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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2002
-----------------------------------------------
Commission File Number: 0-22374
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Fidelity National Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1416811
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3490 Piedmont Road, Suite 1550 Atlanta, GA 30305
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(Address of principal executive offices) (Zip Code)
(404) 639-6500
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [x] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Shares Outstanding at October 31, 2002
- -------------------------- --------------------------------------
Common Stock, no par value 8,853,946
FIDELITY NATIONAL CORPORATION
INDEX
Page Number
-----------
Part I. Financial Information
Item l. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 2002 (unaudited)
and December 31, 2001 1
Consolidated Statements of Income (unaudited) for the Nine Months
Ended September 30, 2002 and 2001, and the Three Months Ended
September 30, 2002 and 2001 2
Consolidated Statements of Cash Flows (unaudited) for the Nine
Months Ended September 30, 2002 and 2001 3
Notes to Consolidated Financial Statements (unaudited) 4 - 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6 - 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk
(included in Part I Item 2) 10-11
Item 4. Controls and Procedures 16
Part II. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature Page 17
Certifications
Certification of Chief Executive Officer 18-19
Certification of Chief Financial Officer 20-21
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2002 2001
--------------- -------------
ASSETS
Cash and due from banks $ 29,502,255 $ 34,170,060
Interest-bearing deposits with banks 12,735,571 760,507
Federal funds sold 33,128,456 23,117,592
Investment securities available-for-sale 101,397,154 88,425,882
Investment securities held-to-maturity (approximate fair value of $10,033,884
and $11,962,682 at September 30, 2002, and December 31, 2001, respectively)
9,834,308 11,903,158
Loans held-for-sale 46,547,255 59,496,203
Loans 807,035,497 741,762,010
Allowance for loan losses (12,021,952) (10,349,919)
--------------- -------------
Loans, net 795,013,545 731,412,091
Premises and equipment, net 15,486,124 16,352,739
Other real estate 3,574,220 4,371,434
Accrued interest receivable 5,487,696 5,870,171
Other assets 17,718,705 18,335,693
--------------- -------------
Total assets $ 1,070,425,289 $ 994,215,530
=============== =============
LIABILITIES
Deposits
Noninterest-bearing demand deposits $ 109,461,198 $ 112,557,000
Interest-bearing deposits:
Demand and money market 158,959,462 120,094,961
Savings 99,045,703 101,172,071
Time deposits, $100,000 and over 182,138,945 165,626,627
Other time deposits 354,286,900 318,630,233
--------------- -------------
Total deposits 903,892,208 818,080,892
Federal Home Loan Bank short-term borrowings 15,000,000 10,000,000
Other short-term borrowings 18,212,921 32,362,467
Trust preferred securities 20,500,000 20,500,000
Other long-term debt 40,507,500 46,833,911
Accrued interest payable 3,252,510 4,441,467
Other liabilities 4,486,627 3,333,372
--------------- -------------
Total liabilities 1,005,851,766 935,552,109
SHAREHOLDERS' EQUITY
Common stock, no par value. Authorized 50,000,000; issued 8,864,300 and
8,792,720; outstanding 8,853,208 and 8,781,628 at September 30, 2002 and
December 31, 2001, respectively 40,314,300 39,816,731
Treasury stock (69,325) (69,325)
Accumulated other comprehensive income (loss), net of taxes 1,992,231 (210,698)
Retained earnings 22,336,317 19,126,713
--------------- -------------
Total shareholders' equity 64,573,523 58,663,421
--------------- -------------
Total liabilities and shareholders' equity $ 1,070,425,289 $ 994,215,530
=============== =============
See accompanying notes to consolidated financial statements.
1
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Nine Months Ended September 30, Three Months Ended September 30,
-------------------------------- --------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
INTEREST INCOME
Loans, including fees $ 48,261,600 $ 55,005,091 $ 16,438,029 $ 17,532,979
Investment securities 4,412,054 4,216,215 1,490,188 1,518,979
Federal funds sold 201,429 853,856 125,458 259,076
Deposits with other banks 31,838 20,567 17,937 3,764
------------- ------------- ------------- -------------
Total interest income 52,906,921 60,095,729 18,071,612 19,314,798
INTEREST EXPENSE
Deposits 18,555,363 30,166,484 5,972,789 9,344,429
Short-term borrowings 1,065,394 1,102,967 343,757 215,253
Trust preferred securities 1,702,229 1,702,229 567,410 567,410
Other long-term debt 1,872,519 2,109,841 631,583 734,548
------------- ------------- ------------- -------------
Total interest expense 23,195,505 35,081,521 7,515,539 10,861,640
------------- ------------- ------------- -------------
NET INTEREST INCOME 29,711,416 25,014,208 10,556,073 8,453,158
Provision for loan losses 7,218,000 5,650,000 2,918,000 2,050,000
------------- ------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 22,493,416 19,364,208 7,638,073 6,403,158
NONINTEREST INCOME
Service charges on deposit accounts 3,683,736 2,652,278 1,227,493 1,031,184
Credit card and merchant activities 6,333,218 3,812,731 628,551 1,250,938
Mortgage banking activities 1,663,696 2,078,291 672,533 716,242
Brokerage activities 585,407 1,038,512 184,424 198,811
Indirect lending activities 2,233,292 3,295,773 780,305 991,093
