<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1997
------------------------------------------
Commission File Number: 0-22374
----------------------------------------------------
Fidelity National Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Georgia 58-1416811
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
3490 Piedmont Road, Suite 1550 Atlanta, GA 30305
- -------------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(404) 639-6500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [x] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Shares Outstanding at July 31, 1997
--------------------------- -----------------------------------
Common Stock, no par value 4,659,892
<PAGE> 2
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
Part I. Financial Information
Item 1 Financial Statements
Consolidated Statements of Condition (unaudited)
June 30, 1997 and December 31, 1996 1
Consolidated Statements of Income (unaudited)
Three Months Ended June 30, 1997 and 1996
Six Months Ended June 30, 1997 and 1996 2
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-11
Part II. Other Information
Item 2 Changes In Securities 12
Item 4 Submission of Matters to a Vote of Security Holders 12
Item 6 Exhibits and Reports on Form 8-K 12
Signature Page 13
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 29,794,789 $ 29,311,690
Interest-bearing deposits with banks 2,800,534 3,300,708
Federal funds sold 12,794,158 343,019
Investment securities available-for-sale 82,675,501 71,230,743
Investment securities held-to-maturity (approximate fair
value of $5,913,000 and $6,161,000 at June 30, 1997, and December
31, 1996, respectively) 6,280,248 6,279,816
Loans held for sale 16,184,111 38,105,868
Loans, net of unearned income 435,964,469 429,283,563
Allowance for loan losses (14,956,013) (16,510,842)
------------- -------------
Loans, net 421,008,456 412,772,721
Premises and equipment, net 20,903,174 19,799,079
Other real estate 2,059,285 566,751
Accrued interest receivable 4,825,338 5,007,876
Other assets 14,041,540 18,702,026
------------- -------------
Total assets $ 613,367,134 $ 605,420,297
============= =============
LIABILITIES
Deposits
Noninterest-bearing demand deposits $ 75,464,903 $ 73,877,369
Interest-bearing deposits:
Demand and money market 85,440,597 78,451,267
Savings 26,973,741 38,867,549
Time deposits, $100,000 and over 83,315,323 86,630,315
Other time deposits 285,835,107 266,886,829
------------- -------------
Total deposits 557,029,671 544,713,329
Short-term borrowings 8,567,374 17,183,769
Long-term debt 16,050,000 16,500,000
Accrued interest payable 3,245,983 3,502,631
Other liabilities 2,129,826 2,447,752
------------- -------------
Total liabilities 587,022,854 584,347,481
SHAREHOLDERS' EQUITY
Preferred Stock, no par value. Authorized 10,000,000 in 1997 and none
in 1996; issued and outstanding 752,000 shares of Non-cumulative
8% Convertible Preferred Stock - Series A, stated value $6.25 in 1997;
none in 1996 4,700,000
Common Stock, no par value. Authorized 50,000,000 shares in 1997 --
and 1996, issued 4,670,183 shares and 4,665,256 shares; and
outstanding 4,659,091 shares and 4,654,164 shares in 1997 and
1996, respectively 11,528,843 11,878,597
Treasury shares, at cost. 11,092 shares in 1997 and 1996 (69,325) (69,325)
Net unrealized gains (losses) on investment securities available-for-sale 142,393 (140,241)
Retained earnings 10,042,369 9,403,785
------------- -------------
Total shareholders' equity 26,344,280 21,072,816
------------- -------------
Total liabilities and shareholders' equity $ 613,367,134 $ 605,420,297
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $28,228,177 $26,175,479 $14,262,799 $13,598,699
Investment securities-taxable 2,371,602 2,365,799 1,156,612 1,265,627
Federal funds sold 215,554 135,535 168,045 96,778
Deposits with other banks 41,620 4,515 23,263 2,357
----------- ----------- ----------- -----------
Total interest income 30,856,953 28,681,328 15,610,719 14,963,461
INTEREST EXPENSE
Deposits 11,877,949 11,453,727 5,975,672 6,191,004
Short-term borrowings 315,515 362,784 76,288 183,903
Long-term debt 756,986 796,860 376,912 401,557
----------- ----------- ----------- -----------
Total interest expense 12,950,450 12,613,371 6,428,872 6,776,464
----------- ----------- ----------- -----------
NET INTEREST INCOME 17,906,503 16,067,957 9,181,847 8,186,997
Provision for loan losses 8,270,000 5,400,000 3,500,000 3,000,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 9,636,503 10,667,957 5,681,847 5,186,997
