Fidelity Southern Corporation Reports Record Earnings of $4.9 Million for Second Quarter and Improved Asset Quality

ATLANTA, July 15 /PRNewswire-FirstCall/ -- Fidelity Southern Corporation ("Fidelity" or the "Company") (Nasdaq: LION), holding company for Fidelity Bank (the "Bank"), reported net income of $4.9 million for the second quarter of 2010 compared to a net loss of $2.8 million for the second quarter of 2009.  After accounting for the TARP preferred dividend, basic and diluted income per share for the second quarter of 2010 was $.39 and $.35, respectively, compared to a basic and diluted loss per share of $.36 in the second quarter of 2009.  Net income for the first six months of 2010 was $5.1 million compared to net loss of $6.2 million for the same period in 2009.  Basic and diluted income per share for the first six months of 2010 was $.33 and $.29, respectively, compared to basic and diluted loss per share of $.78 for the same period in 2009.

We show core operating earnings which remove income taxes, provision for loan losses, cost of operation of ORE, 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.

"The strength of our underlying core bank continues the steady improvement which became visible in the second quarter of last year," said H. Palmer Proctor, Jr., President.  "This reflects our deliberate decisions in 2007 to identify problem credits and deal with them consequentially.  Additionally, we began a targeted expansion program in 2008 which has resulted in the hiring of 151 experienced, local bankers for our Commercial, Residential Mortgage, SBA, and Indirect Automobile departments.  These teams have contributed to our recent financial success and we are very much committed to continue building momentum and prudently adding staff where appropriate.  Lastly, for the past three years, we have been aggressively promoting the Fidelity Bank brand through increased advertising and will continue to make such investments in the future as we successfully increase our market share."

"We believe that we are well equipped to manage through this difficult economic environment and its effects on our customers," said James B. Miller, Jr. Chairman.  "There are obvious crosscurrents but this economy is showing signs of improvement."

"Our lending and deposit gathering successes have come by taking market share.  We plan now to expand with de novo branching and, when appropriate, to look at assisted transactions and traditional acquisitions."

ASSET QUALITY

Net charge-offs were $3.5 million in the second quarter of 2010 compared to $6.0 million in the second quarter of 2009 and were at the lowest level since the second quarter of 2008.  Year to date, net charge-offs decreased $5.7 million for the first six months of 2010 to $8.1 million compared to $13.8 million for the same period in 2009.  For the 2.5 year period ended June 30, 2010, net charge-offs were $59.9 million and the Company recorded an aggregate provision for loan losses of $70.5 million.  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 .91% for the six months ended June 30, 2010, compared to 2.08% for the same period in 2009.  Fidelity reported an allowance for loan losses of $27.1 million or 2.07% of total loans at June 30, 2010, compared to $30.1 million or 2.33% at December 31, 2009, and $36.7 million or 2.79% of total loans at June 30, 2009.  The decrease was a result of improving nonaccrual loans and nonperforming assets trends.

Nonperforming loans, repossessions and other real estate ("ORE") totaled $82.1 million at the end of the second quarter of 2010, a decrease of $10.8 million from December 31, 2009, and a decrease of $36.0 million from June 30, 2009.

Nonperforming residential construction and development loans at June 30, 2010, included 102 houses and 333 lots and land totaling approximately $43.6 million.  During the second quarter, approximately $2.9 million of nonperforming construction loans were paid down by our customers while approximately $5.6 million in construction loans were moved to nonperforming.

During the second quarter of 2010, $5.5 million of ORE assets were sold while $3.1 million were added to ORE.  ORE consists of 51 houses, representing 28% of the total ORE balance, 350 lots and four commercial properties.  ORE increased $445,000 to $22.2 million at June 30, 2010, compared to $21.8 million at December 31, 2009.  ORE was $25.0 million at June 30, 2009.  

Nonperforming and foreclosed SBA loans, including the SBA guaranteed amounts of $6.1 million and $3.5 million at June 30, 2010, and 2009, respectively, totaled $14.8 million at the end of the second quarter of 2010 and $9.5 million at the end of the second quarter of 2009.

As a result of improved asset quality, the provision for loan losses for the second quarter of 2010 was $1.2 million compared to $7.2 million for the same period in 2009.  The provision for loan losses for the first six months of 2010 was $5.1 million compared to $16.8 million for the same period in 2009.  

DEPOSITS

Total deposits at June 30, 2010 of $1.564 billion reflect the improvement in the deposit mix brought about by the implementation of the Bank's deposit strategy to increase our 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 $94.6 million or 11.1% at June 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 $8 million, while the payoffs of performing construction loans totaled $23 million.  Residential construction and A&D loans totaled $127 million at June 30, 2010, which was down 35% from $193.7 million at June 30, 2009.  There were 312 houses and 1,414 lots financed at June 30, 2010 compared to 466 houses and 1,765 lots at June 30, 2009.

Total residential and commercial construction and land loans decreased to $128.7 million or 9.8% of loans at June 30, 2010, from $154.8 million or 12.0% of loans at December 31, 2009, and $200.5 million or 15.3% of loans at June 30, 2009, and as a percentage of capital was 63% at June 30, 2010.  The regulatory guideline is a maximum of 100%.

All real estate loans, excluding owner-occupied properties, as a percentage of capital was 137% at June 30, 2010.  The regulatory guideline is a maximum of 300%.  

