Fidelity Southern Corporation Earns $6.4 Million in Second Quarter; Acquires Security Exchange Bank; Exits Treasury's TARP Program

ATLANTA, July 19, 2012 /PRNewswire/ -- Fidelity Southern Corporation ("Fidelity" or the "Company") (NASDAQ:LION), holding company for Fidelity Bank (the "Bank"), reported net income of $6.4 million for the second quarter of 2012 following $5.3 million for the first quarter of 2012 and compared to $3.6 million for the second quarter of 2011.  After accounting for the Troubled Asset Relief Program ("TARP") preferred dividend, basic and diluted earnings per share for the second quarter of 2012 were $0.39 and $0.35, respectively which compared to basic and diluted earnings per share of $0.32 and $0.29 in the first quarter of 2012 and $0.23 and $0.20 in the second quarter of 2011, respectively.  Net income for the first six months of 2012 was $11.7 million compared to $5.5 million for the same period in 2011.  Basic and diluted earnings per share for the first six months of 2012 were $0.71 and $0.64, respectively, compared to $0.32 and $0.28, respectively, for 2011.  These numbers do not include the positive acquisition gain anticipated on the Security Exchange Bank transaction.  We expect the acquisition accounting to be final prior to the filing of our second quarter 10-Q. 

Fidelity's Chairman, Jim Miller, said, "We have stepped up our advertising and our hiring of seasoned, professional bankers to take advantage of the market.  Two branches in Marietta were added from Security Exchange Bank, a de novo branch was opened in Cumming, and mortgage offices were opened in Savannah, Falls Church, Woodbridge and Fredericksburg.  Further expansion in our footprint is planned.

"We are pleased with the progress of the integration of Security Exchange Bank.

"Following the sale of TARP preferred stock by the Treasury the board has decided to purchase the outstanding warrants held by Treasury if a price can be agreed.

"The economic environment remains challenging but we are most attentive to regulatory proposals concerning capital and the risk weighting of assets."

The FDIC-assisted acquisition of Decatur First Bank was accretive to the second quarter 2012 results on an after-tax basis of $703,000, or $0.04 to diluted earnings per share. On a year-to-date basis, the acquisition was accretive to the results on an after-tax basis of $1.5 million, or $0.10 to diluted earnings per share.

ASSET QUALITY

Loans and other real estate acquired in the FDIC-assisted transactions of Decatur First Bank and Security Exchange Bank are covered under loss sharing agreements with the FDIC ("Loss Share Agreements") and are collectively referred to as covered assets. Under the Loss Share Agreements, the FDIC has agreed to reimburse us for 80% of all losses incurred in connection with those assets for a period of five years for commercial loans and with the Loss Share Agreements for Decatur First, the FDIC has agreed to reimburse us for 80% of all losses incurred in connection with those assets for a period of 10 years for residential mortgage loans. There were no residential mortgage loans included in the Loss Share Agreement for Security Exchange.

The following table provides a comparison of the activity affecting the allowance for loan loss:

Net charge-offs were $3.0 million in the second quarter of 2012 compared to $2.4 million in the first quarter of 2012 and $4.7 million in the second quarter of 2011. The ratio of net charge-offs to average loans outstanding was 0.65% for the quarter ended June 30, 2012, compared to 0.59% for the first quarter of 2012 and 1.22% for the second quarter of 2011. Provision expense was $950,000 for the second quarter of 2012, compared to $3.8 million during the first quarter of 2012 and $4.9 million during the second quarter of 2011. The decrease in provision expense resulted from the decrease in the required allowance for loan loss which declined primarily as a result of charge-offs for classified construction borrowers which were processed during the quarter and properties transferred to ORE following foreclosure.

Net charge-offs decreased $3.4 million for the first six months of 2012 to $5.5 million compared to $8.9 million for the same period of 2011. For the first six months of 2012, the ratio of net-charge offs to average loans outstanding was 0.60% compared to 1.15% for the same period of 2011. Provision expense decreased $5.9 million for the first six months of 2012 to $4.7 million compared to $10.6 million for the same period of 2011.

Excluding covered loans, the allowance for loan losses at June 30, 2012 was $27.2 million, or 1.66% of total loans, compared to an allowance of $29.3 million, or 1.84% of total loans, at March 31, 2012, and $29.8 million, or 2.04% of total loans, at June 30, 2011. The decline in the allowance as a percentage of total loans reflects improvement in the overall quality of the loan portfolio.

