Strong First Quarter Loan Growth Achieved
First Security Group, Inc. (NASDAQ: FSGI) (“First Security” or
“FSG”) today reported a net loss available to common shareholders
for the first quarter of 2014 of $45 thousand, as compared to a
loss of $648 thousand 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 $57.0 million, or 9.8%, since December
31, 2013 and $96.4 million, or 17.7%, 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.”
The below discussion of First Security’s results of operations
and financial condition is supplemented by the accompanying
financial highlights.
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
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.”
Deposits
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
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
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.
Asset Quality
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.
Capital
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, Tennessee, with $980.5 million in
assets. Founded in 1999, First Security’s community bank
subsidiary, FSGBank, 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 (www.FSGBank.com).
Non-GAAP Financial Measures
This press release contains financial information determined by
methods other than in accordance with generally accepted accounting
principles in the United States of America (GAAP). First Security’s
management uses these “non-GAAP” measures in its analysis of First
Security’s performance. Non-GAAP measures typically adjust GAAP
performance measures to exclude the effects of charges, expenses
and gains related to the consummation of mergers and acquisitions,
and costs related to the integration of merged entities. These non-
GAAP measures may also exclude other significant gains, losses or
expenses that are unusual in nature and not expected to recur.
Since these items and their impact on First Security’s performance
are difficult to predict, management believes presentations of
financial measures excluding the impact of these items provide
useful supplemental information that is important for a proper
understanding of the operating results of First Security’s core
business. These disclosures should not be viewed as a substitute
for operating results determined in accordance with GAAP, nor are
they necessarily comparable to non-GAAP performance measures that
may be presented by other companies.
Forward-Looking Statements
This news release contains comments or information that
constitute forward-looking statements (within the meaning of the
Private Securities Litigation Reform Act of 1993) that are based on
current expectations that involve a number of risks and
uncertainties. These forward-looking statements include, among
others, an estimated goodwill impairment charge and the assumptions
underlying this estimate. Actual results may differ materially from
the results expressed in forward-looking statements. Factors that
might cause such a difference include changes in interest rates and
interest rate relationships; demand for products and services; the
degree of competition by traditional and non-traditional
competitors; changes in banking regulation; changes in tax laws;
changes in prices, levies, and assessments; the impact of
technological advances; governmental and regulatory policy changes;
the outcomes of contingencies; trends in customer behavior as well
as their ability to repay loans; changes in the national and local
economy; and other factors, including risk factors, referred to
from time to time in filings made by First Security with the
Securities and Exchange Commission. First Security undertakes no
obligation to update or clarify forward-looking statements, whether
as a result of new information, future events or otherwise.
Public companies, from time to time, become aware of rumors
concerning their business. Investors are cautioned that in this age
of instant communication and internet access, it may be important
to avoid relying on rumors and unsubstantiated information. First
Security complies with Federal and State law applicable to
