First Indiana Thrives on Shift From Indirect Auto to Realty

The road to increased real estate lending - and away from indirect auto loans - has been good to First Indiana Corp.

The $1.4 billion-asset, Indianapolis-based institution reported a 78% increase in its second-quarter earnings, to $4.8 million, or 67 cents per share.

The holding company, which owns First Indiana Bank, a federal savings bank, said earnings for the first six months had jumped 94%, to $9.1 million.

Nearly a year ago, First Indiana abandoned indirect auto lending, a costly niche that hadn't generated the expected profits, to focus on various real estate loan products and servicing.

"By getting out of indirect auto lending, we have been able to refocus resources," said Kenneth L. Turchi, senior vice president. Unlike other loan areas, indirect auto lending requires a separate support staff.

In indirect auto lending, financial institutions lend to consumers through auto dealers, who handle the paperwork and keep part of the loan fees.

The repositioning and declining interest rates have spurred loan growth and improved core earnings, management said. Second-quarter net interest income rose to $14.3 million, from $11.9 million the year before.

"It's a matter of margin," said Jeffrey L. Davis, an analyst at NatCity Investments Inc., Indianapolis. First Indiana's net interest margin hit 4.02% in the second quarter, compared with 3.90% the year before. "They can't be booking auto loans, which have thinner margins," he said.

As of June 30, outstanding loans were 27% above the total in the 1994 second quarter, at $1.2 billion. Most were home equity or residential construction loans.

The bank's loan servicing portfolio totaled $1.1 billion at June 30, up from $863 million a year earlier.

Mortgage subsidiary offices in Charlotte, N.C., and Orlando have generated significant home equity business, the company said.

A 75% increase in noninterest income, to $4.9 million for the quarter, included a gain of 12 cents per share on the sale of $45 million of home equity loans.

Excluding such extraordinary items, analysts said First Indiana's second-quarter earnings still surpassed their estimates. Ross Demmerle of Cleveland's McDonald & Co. Securities had predicted 43 cents per share; Mr. Davis, 47 cents.

The company has rebounded from an 18.4% decrease in earnings per share last year, including losses from the sale of mortgage loans hit by rising interest rates, Mr. Demmerle said.

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