Fidelity Southern Corporation, holding company for Fidelity Bank, today reported financial results for the quarter and nine months ended September 30, 2015.

KEY RESULTS

• Net income of $9.2 million and $32.4 million, or $0.39 and $1.42 per diluted share, for the quarter and nine months ended September 30, 2015

• Return on Average Assets of 1.07% and 1.33% for the quarter and nine months ended September 30, 2015

• Loan portfolio increased by $96.1 million, or 3.3%, during the quarter and $583.2 million, or 24.3%, year over year, to $3.0 billion

• Loans serviced for others grew by $485.3 million, or 6.7%, during the quarter and $1.5 billion, or 23.9%, year over year, to $7.8 billion

• Total deposits increased by $272.8 million or 10.3%, during the quarter and $452.7 million, or 18.4%, year over year, to $2.9 billion

• In September 2015, the Bank acquired eight branches from First Bank, a Missouri bank, in the Sarasota-Bradenton, Florida area with total deposits of $151.3 million and loans of $30.2 million

• Subsequent to quarter end, the Bank acquired approximately $255 million in assets, including $162 million in loans, and assumed approximately $280 million in customer deposits of The Bank of Georgia under an FDIC assisted transaction in October 2015

Fidelity's Chairman, Jim Miller, said, "We continue to earn our way in a zero interest rate environment focused on a good rate of return for our shareholders and on making credit more widely available.  We opened branches in Berkeley Lake and Snellville and eight offices in Sarasota-Bradenton, then in October purchased from the FDIC The Bank of Georgia and its seven offices.  The run up in mortgage and indirect gave us spectacular income last quarter but slowed in the third quarter.  However, our mortgage platform appears uniquely attractive in the industry.  Significant producers joined us in Virginia, the Carolinas, and Florida and production will continue to expand year over year.  Fidelity's strategy of steady sustainable growth and superior income continues."

BALANCE SHEET

Total assets at September 30, 2015, grew to $3.5 billion, an increase of $124.5 million, or 3.7%, compared to June 30, 2015, and $637.9 million, or 22.3%, compared to September 30, 2014.  These increases are primarily attributable to an increase in loan production, mainly in indirect and mortgage loans held for investment. 

The acquisition of eight branches in Florida in September 2015 from First Bank, a Missouri bank, increased the deposit base by $151.3 million and added loans of $30.2 million. The cash from the acquired deposits was used to decrease other borrowings, which decreased $166.3 million during the quarter.

Loans

Total loans held for investment at September 30, 2015, grew to $2.6 billion, an increase of $230.7 million, or 9.6%, compared to June 30, 2015, and $568.0 million, or 27.4%, compared to September 30, 2014.

Continued strong auto sales and overall mortgage volume were the main drivers of the growth in indirect and mortgage loans.  Indirect loans grew by $118.0 million and $312.2 million, or 9.2% and 28.7%, respectively, and mortgage loans increased by $59.9 million and $164.0 million, or 20.1% and 84.6%, respectively, compared to June 30, 2015 and September 30, 2014.

Servicing rights showed steady growth as well, growing to $82.7 million at September 30, 2015, an increase of $5.0 million, or 6.5%, compared to June 30, 2015, and $20.5 million, or 32.9%, compared to September 30, 2014.

The following table summarizes average loans by category, excluding loans acquired in FDIC-assisted transactions, for the periods presented.

Deposits

Total deposits at September 30, 2015, of $2.9 billion increased $272.8 million, or 10.3%, compared to June 30, 2015, and $452.7 million, or 18.4%, compared to September 30, 2014. 

The year over year net increase occurred primarily due to organic growth of $263.2 million, as well as the acquisition of deposits from eight branches in Florida during September 2015 of $151.3 million, and one branch in Florida during January 2015 of $38.2 million.

Time deposits increased by $72.7 million, or 8.6%, during the quarter and $186.4 million, or 25.6%, year over year. The change occurred primarily due to $43.2 million in time deposits acquired during the third quarter of 2015. Brokered deposits increased $20.0 million for the quarter and $78.2 million year over year, which were generally used to fund loan growth. The remaining increase is due to organic growth in time deposits.

Average core deposits, including noninterest-bearing demand deposits, grew by $71.6 million, or 4.0%, during the quarter and $261.8 million, or 16.3%, year over year, particularly in commercial accounts and through the acquisition of branch deposits discussed above.

The following table summarizes average deposit composition and average rate paid for the periods presented.

Borrowings

Other borrowings decreased by $166.3 million, or 54.8%, during the quarter and increased $60.8 million, or 79.6%, year over year.  The quarterly decrease occurred due to the cash received in the acquisition of First Bank deposits used to pay off other borrowings, and the year over year increase occurred primarily to fund growth in loans noted above.

Subordinated debt increased by $74.0 million year over year due to the issuance of $75 million in subordinated notes, net of issuance costs, during May 2015.  The additional subordinated debt was issued to support general corporate purposes and potential future acquisitions. 

