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

KEY RESULTS

• Net income of $12.5 million and $23.1 million, or $0.54 and $1.00 per diluted share, for the quarter and six months ended June 30
• Total revenue was $64.2 million for the quarter, an increase of $5.7 million, or 9.7%, compared to the prior quarter, and $14.8 million, or 30.0%, year over year
• Mortgage banking income was $24.6 million for the quarter, an increase of $3.3 million, or 15.5%, and $11.0 million, or 81.4%, year over year
• Return on average assets of 1.55% and 1.48% for the quarter and six months ended June 30, 2015, respectively
• Return of average equity of 17.97% and 17.11% for the quarter and six months ended June 30, 2015, respectively
• Tangible book value of $12.70 per share increased by $1.04, or 8.92%, year over year
• Loan portfolio increased by $162.3 million, or 6.0%, during the quarter and $577.1 million, or 25.0%, year over year, to $2.9 billion
• Loan servicing portfolio grew by $391.7 million, or 5.7%, during the quarter and $1.5 billion, or 26.3%, year over year, to $7.3 billion
• Total deposits increased by $413.8 million, or 18.6%, year over year, to $2.6 billion

Fidelity's Chairman, Jim Miller, said, "Mortgage and indirect are performing well.  We also intend to continue to build out our lending to businesses and have promoted Darren Davis to head the SBA department.   Also, both Georgia and Florida will add bankers for the C & I lending teams. We continue to evaluate acquisition opportunities to see if there is a financial and cultural benefit to be gained by all parties and will act when that is the case." 

BALANCE SHEET

Total assets at June 30, 2015, grew to $3.4 billion, an increase of $169.6 million, or 5.3%, compared to March 31, 2015, and $637.3 million, or 23.3%, compared to June 30, 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 June 30, 2015, grew to $2.4 billion, an increase of $93.6 million, or 4.0%, compared to March 31, 2015, and $442.5 million, or 22.5%, compared to June 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 $30.9 million and $284.9 million, or 2.5% and 28.6%, respectively, and mortgage loans increased by $35.4 million and $129.7 million, or 13.5% and 77.0%, respectively, compared to March 31, 2015 and June 30, 2014.

Construction loans increased by $12.3 million and $32.9 million, or 9.2% and 28.9%, respectively, compared to March 31, 2015 and June 30, 2014, primarily due to expansion into the Savannah, Orlando, and Birmingham markets in addition to organic growth in existing markets. 

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

Deposits

Total deposits at June 30, 2015, of $2.6 billion were relatively flat compared to March 31, 2015, and increased $413.8 million, or 18.6%, compared to June 30, 2014. 

The year over year net increase occurred primarily due to organic growth of $204.8 million, mainly in noninterest bearing deposits, which increased $60.4 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. These increases were partially offset by a decrease in savings deposits of $14.9 million, or 4.7%, compared to June 30, 2014. 

Average core deposits, including noninterest-bearing demand deposits, grew by $67.3 million, or 3.9%, during the quarter and $251.8 million, or 16.3%, year over year, particularly in commercial accounts and assumption of deposits discussed above. Noninterest-bearing demand deposits increased to 24.8% of total average deposits for the quarter compared to 23.9% at March 31, 2015, and 24.4% at June 30, 2014.

Time deposits increased by $25.9 million, or 3.2%, during the quarter and $197.8 million, or 30.7%, 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 $60.2 million increase in brokered deposits generally used to fund loan growth. The remaining increase is due to Fidelity increasing marketing efforts on longer term time deposits in anticipation of future rate increases. 

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

Borrowings

Other borrowings increased by $102.5 million, or 51.0%, during the quarter and $115.7 million, or 61.6%, year over year. The increase for both periods occurred primarily to fund growth in loans noted above. 

Subordinated debt increased by $74.0 million during the quarter and 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 $27.5 million and $54.0 million for the quarter and six months ended June 30, 2015, respectively, an increase of $1.5 million and $4.9 million, or 5.6% and 9.9%, respectively, as compared to the same periods in 2014. The increase was primarily due to a year over year increase in average loans of $592.0 million, or 27.8%, mainly in the indirect and mortgage portfolios, partially offset by a decrease in the yield on loans of 55 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 $1.0 million, primarily due to a $121.6 million increase in average loans, partially offset by a decrease of 5 basis points in the yield on total loans.