Securities gains, net 299,993 599,727 205,285 537,805
Other operating income 1,984,494 2,483,622 554,640 831,735
------------- ------------- ------------- -------------
Total noninterest income 16,783,836 15,960,934 4,253,231 5,557,808
NONINTEREST EXPENSE
Salaries and employee benefits 14,874,971 14,871,177 5,047,516 4,829,225
Furniture and equipment 2,515,008 2,485,206 756,055 773,178
Net occupancy 2,583,560 2,763,608 864,540 886,478
Credit card and merchant processing 2,059,093 2,713,457 374,840 848,969
Communication expenses 1,270,200 1,551,006 429,591 504,144
Professional and other services 3,142,110 4,532,904 1,068,651 1,417,047
Other real estate and repossessions 1,383,866 148,120 1,072,546 74,576
Other 4,657,741 4,128,374 1,673,321 1,272,371
------------- ------------- ------------- -------------
Total noninterest expense 32,486,549 33,193,852 11,287,060 10,605,988
------------- ------------- ------------- -------------
Income before income taxes 6,790,703 2,131,290 604,244 1,354,978
Income tax expense 2,257,312 615,175 222,618 451,284
------------- ------------- ------------- -------------
NET INCOME $ 4,533,391 $ 1,516,115 $ 381,626 $ 903,694
============= ============= ============= =============
BASIC AND DILUTED EARNINGS PER SHARE $ 0.51 $ 0.17 $ 0.04 $ 0 .10
============= ============= ============= =============
DIVIDENDS DECLARED PER SHARE $ 0.15 $ 0.15 $ 0.05 $ 0 .05
============= ============= ============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,824,768 8,781,628 8,851,879 8,781,628
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
2
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
----------------------------------
2002 2001
-------------- -------------
OPERATING ACTIVITIES
Net income $ 4,533,391 $ 1,516,115
Adjustments to reconcile net income to net cash provided by (USED IN) operating
activities:
Provision for loan losses 7,218,000 5,650,000
Depreciation and amortization of premises and equipment 1,978,239 2,095,335
Securities gains (net) (299,993) (599,727)
Gain on loan sales (431,412) (1,220,464)
Proceeds from sale of other real estate 1,678,289 1,412,936
Gain on sale of other real estate (124,510) (213,526)
Net decrease (increase) in loans held-for-sale 12,948,948 (34,767,574)
Net decrease in accrued interest receivable 382,475 1,374,149
Net decrease in accrued interest payable (1,188,957) (688,794)
Net decrease (increase) in other assets 616,988 (1,895,561)
Net increase in other liabilities 1,153,255 8,112,336
Other (1,155,438) (50,009)
-------------- -------------
Net cash flows provided by (used in) operating activities 27,309,275 (19,274,784)
INVESTING ACTIVITIES
Purchases of investment securities held-to-maturity -- (800,000)
Maturities of investment securities held-to-maturity 2,068,849 2,130,637
Calls of investment securities held-to-maturity -- 20,000,000
Purchases of investment securities available-for-sale (25,108,819) (44,005,499)
Sales and calls of investment securities available-for-sale 8,557,595 17,891,822
Maturities of investment securities available-for-sale 7,238,313 6,930,247
Net increase in loans (136,939,732) (79,365,299)
Purchases of premises and equipment (1,111,624) (519,296)
Proceeds from sale of loans 65,795,125 96,984,451
-------------- -------------
Net cash flows (used in) provided by investing activities (79,500,293) 19,247,063
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, money market accounts, and savings
accounts 33,642,331 (578,878)
Net increase in time deposits 52,168,985 5,621,124
Net decrease in short-term borrowings (9,149,546) (9,146,002)
Net (decrease) increase in long-term borrowings (6,326,411) 16,806,967
Dividends paid (1,323,787) (1,317,250)
Proceeds from the issuance of common stock 497,569
-------------- -------------
Net cash flows provided by financing activities 69,509,141 11,385,961
-------------- -------------
Net increase in cash and cash equivalents 17,318,123 11,358,240
Cash and cash equivalents, beginning of period 58,048,159 43,016,771
============== =============
Cash and cash equivalents, end of period $ 75,366,282 $ 54,375,011
============== =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 24,384,462 $ 35,770,315
============== =============
Income taxes $ 2,500,000 $ --
============== =============
Non-cash transfers to other real estate $ 963,773 $ 2,362,500
============== =============
See accompanying notes to consolidated financial statements
3
FIDELITY NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2002
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Fidelity
National Corporation and subsidiaries ("Fidelity") have been prepared in
accordance with accounting principles generally accepted in the United States
followed within the financial services industry for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and notes required
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation of the financial position and
results of operations for the interim periods have been included. All such
adjustments are normal recurring accruals. Operating results for the three month
and nine month periods ended September 30, 2002, are not necessarily indicative
of the results that may be expected for the year ending December 31, 2002. These
statements and the related "Management's Discussion and Analysis of Financial
Condition and Results of Operations" should be read in conjunction with the
consolidated financial statements and notes thereto included in Fidelity's
Annual Report on Form 10-K for the year ended December 31, 2001.
