<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
Commission File Number 0-22374
FIDELITY NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Georgia 58-14166811
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3490 Piedmont Road, Suite 1550, 30305
Atlanta, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (404) 240-1504
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, without stated par value
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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [X].
The aggregate market value of the voting common equity held by non-affiliates of
the Registrant (assuming for these purposes, but without conceding, that all
executive officers and directors and greater than five percent shareholders are
"affiliates" of the Registrant) as of March 1, 2000 (based on the closing sale
price of the Common Stock as quoted on the Nasdaq National Market System on such
date) was $37,790,000.
At March 1, 2000, there were 8,780,664 shares of Common Stock outstanding,
without stated par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 1999 are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement for the 2000 Annual
Meeting of Shareholders are incorporated by reference into Part III.
<PAGE> 2
PART I
FORWARD-LOOKING STATEMENTS
Certain information and statements in this Form 10-K include
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of
1934, as amended, that reflect Fidelity National Corporation's current
expectations regarding the future and involve risks and uncertainties. The
words "believes," "expects," "anticipates," "estimates" and "intends" and
similar expressions are intended to identify forward-looking statements. Actual
results could differ materially from those anticipated in these forward-looking
statements as a result of disruptions in Fidelity National Corporation's, its
correspondents', its counterparties', its customers', or its suppliers'
operations arising from system and other failures relating to general economic
conditions and other factors. Investors are encouraged to read the related
section in Fidelity National Corporation's 1999 Annual Report to Shareholders
and those discussed below under "Risk Factors".
ITEM 1. BUSINESS
Fidelity National Corporation ("Fidelity") is a registered bank holding
company headquartered in Atlanta, Georgia. All of Fidelity's activities are
conducted by its wholly owned subsidiaries: Fidelity National Bank ("Bank"),
which was organized as a national banking corporation in 1973; and Fidelity
National Capital Investors, Inc. ("Fidelity Capital"), organized as a Georgia
corporation in May 1992.
The Bank provides traditional deposit, lending, mortgage, securities
brokerage, international trade services and trust products and services to its
commercial and retail customers. The Bank is a full-service banking operation
and Fidelity Capital is a securities brokerage operation. Fidelity conducts its
full-service banking and residential mortgage lending through 19 locations in
the metropolitan Atlanta area.
Fidelity conducts its indirect automobile lending (the purchase of
consumer automobile installment sales contracts from automobile dealers),
residential mortgage lending and residential construction lending through
certain of its Atlanta offices and its Jacksonville, Florida location. At
December 31, 1999, Fidelity had total assets of $813 million, total loans of
$721 million, total deposits of $718 million and shareholders' equity of $56
million.
Fidelity as used herein includes Fidelity National Corporation and its
subsidiaries unless the context otherwise requires.
RECENT DEVELOPMENTS
Fidelity National Mortgage Corporation's assets and operations were
transferred to a division of the Bank on December 31, 1999.
<PAGE> 3
On January 19, 2000, the Federal Reserve Bank of Atlanta ("FRB")
terminated the agreement with Fidelity which, among other things, prohibited
Fidelity from redeeming its capital stock, paying dividends on its common stock
or incurring debt without the prior approval of the FRB.
Fidelity has agreed to issue $10,500,000 of 10 7/8% Junior Subordinated
Deferrable Interest Debentures due 2030 ("Debt Securities") on March 23, 2000.
The Debt Securities will constitute Tier 1 capital of Fidelity for regulatory
purposes. The proceeds will be used to provide additional capital to the Bank
and for general corporate purposes.
MARKET AREA
The Bank conducts banking activities primarily through 19 branches in
Fulton, DeKalb, Cobb, Clayton and Gwinnett counties, Georgia. The Bank's
customers are primarily small and medium sized businesses and individuals. The
customer base for its credit card portfolio is national in scope, with customers
in all 50 states. Indirect automobile, residential construction and mortgage
lending are conducted from the Jacksonville, Florida office in addition to its
offices in Georgia. Customers of its other services are located almost
exclusively in Georgia.
PRODUCTS AND SERVICES
Fidelity's products and services include (i) depository accounts, (ii)
direct and indirect automobile and home equity lending, (iii) credit card loans,
(iv) construction and residential real estate loans, (v) commercial loans,
including commercial loans secured by real estate, (vi) securities brokerage
services, (vii) trust products and services and (viii) international trading
services.
Deposits
Fidelity offers a full range of depository accounts and services to
both individuals and businesses. As of December 31, 1999, the deposit base
totaled approximately $718 million, consisted of approximately $105 million in
noninterest-bearing demand deposits (14.7% of total deposits), approximately
$142 million in interest-bearing demand deposits and money market accounts
(19.8% of total deposits), approximately $30 million in savings deposits (4.1%
of total deposits), approximately $285 million in time deposits in amounts less
than $100,000 (39.7% of total deposits), and approximately $156 million in time
deposits of $100,000 or more (21.7% of total deposits). There were no brokered
deposits at December 31, 1999.
Lending
Fidelity's primarily lending activities include consumer loans (direct
and indirect automobile loans and credit card loans), real estate loans and
commercial loans to small and medium sized businesses. Secured construction
loans to home builders are made in the Atlanta, Georgia, and Jacksonville,
Florida metropolitan areas. Residential mortgages are made in Atlanta, Georgia
and Jacksonville, Florida. The loans are generally secured by first and second
real estate mortgages. FNB offers direct installment loans to consumers on both
a secured and unsecured basis. Commercial lending includes the extension of
credit for business purposes.
2
<PAGE> 4
As of December 31, 1999, Fidelity had consumer (including installment
and credit card loans), real estate (including residential mortgage,
construction and commercial loans secured by real estate), and commercial loans
of $403 million, $215 million and $103 million, representing approximately
56.0%, 29.8% and 14.2%, respectively, of the total loan portfolio. Real estate
loans included $67 million in construction loans, $135 million in residential
real estate loans and $13 million in commercial loans secured by real estate. As
of December 31, 1999, commercial loans, including commercial loans secured by
real estate, totaled $116 million.
Consumer Lending
Fidelity consumer lending primarily consists of indirect automobile
lending and consumer credit cards. Fidelity also makes direct consumer loans,
including direct automobile loans, home equity and personal loans.
Indirect Automobile Lending. Fidelity acquires, on a non-recourse
basis, consumer installment contracts secured by new and used vehicles purchased
by consumers from motor vehicle dealers located primarily in Atlanta, Georgia
and Northeastern Florida. As of December 31, 1999, the aggregate amount of
indirect automobile loans outstanding was $284 million, representing 39.3% of
FNB's total loan portfolio. Approximately 53% and 30% of the outstanding
indirect automobile loans at December 31, 1999, were originated in the Atlanta
and Jacksonville, Florida offices, respectively. An additional $285 million of
indirect automobile loans originated and sold by Fidelity are being serviced by
Fidelity for others. Each potential sales finance contract is reviewed for
creditworthiness and collateral value by Fidelity, which notifies the automobile
dealer as to the terms (including interest rate and length of contract) on which
the loan will be made to the dealer's customer. Since the sales finance
contracts are purchased on a nonrecourse basis, no credit is being extended to
the dealers and the dealers have no liability for the sales finance contracts
purchased from them, except to the extent of the dealer reserve discussed below
and representations and warranties in the dealer's agreement. Once the loan has
been documented, the dealer sells the contract to Fidelity.
The interest rate quoted by a dealer on a sales finance contract may
exceed the interest charged by Fidelity on the particular contract. That
interest differential or flat fee, depending on dealer arrangement, is amortized
in a prepaid asset account. Usually 75% to 100% of the interest differential or
flat fee is immediately paid to the dealer as compensation for originating and
documenting the loan. The unpaid portion is retained in the dealer holdback
account and Fidelity may deduct from this account prepayments, rebates,
charge-offs and any rebates of interest charges due Fidelity on sales finance
contracts purchased from the dealer. If any amount is remaining in the holdback
account at the time all sales finance contracts purchased by Fidelity from the
dealer have been paid in full, such amount is paid to the dealer. As of December
31, 1999, the balance in the holdback accounts was $125,000. The potential
charge-offs in excess of the holdback are provided for by the allowance for loan
losses. Net charge-offs on indirect automobile loans for the two years ended
December 31, 1999 and 1998, were $1.9 million and $2.0 million, respectively.
Credit Card Loans. Fidelity offers Visa, MasterCard, Visa Gold,
affinity Visa programs and sponsors Visa/MasterCard agent bank relationships.
These programs are offered on a nationwide
3
<PAGE> 5
basis to persons, businesses, partnerships and associations who meet Fidelity's
established underwriting standards with respect to income, credit rating,
established residence or domicile and employment. Credit card loans are subject
to seasonal fluctuations based on consumer spending habits, with the outstanding
balances of such credit card loans rising at the end of each calendar year. At
December 31, 1999, credit card loans were approximately $99 million, or 13.8% of
the total loan portfolio. The credit card portfolio was built substantially
through affinity programs. The affinity programs include colleges, associations
and other entities which contract to assist Fidelity in marketing its credit
cards in return for issuance and transaction fee income.
Residential Mortgage Banking
Fidelity Mortgage, a division of the Bank, is engaged in the
residential mortgage banking business, focusing on one-to-four family
properties. Fidelity Mortgage offers Federal Housing Authority ("FHA"), Veterans
Administration ("VA"), conventional and non-conforming loans (those with
balances over $252,700). In addition, loans are purchased from independent
mortgage companies located in the southeast. Fidelity Mortgage operates its
residential mortgage banking business from four locations in the Atlanta
metropolitan area and also has a loan origination office in Jacksonville,
Florida. Fidelity Mortgage is an approved originator and servicer for Federal
Home Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage
Association ("FNMA") and is an approved originator for loans insured by Housing
and Urban Development ("HUD").
Mortgage loans held-for-sale fluctuate due to economic conditions,
interest rates, the level of real estate activity and seasonal factors. During
1999, Fidelity Mortgage originated approximately $33 million in loans to be held
in Fidelity's portfolio. During 1999, Fidelity Mortgage discontinued servicing
mortgage loans for third parties. Fidelity Mortgage sells mortgages, service
released, to investors.
Securities Brokerage Services
Fidelity Capital commenced business as a full-service broker in late
1992. Fidelity Capital is also a registered investment advisor with the
Securities and Exchange Commission, operates as a fully disclosed introducing
broker and is a member of the National Association of Securities Dealers
("NASD"). Fidelity Capital operates from its headquarters in Atlanta and from
three other offices in Fidelity's banking facilities in the Atlanta metropolitan
area.
Trust Products and Services
Fidelity provides investment products and services to individuals and
organizations under trust and agency agreements. At December 31, 1999, the Bank
serviced approximately $220 million in assets, with the majority of accounts in
custodial and self-directed IRAs. Other services include personal trusts,
employee benefit trusts, guardianships, estate settlement accounts, management
agency accounts and corporate trusts.
4
<PAGE> 6
International Trade Services
Fidelity provides services to individuals and business clients in
meeting their international business requirements. Letters of credit, foreign
currency drafts, foreign and documentary collections, export finance and
international wire transfers are some of the services provided.
SIGNIFICANT OPERATING POLICIES
Lending Policy
Lending authority is delegated by the Board of Directors of the Bank to
loan officers, each of whom is limited as to the amount of secured and unsecured
loans that the loan officer can make to a single borrower or related group of
borrowers. All loans in excess of $100,000 (new relationships) or $250,000
(existing relationships) must be approved by a committee of officers of the
Bank. All loans over $500,000 must be approved by the President and Chief
Executive Officer of the Bank or the Chairman of the Board of the Bank. All
loans in excess of $1,000,000 must be approved by the Loan and Discount
Committee of the Board of Directors of the Bank.
The Bank provides written guidelines for lending activities. Secured
loans, except indirect installment loans which are generally secured by the
vehicle purchased, are to be made to persons who are well-established and have
net worth, collateral and cash flow to support the loan. Real estate loans are
made only when such loans are secured by real property located primarily in
Georgia or Florida. Unsecured loans, except credit card loans, normally are to
be made by the Bank only to persons who maintain depository relationships with
the Bank. Any loan renewal request is reviewed in the same manner as an
application for a new loan.
Under certain circumstances, the Bank takes investment securities as
collateral for loans. If the purpose of the loan is to purchase or carry margin
stock, the Bank will not advance loan proceeds of more than 50% of the market
value of the stock serving as collateral. If the loan proceeds will be used for
purposes other than purchasing or carrying margin stock, the Bank generally will
lend up to 70% of the current market value of the stock serving as collateral.
Making loans to businesses for working capital is a traditional
function of commercial banks. Such loans are expected to be repaid out of the
current earnings of the commercial entity. The ability of the borrower to
service its debt is dependent upon the success of the commercial enterprise. It
is the policy of the Bank to require security for these loans.
For loans that are collateralized by inventory, furniture, fixtures and
equipment, the Bank does not generally advance loan proceeds of more than 50% of
the inventory value and more than 50% of the furniture, fixtures and equipment
value serving as collateral. When inventory serves as primary collateral,
accounts receivable generally will also be taken as collateral. Maximum
collateral values for accounts receivable is 80% of eligible receivables
outstanding. No collateral value will be assigned for accounts receivable
outstanding past 90 days.
5
<PAGE> 7
Many of the Bank's commercial loans are secured by real estate (and
thus are categorized as real estate mortgage loans) because such collateral may
be superior to other types of collateral owned by small businesses. Loans
secured by commercial real estate, however, are subject to certain inherent
risks. Commercial real estate may be substantially illiquid, and commercial real
estate values are difficult to ascertain and are subject to wide fluctuations
depending upon economic conditions. For loans in excess of $250,000, the Bank
generally requires that qualified independent appraisers determine the value of
any commercial real estate taken as collateral, and the Bank will generally lend
75% of the appraised value or the purchase price of the real estate, whichever
is less.
The Bank originates short-term residential construction loans for
detached housing and a limited number of residential acquisition and development
loans in the Atlanta and Jacksonville metropolitan areas. Residential
construction loans are made through the use of officer guidance lines, which are
approved, when appropriate, by the Bank's Loan and Discount Committee. Specific
maximum loan commitment and numbers of unsold houses allowed are clearly
identified for each of the approximately 75 builders' officer guidance lines.
Each loan is individually reviewed and approved by the loan officer and is
subject to an appraisal and a maximum 80% loan-to-value ratio.
These guidelines are approved for established builders with track
records and adequate financial strength to support the credit being requested.
Loans may be for speculative starts or for pre-sold residential property to
specific purchasers. As of December 31, 1999, approximately $67 million (9.2% of
total loans) was outstanding on total residential construction loans, of which
approximately $20 million was for acquisition and development loans. Acquisition
and development loans generally have 18 month or shorter maturities and are for
the purpose of developing lots for a builder's own building program usage or are
generally pre-sold to an established builder or builders.
Inter-agency guidelines adopted by Federal banking regulators,
including the Office of the Comptroller of the Currency ("OCC"), require that
financial institutions establish real estate lending policies. The guidelines
also established certain maximum allowable real estate loan-to-value standards.
The Bank has adopted the Federal standards as its maximum allowable standards,
but has in place loan policies which are, in some cases, more conservative than
the OCC guidelines. The Bank and OCC guidelines require maximum allowable
loan-to-value ratios for various types of real estate loans as set forth in the
following schedule:
6
<PAGE> 8
<TABLE>
<CAPTION>
MAXIMUM ALLOWABLE
LOAN CATEGORY LOAN-TO-VALUE RATIO
-------------------
<S> <C>
Land............................................ 65%
Land development................................ 75
Construction:
Commercial, multifamily(1) and other
nonresidential.............................. 80
One-to-four family residential.................. 85
Improved property............................... 85
Owner-occupied one-to-four family and
home equity(2)............................... --
</TABLE>
- ----------
(1) Multifamily construction includes condominiums and cooperatives.
(2) A loan-to-value limit has not been established for permanent mortgage
or home equity loans on owner-occupied, one-to-four family residential
property. However, for any such loan with a loan-to-value ratio that
equals or exceeds 90% at origination, appropriate credit enhancement in
the form of either mortgage insurance or readily marketable collateral
should be required.
Potential specific risk elements associated with each of the Bank's
lending categories include the following:
<TABLE>
<S> <C>
Credit cards................................ Employment status, changes in
local economy, unsecured credit
risks
Installment loans to
individuals................................ Employment status, changes in
local economy, difficulty in
monitoring collateral (vehicle,
boat, mobile home) and limited
personal contact as a result of
indirect lending through dealers
Commercial, financial
and agricultural.......................... Industry concentrations,
difficulty in monitoring the
valuation of collateral
(inventory, accounts receivable
and vehicles), borrower
management expertise, increased
competition, and specialized or
obsolete equipment as collateral
Real estate-residential
construction ............................ Inadequate collateral and change
in market conditions
Real estate-residential
mortgage.................................. Changes in local economy and
caps on variable rate loans
</TABLE>
7
<PAGE> 9
Management believes that the outstanding loans included in each of
these categories do not represent more than the normal risks associated with
these categories, as described above. Fidelity's underwriting and asset quality
monitoring systems focus on minimizing the risks outlined above.
Loan Review and Nonperforming Assets
The Bank's credit administration department reviews its loan portfolio
to identify potential deficiencies and appropriate corrective action. The credit
administration department attempts to review 30% to 45% of commercial and
construction loan portfolios and 10% of the consumer portfolio annually. The
results of the reviews are presented to the Bank's Board of Directors on a
monthly basis. Loan reviews are performed on credits that are selected according
to their risk. Past due loans are reviewed weekly by each lending officer and by
the credit administration department. A summary report is reviewed monthly by
the Bank's Board of Directors. The Bank Loan and Discount Committee of the Board
of Directors of the Bank annually reviews all loans over $1.0 million.
A sampling of credit card accounts are reviewed on a monthly basis for
compliance with credit policy. Review procedures include a determination of
whether the appropriate review of employment, residence and other information
has been completed, recalculation of the borrower's debt coverage ratio, and
analysis of the borrower's credit history to determine if it meets the Bank's
established criteria. Policy exceptions are analyzed monthly. Delinquencies are
monitored daily. Accounts are charged off after they are 180 days past due in
accordance with industry practice.
A 10% sample of consumer loans is reviewed on a monthly basis in
compliance with the Bank's policies and procedures.
A provision for loan losses and a corresponding increase in the
allowance for loan losses are recorded monthly, taking into consideration the
historical charge-off experience, delinquency, current economic conditions and
management's estimate of losses inherent in the loan portfolio.
Asset/Liability Management
Fidelity's asset/liability committee (the "Committee") is comprised of
officers of Fidelity and the Bank who are charged with managing Fidelity's
assets and liabilities. The Committee attempts to manage asset growth, liquidity
and capital in order to maximize income and reduce interest rate risk. The
Committee directs Fidelity's overall acquisition and allocation of funds. At its
monthly meetings, the Committee reviews and discusses the monthly asset and
liability funds budget and projections in relation to the actual flow of funds.
The Committee also reviews and discusses peer group comparisons, the ratio of
the amount of rate-sensitive assets to the amount of rate-sensitive liabilities
and other variables, such as expected loan demand, investment opportunities,
core deposit growth within specified categories, regulatory changes, monetary
policy adjustments and the overall state of the economy.
8
<PAGE> 10
Investment Policy
Fidelity's investment portfolio policy is to maximize income consistent
with liquidity, asset quality, regulatory constraints and asset/liability
objectives. The policy is reviewed at least annually by Fidelity's and the
Bank's Board of Directors. The Boards of Directors are provided information
monthly concerning sales, purchases, resulting gains or losses, average
maturity, Federal taxable equivalent yields and appreciation or depreciation by
investment categories.
SUPERVISION AND REGULATION
Holding Company Regulation
Fidelity is a registered bank holding company subject to regulation by
the Federal Reserve Board ("Federal Reserve" or "FRB") under the Bank Holding
Company Act of 1956, as amended ("Holding Company Act"). Fidelity is required to
file financial information with the Federal Reserve periodically and is subject
to periodic examination by the Federal Reserve.
The Holding Company Act requires every bank holding company to obtain
the prior approval of the Federal Reserve (i) before it may acquire, direct or
indirect, ownership or control of more than 5% of the voting shares of any bank
that it does not control; (ii) before it or any of its subsidiaries, other than
a bank, may acquire all or substantially all of the assets of a bank; and (iii)
before it may merge or consolidate with any other bank holding company. In
addition, a bank holding company is generally prohibited from engaging in
non-banking activities, or acquiring direct or indirect control of voting shares
of any company engaged in such activities. This prohibition does not apply to
activities found by the Federal Reserve, by order or regulation, to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal Reserve has determined
by regulation or order to be closely related to banking are: making or servicing
loans and certain types of leases; performing certain data processing services;
acting as fiduciary or investment or financial advisor; providing discount
brokerage services; and making investments in corporations or projects designed
primarily to promote community welfare.
Fidelity must also register with the Georgia Department of Banking and
Finance ("GDBF"). Such registration filing includes information with respect to
the financial condition, operations, management and intercompany relationships
of Fidelity, Fidelity and its other subsidiaries, and related matters. The GDBF
may also require such other information as is necessary to keep itself informed
as to whether the provisions of Georgia law and the regulations and orders
issued thereunder by the GDBF have been complied with, and the GDBF may make
examinations of Fidelity.
Fidelity and Fidelity Capital are "affiliates" of Fidelity National
Bank under the Federal Reserve Act, which imposes certain restrictions on (i)
loans by the Bank to Fidelity, (ii) investments in the stock or securities of
Fidelity by the Bank, (iii) the Bank's accepting the stock or securities of one
of its affiliates from a borrower as collateral for loans and (iv) the purchase
of assets from Fidelity by the Bank. Further, a bank holding company and its
subsidiaries are prohibited from
9
<PAGE> 11
engaging in certain tie-in arrangements in connection with any grant of credit,
lease or sale of property or furnishing of services.
Bank Regulation
The Bank is a national bank chartered under the National Bank Act. The
Bank and its wholly owned subsidiaries are subject to the supervision of, and
are regularly examined by, the OCC. The OCC regulates and monitors all areas of
the Bank's operations and activities, including reserves, loans, mergers,
issuances of securities, payments of dividends, interest rates, mortgage
servicing, accounting and establishment of branches. Interest and certain other
charges collected or contracted for by the Bank are also subject to state usury
laws or certain Federal laws concerning interest rates.
The Bank is insured by the Federal Deposit Insurance Corporation (the
"FDIC"). The major functions of the FDIC with respect to insured banks include
paying depositors to the extent provided by law if an insured bank is closed
without adequate provision having been made to pay claims of depositors, acting
as a receiver of state banks placed in receivership when appointed receiver by
state authorities and preventing the development or continuance of unsound and
unsafe banking practices. The FDIC also has the authority to recommend to the
appropriate Federal agency supervising an insured bank that the agency take
informal action against such institution and to act to implement the enforcement
action itself if the agency fails to follow the FDIC's recommendation. The FDIC
also has the authority to examine all insured banks.
In 1991, the Federal Deposit Insurance Corporation Improvement Act of
1991 ("1991 Act") was adopted, the principal initial effect of which was to
permit the Bank Insurance Fund ("BIF") to borrow up to $30 billion from the U.S.
Treasury (to be repaid through deposit insurance premiums over 15 years) and to
permit the BIF to borrow working capital from the Federal Financing Bank in an
amount up to 90% of the value of the assets the FDIC has acquired from failed
banks. Pursuant to the 1991 Act, the FDIC has implemented a risk-based
assessment system whereby banks are assessed on a sliding scale depending on
their placement in nine separate supervisory categories. Effective June 1, 1996,
the BIF reached a reserve ratio of 1.30% of total estimated deposits and the
FDIC lowered the assessment rate schedule for BIF members to no assessment for
the healthiest banks to $.27 per $100 of deposits for less healthy institutions.
The Bank's BIF assessment rate was $0.03 per $100 of deposits at December 31,
1999.
As a result of the Bank's capital position in 1997, its FDIC
assessments increased significantly. Based on the Bank's improved operations and
capital position, the assessment was substantially reduced in 1999. The Bank's
total FDIC insurance and SAIF assessments for the three years ended December 31,
1997, 1998 and 1999 were $1,065,000, $1,208,000 and $271,949, respectively.
Various other sections of the 1991 Act impose substantial new auditing
and reporting requirements and increase the role of independent accountants and
outside directors on banks having assets of $500 million or more, and regulators
may encourage smaller banks to comply with such requirements. The 1991 Act also
provides for a ban on the acceptance of brokered deposits except by well
capitalized institutions and by adequately capitalized institutions with the
permission of the
10
<PAGE> 12
FDIC, and for restrictions on the activities engaged in by state banks and their
subsidiaries as principal, including insurance underwriting, to the same
activities permissible for national banks and their subsidiaries, unless the
state bank is well capitalized and a determination is made by the FDIC that the
activities do not pose a significant risk to the insurance fund. The effect on
Fidelity of these measures contained in the bill will be to a great extent
dependent upon the manner in which bank regulatory authorities interpret and
enforce regulations that have been issued pursuant to the 1991 Act.