disclosure of information. Investors may be at significant risk in
relying on unsubstantiated information from other sources.
First Security Group, Inc. and
Subsidiary
Consolidated Financial
Highlights
(unaudited)
1st Quarter 4th Quarter 3rd Quarter
2nd Quarter 1st Quarter 2014 2013
2013 2013 2013 (in thousands, except per share
amounts and full-time equivalent employees)
Earnings: Net
interest income $ 6,925 $ 6,478 $ 6,165 $ 5,486 $ 5,241 (Credit)
Provision for loan and lease losses $ (972 ) $ (955 ) $ (1,632 ) $
(826 ) $ 678 Non-interest income1 $ 2,635 $ 2,188 $ 2,292 $ 2,190 $
2,013 Non-interest expense1 $ 10,445 $ 10,150 $ 11,197 $ 12,578 $
13,835 Income tax provision (benefit) $ 132 $ 119 $ 322 $ (83 ) $
119 Dividends and accretion on preferred stock $ — $ — $ — $ 858 $
524 Effect of exchange on preferred stock to common stock $ — $ — $
— $ 26,179 $ — Net (loss allocated) income available to common
stockholders $ (45 ) $ (648 ) $ (1,430 ) $ 21,328 $ (7,902 )
Per Share Data: Net (loss allocated) income available to
common stockholders, basic $ 0.00 $ (0.01 ) $ (0.02 ) $ 0.39 $
(4.90 ) Net (loss allocated) income available to common
stockholders, diluted $ 0.00 $ (0.01 ) $ (0.02 ) $ 0.39 $ (4.90 )
Book value per common share $ 1.27 $ 1.26 $ 1.25 $ 1.39 $ (6.58 )
Performance Ratios: Return on average assets -0.02 %
-0.26 % -0.56 % 7.97 % -3.02 % Return on average common equity
-0.21 % -3.08 % -7.21 % 95.78 % NM Efficiency ratio 109.26 % 117.12
% 132.40 % 163.86 % 190.72 % Non-interest income to net interest
income and non-interest income 27.56 % 25.25 % 27.10 % 28.53 %
27.75 %
Capital: Total equity to total assets 8.63 %
8.56 % 8.24 % 8.12 % 2.02 %
Liquidity, Yields and
Rates: Interest-bearing cash - average balance $ 13,653 $
34,075 $ 68,964 $ 122,499 $ 156,117 Investment securities - average
balance 272,563 330,094 329,385 322,747 253,265 Loans - average
balance 604,298 550,749 529,406 547,499
554,204 Average Earning Assets $ 890,514 $ 914,918
$ 927,755 $ 992,745 $ 963,586 Pure
deposits2 - average balance $ 446,820 $ 452,495 $ 454,379 $ 431,988
$ 414,244 Core deposits3 - average balance 624,365 640,177 653,044
648,373 639,558 Customer deposits4 - average balance 773,336
801,827 829,926 847,007 839,307 Brokered deposits - average balance
70,204 84,143 90,323 111,801 153,741
Total deposits - average balance $ 843,540 $ 885,970
$ 920,249 $ 958,808 $ 993,048 Total
loans to total deposits 71.85 % 68.02 % 58.76 % 56.59 % 54.53 %
Yield on earning assets 3.85 % 3.53 % 3.57 % 3.20 % 3.33 % Rate on
customer deposits (including impact of non-interest bearing DDAs)
0.41 % 0.48 % 0.56 % 0.63 % 0.68 % Cost of deposits 0.65 % 0.74 %
0.84 % 0.94 % 1.04 % Rate on interest-bearing funding 0.78 % 0.73 %
1.01 % 1.11 % 1.20 % Net interest margin, taxable equivalent 3.21 %
2.89 % 2.71 % 2.27 % 2.25 %
Non-Interest Income:
Service Charges on Deposits $ 741 $ 800 $ 798 $ 763 $ 736 POS Fees
401 420 401 398 371 BOLI 351 239 238 241 242 Mortgage Banking
Income 180 208 420 211 296 Trust 200 188 193 187 147 Other 391 165
242 236 221 Net Gains on AFS sales 371 168 0
154 0 Total Non-Interest Income $ 2,635 $
2,188 $ 2,292 $ 2,190 $ 2,013
Non-Interest Expense: Salaries and Benefits $ 5,274 $ 5,503
$ 5,807 $ 5,665 $ 5,609 Occupancy 820 799 891 794 818 Furniture and
Fixtures 557 544 656 595 549 Professional Fees 599 417 533 706 601
FDIC insurance assessments 311 150 150 1,000 1,000 Write-downs on
OREO and repossessions 309 375 374 309 1,315 Losses (Gains) on
OREO, repossessions and fixed assets, net 10 57 (116 ) (153 ) (147
) Non-performing asset expenses, net 221 450 488 1,142 1,877 Data
processing 588 517 628 503 566 Communications 150 172 141 142 128
Debit card fees 258 181 207 201 217 Intangible asset amortization
48 57 67 71 75 Printing and supplies 207 121 213 176 138
Advertising 134 65 89 59 98 Insurance 325 251 523 946 405 Other 634
491 571 422 580 Total
Non-Interest Expense $ 10,445 $ 10,150 $ 11,222
$ 12,578 $ 13,829
Asset Quality:
Net (recoveries) charge-offs $ 228 $ (754 ) $ (32 ) $ 374 $ 978 Net