Note B - Shareholders' Equity
The Board of Governors of the Federal Reserve ("FRB") is the principal regulator
of Fidelity National Corporation ("FNC"), a bank holding company. The FRB and
the Office of the Comptroller of the Currency ("OCC"), the principal regulator
of Fidelity National Bank (the "Bank") have established capital requirements as
a function of their oversight of bank holding companies and nationally chartered
banks. Each bank holding company and each bank must maintain the minimum capital
ratios set forth in "Liquidity" and "Shareholders' Equity".
The Bank is a national banking association subject to Federal and state statutes
applicable to banks chartered under the banking laws of the United States, to
members of the Federal Reserve System and to banks whose deposits are insured by
the Federal Deposit Insurance Corporation. The Bank is a wholly-owned subsidiary
of Fidelity.
Fidelity and the Bank are principally regulated by the FRB and the OCC,
respectively. At periodic intervals, the OCC examines and evaluates the
financial condition, operations, and policies and procedures of nationally
chartered banks, such as the Bank, as part of its legally prescribed oversight
responsibilities.
Note C - Recent Accounting Pronouncements
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"), effective for fiscal years
beginning after December 15, 2001, and applied prospectively. SFAS No. 144
superceded SFAS No. 121 and APB 30. SFAS No. 144 retains the fundamental
provisions of SFAS No. 121 related to the recognition and measurement of
long-lived assets. SFAS No. 144 provides more guidance on estimating cash flows
when performing a recoverability test. Furthermore, SFAS No. 144 requires that
operating
4
losses from a "component of an entity" would be recognized in the period in
which they occur rather than as of the measurement date as presently required by
APB 30. Fidelity adopted this statement on January 1, 2002, and it did not have
a material financial impact on Fidelity's results of operations or financial
position.
Note D - Regulatory Agreements
Agreement with the FRB -
On March 21, 2002, FNC's Board of Directors adopted a resolution requested by
the Federal Reserve Bank of Atlanta ("Board Resolution"). The Board Resolution,
which related to the Federal Reserve Bank's inspections of Fidelity as of
December 31, 2000 and September 30, 2001, among other things, prohibits Fidelity
from redeeming its common stock, paying dividends on its common stock or
incurring debt without the prior approval of the FRB. The Board Resolution
continues until the requirements are cancelled by the FRB.
Agreements with the OCC -
On December 21, 2000, the Bank, through its Board of Directors, consented to the
issuance of a Consent Order (the "Order") by the OCC relating to the Trust
Department of the Bank. The Order was lifted by the OCC in June 2002, following
Fidelity's divestiture of the trust and asset management lines of business and
its compliance with other provisions of the Order.
On September 5, 2001, the Bank entered into an agreement with the OCC stemming
from the OCC's examination as of December 31, 2000 (the "Letter Agreement"). The
Bank's Letter Agreement calls for, among other things (i) the appointment of a
Compliance Committee; (ii) total Bank capital of 11% of risk-weighted assets and
a leverage ratio of 8% of adjusted total assets; (iii) three-year strategic and
capital plans, revised as necessary; (iv) payment of Bank dividends only when
there is no supervisory objection; (v) formalizing the process for reviewing new
product offerings; (vi) the Board of Directors to review its current
organization structure and management capabilities and strengthen management, as
required; (vii) a review of loan policies, loan management information systems,
and the internal loan review process especially related to criticized assets,
nonaccrual loans and the allowance for loan losses; and (viii) revisions to the
internal audit process. At September 30, 2002, the OCC was in the process of
conducting its annual examination. The recent loan downgrades (See "Provision
For Loan Losses") and related decline in earnings could adversely affect the
Bank's ability to maintain the required capital ratios and thus the
Bank's ability to obtain OCC approval for payment of dividends to Fidelity. If
dividends received from the Bank were reduced or eliminated, Fidelity's ability
to pay dividends to its shareholders would be adversely affected.
The Compliance Committee is comprised of three members of the Board of Directors
of the Bank, none of whom is an employee of the Bank. The Compliance Committee,
which meets monthly and reports to the Board of Directors and the OCC, is
responsible for monitoring and coordinating compliance by the Bank with the
Letter Agreement.
The Bank periodically submits reports to the OCC evidencing compliance with the
Letter Agreement. While not complete, at September 30, 2002, the Bank had
substantially addressed the provisions of the Letter Agreement and was in
compliance with many of its provisions. Fidelity is working to complete the
remaining issues. Fidelity does not expect to incur significant additional costs
to comply with the Letter Agreement, as most items have already been addressed
5
or can be addressed internally. Even though the Bank may meet the requirements
of the Letter Agreement, it continues to be in effect until such time as it is
amended or terminated by the OCC.
Note E - Contingencies
In the conduct of its business, Fidelity is subject to various claims, lawsuits
and arbitration proceedings which arise in the normal course of business. These
matters include a recent arbitration award and the settlement of a claim against
Fidelity's securities broker subsidiary in the aggregate amount of approximately
$953,000 plus interest and fees. Fidelity has filed a claim with its insurers
for these amounts plus other related costs. On the basis of present information,
anticipated insurance coverage and advice received from counsel, it is
management's opinion that the arbitration award, settlement and the disposition
or ultimate determination of pending claims, lawsuits and proceedings will not
have a material adverse impact on Fidelity's consolidated results of operations
or its consolidated financial position.