NONINTEREST INCOME
Service charges on deposit accounts 1,029,753 834,722 514,201 426,938
Credit card fees 1,456,019 1,357,621 785,101 784,318
Mortgage banking activities 3,314,429 3,504,479 791,175 2,264,533
Securities gains, net -- 282,530 -- 195,821
Other 3,015,255 2,500,818 1,490,497 1,353,338
----------- ----------- ----------- -----------
Total noninterest income 8,815,456 8,480,170 3,580,974 5,024,948
NONINTEREST EXPENSE
Salaries and employee benefits 8,473,717 8,180,888 4,004,514 4,333,399
Furniture and equipment 1,075,415 753,903 578,938 377,744
Net occupancy 1,598,920 1,105,384 790,323 562,334
Credit card processing and transaction fees 1,416,330 1,287,675 752,114 670,307
Amortization of mortgage servicing rights 400,751 1,024,021 152,109 441,926
Other 4,522,717 4,274,062 2,493,201 2,234,663
----------- ----------- ----------- -----------
Total noninterest expense 17,487,850 16,625,933 8,771,199 8,620,373
----------- ----------- ----------- -----------
Income before income taxes 964,109 2,522,194 491,622 1,591,572
Income tax expense 317,347 914,262 153,471 586,748
----------- ----------- ----------- -----------
NET INCOME $ 646,762 $ 1,607,932 $ 338,151 $ 1,004,824
=========== =========== =========== ===========
INCOME PER SHARE $ .14 $ .35 $ .07 $ .22
=========== =========== =========== ===========
AVERAGE COMMON SHARES 4,657,057 4,608,383 4,683,548 4,608,383
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1997 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 646,762 $ 1,607,932
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for loan losses 8,270,000 5,400,000
Depreciation and amortization of premises and equipment 873,594 636,460
Amortization of mortgage servicing rights 400,751 1,024,021
Additions of originated mortgage servicing rights (145,500) (587,004)
Other accretion, net (471,148) (694,052)
Securities gains, net -- (282,530)
Gain on loan sales and securitization (94,766) --
Decrease (increase) in loans held-for-sale 21,921,757 (55,073,320)
Net increase (decrease) in accrued interest receivable 182,538 (692,837)
Net (decrease) increase in accrued interest payable (256,648) 471,317
Net decrease (increase) in other assets 4,660,486 (235,355)
Net (decrease) increase in other liabilities (326,104) 1,439,587
------------ -------------
Net cash flows provided by (used in) operating activities 35,661,722 (46,985,781)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities held-to-maturity -- (10,359,729)
Maturities of investment securities held-to-maturity 18,005,000 12,381,291
Sales of investment securities available-for-sale -- 17,982,241
Purchase of investment securities available-for-sale (33,993,058) (42,600,395)
Maturities of investment securities available-for-sale 5,285,270 5,134,406
Loan originations, net of repayments (76,267,496) (66,767,580)
Purchases of premises and equipment (2,162,490) (2,856,064)
Proceeds from sale of loans and equipment 58,270,703 --
Proceeds from sale of other real estate 84,466 53,740
------------ -------------
Net cash flows used in investing activities (30,777,605) (87,032,090)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in demand deposits,
money market accounts, and savings accounts (3,316,944) 17,288,327
Net increase in time deposits 15,633,286 95,541,734
Repayment of long-term debt (150,000) (250,000)
(Decrease) increase in short-term borrowings (8,616,395) 17,230,442
Dividends paid -- (345,626)
Net proceeds from sale of preferred stock 4,000,000 --
------------ -------------
Net cash flows provided by financing activities 7,549,947 129,464,877
------------ -------------
Net increase (decrease) in cash and cash equivalents 12,434,064 (4,552,994)
Cash and cash equivalents, beginning of period 32,955,417 37,359,690
============ =============
Cash and cash equivalents, end of period $ 45,389,481 $ 32,806,696
============ =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Total interest paid $ 13,207,098 $ 11,998,619
============ =============
Total income taxes paid $ - $ 1,005,556
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
FIDELITY NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Fidelity
National Corporation and subsidiaries (the Company) have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation of the financial position and results of operations for the interim
periods have been included. All such adjustments are normal recurring accruals.
