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EX-32 - INTEGRA BANK CORPv220174_ex32.htm
EX-31.2 - INTEGRA BANK CORPv220174_ex31-2.htm
EX-31.1 - INTEGRA BANK CORPv220174_ex31-1.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

x           Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2011.

 
or

 
¨           Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______________ to _______________.

Commission file number: 0-13585

INTEGRA BANK CORPORATION
(Exact name of registrant as specified in its charter)

INDIANA
35-1632155
(State or other jurisdiction of incorporation or organization)
(IRS Employee Identification No.)

PO BOX 868, EVANSVILLE, INDIANA
47705-0868
(Address of principal executive offices)
(Zip Code)

Registrant's telephone number, including area code: (812) 464-9677

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company x
   
(Do not check if a smaller reporting company)
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act of 1934).
Yes ¨ No x

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 APRIL 26, 2011
(Common stock, $1.00 Stated Value)
21,016,685

 
 

 

INTEGRA BANK CORPORATION

INDEX
 
   
PAGE NO.
PART I - FINANCIAL INFORMATION
     
Item 1. Unaudited Financial Statements
    3
     
Consolidated balance sheets-
   
March 31, 2011 and December 31, 2010
 
3
     
Consolidated statements of operations-
   
Three months ended March 31, 2011 and 2010
 
4
     
Consolidated statements of comprehensive income/(loss)-
   
Three months ended March 31, 2011 and 2010
 
6
     
Consolidated statements of changes in shareholders’ equity-
   
Three months ended March 31, 2011
 
7
     
Consolidated statements of cash flow-
   
Three months ended March 31, 2011 and 2010
 
8
     
Notes to unaudited consolidated financial statements
 
9
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
42
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
54
     
Item 4. Controls and Procedures
 
55
     
PART II - OTHER INFORMATION
     
Item 1. Legal Proceedings
 
55
     
Item 1A. Risk Factors
 
55
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
55
     
Item 3. Defaults Upon Senior Securities
 
56
     
Item 4. Reserved
 
56
     
Item 5. Other Information
 
56
     
Item 6. Exhibits
 
56
     
Signatures
  
57
 
 
2

 

PART I - FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

INTEGRA BANK CORPORATION and Subsidiaries
Unaudited Consolidated Balance Sheets
(In thousands, except for share data)

   
March 31,
   
December 31,
 
   
2011
   
2010
 
ASSETS
           
Cash and due from banks
  $ 288,248     $ 430,253  
Short-term investments
    56,559       56,559  
Total cash and cash equivalents
    344,807       486,812  
Loans held for sale (at lower of cost or fair value)
    989       1,899  
Securities available for sale
    514,467       528,904  
Securities held for trading
    421       329  
Regulatory stock
    20,337       22,172  
Loans, net of unearned income
    1,283,615       1,349,504  
Less: Allowance for loan losses
    (112,487 )     (95,801 )
Net loans
    1,171,128       1,253,703  
Premises and equipment
    32,980       34,019  
Premises and equipment held for sale
    1,387       1,387  
Other real estate owned
    48,701       49,238  
Other intangible assets
    3,737       3,950  
Other assets
    41,006       38,372  
TOTAL ASSETS
  $ 2,179,960     $ 2,420,785  
                 
LIABILITIES
               
Deposits:
               
Non-interest-bearing demand
  $ 220,300     $ 224,184  
Interest-bearing
    1,629,139       1,765,695  
 Total deposits
    1,849,439       1,989,879  
Short-term borrowings
    21,526       59,893  
Long-term borrowings
    335,528       347,847  
Other liabilities
    38,545       42,005  
TOTAL LIABILITIES
    2,245,038       2,439,624  
                 
Commitments and contingent liabilities (Note 12)
    -       -  
                 
SHAREHOLDERS' EQUITY
               
Preferred stock - no par, $1,000 per share liquidation preference:
               
Shares authorized: 1,000,000
               
Shares outstanding: 83,586
    82,447       82,359  
Common stock - $1.00 stated value:
               
Shares authorized: 129,000,000
               
Shares outstanding: 21,045,052 and 21,052,697 respectively
    21,045       21,053  
Additional paid-in capital
    217,279       217,174  
Retained earnings (deficit)
    (381,932 )     (334,593 )
Accumulated other comprehensive income (loss)
    (3,917 )     (4,832 )
TOTAL SHAREHOLDERS' EQUITY
    (65,078 )     (18,839 )
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 2,179,960     $ 2,420,785  

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

 
3

 

INTEGRA BANK CORPORATION and Subsidiaries
Unaudited Consolidated Statements of Operations
(In thousands, except for per share data)

   
Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
INTEREST INCOME
           
Interest and fees on loans:
           
Taxable
  $ 13,561     $ 21,517  
Tax-exempt
    107       101  
Interest and dividends on securities:
               
Taxable
    3,293       3,322  
Tax-exempt
    193       222  
Dividends on regulatory stock
    195       221  
Interest on loans held for sale
    16       26  
Interest on federal funds sold and other short-term investments
    219       219  
Total interest income
    17,584       25,628  
                 
INTEREST EXPENSE
               
Interest on deposits
    5,492       8,102  
Interest on short-term borrowings
    28       45  
Interest on long-term borrowings
    2,877       2,621  
Total interest expense
    8,397       10,768  
                 
NET INTEREST INCOME
    9,187       14,860  
Provision for loan losses
    36,790       52,700  
Net interest income after provision for loan losses
    (27,603 )     (37,840 )
                 
NON-INTEREST INCOME
               
Service charges on deposit accounts
    2,517       3,985  
Other service charges and fees
    595       717  
ATM income
    295       362  
Debit card income-interchange
    1,131       1,310  
Trust income
    464       495  
Net securities gains
    -       (2 )
Other than temporary impairment loss:
               