Interest Expense

Interest expense was $3.5 million and $6.4 million for the quarter and six months ended June 30, 2015, an increase of $828,000 and $966,000, or 31.0% and 17.6%, respectively, as compared to the same periods in 2014. These increases occurred primarily due to an increase in average other borrowings of $131.1 million and $148.5 million for the quarter and six months ended June 30, 2015, compared to the same periods in 2014, used to fund growth in average loans.

On a linked-quarter basis, interest expense increased by $557,000, or 18.9%, primarily due to the issuance of $75.0 million in subordinated notes during May 2015.

Net Interest Margin

The net interest margin was 3.24% and 3.30% for the quarter and six months ended June 30, 2015, compared to 3.91% and 3.74% 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.

On a linked-quarter basis, the net interest margin decreased by 11 basis points, primarily due to a decrease of 5 basis points in the yield on total loans and an increase of 119 basis points in the cost of subordinated debt. 

Noninterest Income

Noninterest income was $36.7 million and $68.7 million for the quarter and six months ended June 30, 2015, an increase of $13.4 million and $26.0 million, or 57.4% and 61.0%, respectively, as compared to the same periods 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 $11.0 million and $21.8 million for the quarter and year to date, respectively, as gains on mortgage loan sales were $6.1 million and $17.9 million higher, respectively, for the quarter and year to date. Fidelity took advantage of the nationwide refinance surge during the first quarter while continuing to grow the purchase money mortgage business year over year. Mortgage loan production for the quarter increased $227.0 million, or 40.4%, to $788.4 million while mortgage loan sales increased $219.6 million, or 49.2%, to $446.2 million year over year. Mortgage loan servicing revenue increased by $764,000 and $1.4 million to $3.8 million and $7.4 million for the quarter and year to date, respectively, as compared to the same periods in 2014, as the servicing portfolio grew to $5.9 billion at June 30, 2015. 

Noninterest income from indirect lending activities was $5.0 million and $11.0 million for the quarter and six months ended June 30, 2015, an increase of $1.4 million and $2.7 million, respectively, as compared to the same periods in 2014. Gains on sales of indirect loans increased by $1.1 million and $1.8 million for the quarter and six months ended June 30, 2015, respectively, compared to the same periods in 2014. Indirect servicing fee income increased as well, with an increase of $559,000 and $1.1 million for the quarter and six months compared to the same periods in 2014, as the servicing portfolio grew to $1.1 billion at June 30, 2015. 

On a linked-quarter basis, noninterest income increased by $4.7 million, or 14.5%, primarily attributable to an increase in income from mortgage banking activities of $3.3 million. This increase occurred primarily due to a favorable mortgage servicing rights impairment recovery of $5.1 million, offset by a decreased gain on sale of mortgage loans of $2.6 million. Decrease in gain on sale of mortgage loans primarily attributable to a $5.1 million decline in mark to market adjustments on mortgage loans held for sale, partially offset by an increased volume of sales during the quarter. Gain on sale of other real estate also increased by $1.4 million on a linked quarter basis, primarily due to favorable resolution on two properties sold during the quarter. See "Analysis of Mortgage Lending" tables below.

Noninterest Expense

Noninterest expense was $41.2 million and $79.8 million for the quarter and six months ended June 30, 2015, an increase of $7.4 million and $13.4 million, or 22.0% and 20.2%, respectively, as compared to the same periods in 2014. 

Salaries and benefits expense increased due to the continued growth in employees and locations and the associated administrative support functions as the Company continues to grow. Quarterly salaries and benefits increased by $3.7 million, or 23.1%, year over year, while year to date salaries and benefits increased by $6.4 million, or 20.1%, year over year.

Commissions expense for the quarter and six months ended June 30, 2015 increased by $2.2 million and $4.9 million, or 38.9% and 53.7%, compared to the same periods in 2014. This increase corresponds to the growth in mortgage loan production and sales compared to the same periods in 2014. 

Other noninterest expense for the quarter and six months ended June 30, 2015 increased by $1.3 million and $985,000, or 17.1% and 5.7%, compared to the same periods in 2014. This increase was primarily attributable to higher lending related expenses due to increase in mortgage and indirect loan production volume compared to the same periods in 2014. 

On a linked-quarter basis, noninterest expense increased by $2.5 million, or 6.5%, primarily due to an $846,000 increase in salaries and benefits and a $1.6 million increase in commissions.