Operating results for the three-month and six-month periods ended June 30, 1997,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. These statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Note B - Shareholders' Equity
During the period ended June 30, 1996, the Company declared and paid dividends
on Common Stock totaling $345,626. On June 30, 1997, the Company declared
dividends of $8,178 on its Non-cumulative 8% Convertible Preferred Stock,
Series A, Stated Value $6.25 per share ("Preferred Stock").
Dividends are payable quarterly at the rate of 8% per annum of the stated value,
i.e. $0.125 per share per quarter, when, if and as declared by the Board of
Directors of the Company. Dividends which are not declared or not declared in
full do not cumulate and thus are not payable at a later date. A dividend was
declared and paid on the Preferred Stock outstanding July 1, 1997 for the period
of June 24, 1997 (the date certain shares of Preferred Stock were issued)
through June 30, 1997.
Holders of Preferred Stock shall be entitled to vote on each matter on which
holders of Common Stock are entitled to vote, and shall be entitled to receive
notice of any meeting of the holders of Common Stock, and shall otherwise be
accorded all voting powers and rights of holders of Common Stock. Each share of
Preferred Stock shall have the number of votes equal to the number of shares of
Common Stock into which it is convertible. Whenever the approval or other action
of the holders of the Preferred Stock voting as a separate class is required by
applicable law or by the Company's Articles of Incorporation, each share of the
Preferred Stock shall be entitled to one vote, and the affirmative vote of the
majority of such shares at a meeting at which a majority of such shares are
present or represented shall be sufficient to constitute such approval or other
action.
Each share of Preferred Stock may be converted by the holder thereof at any
time into .86926 of a share of Common Stock.
Upon the liquidation or winding up of the Company, holders of the Preferred
Stock shall be entitled to be paid, out of assets available for distribution to
holders of capital stock, $6.25 per share. This liquidation right is senior to
the liquidation rights of the Common Stock but subordinate to the liquidation
rights of all liabilities and obligations of the Company and shall be pari pasu
with certain holders of Preferred Stock which may hereafter be issued.
4
<PAGE> 7
The Preferred Stock is redeemable by the Company at its Stated Value, in whole
or in part, at the Company's option, at any time after the later of (i) the
second anniversary of its issuance or (ii) the last day of a period of ten (10)
consecutive trading dates on which the closing price of a share of Common Stock
on each such day shall equal or exceed $10.00. Any redemption is also subject to
the prior approval of the FRB.
The Board of Governors of the Federal Reserve has established capital adequacy
guidelines for bank holding companies. At December 31, 1996, the Company did not
meet the minimum capital ratios established by the guidelines and accordingly
was precluded from paying further dividends. During the period ended June 30,
1997, no dividends on Common Stock were declared or paid by the Company. On June
23, 1997, the Company issued 736,000 shares of Preferred Stock in a private
placement.
