<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 March 31, 1998
--------------------------------------------------
Commission File Number: 0-22374
---------------------------------------------------------
Fidelity National Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Georgia 58-1416811
- -----------------------------------------------------------------------------------------------------------
<S> <C>
(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 April 30, 1998
------------- ---------------------------------------
Common Stock, no par value 8,117,535
<PAGE> 2
FIDELITY NATIONAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Condition March 31, 1998
(unaudited) and December 31, 1997 1
Consolidated Statements of Income (unaudited)
Three Months Ended March 31, 1998 and 1997 2
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended March 31, 1998 and 1997 3
Notes to Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-10
Part II. Other Information 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature Page 11
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 31,271,235 $ 25,843,295
Interest-bearing deposits with banks 1,937,643 2,349,419
Federal funds sold 30,169,317 41,068,827
Investment securities available-for-sale 70,068,195 88,007,985
Investment securities held-to-maturity (approximate fair value
of $38,124,090 and $37,924,411 at March 31, 1998, and
December 31, 1997, respectively) 38,012,775 37,925,224
Loans held for sale 18,182,378 4,360,765
Loans, net of unearned income 431,377,254 432,820,665
Allowance for loan losses (12,938,287) (14,319,591)
------------- -------------
Loans, net 418,438,967 418,501,074
Premises and equipment, net 20,138,706 20,517,650
Other real estate 1,847,911 2,259,704
Accrued interest receivable 5,155,029 4,492,422
Other assets 12,374,610 12,477,638
------------- -------------
Total assets $ 647,596,766 $ 657,804,003
============= =============
LIABILITIES
Deposits
Noninterest-bearing demand deposits $ 79,528,988 $ 87,054,288
Interest-bearing deposits:
Demand and money market 84,506,970 83,756,126
Savings 23,781,535 21,748,732
Time deposits, $100,000 and over 95,886,171 98,190,352
Other time deposits 267,976,399 277,567,827
------------- -------------
Total deposits 551,680,063 568,317,325
Short-term borrowings 21,091,792 16,367,839
Long-term debt 15,800,000 15,800,000
Accrued interest payable 3,048,665 3,192,701
Other liabilities 2,784,052 1,906,800
------------- -------------
Total liabilities 594,404,572 605,584,665
SHAREHOLDERS' EQUITY
Preferred stock, no par value. Authorized 10,000,000; issued
984,000 shares of Non-Cumulative 8% Convertible Preferred Stock
- Series A, stated value $6.25 6,150,000 6,150,000
Common Stock, no par value. Authorized 50,000,000; issued
8,128,010 and 8,125,499 and outstanding 8,116,918 and 8,114,407 in
1998 and 1997, respectively 34,969,164 34,943,110
Treasury stock (69,325) (69,325)
Net unrealized gains on investment securities available-
for-sale, net of tax 213,371 208,694
Retained earnings 11,928,984 10,986,859
------------- -------------
Total shareholders' equity 53,192,194 52,219,338
------------- -------------
Total liabilities and shareholders' equity $ 647,596,766 $ 657,804,003
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------
1998 1997
------------- --------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 13,267,406 $ 13,965,378
Investment securities 1,801,114 1,214,990
Federal funds sold 353,224 41,235
Deposits with other banks 8,276 18,357
------------- -------------
Total interest income 15,430,020 15,239,960
INTEREST EXPENSE
Deposits 6,066,545 5,896,003
Short-term borrowings 148,848 239,227
Long-term debt 361,484 380,074
------------- -------------
Total interest expense 6,576,877 6,515,304
------------- -------------
NET INTEREST INCOME 8,853,143 8,724,656
Provision for loan losses 1,900,000 4,770,000
------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 6,953,143 3,954,656
NONINTEREST INCOME
Service charges on deposit accounts 559,224 515,552
Credit card fees 716,164 670,918
Mortgage banking activities 826,308 2,523,254
Other 1,990,531 1,524,758
------------- -------------
Total noninterest income 4,092,227 5,234,482
NONINTEREST EXPENSE
Salaries and employee benefits 4,200,868 4,469,203
Furniture and equipment 606,105 496,477
Net occupancy 817,004 808,597
Credit card processing and transaction fees 751,144 664,216
Amortization of mortgage servicing rights 267,468 248,642
Other 2,723,031 2,029,516
------------- -------------
Total noninterest expense 9,365,620 8,716,651
------------- -------------
Income before income taxes 1,679,750 472,487
Income tax expense 614,625 163,876
------------- -------------
NET INCOME $ 1,065,125 $ 308,611