Note F - Other Comprehensive Income
Fidelity's other comprehensive income item is related to unrealized gains and
losses on investment securities classified as available-for-sale and
reclassification adjustments for gains and losses on securities sales and calls
included in net income. All other comprehensive income items are tax effected at
a rate of 34% for 2002 and 38% for 2001. For the third quarter of 2002 and the
first nine months of 2002, total other comprehensive income net of taxes was
$897,542 and $2,202,929, respectively. The total other comprehensive income net
of taxes was $481,553 and $1,060,096, respectively, for the comparable periods
of 2001.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis reviews important factors affecting Fidelity's financial
condition at September 30, 2002, compared to December 31, 2001, and compares the
results of operations for the three and nine month periods ended September 30,
2002 and 2001. These comments should be read in conjunction with Fidelity's
consolidated financial statements and accompanying notes appearing in this
report.
ASSETS
Total assets were $1,070 million at September 30, 2002, compared to $994 million
at December 31, 2001, an increase of $76 million, or 7.7%. Loans increased $65
million or 8.8% to $807 million, and loans held-for-sale decreased $13 million
or 21.8% to $47 million at September 30, 2002. The increase in total loans was a
result of the growth in consumer installment loans, including those
held-for-sale, of $35 million or 9.9% to $393 million, an increase in real
estate construction loans of $6 million or 6.5% to $104 million, an increase in
commercial loans of $2 million or 2.8% to $71 million, and an increase of $17
million or 8.6% in real estate mortgage loans, including held-for-sale, to $212
million, offset in part by a decline of $8 million in credit card loans to $73
million. The increase in consumer loans was attributable to the management
decision to retain additional indirect automobile loan balances in the consumer
loan portfolio to enhance revenues.
6
The following schedule summarizes Fidelity 's total loans at September 30, 2002,
and December 31, 2001 (dollars in thousands):
September 30, December 31,
2002 2001
------------- ------------
TOTAL LOANS:
Commercial, financial and agricultural $ 71,368 $ 69,434
Real estate - construction 104,404 98,051
Real estate - mortgage 194,975 179,821
Consumer installment 363,117 313,222
Credit cards 73,171 81,234
---------- ----------
Loans 807,035 741,762
Loans held-for-sale:
Residential mortgage loans 16,547 14,996
Indirect automobile loans 30,000 44,500
---------- ----------
Total loans held-for-sale 46,547 59,496
---------- ----------
Total loans $ 853,582 $ 801,258
========== ==========
ASSET QUALITY
The following schedule summarizes Fidelity's asset quality position at September
30, 2002, and December 31, 2001 (dollars in thousands):
September 30, December 31,
2002 2001
------------- ------------
Nonperforming assets:
Nonaccrual loans $ 3,581 $ 3,655
Repossessions -- 958
Other real estate owned 3,574 4,371
----------- ---------
Total nonperforming assets $ 7,155 $ 8,984
=========== =========
Loans 90 days past due and still accruing $ 1,418 $ 2,192
=========== =========
Allowance for loan losses $ 12,022 $ 10,350
=========== =========
Ratio of past due loans to loans .18% .30%
=========== =========
Ratio of nonperforming assets to loans and other real
estate owned .88% 1.20%
=========== =========
Allowance to period-end loans 1.49% 1.40%
=========== =========
Allowance to nonperforming loans and repossessions
(coverage ratio) 3.36x 2.24x
=========== =========
Management is not aware of any potential problem loans other than those
disclosed in the table above, which includes all loans recommended for
classification by regulators, which would have a material adverse impact on
asset quality. (See "Provision for Loan Losses.")
DEPOSITS
Total deposits at September 30, 2002, were $904 million compared to $818 million
at December 31, 2001, a 10.5% increase. During this period, total liabilities
increased $70 million, or 7.5%, to
7
$1,006 million. The increase in deposits occurred primarily in interest-bearing
demand and money market deposits, which increased $39 million or 32.4% to $159
million and in time deposits. Time deposits $100,000 and over and other time
deposits totaled $536 million at September 30, 2002, an increase of $52 million,
or 10.8%. These increases were offset in part by declines of $3 million and $2
million or 2.8% and 2.1% to $109 million and $99 million in noninterest bearing
demand deposits and savings deposits, respectively.
OTHER BORROWINGS
Federal Home Loan Bank ("FHLB") short-term borrowings totaled $15 million at
September 30, 2002, an increase of $5 million compared to borrowings at December
31, 2001, as a result of the renewal of a $10 million borrowing maturing in
March of 2002 for a two year term and reclassified as long-term, coupled with
the reclassification of a $15 million borrowing to short-term when its remaining
maturity became less than one year. Other short-term borrowings consisted of
overnight and term repurchase agreements and borrowings under both secured and
unsecured short-term lines of credit available with other financial
institutions. Other short-term borrowings decreased $14 million or 43.7% to $18
million at September 30, 2002, compared to other short-term borrowings at
December 31, 2001.
Other long-term debt consists primarily of long-term borrowings from the FHLB
and junior subordinated capital notes and totaled $41 million and $47 million at
September 30, 2002, and December 31, 2001, respectively. A $5 million decrease
was due to a $15 million borrowing from the FHLB in February 2001 with a two
year term to maturity, which was reclassified to short-term borrowings during
the first quarter and the renewal of a $10 million borrowing maturing during the
first quarter of 2002 for a two year term to maturity reclassified to long-term.