The Company has previously reported that, as a result of the losses for the
fiscal year ended December 31, 1996, the Company and Fidelity National Bank (the
"Bank") was not in compliance with certain minimum capital requirements
prescribed by the Federal Reserve Bank ("FRB") and by the Office of the
Comptroller of the Currency ("OCC") as of December 31, 1996. At that time and as
of March 31, 1997, the Company and the Bank were deemed to be "undercapitalized"
pursuant to the applicable regulations. The additional capital needed in order
that the Bank meet the minimum regulatory standards to be deemed adequately
capitalized at March 31, 1997, was $3 million. The Bank filed a capital
restoration plan dated April 30, 1997, with the OCC in response to the OCC's
formal notification of the Bank's undercapitalized status dated April 3, 1997.
The capital restoration plan was accepted and approved by the OCC. The plan
provided for the prompt raising of additional capital by the Company and the
Bank. In furtherance of this undertaking, the Company has engaged an investment
banker to assist it with a capital offering. On June 30, 1997, as a result of
issuing the Preferred Stock and investing $4,000,000 in Non-cumulative 8%
Convertible Preferred Stock of the Bank, both the Company and the Bank were in
compliance with certain minimum capital requirements of the FRB and the OCC and
were no longer deemed to be "undercapitalized" pursuant to the applicable
regulations. The Bank is currently subject to a written agreement with the OCC
("OCC Agreement") to raise and maintain a specific capital level by April 30,
1997, which level increases on November 30, 1997. The Bank has not met the
capital levels specified for April 30, 1997. There can be no assurance that the
Bank and the Company will be able to achieve the requirements of the OCC
Agreement. See Item 1, "Recent Developments" and "Capital," of the Company's
Report on Form 10-K for 1996 and Note 2, "Regulatory Matters" of the Company's
"Notes to Consolidated Financial Statements" set forth in the Company's 1996
Annual Report to Shareholders which has been filed as an exhibit to the
Company's Report on Form 10-K for 1996.
Note C - Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." The
statement revises standards for computing and presenting net income per share by
(a) replacing primary net income per share with basic net income per share, (b)
requiring dual presentation of basic and diluted net income per share for
entities with complex capital structures and (c) requiring a reconciliation of
the basic net income per share computation to diluted net income per share.
Basic net income per share is calculated by dividing net income available to
common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted net income per share includes the effect of potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common shares. The adoption of SFAS No. 128
will not have a material effect on the Company's earnings per share
calculations.
5
<PAGE> 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis reviews important factors affecting the financial
condition at June 30, 1997, compared to December 31, 1996, and results of
operations for the three month and the six-month periods ended June 30, 1997, of
Fidelity National Corporation and subsidiaries (the "Company"). These comments
should be read in conjunction with the Company's consolidated financial
statements and accompanying notes appearing in this report.
ASSETS
Total assets were $613 million at June 30, 1997, compared to $605 million at
December 31, 1996, a 1.3% increase. Loans, net of unearned income increased $6.7
million or 1.6% to $436 million and loans held for sale decreased $22 million or
57.5% to $16 million at June 30, 1997. The decline in total loans was primarily
a result of the $18.6 million decline, or 13%, in credit card loans to $125
million at June 30,1997.
The following schedule summarizes the Company's total loans at June 30, 1997,
and December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
TOTAL LOANS
Loans, net of unearned income $435,964 $429,284
Loans held for sale:
Mortgage loans 6,184 13,106
Indirect auto loans 10,000 25,000
-------- --------
Total loans held for sale 16,184 38,106
-------- --------
Total loans $452,148 $467,390
======== ========
</TABLE>
6
<PAGE> 9
ASSET QUALITY
The following schedule summarizes the Company's asset quality position at June
30, 1997, and December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------- -------
<S> <C> <C>
Nonperforming assets
Nonaccrual loans $ 1,403 $ 2,940
Other real estate owned 2,059 567
======= =======
Total nonperforming assets $ 3,462 $ 3,507
======= =======
Loans 90 days past due and still accruing $ 5,765 $ 6,890
======= =======
Allowance for loan losses $14,956 $16,511
======= =======
Ratio of past due loans to loans 1.32% 1.60%
======= =======
Ratio of nonperforming assets to loans
and other real estate owned .79% .82%
======= =======
Allowance to period-end loans 3.43% 3.85%
======= =======
Allowance to nonperforming loan
(coverage ratio) 10.66x 5.62x
======= =======
</TABLE>
Management is not aware of any potential problem loans other than those
disclosed in the table above, which includes all loans recommended for
classification by regulators, which would have a material impact on asset
quality.
