Indianapolis banker sees progress, challenges at ailing Integra

Mike Alley has lived the extremes of banking.

Alley

As head of Fifth Third Bancorp’s central Indiana operations in the 1990s, he orchestrated explosive growth, transforming the bank from a local small fry into a thriving market heavyweight.

Now, as CEO of Evansville’s ailing Integra Bank Corp., Alley, perhaps more than any other banker in the state, is experiencing the pain the economic crisis has wrought on the nation’s financial institutions.

Alley joined Integra’s board in April 2009. Just a month later, with the bank’s finances worsening, directors tapped him as chairman and CEO, putting him in charge of executing a turnaround.

Pulling that off has been “much more difficult” than expected, Alley acknowledges. And banking observers now say Integra faces the real risk of becoming the second Hoosier institution to fail since the economy tanked in 2008. (Regulators shut down the first, Columbus’ Irwin Union Bank and Trust, in September 2009.)

Alley, 54, says he’s doing everything in his power to ensure Integra doesn’t suffer a similar fate.

For starters, he and the board have cleaned house. Gone is the management team that had a hand in creating Integra’s problems. And he’s focused on transparency, making sure he gives regulators complete information about the bank’s operations and its recovery strategy.

Perhaps most important, he and his team of workout specialists are making headway. A ratio assessing the bank’s capital as a percentage of assets improved from 8 percent in the first quarter to 8.33 percent in the second and 9.34 percent in the third. The latest quarter also saw the first drop in non-performing assets since late 2006.

“We are making progress in our recovery, even though we continue to have a lot of challenges ahead of us,” Alley said.

“Regulators do not want to take over banks—that’s the last thing they want to do. If you have a team making progress, moving things forward and doing what you want them to do, they are not going to inhibit that progress.”

Still, Integra is clearly not where regulators want it to be. On Aug. 12, the Office of the Comptroller of the Currency ordered it to boost its capital ratio to 11.5 percent—2.3 percentage points higher than it was in the third quarter—within 90 days, a deadline that came and went Nov. 10.

Integra said that day that it is in discussions with private investors and private-equity firms about investing in the business. In his interview with IBJ, Alley wouldn’t handicap the prospects of success. In a regulatory filing, Integra suggested it would need to raise more than $100 million to comply with all the capital ratios specified in the OCC order.

One veteran banking analyst thinks regulators are being more patient than they might otherwise be because of Alley’s banking experience and because the company has laid out a concise turnaround strategy.

That plan includes selling off branches farthest afield of Evansville and turning Integra into a community bank serving a 100-mile radius of its headquarters city. Toward that end, Integra over the past year has cast off a total of 22 branches in parts of Kentucky and the Cincinnati area. The sale of branches, along with certain loans, has helped boost Integra’s capital ratios.

But there’s no quick fix for Integra’s problems, which stem from the company’s rapid expansion earlier in the decade into commercial real estate loans—a market segment that was decimated when the economic crisis hit in 2008.

Integra began opening commercial loan production offices in 2003, setting up outposts in Tennessee, Kentucky and Ohio—all of which it has since closed. It also upped its real estate exposure by buying Prairie Financial Corp. of suburban Chicago for $117 million in 2006.

The timing could hardly have been worse. Developers planning shopping centers and builders planning subdivisions ran aground in the weak economy, leaving Integra with the undeveloped land they’d put up as collateral.

The value of that collateral plummeted, sometimes as much as 60 percent, after demand dried up for new projects. Integra said its $17.3 million third-quarter loss—its 10th consecutive quarter of red ink—stemmed primarily from declining commercial real estate values.

Temporary calling

Alley grew up in the southwest Indiana city of Petersburg, and both his mother and father worked for banks that later were acquired by Integra.

But leading the institution was never part of his career plan. His goal is to get the bank on solid footing, which would position it to recruit a high-caliber executive to assume the CEO’s job.

Alley sounds confident his tenure will have a happy ending—with the bank out of the woods, rather than with regulators stepping in and shutting it down. But he acknowledges, “You can never say never.”

“I am committed to staying here until we get things moving in the right direction,” he said.•