Fidelity Southern Corporation, holding company for Fidelity Bank, today reported financial results for the quarter ended March 31, 2015.

KEY RESULTS

• Net income of $10.7 million, or $0.45 per diluted share for the quarter, an increase of $4.6 million, or $0.19 per diluted share, year over year
• Total revenue of $58.5 million for the quarter
• Mortgage banking income of $21.3 million, an increase of $10.7 million, or 101.4%, year over year
• Mortgage production increased $292.2 million, or 91.1%, year over year to $613.0 million for the quarter
• Return on average assets of 1.40% for the quarter 
• Tangible book value of $12.64 per share increased by $1.36, or 12.1%, year over year
• Loan portfolio grew by $64.3 million, or 2.9%, during the quarter and $469.5 million, or 25.4%, year over year, to $2.3 billion
• Loan servicing portfolio increased to $6.9 billion, or 26.6%, year over year
• Total deposit portfolio grew by $194.9 million, or 7.9%, during the quarter and $452.5 million, or 20.6%, year over year, to $2.7 billion

Fidelity's Chairman, Jim Miller, said, "There was a surge in mortgage financing in the first quarter, which we capitalized on. Purchase volume remained a majority of the business. Geographic expansion in the Carolinas and the Mid-Atlantic paid dividends. This means we should, going forward, have mortgage production greater than budgeted, but we don't know if the surge will continue. Based on our numbers across the board, it looks like the recovery is gaining momentum, which bodes well for all lines of business though rates and terms are increasingly challenging. Our partnerships with U.S. Bancorp's Elavon unit for handling merchant services, and with FNB Omaha for credit cards are very promising. Trust is performing as planned. Our strategic moves continue. In Georgia, we have identified two new existing bank branches and will open next month our office on Howell Mill Road. Other moves are pending here and in Florida." 

BALANCE SHEET

Total assets at March 31, 2015, grew to $3.2 billion, an increase of $120.2 million, or 3.9%, compared to December 31, 2014, and $648.5 million, or 25.4%, compared to March 31, 2014. These increases are primarily attributable to an increase in loan production, mainly in indirect and mortgage loans held for investment.

Loans
Total loans held for investment at March 31, 2015, grew to $2.3 billion, an increase of $64.3 million, or 2.9%, compared to December 31, 2014, and $469.5 million, or 25.4%, compared to March 31, 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 $31.8 million and $325.9 million, or 2.6% and 35.2%, respectively, and mortgage loans increased by $24.8 million and $120.7 million, or 10.4% and 85.0%, respectively, compared to December 31, 2014 and March 31, 2014.

Construction loans increased by $10.5 million and $33.0 million, or 8.4% and 32.5%, respectively, compared to December 31, 2014 and March 31, 2014, due to expansion into the Savannah and Birmingham markets in addition to organic growth in our existing markets. 

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

Deposits

Total deposits at March 31, 2015, of $2.7 billion increased by $194.9 million, or 7.9%, compared to December 31, 2014, and $452.5 million, or 20.6%, compared to March 31, 2014. The increase for the quarter is attributable to an increase in noninterest bearing demand deposits, particularly in commercial accounts which increased $106.8 million, and an increase of $26.8 million in time deposits. The year over year increase occurred primarily due to organic growth of $243.4 million, primarily in noninterest bearing deposits, which increased $155.7 million, as well as the assumption of deposits from six branches in Florida during September 2014 of $170.9 million, and assumption of deposits from one branch in Florida during January 2015 of $38.2 million. 

Average core deposits, including noninterest-bearing demand deposits, grew by $53.1 million, or 3.2%, during the quarter and $242.3 million, or 16.3%, year over year, particularly in commercial accounts and assumption of deposits discussed above. Noninterest-bearing demand deposits increased to 24.0% of total average deposits for the quarter compared to 23.5% at December 31, 2014, and 22.2% at March 31, 2014.