DEPOSITS
Total deposits at June 30, 1997 were $557 million compared to $545 million at
December 31, 1996, a 2.3% increase. During the first six months of 1997, total
liabilities increased $3 million or 0.5% to $587 million. The increase in
deposits occurred principally in time deposits which increased $16 million or
4.4%. There were no brokered deposits at June 30, 1997 or December 31, 1996.
Demand and money market deposits increased $7 million or 8.9% and savings
deposits decreased $12 million or 30.6%.
LIQUIDITY AND SOURCES OF CAPITAL
Market and public confidence in the financial strength of the Bank and financial
institutions in general will largely determine the Bank's access to appropriate
levels of liquidity. This confidence is significantly dependent on the Bank's
ability to maintain sound asset credit quality and appropriate levels of capital
resources.
Liquidity is defined as the ability of the Bank to meet anticipated customer
demands for funds under credit commitments and deposit withdrawals at a
reasonable cost and on a timely basis. Management measures the Bank's liquidity
position by giving consideration to both on- and off-balance sheet sources of
and demands for funds on a daily and weekly basis.
Sources of liquidity include cash and cash equivalents, net of federal
requirements to maintain reserves against deposit liabilities; investment
securities eligible for pledging to secure borrowings from dealers and customers
pursuant to securities sold under agreements to repurchase ("repurchase
agreements");
7
<PAGE> 10
loan repayments; loan sales; deposits, and certain interest rate-sensitive
deposits; and borrowings under overnight federal fund lines available from
correspondent banks. During the first half of 1997, the Company sold $58.2
million in indirect automobile loans. In addition to interest rate sensitive
deposits, the Bank's principal demand for liquidity is anticipated fundings
under credit commitments to customers.
Shareholders' equity was $26.3 million at June 30, 1997, compared to $21.1
million at December 31, 1996. The $4.7 million increase in Preferred Stock
accounted for 82.7% of the increase in shareholders' equity. Shareholders'
equity as a percent of total assets was 4.3% at June 30, 1997, compared to 3.5%
at December 31, 1996.
Maintaining appropriate levels of capital is an important factor in determining
the availability of critical sources of liquidity. At March 31, 1997, capital
ratios were below regulatory minimums. This undercapitalized position tightened
the Company's liquidity position and reduced funding sources available during
the second quarter of 1997. These past sources include unsecured federal funds
lines and warehouse borrowing from the Federal Home Loan Bank.
Management of the Bank seeks to maintain stable net liquidity position while
optimizing operating results, as reflected in net interest income, the net yield
on earning assets and the cost of interest-bearing liabilities in particular.
Key management meets regularly to review the Bank's current and projected net
liquidity position and to review actions taken by management to achieve this
liquidity objective.
The Company has unused sources of liquidity in the form of unused federal funds
lines totaling $10.4 million and unpledged securities and money market assets of
$36.8 million at June 30, 1997.
