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 June 30, 2004.

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.

CLASS OUTSTANDING AT JULY 19, 2004
(Common stock, $1.00 Stated Value) 17,358,005

INTEGRA BANK CORPORATION

INDEX

PART I - FINANCIAL INFORMATION

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.

INTEGRA BANK CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)

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

5

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

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

6

INTEGRA BANK CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)

Unaudited Consolidated Statements of Cash Flow are continued on next page.

7

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.

8

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 consolidated financial statements include the
accounts of Integra Bank Corporation and its subsidiaries (the "Company" or
"Integra"). At June 30, 2004, the Company's subsidiaries consisted of Integra
Bank N.A. (the "Bank"), a reinsurance company and two statutory business trusts.
All significant intercompany transactions are eliminated in consolidation.

The financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). While the
financial statements are unaudited, they do reflect all adjustments which, in
the opinion of management, are necessary for a fair 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 ("GAAP") have been condensed or omitted from
these financial statements unless significant changes have taken place since the
end of the most recent fiscal year. The accompanying financial statements and
notes thereto should be read in conjunction with the Company's financial
statements and notes for the year ended December 31, 2003 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 fair value based method of accounting
for stock-based employee compensation. SFAS No. 148 also provides for
disclosures in interim financial statements concerning the method of accounting
for stock-based compensation and the effect of the method used on reported net
income. SFAS No. 148 is effective for fiscal years ending after December 15,
2002. The Company is currently assessing the possible adoption.

Stock options and other forms of stock-based compensation are accounted for
following Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees and related interpretations. Had compensation costs been
determined based on fair values of awards on the grant date (the method
described in SFAS No. 123) reported net income and earnings per common share
would have been reduced to the pro forma amounts shown below.

9

NOTE 2. EARNINGS PER SHARE

The calculation of earnings per share for the three and six months ended June
30, 2004 and 2003 is summarized as follows:

On June 30, 2004, there were vested options outstanding to purchase up to 665
shares of the Company's common stock. The exercise price of 410 shares of the
vested options exceeded the stock's closing price as of June 30, 2004.

NOTE 3. SECURITIES

All investment securities are classified as available for sale. Amortized cost
and fair value of these securities as of June 30, 2004 and December 31, 2003 are
as follows:

10

The amortized cost and fair value of the securities as of June 30, 2004, by
contractual maturity, except mortgage passthrough securities and collateralized
mortgage obligations which are based on estimated average lives, are shown
below. Expected maturities may differ from contractual maturities in certain
securities where actual cashflows deviate from originally contracted cashflows.

Maturity of securities available for sale:

Note: The yield is calculated on a 35 percent federal-tax-equivalent basis.

At June 30, 2004 and December 31, 2003, the carrying value of securities pledged
to secure public deposits, trust funds, securities sold under repurchase
agreements and Federal Home Loan Bank ("FHLB") advances was $443,808 and
$605,971, respectively.

NOTE 4. INTANGIBLE ASSETS

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

NOTE 5. INCOME TAXES

The components of income tax expense (benefit) for the three and six months
ended June 30, 2004 and 2003 are as follows:

11

NOTE 6. SHORT-TERM BORROWINGS

Short-term borrowings include Federal funds purchased, securities sold under
repurchase agreements, FHLB advances with maturities less than one year and
other short-term borrowings. The Company currently has an unsecured line of
credit for $15,000 with the entire amount available at June 30, 2004.

NOTE 7. LONG-TERM BORROWINGS

Long-term borrowings include $224,478 of FHLB advances and $160,000 of term
repurchase agreements. The Bank pledges a combination of collateral including
securities and mortgage loans to secure these borrowings.

12

During the first quarter of 2004 the Company prepaid $467 million in long-term
FHLB fixed rate advances with an average yield of 6.16% and a remaining average
life of about 4 years. The Company also entered into $294 million of new fixed
rate long-term borrowings during the first quarter of 2004 as part of the
balance sheet restructuring.

NOTE 8. COMMITMENTS AND CONTINGENCIES

The Company is party to legal actions that arise in the normal course of its
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 instruments.

The commitments and contingent liabilities not reflected in the consolidated
financial statements were $322,834 and $256,436 at June 30, 2004 and December
31, 2003, respectively.

NOTE 9. INTEREST RATE CONTRACTS

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. The interest rate swaps
require the Company to pay a variable rate based on three-month LIBOR and
receive a fixed interest rate ranging from 2.60% to 2.72%. The interest rate
swaps, which had a fair value of $(277) as of June 30, 2004, expire on or prior
to May 22, 2006.

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, and is recorded as a component
of accumulated other comprehensive income. At June 30, 2004, a total of $42
remained in Other Comprehensive Income and will be amortized into earnings over
the remaining original term of the liabilities being hedged.

The Company is exposed to losses if a counterparty fails to make its payments
under a contract in which the Company is in a receiving status. Although
collateral or other security is not currently obtained, the Company minimizes
its credit risk by monitoring the credit standing of the counterparties, the
aggregate credit exposure to each counterparty and anticipates that the
counterparties will be able to fully satisfy their obligations under the
agreements.

