Fidelity Southern Corporation Reports Expected Loss

PRNewswire-FirstCall/ -- Fidelity Southern Corporation ("Fidelity" or "the Company") (NASDAQ:LION) , holding Company for Fidelity Bank, reported as expected a net loss of $4,875,000 for the third quarter of 2008 compared to net income of $1,679,000 for the same quarter of 2007. Basic and diluted loss per share for the third quarter of 2008 were $.52 compared to earnings per share of $.18 for the same period in 2007. Net loss for the first nine months of 2008 was $4,667,000 compared to net income of $6,313,000 for the same period in 2007. Basic and diluted loss per share for the first nine months of 2008 were $.50 compared to earnings per share of $.68 for the same period in 2007. Fidelity reported an increase in its loan loss provision of $8,600,000 in the quarter ended September 30, 2008 compared to the same period in 2007. The allowance for loan losses increased to $26,023,000 or 1.83% of total loans at September 30, 2008. OREO increased to $16,668,000 at that same date. Net charge-offs for the quarter were $7,897,000. Total risk based capital ratios improved in the Bank to 10.45% at September 30, 2008 from 10.35% at June 30, 2008 and 10.29% at December 31, 2007.

Chairman James B. Miller, Jr. said, "Capital and liquidity and the diversity of our portfolio continue to be the strength of our Company. We continue to make loans even in this troubling credit environment. We will take care of our customers."

President, H. Palmer Proctor, Jr. said, "Our branches are opening an increasing number of accounts. Our ability to gather deposits continues to be remarkable as customers continue to show confidence in the Bank."

Significant developments in the quarter and the first nine months of 2008 included:

-- Net interest income grew 2.13% over the first nine months of 2007.
-- Cost of funds decreased 114 basis points to 3.68% and 90 basis points
to 3.92% for the third quarter and nine months ended September 30,
2008, respectively, compared to the same periods in 2007 as a result of
moderate deposit pricing.
-- Personnel expenses were down 3.16% for the third quarter of 2008
compared to the same period in 2007.
-- Total assets decreased 1.07% in the quarter to $1.760 billion.
-- Our Totally Free checking account product increased 29% this year
through September.
-- Remote deposit volume grew to 33.82% of all deposits.
-- Loan reserves substantially increased to 1.83% of loans from 1.10% at
September 30, 2007, 1.19% at December 31, 2007, and 1.56% at June 30,
2008. The increase was $3.5 million over the second quarter of 2008
and $10.9 million greater than reserves at September 30, 2007.
Provision for loan losses was $11.4 million and $21.9 million for the
third quarter and first nine months of 2008, respectively, compared to
$2.8 million and $5.0 million for the same periods in 2007.
-- Net charge-offs increased to $7.9 million in the third quarter from
$2.4 million in the second quarter of 2008.
-- The ratio of net charge-offs to average loans outstanding was 1.16% for
the first nine months of 2008 compared to .39% for the same period in
2007.
-- Nonperforming loans, repossessions and other real estate totaled $91.4
million at the end of the third quarter, an increase of $34.1 million
in the quarter.
-- During the quarter, $2.4 million of ORE assets were sold while $8.2
million was added to ORE net of $559,000 in charge-downs. ORE consists
of 53 houses, representing 58.6% of total balances, and 126 lots and
one commercial property.
-- New residential construction loan advances made during the quarter
totaled $3.1 million, while the payoffs of construction loans totaled
$28.5 million. There are 559 houses and 1,936 lots financed at
September 30, 2008, compared to 1,138 houses and 2,220 lots at
September 30, 2007.
-- Nonperforming residential construction and development loans at
September 30, 2008, included 157 houses and 411 lots and land totaling
approximately $67.4 million. During the quarter approximately $1.2
million of nonperforming loans were paid down by our customers while
approximately $41.5 million in loans were moved to nonperforming.



The decrease in net income for both the third quarter and nine month periods in 2008 compared to the prior year was primarily the result of a higher provision for loan losses due to higher charge-offs and adverse credit trends in the real estate construction and to a degree in consumer loan portfolios requiring an increase in the allowance for loan losses.

Net interest income for the third quarter decreased $81,000 or .67% over the same period in 2007. Net interest income for the first nine months of 2008 increased $744,000 or 2.13% when compared to the same period in 2007. The decrease in the third quarter compared to the prior year is a result of lower margins resulting from reductions in the prime rate and higher nonperforming assets. The increase for the year to date was primarily a result of higher average interest-earning assets. The net interest margin decreased nine basis points to 2.86% in the third quarter compared to 2.95% in the second quarter of 2008. The net interest margin decreased 23 basis points in the third quarter of 2008 when compared to the same period in 2007. The net interest margin decreased 14 basis points to 2.92% for the first nine months of 2008 compared to the same period in 2007. The decline in net interest margin in the third quarter and first nine months of 2008 was due primarily to reductions in the prime rate and foregone interest due to an increase in nonperforming loans.