Capital Requirements
The information contained in note 11 to Fidelity's 1999 Annual Report
to Shareholders under the heading "Shareholders' Equity" is incorporated herein
by reference.
Interstate Banking Act
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act") became law. The Interstate
Banking Act has two major provisions regarding the merger, acquisition and
operation of banks across state lines. First, it provides that, effective
September 29, 1995, adequately capitalized and managed bank holding companies
will be permitted to acquire banks in any state. State laws prohibiting
interstate banking or discriminating against out-of-state banks will be
preempted as of the effective date. States cannot enact laws opting out of this
provision; however, states may adopt a minimum restriction requiring that target
banks located within the state be in existence for a period of years, up to a
maximum of five years, before such bank may be subject to the Interstate Banking
Act. The Interstate Banking Act establishes deposit caps which prohibit
acquisitions that would result in the acquirer controlling 30% or more of the
deposits of insured banks and thrifts held in the state in which the acquisition
or merger is occurring or in any state in which the target maintains a branch or
10% or more of the deposits nationwide. State-level deposit caps are not
preempted as long as they do not discriminate against out-of-state acquirers,
and the Federal deposit caps apply only to initial entry acquisitions.
The legislation also provides that, unless an individual state elects
beforehand either (i) to accelerate the effective date or (ii) to prohibit
out-of-state banks from operating interstate branches within its territory, on
or after June 1, 1997, adequately capitalized and managed bank holding companies
will be able to consolidate their multistate bank operations into a single bank
subsidiary and to branch interstate through acquisitions. De novo branching by
an out-of-state bank would be permitted only if it is expressly permitted by the
laws of the host state. The authority of a bank to establish and operate
branches within a state will continue to be subject to applicable state
branching laws. The State of Georgia has enacted legislation in connection with
the Interstate Banking Act which requires that a bank located within the state
must be in existence for a period of five years before it may be acquired by an
out-of-state institution. This state legislation also requires out-of-state
institutions to purchase an existing bank or branch in the state rather than
starting a de novo bank. Many states, including Georgia, have enacted
legislation which permits banks with different home states to merge if the
states involved have enacted legislation permitting interstate bank mergers
prior to June 1, 1997. Under Georgia law, as of July 1, 1998, new or additional
branch banks may be established anywhere in the state with the prior approval of
the appropriate regulator.
11
<PAGE> 13
The Interstate Banking Act was amended on July 3, 1997, for the purpose
of ensuring that state banks are competitive with national banks under the new
interstate banking laws. The amendment provides that state law of the host
state applies to an out-of-state, state-chartered bank that branches in the
host state to the same extent that it applies to a national bank operating a
branch in the host state. The law also provides that bank branches operating
in the host state and chartered in another state may exercise powers they have
under their home-state charters if host state-chartered banks or national banks
may exercise those powers.
Fidelity believes that this legislation may result in increased
takeover activity of Georgia financial institutions by out-of-state financial
institutions. Fidelity does not presently anticipate that such legislation will
have a material impact on its operations or future plans.
Impact of Enactment of the Gramm-Leach-Bliley Act
On November 12, 1999, the President signed the Gramm-Leach-Bliley Act
("Gramm-Leach"), which, among other things, establishes a comprehensive
framework to permit affiliations among commercial banks, insurance companies and
securities firms. Generally, the new law (i) repeals the historical restrictions
and eliminates many Federal and state law barriers to affiliations among banks
and securities firms, insurance companies and other financial service providers,
(ii) provides a uniform framework for the activities of banks, savings
institutions and their holding companies, (iii) broadens the activities that may
be conducted by subsidiaries of national banks and state banks, (iv) provides an
enhanced framework for protecting the privacy of information gathered by
financial institutions regarding their customers and consumers, (v) adopts a
number of provisions related to the capitalization, membership, corporate
governance and other measures designed to modernize the Federal Home Loan Bank
System, (vi) requires public disclosure of certain agreements relating to funds
expended in connection with an institution's compliance with the Community
Reinvestment Act, and (vii) addresses a variety of other legal and regulatory
issues affecting both day-to-day operations and long-term activities of
financial institutions, including the functional regulation of bank securities
and insurance activities.
Bank holding companies are now permitted to engage in a wider variety
of financial activities than permitted under the prior law, particularly with
respect to insurance and securities activities. In addition, in a change from
the prior law, bank holding companies are in a position to be owned, controlled
or acquired by any company engaged in financially related activities.
Activity Restrictions
The Bank Holding Company Act generally limits a company's activities to
managing or controlling banks, furnishing services to or performing services for
its subsidiaries and engaging in other activities that the FRB determines to be
so closely related to banking or managing or controlling banks as to be a proper
incident thereto. In determining whether a particular activity is permissible,
the FRB must consider whether the performance of such an activity reasonably can
be expected to produce benefits to the public that outweigh possible adverse
effects. Possible benefits include greater convenience, increased competition
and gains in efficiency. Possible adverse effects
12
<PAGE> 14
include undue concentration of resources, decreased or unfair competition,
conflicts of interest and unsound banking practices. The FRB has determined the
following activities, among others, to be permissible for bank holding
companies:
- Factoring accounts receivable;
- Acquiring or servicing loans;
- Leasing personal property;
- Conducting discount securities brokerage activities;
- Performing certain data processing services;
- Acting as agent or broker and selling credit life insurance
and certain other types of insurance in connection with
credit transactions;
- Performing certain limited insurance underwriting activities;
- Acting as a fiduciary, investment or financial advisor;
- Making investments in corporations or projects designed
primarily to promote community welfare; and
- Acquiring savings and loan associations.
Effective March 11, 2000, Gramm-Leach expands the range of permitted
activities of certain bank holding companies to include the offering of
virtually any type of service that is financial in nature or incidental thereto,
including banking, securities underwriting, insurance (both underwriting and
agency), merchant banking, acquisitions of and combinations with insurance
companies and securities firms and additional activities that the FRB, in
consultation with the Secretary of the Treasury, determines to be financial in
nature, incidental to such financial activities, or complementary activities
that do not pose a substantial risk to the safety and soundness of depository
institutions or the financial system generally. In order to engage in these new
activities, a bank holding company must qualify and register with the FRB as a
financial holding company. To qualify as a financial holding company, a bank
holding company must demonstrate that each of its bank subsidiaries is
well-capitalized and well-managed and has a rating of "satisfactory" or better
under the Community Reinvestment Act of 1977 ("CRA"). Certain of the additional
activities authorized under Gramm-Leach may also be undertaken by a financial
subsidiary of a bank. Under Gramm-Leach, a functional system of regulation will
apply to financial holding companies under which banking activities will be
regulated by the Federal banking regulators, securities activities will be
regulated by the Federal securities regulators, and insurance activities will be
subject to regulation by the appropriate state insurance authorities.
Fidelity has not yet determined whether it will seek to qualify as or
engage in any of the additional activities authorized for a financial holding
company. Fidelity is exploring whether to utilize any of the expanded powers
permitted by Gramm-Leach.
Regulation of Mortgage Banking
The mortgage banking industry is subject to the rules and regulations
of, and examinations by, the GDBF, FNMA, FHLMC, Government National Mortgage
Association ("GNMA"), HUD, FHA and state regulatory authorities with respect to
originating, processing, underwriting, selling,
13
<PAGE> 15
securitizing and servicing residential mortgage loans. In addition, there are
other Federal and state statutes and regulations affecting such activities.
The Mortgage Act requires that mortgage brokers and lenders, including
the Bank, make certain disclosures to applicants for mortgage loans. The
Mortgage Act also provides authority for the GDBF to promulgate rules with
respect to escrow accounts and the advertising of mortgage loans, and the GDBF
has promulgated regulations governing mortgage loan advertising. In addition,
the Mortgage Act imposes restrictions on unfair mortgage banking practices, as
defined by the Mortgage Act.
There are numerous rules and regulations imposed on mortgage loan
originators that require originators to obtain and maintain licenses; establish
eligibility criteria for mortgage loans; prohibit discrimination; regulate
advertising of loans; encourage lenders to identify and meet the credit needs of
the community, including low and moderate income neighborhoods, consistent with
sound lending practices, by requiring certain statistical information be
maintained and publicly available regarding mortgage lending practices within
certain geographical areas; provide for inspections and appraisals of
properties; require credit reports on prospective borrowers; regulate payment
features; and, in some cases, fix maximum interest rates, fees and loan amounts.
Failure to comply with these requirements can lead to loss of approved status,
termination of servicing contracts without compensation to the servicer, demands
for indemnification or loan repurchases and administrative enforcement actions.
Broker-Dealer Regulation
Securities broker-dealers are subject to extensive regulation.
Generally, broker-dealers must register with the Commission and the states in
which they operate. All broker-dealers must be members of the National
Association of Securities Dealers ("NASD"), subject to its rules and
disciplinary procedures. Personnel of broker-dealers engaged in sales activities
must be licensed as salespeople under the appropriate state laws and register
with the NASD. Registered broker-dealers are subject to detailed record keeping
and reporting requirements. The extent to which broker-dealers can extend credit
is also subject to regulation. Fidelity Capital, as a registered broker-dealer,
is also subject to rules regarding minimum capital, disclosure obligations,
restrictions on markups, and other matters.
COMPETITION
The banking business is highly competitive. Fidelity's primary market
area, other than for credit cards, residential mortgages and indirect automobile
loans, consists of Fulton, DeKalb, Cobb and Gwinnett counties, Georgia. The Bank
competes for traditional bank business with numerous other commercial banks and
thrift institutions with offices in Fidelity's primary trade area and internet
banks, many of which have greater financial resources than Fidelity. Fidelity
also competes for loans with insurance companies, regulated small loan
companies, credit unions and certain governmental agencies. Fidelity Capital
competes with independent brokerage and investment companies as well as state
and national banks and their affiliates and other financial companies. There can
be no assurance that additional companies will not offer products and services
that are
14
<PAGE> 16
competitive with those offered by Fidelity and its subsidiaries. The emergence
of such competitors could have a material adverse effect on results of
operations and financial condition of Fidelity.
The credit card, indirect automobile financing and mortgage banking
industries are also highly competitive. Fidelity competes with banks and special
purpose credit card banks and companies throughout the United States as well as
entities such as General Motors Corporation for credit card customers. In the
indirect automobile financing industry, Fidelity competes with specialty
consumer finance companies in addition to banks. The residential mortgage
banking business of Fidelity competes with independent mortgage banking
companies, state and national banks and their subsidiaries, as well as thrift
institutions and insurance companies. There can be no assurance that additional
companies will not offer products and services that are competitive with those
offered by Fidelity. The emergence of such competitors could have a material
adverse effect on the results of operations and financial condition of Fidelity.
EMPLOYEES
As of December 31, 1999, Fidelity had 437 full-time equivalent
employees. Fidelity is not a party to any collective bargaining agreement.
Fidelity believes that its employee relations are good.
EXECUTIVE OFFICERS
Executive officers are elected by the Board of Directors annually at
the Board of Directors' meeting held directly after the Annual Meeting of
Shareholders and hold office until the next election, unless they sooner resign
or are removed from office.
Fidelity's executive officers, their ages, their positions with
Fidelity at March 1, 2000, and the period during which the person served as an
executive officer, are as follows:
<TABLE>
<CAPTION>
Officer
Name Age Since Position
---- --- ----- --------
<S> <C> <C> <C>
James B. Miller, Jr. 59 1979 Chairman of the Board, President and
Chief Executive Officer of Fidelity
since 1979; Chairman of Fidelity
Bank since 1998; President of the
Bank from 1977 to 1997, and Chairman
of Fidelity Capital since 1992.
Larry D. Peterson 51 1997 Vice President of Fidelity since
1997; President and Chief Executive
Officer of the Bank since 1997.
David Buchanan 42 1995 Vice President of Fidelity since
1999; Senior Vice President of the
Bank since 1995.
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
Officer
Name Age Since Position
---- --- ----- --------
<S> <C> <C> <C>
M. Howard Griffith, Jr. 56 1994 Principal Accounting Officer of
Fidelity and Chief Financial Officer
of the Bank since February 1994.
H. Palmer Proctor, Jr. 32 1996 Vice President of Fidelity since
1996; Vice President of the Bank
since 1993. Joined the Bank as a
Management Associate in 1990.
R. Phillip Shinall, III 53 1999 General Counsel of Fidelity and the
Bank since August 30, 1999. A
director of the Bank since 1979.
</TABLE>
RISK FACTORS
Credit Card Loan Loss Trends; Seasoning Risks of Credit Card Portfolio
Since 1997, when Fidelity experienced higher than historical levels of
loan losses on its credit card loans, there has been a significant decline in
the level of loan losses to the point that they now approximate industry norms.
There can be no assurance that credit card losses will not return to higher than
historical levels in the future. Credit card loan losses exceeding Fidelity's
current rate could have a material adverse affect on the results of operations
and financial condition of Fidelity.
Credit Risk and Loan Concentration
A major risk facing lenders is the risk of losing principal and
interest as a result of a borrower's failure to perform according to the terms
of the loan agreement, or "credit risk." Real estate loans include residential
mortgages and construction and commercial loans secured by real estate.
Fidelity's credit risk with respect to its real estate loans relates principally
to the value of the underlying collateral. Fidelity's credit risk with respect
to its indirect automobile loans and commercial loans relates principally to the
general creditworthiness of the borrowers, who primarily are individuals and
small and medium-sized businesses in the metropolitan areas of Atlanta, Georgia
and Jacksonville, Florida. While indirect automobile loans are secured, they are
characterized by loan to value ratios that could result in Fidelity not
recovering the full value of an outstanding loan upon default by the borrower.
Fidelity's credit risk with respect to its credit card portfolio relates
principally to the general creditworthiness of individuals in light of the
unsecured nature of credit card loans. There can be no assurance that the
allowance for loan losses will be adequate to cover future losses in the
existing loan portfolios. Loan losses exceeding Fidelity's historical rates
could have a material adverse affect on the results of operations and financial
condition of Fidelity.
16
<PAGE> 18
Potential Impact of Change in Interest Rates
The profitability of Fidelity depends to a large extent upon its net
interest income, which is the difference between interest income on
interest-earning assets, such as loans and investments, and interest expense on
interest-bearing liabilities, such as deposits and borrowings. The net interest
income of Fidelity would be adversely affected if changes in market interest
rates resulted in the cost of interest-bearing liabilities increasing faster
than the increase in the yield on the interest-earning assets of Fidelity. In
addition, a decline in interest rates may result in greater than normal
prepayments of the higher interest-bearing obligations held by Fidelity.
Management Information Systems
The sophistication and level of risk of Fidelity's business requires
the utilization of thorough and accurate management information systems. Failure
of management to effectively implement, maintain, update and utilize updated
management information systems could prevent management from recognizing in a
timely manner deterioration in the performance of its business, particularly its
credit card and indirect automobile loan portfolios. Such failure to effectively
implement, maintain, update and utilize comprehensive management information
systems could have a material adverse effect on the results of operations and
financial condition of Fidelity.
Adverse Economic Conditions
Fidelity's major lending activities are indirect automobile, credit
card, and real estate and commercial loans. Indirect automobile loans and
residential mortgage loans are also produced for resale, with servicing rights
retained for indirect automobile loans only. An increase in interest rates could
have a material adverse effect on the housing and automobile industries and
consumer spending generally. In addition, an increase in interest rates could
cause a decline in the value of residential mortgages and indirect automobile
loans held-for-sale by Fidelity. These events could adversely affect the results
of operations and financial condition of Fidelity.
As of December 31, 1999, residential mortgages held-for-sale by
Fidelity were principally on real property located in the metropolitan areas of
Atlanta, Georgia and Jacksonville, Florida. Fidelity's indirect automobile loans
have been obtained principally from automobile dealers located in the
metropolitan areas of Jacksonville, Florida, and Atlanta, Georgia. As of
December 31, 1999, credit card loans were concentrated with borrowers in
Georgia, California, Texas and Florida. Adverse national, regional and local
economic conditions may adversely affect the results of operations and financial
condition of Fidelity.
Dependence on Key Personnel
Fidelity currently depends heavily on the services of its Chief
Executive Officer, James B. Miller, Jr, and a number of other key management
personnel. The loss of Mr. Miller's services or of other key personnel could
materially and adversely affect the results of operations and financial
condition of Fidelity. Fidelity's success will also depend in part on its
ability to attract and retain
17
<PAGE> 19
additional qualified management personnel. Competition for such personnel is
strong in the banking industry and Fidelity may not be successful in attracting
or retaining the personnel it requires.
Governmental Regulation -- Banking
Fidelity and the Bank are subject to extensive supervision, regulation
and control by several Federal and state governmental agencies, including the
FRB, OCC, GBDF, FDIC, FNMA, FHLMC, and GNMA. Future legislation, regulations and
government policy could adversely affect Fidelity and the financial institutions
industry as a whole, including the cost of doing business. Although the impact
of such legislation, regulation and policies cannot be predicted, future changes
may alter the structure of and competitive relationships among financial
institutions and the cost of doing business.
Governmental Regulation -- Mortgage Banking
The mortgage banking operations of Fidelity are subject to extensive
regulation by Federal and state governmental authorities and agencies, including
FNMA, FHLMC, GNMA, the Federal Housing Authority, and the Veterans
Administration. Consequently, Fidelity is subject to various laws, rules and
regulations and judicial and administrative decisions that, among other things,
regulate credit-granting activities, govern secured transactions, and establish
collection, repossession and claims-handling procedures and other trade
practices. Failure to comply with regulatory requirements can lead to loss of
approved status, termination of servicing contracts without compensation to the
servicer, demands for indemnification or mortgage loan repurchases, class action
lawsuits and administrative enforcement actions. Although Fidelity believes that
it is in compliance in all material respects with applicable federal, state and
agency laws, rules and regulations, there can be no assurance that more
restrictive laws, rules and regulations will not be adopted in the future which
could make compliance more difficult or expensive, restrict Fidelity's ability
to originate, purchase or sell mortgage loans, further limit or restrict the
amount of interest and other fees that may be earned or charged on mortgage
loans originated, purchased or serviced by Fidelity or otherwise adversely
affect the results of operations and financial condition of Fidelity.
Governmental Regulation -- Securities
The securities industry in the United States is subject to extensive
regulation under both Federal and state laws. Broker-dealers are subject to
regulations covering all aspects of the securities business, including sales
methods, trade practices among broker-dealers, use and safekeeping of customers'
funds and securities, capital structure, record keeping and the conduct of
directors, officers and employees. Fidelity Capital is required to comply with
many complex laws and rules as a broker-dealer, including rules relating to
possession and control of customer funds and securities, margin lending and
execution and settlement of transactions.
Additional legislation, changes in rules promulgated by the Securities
and Exchange Commission ("Commission"), NASD, the FRB, the various stock
exchange and other self-regulatory organizations, or changes in the
interpretation or enforcement of existing laws and rules, may directly affect
the mode of operation and profitability of broker-dealers. The Commission, the
NASD, and other self-regulatory organizations and state securities commissions
may conduct administrative
18
<PAGE> 20
proceedings regarding alleged violations of their rules, which can result in
censure, fine, the issuance of cease-and-desist orders or the suspension or
expulsion of a broker-dealer or any of its officers or employees. Fidelity
Capital's ability to comply with all applicable laws and rules is dependent in
large part upon the establishment and maintenance of a compliance system
reasonably designed to ensure such compliance, as well as Fidelity Capital's
ability to attract and retain qualified compliance personnel. The principal
purpose of regulation and discipline of broker-dealers is the protection of
customers and the securities markets, rather than protection of creditors and
stockholders of broker-dealers. Fidelity Capital could in the future be subject
to disciplinary or other actions due to claimed noncompliance, which could have
a material adverse effect on the results of operations and financial condition
of Fidelity.
Consumer and Debtor Protection Laws
Fidelity is subject to numerous Federal and state consumer protection
laws that impose requirements related to offering and extending credit. The
United States Congress and state governments may enact laws and amend existing
laws to regulate further the consumer industry or to reduce finance charges or
other fees or charges applicable to credit card and other consumer revolving
loan accounts. Such laws, as well as any new laws or rulings which may be
adopted, may adversely affect Fidelity's ability to collect on account balances
or maintain previous levels of finance charges and other fees and charges with
respect to the accounts. Any failure by Fidelity to comply with such legal
requirements also could adversely affect its ability to collect the full amount
of the account balances. Changes in Federal and state bankruptcy and debtor
relief laws could adversely affect the results of operations and financial
condition of Fidelity if such changes result in, among other things, additional
administrative expenses and accounts being written off as uncollectible.
Composition of Real Estate Loan Portfolio
The real estate loan portfolio of Fidelity includes residential
mortgages and construction and commercial loans secured by real estate. Fidelity
generates all of its real estate mortgage loans in Georgia and Florida.
Therefore, conditions of these real estate markets could strongly influence the
level of Fidelity's non-performing mortgage loans and the results of operations
and financial condition of Fidelity. Real estate values and the demand for
mortgages and construction loans are affected by, among other things, changes in
general or local economic conditions, changes in governmental rules or policies,
the availability of loans to potential purchasers, and acts of nature. Although
Fidelity's underwriting standards are intended to protect Fidelity against
adverse general and local real estate trends, declines in real estate markets
could adversely impact the demand for new real estate loans, the value of the
collateral securing Fidelity's loans and the results of operations and financial
condition of Fidelity.
Monetary Policy
The operating results of the Bank are affected by credit policies of
monetary authorities, particularly the Federal Reserve. The instruments of
monetary policy employed by the Federal Reserve include open market operations
in U.S. Government securities, changes in the discount rate
19
<PAGE> 21
on bank borrowings and changes in reserve requirements against bank deposits. In
view of changing conditions in the national economy and in the money markets, as
well as the effect of action by monetary and fiscal authorities, including the
Federal Reserve, no prediction can be made as to possible future changes in
interest rates, deposit levels and loan demand on the results of operations and
business of Fidelity.
Relationship with Dealers
Fidelity's indirect automobile lending operation depends in large part
upon its ability to maintain and service its relationships with automobile
dealers. There can be no assurance Fidelity will be successful in maintaining
such relationships or increasing the number of dealers with which it does
business or that its existing dealer base will continue to generate a volume of
finance contracts comparable to the volume historically generated by such
dealers.
Year 2000 Issues
While the computer systems, including software, of Fidelity and, to its
knowledge, its major customers, counterparties, correspondents and suppliers
have not been adversely affected by reason of the date change to the year 2000,
there can be no assurances that such date change may hereafter cause the
computer systems to process financial and operational information incorrectly or
not at all.
ITEM 2. PROPERTIES
Fidelity's principal executive offices consist of 49,368 leased square
feet (of which 23,939 square feet are sublet) in Atlanta, Georgia. Fidelity's
operations are principally conducted from 80,000 square feet located at 3
Corporate Square, Atlanta, Georgia. The Bank has 19 branch offices located in
Fulton, DeKalb, Cobb, Clayton and Gwinnett Counties, Georgia, where 13 are owned
and six are leased. Fidelity leases a loan production office in Jacksonville,
Florida.
ITEM 3. LEGAL PROCEEDINGS
Fidelity is a party to claims and lawsuits arising in the course of
normal business activities. Although the ultimate outcome of these claims and
lawsuits cannot be ascertained at this time, it is the opinion of management
that none of these matters when resolved will have a material adverse effect on
Fidelity's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
20
<PAGE> 22
PART II
ITEM 5. MARKET FOR FIDELITY'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
STOCK. Fidelity's Common Stock is listed on the Nasdaq National Market
under the trading symbol LION. There were approximately 570 holders of record
and approximately 2,000 beneficial owners whose shares of Fidelity's Common
Stock are held by brokers, dealers and their nominees as of March 1, 2000.
Market prices of the Fidelity's Common Stock included on the inside
back cover of the 1999 Annual Report to Shareholders are incorporated herein by
reference. The last sale price on December 31, 1999, was $7.56.
During June 1997, Fidelity 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 Fidelity subordinated debt in the principal
amount of $300,000. 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 Fidelity in the principal amount of $350,000. 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 Commission. In
September 1999, Fidelity exercised its right to redeem all of the Preferred
Stock. Shareholders owning 710,000 shares of Preferred Stock elected to convert
Preferred Stock into Common Stock, resulting in the issuance of 617,165 shares
of Common Stock.
In connection with the public offering of Common Stock in December
1997, Fidelity issued to Raymond James & Associates, Inc., the principal
underwriter, warrants to purchase 150,000 shares of Common Stock at a purchase
price of $8.25 per share. The warrants are exercisable during the four-year
period commencing December 12, 1998. The issuance of the warrants was exempt
from registration under Section 4(2) of the Securities Act of 1933.
DIVIDENDS. Fidelity paid $.16 and $.04 per share in cash dividends on
the Common Stock in 1999 and 1998, respectively.