============= =============
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 942,125 $ 308,611
============= =============
BASIC AND DILUTED EARNINGS PER SHARE $ 0.12 $ 0.07
============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,116,129 4,654,691
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,065,125 $ 308,611
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for loan losses 1,900,000 4,770,000
Depreciation and amortization of premises and equipment 513,617 408,988
Amortization of mortgage servicing rights 267,468 248,642
Additions of originated mortgage servicing rights (246,752) (82,046)
Gain on loan sales and securitization (272,004) (47,366)
Gain on mortgage servicing rights sales -- (1,493,979)
Proceeds from sale of other real estate 415,730 84,466
Net (increase) decrease in loans held for sale (13,821,613) 15,648,298
Net increase in accrued interest receivable (662,607) (50,817)
Net (decrease) increase in accrued interest payable (144,036) 112,936
Net decrease in other assets 103,028 362,859
Net increase in other liabilities 877,252 99,405
Other 16,762 270,002
------------- -------------
Net cash flows (used in) provided by operating activities (9,988,030) 20,639,999
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities held-to-maturity (586,950) (265,500)
Maturities of investment securities held-to-maturity 499,399 18,005,000
Purchases of investment securities available-for-sale (20,000,000) (13,735,125)
Maturities of investment securities available-for-sale 37,939,790 4,601,496
Net increase in loans (22,969,618) (45,498,579)
Purchases of premises and equipment (134,673) (1,606,090)
Proceeds from sale of loans 21,366,991 28,059,286
Proceeds from sale of mortgage servicing rights -- 908,649
------------- -------------
Net cash flows provided by (used in) investing activities 16,114,939 (9,530,863)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in demand deposits,
money market accounts, and savings accounts (4,741,653) 12,914,084
Net decrease in time deposits (11,895,609) (956,948)
Increase (decrease) in short-term borrowings 4,723,953 (1,797,305)
Dividends paid on preferred stock (123,000) --
Proceeds from the issuance of Common Stock 26,054 19,508
------------- -------------
Net cash flows (used in) provided by financing activities (12,010,255) 10,179,339
------------- -------------
Net (decrease) increase in cash and cash equivalents (5,883,346) 21,288,475
Cash and cash equivalents, beginning of period 69,261,541 32,955,417
------------- -------------
Cash and cash equivalents, end of period $ 63,378,195 $ 54,243,892
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Total interest paid $ 7,030,843 $ 6,402,368
============= =============
Total income taxes paid $ -- $ --
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
FIDELITY NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
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 period ended March 31, 1998, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. 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, 1997.
Note B - Shareholders' Equity
The Company and the Bank are principally regulated by the FRB and the OCC,
respectively. At periodic intervals, the OCC examines and evaluates the
financial condition, operations, and policies and procedures of nationally
chartered banks, such as the Bank, as part of its legally prescribed oversight
responsibilities.
The OCC and the Bank entered into an Agreement dated November 14, 1996, ("OCC
Agreement"). The OCC Agreement provided that the Bank (I) appoint an "Oversight
Committee;" (ii) achieve and maintain specified higher capital levels; (iii)
develop a three-year capital program which would include, among other things,
certain restrictions on dividend payments by the Bank; and (iv) revise and amend
its strategic plan.
In December 1997, the Company sold in a public offering 3,450,000 shares of
Common Stock at a price of $7.50 per share. The proceeds of this offering, net
of issuance costs, were used to increase FNB's capital ratios and for general
corporate purposes. At March 31, 1998, and December 31, 1997, the capital ratios
of the Bank exceeded those prescribed by the OCC Agreement.
On February 26, 1998, the Board of Directors of the Bank submitted the Bank's
revised strategic plan reflecting the Bank's December 31, 1997, capital ratios.
The strategic plan includes objectives for earnings performance, growth, balance
sheet mix, off-balance sheet activities, liability structure, capital adequacy,
product line development and market segments which the Bank intends to promote
or develop together with strategies to achieve these objectives. In February,
the Bank revised its Capital Plan to reflect the issuance of its Common Stock.
