FBR Initiates Fidelity Southern At Market Perform, Says Shares Reflect Mortgage Banking, Indirect Auto Loans

Fidelity Southern Corporation LION shares have plunged 30 percent since January 4. FBR & Co’s Christopher Nolan initiated coverage of the company with a Market Perform rating and a price target of $18. The analyst commented that shares now reflect mortgage banking and indirect auto loans.

“The company has grown organically and via acquisitions and generates almost half of its revenue from fees related to mortgage banking and indirect auto loan originations and sales,” analyst Christopher Nolan wrote.

The analyst added that investors usually value such businesses lower than their core commercial banking counterparts, which is why Fidelity’s shares trade at a discount to peers, despite the company’s good asset quality and equity returns that have been above 12 percent for the last three years.

Related Link: 3 Catalysts That Should Drive Invesco Mortgage Higher

Investor Caution Priced In

Indirect auto loans accounted for 47 percent of loans held for investment at 1Q16. “We note increased investor caution generally for indirect auto loan exposure given that it is often subprime,” Nolan wrote. He added, however, that the company’s average borrower FICO score is 760, the asset quality has been good, and the company can immediately scale down its exposure.

“We currently do not see a catalyst to change the business model; thus, we believe the company’s ongoing performance is currently priced into the shares,” Nolan commented.