Restrictions on Dividends - Indenture. The indenture ("Indenture")
relating to the 8 1/2% Subordinated Notes ("Notes") provides that Fidelity may
not pay cash dividends on its capital stock or redeem any shares of its capital
stock if the cumulative dividends and redemptions would exceed cumulative
consolidated net income of Fidelity for the three-year period ending on the
dividend declaration date or redemption date. In addition, no dividend can be
declared on the capital stock if an event of default has occurred and is
continuing under the Notes, including the failure to pay interest on such
indebtedness or default on other indebtedness exceeding $1 million. See Note 11
to the Consolidated Financial Statements.
21
<PAGE> 23
Fidelity currently is not in default of the covenant of the Indenture
restricting dividend payments.
Restrictions on Dividends by FNB - Regulations. Under the regulations
of the OCC the Bank may declare dividends out of net profits. The approval of
the OCC is required if the total of all dividends declared by the Bank exceeds
the total of its net profits for the year, combined with its retained net
profits for the preceding two years. The payment of dividends by the Bank may
also be affected or limited by other factors, such as the requirement to
maintain capital above regulatory guidelines. At December 31, 1999, the Bank's
total shareholders' equity totaled approximately $57 million. Based on the rules
of the OCC, the Bank could pay $7.9 million in dividends without OCC regulatory
approval. During 1998, no dividends were paid by the Bank on its Common Stock,
however, dividends of $568,444 were paid on its Preferred Stock. In 1999, the
Bank paid dividends aggregating $800,000 on its Common Stock and $600,000 on its
Preferred Stock. In addition, if, in the opinion of the applicable regulatory
authority, a bank under its jurisdiction is engaged in or is about to engage in
an unsafe or unsound practice (which, depending upon the financial condition of
the bank, could preclude the payment of dividends), such authority may require,
after notice and hearing, that such bank cease and desist from such practice.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for each of the five years ended December 31,
1999, is included in Fidelity's 1999 Annual Report to Shareholders (page 9) and
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations appear under the caption "Consolidated Financial Review" of
Fidelity's 1999 Annual Report to Shareholders (pages 10 to 27) and is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The discussion on Market Risk appears under the caption "Consolidated
Financial Review" of Fidelity's 1999 Annual Report to Shareholder (pages 15 to
17) and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Auditors, the Consolidated Financial
Statements and Notes to the Consolidated Financial Statements of Fidelity's 1999
Annual Report to Shareholders (pages 28 to 49) are incorporated herein by
reference. Quarterly Financial Information on page 27 of Fidelity's 1999 Annual
Report to Shareholders is incorporated herein by reference.
22
<PAGE> 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF FIDELITY
The information to be contained under the heading "Information About
Nominees for Director" in the definitive Proxy Statement to be sent to
shareholders in connection with the solicitation of proxies for Fidelity's 2000
Annual Meeting of Shareholders to be held on April 20, 2000, to be filed with
the Commission, is incorporated herein by reference. Pursuant to instruction 3
to paragraph (b) of Item 401 of Regulation S-K, information relating to the
executive officers of Fidelity is included in Item 1 of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information to be contained under the headings "Executive
Compensation," "Compensation of Directors," "Compensation Committee Interlocks
and Insider Participation" in the definitive Proxy Statement to be sent to
shareholders in connection with the solicitation of proxies for Fidelity's
Annual Meeting of Shareholders to be held on April 20, 2000, to be filed with
the Commission, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information to be contained under the heading "Voting Securities
and Principal Holders" in the definitive Proxy Statement to be sent to
shareholders in connection with the solicitation of proxies for Fidelity's 2000
Annual Meeting of Shareholders to be held on April 20, 2000, to be filed with
the Commission, is incorporated herein by reference. For purposes of determining
the aggregate market value of Fidelity's voting stock held by non-affiliates,
shares held by all Fidelity directors and executive officers have been excluded.
The exclusion of such shares is not intended to, and shall not, constitute a
determination as to which persons or entities may be "affiliates" of Fidelity as
defined by the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information to be contained under the heading "Compensation
Committee Interlocks and Insider Participation" in the definitive Proxy
Statement to be sent to shareholders in connection with the solicitation of
proxies for Fidelity's 2000 Annual Meeting of Shareholders to be held on April
20, 2000, to be filed with the Commission, is incorporated herein by reference.
23
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) Financial Statements.
The following consolidated financial statements and notes thereto of
Fidelity are incorporated by reference in Item 8 of this Report:
Report of Independent Auditors
Consolidated Balance Sheet - December 31, 1999, and December 31, 1998
Consolidated Statements of Income for the Years Ended December 31,
1999, 1998, and 1997
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998, and 1997
Notes to Consolidated Financial Statements - December 31, 1999
(2) Financial Statement Schedules.
No financial statement schedules are required to be filed as part of
this Report on Form 10-K.
(3) Exhibits.
(a) The following exhibits are required to be filed with this
Report by Item 601 of Regulation S-K. Items marked with an
asterisk relate to management contracts or compensatory plan
or arrangement.
<TABLE>
<CAPTION>
Exhibit No. Name of Exhibit
----------- ---------------
<S> <C>
3(a) and 4(a) Articles of Incorporation of Fidelity, as amended (included as
Exhibit 3(a) and 4(a) to Fidelity's Registration Statement on
Form 10, Commission File No. 0-22374, filed with the
Commission and incorporated herein by reference).
3(b) ByLaws of Fidelity (included as Exhibit 3(b) and 4(b) to
Fidelity's Registration Statement on Form 10, Commission File
0-22374, filed with the Commission and incorporated herein by
reference).
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
Exhibit No. Name of Exhibit
- ----------- ---------------
<S> <C>
3(c) Articles of Amendment to the Articles of Incorporation of
Fidelity Southern Corporation (included as Exhibit 3(c) to the
Report filed on Form 8-K dated August 4, 1995, filed with the
Commission and incorporated herein by reference).
3(d) Articles of Amendment to the Articles of Incorporation of
Fidelity Corporation increasing the number of authorized
shares of capital stock (included as Exhibit 3(d) to the
Report on Form 10-K for 1996 which is incorporated by
reference).
3(e) Articles of Amendment to the Articles of Incorporation of
Fidelity Corporation authorizing the issuance of preferred
stock (included as Exhibit 3(e) to the Report on Form 10-K for
1996 which is incorporated by reference).
3(f) Amendment to Articles of Incorporation of Fidelity setting
forth the terms of the Preferred Stock (included herein by
reference to Exhibit 3(a) to Fidelity's report on Form 8-K
dated June 23, 1997).
4(b) Form of Trust Indenture (included herein by reference as
Exhibit 4(a) of Amendment 1 to Fidelity's Registration
Statement on From S-1, No.333-99174).
4(c) Form of Subordinated Note (included herein by reference to
Exhibit 4(b) of Amendment 1 to Fidelity's Registration
Statement on Form S-1, No. 33-99174).
10(a) Fidelity National Bank Defined Contribution Master Plan and
Trust Agreement and related Adoption Agreement, as amended
(included as Exhibit 10(a) to Fidelity's Registration
Statement on Form 10, Commission File No. 0-22376, filed with
the Commission and incorporated herein by reference).
10(b) Lease Agreement dated February 6, 1989, by and between DELOS
and Fidelity National Bank and amendments thereto (included as
Exhibit 10(e) to Fidelity's Registration Statement on Form 10,
Commission File No. 0-22376, filed with the Commission and
incorporated herein by reference).
10(c) Lease Agreement dated September 7, 1995, by and between Toco
Hill, Inc. and Fidelity National Bank (included as Exhibit
10(f) to Fidelity's Annual Report on Form 10-K for the year
ended December 31, 1995, and incorporated herein by
reference).
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit No. Name of Exhibit
- ----------- ---------------
<S> <C>
*10(d) Employment Agreement between Fidelity and James B. Miller, Jr.
dated as of September 18, 1997 (included as Exhibit 10(d) to
Registration Statement on Form S-2, No. 33-36377, which is
incorporated herein by reference).
*10(e) Amendment to Employment Agreement between Fidelity and James
B. Miller, Jr. dated November 3, 1997 (included as Exhibit
10(g) to Fidelity's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein by
reference).
*10(f) Employment Agreement among Fidelity, the Bank and Larry D.
Peterson dated as of September 15, 1997 (included as Exhibit
10(C) to Registration Statement on Form S-2, No. 333-36377,
which is incorporated herein by reference).
*10(g) The Stock Option Plan (incorporated by reference to Exhibit A
of the Proxy Statement of Fidelity dated April 21, 1997, for
the 1997 Annual Meeting of Shareholders).
*10(h) Stock Option Agreement between Larry D. Peterson and Fidelity
(included as Exhibit 10(C) to Registration Statement on Form
S-2, No. 333-36377, which is incorporated herein by
reference).
*10(i) Stock Option Agreement between James B. Miller, Jr. and
Fidelity. (included as Exhibit 10(D) to Registration Statement
on Form S-2, No. 333-36377, which is incorporated herein by
reference).
10(j) Common Stock Purchase Warrant issued to Raymond James &
Associates, Inc. dated December 12, 1997 (included as Exhibit
10(e) to Registration Statement on Form S-2, No. 333-36377,
which is incorporated by reference).
13 1999 Annual Report to Shareholders. Pages 9 through 49.
21 Subsidiaries of Fidelity
23 Consent of Ernst & Young LLP
24 Powers of Attorney
27 Financial Data Schedule (for SEC use only)
</TABLE>
- --------------------
* management contract or compensatory arrangement required to be filed as an
exhibit.
26
<PAGE> 28
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the fiscal quarter ended December 31, 1999.
(c) Exhibits. See Item 14(a)(3) above.
(d) Financial Statement Schedules. See Item 14(a)(2) above.
27
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Fidelity National Corporation has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIDELITY NATIONAL CORPORATION
By: /s/ James B. Miller, Jr.
--------------------------------
James B. Miller, Jr.
Chairman of the Board
March 22, 2000
28
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of Fidelity
National Corporation and in the capacities and on the dates indicated.
/s/ James B. Miller, Jr. Date: March 22, 2000
- ---------------------------------------------------
James B. Miller, Jr.
Chairman of the Board and Director
(Principal Executive Officer)
/s/ M. Howard Griffith, Jr. Date: March 22, 2000
- ---------------------------------------------------
M. Howard Griffith, Jr.
Chief Financial Officer
(Principal Financial and Accounting Officer)
* Date: March 22, 2000
- ---------------------------------------------------
David R. Bockel
Director
* Date: March 22, 2000
- ---------------------------------------------------
Edward G. Bowen, M.D.
Director
* Date: March 22, 2000
- ---------------------------------------------------
Kevin S. King
Director
* Date: March 22, 2000
- ---------------------------------------------------
Larry D. Peterson
Director
* Date: March 22, 2000
- ---------------------------------------------------
Robert J. Rutland
Director
29
<PAGE> 31
* Date: March 22, 2000
- ---------------------------------------------------
W. Clyde Shepherd, Jr.
Director
* Date: March 22, 2000
- ---------------------------------------------------
Gordon M. Sherman
Director
* Date: March 22, 2000
- ---------------------------------------------------
R. Phillip Shinall, III
Director
* Date: March 22, 2000
- ---------------------------------------------------
Rankin M. Smith, Jr.
Director
* Date: March 22, 2000
- ---------------------------------------------------
Felker W. Ward, Jr.
Director
* /s/ M. Howard Griffith, Jr. Date: March 22, 2000
- ---------------------------------------------------
M. Howard Griffith, Jr.
Attorney-in-fact
30
<PAGE> 1
EXHIBIT 13
FIDELITY NATIONAL CORPORATION
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED:
Interest income $ 68,458 $ 63,772 $ 62,153 $ 59,800 $ 48,080
Net interest income 37,237 36,028 35,943 33,073 29,209
Provision for loan losses 7,600 9,450 14,435 25,127 8,090
Noninterest income, including securities gains 19,198 18,940 17,379 18,305 11,679
Securities gains, net 6 255 140 604 853
Noninterest expense 41,343 39,448 37,420 35,489 25,583
Net income (loss) 4,873 3,853 963 (5,742) 4,649
Dividends declared - common 1,329 325 - 693 644
Dividends declared - preferred 516 369 251 - -
PER SHARE DATA:
Net income (loss) - basic $ .53 $ .43 $ .15 $ (1.24) $ 1.01
Net income (loss) - diluted .53 .42 .15 (1.24) 1.01
Book value 6.22 5.95 5.57 4.53 6.02
Dividends paid common .16 .04 - .15 .14
Dividend payout ratio 37.86% 18.02% 26.07% *% 13.85%
Average common shares outstanding 8,277,496 8,123,049 4,831,364 4,619,530 4,608,383
PROFITABILITY RATIOS:
Return on average assets .62% .57% .16% *% 1.01%
Return on average equity 8.95 7.26 3.66 * 18.91
Return on average common equity 8.84 7.43 3.07 * 18.91
Net interest margin 5.12 5.78 6.42 5.97 6.87
Efficiency ratio 73.26 71.77 70.18 69.07 62.57
ASSET QUALITY RATIOS:
Net charge-offs to average loans 1.61% 2.60% 3.58% 3.00% 1.91%
Allowance to period-end loans 1.56 2.40 3.31 3.85 1.54
Nonperforming assets to loans and OREO .61 .73 1.06 .91 1.23
Allowance to nonperforming loans and repossessions 3.29x 4.71x 6.04x 4.92x 1.78x
Allowance to nonperforming assets 2.55 3.29 3.09 4.21 1.25
LIQUIDITY RATIOS:
Total loans to total deposits 100.33% 86.26% 76.90% 85.80% 87.30%
Net loans to total deposits 91.26 79.87 76.16 78.81 77.21
Average total loans to average earning assets 86.63 73.02 82.73 85.00 84.60
Noninterest-bearing deposits to total deposits 14.69 16.49 15.30 13.56 16.10
CAPITAL RATIOS:
Leverage 6.49% 7.57% 8.05% 2.67% 5.42%
Risk-based capital
Tier 1 7.42 9.25 9.99 3.40 6.15
Total 10.69 13.14 14.46 6.38 10.47
Average equity to average assets 6.93 7.85 4.63 4.50 5.35
BALANCE SHEET DATA (AT END OF PERIOD):
Assets $ 882,597 $ 712,878 $ 656,933 $ 605,420 $ 524,822
Earnings assets 817,170 656,137 606,533 545,375 428,714
Total loans 720,781 535,876 437,182 467,390 407,290
Total deposits 718,432 621,264 568,317 544,713 466,507
Long-term debt 29,600 15,650 15,800 15,500 16,750
Total shareholders' equity 54,610 54,555 51,348 21,073 27,762
Common shareholders' equity 54,610 48,405 45,198 21,073 27,762
Realized shareholders' equity 56,023 54,479 51,139 21,213 27,073
DAILY AVERAGE:
Assets $ 785,200 $ 675,769 $ 608,569 $ 611,517 $ 459,251
Earning assets 727,879 623,837 560,617 554,354 426,525
Total loans 630,563 488,697 463,898 471,200 360,915
Total deposits 658,657 579,765 547,216 542,106 411,147
Long-term debt 25,774 15,701 15,558 16,500 3,439
Total shareholders' equity 54,426 53,053 26,330 27,484 24,589
</TABLE>
- -------------------------
* Not meaningful
9
<PAGE> 2
CONSOLIDATED FINANCIAL REVIEW
The following management's discussion and analysis reviews important
factors affecting the results of operations and financial condition of Fidelity
National Corporation and its subsidiaries ("Fidelity") for the periods
indicated. The consolidated financial statements and related notes should be
read in conjunction with this review. In the discussion, net interest income and
net interest margin are presented on a fully taxable-equivalent basis.
OVERVIEW
Fidelity National Corporation is a bank holding company with headquarters
in Atlanta, Georgia. Fidelity commenced operations as Fidelity National Bank
("the Bank"), a full-service banking operation, in 1974. Fidelity National Bank
provides traditional deposit, lending, mortgage, international trade services
and trust products and services to its commercial and retail customers. Fidelity
National Corporation's wholly owned subsidiary, Fidelity National Capital
Investors, Inc., is a securities brokerage operation. Fidelity currently
conducts full-service banking and residential mortgage lending businesses
through 19 locations in the metropolitan Atlanta area. Fidelity conducts
indirect automobile lending (the purchase of consumer automobile installment
sales contracts from automobile dealers) at its Atlanta, Georgia and
Jacksonville, Florida offices. Residential mortgage lending and residential
construction lending are conducted through certain of its Atlanta offices and
from a loan production office in Jacksonville, Florida.
The year 1999 was a period of substantial growth. Since its inception,
Fidelity has pursued a strategy of growth, primarily through internal expansion
built on providing quality financial services in selected market areas. At
December 31, 1999, Fidelity had grown total assets to $883 million from $713
million and $525 million in total assets at December 31, 1998, and December 31,
1995, respectively.
Loan growth is a key component of Fidelity's strategic plan and was the
primary growth driver in 1999. During 1999, total loans grew $185 million or
34.5% to $721 million. This growth was experienced in every major loan category
except credit card loans. Loan categories excluding credit card loans grew
44.0%.
Commercial and real estate mortgage loans grew steadily during 1999,
increasing $85 million or 53.0% to $247 million compared to 1998. Real estate
construction loans, consisting primarily of residential construction loans, grew
$6 million or 9.6% during 1999.
Fidelity has experienced significant growth in indirect automobile lending
since 1995, when Fidelity modified its strategic plan for indirect lending to
take advantage of its ability to produce high quality indirect automobile loans
to enhance both interest income and noninterest income. At December 31, 1999,
these loans totaled $284 million, compared to $114 million at December 31, 1995.
During 1999, 1998, and 1997, Fidelity sold approximately $176 million, $158
million and $92 million, respectively, of indirect automobile loans with
servicing retained. In addition, during 1997, Fidelity sold $33 million of
indirect automobile loans servicing released. Fidelity anticipates that it will
continue to sell periodically, through whole loan sales, a substantial portion
of its indirect automobile loan production. These sales are conducted to enhance
noninterest income and manage the relative level of indirect automobile loans in
Fidelity's portfolio.
Historically, credit card loans have been an important part of Fidelity's
total loan portfolio. At December 31, 1995, credit card loans represented 34.3%
of the total loan portfolio of $407 million. During 1996 and 1997, Fidelity
experienced increasing credit card losses from an affinity program that was
discontinued in May 1996. Since March 1997, credit card net losses have
significantly declined and net credit card loans have declined. At December 31,
1996, credit card loans totaled $144 million or 30.8% of total loans. During
1996, management adopted a strategic initiative focused on reducing credit risk
in the loan portfolio. One technique that has been used is to reduce credit
cards as a percentage of total loans. At December 31, 1999, credit card loans
totaled $99 million or 13.8% of the total loan portfolio.
Fidelity sold all of its residential mortgage loan servicing portfolio on
September 30, 1999, as part of its strategic initiative to improve
profitability, reduce interest rate risk and concentrate on other products and
services.
In September 1999, Fidelity National Corporation exercised its rights to
redeem the outstanding shares of its Non-Cumulative 8% Convertible Preferred
Stock-Series A by paying in cash the sum of $6.25 per share plus any declared
but unpaid dividends. The redemption occurred on October 19, 1999. Shareholders
owning 710,000 shares of the 984,000 shares of Preferred Stock outstanding
elected to convert to Common Stock, resulting in the issuance of 617,165 shares
of Common Stock. Shareholders' equity was reduced by $1.7 million as a result of
the redemption in cash of 274,000 preferred shares and the payment of fractional
interests. This action enhanced common shareholder value by increasing common
shareholder book value, earnings per share and dividend potential.
On January 19, 2000, the Federal Reserve Bank of Atlanta ("FRB") cancelled
the agreement with Fidelity
10
<PAGE> 3
which, among other things, had prohibited Fidelity from redeeming its capital
stock, paying dividends on its common stock or incurring debt without prior
approval of the FRB.
RESULTS OF OPERATIONS
NET INCOME Fidelity's net income for the year ended December 31, 1999, was
$4.9 million or $.53 basic earnings
AVERAGE BALANCES, INTEREST AND YIELDS TABLE 1
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------ -------- ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Loans, net of unearned income(1)(2)
Taxable $629,339 $62,592 9.95% $487,293 $55,216 11.33% $462,495 $55,928 12.09%
Tax-exempt(3) 1,224 113 9.23 1,404 128 9.11 1,495 134 8.96
-------- ------- -------- ------- -------- -------
Total loans 630,563 62,705 9.94 488,697 55,344 11.32 463,990 56,062 12.08
Investment securities - taxable 80,850 4,993 6.18 100,539 6,631 6.60 71,548 4,835 6.76
Interest-bearing deposits 1,427 57 3.99 3,483 156 4.49 2,712 68 2.51
Federal funds sold 15,039 746 4.96 31,118 1,689 5.43 22,568 1,239 5.49
-------- ------- -------- ------- -------- -------
Total interest-earning assets 727,879 68,501 9.40 623,837 63,820 10.23 560,818 62,204 11.09
NONINTEREST-EARNING ASSETS:
Cash and due from banks 29,565 27,474 20,438
Allowance for loan losses (11,296) (13,208) (15,865)
Premises and equipment 18,961 20,055 20,734
Other real estate owned 960 2,136 2,010
Other assets 19,131 15,475 20,435
-------- -------- --------
Total assets $785,200 $675,769 $608,570
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Demand deposits $131,269 $ 4,695 3.58% $103,912 $ 3,590 3.46% $ 82,298 $ 2,298 2.79%
Savings deposits 26,579 941 3.54 22,649 762 3.36 28,963 1,032 3.56
Time deposits 400,340 21,757 5.43 367,484 21,198 5.77 363,148 20,906 5.76
-------- ------- -------- ------- -------- -------
Total interest-bearing deposits 558,188 27,393 4.91 494,045 25,550 5.17 474,409 24,236 5.11
Federal funds purchased 3,146 173 5.49 672 36 5.35 715 39 5.46
Securities sold under agreements to
repurchase 19,997 689 3.44 20,756 678 3.26 13,266 412 3.11
Other short-term borrowings 17,416 998 5.73 744 47 6.32 1,341 35 2.61
Long-term debt 25,774 1,968 7.64 15,701 1,434 9.13 15,558 1,488 9.56
-------- ------- -------- ------- -------- -------
Total interest-bearing liabilities 624,521 31,221 5.00 531,918 27,745 5.22 505,289 26,210 5.19
------- ------- -------
NONINTEREST-BEARING:
Demand deposits 100,469 85,720 72,807
Other liabilities 5,784 5,078 4,144
Shareholders' equity 54,426 53,053 26,330
-------- -------- --------
Total liabilities and
shareholders' equity $785,200 $675,769 $608,570
======== ======== ========
Net interest income/spread $37,280 4.40 $36,075 5.01 $35,994 5.90
======= ======= =======
Net interest rate margin 5.12 5.78 6.42
</TABLE>
- -------------------------
(1) Fee income relating to loans of $3,940 in 1999, $4,310 in 1998 and $3,720 in
1997 is included in interest income.
(2) Nonaccrual loans are included in average balances and income on such loans,
if recognized, is recognized on a cash basis.
(3) Interest income includes the effects of taxable-equivalent adjustments of
$43, $49, and $50, for each of the three years ended December 31, 1999, 1998
and 1997, respectively, using a combined tax rate of 38%.
11
<PAGE> 4
per share compared to $3.9 million or $.43 basic earnings per share for 1998.
Diluted earnings per share for 1999 were $.53 compared to $.42 for 1998. The
major factors contributing to the improvement in earnings for 1999 were a $1.2
million increase in net interest income and a $1.9 million reduction in the
provision for loan losses. Fidelity's net income for the year ended December 31,
1998, was $3.9 million or $.43 basic earnings per share, compared to $963,000 or
$.15 per share for 1997. Diluted earnings per share for 1998 were $.42 compared
to $.15 for 1997. The major factors contributing to the improved earnings for
1998 were a $5.0 million reduction in the provision for loan losses and a $1.6
million increase in noninterest income.
NET INTEREST INCOME/MARGIN Taxable-equivalent net interest income was $37.3
million in 1999 compared to $36.1 million in 1998. The $12.6 million increase in
interest income attributable to the net growth of $104 million in average
interest-earning assets was offset by an 83 basis point decline in the yield on
interest-earning assets. The $93 million growth in average interest-bearing
liability balances was mitigated in part by the 22 basis point decline in the
cost of interest-bearing liabilities. The 83 basis point interest rate decline
negatively impacted interest income by $7.9 million and was in part attributable
to the credit card portfolio decline in yield and volume.
Average interest-earning assets increased in 1999 to $728 million, a 16.7%
increase. The increase in average interest-earning assets was due to the
increase in average loans of $142 million or 29.0% to $631 million.
Average investment securities declined $20 million or 19.6% and average
Federal funds purchased and interest-bearing deposits declined $18 million or
52.4%. These declines resulted from management's decision to redeploy these
funds to higher yielding loan products to offset some of the effects of the $5.0
million decline in higher yielding credit card loans and generally lower
interest rates during 1999. During 1999, the average yield on interest-earning
assets declined 83 basis points, and was caused by the following:
1) Management's decision to reduce the percentage of credit card loans as a
percent of Fidelity's total loan portfolio.
