Main Street Bancorp in Reading, Pa., closed its mortgage banking subsidiary last week, just six months after buying it.
Saying it was concerned that Granite Mortgage Corp. could not operate profitably in the current interest rate environment, the board of $1.6 billion-asset Main Street voted to shutter the Springfield, Va., unit - eliminating 15 jobs - and to take a charge of $2.6 million this quarter.
The move came less than three weeks after Main Street fired Nelson R. Oswald, its chairman, chief executive, and president, citing disagreements about the company's strategic direction.
"Granite by definition was an expansion transaction, and the profitability prospects really soured," said Robert D. McHugh, Main Street's chief financial officer. He added, however, that Main Street will soon complete an 18-month expansion effort begun under Mr. Oswald that will have nearly doubled, to 45, its branch network in southeastern Pennsylvania and New Jersey.
Granite primarily served the Washington area. Mr. McHugh said Main Street wants to concentrate on markets "closer to home."
A steady rise in interest rates hurt Granite. These increases and anemic refinancing volume have clobbered large and small mortgage banking companies in the last 12 months. The market for loans to buy homes has remained strong, but intense competition has cut into lenders' margins.
Main Street bought Granite last November, when the refinancing market had already dried up.
The decline in mortgage financing volume, together with the unit's operating expenses, led to a $500,000 first-quarter loss, said Stephanie Green, an analyst at First Union Securities Inc. in Richmond, Va.
Richard D. Weiss of Janney Montgomery Scott LLC in Philadelphia said it had been a mistake for Main Street to buy Granite.
"It's a tough environment for mortgage banking companies," he said.
"Sometimes you make a bad decision, so maybe they are better off getting rid of it."
Main Street, the holding company of Berks County Bank, Heritage National Bank, and Main Street Bank, said it will focus on small-business lending, retail loans, and its trust business.
Last month it announced it would start Main Street Trust Co. in a joint venture with Trust Company of Lehigh Valley, Pa.
Main Street is to own a majority interest in Main Street Trust.
Main Street Bancorp is searching for a new CEO and president and has promoted Albert L. Evans Jr. from vice chairman to chairman.