Total impairment losses recognized on securities
    -       (1,631 )
Loss or reclassification recognized in other comprehensive income
    -       1,421  
Net impairment loss recognized in earnings
    -       (210 )
Gain (loss) on sale of OREO
    (373 )     66  
Other
    785       867  
Total non-interest income
    5,414       7,590  
                 
NON-INTEREST EXPENSE
               
Salaries and employee benefits
    7,216       9,198  
Occupancy
    1,770       2,118  
Equipment
    516       750  
Professional fees
    3,202       1,693  
Communication and transportation
    706       997  
Processing
    474       715  
Software
    459       597  
Marketing
    195       224  
Loan collection and OREO expense
    4,412       1,597  
FDIC assessment
    3,705       2,043  
Low income housing project losses
    295       424  
Amortization of intangible assets
    214       412  
State and local franchise tax
    210       402  
Other
    1,128       1,323  
Total non-interest expense
    24,502       22,493  
Income (Loss) before income taxes
    (46,691 )     (52,743 )
Income taxes (benefit)
    (485 )     8  
NET INCOME (LOSS)
  $ (46,206 )   $ (52,751 )
Preferred stock dividends and discount accretion
    1,133       1,128  
Net income (loss) available to common shareholders
  $ (47,339 )   $ (53,879 )

Consolidated Statements of Income are continued on the following page.

 
4

 

INTEGRA BANK CORPORATION and Subsidiaries
Unaudited Consolidated Statements of Operations (Continued)
(In thousands, except for per share data)

   
Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
             
Earnings (Loss) per share:
           
Basic
  $ (2.29 )   $ (2.61 )
Diluted
    (2.29 )     (2.61 )
                 
Weighted average shares outstanding:
               
Basic
    20,688       20,666  
Diluted
    20,688       20,666  

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

 
5

 

INTEGRA BANK CORPORATION and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income/(Loss)
(In thousands)

   
Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
             
Net income (loss)
  $ (46,206 )   $ (52,751 )
                 
Other comprehensive income (loss), net of tax:
               
Unrealized gain on securities:
               
Unrealized gain arising in period
               
(net of tax of $532 and $2,151, respectively)
    894       3,617  
Reclassification of amounts realized through impairment charges
               
and sales (net of tax of $79 for 2010)
    -       133  
Net unrealized gain on securities
    894       3,750  
                 
Change in net pension plan liability
               
(net of tax of $12 and $101, respectively)
    21       170  
                 
Net unrealized gain, recognized in other comprehensive income (loss)
    915       3,920  
                 
Comprehensive income (loss)
  $ (45,291 )   $ (48,831 )

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

 
6

 

INTEGRA BANK CORPORATION and Subsidiaries
Unaudited Consolidated Statements of Changes In Shareholders’ Equity
(In thousands, except for share and per share data)
 
                                  
Accumulated
       
         
Shares of
         
Additional
   
Retained
   
Other
   
Total
 
   
Preferred
   
Common
   
Common
   
Paid-In
   
Earnings
   
Comprehensive
   
Shareholders'
 
   
Stock
   
Stock
   
Stock
   
Capital
   
(Deficit)
   
Income (Loss)
   
Equity
 
                                           
BALANCE AT DECEMBER 31, 2010
  $ 82,359       21,052,697     $ 21,053     $ 217,174     $ (334,593 )   $ (4,832 )   $ (18,839 )
                                                         
Net income (loss)
    -       -       -       -       (46,206 )     -       (46,206 )
Net change, net of tax, in accumulated
                                                       
other comprehensive income
    -       -       -       -       -       915       915  
Preferred stock dividend and discount accretion
    88       -       -       -       (1,133 )     -       (1,045 )
Restricted stock forfeitures
    -       (7,645 )     (8 )     8       -       -       -  
Stock-based compensation expense
    -       -       -       97       -       -       97  
BALANCE AT MARCH 31, 2011
  $ 82,447       21,045,052     $ 21,045     $ 217,279     $ (381,932 )   $ (3,917 )   $ (65,078 )

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

 
7

 

INTEGRA BANK CORPORATION and Subsidiaries
Unaudited Consolidated Statements of Cash Flow
 (In thousands)

   
Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income (loss)
  $ (46,206 )   $ (52,751 )
Adjustments to reconcile net income to
               
net cash provided by operating activities:
               
Amortization and depreciation
    2,629       1,884  
Provision for loan losses
    36,790       52,700  
Impairment charge on available for sale securities
    -       210  
Net held for trading (gains) losses
    (92 )     (179 )
(Gain) loss on sale of other real estate owned
    373       (66 )
Loss on low-income housing investments
    295       424  
Net (gain) on sale of loans held for sale
    (159 )     (144 )
Proceeds from sale of loans held for sale
    12,329       13,652  
Origination of loans held for sale
    (11,260 )     (14,515 )
Change in other operating
    (5,461 )     1,856  
Net cash flows provided by (used in) operating activities
  $ (10,762 )   $ 3,071  
CASH FLOWS FROM INVESTING ACTIVITIES
               