2) The decline in market rates of interest during the second half of 1998
and the first quarter of 1999.
RATE/VOLUME ANALYSIS TABLE 2
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 COMPARED TO 1998 1998 COMPARED TO 1997
VARIANCE ATTRIBUTED TO(1) VARIANCE ATTRIBUTED TO(1)
------------------------------ -----------------------------
VOLUME RATE NET CHANGE VOLUME RATE NET CHANGE
------- ------- ---------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Loans:
Taxable $14,704 $(7,328) $7,376 $2,906 $(3,618) $ (712)
Tax-exempt(2) (17) 2 (15) (8) 2 (6)
Investment securities - taxable (1,184) (454) (1,638) 1,900 (104) 1,796
Federal funds sold (826) (117) (943) 464 (14) 450
Interest-bearing deposits (83) (16) (99) 23 65 88
------- ------- ------ ------ ------- ------
Total interest-earning assets $12,594 $(7,913) $4,681 $5,285 $(3,669) $1,616
======= ======= ====== ====== ======= ======
Interest-Bearing Deposits:
Demand $ 980 $ 125 $1,105 $ 678 $ 614 $1,292
Savings 137 42 179 (216) (54) (270)
Time 1,832 (1,273) 559 260 32 292
------- ------- ------ ------ ------- ------
Total interest-bearing deposits 2,949 (1,106) 1,843 722 592 1,314
Federal funds purchased 136 1 137 (2) (1) (3)
Securities sold under agreements to repurchase (26) 37 11 245 21 266
Other short-term borrowings 956 (5) 951 (21) 33 12
Long-term debt 799 (265) 534 14 (68) (54)
------- ------- ------ ------ ------- ------
Total interest-bearing liabilities $ 4,814 $(1,338) $3,476 $ 958 $ 577 $1,535
======= ======= ====== ====== ======= ======
</TABLE>
- -------------------------
(1) The change in interest due to both rate and volume has been allocated to the
components in proportion to the relationship of the dollar amounts of the
change in each.
(2) Reflects fully taxable equivalent adjustments using a combined tax rate of
38%.
12
<PAGE> 5
The cost of interest-bearing liabilities increased $3.5 million during 1999
over 1998. The increase was due to a $93 million or 17.4% increase in average
interest-bearing liabilities offset in part by a 22 basis point decline in the
cost of interest-bearing liabilities.
Average total loans increased $24.7 million during 1998, but interest
income increased only $1.6 million, in part as a result of a decline of 76 basis
points in the yield on average total loans. The increase in loans was the result
of growth in all loan portfolios except for credit cards.
The $1.5 million increase in total interest expense in 1998 compared to
1997 was attributable to a three basis point increase in the rates paid on
average total interest-bearing liabilities and a $27 million increase in average
interest-bearing liabilities.
PROVISION FOR LOAN LOSSES Management's policy is to maintain the allowance
for loan losses at a level sufficient to absorb probable credit losses related
to specifically identified loans and losses inherent in the remainder of the
loan portfolio. The allowance is increased by the provision for loan losses and
decreased by charge-offs, net of recoveries. In determining inherent losses,
management considers financial services industry trends, conditions of
individual borrowers, historical loan loss experience and the general economic
environment. As these factors change, the level of loan loss provision changes.
The provision for loan losses was $7.6 million in 1999, $9.5 million in
1998 and $14.4 million in 1997. Fidelity was able to reduce the provision for
loan losses during 1999 and 1998 as a result of declining credit card and
consumer loan net charge-offs, delinquencies, and credit card loans outstanding.
Fidelity has historically been a lender to the healthcare industry. The
federal government's legislation to reduce Medicare reimbursements to healthcare
providers had a material adverse financial impact on certain companies in this
sector, which are heavily reliant on such reimbursements. The decrease in the
1999 provision was negatively impacted by management making a special $900,000
provision for potential losses to that industry. During 1999, approximately
$537,000 in commercial loans related to the healthcare industry were charged
off.
Excluding the effects of these charges, the provision would have been $6.7
million, a decrease of $2.8 million versus 1998.
Net charge-offs were $9.3 million in 1999 compared to $11.9 million in
1998. Net charge-offs to average loans was 1.61% in 1999 compared to 2.60% in
1998. As a result of declining credit card and consumer loan net charge-offs and
declining delinquencies, Fidelity was able to reduce the allowance for loan
losses and the allowance for loan losses allocated to credit card loans during
1998. The decline in credit card net charge-offs was primarily due to bringing
credit card collections in-house in 1997, the discontinuance of a program of
issuing preapproved credit cards in May 1996 to recent home buyers, and the
maturing of the pre-approved credit cards in the portfolio. Excluding the
effects of net charge-offs related to healthcare credits, net charge-offs would
total $8.7 million or 1.51%. Barring a downturn in the economy, management
expects net charge-offs to decline in 2000, with the net charge-offs to average
loans ratio being in the 1.10% to 1.35% range. For additional information on
asset quality, refer to the discussions regarding loans, nonperforming assets
and allocation of the allowance for loan losses.
The following schedule summarizes credit card and total net charge-offs for
the past five years by quarter (dollars in thousands):
<TABLE>
<CAPTION>
NET CHARGE-OFFS
- ----------------------------------------------------------------------------------------------------------------
QUARTER ENDED CREDIT CARD TOTAL QUARTER ENDED CREDIT CARD TOTAL
- ------------- ----------- ------ ------------- ----------- ------
<S> <C> <C> <C> <C> <C>
March 31, 1995 $1,348 $1,424 September 30, 1997 $3,021 $3,597
June 30, 1995 1,738 1,766 December 31, 1997 2,466 3,204
September 30, 1995 1,697 1,749 March 31, 1998 2,657 3,282
December 31, 1995 1,806 1,958 June 30, 1998 3,015 3,522
March 31, 1996 1,653 1,825 September 30, 1998 1,690 2,263
June 30, 1996 2,439 2,690 December 31, 1998 2,375 2,792
September 30, 1996 4,471 5,225 March 31, 1999 1,782 2,379
December 31, 1996 4,025 4,413 June 30, 1999 1,394 1,879
March 31, 1997 4,165 5,262 September 30, 1999 1,775 2,937
June 30, 1997 3,748 4,563 December 31, 1999 1,561 2,062
</TABLE>
13
<PAGE> 6
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES TABLE 3
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Period $11,911 $14,320 $16,511 $ 5,537 $ 4,344
Charge-Offs:
Commercial, financial and agricultural 580 28 154 3 60
Real estate - construction - - - - -
Real estate - mortgage - - - - -
Consumer installment 2,457 2,444 3,367 1,657 328
Credit cards 7,977 12,092 14,735 13,156 7,051
------- ------- ------- ------- --------
Total charge-offs 11,014 14,564 18,256 14,816 7,439
Recoveries:
Commercial, financial and agricultural 34 29 103 31 42
Real estate - construction - - - - -
Real estate - mortgage - - - - -
Consumer installment 258 321 192 64 38
Credit cards 1,465 2,355 1,335 568 462
------- ------- ------- ------- --------
Total recoveries 1,757 2,705 1,630 663 542
------- ------- ------- ------- --------
Net charge-offs 9,257 11,859 16,626 14,153 6,897
Provision for loan losses 7,600 9,450 14,435 25,127 8,090
------- ------- ------- ------- --------
Balance at end of period $10,254 $11,911 $14,320 $16,511 $ 5,537
======= ======= ======= ======= ========
Ratio of net charge-offs during period to average loans
outstanding, net 1.61% 2.60% 3.58% 3.00% 1.91%
Allowance for loan losses as a percentage of loans 1.56 2.40 3.31 3.85 1.54
</TABLE>
NONINTEREST INCOME Noninterest income for 1999 was $19.2 million compared
to $18.9 million in 1998. Noninterest income in 1999 and 1998 included $6,000
and $255,000 in securities gains, respectively. In 1998, noninterest income also
benefited from a non-recurring gain of $654,000. Excluding those non-recurring
items, noninterest income for 1999 was $19.2 million compared to $18.0 million
in 1998, a 6.4% increase. Fidelity realized increasing noninterest income in
1999 in most operating activities, offset in part by declines in income from
brokerage activities, indirect lending activities and securities gains.
Fidelity's strategic plan calls for increasing noninterest income as a
percentage of total revenues (net interest income plus noninterest income). The
key components of that growth come from expanding Fidelity's indirect automobile
lending loan sales and indirect automobile loan servicing activity. During 1999,
Fidelity sold $176 million of its indirect automobile loan production, servicing
retained. This compares to sales of $158 million in 1998, servicing retained.
The 1999 gains from loan sales were $784,000 compared to $1.9 million for 1998.
The decline in gains from loan sales was attributable in large part to
increasing market interest rates throughout much of 1999. At December 31, 1999,
Fidelity was servicing $285 million of indirect automobile loans it had sold,
compared to $236 million at December 31, 1998.
Noninterest income for 1998 was $18.9 million compared to $17.4 million in
1997. Noninterest income in 1998 and 1997 benefited from $255,000 and $140,000
in securities gains, respectively. In 1998, noninterest income also benefited
from a non-recurring gain of $654,000 and in 1997 noninterest income benefited
from a $1.5 million gain on the sale of mortgage servicing rights. Excluding
those non-recurring items, noninterest income for 1998 was $18.0 million
compared to $15.7 million in 1997, a 14.6% increase. Fidelity's 1998 indirect
automobile lending activities income increased $1.5 million or 68.5% over 1997.
This was the primary contributor to the growth in noninterest income during
1998.
Fidelity sold all of its residential mortgage loan servicing portfolio on
September 30, 1999, as part of its strategic initiative to improve
profitability, reduce interest rate risk and to concentrate on the origination
and sale of residential mortgage loans. The gain from this sale totaled
$788,000. The sale improved operating efficiencies and reduced exposure to
mortgage servicing rights impairment caused by interest rate movements,
resulting in mortgage loan prepayments.
14
<PAGE> 7
NONINTEREST EXPENSE Noninterest expense increased $1.9 million or 4.8% in
1999 to $41.3 million from $39.4 million in 1998. Noninterest expense increased
$2.0 million or 5.4% in 1998 to $39.4 million from $37.4 million in 1997.
Salaries and employee benefits increased $1.9 million or 11.2% in 1999 to
$19.1 million compared to 1998. This increase was primarily because of branch
expansion in mid 1998, the full effects of which were realized in 1999, the
substantial growth in loan production and total loan growth in 1999 and 1998 and
the addition of various new management positions. The number of full time
equivalent employees at December 31, 1999, was 437 compared to 410 and 375 at
the end of 1998 and 1997, respectively.
Furniture and equipment expense and net occupancy costs increased $562,000
in 1999 and $714,000 during 1998 due to general corporate growth including
branch bank expansion.
Professional and other services decreased $202,000 or 6.9% to $2.7 million
when compared to 1998, primarily as a result of the reduction in consultant
expenses in the latter part of 1999 related to the mitigation of potential risks
associated with Fidelity's Year 2000 ("Y2K") preparedness program. Professional
and other services increased 22.1% to $2.9 million in 1998 when compared to
1997. Consulting expenses relating to the Y2K preparedness program accounted for
much of this increase.
Regulatory assessments declined $917,000 or 66.4% to $464,000 for the year
ended December 31, 1999, compared to 1998 as a result of substantially reduced
deposit insurance premiums because of the improved operating, financial and
capital positions of Fidelity. Regulatory assessments increased $185,000 during
1998 to $1.4 million when compared to 1997, primarily as a result of deposit
growth.
Expenses related to the amortization of mortgage servicing rights declined
41.3% to $534,000 in the year ended December 31, 1999, primarily as a result of
the sale of all servicing rights on September 30, 1999, and to a lesser extent
because of declining numbers of mortgage loans sold servicing retained and a
declining servicing rights asset balance during the year. Expenses related to
the amortization of mortgage servicing rights increased 15.5% to $910,000 in
1998 when compared to 1997, primarily because of substantial loan refinancing
activity during the low mortgage interest rate environment experienced in 1998
and increased production volume resulting in an increased servicing rights asset
balance.
Excluding mortgage servicing rights, expenses related to mortgage banking
activities were $3.5 million in 1999 compared to $3.5 million in 1998 and $3.8
million in 1997.
Expenses related to retail brokerage and securities related services
totaled $2.6 million in 1999 compared to $2.9 million in 1998 and $3.1 million
in 1997.
Other operating expenses increased $444,000 or 7.4% to $6.4 million in 1999
compared to 1998 due to increased advertising and promotion expense in order to
increase loan production and to attract deposits, increased operating and
non-income related tax expenses as a result of substantial growth and increased
amortization of an asset related to a 1996 indirect automobile loan
securitization. Other expenses in 1998 totaled $6.0 million, which is
approximately the same amount as in 1997. Impaired assets of Fidelity were
written down by $671,000 and $1.3 million in 1998 and 1997, respectively.
PROVISION FOR INCOME TAXES The provision for income taxes consists of
provisions for Federal and state income taxes. The provision for income taxes
for 1999, 1998 and 1997 was $2.6 million, $2.2 million and $0.5 million,
respectively. Fidelity's effective tax rate approximated statutory rates for all
periods.
FINANCIAL CONDITION
Fidelity manages its assets and liabilities to maximize long-term earnings
opportunities while maintaining the integrity of its financial position and the
quality of earnings. To accomplish this objective, management strives to effect
efficient management of interest rate risk and liquidity needs. The primary
objectives of interest-sensitivity management are to minimize the effect of
interest rate changes on the net interest margin and to manage the exposure to
risk while maintaining net interest income at acceptable levels. Liquidity is
provided by carefully structuring the balance sheet.
Fidelity's Asset/Liability Management Committee ("ALCO") meets regularly to
review Fidelity's interest rate sensitivity positions and its current and
projected liquidity.
MARKET RISK Fidelity's primary risk exposures are interest rate risk and
credit risk and, to a lesser extent, liquidity risk. Fidelity has little or no
risk related to trading accounts, commodities or foreign exchange. Fidelity is
not aware of and anticipates no significant adverse operating or financial
conditions related to the Year 2000 situation, nor is it aware of and does not
anticipate any significant Year 2000 problems associated with customers,
suppliers, correspondents or counterparties.
Interest rate risk, which encompasses price risk, is the exposure of a
banking organization's financial condition and earnings ability to withstand
adverse movements in interest rates. Accepting this risk can be an important
source of profitability and shareholder value; however,
15
<PAGE> 8
excessive levels of interest rate risk can pose a significant threat to
Fidelity's assets, earnings and capital base. Accordingly, effective risk
management that maintains interest rate risk at prudent levels is essential to
Fidelity's success.
Fidelity's ALCO, which includes senior management representatives, monitors
and considers methods of managing the rate and sensitivity repricing
characteristics of the balance sheet components consistent with maintaining
acceptable levels of changes in portfolio values and net interest income with
changes in interest rates. A primary purpose of the ALCO is to manage interest
rate risk, to effectively invest Fidelity's capital, and to preserve the value
created by its core business operations. Fidelity's exposure to interest rate
risk is reviewed on at least a quarterly basis by the Board of Directors.
Evaluating a financial institution's exposure to changes in interest rates
includes assessing both the adequacy of the management process used to control
interest rate risk and the organization's quantitative levels of exposure. When
assessing the interest rate risk management process, Fidelity seeks to ensure
that appropriate policies, procedures, management information systems and
internal controls are in place to maintain interest rate risk at prudent levels
with consistency and continuity. Evaluating the quantitative level of interest
rate risk exposure requires Fidelity to assess the existing and potential future
effects of changes in interest rates on its consolidated financial condition,
including capital adequacy, earnings, liquidity, and, where appropriate, asset
quality.
The Board of Governors of the Federal Reserve, together with the Office of
the Comptroller of the Currency and the Federal Deposit Insurance Corporation,
adopted a Joint Agency Policy Statement on Interest Rate Risk, effective June
26, 1996. The policy statement provides guidance to examiners and bankers on
sound practices for managing interest rate risk, which will form the basis for
ongoing evaluation of the adequacy of interest rate risk management at
supervised institutions. The policy statement also outlines fundamental elements
of sound management that have been identified in prior Federal Reserve guidance
and discusses the importance of these elements in the context of managing
interest rate risk.
Interest rate sensitivity analysis is used to measure Fidelity's interest
rate risk by computing estimated changes in earnings and the net present value
of its cash flows from assets, liabilities and off-balance sheet items in the
event of a range of assumed changes in market interest rates. Net present value
represents the market value of portfolio equity and is equal to the market value
of assets minus the market value of liabilities, with adjustments made for off-
balance sheet items. This analysis assesses the risk of loss in market risk
sensitive instruments in the event of a sudden and sustained 200 basis point
increase or decrease in market interest rates.
Fidelity utilizes a statistical research firm specializing in the banking
industry to provide various quarterly analyses related to its current and
projected financial performance, including a rate shock analysis. Data sources
for this and other analyses include quarterly OCC Call Reports and the Federal
Reserve Y-9C, management assumptions, industry norms and financial markets data.
The standard algebraic formula for calculating present value is used. Present
value is the future cash flows of a financial investment, or portfolio of
financial instruments, discounted to the present. For purposes of evaluating
rate shock, rate change induced sensitivity tables are used in determining
repayments, prepayments and early withdrawals.
The following schedule sets forth an analysis of Fidelity's assumed
earnings 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.
Assumptions have been made as to appropriate discount rates, prepayment speeds,
expected cash flows and other variables. Changes in assumptions significantly
affect the estimates and, as such, the derived earnings and fair value may not
be indicative of the value negotiated in an actual sale or comparable to that
reported by other financial institutions. In addition, the fair value estimates
are based on existing financial instruments without attempting to estimate the
value of anticipated future business. The tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the estimates.
Rate shock analysis provides only a limited, point in time view of
Fidelity's interest rate sensitivity. The gap analysis also does not reflect
factors such as the magnitude (versus the timing) of future interest rate
changes and asset prepayments. The actual impact of interest rate changes upon
Fidelity's earnings and net present value may differ from that implied by any
static rate shock measurement. In addition, Fidelity's net interest income and
net present value under various future interest rate scenarios are affected by
multiple other factors not embodied in a static rate shock analysis, including
competition, changes in the shape of the Treasury yield curve, divergent
movement among various interest rate indices and the speed with which interest
rates change.
The Rate Shock Analysis schedule illustrates the effects on annual earnings
over a one year period and the effects on net present value of Fidelity's
assets, liabilities and off-balance sheet items as a result of an immediate
16
<PAGE> 9
increase and an immediate decrease of 200 basis points in market rates of
interest:
RATE SHOCK ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C>
Market rates of interest +200 Basis Points -200 Basis Points +200 Basis Points -200 Basis Points
----------------- ----------------- ----------------- -----------------
Change in net present value $(8,780) $4,246 $(2,993) $ 301
================= ================= ================= =================
Percent change in net interest income (.79)% .35% 1.22% (1.46)%
================= ================= ================= =================
Percent change in net income (3.00)% 1.32% 7.53% (8.96)%
================= ================= ================= =================
</TABLE>
The analysis indicates that an immediate 200 basis point increase in market
rates of interest would reduce the net present value of Fidelity, while an
immediate 200 basis point decrease in market rates of interest would increase
the net present value. The impact on net present value has increased under both
scenarios when compared to 1998, primarily because of the relative increases
during 1999 in fixed rate indirect automobile loans, real estate mortgage loans
and commercial loans. The analysis indicates that a similar rate increase would
decrease both net interest income and net income over a one year period, while a
similar rate decrease would increase both net interest income and net income.
The rate shock analysis as of December 31, 1999, reflects smaller percentage
changes in net interest income and in net income than the similar analysis as of
December 31, 1998. This is primarily because of the relatively neutral net
maturing and repricing structure of the balance sheet over a one year time
horizon.
The interest rate sensitivity analysis indicates a net interest sensitivity
asset gap at three months and a net interest sensitivity liability gap at one
year, but a relatively neutral net interest sensitivity asset gap at six months.
(See "Interest Rate Sensitivity.") Although declining on a percentage basis in
both cases when compared to 1998, the rate shock analysis as of December 31,
1999, indicates a reduction in net interest income and in net income if rates
increase 200 basis points. It indicates an increase in net interest income and
in net income if rates decrease 200 basis points. The analysis as of December
31, 1998, indicates the opposite effects. This is primarily because of the
relative increases in fixed rate loans, which will mature or reprice more slowly
under either rate scenario as of December 31, 1999, when compared to the loan
portfolio mix as of December 31, 1998. The analysis indicates 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 Fidelity's net present
value or to operating results over a one year period.
INTEREST RATE SENSITIVITY The major elements used to manage interest rate
risk include the mix of fixed and variable rate assets and liabilities and the
maturity pattern of these assets and liabilities. It is Fidelity's policy not to
invest in derivatives in the ordinary course of business. Fidelity performs a
quarterly review of assets and liabilities that reprice and the time bands
within which the repricing occurs. Balances generally are reported in the time
band that corresponds to the instrument's next repricing date or contractual
maturity, whichever occurs first. However, fixed rate indirect automobile loans,
mortgage backed securities and residential mortgage loans are primarily included
based on scheduled payments with a prepayment factor incorporated, and credit
card loans with a fixed rate are spread based on historical run-off experience
over an eight month period. Through such analysis, Fidelity monitors and manages
its interest sensitivity gap to minimize the effects of changing interest rates.
The interest rate sensitivity structure within Fidelity's balance sheet at
December 31, 1999, indicated a cumulative net interest sensitivity liability gap
of 21.31% when projecting out one year. In the near term, defined as 90 days,
Fidelity had a cumulative net interest sensitivity asset gap of 15.92% as of
December 31, 1999. When projecting forward six months, Fidelity had a relatively
neutral net interest sensitivity asset gap of 3.34%. 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.
Fidelity's policy states that the cumulative gap at the six month and one
year periods should generally not exceed 10% and 15%, respectively. Any interest
rate risk associated with the greater cumulative gap positions at December 31,
1999, was mitigated because of the net interest sensitivity asset gap in the
near term and the net interest sensitivity liability gap at one year with a
relatively neutral position at six months. Fidelity's interest rate shock
analysis, which is generally considered to be a better indicator of interest
rate
17
<PAGE> 10
risk, indicates that Fidelity was relatively insensitive to an interest rate
shock of plus or minus 200 basis points. (See "Market Risk.") The following
table illustrates Fidelity's interest rate sensitivity at December 31, 1999, as
well as the cumulative position at December 31, 1999 (dollars in thousands):
INTEREST RATE SENSITIVITY ANALYSIS(1) TABLE 4
<TABLE>
<CAPTION>
REPRICING WITHIN
-------------------------------------------------------------------------------------------------
0-30 31-60 61-90 91-120 121-150 151-180 181-365 OVER
DAYS DAYS DAYS DAYS DAYS DAYS DAYS ONE YEAR TOTAL
-------- -------- -------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment securities
available-for-sale $ 498 $ 491 $ 483 $ 476 $ 469 $ 462 $ 2,661 $ 38,079 $ 43,619
Investment securities
held-to-maturity 189 186 183 180 178 175 1,007 33,631 35,729
Loans 203,285 15,582 13,695 13,544 13,881 13,379 68,707 313,541 655,614
Loans held-for-sale 25,167 20,000 20,000 - - - - - 65,167
Federal funds sold 15,662 - - - - - - - 15,662
Due from
banks - interest-earning 1,379 - - - - - - - 1,379
-------- -------- -------- -------- -------- -------- --------- -------- --------
Total interest-earning
assets 246,180 36,259 34,361 14,200 14,528 14,016 72,375 385,251 817,170
-------- -------- -------- -------- -------- -------- --------- -------- --------
INTEREST-BEARING LIABILITIES:
Demand deposit accounts 5,276 5,276 5,276 5,276 5,276 5,276 31,656 42,207 105,519
Savings and NOW accounts 1,258 1,258 1,258 1,258 1,258 1,258 7,548 60,382 75,478
Money market 4,813 4,813 4,813 4,813 4,813 4,813 28,877 38,502 96,257
Time Deposits >$100,000 11,857 9,279 19,741 17,840 26,061 1,998 58,938 9,942 155,656
Time Deposits <$100,000 19,220 11,764 29,511 27,301 11,835 6,466 146,804 32,621 285,522
Long-term debt - - - - - - - 29,600 29,600
Short-term borrowings 51,294 - - - - 20,000 - - 71,294
-------- -------- -------- -------- -------- -------- --------- -------- --------
Total interest-bearing
liabilities 93,718 32,390 60,599 56,488 49,243 39,811 273,823 213,254 819,326
-------- -------- -------- -------- -------- -------- --------- -------- --------
Interest-sensitivity gap $152,462 $ 3,869 $(26,238) $(42,288) $(34,715) $(25,795) $(201,448) $171,997 $ (2,156)
======== ======== ======== ======== ======== ======== ========= ======== ========
Cumulative gap at 12/31/99 $152,462 $156,331 $130,093 $ 87,805 $ 53,090 $ 27,295 $(174,153) $ (2,156)
======== ======== ======== ======== ======== ======== ========= ========
Ratio of cumulative gap to
total interest-earning
assets 18.66% 19.13% 15.92% 10.75% 6.50% 3.34% (21.31)% (0.26)%
Ratio of interest-sensitive
assets to interest-sensitive
liabilities (12/31/99) 262.68 111.95 56.70 25.14 29.50 35.21 26.43 180.65
</TABLE>
- -------------------------
(1) Fidelity follows FDIC guidelines for non-maturity deposit accounts across
multiple time bands. Savings and NOW accounts are equally distributed over
60 months with a limit of 40% of the total balance in the three to five year
time frame. Demand deposits and money market accounts are distributed over
36 months with a limit of 40% of the total balance in the one to three year
time frame.
