Fidelity Southern Corporation, holding company for Fidelity Bank (the "Bank"), today reported financial results for the three and nine months ended September 30, 2014.

KEY RESULTS

• Total revenue increased to $53.8 million for the quarter 
• Net income of $8.8 million or $0.38 per diluted share for the quarter and $22.8 million or $0.97 per diluted share year to date 
• Return on average assets of 1.25% for the quarter and 1.15% year to date 
• Tangible book value of $11.92 per share increased by $1.05 or 9.7%, year over year 
• Branch footprint expanded in Florida with the opening of seven branches during the quarter including the acquisition of five branches and $170.7 million in deposits  
• Loan portfolio grew by $105.2 million or 5.3% to $2.1 billion during the quarter and by $242.1 million or 13.2% year over year 
• Mortgage servicing portfolio reached $5.2 billion during the quarter 

Fidelity's Chairman, Jim Miller, said, "Results are solid with the Florida acquisition fitting well into our culture.  There will be more branching and lending in Florida.  Indirect lending has proven very successful in Texas and in Florida.  Only time will tell if the environment we operate in will prove even more challenging, though we remain optimistic."

BALANCE SHEET

Total assets at September 30, 2014 grew to $2.9 billion, an increase of $123.9 million, or 4.5%, compared to June 30, 2014 and $294.2 million, or 11.5%, compared to September 30, 2013. These increases are primarily attributable to an increase in loan production, mainly in indirect and mortgage loans held for investment. 

The assumption of deposits from six branches in Florida during September 2014 drove an increase in cash and cash equivalents of $36.4 million, or 66.1%, compared to June 30, 2014. A portion of the $170.7 million from the acquired deposits was also used to reduce other borrowings during the quarter which decreased by $111.4 million, or 59.3% to $76.4 million at September 30, 2014 compared to June 30, 2014.

Loans

Total loans held for investment at September 30, 2014 grew to $2.1 billion, an increase of $105.2 million, or 5.3% compared to June 30, 2014, and $242.1 million, or 13.2% compared to September 30, 2013. This growth occurred largely due to increases during the quarter in indirect loans of $90.6 million, or 9.1%, and mortgage loans of $25.6 million, or 15.2% due to the impact of new product offerings within mortgage, new loan production offices and expansion into new markets.

Deposits

Total deposits at September 30, 2014 of $2.5 billion increased by $233.9 million, or 10.5%, compared to June 30, 2014 and $290.0 million, or 13.4%, compared to September 30, 2013. The increases occurred primarily due to the acquisition of $170.7 million in deposits completed during September 2014 combined with organic growth of $63.2 million, or 2.8%, during the quarter and $119.3 million or 5.5%, year over year. 

Core deposits, including noninterest-bearing demand deposits, grew organically by $67.1 million, or 4.2%, during the quarter and $196.1 million, or 13.5%, year over year due to core deposit growth from the continuing transaction account acquisition initiative, particularly in commercial accounts. Noninterest-bearing demand deposits increased to 25% of total average deposits for the quarter compared to 21% for the same period last year.

Excluding the deposit acquisition of $88.0 million, time deposits decreased by $3.9 million or 0.6% during the quarter and $76.8 million, or 10.7%, year over year. Time deposits also decreased as a percentage of average deposits to less than 30% for the quarter from over 34% for the same period last year. 

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

INCOME STATEMENT

Net Interest Margin

The net interest margin was 3.56% and 3.67% for the three and nine months ended September 30, 2014, respectively, compared to 3.59% for each of the same periods in 2013. The decrease in the net interest margin for the quarter was primarily attributable to a decrease in the yield on total loans as new loans were originated at lower yields in 2014. The year to date increase of 8 basis points in the net interest margin was primarily attributable to a decrease in subordinated debt expense compared to the same period in 2013. See "Average Balance Interest and Yields" below. 

On a linked-quarter basis, the net interest margin decreased by 36 basis points compared to 3.92% for the second quarter of 2014, primarily due to a decrease of 43 basis points in the yield on total loans. This decrease is primarily attributable to the $1.3 million increase in the accretion of the loan discount recognized in the second quarter of 2014 as discussed in "Interest Income" below.

Excluding the accretion of the loan discount, the net interest margin was 3.48% and 3.55% for the three and nine months ended September 30, 2014, respectively, compared to 3.51% and 3.45% for the same periods in 2013. On a linked-quarter basis, the net interest margin, excluding the accretion of the loan discount, decreased by 15 basis points to 3.48% for the quarter compared to 3.63% for the prior quarter as new loans were originated at lower yields in 2014. 

Interest Income

Interest income was $25.9 million and $75.0 million for the three and nine months ended September 30, 2014, an increase of $1.0 million and $1.3 million, or 3.9% and 1.7%, respectively, as compared to the same periods in 2013. The increase in interest income for the quarter was primarily due to a year over year increase in average loans of $241.3 million, primarily in the indirect and mortgage portfolios, partially offset by a decrease in the yield on total loans of 32 basis points as new loans were originated at lower yields in 2014. 