OTHER LIABILITIES
Other liabilities increased $1 million to $4 million at September 30, 2002,
compared to December 31, 2001, due primarily to an increase in accounts payable
and accrued expenses.
TRUST PREFERRED SECURITIES
Trust preferred securities, included in regulatory Tier 1 capital, totaled $20.5
million at September 30, 2002 and December 31, 2001, and consisted of two
offerings issued during 2000.
LIQUIDITY
Market and public confidence in the financial strength of the Bank and financial
institutions in general will largely determine the Bank's access to appropriate
levels of liquidity. This confidence is significantly dependent on the Bank's
ability to maintain sound asset credit quality and appropriate levels of capital
resources.
Liquidity is defined as the ability of the Bank to meet anticipated customer
demand for funds under credit commitments and deposit withdrawals at a
reasonable cost and 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
8
repurchase ("repurchase agreements"); loan repayments; loan sales; deposits and
certain interest-sensitive deposits; a collateralized contingent line of credit
at the Federal Reserve Bank Discount Window; a collateralized line of credit
from the FHLB; and, borrowings under unsecured overnight Federal funds lines
available from correspondent banks. During the first nine months of 2002, the
Bank sold $64 million in newly originated and held-for-sale indirect automobile
loans compared to the sale of $69 million in the first nine months of 2001. In
addition to interest rate sensitive deposits, the Bank's principal demand for
liquidity is anticipated fundings under credit commitments to customers.
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
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 has unused sources of liquidity in the form of unused Federal funds
lines totaling $26 million, unpledged securities and money market assets of $18
million and additional FHLB and FRB lines of credit, subject to available
qualifying collateral, at September 30, 2002.
FNC liquidity is limited as a result of the infusion of capital into its
subsidiaries over the past several years and the payment of interest related to
its subordinated debt and trust preferred securities. Its current access to
capital markets is also limited as a result of regulatory agreements. (See Note
D - Regulatory Agreements.)
SHAREHOLDERS' EQUITY
Shareholders' equity was $65 million and $59 million at September 30, 2002, and
December 31, 2001, respectively. Shareholders' equity as a percent of total
assets was 6.03% and 5.90% at September 30, 2002, and December 31, 2001,
respectively. The table below sets forth the capital requirements for the Bank
under OCC regulations and under the Letter Agreement.
At September 30, 2002, and December 31, 2001, Fidelity exceeded all capital
ratios required by the FRB to be considered well capitalized, as reflected in
the schedule below:
FRB Fidelity Ratios
----------------------------- -------------------------------
Adequately Well September 30, December 31,
Capital Ratios: Capitalized Capitalized 2002 2001
- --------------- ----------- ----------- ------------- -------------
Leverage 3.00% 5.00% 7.97% 8.11%
Risk-Based Capital
Tier I 4.00 6.00 9.06 9.08
Total 8.00 10.00 11.29 11.77
9
At September 30, 2002, and December 31, 2001, the Bank exceeded all capital
ratios required by the OCC as reflected in the following schedule:
OCC Bank Ratios
-------------------------------------------- -------------------------------
Adequately Well Letter September 30, December 31,
Capital Ratios: Capitalized Capitalized Agreement 2002 2001
- --------------- ----------- ----------- --------- ------------- ------------
Leverage 4.00% 5.00% 8.00% 8.15% 8.27%
Risk-Based Capital
Tier I 4.00 6.00 -- 9.26 9.25
Total 8.00 10.00 11.00 11.17 11.38
For additional information, see pages 4 and 5, Notes B and D of the Notes to
Consolidated Financial Statements (unaudited).
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.
Interest rate risk, which encompasses price risk, is the exposure of a banking
organization's financial condition and earnings ability to adverse movements in
interest rates. Fidelity has analyzed the assumed market value risk and earnings
risk inherent in its interest rate sensitive instruments related to
interest-rate swings of 100 basis points and 200 basis points, both above and
below current levels (rate shock analysis). An analysis of the impact of
interest rate swings of 100 basis points has been conducted because of the
current historically low market interest rates, which makes a decline of 200
basis points from these levels unlikely. Earnings and fair value estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. However, Fidelity
believes that these analyses provide the most meaningful measures of interest
rate risk position and trends. The latest analyses reflected the asset
sensitivity of Fidelity over a six month time horizon and its liability
sensitivity over a six to twelve month time horizon. The analyses indicated that
the effects of either an immediate and sustained increase or decrease in market
rates of interest of 100 basis points and 200 basis points would not be material
to Fidelity's net present value or operating results over a one year period.
The static gap analysis is a useful tool to measure interest rate sensitivity at
a point in time and is utilized in developing the more critical rate shock
analysis in assessing interest rate risk. The interest rate sensitivity
structure within Fidelity's Balance Sheet at September 30, 2002, reflects a net
interest sensitivity liability gap of 4.86% when projecting forward one year. In
the near term, defined as 90 days, Fidelity has a net interest sensitivity asset
gap of 21.21%. When projecting forward six months, Fidelity has a net interest
sensitivity liability gap of 12.81%. This information represents a general
indication of repricing characteristics over time and reflects an extension of
liability maturities in the second quarter of 2002 to lock in longer-term
liabilities during a period of historically low interest rates. However, the
sensitivity of callable securities and certain deposit products may vary during
extreme swings in the interest rate cycle. Since all interest rates and yields
do not adjust at the same velocity, the interest rate sensitivity gap is only a
general indicator of the potential effects of interest rate changes on net
interest income.