CAPITAL

Fidelity reported a total risk based capital ratio for the Bank of 13.57% at June 30, 2010, compared to 12.49% at June 30, 2009.  The Leverage Capital ratio at the Bank was 9.57% at June 30, 2010, compared to 8.77% at June 30, 2009.  Both ratios exceeded required regulatory minimums for well-capitalized institutions.  At June 30, 2010, the total risk based capital ratio and the leverage ratio increased six basis points and 26 basis points, respectively, from March 31, 2010.

NET INTEREST MARGIN

Net interest margin increased 95 basis points to 3.67% in the second quarter of 2010 compared to 2.72% in the second quarter of 2009, and increased 27 basis points from 3.40% for the first quarter of 2010.  Somewhat offsetting the increase in margin was a decrease in average total interest earning assets of $8.6 million or .5% for the quarter ended June 30, 2010, compared to the same quarter in 2009.  Net interest income for the second quarter of 2010 increased $4.2 million or 34.8% 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 84 basis points to 3.54% in the first half of 2010 compared to 2.70% for the same period in 2009.  In addition, average total interest earning assets increased $27.2 million or 1.6% for the six months ended June 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 six months of 2010 increased $7.8 million or 33.7% over the same period in 2009.  

INTEREST INCOME

Total interest income for the second quarter of 2010 decreased $266,000 or 1.1% compared to the same period in 2009.  The yield on average interest-earning assets decreased 4 basis points and average interest-earning assets for the second quarter 2010 decreased $8.6 million or .5%.  However, approximately $32 million of Indirect and SBA loans were produced and sold during the second quarter of 2010.  Mortgage loans of $212 million were also sold during this period.  The decrease in yield was primarily the result of a decrease in the yield on investment securities of 77 basis points and a decrease in the yield on interest bearing deposits of 13 basis points.  These decreases were somewhat offset by an 11 basis point increase in the yield on loans to 6.06%.  

Total interest income year to date through June 30, 2010 decreased $366,000 or .8% compared to the same period in 2009.  The decrease in interest income in 2010 was the result of a decrease of 13 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 $27.2 million or 1.6%.  The decrease in yield was a result of a 70 basis point decrease in yield on investment securities which was somewhat offset by an increase in the yield on total loans of 14 basis points.

INTEREST EXPENSE

Interest expense for the second quarter of 2010 decreased $4.5 million or 35.2% compared to the same period in 2009.  The decrease in interest expense was attributable to a 107 basis point decrease in the cost of interest-bearing liabilities and a decrease in average interest-bearing liabilities of $37.4 million or 2.3%.  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.  During the second quarter of 2010, management continued to allow high cost time deposits to mature and be replaced by lower cost core deposits.  While brokered deposits decreased $21.7 million compared to June 30, 2009, management locked in historically low interest rates on longer term brokered deposits during 2010 increasing the total outstanding by $8.2 million compared to December 31, 2009.  At June 30, 2010, brokered deposits represented only 6.9% of total deposits.  

Year to date in 2010, interest expense decreased $8.1 million or 32.5% compared to the same period in 2009.  The decrease in interest expense was attributable to a 108 basis point decrease in the cost of interest-bearing liabilities somewhat offset by an increase in average interest-bearing liabilities of $17.1 million.

NONINTEREST INCOME

Noninterest income increased $3.5 million or 45.0% to $11.2 million for the quarter ended June 30, 2010, compared to the same period in 2009.  The increase in noninterest income was primarily the result of a $2.3 million increase in securities gains as management repositioned the investment portfolio as part of the interest rate, cash flow, and capital risk rating strategies.  In addition, other operating income increased $619,000 due to higher net gains on the sales of other real estate and SBA lending activities increased $475,000 as the Bank was able to recognize gains on sales of SBA loans which had been deferred from the first quarter of 2010 in accordance with new accounting requirements effective in 2010.

Noninterest income increased $3.2 million or 21.9% to $17.8 million for the year to date ended June 30, 2010 compared to the same period in 2009.  The increase was primarily the result of the securities gains of $2.3 million as discussed above.  Other operating income increased $752,000 due primarily to higher net gains on the sales of other real estate.  In addition, income from SBA lending activities increased $409,000 due to higher gains on sale as premiums increased with improved liquidity in the secondary market and the new accounting requirement discussed above.  Partially offsetting these increases was a decrease in income on mortgage banking activities which decreased $457,000 or 5.5% to $7.8 million due to lower origination volume.

NONINTEREST EXPENSE

Noninterest expense for the second quarter of 2010 increased $1.3 million or 7.5% to $18.8 million compared to the same period in 2009.  The increase was due to higher salaries and employee benefits which increased $1.1 million or 12.0% to $10.0 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.  Other operating expense increased $629,000 or 39.7% to $2.2 million due to higher underwriting, insurance and advertising expenses.  The cost of operation of other real estate increased $418,000 or 21.6% to $2.4 million due primarily to higher foreclosure expenses and write-downs related to ORE.  These increases were partially offset by lower FDIC insurance premiums which decreased $675,000 or 43.4% due to the one time special assessment in the second quarter of 2009.

Noninterest expense for the first six months of 2010 increased $4.3 million or 13.6% to $35.8 million compared to the same period in 2009.  The increase was a result of higher salaries, commissions and employee benefits which increased $2.1 million or 12.3% to $18.9 million, the cost of operation of other real estate which increased $1.8 million or 68.4% to $4.5 million due primarily to higher write-downs related to ORE and higher foreclosure expenses, and higher operating expense, which increased $569,000 or 16.3% to $4.1 million due primarily to higher underwriting 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.