Fidelity Southern Corporation, holding company for Fidelity Bank, today reported financial results for the three months and year ended December 31, 2013.

KEY RESULTS

• Earned $3.9 million in fourth quarter and $27.6 million for the year
• Return on Average Assets of 0.61% for the quarter and 1.09% for the year
• Increased Tangible Book Value by $1.51 to $11.00 per share or 15.9%, year over year
• Commercial loan growth for the quarter of 3.5% and 4.2% year over year
• Core deposit growth for the quarter of 5.6% and 8.0% year over year
• Net charge off ratio annualized was 0.06% for the fourth quarter, compared to 0.27% for the third quarter, and 0.81% for the fourth quarter 2012
• Reduction in Nonperforming asset ratio of 43% at 3.93% from 6.88% year over year
• Classified assets decreased $12.4 million or 9.5% for the quarter and $37.8 million or 24.2% for the year
• Funded closed Mortgage production of $425.7 million for the quarter and $2.5 billion for the year

Fidelity's Chairman, Jim Miller, said, "Fourth quarter mortgage  production shadowed a stellar performance of the Bank for the year. Nevertheless, the mortgage numbers  show we have built a solidly profitable mortgage business.  We expanded mortgage into Alabama in the quarter with plans for future growth. We were active in retail branching and in electronic delivery in 2013 and  will be in 2014. Trust powers were applied for in the quarter which will permit us to offer family office  services.  In sum, every area of the bank is performing well, our growth is all organic, and we continue to build for the future."

Asset Quality
The following table provides a comparison of the activity affecting the allowance for loan loss:

The allowance for loan losses at December 31, 2013, was $33.7 million, or 1.78% of total loans, compared to an allowance of $33.3 million, or 1.83% of total loans, at September 30, 2013, and $34.0 million, or 1.92% of total loans, at December 31, 2012.

The following table presents certain credit quality metrics of the Bank's loan portfolio, inclusive of covered loans. Nonperforming assets include nonaccrual loans, net repossessions and other real estate ("ORE"). Classified assets include loans having a risk rating of substandard or worse, both accrual and nonaccrual, net repossessions and other real estate. Classified asset ratio is classified assets as a percentage of Tier 1 capital plus allowance.

ORE, net of reserves, decreased $3.5 million to $31.0 million at December 31, 2013, compared to$34.5 million at September 30, 2013. During the fourth quarter of 2013, $4.8 million of ORE assets were sold while $1.3 million were added.

Nonperforming loans and classified assets have continued to decline due in part to improved credit factors as well as loans moving to ORE and subsequently being sold.

Deposits
Total deposits of $2.2 billion at December 31, 2013, have increased $132.7 million from $2.1 billion as of December 31, 2012, due primarily to a $104.7 million increase in noninterest-bearing demand deposits as the Company continues to focus on core-deposit growth.

NET INTEREST MARGIN
Net interest margin in the fourth quarter of 2013 was 3.59% consistent with the third quarter of 2013 result of 3.59%.  In spite of the four basis point decline in the net interest margin from the fourth quarter of 2012, taxable equivalent net interest income was up $621,000 over the same quarter prior-year and $592,000 when compared to the three months ended September 30, 2013. The improvement is attributable primarily to declining average balances of and rates on interest-bearing liabilities as discussed in more detail in the Interest Expense section below. Excluding the accretion of the loan discount on purchased loans, the net interest margin was 3.53% for the fourth quarter of 2013 compared to 3.53% for the third quarter of 2013 and 3.62% for the fourth quarter of 2012.

Net interest margin was 3.59% for the year ended December 31, 2013, compared to 3.77% for the same period in 2012. Although the net interest margin decreased by eighteen basis points, taxable equivalent net interest income for the year ended December 31, 2013, increased $3.1 million, or 3.8%, to $84.1 million  compared to $81.0 million  for the same period in 2012 aided by a year over year 9.2% increase in average loan balances. Excluding the accretion of the loan discount on purchased loans, the net interest margin was 3.47% for the year ended December 31, 2013, and 3.68% for the same period in 2012.

INTEREST INCOME
Total interest income for the fourth quarter of 2013 decreased a small amount to $23.8 million from$24.3 million compared to the fourth quarter of 2012. In a linked-quarter comparison, interest income decreased $1.2 million largely attributable to a decrease in interest income from decreased loans held for sale production volume during the fourth quarter of 2013 as compared to the fourth quarter of 2012.

