<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 September 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
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 November 1, 2000
(Common stock, $1.00 Stated Value) 16,835,007
<PAGE> 2
INTEGRA BANK CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Item 1. Unaudited Financial Statements
Condensed consolidated statements of financial position -
September 30, 2000, December 31, 1999, and September 30, 1999 3
Condensed consolidated statements of income -
Three months and nine months ended September 30, 2000 and 1999 4
Condensed consolidated statements of comprehensive income -
Three and nine months ended September 30, 2000 and 1999 5
Condensed consolidated statements of cash flows -
Nine months ended September 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 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 15
</TABLE>
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>
September 30, December 31, September 30,
2000 1999 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 68,647 $ 72,935 $ 49,070
Federal funds sold 7,428 748 1,466
Securities available for sale 873,231 332,359 344,873
Loans 1,646,586 1,700,833 1,680,965
Less: Allowance for loan losses (24,494) (25,155) (19,432)
----------------------------------------------------------------------------------------------------------------
Loans-net 1,622,092 1,675,678 1,661,533
Premises and equipment, net 45,748 45,393 45,272
Intangible assets 33,836 36,522 37,437
Other assets 58,680 39,842 33,868
----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,709,662 $ 2,203,477 $ 2,173,519
================================================================================================================
LIABILITIES
Deposits:
Noninterest-bearing demand $ 171,316 $ 207,782 $ 195,266
Interest-bearing savings and time 1,488,669 1,486,879 1,448,220
----------------------------------------------------------------------------------------------------------------
Total deposits 1,659,985 1,694,661 1,643,486
Short-term borrowings 343,102 89,989 109,361
Other borrowings 409,011 138,371 130,798
Guaranteed preferred beneficial interests
in the Corporation's subordinated debentures 34,500 34,500 34,500
Dividends payable 3,648 3,679 3,381
Other liabilities 22,145 16,409 15,916
----------------------------------------------------------------------------------------------------------------
Total liabilities 2,472,391 1,977,609 1,937,442
Commitments and contingencies
COMMON STOCK OWNED BY ESOP (subject to put option) - 2,780 3,214
SHAREHOLDERS' EQUITY
Preferred stock-1,000,000 shares authorized
None outstanding
Common stock - $1.00 stated value:
9/30/00 12/31/99 9/30/99
-------------------------------------
Shares authorized 29,000,000 29,000,000 29,000,000
Shares outstanding 17,300,334 17,518,117 17,752,602 17,300 17,518 17,753
Capital surplus 133,867 138,893 145,294
Retained earnings 83,032 71,299 73,820
Accumulated other comprehensive income (loss) 3,072 (1,842) (790)
Common stock owned by ESOP (subject to put option) - (2,780) (3,214)
----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 237,271 223,088 232,863
----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,709,662 $ 2,203,477 $ 2,173,519
================================================================================================================
</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 Nine Months Ended
September 30, September 30,
-------------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 37,376 $ 36,144 $ 111,815 $ 107,113
Interest and dividends on securities 13,096 4,815 27,458 14,749
Interest on federal funds sold and other investments 333 34 730 473
-------------------------------------------------------------------------------------------------------------------------
Total interest income 50,805 40,993 140,003 122,335
INTEREST EXPENSE
Interest on deposits 17,266 14,640 49,858 45,045
Interest on short-term borrowings 4,339 1,007 7,360 1,734
Interest on other borrowings 6,292 2,704 14,734 8,355
-------------------------------------------------------------------------------------------------------------------------
Total interest expense 27,897 18,351 71,952 55,134
NET INTEREST INCOME 22,908 22,642 68,051 67,201
Provision for loan losses 1,050 1,149 2,963 3,249
-------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 21,858 21,493 65,088 63,952
NONINTEREST INCOME
Trust income 608 625 1,716 1,776
Service charges on deposit accounts 2,030 1,976 5,785 5,766
Other service charges and fees 1,337 1,034 3,682 3,092
Securities gains (losses) 467 16 976 (622)
Other 339 397 2,411 1,069
-------------------------------------------------------------------------------------------------------------------------
Total noninterest income 4,781 4,048 14,570 11,081
NONINTEREST EXPENSE
Salaries, wages and other employee benefits 7,850 7,616 23,340 21,553
Occupancy expense 890 951 2,703 2,715
Furniture and equipment expense 1,182 1,178 3,275 3,191
Amortization of intangibles 849 913 2,590 2,739
Other 5,583 5,009 14,553 14,089
-------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 16,354 15,667 46,461 44,287
-------------------------------------------------------------------------------------------------------------------------
Income before income taxes 10,285 9,874 33,197 30,746
Income taxes 3,265 2,456 10,497 9,147
-------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 7,020 $ 7,418 $ 22,700 $ 21,599
