First Security Group, Inc. (Nasdaq: FSGI), Thursday reported a net loss available to common shareholders of $1.3 million, or $0.08 for the first quarter of 2009, compared to the net loss available to common shareholders of $3.3 million, or $0.21 for the fourth quarter of 2008.

First Security Group, Inc. is a bank holding company headquartered in Chattanooga with $1.3 billion in assets. Founded in 1999, First Security's community bank subsidiary, FSGBank, N.A., has 38 full-service banking offices along the interstate corridors of eastern and middle Tennessee and northern Georgia. In Dalton, Georgia, FSGBank operates under the name of Dalton Whitfield Bank; along the Interstate 40 corridor in Tennessee, FSGBank operates under the name of Jackson Bank & Trust. FSGBank provides retail and commercial banking services, trust and investment management, mortgage banking, financial planning, internet banking (www.FSGBank.com) and equipment leasing through its wholly-owned subsidiaries, Kenesaw Leasing and J & S Leasing.

In addition to narrowing the loss, First Security improved its linked quarter core earnings on a pre-tax, pre-provision basis by $303 thousand, or 10.4 percent, to $3.2 million. Core earnings consist of revenue and non-interest expense.

First Security maintained an elevated provision for loan and lease losses in recognition of the recession and its effect on consumers, businesses and real estate builders and developers. The provision for the first quarter of 2009 was $5.0 million, compared to $8.7 million in the fourth quarter of 2008, and $1.2 million in the first quarter of 2008.

Highlights of the quarter's performance included:

Capital: First Security's tangible equity ratio improved from 9.20 percent at December 31, 2008, to 11.69 percent at March 31, 2009, as a result of a $33 million preferred stock capital investment from the U.S. Treasury in January 2009. First Security remains firmly above the industry threshold for well-capitalized banks.

Allowance for Loan and Lease Losses:First Security strengthened its allowance from 1.72 percent of total loans and leases to 2.02 percent, as of December 31, 2008, and March 31, 2009, respectively, through
provision building.

Deposits:First Security's pure deposits, which exclude all certificates of deposit and brokered deposits, increased in the linked quarter by $20.1 million, or 5.5 percent, to $382.8 million, or 35.9 percent of its total deposits. The increase is a result of First Security's focus on in-market deposit growth.

"Certainly, the economic downturn has affected our market, and, as with most banks, we are facing credit headwinds. As a result, we have continued our aggressive approach to identify and resolve problem credits," said Rodger B. Holley, chairman, CEO and president of First Security. "We remain confident that our relationship-based, diversified revenue, business model of community banking continues to position us for future success as demonstrated by our improved core earnings."

For the first quarter of 2009, net interest income declined by 11.1 percent, or $1.3 million, compared to the first quarter of 2008. First Security's net interest margin was negatively affected by the Federal Reserve's interest rate reductions over the past twelve months, which reduced interest on floating rate loans faster than deposits.

Non-interest income for the first quarter of 2009 declined by $503 thousand, or 17.0 percent, to $2.5 million compared to the same period in 2008. The year-over-year difference was primarily due to lower NSF and mortgage origination fees.

Consistent with First Security's focus on controlling expenses, non-interest expense declined to $9.5 million in the first quarter of 2009, a reduction of 6.0 percent compared to the same quarter of 2008; this year-over-year decline was due to lower personnel and general operating expenses. The number of full-time equivalent employees declined to 361 as of March 31, 2009, from 366 a year ago.

First Security continues to employ a proactive and aggressive approach to managing credit issues resulting from the economic downturn. The allowance for loan and lease losses to total loans increased by $2.6 million to 2.02 percent at March 31, 2009, from 1.72 percent at December 31, 2008, and from 1.16 percent at March 31, 2008, primarily as a result of increased provisioning.

Net loan charge-offs totaled $2.3 million, or 0.94 percent (annualized) of average total loans in the first quarter of 2009, an improvement from $4.6 million, or 1.82 percent (annualized), in the prior quarter. As of March 31, 2009, the level of non-performing assets to total assets was 3.13 percent, up from 2.1 percent in the fourth quarter of 2008. Non-performing assets plus 90-day delinquencies to total assets at the end of the first quarter 2009 was 3.55 percent, compared to 2.35 percent in the previous quarter.

The U.S. Treasury's preferred stock investment of $33 million has enhanced First Security's ability to fund prudent loans to creditworthy borrowers within the communities that First Security serves. Since receiving the investment on January 9, 2009, First Security has funded approximately $23.7 million in new loans and approximately $95.0 million in renewed loans, and has extended commitments to lend an additional $31.3 million under new loan agreements. Overall, First Security's ability to fund loans is greater than it would be without the Treasury's investment.

Loan balances have grown to $992.6 million on March 31, 2009, from $977.4 million a year ago. Compared to December 31, 2008, loan balances declined $18.9 million, or 1.9 percent. The quarterly change was led by declines in commercial real estate (CRE) of $10.5 million, or 4.3 percent, consumer loans of $7.0 million, or 11.2 percent, and construction and development (C&D) loans of $4.0 million, or 2.1 percent. From fourth quarter 2008 to first quarter 2009, commercial and industrial (C&I) loans increased by $4.6 million, or 2.9 percent, and multi-family loans increased by $1.9 million, or 8.3 percent.

First Security's loan portfolio is primarily within its footprint and is well diversified with 29.6 percent in 1-4 family residential, 23.8 percent in CRE, 19.2 percent in C&D and 16.4 percent in C&I loans.

At March 31, 2009, total deposits were $1.1 billion, an increase of $130.9 million, or 14.0 percent, compared to a year ago. Pure deposits, which exclude all certificates of deposit and all brokered deposits, totaled $382.8 million in the first quarter of 2009. Pure deposits increased by $15.6 million, or 4.2 percent, compared to the first quarter of 2008, and by $20.1 million, or 5.5 percent, compared to the fourth quarter of 2008.

First Security continues to maintain capital levels exceeding those for well-capitalized banks and bank holding companies under applicable regulatory guidelines. The tangible equity to tangible assets ratio as of March 31, 2009, was 11.69 percent, and at December 31, 2008, the ratio was 9.20 percent. Total stockholders' equity at March 31, 2009, was $175.0 million.

The board of directors of First Security has declared a quarterly cash dividend of $0.01 per common share, a reduction of $0.04. The dividend is payable on June 16, 2009, to shareholders of record at the close of business on June 1, 2009. The dividend reduction will enable First Security to retain an additional $2.6 million in common equity annually, further enhancing the company's strong capital and liquidity positions.

"While our capital remains strong, the precautionary decision to reduce our dividend strengthens the balance sheet by preserving capital in the event that the recession and the challenges facing the banking industry are prolonged," said Mr. Holley. "Our goal of maintaining a solid capital position allows us to emerge with strength from the recession. This proactive approach is in the best interest of shareholders and is consistent with our long-term view for the company."

"Our shareholders should be assured that we plan to return the dividend to a normalized rate once the environment has stabilized." Mr. Holley concluded, "By all industry measures, our balance sheet is strong; we are well-capitalized and have money to lend."