Integra Bank Corporation (

IBNK

)

Q3 2010 Earnings Call Transcript

November 10, 2010 10:00 am ET

Executives

Mike Alley – Chairman and CEO

John Key – EVP, Chief Credit and Risk Officer

Mike Carroll – EVP and CFO

Analysts

Ross Demmerle – Hilliard Lyons

Dotan Imag – CID Property

Presentation

Operator

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Welcome to Integra Bank Corporation's third quarter 2010 earnings conference call. This call is being recorded. The company intends to use its website www.integrabank.com, as a means of disclosing material, non-public information and for complying with its disclosure obligations under the SEC regulation FD. Such disclosures will be included in the company's website under the heading News and Events.

Accordingly, investors should monitor such portions of the company's website in addition to following the company's press releases, SEC filings and public conference calls and webcasts. Before we proceed, the company would like to note that statements made in the course of this conference call that are not based on historical fact are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The risk factors and cautionary statements in the forward-looking statements are detailed in the company's filings with the Securities and Exchange Commission and in the press release issued earlier today. The company makes no commitment to update any forward-looking statement based on new information, future events or otherwise.

Please note that a replay of this call will be available for 30 days through our website at www.integrabank.com and by telephone at 1-800-642-1687, pass code 23604113. Today's conference call will be presented by Mr. Michael Alley, Chairman and Chief Executive Officer of Integra Bank Corporation and other executive officers. Following the presentation, we will open the call to questions. At this time, I'll turn the call over to Mr. Alley. Please go ahead, Mr. Alley.

Mike Alley

Thank you Denise and good morning and thank you for joining us on Integra Bank Corporation's conference call for the third quarter of 2010. I'm Mike Alley, Chairman and CEO of Integra and with me today are Mike Carroll, Executive Vice President and Chief Financial Officer and John Key, Executive Vice President and Chief Credit and Risk Officer.

Our comments today will refer to the financial information in our earnings report that we released a short time ago as well our earlier press release commenting on Integra bank's third quarter call report. I will discuss the high-level results and provide an update on our strategic accomplishments. John Key will discuss our asset quality and anticipated trends, Mike Carroll will provide details of our earnings performance and financial condition and then we will open the call to questions.

The net loss for the third quarter of 2010 was $17.3 million or $0.84 per diluted share compared to $10.2 million or $0.49 per diluted share for the second quarter of 2010. This loss was driven primarily by the provision for loan losses which was $26.2 million, an increase to $7 million from the $19.3 million in the second quarter and loan and OREO costs of $5.8 million up from $1.4 million in the second quarter. The provision and higher OREO expense were partially offset by deposit premiums and loan sale gains from the third quarter branch sales of $11.2 million and $9.5 million respectively. The second quarter of 2010 included $6.7 million of these gains.

Our third quarter results reflect the first decrease in non-performing assets since the third quarter of 2006 which is consistent with our comments during the second quarter conference call that we believe the level of our NPAs peak during the second quarter. NPA’s decreased $17.5 million or 6.6% from June 30 and were $247.6 million as of September 30th. We’re disappointed in the magnitude of our net loss for the quarter which was primarily attributable to increased deterioration of valuations of commercial real estate. Particularly for unimproved land held as other real estate owned or as collateral security in commercial real estate loans. As we previously disclosed, we adjust the carrying value of non-performing assets as we receive updated appraisals. In today's depressed commercial real estate markets, that has increased our loan in OREO expense and loan reserves. We continue to pursue aggressive disposition strategies for all of these assets, which further contributed to our significant loan loss provision and the increased level of net charge-offs.

We increased our total risk-based capital's ratio in the second and third quarters. Integra Bank’s total risk-based capital ratio stood at 9.34% at September 30th and increased to 101 basis points from the 8.33% at June 30th and 134 basis points from the 8% we reported at March 31 2010. On August 16, 2010, Integra bank received a capital directive issued by the OCC dated August 12, 2010. Under the terms of the capital directive, the bank is required within 90 days to achieve and maintain a total risk-based capital ratio of at least 11.5% and a tier 1 level leverage capital ratio of at least 8%. As required by the directive, we provided the OCC with a three-year capital plan which they are currently reviewing. As previously announced, we have not yet achieved the required capital levels set forth in the OCC capital directive within the 90 day period is which ends today. We are actively engaged in discussions with Private – credit investors, private equity firms and others about investing in our company.

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