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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission File Number 000-22374

Fidelity Southern Corporation

(Exact name of registrant as specified in its charter)

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 þ          No o

      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. þ

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes þ          No o

      The aggregate market value of the common equity held by non-affiliates of the registrant (assuming for these purposes, but without conceding, that all executive officers and directors are “affiliates” of the registrant) as of December 31, 2004 (based on the average bid and ask price of the Common Stock as quoted on the Nasdaq National Market System on June 30, 2004) was $84,468,769.

      At March 10, 2005, there were 9,168,132 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, 2004, are incorporated by reference into Parts I and II. Portions of the registrant’s definitive Proxy Statement for the 2005 Annual Meeting of Shareholders are incorporated by reference into Part III.

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TABLE OF CONTENTS

PART I

General

      Fidelity Southern Corporation (“FSC”) is a registered bank holding company headquartered in Atlanta, Georgia. At December 31, 2004, all of Fidelity’s principal activities were conducted by its wholly owned subsidiary, Fidelity Bank and its subsidiaries (the “Bank” or “FB”). The Bank was first organized as a national banking corporation in 1973. Fidelity, as used herein, includes FSC and its subsidiaries, unless the context otherwise requires.

      At December 31, 2004, Fidelity had total assets of $1,224 million, total loans of $995 million, total deposits of $1,016 million and shareholders’ equity of $79 million.

Forward-Looking Statements

      This report on Form 10-K may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that reflect Fidelity’s current expectations relating to present or future trends or factors generally affecting the banking industry and specifically affecting Fidelity’s operations, markets and services. Without limiting the foregoing, the words “believes,” “expects,” “anticipates,” “estimates,” “projects” and “intends” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based upon assumptions Fidelity believes are reasonable and may relate to, among other things, the adequacy of the allowance for loan losses, changes in interest rates and litigation results. These forward-looking statements are subject to 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. These trends and events include:

      This list is intended to identify some of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included herein and are not intended to represent a complete list of all risks and uncertainties in our business. Investors are encouraged to read the related section in Fidelity’s 2004 Annual Report to Shareholders and those discussed below under “Risk Factors.”

Market Area

      Fidelity conducts banking activities primarily through 19 branches in Fulton, DeKalb, Cobb, Clayton, and Gwinnett counties in Georgia. Fidelity’s customers are primarily individuals and small and medium sized businesses located in Georgia. Indirect automobile lending (the purchase of consumer automobile

installment sales contracts from automobile dealers) and residential construction and mortgage lending are also conducted from its Jacksonville, Florida, offices and two offices in Georgia.

Products and Services

      Fidelity’s primary products and services are (i) depository accounts, (ii) direct and indirect automobile and home equity lending, (iii) secured and unsecured installment loans, (iv) trust services, credit card loans, and merchant services activities through agency relationships, (v) construction and residential real estate loans, (vi) commercial loans, including commercial loans secured by real estate, and (vii) international trade services. Fidelity also provides investment services through an affiliation with an independent broker-dealer.

      Fidelity offers a full range of depository accounts and services to both individuals and businesses. As of December 31, 2004, deposits totaled approximately $1,016 million, consisting of (in millions):

      Fidelity’s primary lending activities include consumer loans (primarily indirect automobile loans), real estate loans, construction loans, and commercial loans to small and medium sized businesses. Secured construction loans to home builders and residential mortgages are primarily made in the Atlanta, Georgia, and Jacksonville, Florida, metropolitan areas. The loans are generally secured by first and second real estate mortgages. Fidelity offers direct installment loans to consumers on both a secured and unsecured basis. Commercial lending consists of the extension of credit for business purposes.

      As of December 31, 2004, Fidelity had total loan outstandings, including loans held-for-sale, of (in millions):

      As noted, the loan categories in the above schedule are based on certain regulatory definitions and classifications. Certain of the following discussions are in part based on Fidelity defined loan portfolios and may not conform to the above classifications.

      Fidelity consumer lending primarily consists of indirect automobile lending. Fidelity also makes direct consumer loans, including direct automobile loans, home equity, and personal loans.

      Fidelity acquires, on a nonrecourse basis, consumer installment contracts secured by new and used vehicles purchased by consumers from franchised motor vehicle dealers and selected independent dealers located primarily in Georgia, Florida, and North Carolina. As of December 31, 2004, the aggregate amount of consumer indirect automobile loans outstanding was $522 million, which includes $30 million in indirect automobile loans held-for-sale. A portion of the indirect automobile loans originated by Fidelity is sold, and $223 million in loans previously sold are being serviced by Fidelity for others.

      During 2004, the Fidelity produced $448 million of indirect automobile loans, selling $149 million to third parties through six sales. Indirect automobile loans held-for-sale fluctuate from month to month as pools of loans are developed for sale.

      Fidelity is engaged in the residential mortgage banking business, focusing on one-to-four family properties. Fidelity offers Federal Housing Authority (“FHA”), Veterans Administration (“VA”), and conventional and non-conforming loans (those with balances over $359,650). In addition, loans are purchased from independent mortgage companies located in the Southeast. Fidelity operates its residential mortgage banking business from four locations in the Atlanta metropolitan area and a loan origination office in Jacksonville, Florida. Fidelity 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 the Department of 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 2004, Fidelity originated approximately $13 million in loans to be held in Fidelity’s portfolio. Fidelity sells mortgages, servicing released, to investors. Fidelity does not service mortgage loans for third parties.

      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 represent some of the services provided.

      At December 31, 2004, Fidelity had investment securities totaling $165 million. These securities may include obligations of the U.S. Treasury, agencies of the U.S. Government, including mortgage backed securities and other investments required by law, regulation, or contract.

Significant Operating Policies

      The Board of Directors of the Bank has delegated lending authority to its loan officers, each of whom is limited as to the amount of secured and unsecured loans he can make to a single borrower or related group of borrowers. As our lending relationships are important to our success, the Board of Directors of the Bank has established review committees and written guidelines for lending activities. In particular, the Officers’ Credit Committee reviews all lending relationships with total exposure exceeding $250,000 and the Loan and Discount Committee must approve all significant renewals of residential construction loan relationships. In addition, the Officers’ Credit Committee must approve all commercial loan relationships

and all new residential construction loan relationships exceeding the combined approval authority of the Bank’s senior executive management up to and including $5,000,000.

      The Bank’s written guidelines for lending activities require, among other things, that:

      The Bank originates short-term residential construction loans for housing and 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. These guidance lines 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.

      Inter-agency guidelines adopted by Federal banking regulators require that financial institutions establish real estate lending policies. The guidelines also establish certain maximum allowable real estate loan-to-value standards. The Bank has adopted standards which are in compliance with Federal and state regulatory requirements.

      The Bank’s Credit Review Department reviews the Bank’s loan portfolio to identify potential deficiencies and appropriate corrective actions. The Credit Review Department reviews more than 30% of the commercial and construction loan portfolios and reviews 10% of the consumer portfolio annually. The results of the reviews are presented to the Bank’s Loan and Discount Committee on a monthly basis.

      A provision for loan losses and a corresponding increase in the allowance for loan losses are recorded monthly, taking into consideration historical charge-off experience, delinquency, current economic conditions, results of credit reviews, and management’s estimate of losses inherent in the loan portfolio.

      Fidelity’s Asset/ Liability Committee (“ALCO”) manages Fidelity’s assets and liabilities. ALCO attempts to manage asset growth, liquidity, and capital in order to maximize income and reduce interest rate risk. ALCO directs Fidelity’s overall acquisition and allocation of funds and reviews and sets rates on deposits, loans, and fees.

      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 FSC’s and the Bank’s Boards of Directors. The Boards of Directors are provided information monthly concerning purchases, sales, resulting gains or losses, average maturity, Federal taxable equivalent yields, and appreciation or depreciation by investment categories.

