Fidelity Southern Corporation Reports Fourth Quarter Net Income; Loss for Year; Decreased Nonperforming Assets, Increased Capital Ratios and Liquidity Levels

ATLANTA, Jan. 21 /PRNewswire-FirstCall/ -- Fidelity Southern Corporation (“Fidelity” or “the Company”) (Nasdaq: LION), holding company for Fidelity Bank (the “Bank”), reported net income of $1.9 million for the fourth quarter of 2009 compared to a net loss of $7.6 million for the fourth quarter of 2008 and a net income of $398,000 for the third quarter of 2009.  For the year ended December 31, 2009, the net loss was $3.9 million compared to a net loss of $12.2 million for the year ended December 31, 2008.  Basic and diluted income per share for the fourth quarter of 2009 were each $.11 compared to a loss per share of $.78 for the fourth quarter of 2008 and a loss per share of $.04 for the third quarter in 2009.  Basic and diluted loss per share for the year ended December 31, 2009, were $.71 compared to a loss per share of $1.27 for 2008.

We show core operating earnings which remove taxes, provisions, and security gains because we believe that helps show a view of more normalized net revenues.  The measure allows better comparability with prior periods, as well as with peers in the industry who also provide a similar presentation.

Chairman James B. Miller, Jr. said, “We believe the recession which began in 2007 will continue through 2010 with a slow improvement going forward.  Despite this environment, Palmer Proctor and our team have worked to reposition our Company.  We believe interest rates are subject to increase this year.  Because of this interest rate risk, we have begun repositioning our investment portfolio resulting in substantial gains in addition to improving core earnings.  Our real estate capital exposure continued its rapid decline to 77% at year-end 2009 from 124% at year-end 2008 for construction and to 144% from 172% for all real estate subject to the 100% and 300% regulations, while we are one of the few banks continuing to lend for home construction.  The most dramatic change was that mortgage loans originated for single family homes increased to $872 million in 2009 from $20 million in 2008.  Transaction deposit accounts (including savings) increased a very substantial 56% in 2009 reflecting the continuing movement of deposits from other area banks.  These results are in part because employment following receipt of TARP has increased to 500 year-end 2009 from 373 at year-end 2008 giving us additional reach and strength in all lending areas and in deposit generation.  This repositioning, margin improvements, and other significant changes are explained in some detail in this report.”

CAPITAL

Fidelity reported a total risk based capital ratio for the Bank of 13.44% at December 31, 2009, compared to 12.92% at December 31, 2008.  The Leverage Capital ratio at the Bank was 9.24% at December 31, 2009, compared to 9.97% at December 31, 2008.  Both ratios exceeded required regulatory minimums for well-capitalized institutions.  At December 31, 2009, the total risk based capital ratio increased 25 basis points from September 30, 2009, and the leverage ratio increased 19 basis points from September 30, 2009.

LIQUIDITY

The Company’s net liquid asset ratio, defined as federal funds sold, investments maturing within 30 days, unpledged securities, available unsecured federal funds lines of credit, FHLB borrowing capacity and available brokered certificates of deposit divided by total assets increased from 13.1% at December 31, 2008, to 18.8% at December 31, 2009.  

DEPOSITS

Total deposits were $1.551 billion at December 31, 2009, compared to $1.444 billion at December 31, 2008.  The designed change to the deposit mix and reduction in the interest rate paid on deposit accounts during the period demonstrates the Company’s commitment to improved net interest margin and liquidity.

Pure deposits are all transactional and savings deposits (excludes all time deposits) and Core deposits are transactional, savings, and time deposits under $100,000.  The Bank has aggressively marketed its non-certificate of deposit products in 2009.  As a result, demand, money market and savings accounts increased $303.8 million or 56% compared to December 31, 2008.

ALLOWANCE AND PROVISION

The provision for loan losses for the fourth quarter of 2009 was $7.5 million compared to $14.7 million for the same period in 2008.  In 2008, management increased reserves more than the net charge-offs as the credit crisis was growing.  By the fourth quarter of 2009, non-performing assets continued to decrease from the 2008 levels.