The Bank periodically submits reports to the OCC evidencing compliance with the
OCC Agreement. Even though the Bank meets the required capital levels, the OCC
Agreement continues in effect until it is amended or terminated. The OCC
Agreement can impair the ability of the Bank to declare and pay dividends to the
Company. Under the terms of the OCC Agreement, the Bank is permitted to pay
dividends on the preferred stock issued by the Bank to the Company, so long as
the Bank's capital ratios are at least 4% for leverage, 4% for Tier 1 risk-based
capital and 8% for total risk-based capital.
4
<PAGE> 7
Fidelity's Board of Directors on February 13, 1997, adopted a resolution
requested by the Federal Reserve Bank of Atlanta ("FRB Agreement"). The FRB
Agreement, among other things, prohibits Fidelity from redeeming its capital
stocks, paying dividends on Common Stock or incurring debt without prior
approval of the FRB. The FRB agreement continues until cancelled by the FRB.
During the period ended March 31, 1998, the Company did not declare or pay
dividends on Common Stock. During the period ended March 31, 1998, the Company
declared and paid dividends on its Non-Cumulative 8% Convertible Preferred
Stock, Series A, Stated Value $6.25 per share ("Preferred Stock") totaling
$123,000.
Note C - Recent Accounting Pronouncements
Beginning on January 1, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", which
provided new accounting and reporting standards for sales, securitizations and
servicing of receivables and other financial assets and extinguishments of
liabilities and superseded SFAS No. 122. SFAS No. 125 was effective for
transactions occurring after December 31, 1996, except those provisions relating
to repurchase agreements, securities lending and other similar transactions and
pledged collateral, which were delayed until after December 31, 1997, by SFAS
No. 127, "Deferral of the Effective Date of Certain Provisions of Statement No.
125, and amendment of FASB Statement No. 125." Beginning on January 1, 1998, the
Company adopted the provisions of SFAS No. 127.
Beginning January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which is effective for annual and interim periods
beginning after December 15, 1997. SFAS 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Company's net income or
shareholders' equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities which, prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to the
requirements of SFAS 130. During the first quarter of 1998 and 1997, total
comprehensive income (loss) amounted to $1,069,802 and $(221,393), respectively.
Beginning January 1, 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which is
effective for annual and interim periods beginning after December 15, 1997. This
statement established standards for the method that public entities are to use
to report information about operating segments in annual financial statements
and required that those enterprise reports be issued to shareholders, beginning
with annual financial statements in 1998 and for interim and annual financial
statements thereafter. It also established standards for related disclosures
about products and services, geographical areas and major customers.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis reviews important factors affecting financial condition
at March 31, 1998, compared to December 31, 1997, and the results of operations
for the three month period ended March 31, 1998, of Fidelity National
Corporation and subsidiaries. These comments should be read in conjunction with
the Company's consolidated financial statements and accompanying notes appearing
in this report.
5
<PAGE> 8
ASSETS
Total assets were $648 million at March 31, 1998, and $658 million at December
31, 1997, a decrease of $10 million, or 1.5%. Loans, net of unearned income
decreased $1.4 million or 0.3% to $431 million, and loans held for sale
increased $13.8 million or 317.0% to $18 million at March 31, 1998. The increase
in total loans was primarily a result of the $13.8 million increase in loans
held for sale and a $6.7 million increase in mortgage loans, offset in part by a
decline of $8.4 million in credit card loans to $111.3 million at March 31,
1998.
The following schedule summarizes the Company's total loans at March 31, 1998
and December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
TOTAL LOANS
Loans, net of unearned income $ 431,377 $ 432,821
Loans held for sale:
Mortgage loans 8,182 4,361
Indirect auto loans 10,000 --
------------- -------------
Total loans held for sale 18,182 4,361
------------- -------------
Total loans $ 449,559 $ 437,182
============= =============
</TABLE>
ASSET QUALITY
The following schedule summarizes the Company's asset quality position at March
31, 1998, and December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
March 3 December 31,
1998 1997
------------- -------------
<S> <C> <C>
Nonperforming assets
Nonaccrual loans $ 1,484 $ 1,422
Other real estate owned 1,848 2,260
------------- -------------
Total nonperforming assets $ 3,332 $ 3,682
============= =============
Loans 90 days past due and still accruing $ 4,680 $ 6,194
============= =============
Allowance for loan losses $ 12,938 $ 14,320
============= =============
Ratio of past due loans to loans 1.08% 1.43%
============= =============
Ratio of nonperforming assets to loans
and other real estate owned .77% .85%
============= =============
Allowance to period-end loans 3.00% 3.31%
============= =============
Allowance to nonperforming loans
(coverage ratio) 8.72x 10.07x
============= =============
</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.
