FSG Bank Has Turnaround With $11.4 Million 2013 Gain After $39.6 Million Loss For 2012

Tuesday, February 25, 2014

First Security Group, Inc., parent of FSG Bank, reported a gain of $11.4 million for 2013 as compared to a loss of $39.6 million for 2012.

For the fourth quarter of 2013, First Security reported a net loss allocated to common shareholders of $646,000, as compared to a $1.4 million loss in the third quarter of 2013 and a $16.1 million loss for the fourth quarter of 2012.

“Last fall, we stated that it was essential to achieve significant improvement in loan and revenue growth,” said Michael Kramer, First Security’s president and chief executive officer. “With nearly $50 million of loan growth and over $1 million of improvement in non-interest expense in the fourth quarter, the momentum towards a return to operating profitability is real and within reach.”

During the fourth quarter of 2013, loans increased $48.5 million, or 9.1 percent (36.3 percent annualized) to $583.1 million. Commercial real estate loans increased $39.3 million, residential 1-4 family loans increased $7.1 million and commercial and industrial loans increased $4.5 million.

For the fourth quarter of 2013, net interest income improved by $313,000, or 5.1 percent, to $6.5 million compared to $6.2 million for the linked third quarter of 2013. Total interest income declined by $22,000 primarily due to lower interest income on investment securities as FSG sold approximately $22.8 million of investment securities to support higher yielding loan growth. As a majority of the fourth quarter loan growth was achieved in the latter half of the quarter, the full income impact will be realized in the first quarter of 2014. Total interest expense improved by $335,000 through reductions in the costs of deposits as well as reductions in total deposits.

“Taking a step back and reviewing the steady quarterly improvement from each consecutive quarter in 2013, we reduced non-interest expense by at least $1 million each quarter while, at the same time, increasing total revenues (net interest income plus non-interest income) by an average of nearly $500 thousand each quarter,” said John Haddock, First Security’s EVP and chief financial officer. “While we will remain focused on improving our operational efficiencies in 2014, we will also continue to actively restructure our earning asset mix by growing loans and reducing the excess liquidity in our investment portfolio to improve our overall yield and margin.”

During the fourth quarter, First Security continued to improve its deposit mix by deploying excess liquidity to reduce higher cost customer CDs and brokered deposits as they matured and by increasing pure deposits, defined as transaction-based accounts. During the fourth quarter, average customer CDs and brokered deposits decreased by $60.8 million, or 12.3 percent while pure deposits increased by $7.9 million, or 1.8 percent (7.1 percent annualized) to $452.5 million. During the fourth quarter, the changes in deposit mix resulted in the average rate paid on customer deposits improving from 0.56 percent to 0.48 percent and the overall cost of deposits improving from 0.84 percent to 0.74 percent. As of December 31, 2013, pure deposits totaled 52 percent of total deposits as compared to 40.9 percent as of Dec. 31, 2012.

With continued asset quality improvement and minimal charge-offs, First Security recorded a $955,000 negative provision to the allowance for loan and lease losses for the quarter and a $2.7 million negative provision for the year. First Security realized net recoveries of $754,000 during the fourth quarter of 2013 and $565,000 in net charge-offs for the year. Nonaccrual loans increased by $400,000 to $7.2 million as of Dec. 31, 2013, compared to $6.8 million as of Sept. 30, 2013.

Nonperforming loans to total loans was 1.39 percent as of Dec. 31, 2013, as compared to 1.37 percent as of Sept. 30, 2013. Based on the continued stability in asset quality and the net recoveries, the negative provision was necessary to adjust the allowance for loan losses to the company’s current estimate of $10.5 million. The ratio of the allowance to total loans declined from two percent as of Sept. 30, 2013, to 1.80 percent as of Dec. 31, 2013.

Non-interest expense decreased by $1.0 million to $10.1 million for the fourth quarter of 2013 as compared to the third quarter of 2013. During the fourth quarter, First Security completed the consolidation of two branches and announced the pending consolidations of two branches to be completed by mid-2014. As of Dec. 31, 2013, full-time equivalent employees declined to 285 as compared to 313 as of Sept. 30, 2013, and 329 as of Dec. 31, 2012. The associated cost savings with the reduced workforce is at least $2 million in salary and benefits annually with full realization to begin in the first quarter of 2014. Various other cost saving are anticipated to further reduce non-interest expense for 2014.

“Significant progress was made in the fourth quarter, but we recognize that we have significant work remaining to realize our full potential following the recapitalization,” said CEO Kramer. “We remain confident in our ability to build a top-tier community bank in our strong East Tennessee markets.”

First Security Group, Inc. is a bank holding company headquartered in Chattanooga with $1 billion in assets. Founded in 1999, First Security’s community bank subsidiary, FSG Bank, N.A. has 28 full-service banking offices along the interstate corridors of eastern and middle Tennessee and northern Georgia. In Dalton, FSG Bank operates under the name of Dalton Whitfield Bank; along the Interstate 40 corridor in Tennessee, FSG Bank operates under the name of Jackson Bank & Trust. FSGBank provides retail and commercial banking services, trust and investment management, mortgage banking, financial planning and Internet banking.


Cothran Charged With Cutting Mother With A Hatchet

Eddie Cothran, 46, was arrested on Monday for aggravated assault after police said he threatened his mother and then cut her with a hatchet.       Responding officers found the mother on Claire Circle who stated that she had gotten into a heated argument with the defendant.   She said that he had been drinking and wanted to use ... (click for more)

Rep. Womick Asks County Clerks To Marry Only Couples That Include A Man And A Woman

Rep. Rick Womick has written a letter to all 95 county clerks in Tennessee, urging each of them "to ignore the recent Supreme Court of the U.S. opinion redefining marriage, to uphold their oath to our State Constitution and state law, and encouraging them to issue marriage licenses to one man and one woman only." Rep. Womick said, "Each of Tennessee's County Clerks are publicly ... (click for more)

Chattanooga Strong

The hearts, minds and prayers of Tennesseans, and of the entire nation, have been turned toward Chattanooga this month.  We are sickened and saddened by the senseless tragedy, and we grieve for the families of the five service members who were killed, Gunnery Sgt. Thomas J. Sullivan, Sgt. Carson A. Holmquist, Lance Cpl. Squire “Skip” K. Wells, Staff Sgt. David A. Wyatt and ... (click for more)

Roy Exum: Chanie's Puzzling Poem

Ronnie Joice was in a bar in north London when he spied a poem tacked to the wall. The more he studied it, the more it revealed and, suddenly, he was floored. I don’t need to tell you it has gone viral, cheering people up particularly in England, but it is fun to know it was written by an 11 th -grader at an all-girls school in New York. Chanie Gorkin first posted it on her page ... (click for more)

Former McCallie Swimmer Qualifies For 2016 Olympics

Sean Ryan, a 2010 graduate of McCallie, qualified for an Olympic swimming competition early Monday morning. His fourth-place finish in the 10-kilometer open-water race July 27 at the FINA World Championships earned him a spot on the United States Olympic Team for next year’s Olympic Games in Rio de Janeiro, Brazil. The race took place in the Kazanka River in Kazan, Russia, ... (click for more)

Chattanooga Football Club To Host National Semifinals Saturday

Saturday  Chattanooga Football Club won the National Premier Soccer League (NPSL) South Region Championship over the Myrtle Beach Mutiny – its second title in a row. That win puts CFC in the final four teams in the league still competing for the national title. By winning the South Region, Chattanooga FC became the number two seed in the country and will host the third-seeded ... (click for more)