarter of 1999.
Average loans were $1,696.0 million in the second quarter of 2000, compared to
$1,624.6 million in the second quarter of 1999, reflecting a $71.4 million, or
4.4% increase. The growth in average earning assets was funded primarily through
an increase in short-term and other borrowings (borrowings). The average balance
for borrowings was $365.6 million for the second quarter of 2000, compared to
$209.4 million for the same period in the prior year. Net interest income on a
taxable equivalent basis, as a percentage of earning assets (net interest
margin) for the second quarter was 4.40% in 2000 and 4.85% in 1999.
For the six months ended June 30, 2000, net interest income, on a taxable
equivalent basis, was $47.9 million compared to $47.7 million for the same
period in 1999, primarily due to increases in volume of average earning assets.
Average earning assets for the first six months of 2000 were $2,155.2 million
compared to $1,996.6 million for the corresponding period in 1999, reflecting an
increase of $158.6 million or 8.0%. Average securities for the first six months
of 2000 increased $94.0 million over the same period in 1999. Average loans also
increased $77.0 million in the first half of 2000 compared to 1999. For the
first six months of 2000 average interest bearing deposits increased $39.0
million and average borrowed funds increased $156.0 million compared to 1999.
The net interest margin for the first six months of 2000 decreased 34 basis
points from 4.82% in 2000 to 4.48% in 1999. This decrease is principally due to
increased funding costs to support the growth of earning assets.
UNDERPERFORMING ASSETS
Listed below is a comparison of underperforming assets with dollars in
thousands.
June 30, 2000 December 31, 1999 June 30, 1999
-----------------------------------------------------------------------------
Nonaccrual loans $30,288 $32,025 $10,174
Restructured loans 1,236 1,275 1,278
90 days past due loans 2,392 1,629 1,849
-----------------------------------------------------------------------------
Total underperforming loans 33,916 34,929 13,301
Other real estate held 1,203 936 1,051
-----------------------------------------------------------------------------
Total underperforming loans $35,119 $35,865 $14,352
-----------------------------------------------------------------------------
For the first six months of 2000 total underperforming loans decreased $1.0
million, or 2.9%. Past due 90 days or more, nonaccrual, and restructured loans
were 2.0%, 2.0% and 0.8% of total gross loans at June 30, 2000, December 31,
1999, and June 30, 1999, respectively.
PROVISION FOR LOAN LOSSES
Net charge-offs amounted to $1.9 million through June 30, 2000, compared to $1.6
million in the corresponding period in the prior year. Net charge-offs for the
second quarter were $1.1 million in 2000 and $0.2 million in 1999.
The provision for loan losses for the second quarter was $863,000 in 2000
compared to $841,000 for the same period in 1999, an increase of 2.6%. For the
six months ending June 30, 2000 and 1999 provision for loan losses was $1.9
million and $2.1 million, respectively. The provision for loan losses is
determined based on a quarterly review of the allowance for loan losses.
Management evaluates large credits and loans identified as problem loans on an
individual basis to identify the risk profile and probable losses of such loans.
All other loans are evaluated as homogeneous pools based on historical loss
experience and the provision is allocated accordingly. During the second quarter
there were no significant changes in loan concentrations, quality, or terms.
There were no material changes in estimation methods or assumptions affecting
the allowance, or reallocations of the allowance among the various parts of the
portfolio during the second quarter of 2000. As of June 30, 2000, management
considered the allowance for loan losses adequate for probable loan losses.
NONINTEREST INCOME
Noninterest income for the second quarter was $4.4 million in 2000 and $3.2
million in 1999. Securities transactions resulted in gains of $546,000 in the
second quarter of 2000 and in losses of $641,000 in the same period of 1999.
Total noninterest income excluding securities transactions was approximately
$3.8 million in the second quarter of 2000 and 1999.
13
<PAGE> 14
NONINTEREST INCOME (continued)
For the six months ended June 30, 2000 noninterest income increased $2.8
million, or 39.2%, from the same period a year ago. During the first quarter of
2000 the Corporation recognized a gain of approximately $1.8 million on the sale
of its mortgage loan investor servicing rights. The Corporation had gains on
securities transactions of $509,000 during the first six months of 2000 and
losses of $638,000 for the corresponding period in 1999. Noninterest income for
the six months ending June 30 excluding securities gains or losses and the gain
on sale of mortgage servicing rights was $7.5 million in 2000 and $7.7 million
in 1999.
