published Tuesday, August 14th, 2012

FSG Bank chief Michael Kramer optimistic

Michael Kramer is the president of FSG Bank.
Michael Kramer is the president of FSG Bank.
Photo by Jake Daniels /Chattanooga Times Free Press.
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Chattanooga's biggest community bank reported a bigger quarterly loss this spring, but bank officials said Monday they have reduced the number of problem loans and could try to strengthen the undercapitalized bank by selling more stock.

First Security Group, the parent company of FSG Bank, lost nearly $7.3 million, or $4.82 per share, in the second quarter of 2012. The net loss was nearly 35 percent greater than a year ago and brought the cumulative red ink for FSG over the past three and a half years to more than $120 million.

But in a statement Monday, FSG President Michael Kramer said the $1.1 billion asset bank is reducing its delinquent loans and attracting more core deposits.

"We continue to grow deposit market share and are building an excellent team of bankers to transform FSG Bank into the bank of choice in our markets," said Kramer, who was hired last fall to help turn around the fortunes of First Security Group after the bank dismissed founding CEO Rodger Holley.

Kramer noted that the number of "special mention" classified loans -- often regarded as the leading indicator of future potential problem loans -- have been cut in half this year. Bank-owned repossessed property is down by 20 percent so far this year.

FSG had to write off or write down the value of much of its real estate loan portfolio because of the housing slump and subsequent fall in construction and property values.

"We firmly believe that our asset quality issues are well-defined and that we have the ability to resolve them," Kramer said.

Nonetheless, First Security Group still is not in compliance with a 2-year-old consent order with the Office of the Comptroller of the Currency to boost the bank's capital ratios. The bank also has yet to repay the $33 million federal loan it received through the Troubled Asset Relief Program.

But Kramer said the executive and strategic changes adopted by the bank's board last year should eventually put FSG back on a firm foundation for future growth.

"Management is pursuing various options to restore First Security's capital to a satisfactory level, including, but not limited to, a private stock placement," FSG Chief Financial Officer John Haddock said in the bank's regulatory filing. "Since December 2011, management has been in preliminary discussions with multiple potential investors. While no letters of intent or binding commitments have been executed, in management's opinion, the reaction of potential investors has generally been positive and has led to continuing discussions."

First Security Group lost $35.4 million in 2009, $46.4 million in 2010 and $25.1 million last year. In the first half of 2012, First Security lost another $13.1 million.

Despite the losses, FSG assets grew by $4.1 million over the past year and the bank has replaced some of its higher-interest brokered deposits with more lower-rate core deposits.

Shares of First Security Group fell by 4 cents per share to close Monday at $2.56 per share in trading on the Nasdaq Exchange.

Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.

about Dave Flessner...

Dave Flessner is the business editor for the Times Free Press. A journalist for 35 years, Dave has been business editor and projects editor for the Chattanooga Times Free Press, city editor for The Chattanooga Times, business and county reporter for the Chattanooga Times, correspondent for the Lansing State Journal and Ingham County News in Michigan, staff writer for the Hastings Daily Tribune in Nebraska, and news director for WCBN-FM in Michigan. Dave, a native ...

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