Integra Bank Corporation Q2 2009 Earnings Call Transcript

Integra Bank Corporation (IBNK)

Q2 2009 Earnings Call

July 31, 2009 11:00 am ET

Executives

Michael Alley - Chairman and CEO

Martin Zorn - COO and CFO

Ray Beck - EVP and Chief Credit and Risk Officer

Analysts

Chris McGratty - KBW

Stephen Geyen - Stifel Nicolaus

Scott Siefers - Sandler O'Neill

Ross Demmerle - Hilliard Lyons

Presentation

Operator

Welcome to Integra Bank Corporation's second quarter 2009 Earnings Call. This call is being recorded. 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 statements 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 1-888-203-1112, pass code 6433156.

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.

Michael Alley

Thank you, Felicia. Good morning and thank you all for joining us on Integra Bank Corporation's conference call for the second quarter of 2009.

I'm Mike Alley, CEO of Integra, and with me today are Martin Zorn, our Chief Operating Officer and Chief Financial Officer; Ray Beck, Executive Vice President and Chief Credit and Risk Officer; and Roger Duncan, Executive Vice President of Retail and Business Banking.

Our comments today will refer to the financial information in our earnings report and accompanying slides that we released earlier this morning. I will review the high level results and provide a strategic perspective on our outlook. Ray Beck will discuss our asset quality. Martin Zorn will provide financial detail. And then we will open up the line to questions.

The second quarter continued to be a difficult and challenging quarter as residential housing, especially in the Chicago market continues to be a drag on the company's performance. While the non-residential component of our commercial real estate portfolio continues to perform in line with the market, we are concerned that the national CRE market will suffer increased stress over the next several quarters.

We are taking proactive steps to reduce our commercial real estate exposure, especially our construction and development concentration and to continue to monitor the portfolio closely. We remained aggressive in our pace of reserve building and charging off non-performing assets in the second quarter.

It was also a noisy quarter that included among other things the charge down of virtually our entire loan to PCBI other than temporary impairment charges at valuation allowance against the company's deferred tax asset, fair value charges related to the warrant we issued under the capital purchase plan, the special FDIC assessment, severance associated with our reduction and force initiative and professional fees associated with our CEO search and engagement of an investment banker to review our capital position.

With the charge-off of the PCBI and the aggressive OTTI charges, we do believe we have reduced a significant element of risk in our balance sheet.

On the positive side we saw the pace of non-performing loan growth slow and improvement in delinquencies for the second consecutive quarter. During the short time that I have been CEO, I have been able to visit many of our branches and remained very impressed with the quality of the staff and the deep relationships that we have with our customers. While still too early to call the [turning] credit quality, it does appear that we are getting closer to the peak in non-performing assets.

We will continue to maximize the opportunities of the majority of our franchise that continues to perform very well, that being our core community markets in C&I businesses.

Our strategic priorities continue to be first, stabilize and then reduce our level of non-performing assets. Second, to strengthen capital through the reduction of risk weighted assets and deleveraging the balance sheet. And third, to increase our core pre-provision pre-tax operating income.

During the quarter we implemented an expense and revenue initiative that will decrease our non-interest expense by $8 million on an annualized basis and increase our non-interest revenue by $3 million. We also have initiated efforts to increase our margin and net interest income.

During the quarter we did engage the services of an investment banker to advice us regarding deleveraging strategies to help us improve our capital position. We have implemented certain of these strategies as you will hear later, and will accelerate those actions during the third quarter. The board and I are very pleased with our progress in implementing procedures outlined in our regulatory agreement with the OCC.

The objectives and actions outlined in the agreement are consistent with the actions that the bank was already taking. The process of complying with the agreement has had the positive affect of formally documenting the progress with respect to actions taken and keeping our board actively engaged. We believe we are well positioned to address the credit and liquidity issues confronting our company and our industry.

The net loss available to common shareholders for the second quarter of 2009 was $43.9 million or $2.12 per share. There were five primary drivers in the loss. First, the provision for loan losses was $32.5 million which was up $1.1 million from the last quarter, and is still elevated due to residential construction weakness and included $8.25 million for the portion of the PCBI credit that we had not previously specifically reserved. Net charge-offs totaled $28.8 million which includes 17 million for PCBI, increasing the year-to-date total to 46.1 million or 3.82% of total loans on an annualized basis.