10
At September 30, 2002, the 31-90 day asset maturity and repricing total included
$30 million of indirect automobile loans classified as held-for-sale and the 30
day asset maturity and repricing total included $17 million in residential
mortgage loans originated and held-for-sale. When these loans are sold, Fidelity
will become less interest sensitive in the one year time horizon. Fidelity's
policy states that the cumulative net interest sensitivity gap at the six month
and one year period should not exceed 10% and 15%, respectively. Any interest
rate risk associated with the cumulative gap positions noted above was largely
mitigated because of the net interest sensitivity asset gap in the near term and
the net interest sensitivity liability gap at one year. Fidelity's decision to
position the balance sheet to benefit from rising interest rates increases the
negative effects of any declines in interest rates; however, because of the
historically low interest rate environment, a significant decline in interest
rates appears unlikely.
EARNINGS
Net income for the quarter ended September 30, 2002, was $382,000 million
compared to net income of $904,000 million for the comparable quarter of 2001, a
decrease of 57.8%. Basic and diluted earnings were $.04 per share for the third
quarter of 2002, compared to $.10 per share for the same period in 2001.
Fidelity's net income was $4.5 million for the nine months ended September 30,
2002, compared to net income of $1.5 million for the nine months ended September
30, 2001, a 199.0% increase. Basic and diluted earnings were $.51 per share for
the first nine months of 2002 compared to $.17 per share for the comparable
period of 2001.
NET INTEREST INCOME
Net interest income for the third quarter of 2002 was $10.6 million compared to
$8.5 million for the same period in 2001, an increase of 24.9%. Total interest
income was $18.1 million for the third quarter of 2002 compared to $19.3 million
for the same period in 2001. The average balance of interest-earning assets
increased $72 million or 7.9% to $986 million for the three months ended
September 30, 2002, when compared to the same period in 2001. The yield on
interest-earning assets for the third quarter of 2002 was 7.30% or 110 basis
points less than the yield for the same period in 2001. The yield on average
loans outstanding for the period declined 115 basis points to 7.68% when
compared to the same period in 2001 as a result of lower average balances
outstanding in high yielding credit cards and the historically low interest
rates experienced during 2002. Exacerbating the decline in yield on average
interest-earning assets as a result of lower yields on average loans outstanding
was the increase in the average balances of lower yielding investment
securities, interest earning deposits with banks and Federal funds sold of $12
million or 9.2% to $136 million.
Total interest expense was $7.5 million for the third quarter of 2002 compared
to $10.9 million for the same period last year. The average balance of
interest-bearing liabilities increased $63 million during the third quarter of
2002 to $862 million and the rate on this average balance declined 194 basis
points to 3.46% when compared to the same period in 2001. The significantly
greater decline in the cost of interest bearing liabilities than the decline in
the yield on interest earning assets provided a 58 basis point improvement in
the net interest margin to 4.25%.
Net interest income for the first nine months of 2002 was $29.7 million compared
to $25.0 million for the same period in 2001. Total interest income was $52.9
million for the first nine months of 2002 compared to $60.1 million for the same
period last year. The average balance of interest-earning assets increased $20
million to $941 million for the nine months ended September 30,
11
2002, and in part offset the decline in the yield on average interest-earning
assets of 121 basis points to 7.52% when compared to the same period in 2001.
Reductions in the higher yielding credit card portfolio average balances and
historically low interest rates experienced during the first nine months of 2002
resulted in a decline of 131 basis points in the yield on loans. The average
balances outstanding in total loans increased $20 million to $825 million in the
first nine months of 2002 compared to the same period in 2001.
Total interest expense was $23.2 million for the first nine months of 2002
compared to $35.1 million for the same period last year. The average balance of
interest-bearing liabilities increased $15 million to $821 million during the
nine months ended September 30, 2002, while the rate on these average balances
decreased 203 basis points to 3.78% when compared to the same period in 2001.
The significantly greater decline in the cost of interest bearing liabilities
than the decline in the yield in interest earning assets provided a 58 basis
point improvement in the net interest margin to 4.22%.
PROVISION FOR LOAN LOSSES
The allowance for loan losses is established through provisions charged to
operations. Such provisions are based on management's evaluation of the loan
portfolio under current economic conditions, past loan and loss experience,
adequacy of underlying collateral, and such other factors which, in management's
judgment, deserve recognition in estimating loan losses. An analysis is
separately performed for each major loan category. Loans are charged off when,
in the opinion of management, such loans are deemed to be uncollectible.
Subsequent recoveries are added to the allowance.
Management believes the allowance for loan losses is adequate to provide for
inherent loan losses. The provision for loan losses for the first nine months
and the third quarter of 2002 was $7.2 million and $2.9 million, respectively,
compared to $5.7 million and $2.1 million, respectively, for the same periods in
2001. The increase in the provision for the first nine months and the third
quarter of 2002 is primarily due to the growth in loan balances and downgrades
of certain commercial loans. Downgrades in loans indicate problems or potential
problems with repayments or potential collection and will typically result in an
increase to the loan loss provision and thus an increase in the allowance for
loan losses. The ratio of net charge-offs to average loans on an annualized
basis for the nine months ended September 30, 2002, was .95% compared to .98%
for the same period in 2001.
