Fidelity Southern Corporation Earns $4.5 Million In First Quarter

ATLANTA, April 21, 2016 /PRNewswire/ -- Fidelity Southern Corporation ("Fidelity" or the "Company") (NASDAQ: LION), holding company for Fidelity Bank (the "Bank"), today reported financial results for the quarter ended March 31, 2016.

KEY RESULTS

• Net income of $4.5 million, or $0.18 per diluted share; net income per diluted share of $0.33 excluding merger-related costs of approximately $1.1 million and non-cash mortgage servicing rights impairment of $4.7 million
• Net interest margin increased by 2 basis points to 3.25%
• Total assets increased by $252.4 million, or 6.6%, to $4.1 billion
• Loan portfolio increased by $194.7 million, or 5.9%, to $3.5 billion
• Loans serviced for others grew by $303.1 million, or 3.8%, to $8.3 billion
• Total deposits increased by $241.9 million or 7.6%, to $3.4 billion
• On March 1, 2016, the Company completed its merger with American Enterprise Bank of Florida, adding approximately $208.8 million in assets, $146.9 million in loans, $181.8 million in deposits, and two branches in the Jacksonville, Florida market

Fidelity's Chairman, Jim Miller, said, "We are pleased with our core results but not pleased with reported earnings which have been negatively impacted from valuation adjustments related to fluctuations in longer-term interest rates and merger related conversion costs. The systems conversion of The Bank of Georgia was completed this quarter and we have begun the integration of the American Enterprise Bank.  The expected cost saves from these transactions will be aggressively phased in."

BALANCE SHEET
Total assets grew to $4.1 billion at March 31, 2016, an increase of $252.4 million, or 6.6%, and $896.2 million, or 28.0%, during the quarter and year over year, respectively. These increases are primarily attributable to acquisitions, as well as organic loan growth.

On March 1, 2016, the Company completed its stock purchase of American Enterprise Bankshares, Inc. ("AEB"), the holding company for American Enterprise Bank of Florida, headquartered in Jacksonville, Florida. The Company acquired all of the common stock of AEB for approximately $22 million. AEB shareholders received 0.299 shares of Fidelity common stock for each share of AEB common stock, resulting in the issuance of 1,470,068 shares of Fidelity common stock. With this acquisition, the Company added approximately $208.8 million in assets, $146.9 million in loans, $1.3 million in core deposit intangible, $7.7 million in premises and equipment, $4.8 million in goodwill, $181.8 million in deposits, and two retail branches.

On October 2, 2015, the Bank acquired substantially all the assets and liabilities of The Bank of Georgia in a Purchase and Assumption agreement with the FDIC. With this acquisition, the Bank expanded its retail branch footprint by seven retail branches located in Coweta and Fayette counties, both of which are suburbs of Atlanta. The Bank received $266.4 million in deposits, $144.8 million in loans, $2.2 million in core deposit intangible, $9.0 million in premises and equipment, and $6.4 million in other real estate.

On September 11, 2015, the Bank acquired eight branches from First Bank, a Missouri bank, in the Sarasota-Bradenton, Florida area with total deposits of $151.1 million and loans of $29.7 million.

The Company accounts for its acquisitions as business combinations. As such, the purchase price for each acquisition has been allocated to the fair value of the assets acquired and liabilities assumed as of the acquisition date. Fair values are subject to refinement for up to one year after the closing date of each acquisition.

Loans
Total loans held for investment grew to $3.1 billion at March 31, 2016, an increase of $195.7 million and $775.1 million, or 6.8% and 33.4%, during the quarter and year over year, respectively. These increases were primarily the result of acquisitions and organic growth. Organic loan growth was $48.3 million during the quarter and $453.8 million year over year as the Bank continued to generate new business and leverage its expansion through acquisitions. The loan portfolio also increased due to the Bank's acquisition of $146.9 million and $321.3 million in loans during the quarter and year over year, respectively.

Commercial loans increased by $93.8 million and $278.0 million, or 13.3% and 53.6%, during the quarter and year over year, respectively. For the quarter, $13.2 million of the increase was related to organic growth, with the remaining $80.6 million added as part of the AEB acquisition. Year over year, $78.0 million of the increase in the commercial portfolio was related to organic growth, with $200.1 million added as the result of acquisitions.