6
<PAGE> 9
DEPOSITS
Total deposits at March 31, 1998, were $552 million compared to $568 million at
December 31, 1997, a 2.9% decrease. During this period, total liabilities
decreased $11 million, or 1.8%, to $594 million. The decrease in deposits
occurred principally in time deposits, which decreased $12 million, or 3.2%.
There were no brokered deposits at March 31, 1998 or December 31, 1997. Demand
and money market deposits increased $0.8 million or 0.9% and savings deposits
increased $2 million or 9.3%.
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
demand for funds under credit commitments and deposit withdrawals at a
reasonable cost and in 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 sale or pledging to secure borrowings from dealers and
customers pursuant to securities sold under agreements to repurchase
("repurchase agreements"); loan repayments; loan sales; deposits and certain
interest rate-sensitive deposits; and borrowings under unsecured overnight
federal funds lines available from correspondent banks. During the first three
months of 1998, the Company sold $21 million in newly originated and held for
sale indirect automobile loans compared to the sale of $27 million in the first
quarter of 1997. 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 $53.2 million at March 31, 1998, compared to $52.2
million at December 31, 1997. Shareholders' equity as a percent of total assets
was 8.2% at March 31, 1998, compared to 7.9% at December 31, 1997.
Management of the Bank seeks to maintain a 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 $16.4 million, unpledged securities and money market assets of
$39.1 million, and Federal Home Loan Bank advance lines totaling $60 million,
subject to available qualifying collateral, at March 31, 1998.
At March 31, 1998 and December 31, 1997, the Bank exceeded both the capital
ratios required by the OCC to be considered well capitalized and the capital
ratios prescribed by the OCC Agreement, as reflected in the following schedule:
7
<PAGE> 10
<TABLE>
<CAPTION>
OCC Bank Ratios
------------------------------------------------ ---------------------------------
Adequately Well March 31, December 31,
Capital Ratios: Capitalized Capitalized Agreement 1998 1997
- --------------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Leverage 4.00% 5.00% 6.00% 7.32% 7.46%
Risk - Based Capital
Tier I 4.00 6.00 7.00 9.36 9.23
Total 8.00 10.00 11.00 12.63 12.53
</TABLE>
At March 31, 1998, and December 31, 1997, the Company exceeded the capital
ratios required by the FRB to be considered well capitalized, as reflected in
the schedule below:
<TABLE>
<CAPTION>
FRB Company Ratios
---------------------------------- -------------------------------
Adequately Well March 31, December 31,
Capital Ratios: Capitalized Capitalized 1998 1997
- --------------- --------------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Leverage 3.00% 5.00% 7.86% 8.00%
Risk - Based Capital
Tier I 4.00 6.00 10.03 9.91
Total 8.00 10.00 14.40 14.38
</TABLE>
For additional information, see page 4, Note B of the Notes to Consolidated
Financial Statements.
INTEREST RATE SENSITIVITY
The interest rate sensitivity structure within the Company's Statement of
Condition at March 31, 1998, has a net interest sensitivity liability gap of
24.08% when projecting out one year. In the near term, defined as 90 days, the
Company has a net interest sensitivity asset gap of 8.91%. This information
represents a general indication of repricing characteristics over time; however,
the sensitivity of callable securities and 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.
At March 31, 1998, the 30-60 day window included $10 million of indirect
automobile loans classified as held for sale. By selling these loans, the Bank
becomes less interest sensitive in the one year time horizon. The Company's
policy states that the cumulative gap at the six month and one year period
should not exceed 10%.