NOTE 10. SEGMENT INFORMATION

The Company reports only one major line of business, Banking. Banking services
include various types of deposit accounts; safe deposit boxes; securities
safekeeping; automated teller machines; consumer, mortgage and commercial loans;
mortgage loan sales and servicing; letters of credit; corporate cash management
services; brokerage and insurance products and services; and complete personal
and corporate trust services. The Other category 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.

13

For three months ended June 30, 2004

For six months ended June 30, 2004

(1) Includes income (loss) on subsidiaries.

For three months ended June 30, 2003

For six months ended June 30, 2003

(1) Includes income (loss) on subsidiaries.

14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollar amounts in millions 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" or
"Integra") as presented in the preceding 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," "intend," and similar
expressions 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
without limitation: general, regional and local economic conditions and their
effect on interest rates, the Company and its customers; credit risks and risks
from concentrations (geographic and by industry) within the loan portfolio;
changes in regulations or accounting policies affecting financial institutions;
the costs and effects of litigation and of unexpected or adverse outcomes in
such litigation; technological changes; acquisitions and integration of acquired
business; the failure of assumptions underlying the establishment of resources
for loan losses and estimations of values of collateral and various financial
assets and liabilities; the outcome of efforts to manage interest rate or
liquidity risk; competition; and acts of war or terrorism. 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.

This discussion and analysis uses the following non-GAAP financial measures:
"adjusted non-interest income", which represents non-interest income less gain
on sale of credit card portfolio, gain on sale of branch, loss on fixed assets
disposition, and securities gains/losses, "adjusted non-interest expense", which
represents non-interest expense, less severance pay, trust preferred redemption
expenses and debt extinguishment expenses, "net operating income", which
represents net income, less gain on sale of credit card portfolio, gain on sale
of branch, loss on fixed assets disposition, and securities gains/losses
securities, net of tax and severance pay, trust preferred redemption expenses
and debt extinguishment expense, net of tax, and "diluted net operating income
per share", which is net operating income divided by the total number of diluted
shares. All non-GAAP financial measures are reconciled to the most directly
comparable GAAP financial measure. The presentation of these non-GAAP financial
measures is intended to supplement investors' understanding of the Company's
core business activities, unaffected by the fluctuations caused by the above
mentioned items, and may be useful to investors for comparative purposes. The
Company also uses these measures for trend analysis and for peer comparisons.

OVERVIEW

This overview of management's discussion and analysis highlights selected
information in this document and may not contain all of the information that is
important to you. For a more complete understanding of trends, events,
commitments, uncertainties, liquidity, capital resources, and critical
accounting estimates, you should carefully read this entire document.

During the first quarter of 2004, Integra executed several key initiatives and
incurred a net $32 after-tax charge to restructure its balance sheet. Management
believed the restructuring would enhance future earnings, improve the Company's
liquidity, and contribute to the Company reaching its interest rate risk
management objectives including reducing the adverse impact of higher interest
rates on earnings and market value of equity.

Some of the benefits of the balance sheet restructuring were realized in the
second quarter. These included a 262 basis point reduction in long-term debt
costs and a 75 basis point reduction in the yield of interest-bearing
liabilities compared to the previous quarter. The restructuring was the
principal factor in the 72 basis point improvement in the net interest margin.

The Company continued its efforts to develop new products, make additional
investments in training and technology, optimize its retail delivery network,
and emphasize new customer sales and service initiatives, including the I CARE
program. The Company emphasizes growing valuable core deposits (defined as money
market, demand deposit, and savings accounts), building on recent investments in
a high-quality commercial real estate niche, and concentrating investments in
new markets and products that have superior growth and/or income demographic
profiles.

During the quarter, Integra entered into an arrangement with Elan Financial
Service to offer Integra's customers a wider variety of credit card products by
partnering with Elan. During the second quarter of 2004, Integra sold its $6.1
credit card portfolio to Elan Financial Services. Management anticipates that
the transaction will be approximately income neutral to positive in future
quarters with the reduction in spread income, and fees more than offset by fee
sharing arrangements with Elan, as well as reduced loan loss provision and
processing expenses. The loss of spread income, however, will cause the net
interest margin to be approximately 2 basis points lower than it would have been
otherwise.

15

Integra endeavors to be the primary provider of financial services for its
customers. Its deposit gathering activities focus on relationship oriented
products like money market demand deposits and savings accounts. Integra refers
to these deposits as valuable core deposits. Valuable core average deposit
balances grew $8 in the second quarter, or 3.2% annualized, of which
non-interest bearing deposits made up $6 of the increase. Non-interest bearing
deposits grew at a 10.7% annualized rate in the second quarter of 2004. Total
average deposits, however, declined $19 over the same period due, in part, to
lower public deposits and CD balances.

Total loan average balances grew $3 above the first quarter of 2004. The
consumer loan sector was responsible for the increase with average balances
growing $7, or 7.5%, annualized. Consumer loan average balances were reduced by
approximately $4 due to the credit card portfolio sale.

