Fidelity Southern Corporation
Fidelity Southern Corporation
Total Assets: $1.4 billion (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: LION
NAIC: 522120 Savings Institutions
Fidelity Southern Corporation is the Atlanta, Georgia-based holding company for Fidelity Bank and LionMark Insurance Company. State chartered Fidelity Bank operates 20 full-service branches in Georgia's Fulton, Dekalb, Cobb, and Clayton counties, as well as a pair of indirect automobile loan offices and a Small Business Administration Loan office in Conyers, Georgia; mortgage origination offices in both Georgia and Florida; and a residential construction lending and indirect automobile loan office in Florida. The bank branches offer traditional deposit and credit services, mortgages, commercial loans, and investment services. They are also known for serving fresh-baked cookies to anyone who stops by. In business since 2005, LionMark markets a credit loss protection insurance product. Fidelity Southern is a public company listed on the NASDAQ. Longtime Chairman and CEO James B. Miller, Jr., owns about one-third of the company's shares.
OPENING OF FIDELITY BANK: 1974
Fidelity Bank was founded in 1974 by a group of Dekalb County businessmen looking for an alternative to the large Atlanta banks. Setting up business in a doublewide trailer located at the intersection of Commerce and Clairmont drives in suburban Dekalb, the bank opened for business on February 10, 1974. It was not the best of times to start a bank, however. Not only was there no glaring need for a bank, the economy was in the midst of a recession that was hitting the Atlanta area especially hard. The bank was soon floundering, going through two presidents in three years, before Miller took charge.
Miller grew up in Tallahassee, Florida, and became familiar with the banking industry from the teller's cage, a job he took to help pay the bills while studying law at Vanderbilt University. After working as an assistant Florida attorney general and trying his hand at peddling stock, Miller came to Atlanta to work at C&S National Bank as an investment adviser. He left to serve as the president of a pair of German companies, then returned to Atlanta in search of investment opportunities. He learned of Fidelity Bank, became a shareholder, and was soon a regular at the board meetings. When the president was forced out, Miller, despite his lack of banking experience, stepped in as acting president and eventually took the post on a permanent basis. Perhaps his greatest selling point was that he was willing to take stock in lieu of salary.
With just 11 employees to run the small bank, which boasted less than $7 million in assets, Miller was forced to wear any number of hats, a situation that actually suited his go-it-alone—some would say autocratic—management style. Yet it was what Fidelity needed in order to survive and find its niche in the marketplace. In August 1979 Fidelity Southern Corporation was formed as a holding company for the bank, which began to open new branches. Three were added over the next four years, located in Northlake, Sandy Spring, and Peachtree Center. The bank's original trailer was removed and in 1983 a high-rise office building took its place to house the main branch.
CREDIT CARD PROGRAM: 1984
A turning point for Fidelity came in 1984 when Miller abandoned the usual approach to growing a small bank, collecting deposits and making small, safe loans. He decided to offer credit cards to people who were not customers of the bank. Three years later the company began marketing credit cards nationwide, attracting customers became of the low-interest rates it offered, made possible because of the bank's low overhead compared to the competition. Fidelity also became one of the nation's first banks to develop an affinity-card program, issuing credit cards on behalf of other organizations, emblazoned with their logos. Reverend Jerry Falwell's Liberty University in Virginia was one of the first to participate. Another line of business Miller pursued to carve out a niche for Fidelity was indirect auto loans, working through used-car dealerships.
In the meantime, Fidelity also continued to expand its presence in the Atlanta area. By the end of the 1980s branches were established in Buckhead, Dunwoody, and Roswell. Fidelity did not spend money to promote the brand, instead choosing to fund volunteer community organizations. Bank employees were also encouraged to participate in community activities. For his part, Miller became a board member on a score of civic organizations. "Participating in the community makes us feel good, and it doesn't matter whether you can quantify it or not," he told Business Atlanta in a 1990 interview. Nevertheless, he believed it was good for the bank whether directly or indirectly, adding, "If the community is better off, whoever is doing the business is better off."