Total interest income for the third quarter and first nine months of 2008 decreased $3.0 million and $5.1 million, or 10.24% and 5.96%, respectively, compared to the same periods in 2007. The decreases in interest income for the third quarter and first nine months of 2008 were the result of a decrease of 121 basis points and 91 basis points in the yield on average interest- earning assets, respectively, offset in part by the growth in average interest-earning assets, which increased $118.1 million and $108.9 million or 7.6% and 7.1%, respectively.

Interest expense for the third quarter and first nine months of 2008 decreased $2.9 million and $5.8 million, or 17.0% and 11.6%, respectively, compared to the same periods in 2007. The decreases in interest expense for the third quarter and first nine months of 2008 were attributable to an increase in average interest-bearing liabilities of $124.5 million and $116.8 million, respectively, more than offset by a 114 basis point and 90 basis point decrease in the cost of interest-bearing liabilities, respectively.

The provision for loan losses for the third quarter and first nine months of 2008 was $11.4 million and $21.9 million, respectively, compared to $2.8 million and $5.0 million for the same periods in 2007, due to increased charge-offs and adverse credit trends in the construction loan portfolio and in the consumer loan portfolio. Net charge-offs increased $6.1 million and $8.4 million to $7.9 million and $12.4 million for the third quarter and first nine months of 2008 when compared to the same periods in 2007. The allowance for loan losses as a percentage of loans increased from 1.19% at December 31, 2007, to 1.83% at September 30, 2008, compared to 1.10% at September 30, 2007. Nonperforming assets increased to $91.4 million at the end of the third quarter of 2008 compared to $13.8 million at the end of the third quarter of 2007 and $24.2 million at the end of 2007. Management believes it has identified and placed on nonaccrual, charged down, and charged off these nonperforming assets timely and appropriately.

Noninterest income decreased $944,000 and 19.7% to $3.9 million in the third quarter of 2008 compared to the same period in 2007. This decrease in noninterest income was a result of lower SBA lending activities which decreased $351,000 or 47.6% to $387,000 and decreased indirect lending revenues of $281,000 or 20.5% to $1.1 million. Both the SBA lending activity and indirect lending revenues were hindered by the lack of liquidity in the economy resulting in fewer sales and lower gains on sales. Noninterest income increased $287,000 or 2.1% to $13.9 million in the first nine months of 2008 compared to the same period in 2007, due to the $1.3 million securities gain in the first quarter of 2008 from the mandatory redemption of 29,267 shares of Visa, Inc. common stock as a result of its initial public offering in March 2008. This increase was somewhat offset by a decrease in SBA lending revenues of $788,000, or 40.37%, to $1.2 million during the first nine months of 2008 when compared to the same period last year. The decrease is a result of a reduction in loans sold from $30.3 million for the nine months ended September 2007 to $18.1 million for the same period in 2008.

Noninterest expense for the third quarter and first nine months of 2008 increased $743,000 and $1.7 million, or 6.3% and 4.8%, to $12.6 million and $36.4 million, respectively compared to the same periods in 2007. The increase for the third quarter of 2008 is a result of ORE write-downs and related expenses which increased to $806,000 in the third quarter of 2008 compared to none for the same period in 2007. In addition, the Bank recorded a charge of $360,000 pre-tax for its estimated proportional share of a settlement of the Visa litigation with Discovery Financial Services which was settled in October, 2008. Fidelity, as a member bank of Visa, is obligated for its proportional share of litigation and legal expenses. These increases were somewhat offset by lower salaries and benefits of 3.2% quarter to quarter and advertising and promotion expense decreasing. The increase for the first nine months of 2008 is a result of ORE write-downs and related expenses which increased to $2.0 million for the first nine months of 2008 compared to none for the same period in 2007. The Visa related accrual discussed above also contributed to the higher expense. Salaries and benefits expense increased $324,000 or 1.7% to $19.6 million compared to the same period in 2007, due to the addition of seasoned loan production employees, and staff for the three branches opened in 2007. The increase in noninterest expense for the first nine months of 2008 was partially offset by the reversal of the fourth quarter 2007 Visa litigation expense accrual of $567,000 as the result of the Visa funding of a litigation escrow account through its initial public offering in March 2008. There were also reductions in advertising and promotion, and stationery, printing and supplies as a result of cost cutting measures implemented by management.

Fidelity Southern Corporation, through its operating subsidiaries Fidelity Bank and LionMark Insurance Company, provides banking services and credit related insurance products through 23 branches in Atlanta, Georgia, a branch in Jacksonville, Florida, and an insurance office in Atlanta, Georgia. SBA loans are provided through employees located throughout the Southeast. For additional information about Fidelity's products and services, please visit the website 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 some factors that may cause such forward-looking statements to differ materially from actual results, please refer to the section entitled "Forward Looking Statements" on page 3 of Fidelity Southern Corporation's 2007 Annual Report filed on Form 10-K with the Securities and Exchange Commission.

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