12
The following schedule summarizes changes in the allowance for loan losses for
the periods indicated (in thousands):
Nine Months Ended Year Ended
September 30, December 31,
----------------------------- ------------
2002 2001 2001
--------- --------- ---------
Balance at beginning of period $ 10,350 $ 10,504 $ 10,504
Charge-offs:
Commercial, financial and agricultural 234 543 659
Real estate-construction 2 -- --
Real estate-mortgage 36 -- --
Consumer installment 1,951 1,818 2,604
Credit cards 4,415 4,647 6,140
--------- --------- ---------
Total charge-offs 6,638 7,008 9,403
--------- --------- ---------
Recoveries:
Commercial, financial and agricultural -- 31 37
Real estate-construction -- -- --
Real estate-mortgage 3 -- --
Consumer installment 397 492 623
Credit cards 692 934 1,139
--------- --------- ---------
Total recoveries 1,092 1,457 1,799
--------- --------- ---------
Net charge-offs 5,546 5,551 7,604
Provision for loan losses 7,218 5,650 7,450
--------- --------- ---------
Balance at end of period $ 12,022 $ 10,603 $ 10,350
========= ========= =========
Ratio of net charge-offs to average loans .95% .98% 1.01%
Allowance for loan losses as a percentage
of loans at end of period 1.49 1.44 1.40
NONINTEREST INCOME
Noninterest income was $4.3 million and $5.6 million for the third quarter of
2002 and 2001, respectively, a decrease of 23.5%. A significant increase in
service charges and other deposit related fees was more than offset by declines
in revenue from other revenue generating activities of Fidelity. For the nine
months ended September 30, 2002, noninterest income was $16.8 million compared
to $16.0 million for the same period in 2001, an increase of 5.2%. The increase
was due to a significant increase in service charges and other deposit related
fees and the $3.5 million pretax gain on the sale of the merchant processing
line of business in March 2002, offset in part by declines in merchant
processing operating revenue as a result of the sale and declines in revenue
from other revenue generating activities of Fidelity.
Revenue from service charges and other deposit related fees increased $.2
million and $1.0 million or 19.0% and 38.9% to $1.2 million and $3.7 million,
respectively, in third quarter and the nine month period ending September 30,
2002, compared to the same periods in 2001, primarily due to increased fees and
the emphasis on collecting fees as a result of a revenue enhancement project
initiated in the summer of 2001 and implemented in part in August 2001.
Revenue from credit card and merchant activities decreased $622,000 or 49.8% to
$629,000 for the third quarter ending September 30, 2002, compared to the same
period in 2001, primarily as a
13
result of the sale of the merchant processing line of business in March 2002 and
the resulting decline in operating revenues from that source. Revenue resulting
from a strategic alliance with the purchaser of the merchant processing line of
business is not expected to be significant. Revenues increased $2.5 million or
66.1% to $6.3 million for the first nine months of 2002 compared to the same
period in 2001 due to a $3.5 million pretax gain on the sale of the merchant
processing line of business, offset in part by declines in merchant processing
operating revenue as the result of the sale, as well as continuing declines in
credit card average balances outstanding and transaction revenues generated from
that source.
Revenue from mortgage banking activities decreased $44,000 and $415,000 or 6.1%
and 20.0% to $673,000 and $1.7 million, respectively, during the third quarter
and the first nine months of 2002 compared to the same periods of 2001 as a
result of a decline in loans originated and sold in the third quarter and the
nine months ended September 30, 2002, respectively, compared to the same periods
in 2001, and a gain of $368,000 on the bulk sale of approximately $24.0 million
in residential adjustable rate portfolio mortgage loans in the second quarter of
2001, while no portfolio mortgage loans have been sold in 2002.
Brokerage revenue declined $14,000 and $453,000 or 7.2% and 43.6% to $184,000
and $585,000, respectively, in the third quarter and the nine month period
ending September 30, 2002, compared to the same periods in 2001, because of
fewer brokers and reduced volume, in part as a result of a poorly performing
stock market during 2002.
Revenues from indirect lending activities declined $211,000 and $1.1 million or
21.3% and 32.2% to $780,000 and $2.2 million for the three month and nine month
periods ending September 30, 2002, respectively, when compared to the same
periods in 2001 due to a decline in the volume of and revenue generated by
indirect automobile loans sales, exacerbated by declines in the volume of
indirect automobile loans serviced for others, resulting in declines in revenues
from servicing fees and related ancillary revenues.
The volume of indirect automobile loan sales proceeds declined to $64 million in
the first nine months of 2002 compared to $71 million during the same period in
2001, in part as a result of the management decision to retain an increased
balance of indirect automobile loans in the portfolio. The reduction in revenues
from the sale of indirect automobile loans was also due to a reduction in
average gains on indirect automobile loans sold in 2002 compared to 2001, when
rapidly falling interest rates throughout 2001 provided increased gains on
sales.
Securities gains, net for the third quarter and for the nine month period ending
September 30, 2002 were $205,000 and $538,000, respectively, and $300,000 and
$600,000 respectively for the same periods in 2001, and were generated from
sales and calls of investment securities with gains as a result of the
substantial drop in market interest rates during 2002 and 2001.