On a linked-quarter basis, interest income decreased slightly, primarily due to the $1.3 million increase in the accretion of the loan discount recorded during the second quarter of 2014. This increase occurred as a result of increased cash flows from the earlier than expected resolution of certain acquired loans at amounts in excess of carrying value identified during the quarterly re-estimation of cash flows on acquired loans for the second quarter. Management does not believe that the increase recognized in the second quarter is reflective of a trend that will continue in future quarters. 

Interest Expense

Interest expense was $2.7 million and $8.2 million for the three and nine months ended September 30, 2014, a decrease of $674,000 and $2.8 million, or 19.8% and 25.7%, respectively, as compared to the same periods in 2013. The decreases occurred primarily due to a reduction in subordinated debt expense of $434,000 for the quarter and $1.6 million year to date from the repayment of $21.5 million in subordinated debt in the third quarter of 2013. 

On a linked-quarter basis, interest expense increased slightly by $53,000, or 2.0% as the average balance of interest-bearing liabilities increased by $137.4 million from quarter to quarter. This increase was partially offset by a decrease of 4 basis points in the rate on interest-bearing liabilities.

Noninterest Income

Noninterest income was $27.9 million and $70.6 million for the three and nine months ended September 30, 2014, an increase of $2.1 million and decrease of $8.5 million, or 8.0% and 10.8%, respectively, as compared to the same periods in 2013. 

The $2.1 million net increase in noninterest income for the quarter was primarily related to an increase in gains on the sale of indirect and SBA loans. Higher gains on indirect loan sales drove $2.9 million of the increase in noninterest income from indirect lending activities of $3.7 million for the quarter. Indirect loan sales totaled $244.6 million for the quarter compared to sales of $93.6 million for the same period in the prior year. Noninterest income from SBA lending activities increased by $831,000 for the quarter as gains on SBA loan sales were $1.0 million higher for the quarter.

The increases in noninterest income from indirect and SBA lending activities were partially offset by a net decrease of $1.7 million in noninterest income from mortgage banking activities for the quarter. Loan servicing revenue increased by $809,000 to $3.2 million for the quarter as the servicing portfolio grew to $5.2 billion at September 30, 2014. However, a decrease in the volume of mortgage production and sales for the quarter resulted in a reduction of $2.5 million in other components of mortgage banking income. See "Income from Mortgage Banking Activities" table below. 

The $8.5 million net decrease in noninterest income year to date, compared to the same period in 2013, included a decrease of $15.5 million in noninterest income from mortgage banking activities primarily due to lower mortgage loan sales for the period. Mortgage loan sales were $1.3 billion year to date compared to $2.1 billionfor the same period last year. This decrease was partially offset by an increase of $7.6 million in noninterest income from indirect lending activities, primarily due to an increase in the volume of indirect loan sales. Year to date gains on indirect loan sales totaled $9.1 million on sales of $557.9 million as compared to gains of $3.1 million on $304.1 million of indirect loan sales for the same period last year.

On a linked-quarter basis, noninterest income increased by $4.6 million, or 19.7%. This increase was primarily attributable to increases in noninterest income from mortgage banking activities of $2.6 million and indirect lending activities of $2.7 million, partially offset by a decrease of $447,000 in other noninterest income due to lower gains on sales of ORE for the quarter. The increases in noninterest income from mortgage banking and indirect lending activities occurred primarily due to an increase in loan production and sales from quarter to quarter. See "Analysis of Indirect Lending" and "Analysis of Mortgage Lending" tables below.

Noninterest Expense

Noninterest expense was $35.7 million and $102.1 million for the three and nine months ended September 30, 2014, an increase of $1.6 million and $2.3 million, or 4.7% and 2.3%, respectively, as compared to the same periods in 2013. Salaries and benefits, occupancy and communications expenses have increased for all periods due to the growth in employees and locations and the associated administrative support functions as the organization continues to grow. 

Salaries and benefits increased by $2.6 million for the quarter and $6.1 million year to date while occupancy and communication expenses increased by $878,000 and $2.6 million for the same periods. 

The increases in personnel costs and facilities expenses were partially offset by reductions in commissions expenses and other operating expenses. Lower mortgage banking volume year over year resulted in a decrease in commissions expenses of $656,000 for the quarter and $5.9 million year to date. Lower ORE write downs compared to the prior year drove the decrease in other operating expenses of $1.2 million for the quarter and $401,000 year to date. 

On a linked-quarter basis, noninterest expense increased by $2.0 million, or 5.8%. This increase was primarily attributable to an increase in salaries and employee benefits of $1.0 million or 6.6%. Other operating expenses also increased by $1.1 million or 13.8% due to fluctuations in loan-related expenses.