Fidelity Southern Corp. is on the mend.
With nonperforming assets declining and two consecutive profitable quarters under its belt, the Atlanta company is planning for a year of black ink.
"We are counting on good earnings this year to do some dramatic things for us," James B. Miller Jr., Fidelity Southern's chairman, said in an interview. "The last two quarters we have seen earnings power grow nicely. We think it will continue to do that this year."
Its third-party auto lending has helped the $1.9 billion-asset company heal faster than other banks in the hard-hit region. It also has benefited from moving foreclosed lots off its balance sheet by making construction loans to builders who build on the lots.
Atlanta has been one of the most troubled real estate markets in the country. Property values have plummeted in recent years, leaving many community banks reeling from an abundance of soured construction loans.
But Fidelity Southern was not hurt as badly as other banks in the region because it was less dependent on brokered deposits or construction lending.
"We were criticized roundly for a long time," Miller said. "The indirect car business is profitable, but not as profitable as short-term construction programs. That easy lending was so profitable that it tempted everybody into it."
Frank Schiraldi, an analyst with Sandler O'Neill & Partners LP, said indirect auto lending separated Fidelity Southern from other banks in the area.
"It is a book of business that a lot of analysts and institutional investors snub their nose at, but it served them well, because losses on car loans are better than losses on construction loans," Schiraldi said.
In reporting fourth-quarter earnings last week, Fidelity Southern said its nonperforming assets had steadily declined. At the end of 2008 its nonperforming assets were 7.89% of total assets. By the end of the third quarter that ratio was 7.27%, and it would fall another 84 basis points by yearend.
Fidelity Southern is well capitalized by regulatory standards. It reported a total risk-based capital ratio of 13.44% and a leverage ratio of 9.24%.
Its Fidelity Bank is operating under a memorandum of understanding that the Federal Deposit Insurance Corp. issued in December 2008. The subsidiary is in compliance with a requirement that it maintain an 8% leverage ratio.
But analysts would like to see Fidelity Southern's tangible common equity ratio improve from where it stood at yearend — 4.5%. Miller said Fidelity Southern likely will rely on earnings to build capital until stock valuations improve.
Analysts said Fidelity Southern's reliance on core deposits and its diversified portfolio were instrumental in its swift return to profitability.
"It's a franchise that has high value," said James Schutz, an analyst with Sterne Agee & Leach. "It is one of the few hometown-headquartered banks that has a good deposit franchise. They did a great job with core deposit generation."