Time deposits increased by $26.8 million, or 3.4%, during the quarter and $156.9 million, or 23.8%, year over year. The year over year change occurred primarily due to $88.0 million in time deposits assumed during the third quarter of 2014 and a $62.1 million increase in brokered deposits generally used to fund loan growth. 

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

INCOME STATEMENT

Interest Income
Interest income was $26.5 million for the quarter, an increase of $3.4 million, or 14.7% as compared to the same period in 2014. The increase was primarily due to a year over year increase in average loans of $585.6 million, or 28.3%, primarily in the indirect and mortgage portfolios, partially offset by a decrease in the yield on loans of 41 basis points, as new loans, on average, were originated at lower yields over the previous twelve months. 

On a linked-quarter basis, interest income decreased slightly, primarily due to a decrease of 15 basis points in the yield on total loans, net of a $147.0 million increase in average total loans. 

Interest Expense
Interest expense was $2.9 million for the quarter, an increase of $138,000, or 4.9% as compared to the same period in 2014. The year over year increase occurred primarily due to an increase in average other borrowings of $166.1 million used to fund growth in average loans.

On a linked-quarter basis, interest expense decreased by $73,000, or 2.4%, primarily due to a reduction of 4 basis points in the cost of interest bearing deposits.

Net Interest Margin
The net interest margin was 3.35% for the quarter, compared to 3.55% for the same period 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, partially offset by a slight decrease in deposit yields. 

On a linked-quarter basis, the net interest margin decreased by 12 basis points compared to 3.47% for the prior quarter, primarily due to a decrease of 15 basis points in the yield on total loans, offset by an increased volume of loans for the quarter. 

Noninterest Income
Noninterest income was $32.0 million for the quarter, an increase of $12.7 million , or 65.3%, as compared to the same period in 2014. The increase was primarily related to an increase in gains on the sale of mortgage and indirect loans. Noninterest income from mortgage banking activities increased by $10.7 million for the quarter as gains on mortgage loan sales were $11.8 million higher for the quarter. Fidelity was able to take advantage of the nationwide refinance surge during the quarter while continuing to grow our purchase money mortgage business year over year. Mortgage loan production increased $292.2 million, or 91.1%, to $613.0 million while mortgage loan sales increased $223.9 million, or 68.2%, to $328.1 million year over year. Mortgage loan servicing revenue increased by $641,000 to $3.6 million for the quarter as the servicing portfolio grew to $5.6 billion at March 31, 2015. These increases were partially offset by an increase in mortgage servicing right amortization and impairment adjustment of $2.6 million driven by an increase in prepayment speed assumption. 

Higher gains on indirect loan sales drove $723,000 of the increase in noninterest income from indirect lending activities of $1.3 million for the quarter. Indirect loan sales totaled $219.8 million for the quarter compared to sales of $195.0 million for the same period in the prior year. 

On a linked-quarter basis, noninterest income increased by $7.3 million, or 29.7%, primarily attributable to increases in income from mortgage banking activities and indirect lending activities of $5.8 million and $2.1 million, respectively. These increases occurred primarily due to increased gain on sale of mortgage and indirect loans of $7.7 million and $2.2 million, respectively, from growth in sales of $76.2 million and $97.8 million, respectively. See "Analysis of Indirect Lending" and "Analysis of Mortgage Lending" tables below.

Noninterest Expense
Noninterest expense was $38.6 million for the quarter, an increase of $6.0 million, or 18.3%, as compared to the same period in 2014. 

Salaries and benefits expense has increased 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 $2.7 million, or 17.0%, year over year.

Commissions expense increased $2.7 million, or 77.5%, compared to the same period in 2014. This increase corresponds to the growth in mortgage loan production, which increased $292.2 million or 91.1% compared to the same period in 2014. 

Net occupancy and communication also increased $905,000, or 25.7%, year over year, due to the Bank's continued growth during the period.

On a linked-quarter basis, noninterest expense increased by $2.0 million, or 5.4%, primarily due to an $896,000 increase in salaries and benefits and a $615,000 increase in commissions for the quarter.