Mortgage and commercial loan average balances were $1 and $3 lower,
respectively, from the previous quarter. Though commercial loan average balances
were little changed from the previous quarter, Integra's metro commercial real
estate portfolio had outstandings of $70 at the end of the second quarter, an
increase of $34 from the end of the first quarter. These loans represent a
higher average credit quality relative to Integra's pre-initiative commercial
real estate portfolio.

Total loan average balances for the second quarter of 2004 declined $9, or 0.6%
compared with the same quarter a year ago. The decline was isolated to
commercial lending as average commercial loan balances fell $59, or 6.4%.
Integra's other lending areas, consumer and mortgage, expanded over the same
horizon with average balances growing by $35 and $15, or 10.2% and 3.7%,
respectively.

FINANCIAL OVERVIEW

Net income for the quarter ended June 30, 2004 was $6.7 compared to $4.3 for the
same period of 2003. Earnings per share, on a diluted basis, were $0.38 for the
second quarter of 2004 compared to $0.25 for the second quarter of 2003.

Annualized returns on average assets and equity for the three months ended June
30, 2004 were 0.99% and 13.38%, respectively, compared with 0.59% and 7.25% in
the same period of 2003.

Net loss for the six months ended June 30, 2004 was $20.6 compared to net income
of $8.2 for the same period of 2003. The income (loss) per share, on a diluted
basis, was $(1.19) for the first half of 2004 compared to $0.48 in 2003.

Net interest income was $21.6 during the three months ended June 30, 2004
compared to $17.5 for the three months ended June 30, 2003.

Net interest income on a tax-equivalent basis totaled $22.4 for the second
quarter, a 19.1% increase over the $18.8 reported for the same period a year
ago. Net interest income improved 14.3%, or $2.8 from the previous quarter. Net
interest income on a tax equivalent basis per calendar day was $246 thousand in
the second quarter of 2004, compared with $215 thousand in the first quarter of
2004.

Second quarter non-interest income totaled $7.5 compared with $8.9 for the
second quarter of 2003 and $12.0 for the first quarter of 2004. Included in the
totals, however, were securities gains (losses) of approximately $(0.7), $1.0,
and $5.2, respectively. Also included in non-interest income are gains and
losses from unique asset sales. Specifically, this includes a $1.2 gain on the
sale of the credit card portfolio in the second quarter of 2004, and a net $0.9
gain in the second quarter of 2003 from a branch and building sale.

Non-interest income excluding securities gains and the unique asset sales
mentioned above, or adjusted non-interest income, was $7.1 in the second quarter
of 2004 compared with $7.0 in the same quarter a year ago, and $6.8 for the
first quarter of 2004. The growth in adjusted non-interest income since last
quarter was primarily due to a $0.6, or 12.0%, improvement in service fee
revenue. Mortgage-related fee revenue was essentially flat from the previous
quarter, but was $0.7 lower than the second quarter of 2003.

Non-interest expense decreased $0.4 to $20.6 from the second quarter of 2003.
Second quarter non-interest expenses included approximately $0.4 in OREO and
$0.3 in employee severance charges. This compares with $21.0 in the year-ago
quarter and $77.6 in the first quarter of 2004. The second quarter of 2003 had
approximately $1.4 in expenses related to redeeming trust preferred securities
and the first quarter of 2004 had approximately $57.0 in prepayment charges
related to early debt extinguishment as part of last quarter's overall balance
sheet restructuring.

Personnel-related expenses, including the severance charge mentioned above,
totaled $10.8 in the second quarter of 2004, a 4.2% reduction from last
quarter's $11.2. OREO expenses were $0.4 higher than the previous quarter.
Management believes that the gain from the credit card portfolio sale, the
securities sale loss and severance expense are non-core events and not
indicative of the Company's long-term trends.

Provision for loan losses was $0.2 for the three months ended June 30, 2004
compared to $1.6 for the same period one year ago.

16

The ratio of net charge-offs to average loans moved lower in the second quarter
of 2004 compared to both the same quarter a year ago and the first quarter of
2004. Net charge-offs were 8 basis points of average loans in the second quarter
of 2004 compared with 30 basis points in the second quarter of 2003 and 14 basis
points in the first quarter of 2004.

Non-performing assets totaled $24.5 at June 30, 2004, representing a $0.1
decrease from a year ago, but a $0.4 increase from March 31, 2004. The increase
over last quarter is primarily attributable to a $0.6 uptick in non-performing
loans partially offset by a $0.4 reduction in OREO.

The non-performing loans to total loans ratio was 1.25%, 1.22% and 1.22% at June
30, 2004, March 31, 2004 and June 30, 2003, respectively.

The allowance for loan losses to total loans was 1.50% at June 30, 2004, 1.54%
at March 31, 2004 and 1.48% at June 30, 2003.

On a year-to-date basis, net interest income was $40.2 for the six-month period
ending June 30, 2004, an increase of $5.2, or 14.9%, compared to $35.0 for the
first six months of 2003. The net interest margin was 3.28% during the first
half of 2004 compared to 2.80% during the first half of 2003. Provision for loan
losses was $0.8 for the six months ended June 30, 2004 compared to $2.8 for the
same period one year ago. Non-interest income increased $3.1, or 19.0%, to $19.5
compared to the first six months of 2003. Non-interest expenses increased $56.8
to $98.1 for the same period.