Proceeds from maturities of securities available for sale
    20,760       16,229  
Proceeds from sales of securities available for sale
    -       100  
Purchase of securities available for sale
    (6,647 )     (10,829 )
Proceeds from redemption of regulatory stock
    1,835       2,825  
Decrease in loans made to customers
    41,192       52,741  
Purchase of premises and equipment
    (134 )     (1,240 )
Proceeds from sale of premises and equipment
    17       404  
Proceeds from sale of other real estate owned
    2,860       1,068  
Net cash flows provided by investing activities
  $ 59,883     $ 61,298  
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net increase (decrease) in deposits
  $ (140,440 )   $ 52,446  
Net increase (decrease) in short-term borrowed funds
    (38,367 )     20  
Repayment of long-term borrowings
    (12,319 )     (12,297 )
Net cash flows provided by (used in) financing activities
  $ (191,126 )   $ 40,169  
Net increase (decrease) in cash and cash equivalents
    (142,005 )     104,538  
Cash and cash equivalents at beginning of period
    486,812       354,574  
Cash and cash equivalents at end of period
  $ 344,807     $ 459,112  
                 
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
               
Other real estate acquired in settlement of loans
    4,729       6,012  
Dividends accrued not paid on preferred stock
    1,045       1,045  
Accretion of discount on TARP preferred stock
    (88 )     (83 )

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 share and 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 our subsidiaries. At March 31, 2011, our subsidiaries consisted of Integra Bank N.A. (Bank), a reinsurance company and four statutory business trusts, which are not consolidated under applicable accounting guidance. 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 our financial statements and notes for the year ended December 31, 2010, included in our 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 ESTIMATES:

We are required to make estimates and assumptions based on available information that affect the amounts reported in the consolidated financial statements. Significant estimates which are particularly susceptible to short-term changes include the valuation of the securities portfolio, the determination of the allowance for loan losses, the valuation of real estate and other properties acquired in connection with foreclosures or in satisfaction of amounts due from borrowers on loans, and the valuation of our deferred tax asset. The deterioration in residential and commercial real estate values, the impact of the recession on the Bank and other banks, and our overall financial performance have all had a meaningful influence on the application of certain of our critical accounting policies and development of these significant estimates. In applying those policies, and making our best estimates, during the current quarter we recorded provisions for loan losses and a valuation allowance on our deferred tax asset.

Our customers’ abilities to make scheduled loan payments are in part dependent on the performance of their businesses and future economic conditions. In the event our loan customers perform worse than expected, we could incur substantial additional provisions for loan losses in future periods.

There are securities in our trust preferred securities portfolio and loans in our loan portfolio as to which we have estimated losses in part based on the assumption that the plans of the issuers or our borrowers will be implemented as planned and have the effect of improving their financial positions. We have evaluated these plans for reasonableness before using them to calculate estimates. Should these plans not be executed, or have unintended consequences, our losses could increase.

On a quarterly basis, we determine whether a valuation allowance is necessary for our deferred tax asset. In performing this analysis, we consider all evidence currently available, both positive and negative, in determining whether, based on the weight of the evidence, the deferred tax asset will be realized. We establish a valuation allowance when it is more likely than not that a recorded tax benefit is not expected to be realized. The expense to create a valuation allowance is recorded as additional income tax expense in the period the tax valuation allowance is established. To the extent that we generate taxable income in a given quarter, the valuation allowance may be reduced to fully or partially offset the corresponding income tax expense. Any remaining deferred tax asset valuation allowance may be reversed through income tax expense once we can demonstrate a sustainable return to profitability and conclude that it is more likely than not the deferred tax asset will be utilized prior to expiration.

RECENT ACCOUNTING PRONOUNCEMENTS:

In January 2011, the FASB issued ASU No. 2011-01, “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20.” The provisions of ASU No. 2010-20 required the disclosure of more granular information on the nature and extent of troubled debt restructurings and their effect on the allowance for loan and lease losses effective for the Company’s reporting period ended March 31, 2011. The amendments in ASU No. 2011-01 deferred the effective date related to these disclosures, until after the FASB completes their project clarifying the guidance for determining what constitutes a troubled debt restructuring.

 
9

 

In April 2011, the FASB issued ASU No. 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” The provisions of ASU No. 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, include factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant, prohibits creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower, and add factors for creditors to use in determining whether a borrower is experiencing financial difficulties. A provision in ASU No. 2011-02 also ends the FASB’s deferral of the additional disclosures about troubled debt restructurings as required by ASU No. 2010-20. The provisions of ASU No. 2011-02 will be effective for the Company’s reporting period ending September 30, 2011. The adoption of ASU No. 2011-02 is not expected to have a material impact on our consolidated financial position or results of operations.

FAIR VALUE MEASUREMENT:

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use various valuation techniques to determine fair value, including market, income and cost approaches. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that an entity has the ability to access as of the measurement date, or observable inputs.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When that occurs, we classify the fair value hierarchy on the lowest level of input that is significant to the fair value measurement. We used the following methods and significant assumptions to estimate fair value.

Securities: We determine the fair values of trading securities and securities available for sale in our investment portfolio by obtaining quoted prices on nationally recognized securities exchanges (Level 1) or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events and is considered Level 2. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy.

The markets for pooled collateralized debt obligations (CDOs) continue to reflect an overall lack of activity and observable transactions in the secondary and new issue markets for these securities. Those conditions are indicative of an illiquid market and transactions that do occur are not considered orderly. This led us to value our CDOs using both Level 2 and Level 3 inputs. The valuations for the single name issues continue to come from the brokers and are considered Level 2. The valuations for the pooled issues classified as available for sale were derived from a financial model and are considered Level 3. The pricing for the pooled CDOs held for trading were derived from a broker and are considered Level 2 inputs.

When determining fair value, ASC 820 indicates that the lowest available level should be used. It also provides guidance on determining fair value when a transaction is not considered orderly because the volume and level of activity have significantly decreased. In evaluating the fair value of our two PreTSL pooled CDOs, we determined that the market transactions for similar securities were disorderly. Therefore we priced our PreTSL pooled CDOs using the fair value generated from the cash flow analysis used as part of our review for other-than-temporary impairment. The cash flows include the deferrals and defaults associated with each security, along with anticipated deferrals, defaults and projected recoveries. This price is considered Level 3 pricing.