With 169 employees and seven branches, Fidelity began the 1990s with assets of $240 million, doing business with 100,000 customers in every state of the country. The bank enjoyed steady growth in the early 1990s, earning industry respect because of its performance. It similarly enjoyed an impressive return on equity, which in 1992 and 1993 was about 40 percent higher than other Georgia banks of similar size. Assets totaled $332 million by the end of 1993, when the bank posted earnings of $4.5 million. Assets increased to $430 million in 1994 and $525 million in 1995, when earnings exceeded $4.6 million. It was also in 1995 that Miller changed the name of the holding company to Fidelity National Corporation, a reflection not only of the national scope of the bank's credit card operations but also his ambitions. Fidelity opened loan offices in two Florida cities, and in 1996 reached an agreement to acquire the $25 million asset Friendship Community Bank in Ocala, Florida. Miller also wanted Fidelity to become Atlanta's top local bank. In 1995, as a wave of consolidation in the banking industry resulted in Bank South being swallowed by NationsBank, Miller saw his chance to expand Fidelity to around 40 branches. With the Bank South name set to disappear and many of its branches about to close their door, Miller wrote to Bank South employees who were about to lose their jobs, encouraging them to apply for jobs at Fidelity. As long as they brought business with them, Miller felt confident that Fidelity would be able to hire them. In this way he hoped to quickly double Fidelity's assets to $1 billion.
Fidelity's Mission: To continue growth, improve earnings, and increase shareholder value. To treat customers, employees, community and shareholders according to the Golden Rule, and to operate within a culture of strong internal controls.
Miller's play to take Fidelity to the next level did not pan out, however. Even while he was reaching out to Bank South employees, some problems were reaching a tipping point at the bank due to a hasty decision regarding the credit card business. Across the country in the mid-1990s a lot of banks were writing off a high level of credit card losses because of customers who failed to pay their bills. While many banks backed off from their aggressive solicitations to lure new credit card customers, Fidelity forged ahead. It secured a list of potential customers in 1995 from Colorado-based Homebuyers Warranty, which sold house warranties to new homeowners. The bank paid a $25 finder's fee for each name, but Miller elected not to spend an additional $2.50 to run a credit check, and instead mailed out a rash of preapproved credit cards, believing that since the people on the list had just received home loans and were seen as a good credit risk there was no need to spend the extra money. That assumption proved to be wrong, however. A large number of recipients of those cards ran up hefty charges and failed to pay their debts. It was a disaster for Fidelity, which dropped the program in the spring of 1996.
To cope with the losses from credit card delinquencies, Fidelity instituted some cost-cutting measures and backed out of the agreement to acquire Friendship Community Bank. Nevertheless, the company posted a loss of more than $5.7 million in 1996. The situation was serious enough that federal bank regulators, the Office of the Comptroller of the Currency, stepped in and in November 1996 forced Fidelity to agree to a plan to increase the bank's capital to cover potential losses. Tasked by regulators to raise about $14 million by April 1997 and another $5 million by the end of November, Fidelity was in difficult straits. It could no longer pay dividends or borrow funds without approval from the regulators. Much of the bank's mortgage-loan portfolio was sold, increasing short-term income, but it did little to restore confidence in Fidelity, whose own auditor stated in the annual report that there was "substantial doubt about the company's ability to continue as a going concern." There were also reports in the press of rumors circulating in the investment community and among bankers that Fidelity might be sold.
Yet Fidelity managed to hold on. A private placement of stock in the summer of 1997 raised $6.15 million. Then, in December, Fidelity sold nearly $26 million in common stock in an offering conducted by Raymond James & Associates, Inc. Moreover, Fidelity bought three branches which it prepared to open in 1998 to further increase the bank's capital. Fidelity also saw improvement in its troubled credit card program. At the end of the year the company returned to profitability, posting net earnings of more than $1.8 million.
NEW CEO: 1998
To begin 1998, Miller delegated much of his responsibilities, turning over the chief executive post to Larry D. Peterson, a move that helped to assuage investor concerns. Peterson was an 18-year veteran of Key-Corp, a Cleveland-based bank holding company, significantly larger than Fidelity with $72 billion in assets. Staying on as chairman, Miller was not free to focus on charting a long-term course for Fidelity and beating the drum for the company on Wall Street.
In the summer of 1998 Fidelity opened the three new branches in the Atlanta area, bringing the total number of branches to 19. The marketing effort to launch these operations had the added benefit of promoting the Fidelity brand and the entire branch network. Overall, 1998 was a year of renewed growth for Fidelity, which saw improvements in a number of areas. The company more than doubled its earnings from the previous year to $3.9 million, while return on assets increased from 0.16 percent in 1997 to 0.57 percent in 1998.
