Fidelity Southern Corporation, holding company for Fidelity Bank (the "Bank"), today reported financial results for the quarter and year ended December 31, 2014.

KEY RESULTS

• Net income of $7.2 million, or $0.31, per diluted share for the quarter and $30.0 million, or $1.28, per diluted share for the year
• Total revenue of $51.3 million for the quarter and $197.0 million for the year 
• Return on average assets of 0.98% for the quarter and 1.11% for the year 
• Tangible book value of $12.22 per share increased by $1.26, or 11.5%, year over year
• Loan portfolio grew by $179.5 million, or 8.7%, during the quarter and $360.3 million, or 19.0%, year over year, to $2.3 billion
• Loan servicing portfolio increased to $6.6 billion, or 28.5%, year over year
• Continued retail expansion in Florida with full integration of the $171 million third-quarter acquisition of deposits and retail branches and an agreement to purchase an additional $38 million in deposits

Fidelity's Chairman, Jim Miller, said, "This is a quick report on where we are. The numbers are obviously quite good. We have concentrated this past year on consolidating our lines of business and positioning for increases in interest rates. Rates should finally move this year, which will be another challenge for the banking world. Despite being positioned to meet a substantial increase in commercial and industrial loan possibilities, we have continued to eschew speculative commercial property loans and have been faced with being underpriced and out-termed on quite a few loans. That wheel will turn. Our outsourced credit card lending is approaching $25 million in outstandings. Additionally, Trust Services booked $94 million in assets just since April 2014, with a backlog scheduled to be booked this quarter to take us over $100 million. The geographic footprint for mortgages, now that we are in North and South Carolina, and for Indirect, now that we are in Louisiana, is not planned for further expansion this year. SBA lending has strengthened. Single family residential lending continues strong, with our presence in Savannah, Macon, Orlando, and Tallahassee contributing. We look to add retail presence in Macon this year and will modestly grow in our existing footprint. Should an opportunity to do more with acquisitions present itself, that would be welcome. Though acquisitions are prepared for, they are not built in to our budget."

BALANCE SHEET

Total assets at December 31, 2014, grew to $3.1 billion, an increase of $223.6 million, or 7.8%, compared to September 30, 2014, and $521.1 million, or 20.3%, compared to December 31, 2013. These increases are primarily attributable to an increase in loan production, mainly in indirect and mortgage loans held for investment. 

Cash and cash equivalents decreased $20.0 million, or 21.8%, compared to September 30, 2014, as cash received from the assumption of deposits from six branches in Florida was used to fund growth in loans held for investment of $179.5 million, or 8.7%, during the quarter. Other short-term borrowings increased $214.7 million, or 281.0%, compared to September 30, 2014, primarily to fund growth in loans held for sale of $44.5 million and loans held for investment of $179.5 million. 

Loans

Total loans held for investment at December 31, 2014, grew to $2.3 billion, an increase of $179.5 million, or 8.7%, compared to $2.1 billion at September 30, 2014, and $360.3 million, or 19.0%, compared to $1.9 billion at December 31, 2013. 

New product offerings within mortgage, new loan production offices, expansion into new markets, and an overall increase in auto sales over the prior year were the main drivers of the growth in indirect and mortgage loans. Indirect loans grew by $131.5 million and $244.0 million, or 12.1% and 25.0%, respectively, and mortgage loans increased by $43.9 million and $101.0 million, or 22.6% and 73.8%, respectively, during the quarter and year. 

Construction loans increased by $15.2 million and $22.3 million, or 13.9% and 21.9%, respectively, compared to September 30, 2014, and December 31, 2013, as single family housing permits continued to grow in our market areas. Growth in commercial loans was offset by continued resolution of acquired loans.

The following table summarizes average loans by category for the periods presented.

Deposits

Total deposits at December 31, 2014, of $2.5 billion increased by $255.6 million, or 11.6%, compared to December 31, 2013. The year-over-year increase occurred primarily due to the assumption of deposits from six branches in Florida during September 2014. 

Average core deposits, including noninterest-bearing demand deposits, grew by $69.8 million, or 4.3%, during the quarter and $225.6 million, or 15.6%, year over year due to core deposit growth from the continuing transaction account acquisition initiative, particularly in commercial accounts and assumption of deposits from six branches in Florida during September 2014. Noninterest-bearing demand deposits increased to 23% of total average deposits for the quarter compared to 21% for the same period last year.

Time deposits increased by $61.0 million, or 8.4%, during the quarter and $14.3 million, or 2.1%, year over year, excluding the $88.0 million in time deposits acquired during the third quarter of 2014.