 
10

 

The effective discount rates are highly dependent upon the credit quality of the collateral, the relative position of the tranche in the capital structure of the CDO and the prepayment assumptions.

The remaining four pooled CDOs are classified as trading. We utilized pricing from a broker that was considered to be Level 2. The broker provided us with actual prices if they had executed a trade for the same deal or if they had knowledge that another trader had traded the same deal. Otherwise they compared the structure of the pooled CDO with other CDOs exhibiting the same characteristics that had experienced recent trades.

Loans held for sale: The fair value of residential mortgage loans held for sale is determined using quoted secondary-market prices. The purchaser provides us with a commitment to purchase the loan at the origination price. Under ASC 820, this commitment is classified as a Level 2 in the fair value hierarchy. If no such quoted price exists, the fair value of these loans would be determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan. Loans held for sale associated with branch transactions are presented at face value, which is substantially the same as the value in the transaction. Loans held for sale at March 31, 2010, included $106,704 of loans that we had expected to sell in branch divestiture transactions during 2010.

Derivatives: Our derivative instruments consist of over-the-counter interest rate swaps, interest rate floors, and mortgage loan interest locks that trade in liquid markets. The fair value of our derivative instruments is primarily measured by obtaining pricing from broker-dealers recognized to be market participants. On those occasions that broker-dealer pricing is not available, pricing is obtained using the Bloomberg system. The pricing is derived from market observable inputs that can generally be verified and do not typically involve significant judgment by us. This valuation method is classified as Level 2 in the fair value hierarchy.

Impaired Loans: Impaired loans are evaluated at the time full payment under the loan terms is not expected. If a loan is impaired, a portion of the allowance for loan losses is allocated so that the loan is reported, net, at the present value of estimated cash flows using the loan’s existing rate or at the fair value of the collateral, if the loan is collateral dependent. Fair value is measured based on the value of the collateral securing these loans, is classified as Level 3 in the fair value hierarchy and is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. If an appraisal is not available, the fair value may be determined by using a cash flow analysis, a broker’s opinion of value, the net present value of future cash flows, or an observable market price from an active market. Fair value on non-real estate loans is determined using similar methods. In addition, business equipment may be valued by using the net book value from the business’s financial statements. Impaired loans are evaluated quarterly for additional impairment.

Other Real Estate Owned: Other real estate owned is evaluated at the time a property is acquired through foreclosure or shortly thereafter. Fair value is based on appraisals by qualified licensed appraisers and is classified as Level 3.

Premises and equipment held for sale: Premises and equipment held for sale are evaluated at the time the property is deemed as held for sale. Fair value is based on appraisals by qualified licensed appraisers and is classified as Level 3 input. On occasion, when an appraisal is not performed, fair value is based on sales offers received from potential buyers. Premises and equipment held for sale at March 31, 2010, included $4,554 of premises and equipment that were expected to be sold in probable branch divestitures.

Deposits held for sale: The fair value of deposits held for sale is based on the actual purchase price as agreed upon between Integra Bank and the purchaser. Because this transaction occurs in an orderly transaction between market participants, the fair value qualifies as a Level 2 fair value. Deposits held for sale at March 31, 2010, included $100,047 of deposits that we had expected to be transferred in branch divestiture transactions during 2010.
 
Assets and liabilities measured at fair value on a recurring basis are summarized below.
 
 
11

 
 
March 31, 2011
                       
   
Quoted Prices
                   
   
in Active
                   
   
Markets for
   
Significant
             
   
Identical
   
Other
   
Significant
       
   
Assets and
   
Observable
   
Unobservable
       
   
Liabilities
   
Inputs
   
Inputs
   
Balance as of
 
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
March 31, 2011
 
Assets
                       
Securities, available for sale
                       
U.S. Treasuries
  $ -     $ 18,637     $ -     $ 18,637  
U.S. Government agencies
    -       105       -       105  
Collateralized mortgage obligations:
                               
Agency
    -       238,190       -       238,190  
Private Label
    -       15,142       -       15,142  
Mortgage backed securities: residential
    -       201,151       -       201,151  
Trust Preferred
    -       10,599       1,042       11,641  
State & political subdivisions
    -       20,945       -       20,945  
Other securities
    -       8,656       -       8,656  
Total securities, available for sale
  $ -     $ 513,425     $ 1,042     $ 514,467  
                                 
Securities, held for trading
                               
Trust Preferred
  $ -     $ 421     $ -     $ 421  
                                 
Derivatives
    -       5,895       -       5,895  
                                 
Liabilities
                               
Derivatives
  $ -     $ 6,145     $ -     $ 6,145  
 
 
12

 
 
December 31, 2010
                       
   
Quoted Prices
                   
   
in Active
                   
   
Markets for
   
Significant
             
   
Identical
   
Other
   
Significant
       
   
Assets and
   
Observable
   
Unobservable
       
   
Liabilities
   
Inputs
   
Inputs
   
Balance as of
 
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
December 31, 2010
 
Assets
                       
Securities, available for sale
                       
U.S. Treasuries
  $ -     $ 18,739     $ -     $ 18,739  
U.S. Government agencies
    -       106       -       106  
Collateralized mortgage obligations:
                               
Agency
    -       250,057       -       250,057  
Private Label
    -       16,155       -       16,155  
Mortgage backed securities: residential
    -       202,752       -       202,752  
Trust Preferred
    -       9,776       973       10,749  
State & political subdivisions
    -       21,679       -       21,679  
Other securities
    -       8,667       -       8,667  
Total securities, available for sale
  $ -     $ 527,931     $ 973     $ 528,904  
                                 
Securities, held for trading
                               
Trust Preferred
  $ -     $ 329     $ -     $ 329  
                                 
Derivatives
    -       7,018       -       7,018  
                                 
Liabilities
                               
Derivatives
  $ -     $ 7,008     $ -     $ 7,008  

Assets and liabilities measured at fair value on a non-recurring basis are summarized below.