=========================================================================================================================
Per share data:
Basic earnings $ 0.40 $ 0.42 $ 1.30 $ 1.22
Diluted earnings $ 0.40 $ 0.42 $ 1.30 $ 1.21
Dividends declared $ 0.21 $ 0.19 $ 0.63 $ 0.57
Weighted average shares outstanding:
Basic 17,367,975 17,745,481 17,424,223 17,720,610
Diluted 17,373,085 17,830,715 17,441,447 17,809,175
</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 of Comprehensive Income
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 7,020 $ 7,418 $ 22,700 $ 21,599
Other comprehensive income, net of tax:
Unrealized gain (loss) arising in period 5,771 (1,496) 4,603 (4,604)
Reclassification of realized amounts 108 15 311 (622)
-------------------------------------------------------------------------------------------------
Net unrealized gain (loss), recognized
in other comprehensive income $ 5,879 $ (1,481) $ 4,914 $ (5,226)
-------------------------------------------------------------------------------------------------
Comprehensive income $ 12,899 $ 5,937 $ 27,614 $ 16,373
=================================================================================================
</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>
Nine Months Ended
September 30,
---------------------------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 30,085 $ 31,918
---------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest-bearing time deposits in banks - 142
Proceeds from matured securities available for sale 49,959 79,215
Proceeds from sales of securities available for sale 152,372 2,598
Proceeds from sales of nonmarketable securities - 654
Proceeds from called investments - 20,916
Purchases of securities available for sale (734,522) (91,129)
Purchases of nonmarketable equity securities - (242)
(Increase) decrease in federal funds sold (6,680) 8,965
(Increase) decrease in loans made to customers 50,471 (34,909)
Increase in cash surrender value life insurance (17,465) (61)
Increase in other investments - (2,054)
Capital expenditures (4,256) (2,293)
Proceeds from sale of premises and equipment 1,235 350
Proceeds from sale of other real estate owned 1,679 504
---------------------------------------------------------------------------------------------------
Net cash flows (used in) provided by investing activities (507,207) (17,344)
---------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (34,677) (91,099)
Net increase in short-term borrowings 253,113 75,979
Proceeds from other borrowings 390,170 10,090
Payments on other borrowings (119,530) (18,837)
Dividends paid (10,998) (10,115)
Repurchase of common stock (6,107) -
Proceeds from exercise of stock options 863 1,089
---------------------------------------------------------------------------------------------------
Net cash flows provided by (used in) financing activities 472,834 (32,893)
---------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (4,288) (18,319)
---------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 72,935 67,389
---------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 68,647 $ 49,070
===================================================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Change in allowance for unrealized
loss on securities available for sale $ 8,012 $ (8,394)
Increase in deferred taxes attributable
to securities available for sale 3,098 (514)
Other real estate acquired in settlement of loans 1,662 926
</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 September 30,
2000, the Corporation's subsidiaries consisted of one commercial bank, 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 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 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 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:
September 30, 2000 December 31, 1999
----------------------------------------------------------------------------
Standby letters of credit $ 15,162 $ 15,156
Commitments to extend credit 267,154 281,074
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 September 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 $ 7,020 $ 7,418 $ 22,700 $ 21,599
Basic earnings per share:
Weighted average shares outstanding 17,367,975 17,745,481 17,424,223 17,720,610
Basic earnings per share $ 0.40 $ 0.42 $ 1.30 $ 1.22
Diluted earnings per share:
Weighted average shares outstanding 17,367,975 17,745,481 17,424,223 17,720,610
Common stock equivalents due to stock options 5,110 85,234 17,224 88,565
Adjusted shares outstanding 17,373,085 17,830,715 17,441,447 17,809,175
Diluted earnings per share $ 0.40 $ 0.42 $ 1.30 $ 1.21
</TABLE>
NOTE 5
The Corporation has historically identified its reportable segments on the basis
of geographic areas served. As of the end of the third quarter, the Corporation
completed the legal charter consolidation of all of its twelve subsidiary banks
into Integra Bank, N.A. In conjunction with the consolidation, the Corporation
is in the process of changing its organizational and financial reporting
structure from a geographic structure to a structure organized along lines of
business. The structure will consist of four lines of business - Retail Banking;
Community Banking; Commercial Banking; and Trust and Investment Services. The
Corporation is in the process of aligning its information systems to provide the
necessary information to report along the new lines of business, which is
expected to be complete during the fourth quarter of 2000.