Other operating revenues decreased $277,000 and $499,000 or 33.3% and 20.1% to
$555,000 and $1.9 million, respectively, in the third quarter and the nine month
periodS ending September 30, 2002, compared to the same periods last year,
primarily as a result of no revenues from the trust and asset management line of
business during 2002, which business was sold in December 2001.
NONINTEREST EXPENSE
Noninterest expense increased $681,000 to $11.3 million for the three month
period ended September 30, 2002, compared to the same period in 2001,
representing an increase of 6.4%.
14
The increase in the third quarter of 2002 compared to the same period in 2001
was primarily because of a regulatory requirement to charge off $781,000 related
to an asset acquired as additional collateral from a problem loan relationship
workout and certain other expenses related to other real estate owned and
repossessions. The decrease for the nine month period ended September 30, 2002,
compared to the same period in 2001 was primarily because of significant
reductions in expenses for consulting and other professional services incurred
in 2001 related to effectively addressing the issues regarding trust activities,
as well as reductions in expenses for credit card and merchant processing and
communications, offset in part by a regulatory requirement to charge off
$781,000 on an asset acquired as additional collateral from a problem loan
relationship workout and certain other expenses related to other real estate
owned and repossessions.
Credit card and merchant processing expenses declined $474,000 and $654,000 or
55.9% and 24.1% to $375,000 and $2,059,000 for the three and nine month periods
ended September 30, 2002, respectively, as a result of the sale of the merchant
processing line of business in March 2002 and the resulting decline in operating
expenses from that source, as well as continuing declines in credit card average
balances outstanding and related transaction expenses.
Professional and other services decreased $.3 million and $1.4 million to $1.6
million and $3.1 million, respectively, in the three month and nine month
periods ended September 30, 2002, compared to the same periods in 2001, due
primarily to the reduced cost of consulting and other professional services
related to trust activities, which totaled $217,000 and $1,835,000 in the third
quarter and first nine months of 2001, respectively. In addition, Fidelity
incurred $318,000 in consulting costs related to its revenue enhancement project
for those items approved and implemented in the third quarter of 2001.
Other real estate and repossession related expenses increased $1.0 million and
$1.2 million to $1.1 million and $1.4 million respectively, in the three month
and nine month periods ended September 30, 2002, compared to the same periods in
2001, due primarily to a regulatory requirement to charge off $781,000 on an
asset acquired as additional collateral from a problem loan relationship workout
and certain other expenses related to other real estate owned and repossessions.
Other operating expenses increased $.4 million and $.5 million to $1.7 million
and $4.7 million, respectively, in the third quarter and the nine month period
ended September 30, 2002, when compared to the same periods in 2001, primarily
as a result of increased regulatory fees and assessments and general increases
in various other operating expenses.
PROVISION FOR INCOME TAXES
The provision for income taxes for the third quarter and the first nine months
of 2002 was $223,000 and $2,257,000, respectively, compared to $451,000 and
$615,000 for the same periods in 2001. These changes were due to changes in
taxable income and the 2002 reduction of the income tax accrual rate from 38% to
34% as the result of cumulative state income tax credit carryforwards.
FORWARD-LOOKING STATEMENTS
This discussion and analysis 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
15
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 Fidelity's Annual Report on Form 10-K for
2001 under the heading "Risk Factors".
ITEM 4 - CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, the management of Fidelity
carried out an evaluation, under the supervision and with the participation of
its chief executive officer and its chief financial officer, of the
effectiveness of the design and operation of disclosure controls and procedures.
Based on this evaluation, the chief executive officer and the chief financial
officer have concluded that Fidelity's disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in this report. The design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurances that any design will succeed in achieving its stated goals under
all potential conditions.
In addition, the management of Fidelity has reviewed its internal controls, and
there have been so significant changes in its internal controls or in other
factors that could significantly affect those controls subsequent to the date of
their last evaluation.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Fidelity filed a report on Form 8-K on August 14, 2002, reporting under
Item 9, Regulation FD Disclosure, the filing of Exhibits 99.1 and 99.2,
Certifications of the Chief Executive Officer and Chief Financial
Officer pursuant to 18 USC ss.1350, as adopted pursuant to ss.906 of
the Sarbanes-Oxley Act of 2002.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIDELITY NATIONAL CORPORATION
-----------------------------
(Registrant)
Date: November 13, 2002 BY: /s/ James B. Miller, Jr.
James B. Miller, Jr.
Chief Executive Officer
Date: November 13, 2002 BY: /s/ M. Howard Griffith, Jr.
M. Howard Griffith, Jr.
Chief Financial Officer
17
FIDELITY NATIONAL CORPORATION
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, James B. Miller, Jr., Chief Executive Officer of Fidelity National
Corporation certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fidelity National
Corporation ("Registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's Board of Directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
18
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 13, 2002
/s/ James B. Miller, Jr.
-------------------------------
James B. Miller, Jr.
Chief Executive Officer
Fidelity National Corporation
19
FIDELITY NATIONAL CORPORATION
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, M. Howard Griffith, Jr., Chief Financial Officer of Fidelity National
Corporation certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fidelity National
Corporation ("Registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's Board of Directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
20
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 13, 2002
/s/ M. Howard Griffith, Jr.
--------------------------------
M. Howard Griffith, Jr.
Chief Financial Officer
Fidelity National Corporation
21