At June 30, 1997, based on the Federal Reserve Board's guidelines, the Company's
tier I capital ratio was 4.60%, the total risk-based capital ratio was 8.17%,
and the leverage ratio was 3.76%. These ratios are in excess of the Federal
Reserve Board's requirements, as indicated in the Capital Adequacy schedule
below (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
--------------------- ----------------------
Amount Percent Amount Percent
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Tier I capital:
Actual $22,555 4.60% $ 17,052 3.40%
Minimum 19,632 4.00 20,059 4.00
Excess (deficit) 2,923 .60 (3,007) (.60)
Total risk-based capital:
Actual $40,077 8.17% $ 31,976 6.28%
Minimum 39,264 8.00 40,118 8.00
Excess (deficit) 813 .17 (8,142) (1.72)
Tier I capital leverage ratio:
Actual 3.76% 2.67%
Minimum acceptable 3.00 3.00
Excess (deficit) .76 (.33)
</TABLE>
For additional information, see page 4, Note B of the Notes to Consolidated
Financial Statements.
8
<PAGE> 11
INTEREST RATE SENSITIVITY
The interest rate sensitivity structure within the Company's balance sheet at
June 30, 1997 has a net interest sensitive liability gap of 13.38% when
projecting out one year. In the near term, defined as 90 days, the Company
currently has a net interest sensitivity asset gap of 16.73%. This information
represents a general indication of repricing characteristics over time; however,
the sensitivity of certain deposit products may vary during extreme swings in
the interest rate cycle. Since all interest rates and yields do not adjust at
the same velocity, the interest rate sensitivity gap is only a general indicator
of the potential effects of interest rate changes on net interest income.
EARNINGS
Net income for the second quarter ended June 30, 1997 was $338,000 compared to
$1,005,000 for the second quarter of 1996, a 66.3% decrease. Net income per
share was $.07 for the second quarter of 1997, compared to $.22 for the same
period in 1996.
The Company's net income was $647,000, or $.14 per share for the six months
ended June 30, 1997. This compared to net income of $1,608,000 or $.35 per share
for the six months ended June 30, 1996, a 59.8% decrease.
NET INTEREST INCOME
Net interest income for the second quarter of 1997 was $9.2 million compared to
$8.2 million for 1996. The increase was primarily due to a 102 basis point
increase in the yield on average interest-earning assets, partially offset by a
$20 million decrease in average interest-earning assets in 1997 below the
comparable period in 1996 and a 23 basis point decline in rates on
interest-bearing liabilities.
For the six months ended June 30, 1997, net interest income increased $1.8
million, or 11.4% over the six months ended June 30, 1996. This increase was
primarily created by a $19 million increase in average interest-earning assets
to $545 million coupled with a 45 basis point increase in the yield on average
interest-earning assets. The net interest margin for the second quarter and
first half of 1997, were 6.80% and 6.63%, respectively, compared to 5.86% and
6.15%, respectively, for the same periods of 1996. The increases in net interest
margin were due primarily to the increases in the yield of all major loan
category.
PROVISION FOR LOAN LOSSES
The allowance for loan losses is established through provisions charged to
operations. Such provisions are based on management's evaluation of the loan
portfolio under current economic conditions, past loan and credit card loss
experience, adequacy of underlying collateral, and such other factors which, in
management's judgment, deserve recognition in estimating loan losses. Loans are
charged off when, in the opinion of management, such loans are deemed to be
uncollectible. Subsequent recoveries are added to the allowance.
