First Indiana Corp. has been driven out of the indirect auto- lending business.
The Indianapolis-based company will eliminate its $130 million business because it failed to generate the expected profits.
"You either have to do something better than the competition or get out," said Robert H. McKinney, chairman and chief executive of $1.3 billion-asset First Indiana. "That's why we got out."
First Indiana will still offer auto loans, but will stop the practice of originating them "indirectly" through car dealers.
In indirect auto lending, the bank's customer is the auto dealer, who in turn makes financing available to customers.
The move comes about a month after the company reported second-quarter earnings of.$2.8 million, down 2.4% from the $3.7 million earned the prior year.
It blamed the decline on $179,000 in mortgage-banking losses during the second quarter.
"They took a trading loss in the first quarter and they had some losses in the sale of mortgage loans," said Jeffrey Davis, an analyst with Raffensperger, Hughes & Co., Indianapolis.
"There's some reasons for them to look internally in a strategic fashion, getting returns back up to where they should be," Mr. Davis added.
Discontinuing First Indiana's. indirect auto-lending business in Indiana, Kentucky, and Tennessee eliminates nearly 30 jobs, Mr. McKinney said.
First Indiana, which owns First Indiana Bank, a federal savings bank, acquired the indirect auto lending business about five years ago when it acquired Midwest Federal Savings and Loan, Evansville, Ind.
But business was very place competitive because of numerous players like Fifth Third, National City Corp., and automotive financing companies.
"It's always been a very competitive business," Mr. McKinney said.
Meantime, First Indiana is expanding its home-equity lending business nationwide.
This new focus "will pick up some of the slack," Mr. McKinney said. The company will compete for home-equity loans by offering faster turnaround than competitors, he said.
"The thing that drives First Indiana is trying to be different than the competition," Mr. McKinney said.
First Indiana also is examining how to make its other existing lines of business, including mortgage banking, residential lending, and residential construction lending, perform even better.
The company has mortgage-origination Offices in North Carolina and Florida in addition to Indiana.
While First Indiana hones its business strategies, it also plans to buy back up to 10% or 720,000 shares of its stock.
"They may think their stock is undervalued," said Ross Demmerle, an analyst with McDonald & Co. Securities, Cleveland.
"Depending on how quickly they purchase the stock back, it could improve their earnings per share," he said.
Earnings per share are on pace for $1.47 this year, down from $2.11 in 1993, Mr. Demmerle said.