INCOME STATEMENT

Interest Income

Interest income was $29.6 million and $83.6 million for the quarter and nine months ended September 30, 2015, respectively, an increase of $3.7 million and $8.6 million, or 14.3% and 11.4%, respectively, as compared to the same periods in 2014.  The increase was primarily due to a year over year increase in average loans of $589.7 million, or 26.7%, mainly in the indirect and mortgage portfolios, partially offset by a decrease in the yield on loans of 31 basis points, as new loans, on average, were originated at lower yields over the previous twelve months.

On a linked-quarter basis, interest income increased by $2.1 million, primarily due to a $178.0 million increase in average loans.

Interest Expense

Interest expense was $4.5 million and $10.9 million for the quarter and nine months ended September 30, 2015, an increase of $1.7 million and $2.7 million, or 63.5% and 32.9%, respectively, as compared to the same periods in 2014.  These increases occurred primarily due to an increase in average other borrowings of $49.2 million and $115.0 million for the quarter and nine months ended September 30, 2015, compared to the same periods in 2014, used to fund growth in average loans, as well as an increase in average subordinated debt due to the addition of $75 million in subordinated debt in May 2015.

On a linked-quarter basis, interest expense increased by $958,000, or 27.4%, primarily due to the increase in the average balance of subordinated debt of $47.1 million for the quarter.

Net Interest Margin

The net interest margin was 3.16% and 3.25% for the quarter and nine months ended September 30, 2015, compared to 3.56% and 3.67% for the same periods in 2014.  The decrease was primarily attributable to a decrease in the yield on total loans as new loans were originated at lower yields in 2015. Although the net interest margin decreased year over year, net interest income rose to $25.2 million and $73.0 million for the quarter and nine months ended September 30, 2015, compared to $23.3 million and $67.0 million  for the same periods in 2014. These increases were due primarily to an increase of 22.0% and 22.9% in interest earning assets for the quarter and nine months ended September 30, 2015 compared to the same periods in 2014.

On a linked-quarter basis, the net interest margin remained relatively consistent, with a change of 8 basis points for the quarter.

Noninterest Income

Noninterest income was $30.6 million and $99.4 million for the quarter and nine months ended September 30, 2015, an increase of $2.7 million and $28.7 million, or 9.7% and 40.7%, respectively, as compared to the same periods in 2014.  The increases were primarily related to increases in gains on the sale of mortgage loans as compared to the prior year.

Noninterest income from mortgage banking activities increased by $4.7 million and $26.4 million for the quarter and nine months, respectively, as gains on mortgage loan sales were $5.5 million and $23.4 million higher, for the quarter and nine months, respectively as compared to the same periods in 2014. Mortgage loan production for the quarter increased by $167.5 million, or 31.2%, to $703.6 million while mortgage loan sales for the quarter increased by $208.1 million, or 38.8%, to $744.6 million, as compared to the same period in 2014.  Mortgage loan servicing revenue increased by $848,000 and $2.3 million to $4.1 million and $11.5 million for the quarter and nine months, respectively, as compared to the same periods in 2014, as the mortgage servicing portfolio grew to $6.4 billion at September 30, 2015.

Noninterest income from indirect lending activities was $4.0 million and $15.0 million for the quarter and nine months, a decrease of $2.3 million and increase of  $0.4 million, respectively, as compared to the same periods in 2014.  Gains on sales of indirect loans decreased by $2.6 million and $806,000 for the quarter and nine months, respectively, compared to the same periods in 2014 as demand for loan sales decreased as compared to the prior year. Indirect servicing fee income increased by $522,000 and $1.7 million for the quarter and nine months, as compared to the same periods in 2014, as the indirect servicing portfolio grew to $1.1 billion at September 30, 2015.

On a linked-quarter basis, noninterest income decreased by $6.1 million, or 16.6%, primarily attributable to a decrease in income from mortgage banking activities of $3.8 million, a decrease in income from indirect lending activities of $1.0 million, and a decrease of $1.5 million in other income, primarily due to a change in the gain on sale of real estate owned of $1.0 million.  This decrease in noninterest income occurred primarily due to mortgage servicing rights impairment of $2.2 million at September 30, 2015 compared to a recovery of $2.6 million at June 30, 2015. See "Analysis of Mortgage Lending" tables below.

Noninterest Expense

Noninterest expense was $40.0 million and $119.8 million for the quarter and nine months ended September 30, 2015, an increase of $4.3 million and $17.7 million, or 12.2% and 17.4%, respectively, as compared to the same periods in 2014. 

During the quarter, Fidelity Bank continued its strategy of increasing its footprint across a larger geographic area, and increasing production as well. This was the primary reason for increased noninterest expense in many areas. Salaries, benefits and commissions for the quarter and nine months increased $2.7 million and $14.0 million, or 11.99% and 22.03%,  compared to the same periods in 2014. Occupancy expense for the quarter and nine months increased $816,000 and $1.7 million, or 23.2% and 18.2%, compared to the same periods in 2014. Other noninterest expense for the quarter and nine months ended September 30, 2015 increased by $731,000 and $1.7 million, or 8.2% and 6.5%, compared to the same periods in 2014.

On a linked-quarter basis, noninterest expense decreased by $1.1 million, or 2.7%, primarily due to a $2.4 million decrease in salaries, benefits and commissions, primarily due to decreased mortgage loan production,  partially offset by an increase of $816,000 in occupancy costs and an increase of $479,000 in other expenses.