   
Fair Value Measurements at March 31, 2011
 
   
Quoted Prices
                   
   
in Active
                   
   
Markets for
   
Significant
             
   
Identical
   
Other
   
Significant
       
   
Assets and
   
Observable
   
Unobservable
       
   
Liabilities
   
Inputs
   
Inputs
   
Balance as of
 
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
March 31, 2011
 
Assets
                       
Impaired loans
                       
Commercial
  $ -     $ -     $ 21,306     $ 21,306  
Commercial real estate
    -       -       131,867       131,867  
Residential mortgage
    -       -       430       430  
Home equity
    -       -       691       691  
Consumer
    -       -       252       252  
Total impaired loans
    -       -       154,546       154,546  
Loans held for sale
    -       989       -       989  
Other real estate owned
                               
Commercial
    -       -       1,224       1,224  
Commercial real estate
    -       -       46,685       46,685  
Residential mortgage
    -       -       777       777  
Home equity
    -       -       15       15  
Consumer
    -       -       -       -  
Total other real estate owned
    -       -       48,701       48,701  
Premises and equipment held for sale
    -       -       1,387       1,387  
 
 
13

 

 
   
Fair Value Measurements at December 31, 2010
 
   
Quoted Prices
                   
   
in Active
                   
   
Markets for
   
Significant
             
   
Identical
   
Other
   
Significant
       
   
Assets and
   
Observable
   
Unobservable
       
   
Liabilities
   
Inputs
   
Inputs
   
Balance as of
 
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
December 31, 2010
 
Assets
                       
Impaired loans
                       
Commercial
  $ -     $ -     $ 22,113     $ 22,113  
Commercial real estate
    -       -       140,262       140,262  
Residential mortgage
    -       -       410       410  
Home equity
    -       -       989       989  
Consumer
    -       -       249       249  
Total impaired loans
    -       -       164,023       164,023  
Loans held for sale
    -       1,899       -       1,899  
Other real estate owned
                               
Commercial
    -       -       973       973  
Commercial real estate
    -       -       47,470       47,470  
Residential mortgage
    -       -       765       765  
Home equity
    -       -       30       30  
Consumer
    -       -       -       -  
Total other real estate owned
    -       -       49,238       49,238  
Premises and equipment held for sale
    -       -       1,387       1,387  

At March 31, 2011, impaired loans with specific reserves, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $193,737, with a valuation allowance of $39,191, resulting in an additional provision for loan losses of $13,380 for the period. At December 31, 2010, impaired loans with a specific reserve had a carrying amount of $199,008, with a valuation allowance of $34,985. For those properties held in other real estate owned and carried at fair value, writedowns of $1,871 were charged to earnings in the first quarter of 2011 compared to $396 in the first quarter of 2010.

The following tables present a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarters ending March 31, 2011, and 2010.

   
Fair Value Measurements Using Significant
 
   
Unobservable Inputs (Level 3)
 
   
Securities
       
   
Available for sale
   
Total
 
             
Beginning Balance at January 1, 2011
  $ 973     $ 973  
Transfers in and/or out of Level 3
    -       -  
Gains (Losses) included in other comprehensive income
    69       69  
Gains (Losses) included in earnings
    -       -  
Ending Balance at March 31, 2011
  $ 1,042     $ 1,042  
 
 
14

 
 
   
Fair Value Measurements Using Significant
 
   
Unobservable Inputs (Level 3)
 
   
Securities
       
   
Available for sale
   
Total
 
             
Beginning Balance at January 1, 2010
  $ 1,588     $ 1,588  
Transfers in and/or out of Level 3
    -       -  
Gains (Losses) included in other comprehensive income
    138       138  
Gains (Losses) included in earnings
    (210 )     (210 )
Ending Balance at March 31, 2010
  $ 1,516     $ 1,516  

Unrealized gains and losses for securities classified as available for sale are generally not recorded in earnings. However, during the first quarter of 2010, impairment charges of $210 were charged against some of our pooled trust preferred CDOs.

The carrying amounts and estimated fair values of financial instruments not previously presented, at March 31, 2011, and December 31, 2010, are as follows:

   
March 31, 2011
   
December 31, 2010
 
   
Carrying
   
Fair
   
Carrying
   
Fair
 
   
Amount
   
Value
   
Amount
   
Value
 
                         
Financial Assets:
                       
Cash and short-term investments
  $ 344,807     $ 344,807     $ 486,812     $ 486,812  
Loans-net of allowance
    1,016,582       1,013,482       1,089,680       1,090,884  
Accrued interest receivable
    7,061       7,061       7,561       7,561  
                                 
Financial Liabilities:
                               
Deposits
  $ 1,849,439     $ 1,865,403     $ 1,989,879     $ 2,009,837  
Short-term borrowings
    21,526       21,526       59,893       59,893  
Long-term borrowings
    335,528       336,447       347,847       352,149  
Accrued interest payable
    8,280       8,280       8,710       8,710  

The above fair value information was derived using the information described below for the groups of instruments listed. It should be noted the fair values disclosed in this table do not represent fair values of all of our assets and liabilities and should not be interpreted to represent our market or liquidation value.