Second, we recognized $13.5 million in other than temporary impairment. Third, our valuation allowance against the company's tax asset was increased by $11.4 million. Fourth, we incurred a non-cash expense of 1.4 million, in additional to the 4.7 million recognized in the first quarter relating to the CPP warrant we issued in February, but could not be reclassified as equity until we received shareholder approval in April.

Finally, there were a number of one-time items totaling $2.1 million that included the special FDIC assessment, search fees for the CEO, severance related to our reduction in force and engagement fee for investment banking advice offset by reversals to post retirement benefits.

Now I will have Ray Beck update you on our credit quality. Ray?

Ray Beck

Thanks Mike. The second quarter was a difficult and transitional quarter for us. We continue to experience credit deterioration, still principally limited to residential construction and development. Although we have seen some concerns in our retail construction portfolio as macro factors continue to deteriorate in the general economy. At this point, we are keeping a close eye on this area.

Non-performing loans declined by 6.8 million to 182.4 million or 7.76% of total loans, although the decline largely was the result of the large charge-off recognized during the quarter. Non-performing assets increased 2.6 million to 211.7 million or 8.9% of total loans plus OREO, as OREO increased by 9.4 million to 29.3 million at June 30.

Included in the non-performing loans of 165.9 million are commercial real estate loans, 8.9 million of C&I loans, 5.0 million of one to four family residential loans, and 2.7 million of consumer loans. Of the 165.9 million in commercial real estate loans, 128.9 million are tied to residential development and construction, and 15.2 million are tied to retail construction projects.

Net charge-offs for the quarter was 28.8 million or 480 basis points for the quarter, which included the $17 million charge-off on our loan to Peoples Community Bancorp. Based upon PCBI's agreement to sell significant asset to First Financial Bancorp, and the uncertainty surrounding the ability of the residual PCBI to operate probability, we concluded that the loan no longer should be carried as an active asset.

In addition, we recognized $896,000 of charge-offs as a result of a limited time discount we offered to many of the customers of our commercial real estate group in exchange for early repayment, consistent with our strategy to improve our capital position and reduce our CRE exposure.

Excluding the charge-offs on PCBI and the discount offer on certain commercial real estate loans. Net charge-offs totaled $10.9 million. Delinquencies represent an area of improvement this quarter for our bank. Loans, 30 to 89 days delinquent decreased by $18.6 million to $19.9 million or 85 basis points, compared to $38.5 million or a 159 basis points at March 31, and $64.9 million or 261 basis points at December 31. This represents two successive quarters of improvement in our level 30 to 89 day delinquencies and is the lowest level of delinquencies since September 2007.

Most of the improvement was in our commercial real estate portfolios. Delinquent loans include $12.4 million or 97 basis points of commercial real estate loans, $3.1 million or 63 basis points of C&I loans, and $4.4 million or 76 basis points combined of owner occupied residential loans and consumer loans. Of the $12.4 million in delinquent commercial real estate loans, $6.2 million or 50% are located in our Chicago region.

Delinquencies are evenly split between payment delinquencies and maturities, with $7.8 million of the delinquencies representing payment delinquencies and $7.7 million representing maturities. We are encouraged by this improvement in our commercial real estate delinquency, although there is no guarantee that this improvement will continue.

In response to continued high level of non-performing loans, we increased the allowance per loan losses to $82.3 million or 3.50% of total loans as our provision of $32.5 million exceeded net charge-offs by $3.8 million.

The allowance to NPLs increased from 41.5% to 45.1% of total non-performing loans. We continue to believe we have adequate coverage of the risk of loss in our portfolio. We began to provide aggressively to the allowance in 2008 that the housing market slide become more pronounced. Over the last four quarters, our loan loss provision expense has totaled $120.1 million against charge-offs of $69.5 million during that period.

As I mentioned, the second quarter was a transitional quarter for us as we made significant personnel changes, primarily in the Chicago area.

First, as previously disclosed, Brad Stevens, the President of our Chicago region, announced his retirement effective June 30. We have appointed Steven Wood, who we hired late in the first quarter to oversee the team managing the Chicago portfolio. Steve is an experienced workup professional having held leadership positions at several larger and smaller institutions over the past 20 years, and has particular experience with commercial real estate problems.

In addition, we have assigned two of our senior level credit professionals to assist Steve in managing the Chicago portfolio. The three of them have been busy organizing their teams and putting into place additional processes and disciplines designed to reduce the size of the Chicago portfolio.