Annualized returns on average assets and equity for the first half of 2004 were
(1.47)% and (19.15)%, respectively, compared with 0.57% and 7.02%, respectively
in the same period of 2003.

Total assets at June 30, 2004 decreased $290.2 to $2,703.4 from $2,993.6 at June
30, 2003.

RECONCILIATION TABLE - NET OPERATING INCOME
(In millions, except per share data)

17

CRITICAL ACCOUNTING POLICIES

There have been no changes to the Company's critical accounting policies since
those disclosed in the Annual Report on Form 10-K for the year ended December
31, 2003.

NET INTEREST INCOME

Net interest income, on a fully tax equivalent basis, was $22.4 for the three
months ended June 30, 2004 compared with $18.8 for the same period in 2003; and
$41.9 and $37.6 for the six months ended June 30, 2004 and 2003, respectively.
The net interest margin for the three months ended June 30, 2004 was 3.66%
compared to 2.77% for the same three months of 2003. The net interest margin for
the six months ended June 30, 2004 was 3.28% compared to 2.80% for the same
period one-year ago. The majority of the increase in the margin is attributable
to the balance sheet restructuring which was accomplished in the first quarter
of 2004. In late March of 2004, the Company prepaid $467 in long-term Federal
Home Loan Bank ("FHLB") advances with a yield of 6.16% and reduced its
investment portfolio by $262. Integra also added $330 of new fixed rate
borrowings with an average rate of 2.28%. Late in the second quarter of 2003,
the Company paid off $34.5 of trust preferred debt with a fixed rate of 8.25%
and issued a new trust preferred of $34.5 with a floating rate of LIBOR plus
3.10%. As a result, the cost of total interest-bearing liabilities dropped 118
basis points to 1.81% for the second quarter of 2004 compared to 2.99% for the
second quarter of 2003. The cost of total interest-bearing liabilities for the
first six months of 2004 decreased 87 basis points to 2.20% compared to 3.07%
for the same period of 2003.

Average earning assets were $2,434.6 for the second quarter of 2004 compared to
$2,684.1 for the second quarter of 2003, a decrease of $249.5. This was largely
a result of a decrease of $239.0 in investments mainly due to the balance sheet
restructuring. Yields on earning assets decreased from 5.54% to 5.32% for the
same period. Average earning assets decreased $110.2 from $2,653.2 for the first
six months of 2003 to $2,543.0 for the first six months of 2004. Loan increases
were offset by the decrease in investments as a result of the balance sheet
restructuring. The yield on earning assets for the first six months of 2004 was
5.30% compared to 5.64% for the same period of 2003. The yield decrease for both
the second quarter and year-to-date was the result of the decrease in loan rates
and investment volume.

Average loan balances were $1,664.4 during the second quarter of 2004 compared
to $1,673.8 during the second quarter of 2003 for a decrease of $9.4, or 0.6%.
In late April 2004, the Company sold its credit card portfolio for approximately
$6.1 and generated a net gain of $0.9 after tax. Commercial loans decreased
$59.3 to $866.0, consumer loans increased $35.1 to $378.6, and mortgage loans
increased $14.9 to $419.8 during the second quarter of 2004 compared to the same
quarter of 2003. Total interest income on loans decreased $2.1 during the second
quarter of 2004 compared to 2003 as the result of a decline in loan volume and
yields. The yield on loans was 5.64% for the second quarter of 2004 compared to
6.11% for the same period of 2003. This was a result of customers refinancing
higher yielding loans at lower rates, loan yields tied to floating rate indices
falling, and maturing loans repricing at lower rates. Average loans were
$1,662.7 during the first six months of 2004 compared to $1,648.3 during the
first six months of 2003, an increase of $14.4, or 0.9%. Consumer loans and
mortgage loans, on an average basis, experienced growth of $38.8 and $18.0,
respectively, for the six months of 2004 compared to the same period of 2003,
while commercial loans, on an average basis, decreased $42.5 for the same
periods. The yield on loans was 5.65% for the first six months of 2004 compared
to 6.21% for the same period of 2003.

Average investment securities were $759.4 during the second quarter of 2004
compared to $998.3 during the second quarter of 2003. The yield on securities
increased to 4.67% during the second quarter of 2004 from 4.60% during the same
period in 2003. The Company sold $262 in investments as part of the balance
sheet restructuring in late March of 2004 for a gain of $5.2. In late June 2004
the Company sold $25.0 of U.S. government agency securities for a loss of $0.7.
In the second quarter of 2003 mortgage-backed securities were sold which
generated a gain of $1.0. The proceeds from the securities sold in second
quarter 2003 were reinvested in structured mortgage-backed securities with more
predictable cashflows and yields. Average investment securities decreased
$120.3, or 12.1%, to $871.2 during the first half of 2004 compared to $991.5
during the first half of 2003. The yield on securities declined to 4.68% during
the first half of 2004 from 4.71% during the first half of 2003.