NONINTEREST EXPENSE
Noninterest expense increased $1.2 million, or 11.0%, in the second quarter of
2000 compared to the second quarter of 1999. Salaries and employee benefits
increased $1.2 million, or 18.0%; occupancy expense increased $15,000, or 1.7%;
expenses of furniture and equipment increased $26,000, or 2.4.%; amortization of
intangibles decreased $126,000, or 12.9%; and other noninterest expense
increased $437,000, or 10.1%, over the same period of 1999.
For the first six months of 2000 noninterest expense increased $1.5 million, or
5.2%, compared to the same period a year ago. Salaries and employee benefits
increased $1.6 million, or 11.1%; occupancy expense increased $78,000, or 4.5%;
expenses of furniture and equipment increased $67,000, or 3.3%; amortization of
intangibles decreased $128,000, or 6.4%; and other noninterest expense decreased
$53,000, or 0.6%, over same period in the prior year.
The increase in salaries and employee benefits for the second quarter of 2000
and for the first six months of the year compared to the prior year is primarily
due to a $877,000 settlement gain on termination of the Corporation's pension
plan which was recognized in the second quarter of 1999. Other noninterest
expense for the second quarter of 2000 increased primarily due to additional
advertising expense incurred in connection with the consolidation of subsidiary
bank charters and the name change to Integra.
FINANCIAL POSITION
During the first six months of 2000 cash and cash equivalents decreased $20.6
million, or 28.2% and federal funds sold increased $853,000 or 114.0% from
December 31, 1999.
Total investment securities increased $309.6 million, or 93.1%, from the year
ended 1999, the largest increase of $274.4 million, was in mortgage-backed
securities. U.S. Government and agency securities increased $54.5 million, or
74.3%; tax-exempt municipal securities decreased $36.3 million, or 19.9% The
market value adjustment on total securities available for sale at June 30, 2000,
was an unrealized loss of $4.5 million, compared to the unrealized loss of $2.8
million at December 31, 1999. This change was primarily due to increases in
interest rates since the 1999 year-end.
In 2000 the Corporation increased its portfolios of mortgage-backed and U. S.
Government and agency securities and funded this growth, principally, through
wholesale borrowings to improve earnings. This strategy is designed to earn
incremental revenue from excess capital not presently utilized to support other
areas of the Corporation's banking operations. As of June 30, 2000 total assets
had been increased by approximately $400 million as a result of this strategy.
In order to reduce the potential negative impact of raising interest rates on
this strategy, the Corporation has entered into interest rate caps with
aggregate notional values of approximately $100 million.
14
<PAGE> 15
FINANCIAL POSITION (continued)
Amortized cost and the fair values of securities available for sale at June 30,
2000 with amounts in thousands are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and agency securities $ 129,003 $ 36 $ 1,164 $ 127,875
Taxable municipals 2,424 8 33 2,399
Tax-exempt municipals 146,264 1,082 1,635 145,711
Corporate securities 5,339 66 125 5,280
Mortgage-backed securities 322,727 71 3,115 319,683
Trust preferred securities 17,439 274 9 17,704
Equity securities 23,290 - - 23,290
---------------------------------------------------------------------------------------------------
Total available for sale $ 646,486 $ 1,537 $ 6,081 $ 641,942
===================================================================================================
</TABLE>
LOANS
Total loans at June 30, 2000, were $1,660.4 million compared to $1,700.8 million
at December 31, 1999, reflecting a decrease of $40.4 million or 2.4%. During the
second quarter of 2000, the Corporation securitized approximately $38.0 million
of its mortgage loans and retained the resulting mortgage-backed securities in
its investment portfolio. Excluding the loans which were securitized, loans at
June 30, 2000 decreased $2.5 million or 0.1% compared to December 31, 1999.
DEPOSITS
Total deposits decreased $59.5 million or 3.5% to $1,635.2 million at June 30,
2000, from $1,694.7 million at December 31, 1999. Total noninterest bearing
deposits decreased $22.9 million or 11.0% and interest-bearing deposits
decreased $36.6 million, or 2.5% during the six months ended June 30, 2000.
