Fidelity Southern Corporation Earns Net Income of $3.6 Million for Second Quarter, $5.5 Million Year to Date

ATLANTA, July 21, 2011 /PRNewswire/ -- Fidelity Southern Corporation ("Fidelity" or the "Company") (NASDAQ: LION), holding company for Fidelity Bank (the "Bank"), reported net income of $3.6 million for the second quarter of 2011 compared to $1.8 million for the first quarter of 2011 and $4.9 million for the second quarter of 2010.  After accounting for the TARP preferred dividend, basic and diluted earnings per share for the second quarter of 2011 were $.24 and $.21, respectively, compared to basic and diluted earnings per share of $.09 and $.08, respectively, in the first quarter of 2011, and basic and diluted earnings per share of $.38 and $.33, respectively, in the second quarter of 2010.  Net income for the first six months of 2011 was $5.5 million compared to net income of $5.1 million for the same period in 2010.  Basic and diluted earnings per share for the first six months of 2011 were $.34 and $.30, respectively, compared to basic and diluted earnings per share of $.32 and $.29, respectively, for 2010.

For the second quarter of 2011, core operating earnings increased 26% over the second quarter of 2010.

James B. Miller, Jr. Chairman said, "We continue to improve our bottom line and are pleased with the consistent quality of our earnings stream.  We have opened a new banking center in McDonough, Georgia to expand our footprint in the Atlanta metropolitan area.  And we attracted $14 million of new investment capital to the Company in May to help us continue our growth strategies.  Though the economy continues to cast long shadows, we believe we will show improvements in the second half of 2011."

ASSET QUALITY

Net charge-offs were $4.7 million in the second quarter of 2011 compared to $4.2 million in the first quarter of 2011, and $3.5 million in the second quarter of 2010.  Year to date, net charge-offs increased $813,000 for the first six months of 2011 to $8.9 million compared to $8.1 million for the same period in 2010.  The ratio of net charge-offs to average loans outstanding was 1.25% for the six months ended June 30, 2011, compared to 1.26% for the same period in 2010.  The allowance for loan losses increased $2.7 million to $29.8 million or 2.04% of total loans at June 30, 2011, compared to $27.1 million or 2.07% at June 30, 2010.  

Nonperforming residential construction and development loans at June 30, 2011, included financing for 95 houses and 736 lots and land totaling $46.3 million.  During the second quarter of 2011, $2.4 million of nonperforming construction loans were paid down by our customers.

During the second quarter of 2011, $4.2 million of ORE assets were sold while $7.9 million were added to ORE.  ORE consists of 46 houses, representing 20.8% of the total ORE balance, 432 lots and eight commercial properties.  ORE decreased $1.2 million to $21.0 million at June 30, 2011, compared to $22.2 million at June 30, 2010.    

The provision for loan losses for the second quarter of 2011 was $4.9 million compared to $5.8 million in the first quarter of 2011 and $1.2 million for the second quarter of 2010.  The provision for loan losses for the first six months of 2011 was $10.6 million compared to $5.1 million for the same period in 2010.  The increase of $5.5 million for the comparable six month period is related to growth in the Bank's loan portfolio, an increase in certain specific reserves, and higher net charge-offs.

CAPITAL

The Company raised $14.4 million in May 2011 in a private placement of common stock adding 2,167,166 shares to total shares outstanding.  No investor purchasing shares resulted in a beneficial interest over 9.9% of the Company's common stock.  At June 30, 2011, the Company had a 10.47% leverage ratio, 12.78% in tier one capital to risk weighted assets, and 14.80% in total capital to risk weighted assets.  At June 30, 2011, the Bank had a leverage ratio of 9.64%, a tier one ratio of 11.75%, and a total capital ratio 13.61%.  

In addition, the Company's Tangible Common Equity to Tangible Assets ratio improved from 4.73% at March 31, 2011 to 5.51% at June 30, 2011.

DEPOSITS

Total deposits of $1.708 billion at June 30, 2011, reflect the improvement in the deposit mix brought about by the Bank's strategy to increase core deposits.  Demand, money market and savings accounts increased $111.4 million or 11.8% at June 30, 2011, compared to June 30, 2010.  In addition, as part of an ongoing strategy to position the Bank for future higher interest rates, we have increased the average maturity of certificates of deposit while decreasing the interest rate paid on deposit accounts over the last twelve months.

REAL ESTATE

New residential construction loan advances made during the quarter totaled $7.9 million, while the payoffs of construction loans totaled $15.6 million.  Residential construction and A&D loans totaled $101.7 million at June 30, 2011, which decreased 20% from $127 million at June 30, 2010.  There were 320 houses and 1,237 lots financed at June 30, 2011, compared to 312 houses and 1,414 lots at June 30, 2010.

Total residential and commercial construction and land loans decreased to $114.3 million or 7.8% of loans at June 30, 2011, from $128.7 million or 9.8% of loans at June 30, 2010, and as a percentage of capital was 53% at June 30, 2011.  The regulatory guideline is a maximum of 100%.

All real estate loans, excluding owner-occupied properties, as a percentage of capital, were 125% at June 30, 2011.  The regulatory guideline is a maximum of 300%.  