LIQUIDITY Market and public confidence in the financial strength of
Fidelity and financial institutions in general will largely determine Fidelity's
access to appropriate levels of liquidity. This confidence is significantly
dependent on Fidelity's ability to maintain sound asset credit quality and the
ability to maintain appropriate levels of capital resources.
Liquidity is defined as the ability of Fidelity to meet anticipated
customer demands for funds under credit commitments and deposit withdrawals at a
reasonable cost and on a timely basis. Management measures Fidelity's liquidity
position by giving consideration to both on-balance sheet 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-sensitive deposits; a collateralized line of credit at the Federal
Reserve Bank Discount Window; a collateralized line of credit from the Federal
Home Loan Bank of Atlanta; a secured line of credit from a correspondent bank;
and borrowings under unsecured overnight Federal funds lines available from
correspondent banks. In addition to interest sensitive deposits, the Bank's
principal demand for liquidity is anticipated fundings under credit commitments
to customers.
Maintaining appropriate levels of capital is an important factor in
determining the availability of critical sources of liquidity. At December 31,
1999, capital ratios exceeded those regulatory levels required for a
well-capitalized institution.
Management 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
18
<PAGE> 11
management meets regularly to review Fidelity's current and projected net
liquidity position and to review actions taken by management to achieve this
liquidity objective.
Fidelity's Consolidated Statements of Cash Flows included in the
accompanying Consolidated Financial Statements present certain information about
cash flows from operating, investing and financing activities. Fidelity's
principal cash flows relate to investing and financing activities, rather than
operating activities. While the statement presents the periods' net cash flows
from lending and deposit activities, it does not reflect certain important
aspects of Fidelity's liquidity described above, including (i) anticipated
liquidity requirements under outstanding credit commitments to customers, (ii)
intra-period volatility of deposits, particularly fluctuations in the volume of
commercial customers' noninterest-bearing demand deposits, and (iii) unused
borrowings available under unsecured Federal funds lines, secured or
collateralized lines, repurchase agreements, and other arrangements. Fidelity's
principal source of operating cash flows is net interest income.
Fidelity National Corporation's (the "Parent Company") liquidity is
limited, and it relies primarily on equity sales, interest income, management
fees, and dividends from the Bank as sources of liquidity. Interest and
dividends from subsidiaries ordinarily provide a source of liquidity to a bank
holding company. Currently the Bank can pay interest on its subordinated debt
and cash dividends on its preferred stock and common stock.
Net cash from operating activities primarily results from net income or
loss adjusted for the following noncash items: the provision for loan losses,
depreciation, amortization and lower of cost or market adjustments. Net cash
provided by operations was negatively impacted in 1999 by the increase in loans
held-for-sale of $26 million. Net cash flows provided by investing activities
were negatively impacted by a net increase in loans of $351 million, offset in
part by $183 million in proceeds from the sale of loans. Net cash flows from
financing activities were positively impacted by an increase in deposits of $97
million and by increases in long-term and short-term debt by $14 million and $55
million, respectively. Cash decreased by $30 million during 1999, primarily as a
result of loan growth.
Net cash provided by operations was negatively impacted in 1998 by the
increase in loans held-for-sale of $35 million when compared to 1997. Net cash
flows provided by investing activities were positively impacted by the net sales
and calls of investment securities of $53 million and negatively impacted by a
net increase in loans of $233 million, offset in part by $160 million in
proceeds from the sale of loans. Net cash flows from financing activities were
positively impacted by an increase in deposits of $53 million.
Net cash provided by operations was positively impacted in 1997 by the
reduction in loans held-for-sale of $34 million. Net cash flows provided by
investing activities were negatively impacted by the net purchases of investment
securities of $48 million and a net increase in loans of $146 million, offset in
part by $125 million in proceeds from the sale of loans. Net cash flows from
financing activities were positively impacted by an increase in deposits of $24
million, proceeds from the issuance of preferred stock of $6 million and
proceeds from the issuance of common stock of $23 million.
Except for the level of the credit card and indirect automobile loan
delinquencies and charge-offs, there are no known trends, events, or
uncertainties of which Fidelity is aware that may have or that are likely to
have a material adverse effect on Fidelity's liquidity, capital resources or
operations.
LOANS During 1999, total loans outstanding, including loans held-for-sale,
increased $185 million or 34.5% to $721 million when compared to 1998. The
increase in total loans outstanding was attributable to an aggressive lending
focus initiated during 1998 and a strong lending market. During 1999, commercial
loans increased $30 million or 41.2% to $103 million, consumer installment loans
increased $73 million or 43.0% to $243 million, real estate construction loans,
consisting primarily of residential construction loans, increased $6 million or
9.6% to $67 million, and real estate mortgage loans increased $55 million or
62.7% to $144 million. These increases were partially offset by a $5 million or
4.8% decline to $99 million in credit card loans. Average total loans for 1999
increased $142 million or 29.0% to $631 million when compared to 1998. During
this period, credit card loans were reduced to 13.8% of the total loan portfolio
from 19.5% and 27.4% at December 31, 1998 and 1997, respectively, to increase
the percentage of secured loans in the portfolio.
During 1998, total loans outstanding, including loans held-for-sale,
increased $99 million or 22.6% to $536 million. During 1998, commercial loans
increased $21 million or 40.8%, consumer installment loans increased $18 million
or 11.7%, real estate construction loans increased $16 million or 36.3%, and
real estate mortgage loans increased $24 million or 36.9%. These increases were
partially offset by a $16 million or 12.9% decline in credit card loans. Average
total loans for 1998 increased $25 million or 5.3% to $489 million.
CREDIT QUALITY Credit quality risk in Fidelity's loan portfolio provides
the highest degree of risk for Fidelity. Fidelity manages and controls risk in
the loan portfolio through adherence to standards established by senior
management, combined with a commitment to producing quality assets, developing
profitable relationships and
19
<PAGE> 12
meeting the strategic growth targets. Fidelity's credit policies establish
underwriting standards, place limits on exposure, and set other limits or
standards as deemed necessary and prudent. Also included in the policy,
primarily determined by the amount and type of loan, are various approval
levels, ranging from the branch or department level to those which are more
centralized. Fidelity maintains a diversified portfolio intended to spread its
risk and reduce its exposure to economic downturns, which may occur in different
segments of the economy or in particular industries. Industry and loan type
diversification are reviewed quarterly.
Beginning in 1996, management took numerous steps to reduce credit risk in
Fidelity's loan portfolio. They included:
1. Reducing the relative level of unsecured consumer credit in Fidelity's
total loan portfolio
2. Bringing credit card collections in-house
3. Increasing quality requirements for consumer credit, and
4. Improving credit monitoring and approval systems
As a result of this program, credit card loans as a percent of total loans
have declined significantly, charge-offs as a percent of average consumer credit
have declined significantly, delinquencies have declined and the average credit
scores of indirect automobile loans have increased significantly.
In addition, credit review regularly reports to senior management and the
Board of Directors regarding the credit quality of the loan portfolio as well as
trends in the portfolio and the adequacy of the allowance for loan losses. The
consumer collection function is centralized and automated to ensure timely
collection of accounts and consistent management of risks associated with
delinquent accounts.
Credit review monitors loan production and loan growth, as well as loan
quality. Credit review, independently of the lending departments, reviews all
risk ratings and tests credits approved for adherence to Fidelity standards.
Finally, Fidelity's credit review also performs ongoing, independent
reviews of the risk management process and adequacy of documentation. This
department is centralized and independent of the lending function. The results
of its examinations are reported to the Loan and Discount Committee of the Board
and Fidelity's independent auditors.
NONPERFORMING ASSETS Nonperforming assets consist of nonaccrual and
restructured loans, repossessions and other real estate. Nonaccrual loans are
loans on which the interest accruals have been discontinued when it appears that
future collection of principal or interest according to the contractual terms
may be doubtful. Interest on these loans is reported on the cash basis as
received when the full recovery of principal is anticipated or after full
principal has been recovered when collection of interest is in question.
Restructured loans are those loans whose terms have been modified, because of
economic or legal reasons related to the debtor's financial difficulties, to
provide for a reduction in principal, change in terms, or modification of
interest rates to below market levels. Repossessions are vehicles which have
been repossessed, primarily as a result of payment defaults on indirect
automobile loans. Other real estate is real property acquired by foreclosure or
directly by title or deed transfer in settlement of debt.
Nonperforming assets at December 31, 1999, were $4.0 million. Since
December 31, 1998, nonperforming assets have increased $395,000 or 10.9%. The
1999 increase in non-accrual loans was primarily due to a single commercial
credit. During 1999, other real estate declined $192,000 to $901,000. This
decline in other real estate was due to property sales. At December 31, 1999 and
1998, there were no restructured loans. Nonperforming assets declined $1.0
million in 1998 from $4.6 million at December 31, 1997. This decline was due in
part to a write-down of approximately $671,000 on a commercial real estate
property as a result of a reduction in its appraised value. The ratio of
nonperforming assets to total loans and other real estate was .56% at December
31, 1999, compared to 0.68% and 1.05% at December 31, 1998 and 1997,
respectively. The ratio of loans past due 90 days and still accruing to total
loans was .32% at December 31, 1999. This ratio was .82% and 1.42% at December
31, 1998 and 1997, respectively.
When a loan is classified as nonaccrual, to the extent collection is in
question, previously accrued interest is reversed and interest income is reduced
by the interest accrued in the current year. If any portion of the accrued
interest had been accrued in the previous year, accrued interest is reduced and
a charge for that amount is made to the allowance for loan losses. For 1999, the
gross amount of interest income that would have been recorded on nonaccrual and
restructured loans, if all such loans had been accruing interest at the original
contract rate, was approximately $136,000.
Credit card accounts are sampled on a quarterly basis and reviewed to
assure compliance with Fidelity's credit policy. Review procedures include a
determination that the appropriate verification process has been completed, a
recalculation of the borrower's debt ratio has been performed, and an analysis
of the borrower's credit history has been conducted to determine if it meets
established
20
<PAGE> 13
bank criteria. Policy exceptions are analyzed monthly. Delinquent accounts are
monitored daily and charged off after 180 days past due, which is the industry
standard. Prior to charge-off, interest on credit card loans continues to
accrue. Upon charge-off, all current period interest income and related fees are
charged against interest income.
LOANS, BY CATEGORY TABLE 5
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial:
Commercial, financial and agricultural $101,601 $ 71,542 $ 50,169 $ 43,247 $ 37,778
Tax exempt 1,189 1,259 1,527 698 1,517
-------- -------- -------- -------- --------
Total commercial 102,790 72,801 51,696 43,945 39,295
Real estate - construction 66,542 60,695 44,536 56,325 40,955
Real estate - mortgage 143,858 88,430 64,602 71,719 61,247
Consumer installment 243,031 169,938 152,123 113,513 78,806
Credit cards 99,393 104,357 119,864 143,782 139,873
-------- -------- -------- -------- --------
Loans 655,614 496,221 432,821 429,284 360,176
Allowance for loan losses 10,254 11,911 14,320 16,511 5,536
-------- -------- -------- -------- --------
Loans, net $645,360 $484,310 $418,501 $412,773 $354,640
======== ======== ======== ======== ========
Total loans $655,614 $496,221 $432,821 $429,284 $360,177
Loans held-for-sale:
Mortgage loans 4,167 9,655 4,361 13,106 12,113
Consumer installment 61,000 30,000 - 25,000 35,000
-------- -------- -------- -------- --------
Total loans held-for-sale 65,167 39,655 4,361 38,106 47,113
-------- -------- -------- -------- --------
Total loans $720,781 $535,876 $437,182 $467,390 $407,290
======== ======== ======== ======== ========
</TABLE>
LOAN MATURITY AND INTEREST RATE SENSITIVITY TABLE 6
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------
WITHIN ONE THROUGH OVER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ----------- ---------- --------
<S> <C> <C> <C> <C>
LOAN MATURITY:
Commercial, financial and agricultural $30,588 $41,974 $30,228 $102,790
Real estate - construction 49,717 15,840 985 66,542
------- ------- ------- --------
Total $80,305 $57,814 $31,213 $169,332
======= ======= ======= ========
INTEREST RATE SENSITIVITY:
Selected loans with:
Predetermined interest rates:
Commercial, financial and agricultural $ 5,698 $23,906 $22,340 $ 51,944
Real estate - construction - 80 60 140
Floating or adjustable interest rates:
Commercial, financial and agricultural 24,890 18,068 7,888 50,846
Real estate - construction 49,717 15,760 925 66,402
------- ------- ------- --------
Total $80,305 $57,814 $31,213 $169,332
======= ======= ======= ========
</TABLE>
21
<PAGE> 14
NONPERFORMING ASSETS TABLE 7
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $2,498 $1,848 $1,422 $2,940 $3,105
Repossessions 621 684 949 413 -
Restructured loans - - - - -
Other real estate 901 1,093 2,260 567 1,339
------ ------ ------ ------ ------
Total nonperforming assets $4,020 $3,625 $4,631 $3,920 $4,444
====== ====== ====== ====== ======
Loans past due 90 days or more and still accruing $2,290 $4,393 $6,194 $6,890 $3,091
====== ====== ====== ====== ======
Ratio of past due loans to total loans .32% .82% 1.42% 1.47% .76%
Ratio of nonperforming assets to total loans and other real
estate .56 .68 1.05 .84 1.09
</TABLE>
Management is not aware of any potential problem loans other than those
disclosed in the table above, which includes all loans recommended for such
classification by regulators, which would have a material impact on asset
quality. The trends impacting the consumer portfolio, primarily credit cards and
indirect auto loans, have been discussed elsewhere herein.
ALLOWANCE 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 loss experience, adequacy of underlying collateral, and such other
factors which, in management's judgment, deserve recognition in estimating loan
losses. This analysis is separately performed for each major loan produced.
Loans are charged off when, in the opinion of management, such loans are deemed
to be uncollectible. Subsequently, recoveries are added to the allowance.
The evaluation results in an allocation of the allowance for loan losses by
product. Management uses a loss migration analysis for credit card loans. For
all other loan categories, historical loan loss experience, adjusted for changes
in the risk characteristics of each loan category, trends and other factors, are
used to determine the level of allowance required. Additional amounts are
allocated based on the evaluation of the loss potential of individual troubled
loans and the anticipated effect of economic conditions on both individual loans
and loan categories. Since the allocation is based on estimates and subjective
judgment, it is not necessarily indicative of the specific amounts or loan
categories in which losses may ultimately occur.
Quarterly, credit review performs a formal review to assess the risk in the
portfolio and to determine the adequacy of the allowance for loan losses.
Elements of the review include analysis of historical performance, the level of
nonperforming and adversely rated loans, specific analysis of certain problem
loans, loan activity since the previous quarter, reports prepared by the Credit
Review Department, consideration of current economic conditions and other
pertinent information. The level of allowance to loans outstanding will vary
depending on the overall results of this quarterly review. The review is
presented to and subsequently approved by senior management and reviewed by the
Board of Directors.
For purposes of the quarterly review, the consumer portfolios are treated
as homogenous pools. Specific consumer pools include: direct, credit card, other
revolving, indirect, residential first mortgage and home equity loans. In
accordance with regulatory guidelines, the allowance for loan losses is
allocated to the consumer pools based on historical net charge-off rates
adjusted for any current or anticipated changes in these trends. The commercial,
commercial real estate and business banking portfolios are evaluated separately.
Within this group, every nonperforming loan is reviewed for a specific
allocation. The allowance is allocated within the commercial portfolio based on
a combination of historical loss rates, adjusted for those elements discussed in
the preceding paragraph, and regulatory guidelines.
In determining the appropriate level for the allowance, management ensures
that the overall allowance appropriately reflects a margin for the imprecision
inherent in most estimates of expected credit losses. This additional allowance
is reflected in the unallocated portion of the allowance.
At December 31, 1999, the allowance for loan losses was $10.3 million, or
1.56% of loans compared to $11.9 million or 2.40% of loans at December 31, 1998.
At December 31, 1997, Fidelity's allowance for loan losses as a percentage of
loans was 3.31%. At December 31, 1999 and 1998, credit card loans totaled $99
million and $104 million, respectively, or 13.8% and 19.5% of total loans,
respectively. This is compared to $120 million or 27.4% at December 31, 1997.
The amount of the allowance for loan losses allocated to credit cards was $4.9
million at December 31, 1999, compared to $7.8 million at December 31, 1998.
Fidelity has reduced its allowance for
22
<PAGE> 15
loan losses and particularly the allowance allocated to credit card loans due to
the decline in credit card loans outstanding, declining credit card net
charge-offs and delinquencies and the projected decline in net charge-offs on
credit card loans. (See "Provision for Loan Losses.")
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES TABLE 8
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ ------------------ ------------------
ALLOWANCE %* ALLOWANCE %* ALLOWANCE %*
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 634 15.68% $ 174 14.67% $ 154 11.94%
Real estate - construction 87 10.15 63 12.23 48 10.29
Real estate - mortgage 104 21.94 60 17.82 65 14.93
Consumer installment 4,159 37.07 3,458 34.25 3,442 35.15
Credit cards 4,943 15.16 7,779 21.03 9,436 27.69
Unallocated 327 - 377 - 1,175 -
------- ------ ------- ------ ------- ------
Total $10,254 100.00% $11,911 100.00% $14,320 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ ------------------
ALLOWANCE %* ALLOWANCE %*
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 98 10.24% $ 97 10.91%
Real estate - construction 35 13.12 30 11.37
Real estate - mortgage 350 16.71 8 17.00
Consumer installment 2,282 26.44 357 21.88
Credit cards 13,746 33.49 4,875 38.84
Unallocated - - 169 -
------- ------ ------- ------
Total $16,511 100.00% $ 5,536 100.00%
======= ====== ======= ======
</TABLE>
- -------------------------
* Percentage of respective loan type to total loans.
The following schedule summarizes data related to Fidelity's preapproved
and other credit card activities (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1999 1998 1997 1996 1995
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
LOANS OUTSTANDING:
Preapproved $31,749 $ 38,156 $ 46,868 $ 57,980 $ 30,690
Other 67,644 66,201 72,996 85,802 109,183
------- -------- -------- -------- --------
Total $99,393 $104,357 $119,864 $143,782 $139,873
======= ======== ======== ======== ========
DELINQUENCIES 30+ DAYS:
Preapproved $ 2,631 $ 5,093 $ 6,855 $ 8,665 $ 1,724
Other 2,321 3,511 4,197 6,715 6,055
------- -------- -------- -------- --------
Total $ 4,952 $ 8,604 $ 11,052 $ 15,380 $ 7,779
======= ======== ======== ======== ========
NET CHARGE-OFFS:
Preapproved $ 3,154 $ 5,554 $ 7,810 $ 5,078 $ 52
Other 3,358 4,183 5,590 7,510 6,537
------- -------- -------- -------- --------
Total $ 6,512 $ 9,737 $ 13,400 $ 12,588 $ 6,589
======= ======== ======== ======== ========
</TABLE>
INVESTMENT SECURITIES The levels of taxable securities and short-term
investments reflect Fidelity's strategy of maximizing portfolio yields within
overall asset and liability management parameters while providing for liquidity
needs. Investment securities totaled $79 million and $73 million at December 31,
1999 and 1998, respectively. A significant percentage of the holdings are backed
by U.S. Government or Federal agency guarantees, limiting the
23
<PAGE> 16
credit risks associated with these securities. The increase at December 31,
1999, compared to December 31, 1998, was attributable to purchases of investment
securities totaling $49.3 million. This increase was offset in part by
securities sales of $2.8 million, $27.0 million in securities called by the
issuing agencies and $10.9 million in principal payments on mortgage-backed
securities. The increase in investment securities was the result of a decision
to purchase securities to maintain investment securities totals relative to
increasing asset totals and to provide collateral for public deposits and other
borrowings.
The average life of Fidelity's securities portfolio was
7.9 years at December 31, 1999. At year-end 1999, approximately $44 million of
investment securities were classified as available-for-sale, compared to $43
million at December 31, 1998. The net unrealized losses on these securities at
December 31, 1999, were $2.3 million before taxes compared to net unrealized
gains of $0.1 million before taxes at December 31, 1998.
At December 31, 1999, Fidelity classified all but $36 million of its
investment securities as available-for-sale. Fidelity maintains a relatively
higher percentage of its investment portfolio as available-for-sale for possible
liquidity needs related to loan production.
DISTRIBUTION OF INVESTMENT SECURITIES TABLE 9
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997
------------------- ------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
--------- ------- --------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $31,108 $29,375 $32,978 $33,108 $ 94,272 $ 94,486
Mortgage-backed securities 47,340 45,308 36,942 37,037 28,899 29,022
Other investments 3,178 3,178 3,015 3,015 2,425 2,425
------- ------- ------- ------- -------- --------
Total $81,626 $77,861 $72,935 $73,160 $125,596 $125,933
======= ======= ======= ======= ======== ========
</TABLE>
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES AND AVERAGE YIELDS(1) TABLE 10
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------ ------------------------------
AMORTIZED FAIR AVERAGE AMORTIZED FAIR AVERAGE
COST VALUE YIELD(2) COST VALUE YIELD(2)
--------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies
Due after one year through five years $ 4,970 $ 4,717 5.39% $ - $ - -%
Due after five years through ten years 6,170 5,703 5.39 23,000 23,058 6.75
Mortgage-backed securities 34,757 33,198 6.30 20,282 20,347 6.13
------- ------- ------- -------
Total $45,897 $43,618 $43,282 $43,405
======= ======= ======= =======
HELD-TO-MATURITY:
U. S. Treasury securities and obligations of U.S.
Government corporations and agencies
Due after one year through five years $ 9,988 $ 9,430 5.98% $ - $ - -%
Due after five years through ten years 9,980 9,525 6.54 9,978 10,050 6.54
Mortgage-backed securities 12,583 12,109 6.08 16,659 16,691 6.26
------- ------- ------- -------
Total $32,551 $31,064 $26,637 $26,741
======= ======= ======= =======
</TABLE>
- -------------------------
(1) This table excludes equity investments which have no maturity date.
(2) Weighted average yields are calculated on the basis of the carrying value of
the security.
24
<PAGE> 17
DEPOSITS AND FUNDS PURCHASED Total deposits increased $97 million during
1999 to $718 million or 15.6% from $621 million at December 31, 1998. On an
average balance basis, interest-bearing demand deposits grew $27 million,
savings deposits grew $4 million and time deposits grew $33 million. Core
deposits, Fidelity's largest source of funding, consist of all interest-bearing
and noninterest-bearing deposits except time deposits over $100,000. Core
deposits are obtained from a broad range of customers. Average interest-bearing
core deposits were $432 million and $396 million at December 31, 1999 and 1998,
respectively.
Total deposits as of December 31, 1998, increased $54 million or 9.6% from
$568 million as of December 31, 1997. On an average balance basis, all
categories of deposits except savings deposits reflected volume increases.
Noninterest-bearing deposits are comprised of certain business accounts,
including correspondent bank accounts and escrow deposits, as well as individual
accounts. Average noninterest-bearing demand deposits represented 18.8% of
average core deposits in 1999 compared to 17.7% in 1998. The average amount of,
and average rate paid on, deposits by category for the periods shown are
presented below (dollars in thousands):
SELECTED STATISTICAL INFORMATION FOR DEPOSITS TABLE 11
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $100,469 -% $ 85,720 -% $ 72,807 -%
Interest-bearing demand deposits 131,269 3.58 103,912 3.46 82,298 2.81
Savings deposits 26,579 3.54 22,649 3.36 28,963 3.56
Time deposits 400,340 5.43 367,484 5.77 363,148 5.75
-------- -------- --------
Total average deposits $658,657 4.91 $579,765 5.17 $547,216 5.10
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
MATURITY DISTRIBUTION OF TIME DEPOSITS $100,000 OR MORE
- --------------------------------------------------------------------------
<S> <C>
Three months or less $ 33,129
Over three through six months 53,647
Over six through twelve months 58,938
Over twelve months 9,942
--------
Total $155,656
========
</TABLE>
SCHEDULE OF SHORT-TERM BORROWINGS(1) TABLE 12
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAXIMUM WEIGHTED
OUTSTANDING AT AVERAGE INTEREST AVERAGE
ANY AVERAGE RATE DURING ENDING INTEREST RATE AT
YEAR ENDED DECEMBER 31, MONTH-END BALANCE YEAR BALANCE YEAR-END
----------------------- -------------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
1999 $71,294 $40,559 4.58% $71,294 5.28%
1998 46,909 22,172 3.33 16,516 3.16
1997 29,020 15,322 3.17 16,368 3.17
</TABLE>
- -------------------------
(1) Consists of Federal funds purchased, securities sold under agreements to
repurchase, and borrowings from the Federal Home Loan Bank that mature
either overnight or on a fixed maturity not to exceed one year.