Supervision and Regulation

      FSC 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”). FSC is required to file financial information with the Federal Reserve periodically and is subject to periodic examination by the Federal Reserve.

      The Bank converted from a national bank to a state chartered commercial bank on May 9, 2003, under the Financial Institutions Code of Georgia. The Bank is subject to regulations by the Georgia Department of Banking and Finance (“GDBF”) and the Federal Deposit Insurance Corporation (“FDIC”), the Bank’s primary Federal regulator. Pursuant to the approval of the GDBF, the Bank agreed, among other things, to maintain a leverage capital ratio of not less than 7.00% for the twenty-four month period following the conversion. The Bank’s leverage capital ratio as of December 31, 2004, was 8.27%.

      The Holding Company Act requires every bank holding company to obtain prior approval from 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, acquire all or substantially all of the assets of a bank; and (iii) before it merges or consolidates 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.

      FSC is an “affiliate” of the Bank under the Federal Reserve Act, which imposes certain restrictions on (i) loans by the Bank to FSC, (ii) investments in the stock or securities of FSC by the Bank, (iii) the Bank’s accepting the stock or securities of FSC from a borrower as collateral for loans, and (iv) the purchase of assets from FSC by the Bank. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any grant of credit, lease or sale of property, or furnishing of services.

      The GDBF 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 the 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 deposits of the Bank are insured by the FDIC subject to the limits provided by applicable law. 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 may also recommend to the appropriate Federal agency supervising an insured bank that the agency take informal action against such institution. The FDIC may implement the enforcement action itself if the agency fails to follow the FDIC’s recommendation. The FDIC has the authority to examine all insured banks and is empowered to place into receivership or require the sale of a bank to another institution when

the bank’s capital leverage ratio is 2% or less and take other actions with respect to banks which do not meet the applicable capital ratio.

      The Federal Deposit Insurance Corporation Improvement Act of 1991 (“1991 Act”) permits 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 and to $.27 per $100 of deposits for less healthy institutions. Because of the Bank’s rating, the Bank paid no FDIC deposit insurance premium in 2004. All banks are required to pay the Financing Corporation (“FICO”) debt service assessment. The FICO rates are determined quarterly and are not tied to the FDIC Risk Assessment. In 2004 the FICO Assessment paid was approximately $.15 per $100 of deposits.

      The 1991 Act imposes other substantial auditing and reporting requirements and increases the role of independent accountants and outside directors on banks having assets of $500 million or more. The 1991 Act also provides for a ban on the acceptance of brokered deposits except by well capitalized institutions and adequately capitalized institutions with the permission of the 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.

      Information regarding Fidelity’s capital requirements are contained in Notes 2 and 13 of the notes to Consolidated Financial Statements under the headings “Regulatory Agreements” and “Shareholders’ Equity” and in “General” above.

      The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Banking Act”) has two major provisions regarding the merger, acquisition, and operation of banks across state lines. First, it preempted state law to permit adequately capitalized and managed bank holding companies to acquire banks in any state. States may, however, 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. The Federal deposit caps apply only to initial entry acquisitions.

      The Interstate Banking Act also provides that, unless an individual state elects to prohibit out-of-state banks from operating interstate branches within its territory, 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.

      Georgia requires that a bank located within the state be in existence for a period of five years before it may be acquired by an out-of-state institution. Georgia 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, new or additional branch banks may be established anywhere in the state with the prior approval of the appropriate regulator.

      The Interstate Banking Act also requires 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. In addition, 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.

      The activities permissible to bank holding companies and their affiliates were substantially expanded by the Gramm-Leach-Bliley Act (“Gramm-Leach”). Among other things, Gramm-Leach establishes a comprehensive framework to permit affiliations among commercial banks, insurance companies, and securities firms. Generally, the 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 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.

      The Holding Company Act generally limits a bank holding 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 include undue concentration of resources, decreased or unfair competition, conflicts of interest, and unsound banking practices.

      Gramm-Leach expanded the range of permitted activities of a bank holding company which elects to become a financial holding company. These permitted activities include the offering of any 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.

      Fidelity has elected to date not to engage in any of the additional activities authorized for a financial holding company, although it has qualified to do business as an insurance agency through a recently formed subsidiary of FSC.

      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, securitizing, and servicing residential mortgage loans. In addition, there are other Federal and state statutes and regulations affecting such activities.

      Various legislation requires that mortgage brokers and lenders, including the Bank, make certain disclosures to applicants for mortgage loans. The legislation also provides authority for the GDBF to promulgate rules with respect to escrow accounts and the advertising of mortgage loans. In addition, the legislation imposes restrictions on unfair mortgage banking practices, as defined therein.

      There are numerous rules and regulations imposed on mortgage loan originators that require originators to (i) establish eligibility criteria for mortgage loans; (ii) prohibit discrimination; (iii) regulate advertising of loans; (iv) 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 that certain statistical information be maintained and publicly available regarding mortgage lending practices within certain geographical areas; (v) provide for inspections and appraisals of properties; (vi) require credit reports on prospective borrowers; (vii) regulate payment features; and (viii), 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.

      The USA Patriot Act of 2001 (the “Patriot Act”) contains anti-money laundering measures affecting insured depository institutions, broker-dealers, and certain other financial institutions. The Patriot Act requires such financial institutions to implement policies and procedures to combat money laundering and the financing of terrorism, and grants the Secretary of the Treasury broad authority to establish regulations and to impose requirements and restrictions on financial institutions’ operations. In addition, the Patriot Act requires the federal bank regulatory agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions. Compliance with the Patriot Act by Fidelity has not had a material impact on its results of operations or financial condition.

      The Sarbanes-Oxley Act of 2002 comprehensively revised the laws affecting corporate governance, accounting obligations, and corporate reporting for companies, such as Fidelity, with equity or debt securities registered under the Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act established: (i) new requirements for audit committees, including independence, expertise, and responsibilities; (ii) additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company; (iii) new standards for auditors and regulation of audits; (iv) increased disclosure and reporting obligations for the reporting company and their directors and executive officers; and (v) new and increased civil and criminal penalties for violation of the securities laws. The incremental current year and ongoing costs, including the requirements of management on employee time, is substantial and difficult to quantify.

Competition

      The banking business is highly competitive. Fidelity competes, other than for residential mortgages and indirect automobile loans, for traditional bank business with numerous other commercial banks and thrift institutions in Fulton, DeKalb, Cobb, Clayton, and Gwinnett counties, Georgia, its primary market area. Fidelity also competes for loans with insurance companies, regulated small loan companies, credit unions, and certain governmental agencies. Fidelity competes with independent brokerage and investment companies, as well as state and national banks and their affiliates and other financial companies. Many of the companies with whom Fidelity competes have greater financial resources than Fidelity.

      The indirect automobile financing and mortgage banking industries are also highly competitive. In the indirect automobile financing industry, Fidelity competes with specialty consumer finance companies, including automobile manufacturers’ captive 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.

Employees

      As of December 31, 2004, Fidelity had 335 full-time equivalent employees. Fidelity is not a party to any collective bargaining agreement. Fidelity believes that its employee relations are good.

Available Information

      Fidelity files annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet web site that contains reports, proxy and information statements, and other information regarding issuers, including Fidelity, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov.

      We also make available free of charge on or through our Internet web site (http://www.lionbank.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act as well as Section 16 reports on Forms 3, 4, and 5 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

      We also provide a copy of our Annual Report via mail, at no cost, upon receipt of a written request to the following address:

           Investor Relations
Fidelity Southern Corporation
P.O. Box 105075
Atlanta, Georgia 30348

Risk Factors

     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, i.e. “credit risk.” Fidelity’s significant credit risks include (i) the value of the underlying collateral, which may not be sufficient to permit Fidelity to recover the full value of the loan upon default, and (ii) the general creditworthiness of the borrowers. 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 effect on the results of operations and financial condition of Fidelity.