Net charge-offs for the fourth quarter of 2008 were $7.0 million.  In the fourth quarter of 2009 charge-offs were $13.0 million which reflected charge-offs of specific reserves previously provided for certain construction loans.  The provision for loan losses for the year ended December 31, 2009, was $28.8 million compared to $36.6 million for 2008.  For the year ended December 31, 2009, net charge-offs were $32.4 million compared to $19.4 million for 2008.  The ratio of net charge-offs to average loans outstanding was 2.44% for the year ended December 31, 2009, compared to 1.36% for 2008.  Fidelity reported an allowance for loan losses of $30.1 million or 2.33% of total loans at December 31, 2009, compared to $33.7 million or 2.43% of total loans at December 31, 2008, as a result of a decrease in loan outstandings and improving nonaccrual and nonperforming trends in the indirect portfolio.  During the recession of the past two years, the Bank has charged off a total of $51.8 million in loans while at the same time providing a substantial $65.4 million, or 126% of charge-offs, in provision for loan losses.

NONPERFORMING ASSETS

Nonperforming loans, repossessions and other real estate (“ORE”) totaled $92.9 million at the end of the fourth quarter of 2009, a decrease of $13.4 million from September 30, 2009, and a decrease of $22.3 million from December 31, 2008.

Nonperforming residential construction and development loans at December 31, 2009, included 150 houses and 538 lots and land totaling approximately $56.0 million.  During the fourth quarter, approximately $5.5 million of nonperforming construction loans were paid down by our customers while approximately $4.3 million in construction loans were moved to nonperforming.

During the fourth quarter, $4.5 million of ORE assets were sold while $5.0 million were added to ORE.  ORE consists of 39 houses, representing 28% of the total ORE balance, 282 lots and four commercial properties.  ORE remained relatively unchanged at $21.8 million at December 31, 2009, compared to $21.2 million at September 30, 2009.  It was $15.1 million at December 31, 2008.

REAL ESTATE

New residential construction loan advances made during the quarter totaled $5.1 million, while the payoffs of construction loans totaled $24.0 million.  Residential construction and A&D loans totaled $156.7 million at December 31, 2009, which was down 12.6% from $179.2 million at September 30, 2009.  There were 375 houses and 1,617 lots financed at December 31, 2009, compared to 523 houses and 1,939 lots at December 31, 2008.

Total residential and commercial construction and land loans decreased to $154.8 million or 12.0% of loans from $187.2 million or 14.2% of loans at September 30, 2009, and $245.2 million or 17.7% of loans at December 31, 2008, and as a percentage of capital decreased from 94% at September 30, 2009, to 77% at December 31, 2009.  The regulatory guideline is a maximum of 100%.

All real estate loans, excluding owner-occupied properties, as a percentage of capital decreased to 144% at December 31, 2009, from 147% at September 30, 2009.  The regulatory guideline is a maximum of 300%.  

NET INTEREST INCOME

Net interest income for the fourth quarter increased $4.0 million or 37.7% when compared to the same period in 2008, and increased $928,000 or 6.7% compared to third quarter of 2009.  Net interest margin increased 69 basis points to 3.31% in the fourth quarter of 2009 compared to 2.62% in the fourth quarter of 2008 and 3.10% in the third quarter of 2009.  In addition, average total interest earning assets increased $136.9 million or 8.3% for the quarter, ended December 31, 2009, compared to the same quarter in 2008.  Net interest income for the year ended December 31, 2009, increased $5.2 million or 11.1% over the same period in 2008.  The net interest margin increased 11 basis points to 2.95% for the year ended December 31, 2009, compared to 2.84% for the same period in 2008.  The increase in net interest income for the quarter and year to date is a result of a greater reduction in the cost of funds than the decrease in the yield on earning assets and the increase in earning assets.

