Fidelity Southern Corporation Earns Net Income of $2.1 Million for Third Quarter, Five Consecutive Quarters of Net Income, Takes Market Share

ATLANTA, Oct. 21 /PRNewswire-FirstCall/ -- Fidelity Southern Corporation ("Fidelity" or the "Company") (Nasdaq: LION), holding company for Fidelity Bank (the "Bank"), reported net income of $2.1 million for the third quarter of 2010 compared to net income of $398,000 for the third quarter of 2009.  After accounting for the TARP preferred dividend, basic and diluted income per share for the third quarter of 2010 was $.12 and $.10, respectively, compared to a basic and diluted loss per share of $.04 in the third quarter of 2009.  Net income for the first nine months of 2010 was $7.1 million compared to net loss of $5.8 million for the same period in 2009.  Basic and diluted income per share for the first nine months of 2010 was $.44 and $.39, respectively, compared to basic and diluted loss per share of $.81 for the same period in 2009.

"The very real improvement in our core earnings year over year reflects that clean-up of problem loans is essentially done." said James B. Miller, Jr. Chairman.  "Our customers in real estate are, of course, suffering cash flow problems and now fatigue even as the end to the downturn is in sight.  Earnings also improved because the economy is improving.  Lending volume is up dramatically in the indirect automobile, commercial business, mortgage and SBA lending groups.  With 60 employees added in 2010 alone, we are taking market share in loans and deposits, as our TARP enabled growth strategy, begun in December 2008, broadens and strengthens our franchise."

ASSET QUALITY

Net charge-offs were $3.8 million in the third quarter of 2010 compared to $5.6 million in the third quarter of 2009.  Year to date, net charge-offs decreased $7.5 million for the first nine months of 2010 to $11.9 million compared to $19.4 million for the same period in 2009.  Since January 1, 2008, through September 30, 2010, cumulative net charge-offs were $63.8 million compared to an aggregate provision for loan losses of $75.5 million.  During this period, for every dollar of net charge-offs realized, the Company recorded $1.18 in provision.  The ratio of net charge-offs to average loans outstanding was 1.22% for the nine months ended September 30, 2010, compared to 1.95% for the same period in 2009.  Fidelity reported an allowance for loan losses of $28.3 million or 2.09% of total loans at September 30, 2010, compared to $30.1 million or 2.33% at December 31, 2009, and $35.5 million or 2.71% of total loans at September 30, 2009.  The decrease was a result of improving nonaccrual loans and nonperforming assets trends.

Nonperforming Assets ("NPAs") include nonperforming loans, repossessions and other real estate ("ORE") and totaled $82.8 million at the end of the third quarter of 2010, a decrease of $10.1 million from December 31, 2009, and a decrease of $23.5 million from September 30, 2009.  Classified Assets include NPAs and other substandard performing assets.

Nonperforming residential construction and development loans at September 30, 2010, included financing for 93 houses and 374 lots and land totaling $41.2 million.  During the third quarter, $3.5 million of nonperforming construction loans were paid down by our customers while $3.3 million in construction loans were moved to nonperforming.

During the third quarter of 2010, $2.9 million of ORE assets were sold while $2.3 million were added to ORE.  ORE consists of 50 houses, representing 27.0% of the total ORE balance, 329 lots and 6 commercial properties.  ORE decreased $528,000 to $21.3 million at September 30, 2010, compared to $21.8 million at December 31, 2009.  ORE was $21.2 million at September 30, 2009.  

The provision for loan losses for the third quarter of 2010 was $5.0 million compared to $4.5 million for the same period in 2009 and $1.2 million in the second quarter 2010.  The provision for loan losses for the first nine months of 2010 was $10.2 million compared to $21.3 million for the same period in 2009 as a result of improving asset quality during the period.  