Business continued to improve in 1999. By year's end assets topped the $1.5 billion mark, the number of customers served reached 150,000, and Fidelity was looking to spur further growth through an Internet banking product aimed at customers in both Georgia and Florida. For the year, earnings totaled $4.9 million. Fidelity, however, had not yet turned the corner. In 2000 it again came under the scrutiny of the Office of the Comptroller of the Currency, this time concerning the bank's trust business. Fidelity was forbidden to accept any new trust accounts, while it evaluated its business practices, policies, and personnel. Consulting and severance costs incurred in this effort totaled about $1.4 million in 2000, cutting into net profits, which fell to $3.8 million for the year.
To satisfy regulators, Fidelity increased capital and made changes to the way it reviewed new product offerings and the internal audit process. Declining interest rates put a crimp on profits in 2001, and net income dipped to $2.5 million. Fidelity was poised to pursue a change in strategy. In 2002 it turned over its trust business to Reliance Trust Company, a local trust company. In this way it stepped away from a business that provided little to the bottom line but because of regulatory concerns had significantly hurt the bank's image. In addition, in December 2002 the company sold its credit card line of business. As a result of the gains from these divestitures, Fidelity experienced a bump in net income to $11.4 million in 2002.
- Fidelity Bank is established.
- James B. Miller is named president.
- Fidelity Southern Corporation is formed as bank holding company.
- Credit card business is launched.
- Credit card losses lead to regulatory concerns.
- Credit card business is sold.
- LionMark Insurance Company is formed.
Fidelity looked to focus on traditional community banking services. In 2003 the company became a Georgia state chartered bank and reverted back to the Fidelity Southern Corporation name. Moreover, it was no longer subject to the overview of the Office of the Comptroller of the Currency, instead regulated by the Georgia Banking Department and the Federal Deposit Insurance Corporation.
In keeping with promoting itself as a community bank, Fidelity in March 2003 began installing convection ovens in the branch offices to bake cookies. Giving out store-bought cookies was nothing new at the branches, but when the marketing people began thinking about using a fragrance to help lure in traffic, they decided to try the smell of fresh baked cookies. Hence, the ovens were installed and each branch received a weekly batch of Otis Spunkmeyer dough to bake as many as 200 cookies a day.
At the end of 2003 Peterson stepped down as Fidelity's CEO, citing the successful resolution of the regulatory issues the company was dealing with when he was brought on. Miller reassumed the titles of president and CEO. In September 2004 he turned over the presidency of the bank to H. Palmer Proctor, Jr., who had joined Fidelity in 1990 and had become senior vice-president of commercial lending. In May 2006 he would take on the additional title of president. Miller retained the chairmanship and CEO roles with both entities.
To solidify its place as a full-service community bank, Fidelity began adding to its offerings. In 2003 it teamed up with Raymond James Financial Services to provide investment services to its customers. Fidelity beefed up its indirect car loan business in early 2004, adding a new lending location while increasing new dealer relationships. In July 2005, Fidelity formed Lion-Mark Insurance Company to add insurance products to the business mix. The first product offered by the new company, which opened an office in Atlanta, was a credit loss protection insurance policy.
The focus on community banking worked well for Fidelity. Assets topped $1.4 billion at the end of 2005. In the meantime, net income increased to $7.6 million in 2004 and topped $10 million in 2005. In May 2006 Fidelity opened its 20th full-service branch office, a new state-of-the-art office located in Duluth, Georgia.
Fidelity Bank; LionMark Insurance Company.
Bank of America Corporation; SunTrust Banks, Inc.; Wachovia Corporation.
Greene, Kelly, "Federal Regulators Tighten Grip on Troubled Fidelity National," Wall Street Journal, April 30, 1997, p. S4.
——, "Fidelity National, Hit By Credit-Card Woes, Posts Big Loss for '96," Wall Street Journal, April 2, 1997, p. S5.
Greene, Kelly, and Rick Brooks, "How Fidelity National Tripped Up in Good Times," Wall Street Journal, March 12, 1997, p. S1.
Hallem, Franco, "James Miller Jr., Fidelity National," Business Atlanta, July 1990, p. 77.
Murray, Brendan, "Fidelity National Ready to Roar Back," Atlanta Business Chronicle, January 16, 1998, p. 3A.
Thompson, Laura, "Cookies a Monster Hit, But Bank Making More Dough?" American Banker, October 1, 2004, p. 5.