7. Fidelity Southern Corp.

Shares of Fidelity Southern Corp. ( LION) of Atlanta closed at $9.10 Monday, returning 59% year-to-date, following a 12% decline during 2011.

The shares trade just below their reported tangible book value of $9.52 as of Sept. 30, and for eight times the consensus 2013 EPS estimate of $1.09.

Fidelity Southern had $2.4 billion in total assets as of Sept. 30. The company reported third-quarter net income available to common shareholders of $7.3 million, or 45 cents a share, increasing from $5.6 million, or 45 cents a share, in the second quarter, and $1.3 million, or eight cents a share, during the third quarter of 2011. The main factor in the earnings improvement was an increase in mortgage banking revenue to $14.8 million in the third quarter, from $10.8 million the previous quarter, and $5.2 million a year earlier, which was partially offset by an increase in noninterest expenses.

Third-quarter net interest income was $20.7 million, increasing from $19.9 million in the second quarter, and $17.6 million a year earlier. The third-quarter net interest margin was 3.74%, narrowing from 3.86% the previous quarter, but expanding from 3.55% a year earlier. Excluding loans acquired from failed institutions and covered by Federal Deposit Insurance Corp. loss-sharing agreements and the accretion of loan discounts, the net interest margin was 3.56% in the third quarter.

The company reported a third-quarter ROA of 1.33% and a return on average equity of 17.93%.

Marinac rates Fidelity Southern "Outperform," with a price target of $11.75, saying on Oct. 19 that "the company excelled in Fee Income as Mortgage, Indirect, and Small Business Administration lending each had record quarters in 3Q12 and expanded above 30% in past 90 days."

"We note solid operating leverage on fee revenues rising much faster than salary expenses (i.e., which considers production-based pay to certain lenders)," Marinac said, adding that the company used some of its one-time revenues to increase loan loss reserves and "clear out" some of its repossessed real estate.

Marinac also said that Fidelity Southern "may continue to feel pressure" on its net interest margin, "however, we think LION has strong loan pipelines which can offset weaker spreads and maintain steady NII-Net Interest Income."

Fidelity Southern received $48.2 million in TARP money in 2008, although the Treasury auctioned off the TARP preferred shares in June. Marinac expects the company to achieve a return on tangible common equity of nearly 11% in 2013, with the company's tangible common equity ratio rising "above 6% by late next year." He added that "eventually, paying off TARP preferred and also Trust preferred securities must be considered, but the current valuation affords accretive tangible book opportunities."

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