LONG-TERM DEBT Fidelity had $29.6 million of long-term debt outstanding at
December 31, 1999, consisting of $15.6 million of subordinated debt and $14.0
million in borrowings from the FHLB.
On December 12, 1995, Fidelity issued $15 million in 8.5% Subordinated
Notes due January 31, 2006. Fidelity loaned $10 million of the proceeds to
Fidelity National Bank to enhance the Bank's total capital ratio. The balance
25
<PAGE> 18
of the proceeds was used to retire certain previously issued subordinated notes
and for general corporate purposes. The additional $600,000 of subordinated debt
matures March 27, 2002.
On April 12, 1999, Fidelity National Bank entered into a $14 million five
year European convertible advance maturing April 12, 2004, with a one-time
conversion option at the end of the third year with the FHLB. Under the
provisions of the advance, the FHLB has the option to convert the advance into a
three month LIBOR-based floating rate advance effective April 12, 2002, at which
time Fidelity may elect to terminate the agreement on any interest payment date
without penalty. If the FHLB elects not to convert the advance, Fidelity has the
option of paying a substantial prepayment fee and terminating the transaction on
any interest payment date.
SHAREHOLDERS' EQUITY Shareholders' equity at December 31, 1999 and 1998,
was $55 million. Realized shareholders' equity (shareholders' equity excluding
accumulated other comprehensive (loss) income, net of tax) was $56 million at
December 31, 1999, and $55 million at December 31, 1998. The increase in
realized shareholders' equity in 1999 was a result of net income, common stock
issued under employee benefit plans and common stock issued under the dividend
reinvestment plan, offset primarily by the declaration of common stock and
preferred stock dividends and the redemption in cash of $1.7 million in
preferred stock.
In September 1999, Fidelity National Corporation exercised its rights to
redeem the outstanding shares of its Non-Cumulative 8% Convertible Preferred
Stock-Series A by paying in cash the sum of $6.25 per share plus any declared
but unpaid dividends. The redemption occurred on October 19, 1999. Shareholders
owning 710,000 shares of the 984,000 Preferred Stock shares outstanding elected
to convert to Common Stock, resulting in the issuance of 617,165 shares of
Common Stock. Shareholders' equity was reduced by $1.7 million as a result of
the redemption in cash of 274,000 preferred shares and the payment of fractional
interests.
Shareholders' equity at December 31, 1998, was $55 million, an increase of
$4 million or 6.2% from $51 million, at December 31, 1997. Realized
shareholders' equity (shareholders' equity excluding accumulated other
comprehensive (loss) income, net of tax) was $55 million at December 31, 1998,
and $51 million at December 31, 1997. The increase in 1998 was due to net income
and common stock issued under employee benefit plans, offset primarily by the
declaration of common stock and preferred stock dividends.
Fidelity paid preferred stock dividends of $492,000 in 1999 and 1998 and
$128,000 in 1997. During 1999 Fidelity paid $1,329,000 in dividends on common
stock compared to $325,000 in 1998 and no dividends in 1997. The following
schedule summarizes per share common stock dividends paid for the last three
years:
<TABLE>
<CAPTION>
DIVIDENDS PAID
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
First Quarter $.04 $ - $ -
Second Quarter .04 - -
Third Quarter .04 - -
Fourth Quarter .04 .04 -
---- ---- ----
For the Year $.16 $.04 $ -
==== ==== ====
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes new accounting and
reporting activities for derivatives. The standard requires all derivatives to
be measured at fair value and recognized as either assets or liabilities in the
statement of condition. Under certain conditions, a derivative may be
specifically designated as a hedge. Accounting for the changes in fair value of
a derivative depends on the intended use of the derivative and the resulting
designation. In July 1999, the Financial Accounting Standards Board issued SFAS
No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133." Adoption of the standard is
required for Fidelity's December 31, 2001, financial statements with early
adoption allowed as of the beginning of any quarter after June 30, 1998.
Adoption is not expected to result in a material financial impact based on
Fidelity's limited use of derivatives.
YEAR 2000 READINESS
Fidelity completed all Year 2000 readiness work during 1999 and has not
experienced any significant operating problems during 2000. Total Year 2000
readiness expenses incurred in the years ended December 31, 1999 and 1998, were
approximately $458,000 and $816,000,
26
<PAGE> 19
respectively. Fidelity does not have significant continued exposure to the year
2000 issue, did not have customers, suppliers, counterparties or correspondents
who were significantly impacted, and does not anticipate material expenditures
in the future.
FORWARD-LOOKING STATEMENTS
This review contains certain forward-looking statements including
statements relating to present or future trends or factors generally affecting
the banking industry and specifically affecting Fidelity's operations, markets
and products. Without limiting the foregoing, the words "believes,"
"anticipates," "intends," "expects" or similar expressions are intended to
identify forward-looking statements. These forward-looking statements involve
certain risks and uncertainties. Actual results could differ materially from
those projected for many reasons, including, without limitation, changing events
and trends that have influenced Fidelity's assumptions, but that are beyond
Fidelity's control. These trends and events include (i) changes in the interest
rate environment which may reduce margins, (ii) non-achievement of expected
growth, (iii) less favorable than anticipated changes in the national and local
business environment and securities markets, (iv) adverse changes in the
regulatory requirements affecting Fidelity, (v) greater competitive pressures
among financial institutions in Fidelity's market, and (vi) greater loan losses
than historic levels. Additional information and other factors that could affect
future financial results are included in Fidelity's filings with the Securities
and Exchange Commission, including the Annual Report and 10K for 1999.
QUARTERLY FINANCIAL INFORMATION
The following table sets forth, for the periods indicated, certain
consolidated quarterly financial information of Fidelity. This information is
derived from unaudited Consolidated Financial Statements that include, in the
opinion of management, all normal recurring adjustments which management
considers necessary for a fair presentation of the results for such periods. The
results for any quarter are not necessarily indicative of results for any future
period. This information should be read in conjunction with Fidelity's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this report.
CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) TABLE 13
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
------------------------------------- -------------------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $18,663 $17,713 $16,242 $15,839 $16,299 $16,578 $15,465 $15,430
Interest expense 8,916 8,210 7,181 6,914 7,264 7,298 6,606 6,577
------- ------- ------- ------- ------- ------- ------- -------
Net interest income 9,747 9,503 9,061 8,925 9,035 9,280 8,859 8,853
Provision for loan losses 1,800 2,000 2,100 1,700 2,700 2,000 2,850 1,900
Noninterest income before securities gains 4,370 5,171 4,902 4,750 4,775 4,617 5,201 4,092
Securities gains 6 - - - 121 41 93 -
------- ------- ------- ------- ------- ------- ------- -------
Total noninterest income 4,376 5,171 4,902 4,750 4,896 4,658 5,294 4,092
Noninterest expense 10,021 10,360 10,666 10,296 10,428 10,091 9,564 9,365
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 2,302 2,314 1,197 1,679 803 1,847 1,739 1,680
Income tax expense 788 801 419 611 299 680 623 615
------- ------- ------- ------- ------- ------- ------- -------
Net income $ 1,514 $ 1,513 $ 778 $ 1,068 $ 504 $ 1,167 $ 1,116 $ 1,065
======= ======= ======= ======= ======= ======= ======= =======
Basic earnings per share $ 0.16 $ 0.17 $ 0.08 $ 0.12 $ .06 $ .13 $ .12 $ .12
======= ======= ======= ======= ======= ======= ======= =======
Diluted earnings per share $ 0.16 $ 0.17 $ 0.08 $ 0.12 $ .05 $ .13 $ .12 $ .12
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
27
<PAGE> 20
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Fidelity National Corporation
We have audited the accompanying consolidated balance sheets of Fidelity
National Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Fidelity National Corporation and subsidiaries at December 31, 1999 and 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young
January 25, 2000
Atlanta, Georgia
28
<PAGE> 21
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks - Note 10 $ 33,165,476 $ 32,726,501
Interest-bearing deposits with banks 1,378,727 1,417,679
Federal funds sold 15,662,352 45,785,746
Investment securities available-for-sale - Note 2 43,618,492 43,404,870
Investment securities held-to-maturity (fair values of
$34,242,569 and $29,755,873 for 1999 and 1998,
respectively) - Note 2 35,729,462 29,652,667
Loans held-for-sale 65,167,204 39,655,259
Loans, net of unearned income - Note 3 655,614,120 496,220,907
Allowance for loan losses - Note 3 (10,253,541) (11,910,601)
------------ ------------
Loans, net 645,360,579 484,310,306
Premises and equipment, net - Note 4 18,464,276 19,643,697
Other real estate - Note 3 900,990 1,093,264
Accrued interest receivable 5,825,844 4,560,617
Other assets 17,323,965 10,626,947
------------ ------------
Total assets $882,597,367 $712,877,553
============ ============
LIABILITIES
Deposits - Note 5
Noninterest-bearing demand deposits $105,518,934 $102,424,607
Interest-bearing deposits:
Demand and money market 142,024,365 128,053,878
Savings 29,710,668 21,867,183
Time deposits, $100,000 and over 155,656,275 107,599,557
Other time deposits 285,521,714 261,318,402
------------ ------------
Total deposits 718,431,956 621,263,627
Short-term Federal Home Loan Bank borrowings - Note 6 26,000,000 -
Short-term borrowings - other - Note 6 45,294,224 16,515,867
Long-term debt - Note 7 29,600,000 15,650,000
Accrued interest payable 3,995,115 3,189,129
Other liabilities 4,665,699 1,703,450
------------ ------------
Total liabilities 827,986,994 658,322,073
------------ ------------
Commitments and contingencies - Notes 10 and 14
SHAREHOLDERS' EQUITY - Note 11
Preferred stock, no par value. Authorized 10,000,000; issued
and outstanding none and 984,000 shares at December 31,
1999 and 1998, respectively, of Non-cumulative 8%
Convertible Preferred Stock - Series A, stated value $6.25 - 6,150,000
Common Stock, no par value. Authorized 50,000,000; issued
8,789,020 and 8,144,958; outstanding 8,777,928 and
8,133,866 in 1999 and 1998, respectively 39,789,954 35,124,941
Treasury stock (69,325) (69,325)
Accumulated other comprehensive (loss) income, net of tax (1,412,393) 75,968
Retained earnings 16,302,137 13,273,896
------------ ------------
Total shareholders' equity 54,610,373 54,555,480
------------ ------------
Total liabilities and shareholders' equity $882,597,367 $712,877,553
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 22
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $62,661,983 $55,295,291 $56,010,450
Investment securities (taxable) 4,993,040 6,631,283 4,835,128
Federal funds sold 745,881 1,689,132 1,238,941
Deposits with other banks 57,005 156,465 68,463
----------- ----------- -----------
Total interest income 68,457,909 63,772,171 62,152,982
INTEREST EXPENSE:
Deposits - Note 5 27,392,776 25,550,474 24,236,294
Short-term borrowings 1,859,114 759,736 485,593
Long-term debt 1,968,716 1,434,390 1,487,673
----------- ----------- -----------
Total interest expense 31,220,606 27,744,600 26,209,560
NET INTEREST INCOME 37,237,303 36,027,571 35,943,422
Provision for loan losses - Note 3 7,600,000 9,450,000 14,435,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 29,637,303 26,577,571 21,508,422
NONINTEREST INCOME:
Service charges on deposit accounts 2,696,541 2,376,002 2,096,948
Credit card fees 3,769,338 3,277,781 3,083,913
Mortgage banking activities 3,693,969 3,345,774 4,902,945
Brokerage activities 2,680,558 3,032,084 3,276,829
Indirect lending activities 2,852,109 3,786,746 2,247,941
Trust activities 1,550,007 1,107,639 1,131,220
Securities gains, net - Note 2 6,013 254,737 140,090
Other 1,949,868 1,758,834 498,870
----------- ----------- -----------
Total noninterest income 19,198,403 18,939,597 17,378,756
NONINTEREST EXPENSE:
Salaries and employee benefits - Note 9 19,086,537 17,162,862 17,012,788
Furniture and equipment 3,153,341 2,757,686 2,293,866
Net occupancy 3,391,254 3,225,106 2,974,877
Credit card processing and transaction fees 3,251,833 3,011,844 2,814,563
Communication expenses 2,312,873 2,091,842 1,968,448
Professional and other services 2,724,914 2,926,444 2,397,399
Regulatory assessments 464,203 1,381,174 1,196,001
Amortization of mortgage servicing rights 534,128 910,207 788,201
Other 6,424,329 5,980,785 5,974,374
----------- ----------- -----------
Total noninterest expense 41,343,412 39,447,950 37,420,517
----------- ----------- -----------
Income before income taxes 7,492,294 6,069,218 1,466,661
Income tax expense - Note 8 2,619,414 2,216,630 503,748
----------- ----------- -----------
NET INCOME $ 4,872,880 $ 3,852,588 $ 962,913
=========== =========== ===========
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 4,357,290 $ 3,483,588 $ 711,835
=========== =========== ===========
BASIC EARNINGS PER SHARE $ 0.53 $ 0.43 $ 0.15
=========== =========== ===========
DILUTED EARNINGS PER SHARE $ 0.53 $ 0.42 $ 0.15
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 8,277,496 8,123,049 4,831,364
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 23
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TREASURY STOCK
---------------------- ----------------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- --------- ----------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 - $ - 4,665,256 $11,878,597 11,092 $(69,325)
Comprehensive Income:
Net income - - - - - -
Other comprehensive income, net of tax - - - - - -
Comprehensive income - - - - - -
Preferred Stock issued 984,000 6,150,000 - (500,000) - -
Common Stock issued through public offering - - 3,450,000 23,466,963 - -
Common Stock issued under Employee Stock
Purchase Plan - - 10,243 97,550 - -
Preferred dividends declared ($.26 per share) - - - - - -
-------- ----------- --------- ----------- ------ --------
BALANCE DECEMBER 31, 1997 984,000 6,150,000 8,125,499 34,943,110 11,092 (69,325)
Comprehensive Income:
Net income - - - - - -
Other comprehensive loss, net of tax - - - - - -
Comprehensive income - - - - - -
Common Stock issued under Employee Benefit
Plans - - 19,459 181,831 - -
Preferred dividends declared ($.375 per share) - - - - - -
Common dividends declared ($.04 per share) - - - - - -
-------- ----------- --------- ----------- ------ --------
BALANCE DECEMBER 31, 1998 984,000 6,150,000 8,144,958 35,124,941 11,092 (69,325)
Comprehensive Income:
Net income - - - - - -
Other comprehensive loss, net of tax - - - - - -
Comprehensive income - - - - - -
Redemption of Preferred Stock (984,000) (6,150,000) 617,165 4,437,426 - -
Common Stock issued under Employee Benefit
Plans - - 22,321 196,010 - -
Common Stock issued under Dividend
Reinvestment Plan - - 4,576 31,577 - -
Preferred dividends declared ($.52 per share) - - - - - -
Common dividends declared ($.16 per share) - - - - - -
-------- ----------- --------- ----------- ------ --------
BALANCE DECEMBER 31, 1999 - $ - 8,789,020 $39,789,954 11,092 $(69,325)
======== =========== ========= =========== ====== ========
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME
(LOSS) RETAINED
NET OF TAX EARNINGS TOTAL
------------- ----------- -----------
<S> <C> <C> <C>
BALANCE DECEMBER 31, 1996 $ (140,241) $ 9,403,785 $21,072,816
Comprehensive Income:
Net income - 962,913 962,913
Other comprehensive income, net of tax 348,935 - 348,935
-----------
Comprehensive income - - 1,311,848
Preferred Stock issued - - 5,650,000
Common Stock issued through public offering - - 23,466,963
Common Stock issued under Employee Stock
Purchase Plan - - 97,550
Preferred dividends declared ($.26 per share) - (251,075) (251,075)
----------- ----------- -----------
BALANCE DECEMBER 31, 1997 208,694 10,115,623 51,348,102
Comprehensive Income:
Net income - 3,852,588 3,852,588
Other comprehensive loss, net of tax (132,726) - (132,726)
-----------
Comprehensive income - - 3,719,862
Common Stock issued under Employee Benefit
Plans - - 181,831
Preferred dividends declared ($.375 per share) - (369,000) (369,000)
Common dividends declared ($.04 per share) - (325,315) (325,315)
----------- ----------- -----------
BALANCE DECEMBER 31, 1998 75,968 13,273,896 54,555,480
Comprehensive Income:
Net income - 4,872,880 4,872,880
Other comprehensive loss, net of tax (1,488,361) - (1,488,361)
-----------
Comprehensive income - - 3,384,519
Redemption of Preferred Stock - - (1,712,574)
Common Stock issued under Employee Benefit
Plans - - 196,010
Common Stock issued under Dividend
Reinvestment Plan - - 31,577
Preferred dividends declared ($.52 per share) - (515,579) (515,579)
Common dividends declared ($.16 per share) - (1,329,060) (1,329,060)
----------- ----------- -----------
BALANCE DECEMBER 31, 1999 $(1,412,393) $16,302,137 $54,610,373
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 24
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,872,880 $ 3,852,588 $ 962,913
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Provision for loan losses 7,600,000 9,450,000 14,435,000
Depreciation and amortization of premises and equipment 2,766,684 2,291,075 1,979,847
Amortization of mortgage servicing rights 534,128 910,207 788,201
Additions of originated mortgage servicing rights (632,286) (1,285,422) (343,974)
Securities gains, net (6,013) (254,737) (140,090)
Gain on loan sales (822,535) (1,924,424) (920,983)
Proceeds from sales of other real estate 372,632 496,730 327,644
Net (increase) decrease in loans held-for-sale (25,511,945) (35,294,494) 33,745,103
Net (increase) decrease in accrued interest receivable (1,265,227) (68,195) 1,090,810
Net increase (decrease) in accrued interest payable 805,986 (3,572) (309,930)
Net increase (decrease) in other liabilities 2,962,249 (203,350) (540,952)
Net (increase) decrease in other assets (6,697,018) 1,850,691 6,076,041
Other, net 992,818 (372,677) (241,953)
------------- ------------- -------------
Net cash flows (used in) provided by operating
activities (14,027,647) (20,555,580) 56,907,677
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities held-to-maturity (10,154,681) (17,149,952) (30,092,474)
Maturities of investment securities held-to-maturity 4,077,886 25,441,717 -
Sales of investment securities available-for-sale 2,758,548 4,152,969 9,117,568
Purchases of investment securities available-for-sale (39,155,387) (31,922,142) (79,833,616)
Maturities of investment securities available-for-sale 33,782,630 72,393,747 52,983,590
Net increase in loans (351,018,405) (232,894,418) (146,410,725)
Purchases of premises and equipment (1,587,263) (1,417,122) (2,698,418)
Proceeds from sale of loans 183,010,309 160,310,320 125,158,018
------------- ------------- -------------
Net cash flows used in investing activities (178,286,363) (21,084,881) (71,776,057)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, money market accounts, and
savings accounts 24,908,299 59,786,522 1,362,961
Net increase (decrease) in time deposits 72,260,030 (6,840,220) 22,241,035
(Redemption of) proceeds from issuance of Preferred Stock (1,712,574) - 5,650,000
Proceeds from issuance of Common Stock 227,587 181,831 23,564,513
Issuance (repayment) of long-term debt 13,950,000 (150,000) (700,000)
Increase (decrease) in short-term borrowings 54,778,357 148,028 (815,930)
Dividends paid (1,821,060) (817,315) (128,075)
------------- ------------- -------------
Net cash flows provided by financing activities 162,590,639 52,308,846 51,174,504
------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (29,723,371) 10,668,385 36,306,124
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 79,929,926 69,261,541 32,955,417
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 50,206,555 $ 79,929,926 $ 69,261,541
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 30,414,620 $ 27,748,172 $ 26,519,490
============= ============= =============
Income taxes $ 1,500,000 $ 2,000,000 $ 700,000
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 25
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION The consolidated financial statements include the
accounts of Fidelity National Corporation and its wholly owned subsidiaries
(collectively "Fidelity"). Fidelity National Corporation owns 100% of Fidelity
National Bank (the "Bank") and Fidelity National Capital Investors, Inc.
Fidelity is a financial services company which offers traditional banking,
mortgage, trust, and investment services to its customers, who are typically
individuals and small to medium sized businesses. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The financial statements have been prepared in conformity with generally
accepted accounting principles followed within the financial services industry.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates. Material estimates that
are particularly susceptible to significant change in the near term relate to
the determination of the allowance for loan losses, securitization assets and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. Certain previously reported amounts have been restated to
conform to current presentation. Fidelity principally operates in one business
segment, which is community banking.
CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand,
amounts due from banks and Federal funds sold. Generally, Federal funds are
purchased and sold within one-day periods.
INVESTMENT SECURITIES In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," Fidelity classifies its investment securities in one of two
categories: available-for-sale or held-to-maturity. Fidelity had no trading
securities at December 31, 1999 or 1998. Held-to-maturity securities are those
securities which Fidelity has the ability and positive intent to hold until
maturity. All other securities not included in held-to-maturity are classified
as available-for-sale.
Available-for-sale securities are recorded at fair value. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized gains and losses, net of related
income taxes, on available-for-sale securities are excluded from income and are
reported as a separate component of shareholders' equity until realized. A
decline in the fair value below cost of any available-for-sale or
held-to-maturity security that is deemed other than temporary results in a
charge to income and the establishment of a new cost basis for the security.
Purchase premiums and discounts are amortized or accreted over the life of
the related investment securities as an adjustment to yield using the effective
interest method. Dividend and interest income are recognized when earned.
Realized gains and losses for securities sold are included in income and are
derived using the specific identification method for determining the cost of
securities sold.
LOANS AND INTEREST INCOME Loans are reported at principal amounts
outstanding net of unearned income and deferred fees and costs. Interest income
is recognized in a manner that results in a level yield on principal amounts
outstanding. The accrual of interest is discontinued when, in management's
judgment, it is determined that the collectibility of interest or principal is
doubtful.
Rate related loan fee income is included in interest income. Loan
origination and commitment fees and certain direct origination costs are
deferred and the net amount is amortized as an adjustment of the yield over the
contractual lives of the related loans, taking into consideration assumed
prepayments.
Current period accrued interest-related income charges on credit card loans
to be charged off are charged off to interest income. Annual fees collected for
credit cards are recognized as income on a straight-line basis over the period
the fee entitles the cardholder to use the card.
Impaired loans are measured based on the present value of expected future
cash flows discounted at the loan's original effective interest rate, or at the
loan's observable market price, or the fair value of the collateral if the loan
is collateral dependent. Impaired loans are specifically reviewed loans for
which it is probable that the creditor will be unable to collect all amounts due
according to the terms of the loan agreement. A valuation allowance is required
to the extent that the measure of impaired loans is less than the recorded
investment. SFAS No. 114, "Accounting by Creditors for Impairment of
33
<PAGE> 26
a Loan," does not apply to large groups of smaller balance, homogeneous loans,
which are consumer installment and credit card loans, and which are collectively
evaluated for impairment. Interest on these loans is reported on the cash basis
as received when the full recovery of principal is anticipated, or after full
principal has been recovered when collection of interest is in question.
CREDIT CARDS Costs related to the origination of credit cards are
capitalized and amortized over one year using the straight-line method. The net
amount of capitalized costs remaining as of December 31, 1999 and 1998, was $1.1
million and $59,000, respectively.
ALLOWANCE 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 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.
A formal review of the allowance for loan losses is prepared quarterly to
assess the credit risk inherent in the loan portfolio and to determine the
adequacy of the allowance for loan losses. For purposes of the quarterly review,
the consumer loan portfolio is separated by loan type and each loan type is
treated as a homogeneous pool. In accordance with the Interagency Policy
Statement on the Allowance for Loan and Lease Losses, issued by the Office of
the Comptroller of the Currency, Federal Deposit Insurance Corporation, Federal
Reserve Board and Office of Thrift Supervision, the level of allowance required
for each pool is determined based upon trends in charge-off rates for each pool,
adjusted for changes in these pools, which includes current information on the
payment performance of each pool of loans. Every commercial, commercial real
estate and construction loan is assigned a risk rating using established credit
policy guidelines. A projected loss allocation factor is determined for each
commercial category based on historic charge-off experience, current trends,
economic outlook and other factors. These risk factors are periodically reviewed
by Credit Review, which is independent of the lending units. The risk factor,
when multiplied times the dollar value of loans, results in the amount of the
allowance for loan losses allocated to these loans. Every nonperforming loan is
reviewed quarterly by Credit Review to determine the level of loan losses
required to be specifically allocated to these impaired loans. The amount so
determined is then added to the previously allocated allowance by category to
determine the required allowance for commercial, commercial real estate and
construction loans. The allowance allocated to standby letters of credit is
determined by historical loss information associated with these off-balance
sheet items. Management reviews its allocation of the allowance for loan losses
versus actual performance of each of its portfolios and adjusts allocation rates
to reflect the recent performance of the portfolio as well as current
underwriting standards and other factors which might impact the estimated losses
in the portfolio.