     Potential Impact of Changes 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 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 and real estate and commercial loans in the metropolitan areas of Atlanta, Georgia, and Jacksonville, Florida. Indirect automobile loans and residential mortgage loans are also produced for resale, with servicing rights often 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 mortgage and indirect automobile loans held-for-sale by Fidelity. These events, along with adverse national, regional, and local economic conditions, could adversely affect the results of operations and financial condition of Fidelity.

     Litigation and Potential Litigation

      Fidelity is subject to claims of violations of laws and regulations in the conduct of its business. Although Fidelity has established procedures to implement compliance with such laws and regulations, there can be no assurances that, in all instances, the activities undertaken will be in full compliance thereof. Violations of such laws and regulations may result in monetary liability and restrictions on its activities, which 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 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 is subject to extensive supervision, regulation, and control by several Federal and state governmental agencies, including the FRB, GDBF, FDIC, FNMA, FHLMC, and GNMA. Future legislation, regulations, and government policy could adversely affect Fidelity and the financial institution industry as a whole, including the cost of doing business. Although the impact of such legislation, regulations, 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

      Fidelity’s mortgage banking operations 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, 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, 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.

     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 Federal and state governmental authorities 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 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 the Real Estate Loan Portfolio

      Fidelity’s real estate loan portfolio 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 nonperforming 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

      Fidelity’s earnings are affected by general economic conditions as well as by the monetary policies of the Federal Reserve Board. Such policies, which include regulating the national supply of bank reserves and bank credit, can have a major effect upon the sources and cost of funds and the rates of return earned on loans and investments. The Federal Reserve System exerts a substantial influence on interest rates and credit conditions, primarily through open market operations in U.S. Government securities, varying the discount rate on member bank borrowings and setting cash reserve requirements against deposits. Changes in monetary policy, including changes in interest rates, will influence the origination of loans, the purchase of investments, the generation of deposits, and rates received on loans and investment securities and paid on deposits. Fluctuations in the Federal Reserve Board’s monetary policies have had a significant impact

on the operating results of Fidelity Bank and all financial institutions in the past and are expected to continue to do so in the future.

     Relationships 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.

Item 2.     Properties

      Fidelity’s principal executive offices consist of 19,175 square feet of leased space in Atlanta, Georgia. Fidelity’s operations are principally conducted from 65,897 square feet of leased space located at 3 Corporate Square, Atlanta, Georgia. The Bank has 19 branch offices located in Fulton, DeKalb, Cobb, Clayton, and Gwinnett Counties, Georgia, of which 12 are owned and seven are leased. In addition, Fidelity acquired a branch site in late 2004 and has initiated activities to build a permanent facility. In the meantime, Fidelity intends to initiate branch operations in a temporary facility during the first half of 2005. 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 all claims and lawsuits outstanding as of December 31, 2004, cannot be ascertained at this time, it is the opinion of management that these matters, when resolved, will not have a material adverse effect on Fidelity’s results of operations or financial condition.

PART II

      The information required by Item 5, other than as set forth below, is incorporated herein by reference to the information that appears under the heading “Corporate and Shareholder Information” in our Annual Report to Shareholders.

Dividends

      FSC has declared and paid the following dividends in the past two fiscal years:

      See Note 13 to our consolidated financial statements in Item 8 for a discussion of the restrictions on the ability of Fidelity to pay dividends.

Securities Authorized for Issuance Under Equity Compensation Plans

      The following table presents information as of December 31, 2004, with respect to shares of common stock of Fidelity that may be issued under equity compensation plans of Fidelity. The equity compensation plans of Fidelity consist of the Stock Option Plan and the 401(k) tax qualified savings plan.

SELECTED FINANCIAL DATA

CONSOLIDATED FINANCIAL REVIEW

      The following management discussion and analysis addresses important factors affecting the results of operations and financial condition of Fidelity Southern Corporation and its subsidiaries (“Fidelity”) for the periods indicated. The consolidated financial statements and related notes should be read in conjunction with this review.

Overview

      FSC is a bank holding company headquartered in Atlanta, Georgia. Fidelity commenced operations in 1974 as Fidelity National Bank, a full-service banking operation. With the conversion to a Georgia state chartered commercial bank on May 9, 2003, the name was changed to Fidelity Bank. With over $1 billion in assets, the Bank provides an array of personal and electronic financial services including traditional deposit, lending, mortgage, and international trade services to its commercial and retail customers. Internet banking and internet cash management services are available to individuals and businesses, respectively. Brokerage services and products are also provided through an affiliation with a registered broker-dealer. Credit card, merchant services, and trust products are provided through partnership arrangements. 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) in Georgia, Florida, and North Carolina through its two Atlanta, Georgia, offices, and its Jacksonville, Florida, indirect lending office. Residential mortgage lending and residential construction lending are conducted through certain of its Atlanta offices and from a loan production office in Jacksonville, Florida.

      Fidelity Bank is an Atlanta community bank. Fidelity’s banking franchise spans five counties in the metropolitan Atlanta market. Atlanta’s economy appears to be sound and growing based on the improvement in economic trends, and management is optimistic regarding growth and profitability opportunities for 2005.

Strategic Focus

      Fidelity’s focus for 2005 is on the continuing profitable growth of its core banking business after the significantly improved performance in 2004, when loans and total assets grew significantly, when income almost doubled over the prior year, and when virtually every measurement of asset quality and operating results reflected improvement. Fidelity defines its core banking business as that of providing the best products, services, and delivery systems at the community banking level required by both consumers and small to medium size businesses.

      Various strategic initiatives completed over the past few years have positioned Fidelity to focus on the core banking business while expanding product offerings, reducing product delivery risk, reducing product credit risk, and strengthening capital. The trust and merchant processing assets and services were profitably sold, the credit card line of business was profitably sold, and Fidelity withdrew from its independent full service brokerage business. Through affiliations with the acquirers of these businesses or with other providers, the array of related products and services available to Fidelity’s customers has expanded considerably.

      The opportunity to focus on core community banking was enhanced significantly when the Bank converted to a state chartered commercial bank, subject solely to the regulations of and supervision by the GDBF and the FDIC. Pursuant to the approval of the GDBF, the Bank agreed, among other things, to maintain a leverage capital ratio of not less than 7.00% for the twenty-four month period following the conversion. The Bank’s leverage capital ratio as of December 31, 2004, was 8.27%.

      The conversion of the Bank to a state chartered bank, the elimination of certain regulatory restrictions, the improving economy, and the exiting of certain non-core businesses as discussed above positioned Fidelity to focus on community banking while expanding its niche in indirect automobile lending for the Bank’s own portfolio and for profitable sales with servicing retained. The Strategic Plan, designed to realize this focus, was implemented during the second half of 2003 and continued throughout 2004 as core loan portfolios grew, as profitable indirect automobile loan sales with servicing retained accelerated, as SBA lending was expanded, and as essential management changes were implemented.

Critical Accounting Policies

      The accounting and reporting policies of Fidelity are in accordance with accounting principles generally accepted in the United States and conform to general practices within the banking industry. Fidelity’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses, and related disclosures. Different assumptions in the application of these policies, or conditions significantly different from certain assumptions, could result in material changes in Fidelity’s consolidated financial position or consolidated results of operations. The more critical accounting and reporting policies include those related to the allowance for loan losses, loan related revenue recognition, and income taxes. Fidelity’s accounting policies are fundamental to understanding its consolidated financial position and consolidated results of operations. Accordingly, Fidelity’s significant accounting policies are discussed in detail in Note 1 in the “Notes to Consolidated Financial Statements.” Significant accounting policies have been periodically discussed and reviewed with and approved by the Audit Committee of the Board of Directors and the Board of Directors.

      The following is a summary of Fidelity’s significant accounting policies that are highly dependent on estimates, assumptions, and judgments.