9
<PAGE> 12
Management believes the allowance for loan losses is adequate to provide for
inherent loan losses. The provision for loan losses for the first half and
second quarter of 1997 was $8.3 million and $3.5 million, respectively, compared
to $5.4 million and $2.4 million, respectively for the comparable periods of
1996. The increase was a result of loan growth and the increases in net
charge-offs and delinquencies, primarily credit card and consumer installment
loans. Net charge-offs to average loans on an annualized basis for the six
months ended June 30, 1997 were 4.22% compared to 2.53% for the same period in
1996. The following schedule summarizes changes in the allowance for loan losses
for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
------------------- -----------
1997 1996 1996
------- --------- -----------
<S> <C> <C> <C>
Balance at beginning of period $16,511 $5,537 $ 5,537
Charge-offs:
Commercial, financing and agricultural 155 3 3
Real estate-construction -- -- --
Real estate-mortgage -- -- --
Consumer installment 1,864 448 1,657
Credit cards 8,479 4,366 13,156
------- ------ -------
Total charge-offs 10,498 4,817 14,816
Recoveries:
Commercial, financial and agricultural 9 8 31
Real estate-construction -- -- --
Real estate-mortgage -- -- --
Consumer installment 99 20 64
Credit cards 565 274 568
------- ------ -------
Total recoveries 673 302 663
------- ------ -------
Net charge-offs 9,825 4,515 14,153
Provision for loan losses 8,270 5,400 25,127
======= ====== =======
Balance at end of period $14,956 $6,422 $16,511
======= ====== =======
</TABLE>
NONINTEREST INCOME
Noninterest income was $5.2 million for the second quarter of 1997 compared to
$5.0 million for the same period in 1996, a 4.0% increase. For the six months
ended June 30, 1997, noninterest income increased $335,000 to $8.8 million or
4.0% over the same period in 1996. This increase is primarily attributed to
servicing fees from indirect automobile loans sold or securitized with servicing
retained. Noninterest income for the six months ended June 30, 1997 and 1996,
benefited from $1.1 and $1.4 million gains, respectively, on the sale of
mortgage servicing rights.
10
<PAGE> 13
NONINTEREST EXPENSE
Noninterest expense for the three months ended June 30, 1997, was $8.8 million
compared to $8.6 million for the comparable period of 1996, a 2.3% increase.
Noninterest expense was $17.5 million for the six months ended June 30, 1997,
compared to $16.6 million for the comparable period of 1996, a 5.4% increase.
Salaries and benefit expenses in the second quarter of 1997 were down $328,000
from the second quarter of 1996, while salary and benefits expenses increased
$293,000 in the first half of 1997 over the comparable period of 1996. Salary
and benefit expenses declined $465,000 in the second quarter of 1997 from the
first quarter of 1997. These second quarter declines were due to cost saving
measures taken in the first quarter of 1997. The number of full-time equivalent
employees declined to 383 on June 30, 1997, from 388 at June 30, 1996.
Expenses other than salaries, benefits and amortization of mortgage servicing
rights for the first half and second quarter of 1997 increased $1.2 million and
$770,000, respectively. These increases were due primarily to recent corporate
expansion and the Company's opening of three additional bank branches in the
greater Atlanta metropolitan area and two loan production offices in Florida and
the consolidation of operations in the Company's new operations center.
Second quarter 1997 amortization of mortgage servicing rights was $152,000
compared to $442,000 for the comparable period in 1996. Amortization of mortgage
servicing rights, including amortization relating to loan repayments, was
$401,000 for the six months ended June 30, 1997, compared to $1,024,000 for the
comparable period in 1996. The decline in mortgage servicing amortization was
due to sales of mortgage service rights.
PROVISION FOR INCOME TAXES
The provision for income taxes for the second quarter of 1997 and the first half
of 1997 was $153,000 and $317,000, respectively, compared to $587,000 and
$914,000, respectively, for the same periods in 1996. These changes were due to
changes in taxable income.
11
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES
On June 6, 1997, the Company amended its Article of Incorporation ("Amendment")
fixing the powers, preferences and rights of the holders of Non-cumulative 8%
Convertible Preferred Stock, Series A, Stated Value $6.25 ("Preferred Stock").
A dividend of $.125 is payable quarterly on each share of Preferred Stock, when,
and if used as declared by the Board of Directors of the Company. Unpaid
dividends, in whole or in part, do not cumulate and are not payable at a later
date. No dividend can be declared on the Common Stock for any calendar quarter
unless a full dividend has been declared on the Preferred Stock for that
calendar quarter. Each share of Preferred Stock is convertible into .86926 of a
share of Common Stock, at any time. The Preferred Stock is redeemable by the
Company at $6.25 per share after the occurrence of certain events.