DEPOSITS

Total deposits at September 30, 2010, of $1.561 billion reflect the improvement in the deposit mix brought about by the Bank's strategy to increase core deposits.  The Bank continued to aggressively market its non-certificate of deposit products in 2010.  As a result, demand, money market and savings accounts increased $132.0 million or 15.5% at September 30, 2010, compared to December 31, 2009.  The reduction in the interest rate paid on deposit accounts during the period demonstrates the Company's commitment to improved net interest margin.

REAL ESTATE

New residential construction loan advances made during the quarter totaled $4.8 million, while the payoffs of construction loans totaled $12.9 million.  Residential construction and A&D loans totaled $124.4 million at September 30, 2010, which decreased 31% from $179.2 million at September 30, 2009.  There were 308 houses and 1,465 lots financed at September 30, 2010, compared to 410 houses and 1,734 lots at September 30, 2009.

Total residential and commercial construction and land loans decreased to $129.5 million or 9.6% of loans at September 30, 2010, from $154.8 million or 12.0% of loans at December 31, 2009, and $187.2 million or 14.2% of loans at September 30, 2009, and as a percentage of capital was 62% at September 30, 2010.  The regulatory guideline is a maximum of 100%.

All real estate loans, excluding owner-occupied properties, as a percentage of capital was 136% at September 30, 2010.  The regulatory guideline is a maximum of 300%.  

CAPITAL

Fidelity reported a total risk based capital ratio for the Bank of 14.02% at September 30, 2010, compared to 13.19% at September 30, 2009.  The Leverage Capital ratio at the Bank was 9.69% at September 30, 2010, compared to 9.05% at September 30, 2009.  Both ratios exceeded required regulatory minimums for well-capitalized institutions.  At September 30, 2010, the total risk based capital ratio and the leverage ratio increased 45 basis points and 12 basis points, respectively, from June 30, 2010.

NET INTEREST MARGIN

Net interest margin increased 60 basis points to 3.70% in the third quarter of 2010 compared to 3.10% in the third quarter of 2009, and increased three basis points from 3.67% for the second quarter of 2010.  Net interest income for the third quarter of 2010 increased $2.6 million or 19.1% when compared to the same period in 2009.  The increase in net interest income for the quarter is a result of a greater reduction in the cost of funds than the decrease in the yield on earning assets.  

The net interest margin increased 77 basis points to 3.59% in the first nine months of 2010 compared to 2.82% for the same period in 2009.  In addition, average total interest earning assets increased $14.9 million or 0.9% for the nine months ended September 30, 2010, compared to the same period in 2009.  The increases are a result of a greater reduction in the cost of funds than the decrease in the yield on earning assets.  Net interest income for the first nine months of 2010 increased $10.4 million or 28.2% over the same period in 2009.

INTEREST INCOME

Total interest income for the third quarter of 2010 decreased $1.4 million or 5.4% compared to the same period in 2009.  The yield on average interest-earning assets decreased 28 basis points and average interest-earning assets for the third quarter 2010 decreased $9.8 million or 0.6%.  However, approximately $25.7 million of Indirect automobile and SBA loans were sold during the third quarter of 2010.  Mortgage loans of $356.6 million were also sold during this period.  The decrease in yield was primarily the result of a decrease in the yield on loans of 24 basis points as the Bank offered competitive rates in the marketplace.  In addition, investment security yields decreased 107 basis points to 3.46%.

Total interest income year to date through September 30, 2010 decreased $1.7 million or 2.4% compared to the same period in 2009.  The decrease in interest income in 2010 was the result of a decrease of 17 basis points in the yield on average interest-earning assets offset in part by the growth in average interest-earning assets in 2010, which increased $14.9 million or 0.9%.  The decrease in yield was a result of an 81 basis point decrease in yield on investment securities which was somewhat offset by an increase in the yield on total loans of three basis points.