Other earning assets decreased $1.2 during the second quarter of 2004 compared
to the same period of 2003. The decline in other earning assets resulted
primarily from a decrease of $2.1 in loans held for sale offset by a $0.9
increase in short-term investments. Other earning assets decreased $4.2 during
the first half of 2004 compared to the same period of 2003, primarily from an
increase of $0.9 offset by a decrease of $5.1 in short term investments and
loans held for sale, respectively.

Average interest-bearing liabilities were $2,244.2 and $2,486.6 for the three
months ended June 30, 2004 and 2003, respectively, a decrease of $242.4; while
the cost of these funds decreased from 2.99% to 1.81% for the same period.
Average interest-bearing liabilities were $2,330.9 and $2,455.2 for the six
months ended June 30, 2004 and 2003, respectively.

Average interest-bearing deposits increased $1.7 from $1,601.6 to $1,603.3 while
average non-interest-bearing demand deposits increased $30.7, or 14.4%, from
$212.7 to $243.4 for the second quarter of 2004 compared to the same period in
2003. The increase in interest-bearing transaction deposits of $37.6 was
partially offset by a decrease of $35.9 in certificates of deposits ("CDs") and
other

18

time deposits for the second quarter of 2004 compared to the same period of
2003. The declining rate environment and change in deposit product mix resulted
in the cost of deposits decreasing from 1.99% to 1.53% for the second quarter of
2004 compared to the second quarter of 2003. Average interest-bearing deposits
were $1,616.1 during the first six months of 2004 compared to $1,598.6 during
the first six months of 2003. Money market accounts increased $41.8 as savings
and interest checking remained relatively unchanged and CDs and other time
deposits decreased $24.2. Non-interest-bearing deposits increased $29.9, or
14.2%. The cost of deposits decreased to 1.54% during the first half of 2004
from 2.06% during the first half of 2003.

Average short-term borrowings decreased $44.2 from $223.7 to $179.5 for the
second quarter of 2004 compared to the same period in 2003. The cost of
short-term borrowings declined 18 basis points during this period, to 1.11% for
the second quarter of 2004. For the first six months of 2004, average short-term
borrowings decreased $24.7 from $196.5 for the first six months of 2003 to
$171.8. As part of the balance sheet restructuring the Company paid off some of
its long-term FHLB borrowings and refinanced into short-term borrowings. For the
first six-month period of 2004 and 2003, the cost of short-term borrowings was
1.08% and 1.30%, respectively. The decline in short-term borrowing yields was
the result of repricing federal funds purchased and short-term repurchase
agreements to lower market rates in 2004.

Average long-term borrowings decreased $199.8 from $661.2 to $461.4 for the
second quarter of 2004 compared to the same period in 2003. The cost of
long-term borrowings decreased 296 basis points from 5.97% during the second
quarter of 2003 to 3.01% for the same period of 2004. For the first six months
period of 2004 average long-term borrowings decreased $117.1 from $660.1 in 2003
to $543.0 and long-term borrowing costs were 6.03% and 4.52% for the same time
periods. In April 2003 the Company issued $10 of subordinated debt with a
floating rate of 4.49% for the second quarter of 2003. In late June 2003 the
Company called $34.5 of trust preferred securities at par which had a fixed rate
of 8.25%. During the second quarter of 2003, the Company issued $34.5 of new,
floating rate trust preferred securities which had an initial yield of 4.16%. In
late March 2004 the Company restructured its balance sheet by prepaying $467 in
long-term FHLB advances with an average yield of 6.16% and arranged new
financing of $330 with maturities of 1 to 4 years with an average yield of
2.28%.

19

Average Balance Sheet and Analysis of Net Interest Income

Tax exempt income presented on a tax equivalent basis based on a 35% federal tax
rate.

Federal tax equivalent adjustments on securities are $733 and $1,150 for 2004
and 2003, respectively.

Federal tax equivalent adjustments on loans are $60 and $138 for 2004 and 2003,
respectively.

20

Average Balance Sheet and Analysis of Net Interest Income

Tax exempt income presented on a tax equivalent basis based on a 35% federal tax
rate.

Federal tax equivalent adjustments on securities are $1,600 and $2,307 for 2004
and 2003, respectively.

Federal tax equivalent adjustments on loans are $134 and $271 for 2004 and 2003,
respectively.

NON-INTEREST INCOME

Non-interest income for the three months ended June 30, 2004, was $7.5 compared
to $8.9 from the same period in 2003. Adjusted non-interest income for the same
periods increased $0.1 and was $7.1 and $7.0, respectively. Adjusted
non-interest income excludes gains or losses on securities transactions and the
impact of certain non-recurring items, which in management's view, are not
expected or anticipated to occur in future periods. In the second quarter of
2004, the Company sold approximately $6.1 in credit card loans for a gain of
$1.2 and sold $25.0 of U.S. government agencies for a loss of $0.7. In 2003 the
Company had a loss on the disposition of fixed assets of $0.1, and sold a branch
in Owingsville and $70.0 of mortgage-backed securities for a gain of $1.1 and
$1.0, respectively.

Non-interest income for the six months ended June 30, 2004 was $19.5 compared to
$16.4 from the same period in 2003. Adjusted non-interest income was $13.9 and
$14.2 for the first six months ended June 30, 2004 and 2003, respectively. In
addition to the above-mentioned items that occurred in the second quarter of
2004, the Company restructured its balance sheet recognizing $5.2 of securities
gains in the first quarter of 2004.