SHORT-TERM AND OTHER BORROWINGS
Short-term and other borrowings, which consist, principally, of federal funds
purchased, repurchase agreements and Federal Home Loan Bank advances, were
$547.5 million at June 30, 2000 compared to $228.4 million at December 31,1999.
The increase in these borrowings was used to support asset growth as described
in the discussion of securities above.
SHAREHOLDERS' EQUITY
The Corporation and each subsidiary bank have capital ratios which substantially
exceed all regulatory requirements. The Corporation's regulatory capital ratios
are shown below.
<TABLE>
<CAPTION>
Minimum
Requirements June 30, 2000 December 31, 1999 June 30, 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 capital to risk-based assets 4.00% 13.84% 13.78% 14.46%
Total capital to risk-based assets 8.00% 15.09% 15.04% 15.65%
Tangible equity to tangible assets 3.00% 9.82% 10.47% 9.10%
</TABLE>
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
The Corporation and its subsidiaries require sufficient liquidity to make new
loans, to accommodate possible outflows of deposits, to repay borrowings at
maturity, and to take advantage of attractive investment opportunities. The
Corporation's primary sources have been federal funds sold and securities
available for sale. Liquidity is also available to the Corporation through
federal funds purchased, repurchase agreements Federal Home Loan Bank advances
and brokered deposits. The Corporation and its subsidiaries have adequate
liquidity to meet their operating needs.
Integra Bank Corporation (parent company) obtains liquidity from the receipt of
dividends and fees from subsidiary banks, money market deposits and available
for sale securities. As a supplemental source of liquidity the Corporation
entered into a $50 million line of credit agreement with a group of lenders
which matures on June 29, 2001. The Corporation plans to draw on this line as
required for general corporate purposes including possible acquisitions.
Management believes that the parent company has sufficient cash resources to
meet its cash needs.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in market risk exposure during the quarter
that effected the quantitative and qualitative disclosures presented in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1999.
16
<PAGE> 17
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 17, 2000, the Company held its Annual Meeting of Shareholders. At the
meeting Ben L. Cundiff, Susanne R. Emge, Laurence R. Steenberg and Michael T.
Vea were each elected as directors until the Annual Meeting of Shareholders to
be held in 2003. The following table reports the results of the election of
directors:
ABSTENTIONS AND
DIRECTOR FOR WITHHOLD AUTHORITY BROKER NON VOTES
-------- --- ------------------ ----------------
Ben L. Cundiff 11,989,852 362,756 34,552
Susanne R. Emge 11,502,311 849,356 35,493
Laurence R. Steenberg 11,549,215 802,952 34,993
Michael T. Vea 11,554,644 791,280 41,236
The following persons' term of office as a director continues until 2001: Dr. H.
Ray Hoops, John D. Lippert, Ronald R. Reherman and Robert D. Vance. The
following persons' term of office as a director continues until 2002: Janice L.
Beesley, Donald G. Harris, George D. Martin, and Richard F. Welp.
The shareholders also approved a resolution to amend the Corporation's Restated
Articles of Incorporation to change the name of the Corporation to Integra Bank
Corporation: 11,499,203 shares were voted in favor of the resolution; 786,062
shares were voted against; and 101,894 shares abstained or did not vote. Lastly
the shareholders approved the selection of PricewaterhouseCoopers LLP as the
Company's independent auditors: 11,972,023 shares were voted in favor of the
motion; 351,581 were voted against; and 63,556 abstained or did not vote.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following exhibits are submitted herewith:
10(t) Credit Agreement dated June 30, 2000 between Integra Bank
Corporation, Bank One N.A., The Northern Trust Company and
Firstar Bank N.A.
27 Financial Data Schedule (Electronic Filing Only)
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the second quarter of 2000.
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/ James E. Adams
------------------
Executive Vice President and
Chief Financial Officer
August 14, 2000
17
<PAGE> 18
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
10(t) Credit Agreement dated June 30, 2000 between Integra
Bank Corporation, Bank One N.A., The Northern Trust
Company and Firstar Bank N.A.
27 Financial Data Schedule (Electronic Filing Only)
18
