First Indiana Corp. announced after the market closed yesterday that it will discontinue making consumer loans originated by a national network of mortgage brokers.
The bank said it is withdrawing from that business immediately, which will lead to $535,000 in expenses in the third quarter. It had been selling most of the loans to investors.
"The general business climate for these types of loans has deteriorated to the point where the future outlook for this segment of our business no longer makes economic sense for First Indiana," CEO Robert Warrington said in a press release.
First Indiana will continue making consumer loans through its 32 local branches.
This is the second time in two weeks the Indianapolis-based bank-which is in the process of being acquired by Milwaukee-based Marshall & Ilsley Corp. for $529 million-reported loan woes.
On Aug. 7, First Indiana reported that it took a $3.4 million pretax charge in the second quarter. That included $1.3 million in losses on home-equity loans that it previously had sold but was required to repurchase. It socked away another $2.1 million in reserves for future home-equity loan repurchases.
Banking observers say First Indiana must have agreed to buy back loans if borrowers were failing to make required payments.