The following table presents certain credit quality metrics of the Bank's loan portfolio, inclusive and exclusive of covered loans. Nonperforming assets include nonaccrual loans, net repossessions and other real estate ("ORE"). Classified assets include loans having a risk rating of substandard or worse, both accrual and nonaccrual, net repossessions and other real estate.

ORE, net of reserves, increased $17.0 million to $42.7 million at June 30, 2012, compared to $25.7 million at March 31, 2012. The increase was primarily due to the acquisition of Security Exchange Bank, which included $12.9 million in ORE. During the second quarter of 2012, $6.4 million of ORE assets were sold while $22.7 million were added to ORE.  Excluding covered assets, ORE additions were $9.7 million and sales were $3.5 million for the quarter. 

REAL ESTATE

New residential construction loan advances made during the quarter totaled $10.7 million, while the payoffs of construction loans totaled $26.3 million. Excluding covered loans, construction and A&D loans totaled $82.8 million at June 30, 2012, compared to $90.6 million at March 31, 2012.

CAPITAL

The Company's capital position remained above regulatory requirements at June 30, 2012, with a leverage capital ratio of 10.2%, a tier one ratio of 11.7%, and a total capital ratio of 13.3%, compared to 10.0%, 11.9%, and 13.7% respectively, at March 31, 2012.

At June 30, 2012, the Bank had a leverage ratio of 9.4%, a tier one ratio of 10.7%, and a total capital ratio of 12.5% compared to a leverage ratio of 9.3%, a tier one ratio of 11.0%, and a total capital ratio 12.8% at March 31, 2012. 

In June, the U.S. Treasury sold all of its shares of the Company's preferred stock, acquired in December 2008 under TARP, in a public offering as part of a modified Dutch auction process. The Company did not receive any proceeds from this auction, however the Company's operations are no longer limited by the TARP restrictions or regulations.

DEPOSITS

Total deposits of $1,987.3 million at June 30, 2012 have increased from $1,708.4 million as of June 30, 2011, due to the acquisitions of Decatur First Bank in the fourth quarter of 2011 and Security Exchange Bank in the second quarter of 2012 and the Bank's continued efforts to aggressively pursue core deposits. 

NET INTEREST MARGIN

Net interest margin increased 21 basis points to 3.86% in the second quarter of 2012 compared to 3.65% in the second quarter of 2011 and remained unchanged compared to the first quarter of 2012. Excluding covered loans and the accretion of the loan discount, the net interest margin was 3.68% for the second quarter of 2012 compared to 3.63% for the first quarter of 2012.  Net interest income for the second quarter of 2012 increased $2.9 million, or 16.8%, when compared to the second quarter of 2011 and increased $245,000, or 1.2%, when compared to the first quarter of 2012.

Net interest margin increased 10 basis points to 3.86% for the six months ended June 30, 2012 compared to 3.74% for the same period in 2011. Excluding covered loans and the accretion of the loan discount, the net interest margin was 3.66% for the six months ended June 30, 2012 and 3.74% for the same period in 2011. Net interest income for the six months ended June 30, 2012 increased $5.4 million, or 15.7%, to $39.8 million compared to $34.4 million for the same period in 2011.

INTEREST INCOME

Total interest income for the second quarter of 2012 increased $1.0 million, or 4.3%, to $24.1 million compared to $23.1 million for the second quarter of 2011. Average interest-earning assets for the second quarter of 2012 increased $206.4 million, or 11.0%, somewhat offset by a 28 basis point decrease in the yield on average interest-earning assets due primarily to the Bank offering competitive rates. The impact of the acquisitions increased loan interest income by $1.7 million and was somewhat offset by a $701,000 reduction in investment securities interest income for the comparative period. In a linked-quarter comparison, interest income decreased $167,000 as the yield on average interest-earning assets decreased 10 basis points.

For the six months ended June 30, 2012 total interest income increased $1.8 million, or 3.9%, to $48.3 million compared to $46.5 million for the same period in 2011. Average interest-earning assets for the six months ended June 30, 2012 increased $217.6 million, or 11.7%, and was somewhat offset by a 36 basis point decrease in the yield on average interest-earning assets as mentioned above. The impact of the acquisitions increased interest income by $4.0 million which is slightly offset by decreases of $707,000 and $660,000 in both investment securities interest income and interest income from indirect loans, respectively, when compared to the same period in 2011.