INTEREST EXPENSE

Interest expense for the third quarter of 2010 decreased $4.0 million or 35.5% compared to the same period in 2009.  The decrease in interest expense was attributable to a 91 basis point decrease in the cost of interest-bearing liabilities and a decrease in average interest-bearing liabilities of $62.7 million or 3.9%.  In addition to the general decrease in deposit rates, the Bank's shift in deposit mix toward core demand and savings accounts contributed to the reduction in the cost of funds.  Brokered deposits decreased $26.6 million compared to September 30, 2009, and $16.6 million compared to December 31, 2009.  At September 30, 2010, brokered deposits represented only 5.3% of total deposits.

Year to date in 2010, interest expense decreased $12.1 million or 33.4% compared to the same period in 2009.  The decrease in interest expense was attributable to a 101 basis point decrease in the cost of interest-bearing liabilities and a decrease in average interest-bearing liabilities of $9.8 million.

NONINTEREST INCOME

Noninterest income increased $4.3 million or 60.2% to $11.6 million for the quarter ended September 30, 2010, compared to the same period in 2009.  The increase in noninterest income was primarily the result of a $4.0 million or 128.6% increase in income from mortgage banking activities and an $804,000 or 546.9% increase in income from SBA lending activities.  Mortgage banking income improved as a result of higher origination volume, which increased 78.0% compared to the third quarter of 2009 to $386 million due to the historically low interest rate environment and an expansion in the number of loan officers.  SBA income was higher as a result of a 661% increase in the volume of loan sales over the same quarter in 2009 as liquidity in the secondary market continued to improve.  These increases were somewhat offset by a $519,000 decrease in securities gains as no investment securities were sold during the third quarter of 2010.  

Noninterest income increased $7.5 million or 34.6% to $29.3 million for the nine months ended September 30, 2010 compared to the same period in 2009.  The increase was a result of a $3.5 million or 30.9% increase in income from mortgage banking activities, a $1.8 million or 341.4% increase in securities gains, a $1.2 million or 207.7% increase in income from SBA lending activities and a $710,000 or 172.3% increase in other operating income.  Mortgage banking income improved as a result of higher origination volume, which increased 23.8% to $834 million.  Securities gains increased due to higher sales as management repositioned the investment portfolio as part of the interest rate, cash flow, and capital risk rating strategies.  SBA income improved as a result of higher sales volume which increased 87% over the same period in 2009 as liquidity continued to improve in the secondary market.  Other operating income increased due primarily to higher net gains on the sales of other real estate.  

NONINTEREST EXPENSE

Noninterest expense for the third quarter of 2010 increased $3.5 million or 21.3% to $20.0 million compared to the same period in 2009.  The increase was due primarily to higher salaries and employee benefits which increased $3.6 million or 44.3% to $11.7 million due to higher commission expense related to the increased origination volume in the mortgage division as well as an increased number of lenders in the mortgage, SBA, Commercial, and Indirect Auto Lending divisions.  Other operating expense increased $577,000 or 32.5% to $2.4 million due to higher compliance, underwriting, supplies, and advertising expenses.  The cost of operation of other real estate decreased $728,000 or 34.0% to $1.4 million due to lower foreclosure expenses and write-downs related to ORE.    

Noninterest expense for the first nine months of 2010 increased $7.8 million or 16.3% to $55.8 million compared to the same period in 2009.  The increase was a result of higher salaries, commissions and employee benefits which increased $5.7 million or 22.7% to $30.6 million, the cost of operation of other real estate which increased $1.1 million or 23.0% to $5.9 million due primarily to higher write-downs related to ORE and higher foreclosure expenses, and higher operating expense, which increased $1.1 or 21.8% to $6.4 million due primarily to higher insurance coverage and insurance expense.

Fidelity Southern Corporation, through its operating subsidiaries Fidelity Bank and LionMark Insurance Company, provides banking services and credit-related insurance products through 23 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 some factors that may cause such forward-looking statements to differ materially from actual results, please refer to the section entitled "Forward Looking Statements" on page 3 of Fidelity Southern Corporation's 2009 Annual Report filed on Form 10-K with the Securities and Exchange Commission.