Carrying amount is the estimated fair value for cash and short-term investments, accrued interest receivable and payable, deposits without defined maturities and short-term debt. The fair value of loans is estimated in accordance with ASC Topic 825, “Financial Instruments”, by discounting expected future cash flows using market rates of like maturity. For time deposits, fair value is based on discounted cash flows using current market rates applied to the estimated life. Fair value of debt is based on current rates for similar financing. It is not practicable to determine the fair value of regulatory stock due to restrictions placed on its transferability. The fair value of off-balance-sheet items is not considered material.

STOCK OPTION PLAN AND AWARDS

The Integra Bank Corporation 2007 Equity Incentive Plan (the 2007 Plan) reserves 600,000 shares of common stock for issuance as incentive awards to directors and key employees. Awards may include incentive stock options, non-qualified stock options, restricted shares, performance shares, performance units or stock appreciation rights (SARs). All options granted under the 2007 Plan or any predecessor stock-based incentive plans (the “Prior Plans”) have a termination period of ten years from the date granted. The exercise price of options granted under the plans cannot be less than the market value of the common stock on the date of grant. Upon the adoption of the 2007 Plan, no additional awards could have been granted under the Prior Plans. In April 2009, our shareholders approved an amendment to the 2007 Plan that increased the number of shares available under the plan to 1,000,000 shares. At March 31, 2011, there were 442,585 shares available for the granting of additional awards under the 2007 Plan.
 
A summary of the status of the options or SARs granted under the 2007 Plan and Prior Plans as of March 31, 2011, and changes during the year is presented below:
 
 
15

 
 
    March 31, 2011  
               
Weighted Average
 
         
Weighted Average
   
Remaining Term
 
   
Shares
   
Exercise Price
   
(In years)
 
                   
Options/SARs outstanding at December 31, 2010
    375,993     $ 20.58        
Options/SARs granted
    -       -        
Options/SARs exercised
    -       -        
Options/SARs forfeited/expired
    (11,000 )     24.52        
                       
Options/SARs outstanding at March 31, 2011
    364,993     $ 20.46       4.1  
                         
Options/SARs exercisable at March 31, 2011
    355,225     $ 20.52       4.0  
 
The options and SARs outstanding at March 31, 2011, had a weighted average remaining term of 4.1 years with no aggregate intrinsic value, while the options and SARs that were exercisable at March 31, 2010, had a weighted average remaining term of 4.0 years and no aggregate intrinsic value. As of March 31, 2011, there was $4 of total unrecognized compensation cost related to the stock options and SARs. The cost is expected to be recognized over a weighted-average period of less than one year. Compensation expense for options and SARs for the three months ended March 31, 2011, and 2010 was $6, and $10, respectively.

A summary of the status of the restricted stock awards outstanding as of March 31, 2011 and changes during the first three months of 2011 is presented below:

         
Weighted-Average
 
         
Grant-Date
 
   
Shares
   
         Fair Value         
 
             
Restricted shares outstanding, December 31, 2010
    377,737     $ 1.46  
Shares granted
    -          
Shares vested
    (500 )        
Shares forfeited
    (7,645 )        
                 
Restricted shares outstanding, March 31, 2011
    369,592       1.41  

We record the fair value of restricted stock awards, net of estimated forfeitures, and an offsetting deferred compensation amount within stockholders’ equity for unvested restricted stock. As of March 31, 2011, there was $198 of total unrecognized compensation cost related to the nonvested restricted stock. The cost is expected to be recognized over a weighted-average period of 2.2 years. Compensation expense for restricted stock for the three months ended March 31, 2011, and 2010 was $91, and $94, respectively.

We have not paid any cash dividends on restricted stock awards since we began participating in the Capital Purchase Program of the U.S. Department of the Treasury (CPP). Our participation in this program imposes additional vesting restrictions on shares held by any of our five most-highly compensated employees. These restricted shares vest over time; however, they are also subject to restrictions on transferability under the CPP.

NOTE 2. GOING CONCERN

These consolidated financial statements have been prepared assuming the Company will continue as a going concern. We reported total losses attributable to common shareholders of $430,078 for 2008 through 2010 and a loss of $47,339 in the first quarter of 2011. Since May 2009, we and the Bank have been subject to a number of enforcement actions and other requirements imposed by federal banking regulators.

The Bank is subject to a formal agreement with the OCC that requires the Bank to reduce its non-performing assets and improve earnings. The Bank also is subject to a Capital Directive from the OCC directing it to increase and maintain its Total Risk-Based Capital Ratio to at least 11.5% and its Tier 1 Leverage Ratio to at least 8%. We are subject to a written agreement with the Federal Reserve Bank of St. Louis which requires us to use our financial and managerial resources to assist the Bank in complying with its regulatory obligations and prohibits us from paying dividends on our stock or interest on our debt securities.

As of December 31, 2010, the Bank’s regulatory capital declined below the levels required to remain in the “adequately capitalized” category for purposes of the Prompt Corrective Actions (“PCA”) regulations of the OCC and so was considered to be in the "undercapitalized" capital category of such regulations, subjecting it to restrictions on payment of capital distributions and management fees, asset growth and on certain expansionary activities, including acquisitions, new branches and new lines of business. The Bank also could no longer accept certain types of employee benefit plan deposits. The Bank was also required to submit an acceptable capital restoration plan (“CRP”) to the OCC describing, among other things, how the Bank would become “adequately capitalized” for purposes of the PCA regulations of the OCC.

 
16

 

In April, the Bank was notified that the CRP it had filed was not accepted by the OCC. As a result, under the PCA regulations, the Bank was then considered as being within the “significantly undercapitalized” capital category under the PCA regulations of the OCC. As such, the Bank became subject to additional restrictions and requirements under the federal banking laws, including restrictions on bonuses and compensation paid to senior executive officers and restrictions on the payment of capital distributions and management fees. The Bank can submit a revised CRP if it can produce a specific recapitalization plan that includes binding commitments or definitive agreements for the needed capital.