21

RECONCILIATION TABLE - NON-INTEREST INCOME TO ADJUSTED NON-INTEREST INCOME

Service charges on deposit accounts were $0.3 greater, or 10.5% and 5.3% during
the second quarter and first six months of 2004, respectively, than the same
periods one year ago. Other service charges and fees increased $0.2, or 12.3%,
for the second quarter of 2004 compared to the same period of 2003 and $0.3, or
7.9%, for the first six months of the same time periods. This was primarily the
result of increased service charge fees in 2004.

Securities gains were $1.7 lower in the second quarter of 2004 compared to the
second quarter of 2003. In late June of 2004 the Company sold $25.0 in U.S.
government agencies generating a loss of $0.7. In late March of 2004 as a result
of the balance sheet restructuring, the Company sold securities for a gain of
$5.2. In 2003 the Company sold $70.0 of mortgage-backed securities for a gain of
$1.0. These securities were reinvested in structured mortgage-backed securities
with more predictable cashflows and yields.

Gain on sale of mortgage loans was $0.5 lower for the second quarter of 2004
compared to the same period in 2003 and $0.9 below the first six months of the
same years. The Company experienced one of its most active refinancing markets
in 2003 due to the low interest rate environment. Generally higher interest
rates late in 2003 and 2004 reduced the demand for refinancing. The Company
sells the majority of its fixed rate residential mortgage loans servicing
retained. As a result of the decrease in refinancing demand, mortgage servicing
income has also decreased. The second quarter decrease was also impacted by an
impairment charge of $0.2 recorded in the second quarter of 2003.

Gain on sale of other assets increased $0.2 for the three months ended June 30,
2004 compared to the same period of 2003. In late April 2004, the Company sold
its credit card portfolio of approximately $6.1. The Company experienced a gain
of $1.2 from the sale. In late May 2003, the Company sold the Owingsville branch
for a gain of $1.1. Also in the second quarter of 2003, the Company recorded a
loss of $0.1 for a writedown of certain fixed assets.

NON-INTEREST EXPENSE

Non-interest expense decreased $0.4 in the second quarter of 2004 compared to
the same period in 2003. On a year-to-date basis, non-interest expense increased
$56.8 in the first six months of 2004 compared to the first six months of 2003.
Adjusted non-interest expense is non-interest expense less $57.0 of debt
prepayment fees experienced in March of 2004 as a result of the balance sheet
restructuring and $1.4 of trust preferred redemption expenses related to calling
$34.5 of trust preferred debt in late June 2003. The Company does not expect
that these items will occur in the foreseeable future and believes the items
should be excluded for analysis purposes. Adjusted non-interest expense
increased $0.7, or 3.6%, for the second quarter of 2004 compared to the same
period last year. For the six months ending June 30, 2004, the increase was
$0.7, or 1.8%, compared to the same period of 2003.

Salaries increased $0.7 for the three months ended June 30, 2004 and $1.1 for
six months ended June 30, 2004 compared to the same periods of 2003. These
increases include $0.3 of severance for the second quarter of 2004 and $0.6 for
the six months ended June 30,

22

2004 compared to the same periods of 2003. Other benefits decreased $0.3 for the
second quarter of 2004 and $0.6 for the six months ended June 30, 2004 compared
to the same periods a year ago.

Low Income Housing Project ("LIHP") operating losses decreased approximately
$0.2 to $0.6 for the second quarter of 2004 compared to $0.7 for the same period
of 2003. For the six months ended June 30 2004, LIHP was $1.1 compared to $1.4
for the same period in 2003. As a component of LIHP, the Company receives a tax
credit, which lowers the Company's tax liability.

Other non-interest expense for 2003 includes a charge of $1.4 related to the
redemption of $34.5 of fixed rate trust preferred securities. In the second
quarter of 2003, one of the Company's subsidiaries issued $34.5 of floating rate
trust preferred securities. The Company used the proceeds to redeem $34.5 of
fixed rate trust preferred securities.

RECONCILIATION TABLE - NON-INTEREST EXPENSE TO ADJUSTED NON-INTEREST EXPENSE

INCOME TAX EXPENSE

Income tax expense (benefit) was $1.7 and $(18.6) for the three months and six
months ended June 30, 2004, respectively, compared with a $(0.5) and $(1.0)
benefit for the same period in 2003. The effective tax rates were 20.4% and
(13.5)% for the quarter ended June 30, 2004 and 2003, respectively.

FINANCIAL POSITION

Total assets at June 30, 2004 were $2,703.4 a decrease of $254.9 compared to
$2,958.3 at December 31, 2003.

SECURITIES

Total available for sale investment securities were $737.2 at June 30, 2004 and
$1,007.0 at December 31, 2003. The Company currently has no investment
securities classified as held to maturity. The investment securities market
value on June 30, 2004 was $8.4 below the amortized cost. During the first
quarter, the portfolio was reduced by the sale of $262 of securities during the
balance sheet restructuring. The average portfolio yield was 4.67% in the second
quarter of 2004 compared to 4.69% in the first quarter of 2004 and 4.60% in the
second quarter of 2003. Management regularly reviews the composition of the
securities portfolio, taking into account market risks, interest rate
environment, bank liquidity needs, and the company's overall interest rate risk
profile.