In determining the appropriate level for the allowance, management ensures
that the overall allowance appropriately reflects a margin for the imprecision
inherent in most estimates of expected credit losses. This additional allowance
is reflected in the unallocated portion of the allowance. Based on management's
periodic evaluation of the allowance for loan losses, a provision for loan
losses is charged to operations if additions to the allowance are required.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review Fidelity's allowance for loan
losses. Such agencies may require Fidelity to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination.
A substantial portion of Fidelity's loans is secured by real estate located
in metropolitan Atlanta, Georgia. In addition, all of Fidelity's other real
estate is located in this same market area. Accordingly, the ultimate
collectibility of a substantial portion of the loan portfolio and the recovery
of a substantial portion of the carrying amount of other real estate are
susceptible to changes in market conditions in this market area.
LOANS HELD-FOR-SALE Loans held-for-sale include mortgage loans and certain
indirect automobile loans at December 31, 1999 and 1998. Those loans
held-for-sale are recorded at the lower of cost or market. For mortgage loans,
this is determined by outstanding commitments from investors for committed loans
and on the basis of current delivery prices in the secondary mortgage market for
uncommitted loans. For indirect automobile loans, the lower of cost or market is
determined based on evaluating the market value of the pool selected for sale.
Based upon available market information, no valuation adjustment was required at
December 31, 1999 or 1998, and fair values for such loans held-for-sale
approximated or exceeded their carrying values.
34
<PAGE> 27
Gains and losses on sales of loans are recognized at the settlement date.
Gains and losses are determined as the difference between the net sales proceeds
and the carrying value of the loans sold.
PREMISES AND EQUIPMENT Premises and equipment, including leasehold
improvements, are stated at cost less accumulated depreciation and amortization.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Leasehold improvements are amortized using
the straight-line method over the lease term or estimated useful life, whichever
is shorter.
OTHER REAL ESTATE Other real estate represents property acquired through
foreclosure or in satisfaction of loans. Other real estate is carried at the
lower of cost or fair value less estimated selling costs. Fair value is
determined on the basis of current appraisals, comparable sales, and other
estimates of value obtained principally from independent sources. Any excess of
the loan balance at the time of foreclosure or acceptance in satisfaction of
loans over the fair value less selling costs of the real estate held as
collateral is treated as a loan loss and charged against the allowance for loan
losses. Gain or loss on sale and any subsequent adjustments to reflect changes
in fair value and selling costs are recorded as a component of income.
INCOME TAXES Fidelity files a consolidated Federal income tax return.
Taxes are accounted for in accordance with SFAS No. 109, "Accounting for Income
Taxes." Under the liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to be applied to
taxable income in the years in which those temporary differences are recovered
or settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
INCOME PER COMMON SHARE Earnings per share are presented in accordance
with requirements of SFAS 128, "Earnings Per Share." Any difference between
basic earnings per share and diluted earnings per share was a result of the
dilutive effect of stock options.
MORTGAGE BANKING ACTIVITIES Effective January 1, 1995, Fidelity adopted
SFAS No. 122, "Accounting for Mortgage Servicing Rights, an Amendment of FASB
Statement No. 65." On January 1, 1997, Fidelity adopted SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," which superseded SFAS No. 122. SFAS No. 122 requires
capitalization of purchased as well as internally originated mortgage servicing
rights based on the fair value of the mortgage servicing rights relative to the
loan as a whole. Prior to the issuance of SFAS No. 122, capitalization of
mortgage servicing rights was limited to servicing rights purchased from third
parties. Mortgage servicing rights are amortized in proportion to and over the
period of estimated net servicing income. The fair value of mortgage servicing
rights is determined based on the present value of estimated expected future
cash flows determined using assumptions that market participants would use in
estimating future net servicing income which includes discount rate, prepayment
estimate, and per loan cost to service. Mortgage servicing rights are stratified
by loan type (government or conventional) and interest rate for purposes of
measuring impairment on a quarterly basis. An impairment loss is recognized to
the extent by which the amortized capitalized mortgage servicing rights for each
stratum exceeds the current fair value. Impairment losses are recognized as
reductions in the carrying value of the asset, through the use of a valuation
allowance.
During 1999, Fidelity discontinued servicing mortgage loans for others and
sold its mortgage servicing rights. During 1999, 1998 and 1997, Fidelity
capitalized approximately $632,000, $1,285,000 and $344,000, respectively, of
originated servicing rights, recorded amortization of approximately $534,000,
$910,000 and $788,000, respectively, and recorded a valuation allowance of
approximately $29,000 and $14,000 in 1998 and 1997, respectively, related to
those rights. These amounts are included in other assets. The estimated fair
value of originated and purchased mortgage servicing rights at December 31,
1998, was approximately $3.0 million.
STOCK OPTIONS Fidelity has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25") and
related interpretations in accounting for its employee stock options. Under APB
25, because the exercise price of Fidelity's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 establishes new accounting and reporting
activities for derivatives. The standard requires all derivatives to be measured
at fair value and recognized as either assets or liabilities in the statement of
condition. Under certain conditions, a derivative may be specifically designated
as a hedge. Accounting for the changes in fair value of a derivative depends on
the intended use of the derivative and the resulting
35
<PAGE> 28
designation. In July 1999, the Financial Accounting Standards Board issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS No.
137 delays the effective date of SFAS No. 133 for one year. Adoption of the
standard is required for Fidelity's December 31, 2001, financial statements with
early adoption allowed as of the beginning of any quarter after June 30, 1998.
Adoption is not expected to result in a material financial impact based on
Fidelity's limited use of derivatives.
2. INVESTMENT SECURITIES
Investment securities at December 31, 1999 and 1998, are summarized as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Securities Available-for-Sale at December 31, 1999:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $11,139,997 $ - $ (719,651) $10,420,346
Mortgage-backed securities 34,756,551 25,343 (1,583,748) 33,198,146
----------- -------- ----------- -----------
Total $45,896,548 $ 25,343 $(2,303,399) $43,618,492
=========== ======== =========== ===========
Securities Available-for-Sale at December 31, 1998:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $23,000,000 $ 58,350 $ - $23,058,350
Mortgage-backed securities 20,282,339 126,239 (62,058) 20,346,520
----------- -------- ----------- -----------
Total $43,282,339 $184,589 $ (62,058) $43,404,870
=========== ======== =========== ===========
Securities Held-to-Maturity December 31, 1999:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $19,967,737 $ - $(1,012,815) $18,954,922
Mortgage-backed securities 12,583,375 - (474,078) 12,109,297
Other securities 3,178,350 - - 3,178,350
----------- -------- ----------- -----------
Total $35,729,462 $ - $(1,486,893) $34,242,569
=========== ======== =========== ===========
Securities Held-to-Maturity December 31, 1998:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $ 9,978,219 $ 71,781 $ - $10,050,000
Mortgage-backed securities 16,659,200 62,399 (30,974) 16,690,625
Other securities 3,015,248 - - 3,015,248
----------- -------- ----------- -----------
Total $29,652,667 $134,180 $ (30,974) $29,755,873
=========== ======== =========== ===========
</TABLE>
Proceeds from sales of investment securities available-for-sale during 1999
and 1998 were $2,758,548 and $4,152,969, respectively. Gross gains of $6,013 and
$187,129 for 1999 and 1998, respectively, were realized on those sales. In 1998,
an additional gain of $67,608 was realized on $52,500,000 of investment
securities called at par. Proceeds from the sale of investment securities were
$9,117,568 in 1997 with related gross gains of $140,090. Income tax expense
related to the sale of securities was $2,285, $96,801 and $53,234 in 1999, 1998
and 1997, respectively.
36
<PAGE> 29
The following table depicts amortized cost and estimated fair value of
investment securities at December 31, 1999 and 1998, by contractual maturity.
Expected maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties. Also, other securities, which consist of Federal Reserve Bank common
stock and Federal Home Loan Bank common stock, are not included in the following
table as they have no stated maturity.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------- -------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Treasury Securities and obligations of U.S.
Government corporations and agencies:
Due after one year through five years $ 4,970,109 $ 4,716,606 $ - $ -
Due after five years through ten years 6,169,888 5,703,740 23,000,000 23,058,350
----------- ----------- ----------- -----------
11,139,997 10,420,346 23,000,000 23,058,350
Mortgage-backed securities 34,756,551 33,198,146 20,282,339 20,346,520
----------- ----------- ----------- -----------
Total $45,896,548 $43,618,492 $43,282,339 $43,404,870
=========== =========== =========== ===========
HELD-TO-MATURITY:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies:
Due after one year through five years $ 9,988,194 $ 9,429,922 $ - $ -
Due after five years through ten years 9,979,543 9,525,000 9,978,219 10,050,000
----------- ----------- ----------- -----------
19,967,737 18,954,922 9,978,219 10,050,000
Mortgage-backed securities 12,583,375 12,109,297 16,659,200 16,690,625
----------- ----------- ----------- -----------
Total $32,551,112 $31,064,219 $26,637,419 $26,740,625
=========== =========== =========== ===========
</TABLE>
Investment securities with a carrying value of approximately $77,645,000
and $70,012,000 at December 31, 1999 and 1998, respectively, were pledged as
collateral for public deposits, securities sold under overnight and term
agreements to repurchase, and for other purposes required by law.
3. LOANS
Loans outstanding, by classification, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Credit cards $ 99,393,260 $104,356,609
Real estate - mortgage 143,857,997 88,429,607
Real estate - construction 66,541,761 60,695,156
Commercial, financial and agricultural 102,789,982 72,801,512
Consumer installment 243,031,120 169,938,023
------------ ------------
Total loans 655,614,120 496,220,907
Less: Allowance for loan losses 10,253,541 11,910,601
------------ ------------
Loans, net $645,360,579 $484,310,306
============ ============
</TABLE>
Loans held-for-sale at December 31, 1999, totaled $65,167,204, of which
$4,167,204 were mortgage loans and $61,000,000 were indirect auto loans.
Fidelity had loan participations sold without recourse in the amount of $2.6
million and $4.7 million at December 31, 1999 and 1998, respectively. Fidelity
was servicing mortgage loans for others of approximately $220 million at
December 31, 1998. Fidelity was servicing indirect automobile loans for others
of approximately $285 million and $236 million at December 31, 1999 and 1998,
respectively.
37
<PAGE> 30
Approximately $10,972,000 and $51,668,000 in commercial and residential
real estate mortgage loans, respectively, were pledged to the Federal Home Loan
Bank of Atlanta at December 31, 1999, as collateral for both short-term and
long-term borrowings. There were no similar pledged loans or borrowings at
December 31, 1998 or 1997.
Loans in nonaccrual status amounted to approximately $2,498,000 and
$1,848,000 at December 31, 1999 and 1998, respectively. The allowance for loan
losses related to these impaired loans was $400,000 and $61,000 at December 31,
1999 and 1998, respectively. The average recorded investment in impaired loans
during 1999, 1998 and 1997 was $2,447,653, $1,869,952 and $1,592,000,
respectively. If such impaired loans had been on a full accrual basis, interest
income on these loans would have been approximately $136,000, $110,000, and
$73,000 in 1999, 1998 and 1997, respectively.
Loans totaling approximately $185,000 and $2,011,000 were transferred to
other real estate in 1999 and 1997, respectively. There were no loans
transferred to other real estate in 1998. In 1998, Fidelity recorded a
write-down of $671,000 on a commercial real estate owned property as a result of
an impairment to its value. There were sales of $378,000 and $480,000 from other
real estate financed by Fidelity in 1999 and 1998, respectively. Loans are
reported net of deferred loan fees of $1,367,942 and $74,449 at December 31,
1999 and 1998, respectively.
Fidelity has loans outstanding to various executive officers, directors,
and their associates. Management believes that all of these loans were made in
the ordinary course of business on substantially the same terms, including
interest rate and collateral, as those prevailing at the time for comparable
transactions with other customers, and did not involve more than normal risk.
The following is a summary of activity during 1999 for such loans:
<TABLE>
<S> <C>
Loan balances at December 31, 1998 $ 4,301,494
New loans 1,098,610
Less:
Loan repayments (1,866,349)
No longer related (222,192)
-----------
Loan balances at December 31, 1999 $ 3,311,563
===========
</TABLE>
The following is a summary of activity in the allowance for loan losses:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year $11,910,601 $ 14,319,591 $ 16,510,842
Provision for loan losses 7,600,000 9,450,000 14,435,000
Loans charged off:
Credit cards (7,977,239) (12,091,609) (14,734,739)
Other loans (3,036,822) (2,472,604) (3,521,443)
Recoveries on loans charged off 1,757,001 2,705,223 1,629,931
----------- ------------ ------------
Balance at end of year $10,253,541 $ 11,910,601 $ 14,319,591
=========== ============ ============
</TABLE>
4. PREMISES AND EQUIPMENT
Premises and equipment is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Land $ 3,993,667 $ 4,019,020
Buildings and improvements 9,742,578 9,634,385
Furniture and equipment 19,215,905 17,742,752
----------- -----------
32,952,150 31,396,157
Less accumulated depreciation and amortization 14,487,874 11,752,460
----------- -----------
Premises and equipment, net $18,464,276 $19,643,697
=========== ===========
</TABLE>
38
<PAGE> 31
As of December 31, 1999, Fidelity was lessee in a lease at market terms
with a corporation which is controlled by a director of Fidelity. The lease is
for a 2,200 square foot bank branch at an approximate annual rate of $11 per
square foot, subject to pro rata increases for any increases in taxes and
insurance.
5. DEPOSITS
Time deposits over $100,000 as of December 31, 1999 and 1998, were
$155,656,275 and $107,599,557, respectively. Maturities for time deposits over
$100,000 as of December 31, 1999, in excess of one year are as follows:
$6,859,035 in one to two years, $742,460 in two to three years, $1,786,046 in
three to five years, and $554,249 after five years. Related interest expense was
$6,935,251, $5,655,764 and $5,131,909 for the years ended December 31, 1999,
1998 and 1997, respectively. Included in demand and money market deposits were
NOW accounts totaling $46,596,485 and $49,907,053 at December 31, 1999 and 1998,
respectively.
6. SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Overnight reverse repurchase agreements at a rate of 2.96% $20,771,224 $16,515,867
Term reverse repurchase agreement with a fixed rate of 5.89%
and a maturity date of January 13, 2000 9,523,000 -
Borrowing under a secured line of credit with a fixed rate
of 7.97% and a maturity date of February 14, 2000 15,000,000 -
Federal Home Loan Bank collateralized borrowing with a fixed
rate of 5.63% and a maturity date of June 15, 2000 20,000,000 -
Federal Home Loan Bank collateralized borrowing with a daily
variable rate which was 4.55% at December 31, 1999, and a
maturity date of October 20, 2000; prepayable without
penalty at any time 6,000,000 -
----------- -----------
Total $71,294,224 $16,515,867
=========== ===========
</TABLE>
Short-term borrowings mature either overnight or on a fixed maturity not to
exceed one year. At December 31, 1999, Fidelity had a collateralized line of
credit with the Federal Home Loan Bank, which requires loans secured by real
estate, investment securities or other acceptable collateral, to borrow up to a
maximum of $110 million. Fidelity had a line of credit collateralized with
consumer loans with the Federal Reserve Bank of Atlanta Discount Window for Year
2000 precautionary purposes only. It also had a $15 million collateralized line
of credit and a total of $29 million in unsecured short-term lines of credit
available with various financial institutions. The weighted average rate on
short-term borrowings outstanding at December 31, 1999, 1998 and 1997, was
5.28%, 3.16%, and 3.17%, respectively.
7. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Junior subordinated Series A capital notes with interest at
prime plus 2% due December 15, 1999; interest payable
quarterly $ - $ 50,000
Subordinated capital notes with interest at 11% through
March 27, 2000, and at prime plus 2% thereafter, due March
27, 2002, interest payable quarterly 600,000 600,000
8.5% subordinated notes due January 31, 2006, interest
payable quarterly 15,000,000 15,000,000
Federal Home Loan Bank five year European convertible
advance with interest at 5.26% maturing April 12, 2004,
with a one-time conversion option at the end of three
years, interest payable quarterly 14,000,000 -
----------- -----------
Total $29,600,000 $15,650,000
=========== ===========
</TABLE>
39
<PAGE> 32
Note maturities as of December 31, 1999, are summarized as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
2000 $ -
2001 -
2002 600,000
2003 -
2004 14,000,000
Thereafter 15,000,000
-----------
Total $29,600,000
===========
</TABLE>
On December 12, 1995, Fidelity issued $15,000,000 in 8.5% Subordinated
Notes due January 31, 2006. Under the terms of the notes, Fidelity has the right
to redeem them in whole or in part on or after January 31, 2001, at 100% of the
principal amount plus accrued interest to the date of redemption. Under the
provisions of the notes, Fidelity may declare or pay dividends on any of its
capital stock as long as the amounts of dividends paid cumulatively for the
three-year period ending on the declaration date of the dividend does not exceed
cumulative consolidated net income of Fidelity for the three-year period ending
on the applicable declaration date. The cumulative consolidated net income of
Fidelity for the three-year period ended December 31, 1999, was $9,688,000 and
the dividends paid during such period were $2,790,000. Fidelity violated this
provision during 1999, 1998 and 1997 with the declaration of preferred stock
dividends and certain common stock dividends. Although a technical event of
default occurred under the provisions of the Notes, the remedies available do
not include acceleration of the debt. In addition, no dividend can be declared
on the capital stock of Fidelity if an event of default has occurred and is
continuing under the Notes, including the failure to pay interest on such
indebtedness or default on other indebtedness exceeding $1 million. At December
31, 1999, Fidelity was not in violation of this provision of the Notes.
The subordinated notes due March 27, 2002, may be redeemed in whole or in
part at the option of Fidelity at any time after March 27, 2000, without
penalty.
On April 12, 1999, Fidelity National Bank entered into a $14,000,000 five
year European convertible advance maturing April 12, 2004, with interest at
5.26%, with a one-time conversion option at the end of the third year with the
Federal Home Loan Bank ("FHLB"). Under the provisions of the advance, the FHLB
has the option to convert the advance into a three month LIBOR-based floating
rate advance effective April 12, 2002, at which time Fidelity may elect to
terminate the agreement on any interest payment date without penalty. If the
FHLB elects not to convert the advance, Fidelity has the option of paying a
substantial prepayment fee and terminating the transaction on any interest
payment date.
There was no indebtedness to directors, executive officers, or principal
holders of equity securities in excess of 5% of shareholders' equity at December
31, 1999.
8. INCOME TAXES
Income tax expense (benefit) attributable to income from continuing
operations consists of
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- --------- ----------
<S> <C> <C> <C>
Year Ended December 31, 1999:
Federal $2,617,512 $ (10,870) $2,606,642
State 92,733 (79,961) 12,772
---------- --------- ----------
$2,710,245 $ (90,831) $2,619,414
========== ========= ==========
Year Ended December 31, 1998:
Federal $1,615,737 $ 796,556 $2,412,293
State - (195,663) (195,663)
---------- --------- ----------
$1,615,737 $ 600,893 $2,216,630
========== ========= ==========
Year Ended December 31, 1997:
Federal $ 420,157 $ 118,393 $ 538,550
State - (34,802) (34,802)
---------- --------- ----------
$ 420,157 $ 83,591 $ 503,748
========== ========= ==========
</TABLE>
40
<PAGE> 33
Income tax expense differed from amounts computed by applying the statutory
U.S. Federal income tax rate to pretax income from continuing operations as a
result of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Taxes at statutory rate $2,547,380 $2,063,534 $498,665
Increase (reduction) in income taxes resulting from:
State income tax expense, net of Federal income tax
benefit 8,430 (129,138) (22,969)
Tax exempt income (20,446) (22,982) (23,014)
Other, net 84,050 305,216 51,066
---------- ---------- --------
Income tax expense $2,619,414 $2,216,630 $503,748
========== ========== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998, are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1999 1998
------------------------ ------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
State tax credit carry forwards $ 458,354 $ - $ 438,556 $ -
Allowance for loan losses 3,793,810 - 3,424,774 -
Accelerated depreciation - 800,767 - 790,032
Securitization 37,183 - 207,895 -
Deferred loan fees, net - 836,505 - 146,598
Other real estate 286,154 - 275,791 -
Unrealized holding losses and gains on securities
available-for-sale 865,662 - - 46,562
Capitalized mortgage servicing rights - - - 561,548
Other 149,370 17,508 148,312 17,890
---------- ---------- ---------- ----------
$5,590,533 $1,654,780 $4,495,328 $1,562,630
========== ========== ========== ==========
</TABLE>
At December 31, 1999, Fidelity had approximately $694,000 in state tax
carry forward credits that have not been utilized. These credits expire in one
to five years.
9. EMPLOYEE BENEFITS
The Chairman and Chief Executive Officer of Fidelity and the President of
the Bank have entered into employment agreements for three-year periods
commencing January 1, 1998, and September 15, 1997, respectively, providing for
the payment of or reimbursement of certain split-dollar life, term life and
disability insurance plans.
Fidelity maintains a 401(k) defined contribution retirement savings plan
for employees age 21 or older who have completed one year of service with at
least 1,000 hours of service. Employee contributions to the plan are voluntary.
Fidelity, beginning July 1, 1999, matches 50% of the first 2% and 25% of the
next 4% of participants' contributions. Prior to July 1, 1999, Fidelity matched
15% of the participants' first 6% of contributions. For the years ended December
31, 1999, 1998 and 1997, Fidelity contributed $161,214, $95,495,and $62,348,
respectively, to the plan.
Fidelity has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of Fidelity's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Fidelity's 1997 Incentive Stock Option Plan has authorized the grant of
options to management personnel for up to 500,000 shares of Fidelity's Common
Stock. All options granted have 5 to 8 year terms and vest and become fully
exercisable at the end of 4 to 5 years of continued employment.
41
<PAGE> 34
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if Fidelity had accounted
for its employee stock options under the fair value method of SFAS No. 123. The
effects of applying SFAS 123 for providing pro forma disclosures are not likely
to be representative of the effects on reported net income for future years.
The following schedule summarizes the detail of the incentive stock options
granted under the plan:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER GRANTED EXERCISE PRICE
-------------- ----------------
<S> <C> <C>
January 1, 1997 - $ -
Granted during 1997 250,000 9.15
------- -----
December 31, 1997 250,000 9.15
Granted during 1998 - -
------- -----
December 31, 1998 250,000 9.15
Granted during 1999 180,000 7.06
------- -----
December 31, 1999 430,000 $8.27
======= =====
</TABLE>
No options were exercised or expired during the three year period ended
December 31, 1999. Options totaling 124,040 and 52,020 had vested as of December
31, 1999 and 1998, respectively. There were no options vested as of December 31,
1997. At December 31, 1999, there were 430,000 options outstanding at a price
ranging from $7.06 to $9.90, with a weighted average price of $8.27. At December
31, 1998 and 1997, there were 250,000 options outstanding at a price ranging
from $9.00 to $9.90, with a weighted average price of $9.15. The weighted
average remaining contractual term of the options at December 31, 1999, is 5.65
years.
<TABLE>
<CAPTION>
NET INCOME NET INCOME
NET PER SHARE PER SHARE
INCOME BASIC DILUTED
---------- ---------- ----------
<S> <C> <C> <C>
December 31, 1999
As reported $4,872,880 $ 0.53 $ 0.53
Stock based compensation net of related tax effect (140,308) (0.02) (0.02)
---------- ------ ------
As adjusted $4,732,572 $ 0.51 $ 0.51
========== ====== ======
December 31, 1998
As reported $3,852,588 $ 0.43 $ 0.42
Stock based compensation net of related tax effect (137,724) (0.02) (0.02)
---------- ------ ------
As adjusted $3,714,864 $ 0.41 $ 0.40
========== ====== ======
December 31, 1997
As reported $ 962,913 $ 0.15 $ 0.15
Stock based compensation net of related tax effect (25,662) (0.01) (0.01)
---------- ------ ------
As adjusted $ 937,251 $ 0.14 $ 0.14
========== ====== ======
</TABLE>
The per share weighted average fair value of stock options granted during
1999 and 1997 was $2.65 and $2.77, respectively, using the Black-Scholes option
pricing model. The fair value of the options granted during the year was based
upon the discounted value of future cash flows of the options using the
following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Risk-free rate 6.55% 4.76% 5.12%
Expected life of the options (in years) 5-7 5-7 5-7
Expected dividends (as a percent of the fair value of the
stock) 2.26% 1.50% -%
Volatility 41.00 57.90 27.50
</TABLE>
During 1999, Fidelity invested in single premium company owned life
insurance policies on certain key members of management. Cash surrender values,
included in other assets at December 31, 1999, totaled $7.7 million. Tax-exempt
income of $266,000, consisting of increases in cash surrender values, was
recorded during 1999.