On April 30, 2011, the Bank filed its call report as of March 31, 2011, indicating that its regulatory capital fell below the levels required for it to remain in the “significantly undercapitalized” capital category under the PCA regulations of the OCC. The Bank now expects it will be notified by the OCC that it is considered to be in the “critically undercapitalized” capital category for purposes of the PCA regulations. Banks that are in the “critically undercapitalized” capital category are subject to additional restrictions on their activities by the Federal Deposit Insurance Corporation (“FDIC”). At a minimum, the FDIC is required to prohibit critically undercapitalized banks from entering into any material transaction outside the normal course of business, extending credit for any highly leveraged transaction, amending the bank’s charter or bylaws, making any material change in accounting methods, engaging in any covered transaction, paying excessive compensation or bonuses and paying interest on new and renewed liabilities at a rate that would increase the institution’s weighted average cost of funds to a rate significantly exceeding the prevailing market rate on insured deposits. In addition, the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) requires the primary federal banking regulator of a critically undercapitalized institution to act within 90 days by either appointing a receiver for the institution or taking such other action that the regulator determines would better achieve the purposes of FDICIA.

We have been pursuing numerous alternatives to recapitalize the Bank since the third quarter of 2009. We engaged an investment banking firm with expertise in the financial services sector to assist with a review of all strategic opportunities available to us. During the past year, we have held discussions with, and due diligence has been undertaken by, numerous prospective investors; however, we have not achieved our goal of reaching a definitive agreement to recapitalize the Bank.

Our efforts to raise capital have been adversely impacted by our capital structure which includes subordinated debt obligations of $99,054 and the Treasury preferred stock with a liquidation preference of $83,586 at March 31, 2011. These obligations rank senior to the right of holders of our common stock. Any investor in or purchaser of the Company would effectively assume the outstanding liability on the debt and be required to repay or restructure the Treasury preferred stock in addition to the amount of funds such investors or purchaser would need to recapitalize the Bank. We intend to continue to pursue all available alternatives to effect a recapitalization of the Bank. As of March 31, 2011, the additional amount of capital required to bring the Bank into compliance with the Capital Directive was $144,347.

We believe that the Bank retains substantial franchise value. Despite the restrictions under which the Bank has been operating, it has maintained adequate liquidity, even while transitioning Indiana public fund deposits to other banks. If we do not enter into a definitive agreement to effect a recapitalization satisfactory to the OCC within the very near future, the OCC will be required under FDICIA to appoint the FDIC as receiver for the Bank, unless such action would not achieve the purpose of the PCA regulations. In such event, we expect that the Company would file for bankruptcy.

On April 11, 2011, we announced that the Bank had entered into definitive agreements with Old National Trust Company (ONTC) whereby ONTC will acquire the Bank’s Wealth Management and Trust business. ONTC will acquire the business for $1,250 in cash. Pending the sale, ONTC also agreed to provide operational assistance to Integra Bank in its wealth management and trust activities.

Our plans for the second quarter of 2011 include the following:

 
·
Pursue all available strategies to obtain an acceptable commitment to recapitalize the Bank;

 
·
Continue to serve our community banking customers in our core market area and take all available actions necessary to ensure the safety of their deposits;

 
·
Continue to reduce non-performing assets and our overall credit exposure;

 
·
Continue to reduce our concentration in CRE credit exposure by obtaining paydowns and payoffs; and

 
·
Make continual adjustments to increase profitability.

 
17

 

These events and uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

NOTE 3. EARNINGS/(LOSS) PER SHARE

Basic earnings per share is computed by dividing net income (loss) for the year by the weighted average number of shares outstanding. Diluted earnings per share is computed as above, adjusted for the dilutive effects of stock options, SARs, and restricted stock. Weighted average shares of common stock have been increased for the assumed exercise of stock options and SARs with proceeds used to purchase treasury stock at the average market price for the period.

The following provides a reconciliation of basic and diluted earnings per share:
 
   
Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
             
Net income (loss)
  $ (46,206 )   $ (52,751 )
Preferred dividends and discount accretion
    (1,133 )     (1,128 )
Net income (loss) available to common shareholders
  $ (47,339 )   $ (53,879 )
                 
Weighted average common shares outstanding - Basic
    20,688,483       20,666,237  
Incremental shares related to stock compensation
    -       -  
Average common shares outstanding - Diluted
    20,688,483       20,666,237  
                 
Earnings (Loss) per common share - Basic
  $ (2.29 )   $ (2.61 )
Effect of incremental shares related to stock compensation
    -       -  
Earnings (Loss) per common share - Diluted
  $ (2.29 )   $ (2.61 )

Options to purchase 364,993 shares and 578,193 shares were outstanding at March 31, 2011, and 2010, respectively, and were not included in the computation of net income per diluted share in both periods because the exercise price of these options was greater than the average market price of the common shares, and therefore antidilutive and also, for the first quarter of 2011 and 2010, because of the net loss.

On February 27, 2009, the Treasury Department invested $83,586 in us as part of the Capital Purchase Plan (CPP). We issued to the Treasury Department 83,586 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series B (Treasury Preferred Stock), having a liquidation amount per share of $1,000, and a warrant (Treasury Warrant), to purchase up to 7,418,876 shares, or Warrant Shares, of our common stock, at an initial per share exercise price of $1.69. The Warrant was not included in the computation of net income per diluted share in both periods because the exercise price of these warrants was greater than the average market price of the common shares, and therefore, antidilutive and also because of the net loss.
 
NOTE 4. SECURITIES

At March 31, 2011, the majority of securities in our investment portfolio were classified as available for sale.

