Fidelity Southern Corporation, holding company for Fidelity Bank, today reported financial results for the three and nine months ended September 30, 2013.

KEY RESULTS

• Earned $7.9 million in third quarter
• Completed paydown of 11% Trust Preferred Securities
• Paid off $48 million of TARP Preferred Stock
• Return on Average Assets of 1.20%
• Net Interest Margin increased 17 basis points
• Re-instated Cash Dividend
• Organic Loan Growth of 10%, annualized
• Classified Assets decreased 9%
• Increased Tangible Book Value by $1.63 or 18%, year over year 

Fidelity's Chairman, Jim Miller, said, "Fidelity had another strong quarter, reporting organic loan growth, and a strengthened balance sheet. We continue to take market share in deposits and in lending. Mortgage volume compares favorably to industry which reflects our focus on purchase activity. Indirect lending expanded into Texas and Mortgage added production staff in Virginia.

"We plan to continue our steady growth with more branches, to focus on electronic banking and to further strengthen our lending platforms."

NET INTEREST MARGIN

Net interest margin in the third quarter of 2013 was 3.59%. In spite of the decline in the net interest margin from the third quarter of 2012, net interest income was up $842,000 over the same quarter prior-year and $1.4 million when compared to the three months ended June 30, 2013. The improvement is attributable primarily to declining average balances of and rates on interest-bearing liabilities as discussed in more detail in the Interest Expense section below. Excluding covered loans and the accretion of the loan discount, the net interest margin was 3.48% for the third quarter of 2013 compared to 3.31% for the second quarter of 2013.

Net interest margin was 3.59% for the nine months ended September 30, 2013, compared to 3.80% for the same period in 2012. Although the net interest margin decreased, net interest income for the nine months ended September 30, 2013, increased $2.5 million, or 4.1%, to $62.7 million compared to$60.2 million for the same period in 2012 aided by a 12.3% increase in average loan balances. Excluding covered loans and the accretion of the loan discount, the net interest margin was 3.42% for the nine months ended September 30, 2013 and 3.66% for the same period in 2012.

INTEREST INCOME

Total interest income for the third quarter of 2013 remained flat at $24.9 million compared to the third quarter of 2012. In a linked-quarter comparison, interest income increased $1.1 million largely attributable to an increase in interest income from mortgage loans held-for-sale as rates increased during the quarter.

For the nine months ended September 30, 2013, total interest income increased $500,000 to $73.8 million compared to $73.3 million for the same period in 2012.

INTEREST EXPENSE

Interest expense for the third quarter of 2013 decreased $847,000, or 19.9%, compared to the same period in 2012 due to a reduction of $374,000 in subordinated debt expense for the third quarter of 2013. This was due in part to $20.6 million of subordinated debt converting from a fixed rate of 6.62% to a lower floating rate as of September 15, 2012. Additionally, the Company repaid $21.1 million of subordinated debt during the quarter with a weighted average rate of 11.0%. Also contributing to the reduction is a decrease in short-term borrowings expense of $381,000 primarily due to a 76 basis point decrease in yield. On a linked-quarter basis, interest expense decreased $340,000, or 9.1% attributable to increased liquidity and lower short-term borrowings resulting from loan sales for the quarter.

For the nine months ended September 30, 2013, interest expense decreased $2.1 million, or 15.8%, to$11.0 million compared to $13.1 million for the same period in 2012. The decrease is primarily the result of a reduction in time deposit expenses of $943,000 together with a decrease of $910,000 in subordinated debt expense due to rate changes and the note pay-offs previously discussed.

NONINTEREST INCOME

For the quarter ended September 30, 2013, noninterest income was $25.8 million compared to $27.1 million in the third quarter of 2012. The decrease is largely attributable to the $4.0 million gain on acquisition recorded in the third quarter of 2012 related to the acquisition of Security Exchange Bank and no gain recorded during the current quarter. Offsetting this decrease is an increase of $3.1 millionin mortgage banking activities over the respective period as mortgage servicing impairment charges were $2.3 million lower in the third quarter of 2013.

For the nine months ended September 30, 2013, noninterest income increased $17.3 million, or 28.1%, to $79.1 million compared to $61.8 million for same period in 2012. The increase is attributable to an$18.1 million increase in mortgage banking activities.

Real Estate Lending

Since long-term rates spiked in June, many mortgage lenders have reported reductions of 20% to more than 50% in funded loan volumes for the third quarter. The Company's 21% decrease in funded loan volume is on the low end as the Company has focused on core purchase mortgage production, has a smaller concentration of wholesale lending and an emphasis on expansion into new markets and penetration of existing markets.

Compared to the same period in prior year, mortgage banking net revenue increased $3.1 million or 20%. Closed funded loan production was $619 million during Q3 2013, $784 million in Q2 2013 and$617 million in Q3 2012. Mortgage banking revenue was $17.8 million for the quarter ended September 30, 2013, reflecting lower volumes that have been prevalent throughout the industry and amongst our peers.

Positive mortgage production trends were evident as new purchase loans (vs. refinances) accounted for 74% of total funded loan production in Q3 2013. The Company continues to evaluate opportunities to increase market share or enter new markets where future growth is expected.

NONINTEREST EXPENSE

Noninterest expense for the third quarter of 2013 was $34.1 million compared to $31.3 million for the same period in 2012. The increase was driven by a $1.9 million increase in salaries and employee benefits expense together with an $811,000 pay-off premium related to the redemption of the trust preferred securities previously discussed.

For the nine months ended September 30, 2013, noninterest expense was $99.8 million compared to$82.7 million for the same period in 2012. The increase is largely attributable to an increase of $8.5 million in salaries and employee benefits and an increase $6.1 million in higher commissions and increased personnel.