42
<PAGE> 35
10. COMMITMENTS AND CONTINGENCIES
The approximate future minimum rental commitments as of December 31, 1999,
for all noncancellable leases with initial or remaining terms of one year or
more are shown in the following table:
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
2000 $ 2,383,000
2001 2,323,000
2002 2,200,000
2003 2,188,000
Thereafter 4,230,000
-----------
Total $13,324,000
===========
</TABLE>
Rental expense for all leases amounted to approximately $2,810,000,
$2,408,000, and $2,282,000 in 1999, 1998 and 1997, respectively.
Due to the nature of its activities, Fidelity is at times engaged in
various legal proceedings which arise in the normal course of business, some of
which are outstanding at December 31, 1999. While it is difficult to predict or
determine the outcome of these proceedings, it is the opinion of management and
its counsel that the ultimate liability, if any, will not materially affect
Fidelity's financial position.
The Federal Reserve Board requires that banks maintain cash on hand and
reserves in the form of average deposit balances at the Federal Reserve Bank
based on the banks' average deposits. The Bank's reserve requirements at
December 31, 1999 and 1998, were $62,000 and $8,562,000, respectively.
11. SHAREHOLDERS' EQUITY
The table below sets forth the capital requirements for the Bank under OCC
regulations and the Bank's capital ratios at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
OCC REGULATIONS
---------------------------- DECEMBER 31,
ADEQUATELY WELL ----------------
CAPITAL RATIOS CAPITALIZED CAPITALIZED 1999 1998
-------------- ----------- ----------- ----- -----
<S> <C> <C> <C> <C>
Leverage 4.00% 5.00% 6.80% 7.10%
Risk-Based Capital:
Tier 1 4.00 6.00 7.78 8.68
Total 8.00 10.00 10.36 11.65
</TABLE>
The Board of Governors of the Federal Reserve System ("FRB") is the
principal regulator of Fidelity National Corporation, a bank holding company.
The FRB has established capital requirements as a function of its oversight of
bank holding companies. Each bank holding company must maintain the minimum
capital ratios set forth in the following table. At December 31, 1999 and 1998,
Fidelity National Corporation exceeded the minimum capital requirements.
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, prohibited Fidelity from redeeming its capital
stocks, paying dividends on its common stock or incurring debt without prior
approval of the FRB. The FRB terminated this agreement January 19, 2000.
43
<PAGE> 36
The following table depicts Fidelity's capital ratios at December 31, 1999
and 1998, in relation to the minimum capital ratios established by the
regulations of the FRB (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- -------
<S> <C> <C> <C> <C>
Tier 1 Capital:
Actual $55,862 7.42% $54,069 9.25%
Minimum 30,134 4.00 23,385 4.00
------- ----- ------- -----
Excess $25,728 3.42% $30,684 5.25%
======= ===== ======= =====
Total Risk-Based Capital:
Actual $80,529 10.69% $76,794 13.14%
Minimum 60,267 8.00 46,770 8.00
------- ----- ------- -----
Excess $20,262 2.69% $30,024 5.14%
======= ===== ======= =====
Tier 1 Capital Leverage Ratio:
Actual 6.49% 7.57%
Minimum 3.00 3.00
----- -----
Excess 3.49% 4.57%
===== =====
</TABLE>
Set forth below are Fidelity's pertinent capital ratios under FRB
regulations as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
ADEQUATELY WELL ----------------
CAPITAL RATIOS CAPITALIZED CAPITALIZED 1999 1998
-------------- ----------- ----------- ----- -----
<S> <C> <C> <C> <C>
Leverage 3.00% 5.00% 6.49% 7.57%
Risk-Based Capital:
Tier 1 4.00 6.00 7.42 9.25
Total 8.00 10.00 10.69 13.14
</TABLE>
Generally, dividends that may be paid by Fidelity National Bank to Fidelity
are subject to certain regulatory limitations. Under Federal banking law, the
approval of the OCC will be required if the total of all dividends declared in
any calendar year by the Bank exceeds the Bank's net profits to date for that
year combined with its retained net profits for the preceding two years, subject
to the maintenance of minimum required regulatory capital. Based on this rule,
at December 31, 1999, the Bank could pay $7.9 million without OCC regulatory
approval. At December 31, 1999, Fidelity National Bank's total shareholders'
equity was $57 million. In November 1999, Fidelity invested an additional $4.0
million in the Bank in the form of 640,000 shares of the Bank's Non-cumulative
8% Convertible Preferred Stock, Series A, with a stated value of $6.25 per
share.
For additional dividend restrictions, see Note 7. Also, under current
Federal Reserve System regulations, Fidelity National Bank is limited in the
amount it may loan to its nonbank affiliates, including Fidelity. As of December
31, 1999, there were no loans outstanding from the Bank to Fidelity.
During mid-1997, Fidelity sold, in a private placement, $6.15 million
Non-Cumulative 8% Convertible Preferred Stock, Series A ("Preferred Stock"). In
December 1997, Fidelity sold 3,450,000 shares of Common Stock at a price of
$7.50 per share in a public offering. The proceeds, net of stock issuance costs,
from the Preferred Stock and Common Stock offerings were $5.6 million and $23.5
million, respectively. The proceeds were used to provide additional capital to
Fidelity National Bank and for general corporate purposes. In connection with
the public offering, Fidelity agreed to issue to the underwriter warrants to
purchase 150,000 shares of Common Stock at a purchase price of $8.25 per share.
The warrants are exercisable during the four-year period commencing December 12,
1998.
In September 1999, Fidelity National Corporation exercised its rights to
redeem the outstanding shares of its Non-Cumulative 8% Convertible Preferred
Stock-Series A by paying in cash the sum of $6.25 per share plus any declared
but unpaid dividends. The redemption occurred on October 19, 1999. Shareholders
owning 710,000 shares of the 984,000 shares of Preferred Stock outstanding
elected to convert to Common Stock, resulting in the issuance of 617,165 shares
of Common Stock. Shareholders' equity was reduced by $1.7 million as a result of
the redemption in cash of 274,000 preferred shares and the payment of fractional
interests. As of December 31, 1999, there were no shares of Preferred Stock
issued or outstanding.
44
<PAGE> 37
12. COMPONENTS OF OTHER COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting comprehensive income. Comprehensive income includes net income and
other comprehensive income, which is defined as non-owner related transactions
in equity. Prior periods have been reclassified to reflect the application of
the provisions of SFAS No. 130. The only other comprehensive income item for
Fidelity is the unrealized gains or losses, net of tax, on securities
available-for-sale.
The amounts of other comprehensive income (loss) included in equity with
the related tax effect and the accumulated other comprehensive income (loss) are
reflected in the following schedule:
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
GAIN/(LOSS) TAX INCOME
BEFORE TAX (EXPENSE)/BENEFIT (LOSS)
----------- ----------------- -------------
<S> <C> <C> <C>
December 31, 1996 $ (140,241)
Other comprehensive income:
Unrealized market adjustments for the period $ 422,708 $(160,629) 262,079
Less adjustment for net losses included in income 140,090 (53,234) 86,856
----------- --------- -----------
December 31, 1997 $ 562,798 $(213,863) 208,694
=========== =========
Unrealized market adjustment for the period $ (468,810) $ 178,148 (290,662)
Less adjustments for net gains included in income 254,737 (96,801) 157,936
----------- --------- -----------
December 31, 1998 $ (214,073) $ 81,347 75,968
=========== =========
Unrealized market adjustments for the period $(2,406,595) $ 914,506 (1,492,089)
Less adjustment for net gains included in income 6,013 (2,285) 3,728
----------- --------- -----------
December 31, 1999 $(2,400,582) $ 912,221 $(1,412,393)
=========== ========= ===========
</TABLE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on settlements using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison to
independent markets, and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all non-financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of Fidelity.
The carrying amounts reported in the Balance Sheet for cash, due from
banks, and Federal funds sold, approximate the fair values of those assets. For
investment securities, fair value equals quoted market price, if available. If a
quoted market price is not available, fair value is estimated using quoted
market prices for similar securities or dealer quotes.
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type. The fair value of performing
loans is calculated by discounting scheduled cash flows through the remaining
maturities using estimated market discount rates that reflect the credit and
interest rate risk inherent in the loans.
Fair value for significant nonperforming loans is estimated taking into
consideration recent external appraisals of the underlying collateral for loans
that are collateral dependent. If appraisals are not available or if the loan is
not collateral dependent, estimated cash flows are discounted using a rate
commensurate with the risk associated with the estimated cash flows. Assumptions
regarding credit risk, cash flows, and discount rates are judgmentally
determined using available market information and specific borrower information.
The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings, interest-bearing demand, and money
market accounts, is equal to the amount payable on demand. The fair value of
time deposits is
45
<PAGE> 38
based on the discounted value of contractual cash flows based on the discount
rates currently offered for deposits of similar remaining maturities.
The carrying amounts reported in the Balance Sheet for short-term debt
approximate those liabilities' fair values.
The fair value of Fidelity's long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to Fidelity for debt of the same remaining maturities. The carrying
amount of long-term debt approximates its estimated fair value.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1999 1998
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FINANCIAL INSTRUMENTS (ASSETS):
Cash and due from banks $ 34,544,203 $ 34,544,203 $ 34,144,180 $ 34,144,180
Federal funds sold 15,662,352 15,662,352 45,785,746 45,785,746
Investment securities available-for-sale 43,618,492 43,618,492 43,404,870 43,404,870
Investment securities held-to-maturity 35,729,462 34,242,568 29,652,667 29,755,873
Loans, net of unearned income 720,781,324 720,192,862 535,876,166 542,232,323
------------ ------------ ------------ ------------
Total financial instruments (assets) 850,335,833 $848,260,477 688,863,629 $695,322,992
============ ============
Non-financial instruments (assets) 32,261,534 24,013,924
------------ ------------
Total assets $882,597,367 $712,877,553
============ ============
FINANCIAL INSTRUMENTS (LIABILITIES):
Noninterest-bearing demand deposits $105,518,934 $105,518,934 $102,424,607 $102,424,607
Interest-bearing deposits 612,913,022 613,535,992 518,839,020 521,552,017
------------ ------------ ------------ ------------
Total deposits 718,431,956 719,054,926 621,263,627 623,976,624
Short-term borrowings 71,294,224 71,294,224 16,515,867 16,515,867
Long-term debt 29,600,000 29,600,000 15,650,000 15,650,000
------------ ------------ ------------ ------------
Total financial instruments (liabilities) 819,326,180 $819,949,150 653,429,494 $656,142,491
============ ============
Non-financial instruments (liabilities and
shareholders' equity) 63,271,187 59,448,059
------------ ------------
Total liabilities and shareholders' equity $882,597,367 $712,877,553
============ ============
</TABLE>
For off-balance sheet instruments, fair values are based on rates currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the counterparties' credit standing for loan
commitments and letters of credit. The estimated fair values of Fidelity's
off-balance sheet financial instruments as of December 31, 1999 and 1998, are
summarized below (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
ESTIMATED ESTIMATED
FAIR VALUE FAIR VALUE
---------- ----------
<S> <C> <C>
Unfunded commitments to extend credit $374,787 $318,563
Standby letters of credit 3,663 10,694
</TABLE>
This presentation excludes certain financial instruments and all
nonfinancial instruments. The disclosures also do not include certain intangible
assets, such as customer relationships, deposit base intangibles and goodwill.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Fidelity is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, letters of credit and forward
sales contracts. These instruments involve, to varying
46
<PAGE> 39
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated financial statements. The contract or notional
amounts of these instruments reflect the extent of involvement Fidelity has in
particular classes of financial instruments.
Fidelity's exposure to credit loss, in the event of nonperformance by
customers for commitments to extend credit and letters of credit, is represented
by the contractual or notional amount of those instruments. Fidelity uses the
same credit policies in making commitments and conditional obligations as it
does for recorded loans. For forward sales contracts, the contract or notional
amounts do not represent exposure to credit loss; however, these financial
instruments represent interest rate risk to Fidelity. Fidelity controls the
interest rate risk of its forward sales contracts through management approvals,
dollar limits, and monitoring procedures.
Financial instruments with off-balance sheet risk at December 31, 1999, are
summarized as follows (dollars in thousands):
<TABLE>
<S> <C>
FINANCIAL INSTRUMENTS WHOSE CONTRACT AMOUNTS REPRESENT
CREDIT RISK:
LOAN COMMITMENTS:
Credit card lines $250,227
Home equity 21,591
Commercial real estate, construction and land development 71,620
Commercial 25,143
Mortgage loans 5,306
Lines of credit 900
Standby letters of credit 3,663
--------
Total loan commitments $378,450
========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the agreement.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Fidelity evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by Fidelity upon extension of credit, is based on management's
credit evaluation of the borrower. Collateral held varies, but may include
accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit are commitments issued by Fidelity to guarantee
the performance of a customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. Fidelity holds collateral supporting those
commitments as deemed necessary.
Forward sales contracts are contracts for delayed delivery of mortgage
loans in which Fidelity agrees to make delivery at a specified future date at a
specified price. Risks arise from the inability of counterparties to meet the
terms of their contracts and from movements in interest rates. Fidelity had no
forward sales contracts at December 31, 1999.
47
<PAGE> 40
15. CONDENSED FINANCIAL INFORMATION OF FIDELITY NATIONAL CORPORATION
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS:
Cash $ 1,794,071 $ 7,845,408
Land 419,418 419,418
Investment in bank subsidiary 57,297,229 51,137,047
Investments in and amounts due from nonbank subsidiaries 529,459 589,135
Subordinated loan to bank subsidiary 10,000,000 10,000,000
Other assets 216,804 203,359
----------- -----------
Total assets $70,256,981 $70,194,367
=========== ===========
LIABILITIES:
Long-term debt $15,600,000 $15,650,000
Other liabilities 46,608 (11,113)
----------- -----------
Total liabilities 15,646,608 15,638,887
SHAREHOLDERS' EQUITY:
Preferred stock - 6,150,000
Common stock 39,789,954 35,124,941
Treasury stock (69,325) (69,325)
Accumulated other comprehensive (loss) income, net of tax (1,412,393) 75,968
Retained earnings 16,302,137 13,273,896
----------- -----------
Total shareholders' equity 54,610,373 54,555,480
----------- -----------
Total liabilities and shareholders' equity $70,256,981 $70,194,367
=========== ===========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Deposits in bank $ 321,987 $ 410,467 $ 66,828
Subordinated loan to bank 850,000 850,000 850,000
---------- ---------- ----------
Total interest income 1,171,987 1,260,467 916,828
INTEREST EXPENSE - LONG-TERM DEBT 1,372,987 1,378,688 1,431,971
---------- ---------- ----------
Net interest expense (201,000) (118,221) (515,143)
NONINTEREST INCOME:
Lease income 120,000 120,000 120,000
Dividends from subsidiaries 1,400,000 450,000 428,444
Management fees 107,988 138,156 108,000
Other 575 - -
---------- ---------- ----------
Total other noninterest income 1,628,563 708,156 656,444
NONINTEREST EXPENSE: 214,620 208,932 275,378
---------- ---------- ----------
Income (loss) before income taxes and undistributed income
of subsidiaries 1,212,943 381,003 (134,077)
Income tax benefit 71,082 26,218 213,758
---------- ---------- ----------
Income before equity in undistributed income of subsidiaries 1,284,025 407,221 79,681
Equity in undistributed income of subsidiaries 3,588,855 3,445,367 883,232
---------- ---------- ----------
NET INCOME $4,872,880 $3,852,588 $ 962,913
========== ========== ==========
</TABLE>
48
<PAGE> 41
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,872,880 $ 3,852,588 $ 962,913
Equity in undistributed income of subsidiaries (3,588,855) (3,445,367) (883,232)
(Increase) decrease in other assets (13,448) 279,431 568,097
Increase (decrease) in other liabilities 34,133 (401,569) 154,402
----------- ----------- ------------
Net cash flows provided by operating activities 1,304,710 285,083 802,180
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans to and investment in subsidiaries (4,000,000) - (22,000,000)
----------- ----------- ------------
Net cash flows used in investing activities (4,000,000) - (22,000,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term-debt (50,000) (150,000) (700,000)
Issuance of Common stock 227,587 181,831 23,564,513
(Redemption of) proceeds from issuance of Preferred stock (1,712,574) - 5,650,000
Dividends paid (1,821,060) (817,315) (128,075)
----------- ----------- ------------
Net cash flows (used in) provided by financing activities (3,356,047) (785,484) 28,386,438
----------- ----------- ------------
Net (decrease) increase in cash (6,051,337) (500,401) 7,188,618
CASH, BEGINNING OF YEAR 7,845,408 8,345,809 1,157,191
----------- ----------- ------------
CASH, END OF YEAR $ 1,794,071 $ 7,845,408 $ 8,345,809
=========== =========== ============
</TABLE>
49
<PAGE> 1
EXHIBIT 21
FIDELITY NATIONAL BANK - A NATIONAL BANKING CORPORATION
FIDELITY NATIONAL CAPITAL INVESTORS, INC. - A GEORGIA CORPORATION
31
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Fidelity National Corporation and subsidiaries of our report dated January
25, 2000, included in the 1999 Annual Report to the Shareholders of Fidelity
National Corporation and subsidiaries, and to the incorporation by reference in
the Registration Statement (Form S-8 No. 333-11877) pertaining to the Employee
Stock Purchase Plan of Fidelity National Corporation, in the Registration
Statement (Form S-3 No. 333-11879) pertaining to the Dividend Reinvestment Plan
of Fidelity National Corporation and in the Registration Statement (Form S-8
No. 333-57421) pertaining to the Tax Deferred 401(k) Savings Plan of Fidelity
National Corporation, and in the related prospectuses, of our report dated
January 25, 2000 with respect to the consolidated financial statements of
Fidelity National Corporation and subsidiaries incorporated by reference in the
Annual Report (Form 10-K) for the year ended December 31, 1999.
Atlanta, Georgia /s/ Ernst & Young LLP
March 22, 2000
32
<PAGE> 1
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each
of them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1999, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to
file the same, with all exhibits thereto and other supporting documents, with
said Commission, granting unto said attorneys-in-fact, and each of them, full
power and authority to do and perform any and all acts necessary or incidental
to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the
undersigned's hand this 16th day of March, 2000.
/s/ James B. Miller, Jr.
---------------------------------------------------
JAMES B. MILLER, JR.
33
<PAGE> 2
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each
of them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1999, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to
file the same, with all exhibits thereto and other supporting documents, with
said Commission, granting unto said attorneys-in-fact, and each of them, full
power and authority to do and perform any and all acts necessary or incidental
to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the
undersigned's hand this 16th day of March, 2000.
/s/ Larry D. Peterson
---------------------------------------------------
LARRY D. PETERSON
34
<PAGE> 3
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each
of them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1999, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to
file the same, with all exhibits thereto and other supporting documents, with
said Commission, granting unto said attorneys-in-fact, and each of them, full
power and authority to do and perform any and all acts necessary or incidental
to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the
undersigned's hand this 16th day of March, 2000.
/s/ David R. Bockel
---------------------------------------------------
DAVID R. BOCKEL
35
<PAGE> 4
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each
of them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1999, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to
file the same, with all exhibits thereto and other supporting documents, with
said Commission, granting unto said attorneys-in-fact, and each of them, full
power and authority to do and perform any and all acts necessary or incidental
to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the
undersigned's hand this 16th day of March, 2000.
/s/ Dr. Edward G. Bowen
---------------------------------------------------
DR. EDWARD G. BOWEN
36
<PAGE> 5
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each
of them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1999, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to
file the same, with all exhibits thereto and other supporting documents, with
said Commission, granting unto said attorneys-in-fact, and each of them, full
power and authority to do and perform any and all acts necessary or incidental
to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the
undersigned's hand this 16th day of March, 2000.
/s/ W. Clyde Shepherd, Jr.
---------------------------------------------------
W. CLYDE SHEPHERD, JR.
37
<PAGE> 6
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each
of them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1999, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to
file the same, with all exhibits thereto and other supporting documents, with
said Commission, granting unto said attorneys-in-fact, and each of them, full
power and authority to do and perform any and all acts necessary or incidental
to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the
undersigned's hand this 16th day of March, 2000.
/s/ Gordon M. Sherman
---------------------------------------------------
GORDON M. SHERMAN
38
<PAGE> 7
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each
of them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1999, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to
file the same, with all exhibits thereto and other supporting documents, with
said Commission, granting unto said attorneys-in-fact, and each of them, full
power and authority to do and perform any and all acts necessary or incidental
to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the
undersigned's hand this 16th day of March, 2000.
/s/ R. Phillip Shinall, III
---------------------------------------------------
R. PHILLIP SHINALL, III
39
<PAGE> 8
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each
of them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1999, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to
file the same, with all exhibits thereto and other supporting documents, with
said Commission, granting unto said attorneys-in-fact, and each of them, full
power and authority to do and perform any and all acts necessary or incidental
to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the
undersigned's hand this 16th day of March, 2000.
/s/ Rankin Smith, Jr.
---------------------------------------------------
RANKIN SMITH, JR.
40
<PAGE> 9
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each
of them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1999, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to
file the same, with all exhibits thereto and other supporting documents, with
said Commission, granting unto said attorneys-in-fact, and each of them, full
power and authority to do and perform any and all acts necessary or incidental
to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the
undersigned's hand this 16th day of March, 2000.
/s/ Felker W. Ward, Jr.
---------------------------------------------------
FELKER W. WARD, JR.
41
<PAGE> 10
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each
of them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1999, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to
file the same, with all exhibits thereto and other supporting documents, with
said Commission, granting unto said attorneys-in-fact, and each of them, full
power and authority to do and perform any and all acts necessary or incidental
to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the
undersigned's hand this 16th day of March, 2000.
/s/ M. Howard Griffith, Jr.
---------------------------------------------------
M. HOWARD GRIFFITH, JR.
42
<PAGE> 11
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each
of them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1999, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to
file the same, with all exhibits thereto and other supporting documents, with
said Commission, granting unto said attorneys-in-fact, and each of them, full
power and authority to do and perform any and all acts necessary or incidental
to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the
undersigned's hand this 16th day of March, 2000.
/s/ Kevin S. King
---------------------------------------------------
KEVIN S. KING
43
<PAGE> 12
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each
of them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1999, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to
file the same, with all exhibits thereto and other supporting documents, with
said Commission, granting unto said attorneys-in-fact, and each of them, full
power and authority to do and perform any and all acts necessary or incidental
to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the
undersigned's hand this 16th day of March, 2000.
/s/ Robert J. Rutland
---------------------------------------------------
ROBERT J. RUTLAND
44
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 33,165,476
<INT-BEARING-DEPOSITS> 1,378,727
<FED-FUNDS-SOLD> 15,662,352
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 43,618,492
<INVESTMENTS-CARRYING> 35,729,462
<INVESTMENTS-MARKET> 34,242,569
<LOANS> 720,781,324
<ALLOWANCE> 10,253,541
<TOTAL-ASSETS> 882,597,367
<DEPOSITS> 718,431,956
<SHORT-TERM> 71,294,224
<LIABILITIES-OTHER> 8,660,814
<LONG-TERM> 29,600,000
0
0
<COMMON> 39,789,954
<OTHER-SE> 14,820,419
<TOTAL-LIABILITIES-AND-EQUITY> 882,597,367
<INTEREST-LOAN> 62,661,983
<INTEREST-INVEST> 4,993,040
<INTEREST-OTHER> 802,886
<INTEREST-TOTAL> 68,457,909
<INTEREST-DEPOSIT> 27,392,776
<INTEREST-EXPENSE> 31,220,606
<INTEREST-INCOME-NET> 37,237,303
<LOAN-LOSSES> 7,600,000
<SECURITIES-GAINS> 6,013
<EXPENSE-OTHER> 41,343,412
<INCOME-PRETAX> 7,492,294
<INCOME-PRE-EXTRAORDINARY> 4,872,880
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,872,880
<EPS-BASIC> .53
<EPS-DILUTED> .53
<YIELD-ACTUAL> 9.40
<LOANS-NON> 2,498,000
<LOANS-PAST> 2,290,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 11,910,601
<CHARGE-OFFS> 11,014,061
<RECOVERIES> 1,757,001
<ALLOWANCE-CLOSE> 10,253,541
<ALLOWANCE-DOMESTIC> 10,253,541
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 327,000
</TABLE>
