FSG Bank on Tuesday reported a net loss available to common shareholders for the first quarter of 2014 of $45,000, as compared to a loss of $648,000 in the fourth quarter of 2013 and a $7.9 million loss in the first quarter of 2013. Loans, including held-for-sale, increased by $57 million, or 9.8 percent, since Dec. 31, 2013 and $96.4 million, or 17.7 percent, since March 31, 2013.
“The improvement in our revenue is reflective of the loan growth realized in the last two quarters,” said Michael Kramer, First Security’s president and chief executive officer. “We achieved pre-tax income during the first quarter of 2014 with a negative provision to the allowance. Our goal is to continue our momentum to achieve core profitability.”
Net Interest Income
For the first quarter of 2014, net interest income improved by $447 thousand, or 6.9%, to $6.9 million compared to $6.5 million for the linked fourth quarter of 2013. Interest income on loans, including fees, increased by $454 thousand while total interest income increased by $180 thousand due to reduction in the investment security portfolio. During the last two quarters, First Security sold approximately $71.3 million of lower yielding investment securities to redeploy into loans. Total interest expense improved by $267 thousand through improvement in the cost of deposits as well as reductions in total deposits. For the first quarter of 2014, the net interest margin improved by 32 basis points to 3.21% compared to 2.89% in the fourth quarter of 2013.
Loans, excluding held-for-sale, totaled $604.9 million as of March 31, 2014, a $21.8 million increase, or 3.7%, from the December 31, 2013 total of $583.1 million. As of March 31, 2014, First Security reclassified approximately $33.6 million of loans into held-for-sale. These loans are expected to be sold at a gain during the second quarter of 2014. For loans held-for-investment, the main categories of loan growth during the first quarter of 2014 included: owner-occupied real estate by $8.9 million, or 7.8%; commercial loans by $8.6 million, or 15.5%; and consumer loans by $3.0 million, or 14.2%.
“The loan growth in the owner-occupied real estate and commercial categories reflects our progress towards becoming the community bank of choice for small businesses in East Tennessee,” said John Haddock, First Security’s EVP and Chief Financial Officer. “With the Consent Order lifted, we are focused on achieving the enhanced revenue opportunities of a well-capitalized bank, including expanding our dedicated SBA lending department as well as our mortgage department.”
During the first quarter, First Security continued to improve its deposit mix to reduce the overall cost of deposits from 0.74% for the fourth quarter of 2013 to 0.65% for the first quarter of 2014. Average pure deposits, defined as transaction accounts, for the first quarter of 2014 accounted for 53.0% of average total deposits as compared to 51.1% for the fourth quarter of 2013. Average core deposits, defined as transaction accounts plus retail CDs, accounted for 74.0% of average total deposits as compared to 72.3% for the fourth quarter.
Non-interest income totaled $2.6 million for the first quarter of 2014 compared to $2.2 million for the fourth quarter of 2013. First Security recorded investment security gains of $371 thousand in the first quarter compared to $168 thousand in the fourth quarter. Excluding the investment security gains, non-interest income improved by $244 thousand. Income from bank-owned life insurance increased by $114 thousand, primarily due to a non-recurring interest bonus on certain policies. Service charges on deposits, point-of-sale fees, and mortgage banking fees all declined, primarily due to seasonality.
Non-interest expense increased by $295 thousand to $10.4 million for the first quarter of 2014 as compared to the fourth quarter of 2013. As of March 31, 2014, full-time equivalent employees declined to 275 as compared to 285 as of December 31, 2013 and 325 as of March 31, 2013. Total salary and benefit expense declined by $229 thousand in the first quarter of 2014 as compared to the fourth quarter of 2013. These savings were fully offset by higher operating expenses, including professional fees increasing by $182 thousand.
First Security recorded a $972 thousand negative provision to adjust the allowance for loan losses to First Security’s current estimate of $9.2 million as of March 31, 2014. The ratio of the allowance to total loans declined from 1.80% as of December 31, 2013 to 1.52% as of March 31, 2014. Total non-performing assets (“NPAs”) declined by $2.4 million, or 14.6%, to $14.0 million as of March 31, 2014 compared to December 31, 2013. NPAs to total assets as of March 31, 2014 improved to 1.42% compared to 1.67% as of December 31, 2013.
Stockholders’ equity as of March 31, 2014 totaled $84.7 million, a $1.0 million increase from December 31, 2013. As of March 31, 2014, book value per share increased to $1.27 per share compared to $1.26 per share as of year-end. With the termination of the Consent Order between the Office of the Comptroller of the Currency and FSGBank, FSGBank met all regulatory minimum capital ratios to be classified as “well-capitalized” at March 31, 2014.
“Four goals were identified when this management team began the turnaround process at FSG: improving asset quality to peer group or better levels, recapitalizing First Security and FSGBank, removing the regulatory enforcement order, and achieving core profitability,” said CEO Kramer. “At the one year mark of the turnaround, we are focused on the fourth and final goal - achieving core profitability and building a sustainable and improving profitability profile.”
About First Security Group, Inc.
First Security Group, Inc. is a bank holding company headquartered in Chattanooga with $980.5 million 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, 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.