NET INTEREST MARGIN

Net interest margin decreased two basis points to 3.65% in the second quarter of 2011 compared to 3.67% in the second quarter of 2010.  Net interest income for the second quarter of 2011 increased $804,000 or 5.0% when compared to the same period in 2010.  Net interest margin increased 20 basis points to 3.74% in the first half of 2011 compared to 3.54% for the same period in 2010.  Net interest income for the first six months of 2011 increased $3.4 million or 11.1% when compared to the same period in 2010.  The increase in quarterly and year to date net interest income is a result of a greater reduction in the cost of funds than the decrease in the yield on earning assets.  

INTEREST INCOME

Total interest income for the second quarter of 2011 decreased $1.3 million or 5.5% compared to the same period in 2010.  Average interest-earning assets for the second quarter 2011 increased $96.7 million or 5.4%, but was more than offset by a 57 basis point decrease in the yield on average interest-earning assets due primarily to the Bank offering competitive rates in the marketplace.  In addition, investment security yields decreased 37 basis points to 3.27% due to market rate decreases.

Year to date, total interest income decreased $1.1 million or 2.4% compared to the same period in 2010.  Average interest-earning assets for the first half of 2011 increased $89.4 million or 5.1%, but was more than offset by the yield on average interest-earning assets which decreased 39 basis points.  The decrease in yield was primarily the result of a decrease in the yield on loans of 55 basis points.  In addition, investment security yields decreased 51 basis points to 3.31%.  Somewhat offsetting this decrease in yield was a $15.6 million decrease in the average amount of our investment in low yielding interest bearing deposits.

INTEREST EXPENSE

Interest expense for the second quarter of 2011 decreased $2.2 million or 26.3% compared to the same period in 2010.  The decrease in interest expense was attributable to a 60 basis point decrease in the cost of interest-bearing liabilities somewhat offset by an increase in average interest-bearing liabilities of $55.8 million or 3.6%.  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 $64.7 million compared to June 30, 2010.  At June 30, 2011, brokered deposits represented only 2.5% of total deposits.

Year to date in 2011, interest expense decreased $4.5 million or 27.0% compared to the same period in 2010.  The decrease in interest expense was attributable to a 64 basis point decrease in the cost of interest-bearing liabilities somewhat offset by an increase in average interest-bearing liabilities of $53.3 million.

NONINTEREST INCOME

Noninterest income increased $2.8 million or 25.3% to $14.1 million for the quarter ended June 30, 2011, compared to the same period in 2010.  The increase in noninterest income was primarily the result of a $2.9 million or 391.0% increase in income from SBA lending activities and a $959,000 or 21.2% increase in income from mortgage banking activities.  These increases were somewhat offset by a $1.2 million decrease in securities gains due to fewer sales.  SBA income increased because of higher gains on sale related to a $37.2 million increase in loans sold to $43.6 million for the quarter ended June 30, 2011 compared to the same period in 2010.  Mortgage banking income improved due to higher premiums on loans sold which resulted in an increase in gain on sale of $539,000 compared to the second quarter of 2010 as well as higher other fee income which increased $460,000 due to higher servicing fee and underwriting income.

Noninterest income increased $8.0 million or 45.2% to $25.8 million for the six months ended June 30, 2011, compared to the same period in 2010.  The increase in noninterest income was the result of a $5.0 million or 589.8% increase in income from SBA lending activities and a $3.6 million or 46.7% increase in income from mortgage banking activities.  SBA income increased because of higher gains on sale related to a $61.9 million increase in loans sold to $68.3 million.  There were no SBA sales recognized in the first quarter of 2010 in accordance with the adoption of new accounting requirements effective January 1, 2010.  Mortgage banking income improved as a result of increased gains on sale and other fee income associated with a higher volume of loans originated which increased $26.7 million for the six months ended June 30, 2011 compared to the same period in 2010.

NONINTEREST EXPENSE

Noninterest expense for the second quarter of 2011 increased $2.1 million or 10.9% to $20.9 million compared to the same period in 2010.  The increase was due primarily to higher salaries and employee benefits which increased $1.6 million or 16.2% to $11.6 million due to higher commission expense related to the increased SBA volume as well as an increased number of lenders in the Mortgage, SBA, Commercial, and Indirect Auto Lending divisions.  Other operating expense increased $492,000 or 22.2% to $2.7 million due to higher insurance, mortgage related losses, and underwriting expenses.

Noninterest expense for the first six months of 2011 increased $5.5 million or 15.5% to $41.4 million compared to the same period in 2010.  The increase was due primarily to higher salaries and employee benefits which increased $3.6 million or 18.8% to $22.5 million.  Other operating expense increased $1.3 million or 32.2% to $5.4 million due to higher losses and reserves, insurance, underwriting and advertising expenses.

Fidelity Southern Corporation, through its operating subsidiaries Fidelity Bank and LionMark Insurance Company, provides banking services and credit-related insurance products through 25 branches in Atlanta, Georgia, and Jacksonville, Florida, and an insurance office in Atlanta, Georgia.  SBA, indirect automobile, and mortgage loans are provided through employees located throughout nine Southern states.  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 2010 Annual Report filed on Form 10-K with the Securities and Exchange Commission.