      The allowance for loan losses is established and maintained through provisions charged to operations. Such provisions are based on management’s evaluation of the loan portfolio, including concentrations, current economic conditions, the economic outlook, past loan loss experience, adequacy of underlying collateral, and such other factors which, in management’s judgment, deserve consideration 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, including concentrations, and to determine the adequacy of the allowance for loan losses. For purposes of the quarterly management review, the consumer loan portfolio is separated by loan type and each loan type is treated as a homogeneous pool. The level of allowance required for each loan type is determined based upon historical charge-off rates for each loan type, adjusted for changes in these pools, including current information on the payment performance of each loan type. Every commercial, commercial real estate, and construction loan 90 days past due is assigned a risk rating using established credit policy guidelines. A projected loss allocation factor is determined for each significant loan category based on historic charge-off experience, current trends, economic outlook, and other factors. All nonperforming commercial, commercial real estate and construction loans, and loans deemed to have greater than normal risk characteristics are reviewed monthly by Credit Administration to determine the level of loan losses required to be specifically allocated to these loans. The amounts so determined are then added to the previously allocated allowance by category to determine the required allowance for commercial, commercial real estate, residential real estate, consumer, and construction loans. Methodologies for assessing the adequacy of the allowance for loan losses have been relatively consistent over the past several years.

      Loans are reported at principal amounts outstanding net of deferred fees and costs. Interest income and ancillary fees from loans are a primary source of revenue. Interest income is recognized in a manner that results in a level yield on principal amounts outstanding. Rate related loan fee income, loan origination, and commitment fees, and certain direct origination costs are deferred and amortized as an adjustment of the yield over the contractual lives of the related loans, taking into consideration assumed prepayments. The accrual of interest is discontinued when, in management’s judgment, it is determined that the collectibility of interest or principal is doubtful.

      For commercial, construction, and real estate loans, the accrual of interest is discontinued and the loan categorized as non-accrual when, in management’s opinion, due to deterioration in the financial position of the borrower, the full repayment of principal and interest is not expected, or principal or interest has been in default for a period of 90 days or more, unless the obligation is both well secured and in the process of collection. Commercial, construction, and real estate secured loans may be returned to accrual status when management expects to collect all principal and interest and the loan has been brought current. Interest received on well collateralized nonaccrual loans is recognized on the cash basis. If the commercial, construction or real estate secured loan is not well collateralized, payments are applied to reduce principal.

      Consumer loans are placed on nonaccrual upon becoming 90 days past due or sooner if, in the opinion of management, the full repayment of principal and interest is not expected. On consumer loans, any payment received on a loan on which the accrual of interest has been suspended is applied to reduce principal.

      When a well collateralized loan is placed on nonaccrual, accrued interest is not reversed. For other loans, interest accrued during the current accounting period is reversed and interest accrued in prior periods, if significant, is charged off and adjustments to principal are made if the collateral related to the loan is deficient.

      Fidelity files consolidated Federal income tax returns, as well as returns in several states. Taxes are accounted for in accordance with FAS No. 109, “Accounting for Income Taxes.” Under the liability method of FAS 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 apply to taxable income in the years in which those temporary differences are recovered or settled. Deferred tax assets are reviewed annually to assess the probability of realization of benefits in future periods or whether valuation allowances are appropriate. Under FAS 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. The calculation of the income tax provision is complex and requires the use of judgments and estimates in its determination.

Obligations

      The following schedule provides a summary of Fidelity’s financial commitments to make future payments, primarily to fund loan and other credit obligations, long-term debt, and rental commitments primarily for the lease of branch facilities, the operations center, and the commercial lending, construction lending, and executive offices as of December 31, 2004. Payments for borrowings do not include interest. Payments related to leases are based on actual payments specified in the underlying contracts. Loan commitments, lines of credit, and letters of credit are presented at contractual amounts; however, since many of these commitments are “revolving” commitments as discussed below and many are expected to

expire unused or only partially used, the total amount of these commitments do not necessarily reflect future cash requirements.

Off-Balance Sheet Arrangements

      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, which include commitments to extend credit and letters of credit, involve to varying 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. Loan commitments and other off-balance sheet exposures are evaluated by Credit Administration quarterly and reserves are provided for risk as deemed appropriate.

      Commitments to extend credit are agreements to lend to customers as long as there is no violation of any condition established in the agreement. Substantially all of Fidelity’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. Fidelity minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. Thus, Fidelity will deny funding a commitment if the borrower’s financial condition deteriorates during the commitment period, such that the customer no longer meets the pre-established conditions of lending. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. 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 and import 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.

Performance Results

      Fidelity made great strides in 2004 in terms of profitability, growth, improvement in asset quality, and improved operations to include the enhancement of expense controls. Fidelity also considered 2004 as a year of opportunity to focus on its community banking roots by making certain strategic and management changes and accelerating the process of increased profitably from its core banking business. As noted above, Fidelity over the past few years effectively streamlined its businesses, reduced credit risk, strengthened capital, reduced product delivery risk, and increased its product offerings by divesting itself of its credit card line of business, its merchant processing business, its trust business, and its full service brokerage business, and now provides these products and services through various affiliations with third party providers. Through affiliations with its business acquirers and with others, Fidelity offers an even wider array of products, services, and delivery systems. Fidelity has developed and implemented its Strategic Plan, focused on building the infrastructure, management team, staff, products, services, and delivery systems to succeed as the best community bank in the region.

      Since its inception, Fidelity has pursued managed and profitable growth as one of its strategies, primarily through internal expansion built on providing quality financial services in selected market areas. During 2004, as the economy continued to improve, most core loan portfolios grew at an accelerated rate and management and staffing improvements were put in place to drive profitable growth. At December 31, 2004, Fidelity had increased total assets by $132 million or 12.1% to $1,224 million, compared to $1,092 million in total assets at December 31, 2003.

      During 2004, total loans grew $162 million or 19.5% to $995 million at December 31, 2004, compared to $833 million at December 31, 2003. This growth was experienced in every major loan category except loans held-for-sale. Consumer installment loans, the largest driver of loan growth in 2004, increased $77 million or 18.7% to $490 million, compared to $413 million at December 31, 2003. Real estate construction loans increased $42 million or 34.9% to $162 million, compared to year-end 2003. Commercial loans increased $16 million or 22.5% to $86 million and real estate mortgage loans increased $30 million or 15.8% to $223 million when compared to year-end 2003. Total loans held-for-sale decreased $3 million or 8.7% to $34 million, due to a decrease of $5 million or 14.3% in indirect automobile loans held-for-sale to $30 million.

      Fidelity has experienced significant growth and profitability in its indirect automobile lending program since 1995, when Fidelity modified its strategic plan for indirect lending to take advantage of its ability to produce, sell, and service quality indirect automobile loans. This strategy reduced credit risk in Fidelity’s consumer portfolio while growing both interest income and noninterest income. At December 31, 2004 and 2003, these loans totaled $522 million and $444 million, or 52.4% and 53.3% of total loans, respectively. During 2004, 2003, and 2002, Fidelity sold approximately $149 million, $76 million, and $57 million, respectively, of indirect automobile loans with servicing retained. In addition, approximately $28 million in indirect automobile loans were sold with servicing released in 2002. Indirect automobile loan sales were somewhat lower in 2003 due to management’s decision to retain more indirect automobile loans as part of the redeployment of the proceeds related to the sale of the credit card line of business in December 2002. Fidelity increased its indirect automobile production capability significantly in late 2003 with the opening of a new production office in metropolitan Atlanta and through the employment of several seasoned and productive indirect automobile loan buyers. Fidelity anticipates that it will continue to sell medium to large pools of indirect automobile loans on a frequent basis, through whole loan sales. These sales are conducted to enhance noninterest income and manage the relative level of indirect automobile loans in Fidelity’s portfolio.

