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Integra Bank in Evansville, Ind., was closed by the Office of the Comptroller of the Currency, after fighting to survive for nearly two years.
July 29 -
Integra Bank Corp. of Evansville, Ind., said Tuesday that it has agreed to sell its wealth management arm to Old National Bancorp.
April 13 -
Integra Bank Corp. in Evansville, Ind., on Tuesday reported a fourth-quarter loss of $42.8 million, half its loss in the year-earlier period.
March 16 -
Integra Bank Corp. gave a grim outlook on its future after reporting that the total risk-based capital of its bank fell 168 basis points from a quarter earlier.
February 1
Old National Bancorp's purchase of its largest competition could be considered subtraction by addition.
The $8 billion-asset Old National struck a deal Friday with the Federal Deposit Insurance Corp. to buy Integra Bank, also in Evansville. The deal adds 52 branches, $1.5 billion in deposits and $1.2 billion in loans.
Of greater importance to analysts is the opportunity for Old National to cut costs, since its efficiency ratio stood at 73.3% at March 31. Management had promised investors it would cut that ratio to 65% by the end of 2012. Now, that goal should be hit by early next year.
While most failed bank deals are about growth and expansion, Old National's purchase of Integra is noteworthy, analysts said.
"I think it is a great deal for them, but it is not your typical FDIC failed bank deal," said Kenneth James, an analyst at Sterne Agee & Leach Inc. "It is not very often than you get the opportunity to acquire an in-market competitor as a way to lower expenses. Old National has made a lot of progress toward lowering their efficiency ratio, but it is kind of like turning around a battle ship."
With growing pressure on revenues, more deals — either assisted or unassisted — designed to meet strategic initiatives are inevitable, analysts said.
"It is hard for banks to leverage cost structures when revenues have been going down, not up," said Jeff Davis, an analyst at Guggenheim Partners. "If the environment doesn't change, and I don't think it will, the only real venue for companies to achieve their strategic objectives is through acquisition."
Old National is considered a strong performer and managed to make it through the financial crisis relatively unscathed. In March 2009, it was one of the first banking companies to exit the Troubled Asset Relief Program. Still, the company's cost structure has long been an issue to analysts and investors.
In a Monday interview, Bob Jones, the company's president and chief executive, said part of that strength was a direct result of an inflated expense base. He said the company had beefed up areas such as its workout division and risk management.
"Seven years ago when I joined Old National was struggling a little bit. So we invested in certain areas where we had weaknesses. That helped us navigate our turnaround and the downturn," Jones said. "We are now at a point in time where we need to reduce costs."
The company estimates that it will to recognize cost savings of more than 75%. Old National characterized it as a broad-based reduction, where savings will come from staff reductions, system redundancies and branch consolidations. The deal is also expected to increase earnings by 25% in the next year.
On Monday, Old National reported second quarter earnings of $17 million, up 62% from a year earlier. Its net interest income rose nearly 13% from a year earlier, to $62.3 million, and its loan-loss provision fell 60%, to $3.2 million. At 18 cents a share, the results beat the average analysts' estimate by two cents.
Although it was a solid quarter for Old National, analysts were singularly interested in discussing the Integra deal during a Monday conference call, with many congratulating the management team of pulling off its first failed bank acquisition.
Old National had long been viewed as the likely buyer of Integra, which had been struggling for more than two years. Integra was was largely brought down by troubles in Ohio, an $18 million-loss on a loan to an Ohio thrift that failed and a Chicago acquisition that was wrought with problem construction loans.
Analysts anticipate that Old National will shed the handful of Chicago branches, in addition to a number of the overlapping branches in Indiana. The deal does not move the company into any markets that it was interested in growing.
During Monday's conference call, Jones and his team said they had been conducting due diligence on Integra throughout the year and had even consulted two Arkansas institutions on the process of buying failed banks. Although the company bought Integra's wealth management division earlier this year, it never considered buying the whole bank without a government backstop.
It was, however, bullish about acquiring the bank through the FDIC. The company said it expects to book goodwill associated with the deal. To Davis, that was a sign that the company bid aggressively, because most failed bank deals result in a bargain purchase gain, or negative goodwill, given the aggressive discounts and government loss-share agreements.
Jones agreed, saying during the interview that he bid aggressively because of the cost savings potential. "Any time I can provide 25% accretion and 75% cost saves to the company, it is of great financial benefit to our shareholders to go after it," Jones said.