Till that end, the Chicago loan portfolio has continued to decline and it now stands at $324.7 million compared to $340.9 million in March 31, and $351.7 million at December 31. We are confident that the efforts of Steve and his team will payoff in the form of continued portfolio reductions over the next several quarters.

Finally, as previously disclosed, we have been looking for ways to reduce our overall commercial real estate portfolio. We are not actively originating new commercial real estate loans, although of course, we continue to fund against existing construction commitments. Right fund indicates existing commitments. We have been successful in reducing the non-owner occupied commercial real estate portfolio managed by our commercial real estate group from $906 million in commitments and $716.7 million of outstanding balances at March 31, to $854.5 million in commitments and $711.9 million of outstanding balance at June 30, by taking aggressive actions to exit certain credits.

As noted earlier and recognized $896,000 charge-offs this quarter is part of a limited time discount we offered in the second quarter to certain customers of our commercial real estate group in exchange for early payment. This offer resulted in a reduction of a non-owner occupied commercial real estate commitments managed by our commercial real group of $18.0 million in reduction in the outstanding balances of $16.1 million during the quarter.

Finally, construction and land development loans declined by $192 million, while CRE loans increased by $99.8 million, and multi-family increased by $21.9 million, largely as a result of projects being completed.

Now, let me turn to Martin.

Martin Zorn

Thanks, Ray. Looking first at quarter-over-quarter changes in the balance sheet, average total assets increased $13 million during the second quarter of 2009, driven by an increase in cash in different banks of $111 million. The increase in short term liquid funds has been a key component to our liquidity strategy during this period of uncertainty.

Average loans declined $52 million with commercial loans down $26.7 million, consumer loans down $10.9 million, and residential loans down $14.4 million. Average securities were down $37.7 million. At the same time that we have been focusing on improving liquidity, we remain focused on improving our capital position through the reduction of risk-weighted assets.

On the liability side of the balance sheet, non-interest bearing deposits were flat while average interest bearing deposits were up $62.3 million, driven primarily by increases in savings and money market funds offsetting declines in time, public and broker deposits. Declines in wholesale borrowing included a reduction in repurchase agreements and the TAF borrowings from the Fed, partially offset by a $50 million participation in a pooled TLGP borrowing that closed on March 31 of last quarter. These balance sheet changes not only improved liquidity but also improved our liability mix.

Our average loans to customer deposit improved from 108.5% to 105.7% during the period. The increase in cash and equivalents improved our liquidity position but had a negative impact on their net interest margin and tangible equity ratio.

During the quarter, we sold $63 million of CMOs and mortgage-backed securities at a gain of $1.5 million. We reinvested $24 million of the proceeds in treasuries and Ginnie Mae and used the remainder to repay borrowings, including the prepayment of a $20 million, 4.83% structured repurchase agreement which had a prepayment expense of $1.5 million. This trade was part of our strategy to delever and improve our capital and liquidity positions.

The principle risk in our securities portfolio remains concentrated in our cost preferred segment which has a book value of $24.2 million and a market value of $10.7 million, an account for $13.5 million of our $17.5 million of gross unrealized losses.

Due to the implementation of FASB FAS 115-2 and FAS 124-2 during the second quarter, we were required to bifurcate credit from non-credit valuation for the securities with prior OTTI as of the beginning of the second quarter. The net effect was to write $1.3 million or $778,000 after-tax of the past decline in valuation through other comprehensive income as of the beginning of the quarter.

During the quarter, we a saw a significant increase in the default probability of issuers in our trust-preferred securities, as well as a spike in defaults and deferrals. As a result, we significantly increased the level of other than temporary impairment charges during the quarter. As of June 30th, we recognized $13.5 million as new, other than temporary impairment, plus $1.1 million which had previously been recognized as OTTI, but in accordance with the new accounting standards, hence we run through the income statement again.

We are now carrying the six trust preferred CDOs which have the face value of $28.7 million at $2.7 million. We reclassified the four lease seasoned CDOs as traded. These four securities are now valued at only $250,000. In addition to the six pooled CDOs, we hope five single-named trust-preferred securities.

As of today, our primary risk is related to BankAtlantic and Colonial Bancorp. BankAtlantic represents 60% of the collateral remaining in our holdings of (inaudible) six. We hold a $7 million apart of Colonial Capital 4 at a market value of $1.3 million. No OTTI charges had been taken on the Colonial Security.