INTEREST INCOME

Total interest income for the fourth quarter of 2009 increased $140,000 or .6% compared to the same period in 2008.  The decrease of 45 basis points in the yield on average interest-earning assets was more than offset by growth in average interest-earning assets for the fourth quarter 2009, which increased $136.9 million or 8.3%.  Total interest income for the year ended December 31, 2009, decreased $6.5 million or 6.2% compared to the same period in 2008.  The decrease in interest income in 2009 was the result of a decrease of 77 basis points in the yield on average interest-earning assets offset in part by the growth in average interest-earning assets in 2009, which increased $110.9 million or 6.7%.  The decrease in yield was primarily the result of the lower prime lending rate in 2009 compared to 2008.

INTEREST EXPENSE

Interest expense for the fourth quarter of 2009 decreased $3.9 million or 28.5% compared to the same period in 2008.  The decrease in interest expense was attributable to a 117 basis point decrease in the cost of interest-bearing liabilities somewhat offset by an increase in average interest-bearing liabilities of $79.1 million or 5.3%.  For the year ended December 31, 2009, interest expense decreased $11.6 million or 20.2% compared to the same period in 2008.  The decrease in interest expense was attributable to a 92 basis point decrease in the cost of interest-bearing liabilities somewhat offset by an increase in average interest-bearing liabilities of $71.6 million or 4.8%.  In addition to the general decrease in general deposit rates, the Bank’s shift in deposit mix toward core demand and savings accounts contributed to the reduction in the cost of funds.  During 2009, high cost time deposits matured and the replacement cost was significantly lower.  In addition, with the additional retail deposits and increasing liquidity during 2009 compared to 2008, management was able to reduce high cost brokered deposits by $91 million or 48%.  The reduction in brokered deposits is expected to continue in 2010.

NONINTEREST INCOME

Noninterest income increased $8.4 million and $16.3 million or 225.7% and 92.7% to $12.2 million and $34.0 million for the fourth quarter and year ended December 31, 2009, respectively, compared to the same periods in 2008.  This increase in noninterest income was a result of higher mortgage banking activities due to the expansion of the mortgage division in 2009 and higher investment securities gains.  Revenue from mortgage banking activities increased to $3.6 million and $15.0 million for the fourth quarter and year ended December 31, 2009, respectively, compared to $95,000 and $340,000 for the same periods in 2008.  Mortgage production increased from $20 million in 2008 to $872 million in 2009.  Securities gains increased to $4.8 million and $5.3 million for the fourth quarter and year ended December 31, 2009, respectively.  The gains are a result of the Bank repositioning the investment portfolio as part of the interest rate, cash flow, and capital risk rating strategies.  The increase for the year ended December 31, 2009, was partially offset by lower Indirect lending income, which decreased $998,000 or 19.1% to $4.2 million and lower other income.  Indirect lending revenues were hindered by the lack of liquidity in the financial markets resulting in fewer sales which resulted in lower gains on sales.  Secondary markets in the last several months, however, have begun to show increased buyer interest and better premiums.

NONINTEREST EXPENSE

Noninterest expense for the fourth quarter increased $4.2 million or 33.5% to $16.6 million compared to the same period in 2008.  The increase is a result of higher salaries and employee benefits of $2.3 million or 37.3% to $8.3 million as the Bank increased the number of employees as a result of the expansion of the mortgage division and an increase in lenders in the SBA, Commercial, Private Banking and Indirect Auto Lending divisions.  Additionally, the increase was due to higher other operating expense, which increased $827,000 or 33.8% to $3.3 million due primarily to higher foreclosure expense.  Noninterest expense for the year ended December 31, 2009, increased $15.7 million or 32.2% to $64.6 million compared to 2008.  The increase is a result of higher salaries and employee benefits due to an increase in headcount which increased $7.4 million or 28.8% to $33.3 million, and higher operating expenses, which increased $4.1 million or 52.9% to $11.9 million due primarily to higher ORE related expenses and foreclosure expenses.  FDIC insurance premiums increased $2.6 million or 257.7% compared to 2008 as a result of the FDIC special assessment and deposit growth.  Also, during 2008 the Company reversed a Visa litigation accrual of $415,000 which did not reoccur in 2009.

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 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 2008 Annual Report filed on Form 10-K with the Securities and Exchange Commission.

SOURCE Fidelity Southern Corporation