During the transition to the new lines of business, management is monitoring the
Corporation based on the Bank's overall operating results, which are not
materially different than that reported in the consolidated financial statements
of the Corporation.
NOTE 6
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.
8
<PAGE> 9
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
preceding 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
consolidation of its banking subsidiaries into one bank under the new name
Integra. The Corporation had 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 was completed on
September 15, 2000. The corporation had estimated that it would incur
approximately $1,800,000 of costs associated with the consolidation project. At
September 30, 2000 the total costs incurred were approximately $2,100,000.
On July 5, 2000 the Corporation signed a definitive agreement to acquire Webster
Bancorp, Inc. (Webster), headquartered in Clay, Kentucky. At September 30, 2000
Webster reported total assets of $292,000,000 deposits of $247,500,000 and
shareholders' equity of $21,400,000. Under the terms of the original agreement
the Corporation would have issued approximately 1,750,000 shares of its common
stock for all of the issued and outstanding shares of Webster. On September 27,
2000 the Corporation and Webster amended the definitive agreement to provide
that the Corporation will issue 1,500,000 shares of common stock. 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 the previously authorized buy-back of up to
1,750,000 shares of its common stock to facilitate the purchase of Webster would
be reduced to up to 1,500,000 shares. The stock buy-back is expected to be
completed prior to the end of the first quarter of 2001. In conjunction with the
acquisition of Webster, the Corporation will initially record an estimated
$5,100,000 of goodwill.
On August 10, 2000 the Corporation signed an agreement to acquire four banking
centers of AmSouth Bank located in the greater Bowling Green, Kentucky area.
Under the terms of the Purchase and Assumption Agreement, the Corporation will
purchase certain loans and assets and assume approximately $185,000,000 of
deposits and other liabilities of AmSouth's four branch banks located in the
Commonwealth of Kentucky. The transaction is subject to regulatory approval and
is expected to close in the fourth quarter of 2000. In conjunction with the
acquisition of the deposit liabilities from AmSouth, the Corporation will record
an estimated $22,600,000 in deposit premium associated with this transaction.
NET INCOME
Net income for the quarter ended September 30, 2000 was $7,020,000 compared to
$7,418,000 in the third quarter of 1999, a decrease of $398,000 or five percent.
Basic earnings per share for the third quarter were $0.40 in 2000 compared to
$0.42 in 1999. Earnings per share, on a diluted basis were $0.40 for the third
quarter of 2000 compared to $0.42 in 1999.
For the nine months ended September 30, 2000, net income was $22,700,000
compared to $21,599,000 in the prior year, an increase of $1,101,000 or five
percent. Basic earnings per share for the first nine months were $1.30 in 2000
compared to $1.22 in 1999. Earnings per share, on a diluted basis, were $1.30
for 2000 compared to $1.21 in 1999, an increase of seven percent.
9
<PAGE> 10
NET INCOME (continued)
The basic weighted average number of shares outstanding was 17,367,975 and
17,424,223 for the three and nine months, respectively, ended September 30,
2000, compared to 17,745,481 and 17,720,610 during the same periods last year.
The weighted average number of shares outstanding, assuming dilution, was
17,373,085 and 17,441,447 for the three and nine months ended September 30,
2000, respectively, compared to 17,830,715 and 17,809,175 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 shares of common stock under
its stock repurchase program announced in October 1999.
The average return on equity for the third quarter of 2000 was 11.98% versus
12.67% in the same period a year ago. The average return on equity for the nine
months ended September 30 was 13.28% and 12.67% in 2000 and 1999, respectively.