      In an improved but still less than robust economy, credit risk management is critical. Net charge-offs as a percentage of total loans decreased to .29% in 2004 compared to .54% and .38% in 2003 and 2002, respectively. The decrease in net charge-offs in 2004 was primarily due to recoveries on commercial loans exceeding charge-offs on commercial loans and improved loan quality overall.

      Investment securities declined $25 million or 13.1% to $166 million at December 31, 2004, compared to $191 million at December 31, 2003, as mortgage backed securities repayments and prepayments were largely utilized to fund loan growth in accordance with management’s plan to redeploy these funds into higher-yielding loan products. In October and December of 2003, a total of approximately $70 million in Agency mortgage backed securities was purchased, $15 million of which was to replenish significant prepayments on the existing portfolio and the remainder purchased as part of management’s plan to leverage Fidelity’s strong capital position by increasing the investment portfolio, funded in part with $45 million in laddered maturity long-term fixed rate borrowings utilizing a portion of the securities purchased as collateral for the debt.

      In December 2002, Fidelity sold its credit card line of business, including all of its credit card accounts and outstanding balances. In accordance with the terms of the sale, Fidelity provided interim servicing for a fee until the conversion to the purchaser’s system on May 15, 2003. Substantially all related activities ceased by June 30, 2003, and no income from these discontinued operations has been reported since that date. In accordance with accounting principles generally accepted in the United States, the earnings from the credit card business were shown separately in the consolidated statements of income for 2003 and 2002. Accordingly, all information in these consolidated financial statements for 2003 and 2002 excludes credit card activities, reflecting continuing operations only, unless otherwise noted.

      For purposes of calculating an imputed cost of funds during 2002, when credit card balances were outstanding, the average quarterly net assets of the credit card business were assumed to have been funded proportionately by all interest-bearing liabilities of Fidelity at an interest rate equal to the quarterly cost of each applied to its average quarterly balance. Expenses included all direct costs of the credit card business and certain other allocated costs estimated to be eliminated as a result of the sale.

Results of Operations

      Fidelity’s net income for the year ended December 31, 2004, was $7.6 million or $.85 basic and $.84 fully diluted earnings per share, respectively. Net income for the year ended December 31, 2003, was $3.8 million or $.43 basic and fully diluted earnings per share.

      The 99.2% increase in net income in 2004 compared to 2003 was attributable to a significant increase in net interest income, an increase in noninterest income, and a significant decrease in noninterest expenses. Net interest income increased significantly during 2004 compared to 2003 as the average balance of interest-earning assets increased substantially, offset in part by a decline in the net interest margin. The provision for loan losses during 2004 was comparable to that for 2003 and would have been less except for significant loan growth in 2004, as most measures of asset quality improved significantly, including reduced net charge-offs during 2004 compared to 2003. Noninterest income grew in 2004 compared to 2003 due to increases in indirect lending, Small Business Administration (“SBA”) lending, and brokerage activities, offset in part by declines in mortgage banking activities and revenues from service charges on deposit accounts. Noninterest expense declined significantly in 2004 compared to 2003 due to declines in most categories including salaries and employee benefits, professional and other services, and other operating expenses.

      Fidelity’s income from continuing operations for the year ended December 31, 2003, was $3.8 million or $.42 basic and fully diluted earnings per share. Income from continuing operations for the year ended December 31, 2002, was $3.2 million or $.36 basic and fully diluted earnings per share.

      The increase in earnings from continuing operations in 2003 compared to 2002 was primarily attributable to an increase in net interest income, a decrease in the provision for loan losses, a decrease in merchant processing expenses, and a decrease in professional and other services expenses, offset in large part by a decrease in income from merchant processing activities and the related gain on the sale of these activities in 2002. The after tax gain from the 2002 sale of the merchant processing business was $2.3 million. Excluding that gain, income from continuing operations for 2003 increased $2.9 million or 91.9% when compared to 2002.

      Net income for the year ended December 31, 2003, was $3.8 million or $.43 basic and diluted earnings per share. Net income for the year ended December 31, 2002, was $11.4 million or $1.29 basic and $1.28 diluted earnings per share. The decrease in net income in 2003 when compared to 2002 was due to the decrease in the after-tax income in 2003 from discontinued credit card operations and the after-tax gain in 2002 on the disposal of discontinued operations.

      Net interest income from continuing operations increased significantly during 2003 compared to 2002 as the average balance of interest-earning assets increased and the cost of interest-bearing liabilities declined more rapidly than did the yield on interest-earning assets.

      The decline in the provision for loan losses in 2003 compared to 2002 was primarily due to the overall improvement in commercial loan quality in 2003.

      There was no revenue from merchant processing activities in 2003 while revenue from this source was substantial in 2002, primarily due to the sale of this business in 2002, resulting in a pretax gain of $3.5 million. Likewise, there were no expenses related to merchant processing activities in 2003, while 2002 results reflect merchant processing expenses incurred prior to the sale of that business and the transfer of the servicing to the purchaser.

      The decline in legal and other professional services during 2003 compared to 2002 was primarily due to a decline in legal expenses related to the former Fidelity brokerage subsidiary and the former trust activities, coupled with the recovery of legal and other expenses from insurance claims related to those activities.

      The after-tax decline in operating income from the credit card line of business (discontinued operations) in 2003 compared to 2002 was due to the sale of that line of business in December 2002, with revenues in 2003 provided by servicing fees pending the transfer of servicing to the purchaser’s servicing systems. The after-tax gain on the sale of the credit card line of business (disposal of discontinued operations) of $7.1 million was realized in 2002.

      Taxable-equivalent net interest income was $35.9 million in 2004 compared to $33.0 million in 2003, an increase of $2.9 million or 8.8%. The $3.0 million increase in interest income for 2004 compared to 2003 was attributable to the net growth of $129 million in average interest-earning assets, offset in part by a 40 basis point decline in the yield on interest-earning assets. The growth in average interest-earning assets in 2004 was driven primarily by growth in commercial, construction, and indirect automobile lending, as average loan balances grew $92 million, and by average investment securities balances, which grew $44 million. The decline in the yield on interest-earning assets was primarily due to the declines in yields on the indirect automobile, installment, and mortgage loan portfolios and the significant increase of average balances in lower yielding investment securities. The 49 basis point decline in yields on loans was directly attributable to strong competition for quality loans and the flat to declining interest rate environment during the first half of 2004.

      The minimal increase in interest expense was attributable to a $120 million growth in average interest-bearing liability balances offset by a 33 basis point decrease in the cost of interest-bearing liabilities. Average interest-earning assets increased in 2004 to $1,115 million, a 13.0% increase when compared to 2003. Average interest-bearing liabilities increased to $971 million, a 14.0% increase. The net interest rate margin decreased by 13 basis points to 3.22% in 2004 when compared to 2003.

      Average total interest-bearing deposits increased $98 million or 13.0% to $858 million during 2004 compared to 2003, while average Federal funds purchased and short-term borrowings decreased $12 million or 26.9% to $33 million. The increase in average total interest-bearing deposits was due in part to an advertised program to attract transaction accounts during 2004. Average subordinated debt and long-term debt increased $33 million or 71.0% to $80 million during 2004.

      Taxable-equivalent net interest income was $33.0 million in 2003 compared to $30.3 million in 2002, an increase of $2.7 million or 9.1%. The net interest income from the credit card line of business sold in December 2002 was reported as net income from discontinued operations in accordance with U.S. generally accepted accounting principles. Thus, the data in Table 1 “Average Balances, Interest and Yields” for 2002 does not reflect the average balances, interest income or yields related to the credit card line of business. The interest expense for credit card net asset average balances for financial statement reporting for 2002 was assigned based on average credit card net asset balances proportionately funded by all interest-bearing liabilities at an interest rate equal to the cost of each applied to its average balance for the period. Table 1 reflects the actual average balances, interest expense, and rate on each category of interest-bearing liabilities, with the aggregate average net credit card balance and aggregate assigned interest expense deducted as a single line item, “Cost of funds assigned to discontinued operations.” Thus, approximately $74 million in average credit card balances and an equal amount of average interest-bearing liability balances have been excluded from total average interest-earning assets and from total average interest-bearing liabilities for 2002. Table 2 “Rate/ Volume Analysis” was prepared on the same basis as was Table 1.