We and the third-party stress test our six private label CMOs which continue to perform well. In fact, the value of these securities improved since last quarter. The reminder of our portfolio is [Muncie], Fannie, Freddie and Ginnie Mae mortgage securities and treasuries.

Our net interest margin was 2.34% for the quarter, down 5 basis points from the first quarter. Our asset sensitivity is concentrated in three areas. We are net asset sensitive of $317 million to prime, net asset sensitive of $662 million to one-month LIBOR and net liability sensitive of $195 million to three-month LIBOR. Lost interest income from non-performing loans year-to-date was $6.5 million or 44 basis points.

At this point, we are assuming a run-rate margin between 2.3% and 2.35% for the reminder of the 2009 using static rates. Near term improvements in the margin can come from an increase in short term rates, a reduction in non-performing loans and from the yield enhancement actions that were initiated at the end of the quarter.

Net interest income was a negative $5.3 million compared to a positive $5.5 million for the first quarter of 2009. The second quarter included the OTTI charges, security gains, and the warrant fair value adjustment. The first quarter of 2009 included gains on the sale of five banking centers other than temporary impairment and the warrant fair value adjustment.

Service charge income was up $622,000 or 14%, debit income was up $115,000 or 9%, while annuity commissions were down $68,000 and CSV Life Insurance was down $295,000.

Non-interest expense decreased $305,000 or 1% from the first quarter. We had increases in FDIC Insurance of $2.1 million, debt prepayment penalties of $1.5 million, professional fees of $327,000 and severance of $421,000 which were offset by declines in loan expense of $2.8 million, employee benefits of $1 million and OREO expense of $795,000.

The income tax benefit for the quarter was $7.5 million and was a result of the net loss, the impact of low income housing tax credits, municipal security and bank-owned life insurance income. And this was net of the $11.4 million federal and state tax income valuation that Mike referred to.

Our current earnings projections for 2009 and beyond suggest that we can fully utilize the components of our deferred tax asset if we are successful in executing our strategy.

Given the risks for additional deterioration in our loan and securities portfolio, not contemplated in our current projections, we developed a methodology with which we stressed our deferred income tax model. We have been consistent about applying this approach. A key element to the model is limiting the forecast period to 12 years. As a result of that testing, we established an additional $11.4 million income tax valuation allowance in the second quarter of 2009.

Further, we reclassified $10.3 million from current tax receivable to deferred tax assets which negatively affected our regulatory capital as the amount is disallowed in that calculation.

We first established the state valuation allowance during the fourth quarter of 2008. To-date, our state valuation allowance is $4.3 million and our federal tax valuation allowance is $12.7 million. To the extent our actual results exceed projections; this allowance can be reversed in future periods.

Integra Banks total risk-based capital ratio was 9.74% or adequately capitalized, while other ratios remain above the regulatory minimum for well capitalized status. On July 30th, we downstreamed $7.9 million in cash, fund [the parent] to the bank as a capital contribution.

Had we downstreamed the funds on June 30th, then the total risk-based capital for the bank would have been considered well capitalized. Tier 1 risk-based was 8.47% and Tier 1 leverage was 6.41%. On a consolidated basis, our total risk-based capital was 10.58%, Tier 1 risk-based was 8.8%, Tier 1 leverage was 6.67%, intangible common equity to total intangible asset ratio was 4.03%.

Our plans are to accelerate our efforts to deleverage the balance sheet to exceed the well capitalized levels.

As Mike mentioned, we have engaged an investment banker to help us with the execution of a variety of actions available to better position the balance sheet. Actions under consideration include selling one to four family residential loans to be securitized, selling securities, currently at a gain to generate capital, reduce the level of risk-weighted assets and reinvest in 0% risk-weighted Ginnie Mae securities. The seller surrendered at $65 million of bank-owned insurance, as well as other non-core assets.

It is estimated that these actions can increase our total capital ratio by 50 to 60 basis points. Additionally, we still have a $11.7 million in cash at the parent after the effect of July capital contribution. Our tangible book value for common share was $6.50 at June 30th.