INTEREST EXPENSE

Interest expense for the second quarter of 2012 decreased $1.8 million, or 30.6%, compared to the same period in 2011. The decrease in interest expense was attributable to a 53 basis point decrease in the cost of interest-bearing liabilities somewhat offset by an increase in average interest-bearing liabilities of $125.3 million, or 7.7%. The Bank's shift in deposit mix toward noninterest-bearing accounts, which made up 17.4% of total deposits at June 30, 2012 compared to 12.6% at June 30, 2011, contributed to the reduction in the cost of funds. The impact of the acquisitions increased interest expense by $136,000 for the respective periods. On a linked-quarter basis, interest expense decreased $412,000, or 8.9%. The decrease in interest expense was attributable to a 10 basis point decrease in the cost of interest-bearing liabilities. 

For the six months ended June 30, 2012 interest expense decreased $3.5 million, or 28.5%, to $8.8 million compared to $12.3 million for the same period in 2011. The decrease in interest expense was attributable to a 53 basis point decrease in the cost of interest-bearing liabilities somewhat offset by an increase in average interest-bearing liabilities of $131.5 million, or 8.1%. The impact of the acquisitions increased interest expense by $563,000 for the respective periods.

NONINTEREST INCOME

On a year over year basis, noninterest income increased $2.9 million, or 20.6%, to $17.0 million for the quarter ended June 30, 2012, compared to $14.1 million in the second quarter of 2011. The increase in noninterest income was the result of a $5.3 million, or 96.3%, increase in mortgage banking activities partially offset by a decrease in SBA lending of $2.3 million over the respective periods. Income from mortgage lending increased due to a 226% increase in the June 30, 2012 pipeline to $454.7 million, total funded loan volume for the quarter of $471.8 million representing a 72% increase over the year ago quarter slightly offset by a $2.0 million MSR impairment recognized in the current quarter. The continued change in interest rates and the continued uncertainty surrounding the global economy contributed to the decline in MSR. The impact of the acquisitions increased noninterest income $124,000 for the respective periods.

For the six months ended June 30, 2012 noninterest income increased $8.9 million, or 34.6%, to $34.7 million compared to $25.7 million for same period in 2011. The impact of the acquisitions increased noninterest income by $531,000 for the respective periods. The increase is largely attributable to the increase in mortgage banking activities as discussed above.

Indemnification asset income is recorded to reflect additional amounts expected to be received from the FDIC due to covered loan and foreclosed property losses arising during the period. For the first six months of 2012, indemnification asset income was approximately $267,000. There was no indemnification asset income for the same period in 2011.

NONINTEREST EXPENSE

Noninterest expense for the second quarter of 2012 increased $5.2 million, or 24.6%, to $26.1 million compared to $20.9 million for the same period in 2011. The increase was driven by a $3.7 million increase in salaries and employee benefits expense due to higher commission expense related to the increased mortgage banking volume, expansion of our mortgage banking footprint, as well as increased number of employees due to the acquisitions. The impact of the acquisitions increased noninterest expense by $536,000 for the respective periods. On a linked-quarter basis, noninterest expense increased $722,000, or 2.8%. The increase was primarily due to a $476,000 increase in salaries and employee benefits. 

For the six months ended June 30, 2012 noninterest expense increased $10.0 million, or 24.3%, to $51.4 million compared to $41.4 million for the same period in 2011. The increase is largely attributable to an increase of $7.7 million in salaries and employee benefits. The impact of the acquisitions increased noninterest expense by $1.1 million for the respective periods.

ABOUT FIDELITY SOUTHERN CORPORATION

Fidelity Southern Corporation, through its operating subsidiaries Fidelity Bank and LionMark Insurance Company, provides banking services and credit-related insurance products through 30 branches in Atlanta, Georgia, a branch in Jacksonville, Florida, and an insurance office in Atlanta, Georgia.  SBA, indirect automobile, and mortgage loans are provided through employees located throughout the Southeast.  For additional information about Fidelity's products and services, please visit the website at www.FidelitySouthern.com.                           

This news release contains forward-looking statements, as defined by Federal Securities Laws, including statements about financial outlook and business environment.  These statements are provided to assist in the understanding of future financial performance and such performance involves risks and uncertainties that may cause actual results to differ materially from those in such statements.  Any such statements are based on current expectations and involve a number of risks and uncertainties.  For a discussion of factors that may cause such forward-looking statements to differ materially from actual results, please refer to the section entitled "Forward Looking Statements" from Fidelity Southern Corporation's 2011 Annual Report filed on Form 10-K with the Securities and Exchange Commission.

SOURCE Fidelity Southern Corporation