NET INTEREST INCOME
Net interest income, on a taxable equivalent basis, for the quarter ended
September 30, 2000 was $24,045,000, relatively flat compared with the
$24,156,000 in the same period in 1999. Although earning assets averaged
$2,399,216,000 during the third quarter of 2000, an increase of approximately
$403,914,000 from the third quarter last year, the increase in funding costs
exceeded the increase in earning asset yields resulting in a reduction in the
net interest margin from 4.80% in 1999 to 3.99% in the third quarter of 2000.
The majority of the increase in average earning assets was in the securities
portfolio, which increased $384,221,000 over the third quarter of
1999. Average loans for the quarter ended September 30, 2000 was
$1,652,999,000, relatively flat compared with $1,652,654,000 in the same period
in 1999. The growth in average earning assets was funded primarily through an
increase in short-term and other borrowings. The average balance for borrowings
was $657,944,000 for the third quarter of 2000, compared to $246,676,000 for the
same period in the prior year.
For the nine months ended September 30, 2000, net interest income, on a taxable
equivalent basis, was $71,953,000 compared to $71,873,000 for the same period in
1999, primarily due to increases in volume of average earning assets. Average
earning assets for the first nine months of 2000 were $2,236,420,000 compared to
$1,990,424,000 for the corresponding period in 1999, reflecting an increase of
$245,996,000 or 12%. Average securities for the first nine months of 2000
increased $197,846,000 over the same period in 1999. Average loans also
increased $51,373,000 in the first nine months of 2000 compared to 1999. For the
first nine months of 2000 average interest bearing deposits increased
$35,425,000 and average borrowed funds increased $240,517,000 compared to 1999.
The net interest margin for the first nine months of 2000 decreased 50 basis
points from 4.81% in 1999 to 4.31% in 2000. 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.
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999 September 30, 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $ 33,745 $ 32,025 $ 14,452
Restructured loans 167 1,275 1,262
90 days past due loans 3,760 1,629 1,425
-------------------------------------------------------------------------------------------------
Total underperforming loans 37,672 34,929 17,139
Other real estate held 842 936 749
-------------------------------------------------------------------------------------------------
Total underperforming assets $ 38,514 $ 35,865 $ 17,888
=================================================================================================
</TABLE>
For the first nine months of 2000 total underperforming loans increased
$2,743,000 or eight percent. Past due 90 days or more, nonaccrual, and
restructured loans were two percent, two percent and one percent of total gross
loans at September 30, 2000, December 31, 1999, and September 30, 1999,
respectively.
10
<PAGE> 11
PROVISION FOR LOAN LOSSES
Net charge-offs amounted to $3,624,000 through September 30, 2000, compared to
$2,264,000 in the corresponding period in the prior year. Net charge-offs for
the third quarter were $1,714,000 in 2000 and $704,000 in 1999.
The provision for loan losses for the third quarter was $1,050,000 in 2000
compared to $1,149,000 for the same period in 1999. For the nine months ending
September 30, 2000 and 1999 provision for loan losses was $2,963,000 and
$3,249,000 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 third 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 third quarter of 2000. As of September 30, 2000 management
considered the allowance for loan losses adequate for probable loan losses.
NONINTEREST INCOME
Noninterest income for the third quarter was $4,781,000 in 2000 and $4,048,000
in 1999. Securities transactions resulted in gains of $467,000 in the third
quarter of 2000 and $16,000 in the same period of 1999. Total noninterest income
excluding securities transactions was approximately $4,314,000 in the third
quarter of 2000 and $4,032,000 in the same period in 1999, an increase of seven
percent.
For the nine months ended September 30, 2000 noninterest income increased
$3,489,000, or 31%, from the same period a year ago. During the first quarter of
2000 the Corporation recognized a gain of approximately $1,800,000 on the sale
of its mortgage loan investor servicing rights. The Corporation had gains on
securities transactions of $976,000 during the first nine months of 2000 and
losses of $622,000 for the corresponding period in 1999. Noninterest income for
the nine months ending September 30, excluding securities gains or losses and
the gain on sale of mortgage servicing rights, was $11,794,000 in 2000 and
$11,703,000 in 1999.