The holders of the Preferred Stock are entitled to vote on each matter on which
holders of Common Stock are entitled to vote. Each share of Preferred Stock has
the number of votes equal to the number of shares of Common Stock into which it
is convertible.
The foregoing description is qualified in its entirety by the provisions of the
Amendment.
During June 1997 the Company issued 752,000 shares of Preferred Stock at a
purchase price of $6.25 per share in a private placement. 704,000 shares of
Preferred Stock were sold for cash aggregating $4,400,000 and 48,000 shares of
Preferred Stock were exchanged for subordinated debt of the Company in the
principal amount of $300,000.
The sale of the Preferred Stock was exempt from registration under Section 4(2)
of the Securities Act of 1933 and Regulation D promulgated by the Securities and
Exchange Commission.
During July 1997 an additional 232,000 shares of Preferred Stock were sold for
$1,100,000 paid in cash and $350,000 in exchange for subordinated debt of the
Company in the principal amount of $350,000.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Fidelity National Corporation was held on
May 15, 1997. At the annual meeting of shareholders, all of the nominees for the
Board of Directors set forth in management's proxy statement were elected to
serve until the next annual meeting of shareholders. The holders of not less
than 3,607,641 shares of Common Stock voted for each of the nominees,
representing 99.81% of the shares voting. Additionally, 3,431,019 shares were
voted for the adoption of Fidelity National Corporation's 1997 Stock Option
Plan, 28,707 shares were voted against the Plan, and 154,873 shares abstained.
ITEM 6- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: Amendment to Articles of Incorporation (Incorporated
by Reference to Exhibit 3(a) to the Company's Current Report on
Form 8-K, date of Report June 23, 1997)
27 Financial Data Schedule (for SEC use only)
b) Current Report on Form 8-K; Date of Report June 23, 1997, Item 5.
The Company reported the issuance of the Preferred Stock.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIDELITY NATIONAL CORPORATION
-----------------------------
(Registrant)
Date: August 8, 1997 BY: /s/ James B. Miller, Jr.
----------------------------
James B. Miller, Jr.
Chief Executive Officer
/s/ M. Howard Griffith, Jr.
Date: August 8, 1997 ----------------------------
M. Howard Griffith, Jr.
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 29,794,789
<INT-BEARING-DEPOSITS> 2,800,534
<FED-FUNDS-SOLD> 12,794,158
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,675,501
<INVESTMENTS-CARRYING> 6,280,248
<INVESTMENTS-MARKET> 5,913,000
<LOANS> 452,148,580
<ALLOWANCE> 14,956,013
<TOTAL-ASSETS> 613,367,134
<DEPOSITS> 557,029,671
<SHORT-TERM> 8,567,374
<LIABILITIES-OTHER> 5,375,809
<LONG-TERM> 16,050,000
0
4,700,000
<COMMON> 11,528,843
<OTHER-SE> 10,115,437
<TOTAL-LIABILITIES-AND-EQUITY> 613,367,134
<INTEREST-LOAN> 28,228,177
<INTEREST-INVEST> 2,371,602
<INTEREST-OTHER> 257,174
<INTEREST-TOTAL> 30,856,953
<INTEREST-DEPOSIT> 11,877,949
<INTEREST-EXPENSE> 12,950,450
<INTEREST-INCOME-NET> 17,906,503
<LOAN-LOSSES> 8,270,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 17,487,850
<INCOME-PRETAX> 964,109
<INCOME-PRE-EXTRAORDINARY> 646,762
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 646,762
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
<YIELD-ACTUAL> 11.42
<LOANS-NON> 1,403,000
<LOANS-PAST> 5,765,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 16,510,842
<CHARGE-OFFS> 10,497,712
<RECOVERIES> 672,883
<ALLOWANCE-CLOSE> 14,956,013
<ALLOWANCE-DOMESTIC> 14,956,013
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,362,000
</TABLE>