MARKET RISK
The Company's primary market risk exposure is interest rate risk and, to a
lesser extent, credit risk and liquidity risk. The Company has little or no risk
related to trading accounts, commodities or foreign exchange. Interest rate risk
is the exposure of a banking organization's financial condition and earnings
ability to adverse movements in interest rates. The Company has analyzed the
assumed market value risk and earnings risk inherent in its interest rate
sensitive instruments related to interest-rate swings of 200 basis points, both
above and below current levels (rate shock analysis). Earnings and fair value
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
The analysis reflected the asset sensitivity of the Company over a four month
time horizon and the liability sensitivity of the Company over a five to twelve
month time horizon. The analysis indicated that the effects of either an
immediate and sustained increase or decrease in market rates of interest of 200
basis points would not be material to the Company's net present value or
operating results over a one year period.
8
<PAGE> 11
EARNINGS
Net income for the quarter ended March 31, 1998, was $1,065,000 compared to net
income of $309,000 for the comparable quarter of 1997, an increase of 245%.
Basic and diluted earnings were $.12 per share for the first quarter of 1998,
compared to $.07 per share for the same period in 1997.
NET INTEREST INCOME
Net interest income for the first quarter of 1998 was $8.9 million compared to
$8.7 million for the same period in 1997. A 74 basis point decline in the yield
on average interest-earning assets was more than offset by the $46 million
increase in average interest-earning assets in the first quarter of 1998 over
the comparable period in 1997, resulting in an increase in total interest income
of $128,000. The components of the $46 million increase were an increase of $62
million in average investments and other short-term interest earning assets,
offset in part by a decline of $16 million in average loans. This change in the
average interest-earnings assets mix was the primary reason for the decline in
the yield on average interest-earning assets.
Average interest-bearing liabilities declined $4 million, offset by a 9 basis
point increase in the cost of average interest-bearing liabilities, resulting in
a slight negative impact on total interest expense compared to the same period
in 1997.
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.
Management believes the allowance for loan losses is adequate to provide for
inherent loan losses. The provision for loan losses for the first quarter of
1998 was $1.9 million, compared to $4.5 million for the comparable period in
1997. The reduction in the provision for the first quarter of 1998 is due to the
significant improvement in the current aggregate amount of credit card
delinquencies and net charge-offs. Net charge-offs to average loans on an
annualized basis for the three months ended March 31, 1998, were 2.88% compared
to 4.47% for the same period in 1997. The following schedule summarizes changes
in the allowance for loan losses for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
--------------------
1998 1997 1997
------- ------- -------------
<S> <C> <C> <C>
Balance at beginning of period $14,320 $16,511 $16,511
Charge-offs:
Commercial, financing and agricultural 13 137 154
Real estate-construction -- -- --
Real estate-mortgage -- -- --
Consumer installment 692 1,007 3,367
Credit cards 3,167 4,447 14,735
------- ------- -------
Total charge-offs 3,872 5,591 18,256
Recoveries:
Commercial, financial and agricultural 2 5 103
Real estate-construction -- -- --
Real estate-mortgage -- -- --
Consumer installment 79 42 192
Credit cards 509 282 1,335
------- ------- -------
Total recoveries 590 329 1,630
------- ------- -------
Net charge-offs 3,282 5,262 16,626
Provision for loan losses 1,900 4,770 14,435
------- ------- -------
Balance at end of period $12,938 $16,019 $14,320
======= ======= =======
</TABLE>
9
<PAGE> 12
NONINTEREST INCOME
Excluding a 1997 first quarter gain of $1,494,000 on the sale of mortgage
servicing rights, noninterest income for the first quarter of 1998 increased
$352,000 to $4.1 million, or 9.4% over the same period in 1997.
Fee income for servicing indirect auto loans was $450,000 for the three months
ended March 31, 1998, compared to $316,000 for the same period of 1997. The gain
on sale of loans was $272,000 during the first quarter of 1998 compared to a
gain of $47,000 for the same period in 1997. The sale of mortgage servicing
rights during the first quarter of 1997 is the primary reason for the decline in
mortgage loan servicing income to $166,000 in the first quarter of 1998,
compared to $388,000 for the same period in 1997.
NONINTEREST EXPENSE
Noninterest expense was $9.4 million for the three months ended March 31, 1998
compared to $8.7 million for the same period in 1997, a 7.4% increase.