Average Balances, Interest and Yields

Table 1

      The $.9 million decrease in interest income for 2003 compared to 2002 was attributable to a 78 basis point decline in the yield on interest-earning assets, offset in part by the net growth of $104 million in average interest-earning assets. The decline in the yield on interest-earning assets was primarily due to the declines in yields on the commercial, construction, installment, and open-end loan portfolios and the significant increase of average balances in lower-yielding investment securities as part of management’s strategy to redeploy the proceeds of the sale of the credit card line of business. The decline in yields was directly attributable to the low interest rate environment during 2003. The $3.7 million or 13.4% decrease in interest expense was attributable to an 82 basis point decrease in the cost of interest-bearing liabilities, offset in part by a $91 million growth in average interest-bearing liability balances. The decline in the cost of funds, attributable in large part to an 82 basis point decline in the average cost of interest-bearing deposits, was the primary contributor to the overall increase in net interest income.

      Average interest-earning assets increased in 2003 to $987 million, an 11.7% increase when compared to 2002. The increase in the average balance interest-earning assets in 2003 was due to the increase in average loans of $74 million or 9.7% to $831 million and an increase in average investment securities and short-term investments of $30 million or 23.7% to $155 million.

      Average total interest-bearing deposits increased $20 million or 2.8% to $759 million during 2003 compared to 2002, while average Federal funds purchased and short-term borrowings increased $11 million or 33.4% to $45 million. Average long-term debt decreased $14 million or 23.6% to $47 million during 2003. The net interest rate margin decreased by 8 basis points to 3.35% in 2003 when compared to 2002.

Rate/Volume Analysis

Table 2

      Management’s policy is to maintain the allowance for loan losses at a level sufficient to absorb probable losses inherent in the loan portfolio. The allowance is increased by the provision for loan losses and decreased by charge-offs, net of recoveries.

      The provision for loan losses was $4.8 million in 2004 and 2003 and $6.7 million in 2002. Net charge-offs were $2.5 million in 2004 compared to $4.2 million in 2003 and $2.7 million in 2002. The ratio of net charge-offs to average loans outstanding was .29% in 2004 compared to .54% in 2003 and .38% in 2002. The 39.9% decrease in net charge-offs in 2004 compared to 2003 was primarily due to improvement in the commercial loan portfolio, strong commercial portfolio recoveries and an overall improvement in loan quality. Fidelity significantly increased the provision for loan losses during 2002 as a result of the negative impact of a slowing economy on the commercial and construction loan portfolios.

      The allowance for loan losses as a percentage of loans outstanding at the end of 2004, 2003, and 2002 was 1.27%, 1.25% and 1.25%, respectively.

      For additional information on asset quality, refer to the discussions regarding loans, credit quality, nonperforming assets, and the allowance for loan losses.

Analysis of the Allowance for Loan Losses

Table 3

      Noninterest income for 2004 was $14.6 million compared to $13.8 million in 2003, a 5.8% increase. Increases in revenue from indirect automobile lending, SBA lending, and brokerage activities were offset in part by declines in revenue from mortgage banking activities and in service charges on deposit accounts.

      Fidelity’s strategic plan calls for increasing noninterest income as a percentage of total revenues (net interest income plus noninterest income). A key driver of that growth in noninterest income is through revenue enhancement initiatives. An important source of noninterest revenue is Fidelity’s indirect automobile loan sales and indirect automobile loan servicing activity. Fidelity increased its indirect automobile loan production capability significantly in late 2003 with the opening of a new production office in metropolitan Atlanta and through the retention of several seasoned and productive indirect automobile loan buyers. In 2004, indirect automobile loan production was $448 million and increased 33.3% or $112 million when compared to 2003 production. Also, sales of indirect automobile loans in 2004 approximated $149 million or an increase of 96.6% when compared to sales of $76 million in 2003. Indirect automobile loans serviced for others totaled $233 million at December 31, 2004, compared to $185 million serviced at the end of 2003, an increase of 25.9%. Income from indirect automobile lending activities is heavily driven by current loan production and will vary with significant changes in automobile sales and manufacturers’ marketing packages in Fidelity’s markets, which are predominately Georgia and Florida. During the late fall of 2004, Florida was hit with several hurricanes, and automobile manufacturers aggressively promoted sales by offering rebates and lowering loan rates through their captive finance companies. Each of these negatively impacted Fidelity’s fourth quarter loan production compared to prior quarters, although fourth quarter 2004 loan production exceeded that for the same period in 2003. As a result of increased indirect automobile loans sold with servicing retained and an increased balance of indirect automobile loans serviced, revenue from indirect loan activities for 2004 totaled $4.3 million compared to $3.0 million in 2003, an increase of $1.3 million or 42.2%.

      Revenue from SBA lending activities for 2004 totaled $768,000 compared to $35,000 for 2003 primarily due to significantly increased SBA loan production and sales.

      Revenue from brokerage activities increased 56.3% to $683,000 for the year ended December 31, 2004, compared to $437,000 for 2003 primarily due to increased volume, in part as the result of improving stock markets.

      Service charges on deposit accounts declined approximately $.6 million or 10.7% to $4.4 million in 2004 compared to $5.0 million in 2003, primarily due to competitive pressures to reduce fees and charges and because of an improving economy resulting in fewer insufficient funds charges and other charges.

      Revenue from mortgage banking activities in 2004 totaled $1.9 million compared to $2.8 million in 2003, a decline of $.9 million or 31.7% due to a decline in the volume of residential mortgage loans originated and sold in 2004. Interest rates rose in late 2003, reducing the volume of refinancings in 2004.

      Noninterest income for 2003 was $13.8 million compared to $19.6 million in 2002, a 29.9% decrease. Increases in revenue from mortgage banking activities, service charges and securities gains were more than offset by no revenue from merchant processing activities following the sale of that business during 2002 and declines in income from indirect automobile lending activities, SBA lending activities, and brokerage activities.

      Revenue from service charges increased 1.4% to $5.0 million in 2003 compared to 2002 due to volume. The significant increase in service charge revenue in 2002 compared to prior years as a result of revenue enhancement initiatives in late 2001 leveled off in 2003 as a result of customer behavior changes and competitive pressures to reduce or eliminate certain fees and charges.

      There was no revenue from merchant processing activities in 2003 compared to revenue of $5.1 million in 2002, of which $3.5 million was provided by the sale of the merchant processing business.

      Revenue from mortgage banking activities increased $.2 million or 9.1% to $2.8 million in 2003 compared to 2002. The increase was due to increased originations and sales during the second and third quarters of 2003 as a result of historically low interest rates fueling a strong refinance market. Originations and sales declined significantly following an upward movement in interest rates during the fourth quarter of 2003.

      Revenue from brokerage activities declined $285,000 or 39.5% to $437,000 in 2003 compared to 2002, as the poorly performing stock market in the first half of 2003 and the transition from a full service brokerage company resulted in decreased volume, although brokerage revenue in the fourth quarter of 2003 improved as volume increased.

      Revenue from indirect lending activities declined $.4 million or 9.7% to $3.0 million in 2003 compared to 2002 as the slight increase in gains on sales was more than offset by the decline in servicing and ancillary fee revenue due to declining balances of serviced loans. The decline was caused by a lower volume of sales in 2003 compared to 2002, sales in 2003 occurring later in the year, and the accelerated loan prepayment volume experienced during 2003. During 2003, Fidelity sold approximately $76 million of indirect automobile loan production servicing retained. This compares to sales of $85 million of indirect automobile loans in 2002, approximately $57 million of which was sold servicing retained. Sales of indirect automobile loans with servicing retained by Fidelity totaling approximately $40 million occurred in the fourth quarter of 2003, significantly increasing the balance in total loans serviced at December 31, 2003, compared to earlier periods in 2003. Loans serviced at December 31, 2003, totaled $185 million compared to $206 million serviced at December 31, 2002.