LOANS

Total loans at June 30, 2004, were $1,665.3 compared to $1,699.7 at December 31,
2003. On April 30, 2004, the Company sold its credit card portfolio of
approximately $6.1 in loans. Commercial mortgages decreased $19.9, or 8.3%,
since December 31, 2003 while commercial, industrial and agricultural loans
decreased by $18.6, or 3.2%, for the first six months of 2004. Consumer loans

23

increased $2.6, or 1.4%. The decrease in commercial loans was slightly offset by
an increase in construction and development loans, which increased $2.9, or
5.5%. One to four family loans, which includes residential mortgages and home
equity loans, increased $4.6, or 0.8%.

ASSET QUALITY

The allowance for loan losses is the amount that, 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 $25.0 at June 30, 2004, representing 1.50% of
total loans compared with $24.9 at June 30, 2003 which represented 1.48% of
total loans. Management expects that the allowance to total loans will continue
to decline as the economy and the Company's level of non-performing assets
improves. Annualized net charge-offs to average loans was 0.08% during the
second quarter of 2004 compared to 0.30% for the same period of 2003. On a
year-to-date basis, annualized net charge-offs to average loans was 0.11% during
the first six months of 2004 compared to 0.32% for the same period of 2003. The
provision for the first six months of 2004 was $0.8, which was a decrease of
$2.0 compared to the same period of 2003. The allowance for loan losses to
non-performing loans was 120.5% at June 30, 2004 compared to 138.9% at December
31, 2003 and 121.4% at June 30, 2003.

SUMMARY OF ALLOWANCE FOR LOAN LOSSES

24

As of June 30, 2004, total non-performing assets increased $2.2 from December
31, 2003, primarily attributable to one agricultural credit relationship.
Non-performing loans, consisting of nonaccrual and 90 days or more past due
loans, were 1.25% and 1.08% of total loans at June 30, 2004 and December 31,
2003, respectively. A municipal obligation included in securities available for
sale with an approximate amortized cost of $3.0 is in default. Management
currently expects to realize a full recovery after completion of the refinancing
of the bond anticipation note.

Listed below is a comparison of non-performing assets.

OTHER ASSETS

Total other assets increased $27.2 from $92.1 as of December 31, 2003 to $119.3
as of June 30, 2004. The Company has a $25.8 tax receivable as of June 30, 2004
and a tax liability of $1.5 at December 31, 2003. This change was primarily a
result of the balance sheet restructuring in the first quarter of 2004.

DEPOSITS

Total deposits were $1,824.3 at June 30, 2004, compared to $1,812.6 at December
31, 2003. Total valuable core deposits increased $68.6 to $1,036.2 at June 30,
2004 from $967.6 at December 31, 2003. During the current low rate environment,
customer preferences have shifted to shorter term, liquid deposit products and
to deposit alternatives, including annuities. Time deposits greater than $0.1
have decreased $44.4, or 14.5%, since December 31, 2003 while other time
deposits decreased $12.6, or 2.3%, for this same period.

SHORT-TERM BORROWINGS

Federal funds purchased and securities sold under repurchase agreements totaled
$162.8 at June 30, 2004 compared to $246.4 at December 31, 2003. 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. Additional short-term borrowings include short-term advances
from FHLB, Treasury Tax & Loan, and advances against outstanding bank lines. At
June 30, 2004, the Company had a $15.0 line of credit available.

25

LONG-TERM BORROWINGS

Long-term borrowings include FHLB advances, term notes, or other similar
obligations. Included in long-term borrowings are $224.5 of FHLB advances used
to fund investments and loans and to satisfy other funding needs. The Company
must pledge mortgage-backed securities and mortgage loans as collateral to
secure these advances.

On March 25, 2004, the Company issued $4.0 of subordinated debt that will mature
on April 7, 2014. Issuance costs of $0.1 were paid by the Company and are being
amortized over the life of the debt.

On April 10, 2003, the Company issued $10.0 of subordinated debt that will
mature on April 10, 2013. Issuance costs of $0.3 were paid by the Company and
are being amortized over the life of the debt.

During the second quarter of 2003, the Company issued $35.6 of Floating Rate
Capital Securities as a participant in a Pooled Trust Preferred Fund through a
subsidiary, Integra Capital Statutory Trust III. The issue matures on June 26,
2033. Issuance costs of $1.0 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 $34.5
of trust preferred securities which had a fixed rate of 8.25%.

On July 16, 2001, the Company issued Floating Rate Capital Securities of $18.6
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 $0.6
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.

CAPITAL EXPENDITURES

The Company is currently building a new banking center in Evansville and has
plans to build in the Northern Kentucky or Cincinnati area. Capital expenditures
for the new banking center were $0.8 in the second quarter of 2004. The
Evansville banking center will open in late July 2004. The Company currently
anticipates additional capital expenditures between $0.5 and $1.5 for subsequent
banking center building expenses for the rest of 2004.