Consumer loans, including indirect automobile and installment loans, grew by $38.0 million and $238.3 million, or 2.6% and 18.9%, during the quarter and year over year, respectively. For the quarter, $32.2 million of the increase was related to organic growth with the remaining $5.9 million added as part of the AEB acquisition. Year over year, $230.5 million of the increase was related to organic growth, with $7.8 million added as the result of acquisitions. The majority of the organic growth occurred in the indirect automobile portfolio as a result of continued expansion in the auto loan market.

Mortgage loans, including first mortgages and home equity lines of credit, increased by $39.6 million and $194.1 million, or 9.5% and 73.9%, for the quarter and year over year, respectively. The majority of the increase for the quarter occurred as a result of the AEB acquisition, while year over year, $118.3 million of the increase occurred due to organic growth. The primary driver of organic loan growth in the mortgage portfolio was the Bank's increased focus on portfolio lending as staff have been added and sales efforts were increased on products to grow the mortgage portfolio.

Servicing rights decreased slightly during the quarter to $82.9 million and increased by $14.7 million, or 21.6%, year over year. For the quarter, a much larger than usual mortgage servicing rights impairment charge of $4.7 million was recorded to reflect lower average market interest rates and subsequently higher prepayment speeds due to the volatile interest rate environment and uncertain global economic conditions. Year over year, gross servicing rights continued to increase as residential mortgage, SBA, and indirect loan sales remained strong.

Deposits
Total deposits at March 31, 2016, of $3.4 billion increased $241.9 million and $768.6 million, or 7.6% and 29.0%, during the quarter and year over year, respectively. These increases were primarily the result of acquisitions of $181.8 million and $599.3 million in deposits during the quarter and year over year, respectively.

The majority of the increase occurred in noninterest bearing demand deposits which increased by $98.5 million and $178.6 million, or 12.5% and 25.3%, during the quarter and year over year, respectively. For the quarter, $34.2 million of the increase was related to organic growth, with the remaining $64.3 million added as part of the AEB acquisition. Year over year, $29.5 million of the increase was related to organic growth, with $149.2 million added as the result of acquisitions. During 2016, the Bank continued its marketing program, increasing the number of demand deposit accounts.

Money market deposits grew by $96.7 million and $194.4 million, or 14.9% and 35.4%, during the quarter and year over year, respectively. For the quarter, $42.6 million of the increase was related to organic growth with the remaining $54.1 million added as part of the AEB acquisition. Year over year, $56.9 million of the increase was related to organic growth, with $137.5 million added as the result of acquisitions.

Average core deposits, including noninterest-bearing demand deposits, grew by $329.8 million and $468.7 million, or 17.7% and 27.1%, during the quarter and year over year, respectively, particularly in commercial accounts and through the acquisition of branch deposits discussed above.

Borrowings
Other borrowings decreased by $20.5 million, and $11.7 million or 9.8% and 5.8%, during the quarter and year over year, respectively, as a result of fluctuations in short-term liquidity needs which the Bank manages through short-term FHLB advances and Fed funds purchased. In addition, the $116.0 million in cash from the deposits acquired from First Bank in September 2015 was used to decrease other borrowings.

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 acquisitions.

INCOME STATEMENT
Interest Income
Interest income was $34.3 million for the quarter, an increase of $7.8 million or 29.5%, as compared to the same period in 2015. The majority of the increase occurred due to the year over year increase of $775.1 million, or 33.4%, in loans held for investment. Of this amount, $453.8 million resulted from year over year organic growth and $321.3 million was added as the result of acquisitions, including $146.9 million added during the quarter from the AEB acquisition. These increases resulted in a year over year increase in average loans of $714.1 million, or 26.9%, while the yield on loans (including the accretable discount earned on acquired loans) increased by 6 basis points. Excluding the accretable discount recorded during the quarter, the yield on loans decreased by 10 basis points as compared to the same period last year as new loans, on average, were originated at lower yields over the previous twelve months.

On a linked-quarter basis, interest income increased by $1.2 million due to the increase in average loans during the quarter of $184.5 million, or 5.8%. Excluding the accretable discount recorded during the quarter, the yield on loans decreased by 17 basis points, mainly in the indirect automobile and mortgage portfolios.

