FSG Bank Announces Strategic Recapitalization; 4 Investors Put In $9 Million Each

Tuesday, February 26, 2013

First Security Group, Inc., parent firm of FSG Bank, announced Tuesday that it has entered into definitive stock purchase agreements with institutional investors as part of an approximate $90 million recapitalization. Four investors will lead the recapitalization, which also includes a conversion of the bank’s TARP CPP preferred stock to common stock and sale of under- and non-performing loans. The lead investors will each invest approximately $9 million to acquire pro-forma ownership of approximately 9.9 percent of the total outstanding common stock, respectively. The recapitalization is priced at $1.50 per share and was unanimously approved by the company’s board of directors.

“Today marks an important milestone for First Security Group and FSGBank and reflects the culmination of our efforts over the last 15 months,” said Michael Kramer, president and chief executive officer of First Security. “We have rebuilt our executive management team with talented and experienced bankers, solidified our board with four new directors, three of which are former bank CEOs, and initiated the execution of our strategic plan. We appreciate the confidence and support of our lead investors. Their commitment to our recapitalization will enable us to strengthen our balance sheet and provide growth capital to complete the transformation of FSGBank into a banking franchise that our clients, communities and shareholders can be proud of.

“We are also pleased to announce that our current shareholders will have the opportunity to buy additional shares in First Security at the same price as the recapitalization through a follow-on rights offering.”

The bank plans to downstream a majority of the net proceeds to FSGBank in order to support future balance sheet growth as well as fund the losses associated with the recently completed loan sale. The combined effects of the additional capital and the loan sale are expected to result in an improved risk profile, enhanced profitability and compliance with most, if not all, aspects of the regulatory orders of the company and FSGBank.

The recapitalization is subject to a number of conditions, including the lead investors receiving the necessary bank regulatory determinations. On Monday, the bank executed definitive stock purchase agreements, including subscription agreements to accredited individual investors, totaling in excess of $90 million. Under the terms of the recapitalization, First Security is permitted to conduct a $5-million follow-on rights offering after the closing of the recapitalization that would allow existing shareholders to purchase shares of common stock at the same price as the recapitalization.

Capital Structure and Tax Preservation Plan

The recapitalization is structured to preserve the bank’s net operating losses under Section 382 of the Internal Revenue Code. As announced on Oct. 30, 2012, First Security enacted a Tax Benefit Preservation Plan to ensure the anticipated recapitalization was not impacted by changes in ownership between the enacting of the preservation plan and the closing of the recapitalization.

“The ability to organize the capital structure to fully preserve our net operating losses was an important component of our value proposition of the recapitalization,” said John R. Haddock, executive vice president and chief financial officer of First Security. “As of Dec. 31, 2012, the valuation allowance against our net deferred tax assets, primarily consisting of the NOLs, exceeded $50 million. This $50 million valuation allowance can be released back into earnings and capital once profitability is restored and we achieve consistent and predictable earnings.”

TARP CPP Restructuring

In connection with the recapitalization, the bank negotiated with the U.S. Treasury a restructuring of the bank’s preferred stock issued under the capital purchase program. The bank will issue common stock to the Treasury for satisfaction of the par value of the preferred stock, accrued dividends and common stock warrants previously issued to the Treasury. The bank has deferred payment on the preferred stock dividends since January 2010. Treasury will contemporaneously sell the common stock to investors identified by the bank.

Loan Sale

On Dec. 10, 2012, the bank entered into an asset purchase agreement with a third party to sell certain loans. During the fourth quarter of 2012, the bank identified $36.2 million of under- and non-performing loans to sell and recorded a $13.9-million loss to reduce the loan balances to the expected net proceeds. The bank completed the loan sale during February. As a result of the loan sale, the bank’s non-performing assets as a percentage of total assets was 2.36 percent as of Dec. 31.


New Hiener Book Of Historic Chattanooga Photos Available At Zarzours

The new Paul Hiener Historic Chattanooga Photos book published by Chattanoogan.com is available at Zarzours Restaurant. Zarzours is located on the Southside on Rossville Avenue behind the Main Street Fire Hall #1. Mr. Hiener, a longtime Chattanooga printer and lifelong resident, collected over 3,000 historic pictures of his beloved hometown. He made some of the photos ... (click for more)

Former Nashville Councilman Announces Bid For Chair Of The Tennessee Democratic Party

Jamie D. Isabel, Sr. former Nashville City Councilman and a former member of the Tennessee Democratic executive committee, announces his intent to run for chairman of the Tennessee Democratic party.   Over the last two weeks he has contacted the 66 members of the Executive Committee for their support.   "Mr. Isabel is enthusiastically presenting his plans to rebuild ... (click for more)

Vehicle Emissions Testing Causes More Pollution Than It Prevents - And Response

While a noble cause to make sure vehicles are operating efficiently with the minimum amount of pollutants, a simple analysis makes it somewhat evident the VET program in Chattanooga causes more pollution that it prevents.  Though I don't know how many vehicles are tested on an annual basis, if you assume an average round trip of 10 miles to the nearest testing station (five ... (click for more)

Roy Exum: You Can’t Sue You

The Hamilton County School Board will convene an hour earlier tomorrow to discuss “facilities” and the question of the hour is “Which ones?” Several communities are actively studying pulling away from the county’s Department of Education and the stew is thickening by the day. Now comes the revelation that school board attorney Scott Bennett has sent an email to the town of Signal ... (click for more)

Top-Ranked Bradley Uses Fast Start To Beat Baylor

There’s no question that the Bradley Bears are ranked first in the initial state wrestling poll and they proved they deserve to be in that top spot following a 43-30 victory over the Baylor Red Raiders. Baylor is ranked fourth in that first poll and will surely be a force to be reckoned with in Division II as the season progresses, but the Bears are head and shoulders ahead after ... (click for more)

Run-And-Gun Tyner Shoots Down Red Bank 71-33

Tyner opponents better batten down the hatches if the Rams ever iron out their half-court offensive struggles. Even without that weapon showing up Tuesday night, the Rams showed they have a run-and-gun assault that can bury an opponent under an avalanche of points. And their defense is as tenacious as ever. Tyner outscored Red Bank 15-0 to start the second quarter ... (click for more)