Banking Bailout and Indiana Banks and Leadership and Leadership Transition and Banking & Finance and Old National and Executives

Banker's seat on board turns into bigger challenge

May 25, 2009

Mike Alley thought he was easing back into banking when he joined the board of Evansville's Integra Bank Corp. this spring.

Alley knew Integra was struggling, but by the time he attended his first board meeting, April 15, its performance had worsened, and suddenly fellow directors were talking about new management.

"I was perhaps a little taken aback that at my first meeting we started discussing that," Alley said.

So began an odyssey that culminated with the May 4 announcement that Alley, CEO of Fifth Third Bancorp's central Indiana operations from 1989 through 2002, had become Integra's interim CEO, replacing Mike Vea.

Alley, who oversaw rapid growth for Fifth Third before retiring and pursuing investments, isn't interested in the permanent job and probably will hold the interim post no more than 180 days.

But it's going to be an intense stretch, as he grapples with souring loans and an unnerved investment community—challenges he didn't have to face at Fifth Third, which did well when he was there.

Integra's shares have lost 85 percent of their value over the past year, slipping to $2.08. The $3.6-billion-in-assets banking company lost $28.5 million in the first quarter, and that was on top of an $81.6 million fourth-quarter loss. In both quarters, it socked away more than $30 million for loan losses.

Nonperforming loans in the latest quarter ballooned to $190 million, or nearly 8 percent of all loans.

"Credit quality was dreadful," Howe Barnes Hoefer & Arnett analyst Daniel Cardenas noted in a report.

Integra—which has 75 offices in Indiana, Kentucky, Ohio and Illinois-"will muddle through for now," but needs to regain its footing, Cardenas said.

In response to the challenges, Alley, 53, sounds like the seasoned banker he is. "I definitely think we are going to be a survivor," he said. "We are well capitalized. ... We just have to work our way through it and return to the profitability levels our shareholders expect."

Many of Integra's problems stem from its $117 million purchase of Prairie Financial Corp. of suburban Chicago in October 2006. Integra paid a lofty price for the bank, which in retrospect was way too concentrated in lending to builders—a segment that was decimated when the housing bubble burst.

Alley, who is being paid a base annual salary of $300,000, acknowledges banking "has a lot more challenges today than when I left." But he said he's enjoying himself and sees signs the economy is poised to recover.

Alley hooked up with Integra in a roundabout way. Its directors had been seeking to add banking experience to the board when they approached Steve Schenck, the former regional president for Regions Financial Corp. who now works at Merrill Lynch. Because the Merrill role prevents him from serving on public company boards, Schenck suggested Alley.

"I would give Steve either the credit or the blame," Alley said with a laugh.

Old National in spotlight

Evansville-based Old National Bancorp is gaining national attention for being the first publicly traded bank in the country to pay back its TARP money and repurchase its warrants.

It isn't just that Old National severed ties with the government, freeing itself from myriad restrictions. It's that it severed those ties in a way that was highly favorable for its shareholders.

Old National returned its $100 million in TARP funds in March. This month, it paid just $1.2 million to repurchase warrants that gave the government the right to buy 813,008 Old National shares.

Analysts told The New York Times the warrants might have been worth nearly $7 million. "It's a great deal for Old National," Linus Wilson, a finance professor at the University of Louisiana, Lafayette, told The Times. "Treasury accepted a low-ball offer."

The newspaper said the deal raised questions about whether the government is going to be too easy on banks repurchasing their warrants, potentially leaving billions of dollars on the table.

Gracefully parting ways

Randy and Marianne Tobias didn't let their impressive wealth get in the way of a smooth divorce.

The couple quietly wrapped up their proceedings in Hamilton Superior Court late last month, completing the property settlement without making public their 1995 prenuptial agreement.

Among the few details that made their way into the court file: He ended up with their house at 71st and Meridian streets and their home on Lake Wawasee in northern Indiana. She received the family cat, Cinder.

Both brought millions of dollars to the marriage. Randy is a former CEO of Eli Lilly and Co., and Marianne was wealthy even before her previous marriage to Frank McKinney, the former chairman of American Fletcher National Bank, who died in a 1992 plane crash.

In an e-mail, Randy Tobias said he and Marianne remain good friends. He said the fruits of their charitable giving—such as the Randall L. and Marianne Tobias Theater at the Indianapolis Museum of Art—will continue to bear both their names.

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