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 2004.

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
the Company 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 asset liquidity have been
Federal Funds sold, commercial paper, interest-bearing deposits with other
financial institutions, and securities available for sale. In addition to these
sources, short-term asset liquidity is provided by scheduled principal paydowns
and maturing loans and securities. The balance between these sources and needs
to fund

26

loan demand and deposit withdrawals is monitored under the Company's
asset/liability management program. When these sources are not adequate, the
Company may use Federal Funds purchases, brokered deposits, repurchase
agreements, sale of investment securities or utilize its borrowing capacity with
FHLB Indianapolis, as alternative sources of liquidity. Additionally, the
Company's underwriting standards for its mortgage loan portfolio comply with
standards established by government housing agencies; as a result, a portion of
the mortgage loan portfolio could be sold to provide additional liquidity. At
June 30, 2004 and December 31, 2003, respectively, federal funds sold and other
short-term investments were $22.4 and $8.7. Additionally, at June 30, 2004, the
Company had $430 available from unused Federal Funds lines and in excess of $262
in unencumbered securities available for repurchase agreements. The Bank also
has a "borrower in custody" line with the Federal Reserve Bank totaling over
$421 as part of its liquidity contingency.

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. The Company has an
unsecured line of credit available which permits it to borrow up to $15.0. At
June 30, 2004, the Company had $15.0 available for future use. Management
believes that the Company has adequate liquidity to meet its foreseeable needs.

Liquidity for the Company is required to support operational expenses of the
Company, pay taxes, meet outstanding debt and trust preferred securities
obligations, provide dividends to common shareholders and other general
corporate purposes. During the first quarter of 2004, the Company announced a
change in its dividend philosophy and moved to a long-term dividend payout ratio
of 35% to 50% of net earnings. Management believes that funds to fulfill these
obligations for 2004 will be available from currently available cash and
marketable securities, dividends from the Bank, accessing the Company's line of
credit, or other sources that management expects to be available during the
year.

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 the market value of 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) senior management
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 Company's 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 through the Corporate Asset and
Liability Committee (Corporate ALCO) with oversight through the ALCO Committee
of the Board of Directors (Board ALCO). The Board ALCO meets at least twice a
quarter and is responsible for the establishment of policies, risk limits and
authorization levels. The Corporate ALCO meets at least monthly and is
responsible for implementing policies and procedures, overseeing the entire
interest rate risk management process and establishing internal controls. The
process is externally validated at least annually by an independent third party.

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

EARNINGS AT RISK (EAR). EAR is considered management's best source of managing
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
rates. The standard simulation analysis assesses the impact on net interest
income over a 12-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. The 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 June 30, 2004,
the Company would experience a negative 4.41% change in EAR if interest rates
moved downward 200 basis points. If interest rates moved upward 200 basis
points, the Company would experience a negative 0.68% change in net interest
income. The reduction in EAR in the down 200 bp scenario can be attributed to a
favorable impact from the quarter over quarter increase in interest rates. Both
simulation results are within the policy limits established by the Board ALCO.

27

Trends in Earnings at Risk

ECONOMIC VALUE OF EQUITY (EVE). Management considers EVE 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 simulation model to evaluate the impact of
immediate and parallel changes in interest rates 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. 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.

The Board ALCO has approved policy limits for changes in EVE. The variance limit
for EVE is measured in an environment when the "Base" interest rate scenario is
shocked up or down 200 basis points within a range of plus or minus 15%.

At June 30, 2004, the Company would experience a positive 1.65% 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 8.04% change in EVE.
The change in EVE risk in the down 200 bp scenario was the result of a favorable
impact from the quarter over quarter increase in interest rates. Both of these
measures are within Board approved policy limits.

Trends in Economic Value of Equity

The assumptions in any of these simulation runs are inherently uncertain. 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 June 30, 2004, 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 June 30, 2004 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

28

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, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES

Not Applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

On April 21, 2004, the Company held its annual meeting of shareholders. There
were 17,327,430 shares of common stock outstanding on the February 20, 2004
record date that were entitled to vote at the meeting.

The following directors received votes as noted and were elected to terms to
expire in 2007:

Continuing directors and the date of the expiration of their term in office are
as follows:

The shareholders also approved the appointment of PricewaterhouseCoopers LLP as
the Company's independent auditors for 2004. The following represents the
results of the vote:

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:

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

(b) Reports on Form 8-K.

On April 6, 2004, under Item 12, the Company furnished a press release and an
investor slide presentation to the Securities and Exchange Commission announcing
the balance sheet restructuring and the amendment to the dividend philosophy.

On April 20, 2004, under Item 12, the Company furnished a press release to the
Securities and Exchange Commission containing earnings information for the
quarter ending March 31, 2004.

29

On April 21, 2004, under Item 12, the Company furnished a slide presentation to
the Securities and Exchange Commission that was used at the Annual Meeting of
Shareholders held on April 21, 2004.

30

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
August 6, 2004

/s/ Charles A. Caswell
-------------------------------
Chief Financial Officer and
Executive Vice President
August 6, 2004

31