Trading securities at March 31, 2011, consist of four trust preferred securities valued at $421. During the first quarter of 2011, we recorded trading gains of $92, compared to $179 during the first quarter of 2010.
 
Amortized cost, fair value and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) of available for sale securities were as follows:
 
 
18

 
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
March 31, 2011
                       
U.S. Treasuries
  $ 18,616     $ 70     $ 49     $ 18,637  
U.S. Government agencies
    100       5       -       105  
Collateralized mortgage obligations:
                               
Agency
    238,388       744       942       238,190  
Private label
    15,591       -       449       15,142  
Mortgage-backed securities - residential
    201,433       850       1,132       201,151  
Trust preferred
    16,207       108       4,674       11,641  
States & political subdivisions
    19,587       1,358       -       20,945  
Other securities
    8,641       17       2       8,656  
Total
  $ 518,563     $ 3,152     $ 7,248     $ 514,467  

         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
December 31, 2010
                       
U.S. Treasuries
  $ 18,607     $ 132     $ -     $ 18,739  
U.S. Government agencies
    100       6       -       106  
Collateralized mortgage obligations:
                               
Agency
    250,097       798       838       250,057  
Private label
    16,760       -       605       16,155  
Mortgage-backed securities - residential
    203,438       725       1,411       202,752  
Trust preferred
    16,193       59       5,503       10,749  
States & political subdivisions
    20,438       1,242       1       21,679  
Other securities
    8,641       28       2       8,667  
Total
  $ 534,274     $ 2,990     $ 8,360     $ 528,904  

The amortized cost and fair value of the securities available for sale portfolio are shown by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

   
March 31, 2011
 
   
Amortized
   
Fair
 
   
Cost
   
Value
 
Maturity
           
Available-for-sale
           
             
Within one year
  $ 8,157     $ 8,176  
One to five years
    181,657       181,974  
Five to ten years
    191,236       191,493  
Beyond ten years
    137,513       132,824  
 Total
  $ 518,563     $ 514,467  

Available for sale securities with unrealized losses at March 31, 2011, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, are as follows:

 
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Less than 12 Months
   
12 Months or More
   
Total
 
March 31, 2011
 
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
 
U.S. Treasury securities
  $ 9,528     $ 49     $ -     $ -     $ 9,528     $ 49  
Collateralized mortgage obligations:
                                               
Agency
    85,666       942       -       -       85,666       942  
Private Label
    3,925       41       11,217       408       15,142       449  
Mortgage-backed securities - residential
    115,515       1,132       -       -       115,515       1,132  
Trust Preferred
    -       -       7,542       4,674       7,542       4,674  
State & political subdivisions
    -       -       -       -       -       -  
Other securities
    -       -       24       2       24       2  
Total
  $ 214,634     $ 2,164     $ 18,783     $ 5,084     $ 233,417     $ 7,248  

   
Less than 12 Months
   
12 Months or More
   
Total
 
December 31, 2010
 
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
 
Collateralized mortgage obligations:
                                   
Agency
  $ 110,593     $ 838     $ -     $ -     $ 110,593     $ 838  
Private Label
    4,509       17       11,646       588       16,155       605  
Mortgage-backed securities - residential
    126,749       1,411       -       -       126,749       1,411  
Trust Preferred
    -       -       6,699       5,503       6,699       5,503  
State & political subdivisions
    1,754       1       -       -       1,754       1  
Other securities
    -       -       24       2       24       2  
Total
  $ 243,605     $ 2,267     $ 18,369     $ 6,093     $ 261,974     $ 8,360  

Proceeds from sales and calls of securities available for sale were $509 and $540 for the three months ended March 31, 2011 and 2010, respectively. Gross losses of $2 were realized on the 2010 sales and calls.

We regularly review the composition of our securities portfolio, taking into account market risks, the current and expected interest rate environment, liquidity needs, and our overall interest rate risk profile and strategic goals.

On a quarterly basis, we evaluate each security in our portfolio with an individual unrealized loss to determine if that loss represents other-than-temporary impairment. The factors we consider in evaluating the securities include whether the securities were guaranteed by the U.S. government or its agencies, the securities’ public ratings, if available, how those two factors affect credit quality and recovery of the full principal balance, the relationship of the unrealized losses to increases in market interest rates, the length of time the securities have had temporary impairment, and our ability to hold the securities for the time necessary to recover the amortized cost. We also review the payment performance, delinquency history and credit support of the underlying collateral for certain securities in our portfolio as part of our impairment analysis and review.

When other-than-temporary impairment occurs, for debt securities the amount of the other-than-temporary impairment recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If we intend to sell or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the other-than-temporary impairment shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If we do not intend to sell the security and it is not more likely than not that we would be required to sell the security before recovery of its amortized cost basis less any current-period loss, the other-than-temporary impairment shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total other-than-temporary impairment related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the other-than-temporary impairment recognized in earnings becomes the new amortized cost basis of the investment.

The ratings of our pooled trust preferred collateralized debt obligations (CDOs), single issue trust preferred securities, and private label collateralized mortgage obligations (CMOs) are listed below as of March 31, 2011 and at December 31, 2010. The trust preferred securities consist of two pooled trust preferred CDOs classified as available for sale and four pooled CDOs classified as held for trading and four single name issues listed below. The private label CMOs consist of five remaining issues of which four were originated in 2003-2004, while one was originated in 2006.

 
20

 

Ratings
       
         
Issuer
 
Ratings as of March 31, 2011
 
Ratings as of December 31, 2010
Pooled Trust Preferred CDOs (Amortized cost $2,213, fair value $1,042)
   
PreTSL VI
 
Ca (Moodys) / D (Fitch)