      Noninterest expense during 2004 declined $2.7 million or 7.4% to $34.1 million when compared to 2003, due primarily to declines in salaries and employee benefits, professional and other services, and other operating expenses.

      Salaries and employee benefits declined $.9 million or 4.7% to $17.9 million in 2004 compared to 2003 due primarily to the increase in deferred costs related to the very large increase in the volume of loans produced in 2004. The number of full-time equivalent employees at December 31, 2004, was 335 compared to 332 full-time equivalent employees at December 31, 2003.

      Net occupancy expenses declined $.3 million or 7.1% to $3.6 million in 2004 compared to 2003 as an expiring lease at the end of 2003 on excess corporate office space was not renewed, offset in part by a $.1 million write-off of leasehold improvements on excess operations center office space as the result of renegotiating a lease agreement to eliminate that excess space as of December 31, 2004, which will reduce occupancy expense related to that lease in 2005 and beyond.

      Professional and other services expenses decreased $.7 million or 23.1% to $2.3 million in 2004 compared to 2003 primarily due to the resolution of legal and regulatory issues and decreases in consulting and contract services expenses.

      Other insurance expenses decreased $.3 million or 26.4% to $.8 million in 2004 when compared to 2003 due to the decline in Fidelity’s risk profile resulting from the divestiture of certain lines of business in 2002 and the resolution of regulatory issues in 2003.

      Other operating expenses declined $.5 million or 10.0% to $4.5 million in 2004 compared to 2003 due to declines in numerous expenses because of cost efficiency measures instituted in 2004, a reduction in regulatory fees as a result of the conversion to a Georgia charter and improved regulatory ratings; a reduction in other real estate costs, and reductions in many other expense categories as operational efficiencies were implemented, offset in part by an increase in advertising expense, an increase in Bank security expense, and relatively small increases in various other expenses.

      Noninterest expense during 2003 decreased $1.9 million or 4.8% to $36.8 million when compared to 2002 primarily due to the elimination of merchant processing expenses and other related merchant expenses and a reduction in professional and other services expenses, offset in part by increased salaries and employee benefits expenses, insurance expenses, and occupancy expenses. Salaries and employee expenses increased $.7 million or 4.0% to $18.8 million in 2003 compared to 2002, primarily due to annual merit increases, increases in the cost of benefits such as health and dental insurance, and increases in commissions.

      The number of full-time equivalent employees at December 31, 2003, was 332 compared to 395 full-time equivalent employees at December 31, 2002. Excluding the 45 full-time equivalent employees directly and indirectly servicing the credit card portfolio at the end of 2002, the total number of full-time equivalent employees was 349. Credit card employee costs were included in the results of discontinued operations for 2003 and 2002.

      Net occupancy expense increased $.4 million or 13.0% to $3.9 million during 2003 compared to 2002 due to the reduction in sub-lease tenant revenues. The lease on this excess office space expired on December 31, 2003, and was not renewed.

      There were no merchant processing expenses in 2003 compared to $1.2 million in such expenses during 2002 due to the sale of that business in 2002.

      Professional and other services expenses declined $1.1 million or 25.9% to $3.0 million during 2003 compared to 2002 due to an insurance settlement on claims related to legal and other costs associated with Fidelity’s former full service brokerage subsidiary and trust business and reduced legal and other costs related to those activities and certain regulatory issues.

      Stationary, printing, and supplies expenses increased $.1 million or 16.6% to $.9 million in 2003 compared to 2002 due to the name changes of the Holding Company and the Bank upon conversion to a Georgia charter in 2003, requiring the destruction of the old stock and the reprinting of most forms and stationary.

      Insurance expenses increased $.6 million or 112.2% to $1.1 million in 2003 when compared to 2002 due to various regulatory and legal issues and a general increase in the cost of insurance.

      Other operating expenses declined $1.2 million or 19.0% to $5.0 million in 2003 compared to 2002 primarily due to the charge-off in 2002 of $.8 million on an asset acquired as additional collateral from a problem loan relationship workout and decreases in costs related to other real estate, repossession related expenses, and reduced regulatory fees and assessments in 2003, offset during 2003 in part by the charge-off of the unamortized acquisition costs for the subordinated note redeemed at par in 2003.

      The provision for income taxes consists of provisions for Federal and state income taxes. The provision for income taxes from continuing operations for 2004, 2003, and 2002 was $3.8 million, $1.3 million, and $1.4 million, respectively. Fidelity’s effective tax rate for 2004 approximated statutory rates and exceeded that of 2003 and 2002, primarily because the significant growth in income from continuing operations before taxes in 2004 reduced the beneficial impact of nontaxable income relative to that of 2003 and 2002.

      As discussed, the credit card line of business was sold in December 2002 with servicing transferred to the acquirer in May of 2003; therefore, there was no revenue or expense related to this line of business in 2004. Generally accepted accounting principles accepted in the United States require that income after taxes from discontinued operations and the net gain on the disposal of discontinued operations be reported in the Statements of Income after net income from continuing operations for 2003 and 2002.

      Income from discontinued operations after taxes in 2003 declined $1.0 million to $.1 million compared to 2002 as Fidelity’s revenue in 2003 was provided by servicing fees paid by the purchaser until the servicing was transferred in May 2003. There was no net interest income in 2003 compared to $4.3 million in 2002. The noninterest income for both years approximated $1.5 million, while noninterest expense decreased $2.8 million to $1.3 million primarily as a result of the servicing transfer in May 2003. Interest expense for 2002 was assigned based on the average net asset balances of the credit card line of business proportionally funded by all interest-bearing liabilities at an interest rate equal to the cost of each applied to its average balance for the period.

      The net after-tax gain on the sale of the credit card line of business in 2002, consisting of approximately $74 million of outstanding balances, was $7.1 million.

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 and through unsecured and secured lines of credit with other financial institutions, the Federal Home Loan Bank (the “FHLB”), and the Federal Reserve Bank (the “FRB”).

      Fidelity’s Asset/ Liability Management Committee (“ALCO”) meets regularly to, among other things, review Fidelity’s interest rate sensitivity positions, its funding needs and sources, and its current and projected liquidity.

      Fidelity’s primary market risk exposures are interest rate risk and credit risk (see “Credit Quality”) and, to a lesser extent, liquidity risk (see “Liquidity”). 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 withstand adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value; however, excessive levels of interest rate risk can pose a significant threat to Fidelity’s assets, earnings, and capital. 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. The primary purposes of the ALCO are 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 compared to established tolerances 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 (the “Federal Reserve”), together with the FDIC and other regulatory agencies, adopted a Joint Agency Policy Statement on Interest Rate Risk, effective June 26, 1996. The policy statement, focusing primarily on the impact of changes in economic value or net present value (equity at risk) as a result of interest rate changes, provides guidance to examiners and bankers on sound practices for managing interest rate risk, which provides a 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 (equity at risk).

      Fidelity utilizes a statistical research firm specializing in the banking industry to provide various quarterly analyses and special analyses, as requested, related to its current and projected financial performance, including rate shock analyses. Data sources for this and other analyses include quarterly FDIC 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 a 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 schedule below reflects an analysis of Fidelity’s assumed market value risk and earnings risk inherent in its interest rate sensitive instruments related to immediate and sustained interest rate variances 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. Fidelity’s policy states that a negative change in net present value (equity at risk) as a result of an immediate and sustained 200 basis point increase or decrease in interest rates should not exceed the lesser of 2% of total assets or 15% of total regulatory capital. It also states that a similar increase or decrease in interest rates should not negatively impact net interest income or net income by more than 5% or 15%, respectively.