NONINTEREST EXPENSE
Noninterest expense increased $687,000, or four percent, in the third quarter of
2000 compared to the third quarter of 1999. Salaries and employee benefits
increased $234,000, or three percent; occupancy expense decreased $61,000, or
six percent and other noninterest expense increased $574,000, or 11%, over the
same period of 1999. During the third quarter of 1999, other expense included
approximately $813,000 of pretax operating losses related to expenses associated
with the Corporation's investments in low income housing projects. During the
third quarter of 2000 the Corporation incurred approximately $900,000 of expense
associated with the consolidation of its banking subsidiaries.
For the first nine months of 2000 noninterest expense increased $2,174,000, or
five percent, compared to the same period a year ago. Salaries and employee
benefits increased $1,787,000 or eight percent and other noninterest expense
increased $464,000 or three percent over same period in the prior year.
FINANCIAL POSITION
During the first nine months of 2000 average earning assets increased
approximately $245,996,000 or 12% over the same period a year ago. Average
investment securities increased approximately $197,846,000 or 58% from 1999
average levels and average loan balances increased approximately $51,373,000
during the same period. As average non-interest bearing deposits declined during
the first nine months of 2000 by approximately $24,298,000 the Corporation
funded the earning asset growth through higher costing interest bearing deposits
which increased by $35,425,000 and borrowed funds, which increased by
approximately $240,517,000.
During 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 more effectively utilize excess capital and to increase
earnings. This strategy is designed to earn incremental revenue from excess
capital not previously utilized to support other areas of the Corporation's
banking operations. As of September 30, 2000 total assets had been increased by
approximately $700,000,000 as a result of this strategy. In order to reduce the
potential negative impact of rising interest
11
<PAGE> 12
FINANCIAL POSITION (continued)
rates on this strategy, the Corporation entered into interest rate caps with
aggregate notional values of approximately $175,000,000.
Amortized cost and the fair values of securities available for sale at September
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 $163,266 $ 167 $ 600 $162,833
Taxable municipals 2,424 15 21 2,418
Tax-exempt municipals 136,927 1,219 1,081 137,065
Corporate securities 5,298 66 85 5,279
Mortgage-backed securities 512,483 6,898 1,693 517,688
Trust preferred securities 21,442 349 68 21,723
Equity securities 26,225 - - 26,225
------------------------------------------------------------------------------------------------------
Total available for sale $868,065 $ 8,714 $ 3,548 $873,231
======================================================================================================
</TABLE>
LOANS
Total loans at September 30, 2000, were $1,646,586,000 compared to
$1,700,833,000 at December 31, 1999, reflecting a decrease of $54,247,000 or
three percent. During the second quarter of 2000, the Corporation securitized
approximately $38,000,000 of its mortgage loans and retained the resulting
mortgage-backed securities in its investment portfolio. Excluding the loans
which were securitized, loans at September 30, 2000 decreased $16,247,000 or one
percent compared to December 31, 1999.
DEPOSITS
Total deposits decreased $34,676,000 or two percent to $1,659,985,000 at
September 30, 2000, from $1,694,661,000 at December 31, 1999. Total noninterest
bearing deposits decreased $36,466,000 or 18% and interest-bearing deposits
increased $1,790,000 during the nine months ended September 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
$752,113,000 at September 30, 2000 compared to $228,360,000 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 its subsidiary bank have capital ratios which substantially
exceed all regulatory requirements. The Corporation's regulatory capital ratios
are shown below.
12
<PAGE> 13
SHAREHOLDERS' EQUITY (continued)
<TABLE>
<CAPTION>
Minimum
Requirements September 30, 2000 December 31, 1999 September 30, 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 capital to risk-based assets 4.00% 13.55% 13.78% 14.31%
Total capital to risk-based assets 8.00% 14.80% 15.04% 15.50%
Tangible equity to tangible assets 3.00% 9.28% 10.47% 9.15%
</TABLE>
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 its subsidiary bank, money market deposits and available
for sale securities. As a supplemental source of liquidity the Corporation
entered into a $50,000,000 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 liquidity 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.
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following exhibits are submitted herewith:
3(i) Articles of Amendment of Restated Articles of Incorporation of the
Registrant dated May 17, 2000
27 Financial Data Schedule (Electronic Filing Only)
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the third 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
November 9, 2000
<PAGE> 15
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------------------------------------
3(i) Articles of Amendment of Restated Articles of Incorporation
of the Registrant dated May 17, 2000
27 Financial Data Schedule (Electronic Filing Only)
--------------------------------------------------------------------------------