Now let me turn the call back to Mike

Michael Alley

Thanks, Martin. In conclusion, we remain disappointed with our performance and we are taking concrete steps to improve. We continue to dedicate appropriate resources to improve the stressed areas while continue to focus on taking care of our customers. We are seeing some positive signs, both in the economy as well as with our loan portfolio, but it is up to us to turnaround our financial performance, return to profitability and improve our risk profile in order to win back the confidence of our investors and we are dedicated to successfully accomplishing that goal.

We'll now be happy answer to any questions. [Felicia], I'll turn it over to you to queue those up.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). We will go first to Chris McGratty of KBW.

Chris McGratty - KBW

Hi, good morning guys.

Unidentified Company Representative

Good morning

Unidentified Company Representative

Morning.

Chris McGratty - KBW

Just a quick question here, some pretty cautious comments on CRE, I was wondering if you can elaborate a little bit more on what you are seeing in the market? What changed in last six months? And then maybe quantify on the proportion it's owner occupied versus a non-owner occupied?

Michael Alley

Sure. Ray, you want to take that?

Ray Beck

Yes, sure. Chris, we are not seeing anything different in the market that anybody else is seeing. As everybody knows, CRE is considered to be a stressful product generally in the economy. The lack of a permanent market has impacted the ability of our customers to refinance their projects. And the general slowdown in the economy certainly has continued to have an impact on the retail sector. We all know that there have been a number of bankruptcies among retail companies. That being said, all portfolio took our retail portfolio while we are continuing to watch it closely. We really don't have any tenant concentrations in that portfolio. So, while bankruptcy of one name might impact a project or two, it won't have a significant impact on the overall project or the overall portfolio rather.

The non-owner occupied piece at the end of June was $1.00052 billion 31:48, and that's coming down not as quickly as we'd like, but it actually has declined through the year and we do expect that to continue to decline, not at a significant pace but we do expect it to continue to decline throughout the rest of the year.

Chris McGratty - KBW

Okay. Just the second question on capital. I think your TC was around 4%, I guess, you're shrinking the balance sheet but (inaudible) thinking about just a TC ratio in context to your credit outlook?

Martin Zorn

Sure. Chris, this is Martin Zorn. In terms of the TC outlook, we would ideally like to see it above six, I think in the current environment. Even with balance sheet actions, we will not be able to get there but I think what we want is to drive it up. We certainly don't want to see it decline any further, and that's why we've been aggressively delever the balance sheet to improve all of our capital ratios. Ideally we would like to see that up. Our regulatory capital ratio probably was 200 basis points higher than what they are today as well.

Chris McGratty - KBW

Okay, great. Thank you, guys.

Operator

We'll go next to Stephen Geyen of Stifel Nicolaus.

Stephen Geyen - Stifel Nicolaus

Good morning, guys.

Michael Alley

Good morning.

Stephen Geyen - Stifel Nicolaus

I am just wondering, you reducing in line your interest expense by about $8 million annualized. If we back out, maybe some of the special items in the first quarter of 2009, is that maybe a good base quarter for us to build our model offer?

Martin Zorn

Stephen, this is Martin. If you back out the one-time items, I think it would probably be a good quarter. I think what you would find in there as in the near term, certain expenses such as one collection expenses and legal expenses would retire to the high level, non-performs would remain elevated. As we go through the credit cycle, we would expect they almost come down as well. The one adjustment that you would have to also make is in the FDIC expense when we talk about how much that was up. $1.6 million of that is related to the special assessment. So that way you can separate the special assessment from what would be a run-rate for the FDIC expense.

Stephen Geyen - Stifel Nicolaus

Okay. One final question. I realize the loan commitments of very bad loan but could you give us some idea of what maybe the average price of the [total comments] are?

Ray Beck

Are you talking about the commercial real estate portfolio Stephen?

Stephen Geyen - Stifel Nicolaus

Yes.

Ray Beck

At this point probably not because that has changed with the demise of the permanent market. Typically, we have been a construction lender and those projects would be about a two-year construction cycle. And in most cases we have provided an option for a three-year mini prime provided the project is up in line and meet the particular loan covenants. But historically our customers have not selected that mini prime option because there had been better options in the permanent market. Today there aren't options in that permanent market, so the average life of that portfolio is increasing for that reason.

Stephen Geyen - Stifel Nicolaus

Okay. Thank you.

Operator

We will go next to Scott Siefers of Sandler O'Neill.

