Since joining Integra Bank Corp. in Evansville, Ind., nearly six years ago, Michael T. Vea has spent nearly his entire tenure restructuring it.
Now he says that, after a number of setbacks - including credit quality troubles and a balance-sheet restructuring - the $2.8 billion-asset company is finally ready to grow.
"There was a lot of fire and smoke for a few years, and now we're coming out of that," Mr. Vea, Integra's chairman, president, and chief executive officer, said in an interview at an investor conference in Chicago last week.
His strategy for building assets and improving earnings is to build core deposits through free checking promotions and expanding in major metropolitan markets.
Though the strategy is not novel, Joseph A. Stieven, the head of financial institutions research at Stifel, Nicolaus & Co. Inc. in St. Louis, said it will likely work well for Integra, because many of its senior managers came from growth-oriented banking companies.
Mr. Vea joined Integra from Bank One Corp., where he was the Cincinnati president and CEO. Archie M. Brown, Integra's executive vice president for commercial and consumer lending, came from Firstar Corp. (now U.S. Bancorp) in 2001, and Martin M. Zorn, the chief risk officer, was a regional executive at the $452 billion-asset Wachovia Corp. for 19 years before joining Integra in 2001.
"I would want the leaders of that institution coming from banks that have a track record of growth," Mr. Stieven said.
Mr. Vea took the helm of the company, then called National City Bancshares Inc., in August 1999. At the time it was coming off a torrid acquisition spree in which it bought 14 companies in two years. Mr. Vea was brought in to bring order to the chaos that all the acquisitions had caused.
What he uncovered was that the company had 13 different banks operating with 13 different product sets, loan policies, and operational procedures.
Mr. Vea brought all of his company's operations under one umbrella by consolidating the charters, standardizing products and procedures, and renaming the company Integra.
From 2000 to 2003 he focused on improving credit quality and rebuilding management. He created a separate workout group for bad loans, centralized the approval process for mortgage, consumer, and small-business loans, and required both a credit analyst and a field lender to sign off on large commercial loans. He also brought in a new risk management officer and a new operations officer.
Since 2000, Integra has cut nonperforming loans in half, to $18.8 million at the end of last year.
It spent last year restructuring its balance sheet to control interest rate risk. It prepaid $462 million of Federal Home Loan bank borrowings with an average interest rate of 6.16% and refinanced them with borrowings at 2.3% interest. It also sold its credit card portfolio. Integra took a $57 million refinancing charge that caused a net loss of $6.6 million for the year.
Mr. Stieven said that Mr. Vea and his team were facing a tougher task than most troubled banking companies, where there is usually one issue, such as credit quality.
"Their patient had a number of symptoms," Mr. Stieven said. "I think they've cured a lot of those symptoms." Now that it is in good health, it is focusing on expanding.
Integra wants to increase its core deposits by using a free checking account as its primary product. Last fall it reduced its account types to seven, from 15, and trained its employees about the features of the new accounts. It launched an advertising campaign in January and hopes to open 30,000 accounts this year, twice as many as it opened last year.
"We've had nice growth in the corporate side of our company in cash management and public funds," Mr. Vea said in his presentation. But he is hoping that, with its free checking program, Integra can go from being "a good deposit generator to a great deposit generator."
Mr. Vea said he hopes to duplicate the success of the $12.4 billion-asset TCF Financial Corp. of Wayzata, Minn., which he visited while preparing Integra's free checking initiative. TCF's checking accounts have grown 36% since 2000, to 1.5 million at the end of last year, and it has opened an average of about 100,000 accounts a year in that period.
Jason Korstange, a spokesman for TCF, said that even though Integra is launching its free checking product long after other banking companies have done so, it could still have success in building deposits.
"There's a lot more competition than when we started," Mr. Korstange said. "We still think the system works, because we're still opening branches."
Integra also wants to change its geographic mix. About 75% of its business comes from small communities and rural markets, Mr. Vea said after his presentation to investors at the Midwest Super Community Banking Conference in Chicago.
He would like to reduce that figure to 50% and build its operations in metropolitan markets, such as Lexington, Ky., and Columbus, Ohio, through both acquisitions and branch-building. It is looking for branch sites in the Cincinnati area and acquisition targets with between $100 million and $1 billion of assets.
"You're not going to see us come out and announce a de novo strategy of 30 new branches at this point, but we're feeling better and better about the results of rolling these out and what they're going to do for us in helping transform our branch mix," Mr. Vea said in his presentation.
Analysts are bullish on Integra's turnaround prospects. The consensus estimate calls for Integra to post a profit of $1.61 a share this year, versus a loss of 38 cents last year and a profit of $1.03 in 2003. (On an operating basis, Integra earned $1.45 a share in 2004.)
Mr. Stieven said the outlook for Integra is good, because a lot of talent came in to fix its problems, which now are solved.
"Now they can focus on growing the company," he said.