      The schedule below reflects the effects on net interest income and net income 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 and sustained increase or decrease of 200 basis points in market rates of interest as of December 31, 2004 and 2003. In addition, it reflects the effects on net interest income and net income of an immediate and sustained increase or decrease of 100 basis points in market rates of interest (dollars in thousands).

Rate Shock Analysis

      At December 31, 2004, the analysis indicated that an immediate and sustained 200 basis point increase in market rates of interest would have a negative impact of $16 million on the net present value (equity at risk) of Fidelity compared to the approved tolerances of the lesser of 2% of assets (or $24 million) or 15% of total regulatory equity (or $19 million). An immediate and sustained 200 basis point decrease in market rates of interest would have a positive impact of $5 million on the net present value of Fidelity’s financial assets and liabilities. An immediate and sustained decrease of 200 basis points in market rates of interest would have a negative impact of 1.77% on net interest income and a negative impact of 3.63% on net income compared to approved tolerances of 5% and 15%, respectively. An immediate and sustained increase of 200 basis points in market rates of interest would have a positive impact on net interest income of ..70% and on net income of 1.43%. Thus, the rate shock analysis at December 31, 2004, indicated that the effects of an immediate and sustained increase or decrease of 200 basis points in market rates of interest would fall well within policy parameters and approved tolerances for equity at risk, net interest income, and net income. The net interest sensitivity asset gap at ninety days and six months was 11.88% and 6.05%, respectively, at December 31, 2004, mitigated in part by a net sensitivity liability gap of 2.99% at one year.

      Fidelity has historically been asset sensitive to six months; however, it has been liability sensitive from six months to one year, largely mitigating the potential negative impact on net interest income and net income over a full year from a sudden and sustained decrease in interest rates. Likewise, historically the potential positive impact on net interest income and net income of a sudden and sustained increase in interest rates has been reduced over a one-year period as a result of Fidelity’s liability sensitivity in the six-month to one-year time frame. The significant increase in mortgage backed securities in the investment portfolio in the fourth quarter of 2003 compared to historical levels has increased the overall interest sensitivity of Fidelity.

      As discussed, the negative impact of an immediate and sustained 200 basis point increase in market rates of interest on the net present value (equity at risk) of Fidelity was well within established tolerances at December 31, 2004, and was comparable to that at December 31, 2003. It was greater than the impact historically, primarily because of the interest rate sensitivity of the larger investment portfolio. The negative impact on net present value (equity at risk) in a rising rate environment increased as a result of the purchase of $70 million in mortgage backed securities in 2003 in a leveraged transaction to utilize the strong capital position of Fidelity. However, $40 million of the total purchased was for the held-to-maturity portfolio and Fidelity has utilized those investment securities for pledging requirements, with no intent to liquidate them under any interest rate scenario. Also, the negative impact of an immediate and sustained 200 basis point decrease in market rates of interest on net interest income and net income was well within established tolerances and reflected a much more neutral interest rate sensitivity to increasing or decreasing interest rates at December 31, 2004, than at year end 2003. The primary reason for the movement toward a relatively neutral interest rate sensitivity balance sheet was the relative shortening of liability maturities. At December 31, 2003, the relative volume of maturing time deposits scheduled for the first quarter of 2004 was low, thus exacerbating the asset sensitivity during the first six months of 2004, while at December 31, 2004, the volume of maturing time deposits in the first quarter of 2005 returned to historical, higher levels. In addition, during 2004 Fidelity was very successful in growing interest-bearing transaction and savings account balances, thus shortening liability maturities for calculations in the rate shock analysis. Fidelity follows FDIC guidelines for non-maturity deposits such as interest-bearing transaction and savings accounts in the interest rate sensitivity (gap) analysis; therefore, this analysis does not reflect the full impact of rapidly rising or falling market rates of interest on these accounts compared to the results of the rate shock analysis presented.

      The results of the 100 basis point rate shock analysis, while more reflective of management’s current estimation of probable interest rate movements over the next year, are primarily presented to reflect the results of the rate shock analysis for December 31, 2003, when market rates of interest were at or near historical lows.

      At December 31, 2003, the rate shock analysis indicated that an immediate and sustained 200 basis point increase in market rates of interest would have a negative impact of $15 million on the net present value (equity at risk) of Fidelity compared to the approved tolerances of the lesser of 2% of assets (or

$22 million) or 15% of total regulatory equity (or $17 million). An immediate and sustained 200 basis point decrease in market rates of interest would have a positive impact of $5 million on the net present value of Fidelity’s financial assets and liabilities. An immediate and sustained decrease of 200 basis points in market rates of interest would have a negative impact of 7.60% on net interest income and a negative impact of 33.50% on net income compared to approved tolerances of 5% and 15%, respectively. An immediate and sustained increase of 200 basis points in market rates of interest would have a positive impact on net interest income of 3.72% and on net income of 16.38%. The rate shock analysis at December 31, 2003, indicated that the effects of an immediate and sustained increase or decrease of 200 basis points in market rates of interest would not fall within policy parameters and approved tolerances for net interest income and net income. Management believed that a 200 basis point decline in interest rates was remote, given the historically low market interest rates prevailing at December 31, 2003; therefore, a 100 basis point rate shock analysis became management’s primary declining interest rate sensitivity measurement. This analysis indicated that an immediate and sustained 100 basis point decline in interest rates would have a negative impact of 2.65% and 11.69% on net interest income and net income, respectively, at December 31, 2003. Those results were well within established tolerances. The interest sensitivity asset gap at ninety days and six months was 15.65% and 8.59%, respectively, at December 31, 2003, mitigated in part by a net sensitivity liability gap of 4.88% at one year.

      In October and December of 2003, approximately $70 million in Agency mortgage backed securities was purchased, funded in part with $45 million in laddered maturity long-term fixed rate borrowings utilizing a portion of the securities purchased as collateral for the debt. The funding with long-term fixed rate debt was utilized to help mitigate the interest rate risk related to the purchases. Thus, Fidelity’s asset sensitivity in the short term in a falling interest rate environment was increased, as the underlying residential mortgages making up the mortgage backed securities would tend to more rapidly prepay, particularly in the unlikely event of a greater than 100 basis point decline in the then current market rates of interest.

      This asset sensitivity in the short term was exacerbated at December 31, 2003, as the volume of maturing time deposits in the first quarter of 2004 was significantly lower than normal. This particular situation corrected itself by the end of the first quarter of 2004, as time deposit maturities were scheduled to increase significantly each quarter for the remainder of 2004.

      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 major elements used to manage interest rate risk include the mix of fixed and variable rate assets and liabilities and the maturity and repricing patterns of these assets and liabilities. It is Fidelity’s policy not to invest in derivatives. 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. Through such analyses, Fidelity monitors and manages its interest sensitivity gap to minimize the negative effects of changing interest rates.

      The interest rate sensitivity structure within Fidelity’s balance sheet at December 31, 2004, indicated a cumulative net interest sensitivity liability gap of 2.99% when projecting out one year. In the near term, defined as 90 days, Fidelity had a cumulative net interest sensitivity asset gap of 11.88% at December 31,

2004. When projecting forward six months, Fidelity had a net interest sensitivity asset gap of 6.05%. 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 (see “Market Risk”). 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 six months and one year should generally not exceed 15% and 10%, respectively. Thus, Fidelity was well within established tolerances at December 31, 2004. Any interest rate risk associated with cumulative gap positions was mitigated in part in 2004 because of the net interest sensitivity asset gap in the near term and the net interest sensitivity liability gap at one year with a reduced net interest sensitivity asset position at six months. Fidelity’s interest rate shock analysis is generally considered to be a better indicator of interest rate risk.

      The following table illustrates Fidelity’s interest rate sensitivity at December 31, 2004, as well as the cumulative position at December 31, 2004 (dollars in thousands):