Scott Siefers - Sandler O'Neill

Good morning, guys. First, I wanted to follow-up on an expense question. You noted that most of the workforce reductions are done; it looks like from the profitability plan. Do you have a sense for how much of the planned reductions are already baked into that cost base, if any?

Michael Alley

We completed most of those as of the end of June. So in that $8 million about 40% of that represents FTE headcount reductions and most of that will be occurring going forward because again those exits occurred essentially at late June. But we should certainly start seeing the impact of that immediately here in the third quarter. In fact, we certainly have already started seeing it in terms of looking at our FTE headcounts and things of that nature.

Scott Siefers - Sandler O'Neill

Okay. I wanted to jump back to the capital question as well. Just given I guess, where the stock price is, what would be your tolerance or appetite to either issued new capital or maybe if you can speak conceptually about some additional levers that you have to pull internally, i.e. exchanging certain debt things like that for a common? How are you thinking about those dynamics?

Martin Zorn

Sure, Scott. Let me address that last question first. All of our sub-debt, as well as our trust preferred that we have are all issued in the pool, so that limits our ability to do an exchange offer. Our options would be really two-folded in the short run. One, consideration of issuing common, I think in terms of looking at the current levels, the dilution is so great, I think that we are much better off improving our performance and our run rate. We've got sufficient support as well as our capital levels are strained enough capital to one several quarters to try to demonstrate higher performance. So if our stock price came up, I think then we would certainly revisit that.

I think the other thing that we are in the process of considering, obviously there is a September 30th timeline on the capital. The cap program in our opinion is extremely expensive and dilutive. It certainly represents an option value to us to the extent that we decide to apply for it. So that's something that we will certainly consider. Additionally, we also are considering whether there are any other capital raising options available among our current shareholders or among our local markets where people have a great interest and large holdings in our bank stock.

Scott Siefers - Sandler O'Neill

Okay, great. Thank you.

Operator

(Operator Instructions). We'll go next to Ross Demmerle of Hilliard Lyons.

Ross Demmerle - Hilliard Lyons

I wanted to maybe ask a couple of questions in a little different way. The non-interest expense, have you pretty much taken all the charges you think you were related to your most recent initiatives as far as cost reduction and our revenue enhancements?

Michael Alley

Yes, we have. We had a couple of the reduction forces that migrated end of the third quarter because of the relative position and where we needed them to complete some assignments. But the essential one-time charges related to the reduction force were recognized in the second quarter. As a result, we should start seeing the benefit immediately moving forward.

Ross Demmerle - Hilliard Lyons

Okay. And then can you give us a dollar amount you'd like to see total assets at by the end of the year as part of your delevering strategy?

Michael Alley

Sure. That's a tough one to really get pinned down. I would probably broadly categorize it as a couple of $100 million lower than what we have today with probably half of that coming from loan balance reduction and half of that coming from security balance reduction.

Ross Demmerle - Hilliard Lyons

Okay. And then with this formal written agreement that you have got right now at the OCC, are there any dead lines that we should be aware of as far as when you need to meet certain capital levels?

Michael Alley

No. There are no capital level provisions in the formal agreement. There were a number of specific dates with regard to implementing certain elements of the formal agreement such as repairing the staffing model, and implementing a number of other procedures. We have actually achieved all those targets, those date targets, and are progressing very well with that formal agreement.

Again, many of the elements of that were procedures and processes that we had already commenced and it was just a matter of formalizing those. We also as a part of that have created a Compliance Committee within the Board of Directors that is taking a more active role in terms of monitoring our credit quality and ensuring the action steps on our criticized assets are being taken and adhered too. And all of those procedures, processes have been implemented and are very much on track.

Likewise with regard to the liquidity provisions that were incorporated in the former agreement, we've also adopted those and have implemented all those. At this stage, I think we have fulfilled the elements of the formal agreement. However, now it's just a matter of ensuring those procedures, the impact desired from those actually takes effect. And obviously, that will take multiple quarters to improve the credit quality as well as improve our liquidity position.

Ross Demmerle - Hilliard Lyons

Okay. All right, thank you.

Operator

And at this time there are no other questions in the queue; I'll turn the conference back to management for any additional remarks.

Michael Alley

Thank you, Felicia. We would just very much like to say we appreciate your continued interest in Integra Bank Corporation, and for you joining us today. And we wish you all a great day. Thanks for participating.

Operator

And that concludes today's conference call. We thank you for your participation.

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