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 3.47% and 3.62% for the quarter and year ended December 31, 2014, respectively, compared to 3.58% 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 increase of 4 basis points in the net interest margin for the year 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 9 basis points compared to 3.56% for the prior quarter, primarily due to a decrease of 12 basis points in the yield on total loans. 

Interest Income

Interest income was $26.6 million and $101.7 million for the quarter and year, an increase of $2.9 million and $4.1 million, or 12.0% and 4.2%, 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 $448.2 million, primarily in the indirect and mortgage portfolios, partially offset by a decrease in the yield on loans of 34 and 20 basis points, respectively, as new loans, on average, were originated at lower yields in 2014. 

On a linked-quarter basis, interest income increased slightly, primarily due to a quarter-over-quarter increase in average loans of $138.7 million. 

Interest Expense

Interest expense was $3.0 million and $11.2 million for the quarter and year, a decrease of $99,000 and $2.7 million, or 3.4% and 19.6%, respectively, as compared to the same periods in 2013. The decrease for the quarter occurred primarily due to a reduction of 4 basis points in the rate paid on deposits, partially offset by an increase in average deposits. The annual decrease primarily resulted from a decrease of $1.6 million from the repayment of $21.5 million in subordinated debt in the third quarter of 2013. In addition, the rate paid on deposits decreased by 6 basis points from year to year. 

On a linked-quarter basis, interest expense increased by $291,000, or 10.7%, as the average balance of interest-bearing liabilities increased by $129.4 million, primarily due to the deposit assumption closed in September 2014. In addition, the rate paid on interest-bearing liabilities increased slightly by 2 basis points. 

Noninterest Income

Noninterest income was $24.7 million and $95.3 million for the quarter and year, an increase of $7.0 million and decrease of $1.6 million, or 39.2% and 1.6%, respectively, as compared to the same periods in 2013. 

The $7.0 million increase in noninterest income for the quarter was primarily related to an increase in gains on the sale of indirect and mortgage loans. Higher gains on indirect loan sales drove $1.2 million of the increase in noninterest income from indirect lending activities of $1.8 million for the quarter. Indirect loan sales totaled $122.0 million for the quarter compared to sales of $88.2 million for the same period in the prior year. Noninterest income from mortgage banking activities increased by $4.7 million for the quarter as gains on mortgage loan sales were $3.5 million higher for the quarter. Mortgage loan servicing revenue increased by $864,000 to $3.5 million for the quarter as the servicing portfolio grew to $5.4 billion at December 31, 2014.

The $1.6 million net decrease in noninterest income for the year included a decrease of $10.8 million in noninterest income from mortgage banking activities, primarily due to lower mortgage loan sales. Mortgage loan sales were $1.8 billion for the year compared to $2.7 billion in 2013. This decrease was partially offset by an increase of $9.4 million in noninterest income from indirect lending activities, primarily due to an increase in the volume of indirect loan sales. Gains on indirect loan sales for the year totaled $13.4 millionon sales of $679.9 million as compared to gains of $5.4 million on $392.2 million of sales in the prior year.

On a linked-quarter basis, noninterest income decreased by $3.2 million, or 11.5%. This decrease was primarily attributable to decreases in income from indirect lending activities and mortgage banking activities of $2.5 million and $646,000, respectively. These decreases occurred primarily due to decreases 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 $36.6 million and $138.8 million for the quarter and year, an increase of $4.1 million and $6.4 million, or 12.6% and 4.9%, 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 Company continues to grow. Salaries and benefits increased by $3.3 million for the quarter and $9.4 million for the year while occupancy and communication expenses increased by $921,000 and $3.4 million for the same periods. 

The increase in personnel costs for the year was partially offset by a reduction in commissions expense of $4.7 million resulting from lower mortgage banking volume year over year. For the quarter, commissions expense increased by $1.3 million as mortgage production rebounded in 2014, increasing by $89.8 million compared to the fourth quarter of 2013. 

Other operating expenses declined by $1.3 million and $1.6 million for the quarter and year, primarily due to decreases in ORE expenses of $1.5 million and $3.6 million compared to the same periods in the prior year, including reductions in ORE write-downs of $543,000 and $1.9 million for the same periods. ORE expenses, excluding write-downs, have decreased as dispositions of ORE continue at a faster rate than new foreclosures. The decrease in ORE expenses for the year was partially offset by increases in insurance expense and advertising expense of $785,000 and $659,000, respectively, compared to 2013.

On a linked-quarter basis, noninterest expense increased by $0.9 million, or 2.6%, which was primarily attributable to a 5.3% increase in salaries and benefits.