For the year ended December 31, 2013, total interest income remained flat at $97.6 million compared to the same period in 2012.

INTEREST EXPENSE
Interest expense for the fourth quarter of 2013 decreased $1.1 million, or 27.5%, compared to the same period in 2012 due to a reduction of $600,000 in subordinated debt expense for the fourth quarter of 2013 from the repayment of $20.5 million in subordinated debt in the third quarter of 2013. On a linked-quarter basis, interest expense decreased $480,000 or 14.1% primarily attributable to a decrease in subordinated debt interest expense of $430,000  from the payoff of $20.5 million of subordinated debt in the third quarter of 2013.

For the year ended December 31, 2013, interest expense decreased $3.1 million, or 18.3%, to $14.0 million compared to $17.1 million for the same period in 2012. The decrease is primarily the result of a reduction in interest expense on time deposits expense of $1.0 million from a reduction in interest rates on time deposits, together with a decrease of $1.5 million in subordinated debt expense due to rate changes and the subordinated debt pay-offs.

NONINTEREST INCOME
For the quarter ended December 31, 2013, noninterest income was $17.8 million compared to $26.2 million in the fourth quarter of 2012. This decrease is primarily attributable to a $7.8 million decrease in noninterest income from mortgage banking activities primarily due to decreased production volume for the fourth  quarter of 2013 compared to the fourth quarter of 2012.

For the year ended December 31, 2013, noninterest income increased $8.9 million, or 10.1%, to $96.9 million compared to $88.0 million for the same period in 2012. The increase is attributable to a $10.2 million increase in noninterest income from mortgage banking activities and a $2.6 million increase in noninterest income from indirect lending net of a slight decrease in other noninterest income of $2.5 million for 2013.

Mortgage Banking Activities

Since long term interest rates began to climb in the second half of 2013, significant contraction in refinance volume has continued to occur as the industry returns to a more normalized seasonal closed loan production model. Closed Mortgage loan fundings were $2.5 billion in 2013 vs. $2.2 billion in 2012 representing a 10% increase which compares favorably to the National Mortgage Bankers Association ("MBA") industry estimate of a 23% decline year over year. 

Furthermore, the MBA expects to see $1.2 trillion in mortgage originations during 2014, a 32% decline from 2013. While the MBA expects purchase originations to increase 9%, it expects refinance originations to fall 57%.  To address the current industry challenges, the Bank's mortgage banking division will continue prudent production mortgage office growth, maintain tight expense controls and continue the focus of maintaining current revenue per loan benchmarks.

Mortgage banking margins were relatively flat for the quarter ended December 31, 2013 or 286 basis points on funded production of $425.7 million, after adjusting for the quarterly MSR  impairment, compared to 285 basis points on funded production of $619.6 million for the previous quarter after adjusting for the prior quarter MSR impairment. Comprehensive revenue and expense measures continue to be made by management to maximize operational efficiency and target margin optimization.

Positive mortgage production trends were evident as new purchase loans (vs. refinances) accounted for 79% of total funded loan production in the fourth quarter of 2013. The Company continues to evaluate opportunities to increase market share and enter new markets where future growth is expected. During the fourth quarter of 2013, new mortgage offices were opened in Alabama, Maryland, and Georgia, with plans for further expansion expected to take place during the first quarter of 2014. The new mortgage offices have key management in place with twelve experienced loan officers hired with more coming soon, and it is anticipated that these locations will make a significant contribution in 2014.

NONINTEREST EXPENSE
Noninterest expense for the fourth quarter of 2013 was $32.5 million compared to $32.7 million for the same period in 2012 and remained relatively flat.  On a linked quarter basis, noninterest expense decreased $1.6 million from $34.1 million for the third quarter of 2013 to $32.5 million for the fourth quarter of 2013 primarily attributable to a decrease in commission expense of $1.7 million from the reduced mortgage production for the fourth quarter of 2013. 

For the year ended December 31, 2013, noninterest expense was $132.3 million compared to $115.4 million for the same period in 2012. The increase is largely attributable to an increase of $9.8 million in salaries and employee benefits and $2.8 million in higher commissions, both due to increased personnel primarily in the mortgage banking business.