Salaries and benefit expenses decreased $268,000 in the first three months of
1998, to $4.2 million compared to the same period in 1997. The number of
full-time equivalent employees declined to 382 on March 31, 1998, from 385 at
March 31, 1997 and 439 at December 31, 1996, and increased from 375 at December
31, 1997.
FDIC insurance and other regulatory assessments increased to $386,000 in the
first quarter of 1998 compared to $162,000 during the same period in 1997.
Professional services fees increased to $308,000 in the first quarter of 1998
compared to $155,000 for the same period in 1997.
The Company has implemented a program designed to ensure that its operational
and financial systems will be Year 2000 compliant. The program involves
examining both the Company's proprietary operating systems and the Company's
vendor-provided systems. The majority of application systems used by the Company
are products of established national vendors, which the Company is working with
to ensure that these systems are Year 2000 compliant.
The Company expects to have testing completed or well underway on all major
systems by December 31, 1998. Based on current projections, management does not
anticipate that the cost to address the year 2000 issues will have a material
adverse impact on the Company's financial condition, results of operations, or
liquidity.
PROVISION FOR INCOME TAXES
The provision for income taxes for the first quarter of 1998 was $615,000
compared to $164,000 for the same period in 1997. These changes were due to
changes in taxable income.
10
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of shareholders of Fidelity National Corporation was held on
April 16, 1998. 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 7,127,035 shares of Common Stock and Common Stock issuable upon conversion
of shares of Preferred stock voted for each of the nominees, representing 98.48%
of the shares voting.
The following schedule reflects the vote for and withheld from each nominee:
<TABLE>
<CAPTION>
Shares Shares
Nominee Voted for Withheld
------- --------- ---------
<S> <C> <C>
James B. Miller, Jr. 7,153,295 4,640
David R. Bockel 7,157,209 726
Dr. Edward G. Bowen 7,157,935 --
Kevin S. King 7,127,935 30,000
Larry D. Peterson 7,144,027 13,908
Robert J. Rutland 7,127,935 30,000
W. Clyde Shepherd, Jr. 7,157,935 --
Gordon M. Sherman 7,157,935 --
R. Phillip Shinall, III 7,127,935 30,000
Rankin Smith, Jr. 7,127,035 30,900
Felker W. Ward, Jr. 7,157,935 --
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule (for SEC purposes only).
(b) Current Report on Form 8-K; filed on January 6, 1998; ITEM 5.
The Company reported the public sale of Common Stock in December 1997.
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: May 12, 1998 BY: /s/ James B. Miller, Jr.
------------------------------
James B. Miller, Jr.
Chief Executive Officer
Date: May 12, 1998 /s/ M. Howard Griffith, Jr.
------------------------------
M. Howard Griffith, Jr.
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 31,271,235
<INT-BEARING-DEPOSITS> 1,937,643
<FED-FUNDS-SOLD> 30,167,317
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 70,068,195
<INVESTMENTS-CARRYING> 38,012,775
<INVESTMENTS-MARKET> 38,124,090
<LOANS> 449,559,632
<ALLOWANCE> 12,938,287
<TOTAL-ASSETS> 647,596,766
<DEPOSITS> 551,680,063
<SHORT-TERM> 21,091,792
<LIABILITIES-OTHER> 5,832,717
<LONG-TERM> 15,800,000
0
6,150,000
<COMMON> 34,969,164
<OTHER-SE> 12,073,030
<TOTAL-LIABILITIES-AND-EQUITY> 647,596,766
<INTEREST-LOAN> 13,267,406
<INTEREST-INVEST> 1,801,114
<INTEREST-OTHER> 361,500
<INTEREST-TOTAL> 15,430,020
<INTEREST-DEPOSIT> 6,066,545
<INTEREST-EXPENSE> 6,576,877
<INTEREST-INCOME-NET> 8,853,143
<LOAN-LOSSES> 1,900,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,365,620
<INCOME-PRETAX> 1,679,750
<INCOME-PRE-EXTRAORDINARY> 1,065,125
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,065,125
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
<YIELD-ACTUAL> 10.57
<LOANS-NON> 1,484,000
<LOANS-PAST> 4,680,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 14,319,591
<CHARGE-OFFS> 3,872,010
<RECOVERIES> 590,706
<ALLOWANCE-CLOSE> 12,938,287
<ALLOWANCE-DOMESTIC> 12,938,287
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,298,000
</TABLE>