Interest Expense
Interest expense was $5.0 million for the quarter, an increase of $2.1 million, or 69.7%, as compared to the same period in 2015, primarily due to the issuance of $75.0 million in subordinated debt in May of 2015. The subordinated debt bears interest at a fixed rate of 5.875%, which resulted in an additional $1.1 million in expense for the quarter as compared to the same period in the prior year.

The majority of the remaining $1 million increase in interest expense for the quarter occurred due to the year over year increase of $589.9 million, or 30.3%, in interest-bearing deposits. Of this amount, $450.1 million was added as the result of acquisitions, including $117.5 million added during the quarter from the AEB acquisition. The remaining $139.8 million in growth in interest-bearing deposits resulted from year over year organic growth.

On a linked-quarter basis, interest expense was flat, increasing by only $101,000, or 2.1%, as the increase in expense due to the growth in average interest bearing deposits of $41.1 million during the quarter was almost completely offset by a reduction in expense caused by a slight decrease of 1 basis point in the average rate.

Provision for Loan Losses
The provision for loan losses was $0.5 million for the quarter, an increase of $392,000, as compared to the same period in 2015. Asset quality remained strong and the trend in historical net charge-offs continued to be low. Net loan recoveries were recorded during the quarter while the loan portfolio held for investment experienced organic growth of $48.3 million.

On a linked-quarter basis, the provision for loan losses decreased by $2.6 million, mainly as a result of net charge-offs of specific reserves in the commercial portfolio in the fourth quarter.

Net Interest Margin
The net interest margin was 3.25% for the quarter, a decrease of 10 basis points as compared to 3.35% for the same period in 2015. The decrease was primarily attributable to an increase of 18 basis points in the cost of funds on the $2.8 billion in interest-bearing liabilities due to the $75 million subordinated debt issuance in May 2015. The increased funding cost was partially offset by an increase of 3 basis points in the yield on the $3.6 billion of earning assets. Excluding accretable discount recorded during the quarter, the net interest margin was 3.06%, or a decrease of 26 basis points compared to the same period in the prior year, due to the increased funding cost described above and a decrease in the yield on earning assets as new loans, on average, were originated at lower yields over the previous twelve months.

Although the net interest margin decreased year over year, net interest income (tax equivalent) rose to $29.4 million for the quarter, or 24.3%, as compared to $23.6 million for the same period in 2015. The increase in net interest income was primarily due to an increase of 27.3% in interest earning assets for the quarter compared to the same period in 2015, due to a combination of organic growth and acquisitions previously described.

On a linked-quarter basis, the net interest margin decreased by 2 basis points. Excluding the accretable discount recorded during the quarter, the net interest margin decreased by 15 basis points due to the decreasing trend in loan yields described above.

Noninterest Income
Noninterest income was $24.9 million for the quarter, a decrease of $7.2 million, or 22.3%, as compared to the same period in 2015, primarily due to a decrease in income from mortgage banking activities of $6.6 million. The decrease in mortgage banking income for the quarter was mostly attributable to a decrease in gains on loan sales and a higher impairment charge on mortgage servicing rights, partially offset by increased loan servicing revenue.

Gains on mortgage loan sales decreased by $4.6 million for the quarter compared to the same period in 2015, primarily due to decreased refi production volume year over year. In addition, production margins in 2016 were lower in comparison to the same period in 2015, primarily due to competition and changing product mix. Refinance volume made up approximately 28.5% of total production of $570.7 million for the quarter, as compared to 41.2% of total production of $613.0 million for the same period in 2015. Higher prior year refinance volume was primarily driven by changes to the FHA insurance program which caused a large population of borrowers to be eligible for savings from refinancing. Lower refinance volume in 2016 resulted in slightly lower mortgage loan sales of $547.6 million for the quarter, as compared to $552.1 million for the same period in the prior year. Gross purchase mortgage volume for the quarter was strong, increasing to approximately $407.0 million from $332.5 million, as compared to the same period in 2015.

