Integra Bank Corp. of Evansville, Ind., is getting closer scrutiny from its regulator, but there is some debate about how that might affect the $3.6 billion-asset company.

Michael J. Alley, Integra's interim chairman and chief executive officer, downplayed the written agreement, which requires better lending oversight.

"This is not so severe that it says the bank is moving toward failure," Alley said in an interview after Integra disclosed its agreement with the Office of the Comptroller of the Currency last week. "The formal agreement is very specific in its scope, and the steps that they are recommending — most of which we have commenced or completed — will help enhance our credit quality."

But Scott Siefers, an analyst at Sandler O'Neill & Partners LP, wrote in a research note that the agreement could still be damaging for Integra, which has been struggling with an increase in troubled construction loans and is searching for a new leader.

"We view the written agreement itself as a negative," Siefers wrote. "The increased regulatory burden simply comes at an already difficult time for the stock."

Michael T. Vea, who remains Integra's president, stepped down as its chairman and CEO last month, because of the company's problems. Alley, who joined the board this year and took on Vea's former titles temporarily, said the company expects to have a new CEO in the next 90 to 120 days.

But Siefers wrote that, given all that Integra has going on, it would face difficulty raising capital if it had to do so.

The agreement makes no mention of higher capital ratios, and Integra's bank unit was well capitalized by typical regulatory standards at the end of the first quarter, according to the Federal Deposit Insurance Corp.

But the company has posted four straight quarterly losses totaling $144 million, and its first-quarter nonperforming loans rose 533% from a year earlier, to $189.2 million, or 7.8% of its total.

Alley would not say if Integra is receiving regulatory pressure to boost capital. He said there is an internal push for higher ratios to reflect the risk associated with the construction loans that make up 26% of its portfolio.

"We are positioning ourselves to have capital levels that are appropriate to our risk profile," Alley said.

The regulatory agreement, which is dated May 20, gives Integra 30 days to develop a plan for shrinking its criticized assets and 45 days to assign and train more people to work out problem credits.

It also must immediately analyze the guarantors for some commercial real estate loans.

Several analysts said the agreement is not as harsh as many others have been lately.

"At least it is not a cease-and-desist order," said Jeff Davis, an analyst at Howe Barnes Hoefer & Arnett Inc. "Also, there was no capital call. Of course, one could come later, though. My take on this is very 'glass half full.' It potentially could have been a fair bit worse."

Chris McGratty, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., said Integra is facing high regulatory scrutiny because of its concentration in construction loans. He also said in the case of Integra, which received $83.6 million from the Troubled Asset Relief Program in February, regulators likely are mindful that they are protecting not only depositors, but also taxpayers.

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