Impairment on mortgage servicing rights for the quarter increased by $2.2 million to $4.7 million, as compared to the charge of $2.5 million recorded during the same period in 2015. As previously described, higher impairment of mortgage servicing rights for the quarter occurred due to higher projected prepayment speeds caused by lower average market interest rates.

Mortgage loan servicing revenue increased by $846,000 for the quarter to $4.5 million as compared to the same period in 2015 due to the increase in the portfolio of loans serviced for others to $6.9 billion.

On a linked-quarter basis, noninterest income decreased by $3.8 million, or 13.2%, primarily due to a decrease in income from mortgage banking activities of $4.1 million, which was driven by higher servicing rights impairment as compared to the fourth quarter of 2015. Impairment of mortgage servicing rights was $4.7 million for the quarter, an increase of $3.7 million as compared to the $1.0 million in impairment booked in the fourth quarter of 2015. Mortgage loan production income was fairly consistent with the fourth quarter result as mortgage loan production and sales remained steady in comparison to the linked quarter, posting increases of $2.9 million and $26.9 million, respectively.

Noninterest Expense
Noninterest expense was $46.6 million for the quarter, an increase of $7.9 million, or 20.5%, as compared to the same period in 2015. The increase in noninterest expense for the quarter was mostly attributable to an increase in expenses associated with acquisitions as well as organic growth. Noncontinuing acquisition costs of approximately $1.1 million were included in the quarter, with nominal acquisition costs for the same period in 2015.

Increases of $4.7 million, or 19.9%, in salaries, benefits and commissions; $902,000, or 25.9%, in occupancy expense and $2.2 million, or 23.5%; in other noninterest expense were recorded as compared to the same period in 2015.

Salaries and benefits for the quarter included approximately $525,000 in staffing costs related to the conversions of The Bank of Georgia and AEB acquisitions. In late March 2016, the system conversion of the October 2015 FDIC-assisted acquisition of The Bank of Georgia was completed. Also included in the increase in salaries and benefits is $1.1 million related to employer taxes and employee benefits, the majority of which resulted from an increase in medical premiums, representing an increase in both number of employees and the increased cost of employer-paid benefits. Additional increases in salaries and benefits include compensation expense related to employee bonus and incentive of $353,000 and expense relating to employee stock plans of $672,000, representing a larger number of officers receiving options during the quarter and greater compensation expense due to a higher market price compared to prior year grants.

On a linked-quarter basis, noninterest expense increased by $3.3 million, or 7.7%, primarily due to a $3.0 million increase in salaries, benefits and commissions, along with an increase of $541,000 in occupancy costs. The increase in salaries and benefits were primarily due to the increased employee benefits costs of $2.1 million described above, and $672,000 for the full cost of the annual tax wage base for each employee including the year over year increase of 129 employees. Also included in noninterest expense for the quarter was one month of acquisition costs from the AEB transaction closed on March 1, 2016. Noninterest expense for the quarter continued to be elevated as the final stage of The Bank of Georgia system conversion was completed in late March 2016 and planning began for the AEB conversion.

ABOUT FIDELITY SOUTHERN CORPORATION
Fidelity Southern Corporation, through its operating subsidiaries, Fidelity Bank and LionMark Insurance Company, provides banking services and trust and wealth management services and credit-related insurance products through branches in Georgia and Florida, and an insurance office in Atlanta, Georgia. SBA, indirect automobile, and mortgage loans are provided throughout the South. For additional information about Fidelity's products and services, please visit the web site at www.FidelitySouthern.com.

This news release contains forward-looking statements, as defined by Federal Securities Laws, including statements about financial outlook and business environment. These statements are provided to assist in the understanding of future financial performance and such performance involves risks and uncertainties that may cause actual results to differ materially from those in such statements. Any such statements are based on current expectations and involve a number of risks and uncertainties. For a discussion of factors that may cause such forward-looking statements to differ materially from actual results, please refer to the section entitled "Forward Looking Statements" from Fidelity Southern Corporation's 2015 Annual Report filed on Form 10-K with the Securities and Exchange Commission. Additional information and other factors that could affect future financial results are included in Fidelity's filings with the Securities and Exchange Commission.

Contacts:    Martha Fleming, Steve Brolly
                  Fidelity Southern Corporation (404) 240-1504