loan (recoveries) charged-offs to average loans, annualized 0.15 %
-0.55 % -0.02 % 0.27 % 0.71 % Non-accrual loans $ 6,027 $ 7,203 $
6,803 $ 8,628 $ 10,194 Other real estate owned and repossessed
assets, net $ 7,075 $ 8,213 $ 8,678 $ 10,549 $ 12,722 Loans 90 days
past due $ 854 $ 928 $ 509 $ 332 $ 1,270 Non-performing assets
(NPA) $ 13,956 $ 16,344 $ 15,990 $ 19,509 $ 24,186 NPA to total
assets 1.42 % 1.67 % 1.58 % 1.83 % 2.32 % Non-performing loans
(NPL) $ 6,881 $ 8,131 $ 7,312 $ 8,960 $ 11,464 NPL to total loans
1.14 % 1.39 % 1.37 % 1.65 % 2.12 % Allowance for loan and lease
losses to total loans 1.52 % 1.80 % 2.00 % 2.27 % 2.50 % Allowance
for loan and lease losses to NPL 133.70 % 129.14 % 146.33 % 137.28
% 117.76 %
Period End Balances: Loans, excluding HFS
$ 604,859 $ 583,097 $ 534,627 $ 542,019 $ 540,288 Allowance for
loan and lease losses $ 9,200 $ 10,500 $ 10,700 $ 12,300 $ 13,500
Intangible assets $ 282 $ 330 $ 388 $ 455 $ 526 Assets $ 980,505 $
977,574 $ 1,011,855 $ 1,066,649 $ 1,040,753 Total deposits $
841,832 $ 857,268 $ 909,848 $ 957,811 $ 990,894 Common
stockholders' equity $ 84,654 $ 83,649 $ 83,388 $ 86,654 $ (11,666
) Total stockholders' equity $ 84,654 $ 83,649 $ 83,388 $ 86,654 $
20,994 Common stock market capitalization $ 138,601 $ 153,187 $
138,534 $ 135,469 $ 4,678 Full-time equivalent employees 275 285
313 327 325 Common shares outstanding 66,635 66,603 66,603 62,428
1,772
Average Balances: Loans, including HFS $
604,298 $ 550,749 $ 529,406 $ 547,499 $ 554,204 Intangible assets $
313 $ 363 $ 405 $ 476 $ 574 Earning assets $ 890,514 $ 914,918 $
927,755 $ 992,745 $ 963,586 Assets $ 967,624 $ 993,447 $ 1,016,919
$ 1,070,895 $ 1,047,184 Deposits $ 843,540 $ 885,970 $ 920,249 $
958,808 $ 993,048 Common stockholders' equity $ 84,340 $ 84,125 $
79,382 $ 89,069 $ (5,402 ) Total stockholders' equity $ 84,340 $
84,125 $ 79,382 $ 92,658 $ 27,184 Common shares outstanding, basic
- wtd 65,726 66,603 62,600 55,174 1,613 Common shares outstanding,
diluted - wtd 65,726 66,603 62,600 55,176 1,613 1 Certain
amounts were reclassified between non-interest income and
non-interest expense to conform with the current presentation. 2
Pure deposits are all transaction-based accounts, including
non-interest bearing DDAs, interest bearing DDAs, money market
accounts and savings accounts. 3 Core deposits are Pure deposits
plus customer certificates of deposits less than $100,000. 4
Customer deposits excluded brokered deposits.
First Security Group, Inc. and
Subsidiary
Consolidated Financial
Highlights
Non-GAAP Reconciliation Table
(unaudited)
1st Quarter 4th Quarter 3rd Quarter
2nd Quarter 1st Quarter 2014 2013
2013 2013 2013 (in thousands, except per share
data) Total stockholders' equity $ 84,654 $ 83,649 $ 83,388
$ 86,654 $ 20,994 Effect of preferred stock — — —
— (32,660 ) Common stockholders' equity $ 84,654
$ 83,649 $ 83,388 $ 86,654 $ (11,666 )
Average total stockholders' equity $ 84,340 $ 84,125 $
79,382 $ 92,658 $ 27,184 Effect of average preferred stock —
— — (3,589 ) (32,586 ) Average common stockholders'
equity $ 84,340 $ 84,125 $ 79,382 $ 89,069
$ (5,402 )
First Security Group, Inc. and
Subsidiary
Consolidated Balance Sheets
March 31, 2014 December 31, 2013 March 31,
2013 (in thousands, except share data)
(unaudited) (unaudited)
ASSETS Cash & Due from Banks $
7,896 $ 10,742 $ 9,407 Interest Bearing Deposits in Banks 11,503
10,126 157,931 Cash and Cash Equivalents
19,399 20,868 167,338 Securities Available-for-Sale 120,087 172,830
258,175 Securities Held-to-Maturity, at amortized cost (fair value
- $132,695) 131,819 132,568 — Loans Held for Sale 35,503 220 3,708
Loans 604,859 583,097 540,288 Less: Allowance for Loan and Lease
Losses 9,200 10,500 13,500 Net Loans 595,659
572,597 526,788 Premises and Equipment, net 28,143 27,888 29,239
Bank Owned Life Insurance 28,649 28,346 27,760 Intangible Assets
282 330 526 Other Real Estate Owned 7,067 8,201 12,706 Other Assets
13,897 13,726 14,513
TOTAL ASSETS $
980,505 $ 977,574 $ 1,040,753
LIABILITIES Deposits Noninterest-Bearing Demand $ 150,075 $
144,365 $ 145,207 Interest-Bearing Demand 100,495 95,559 88,184
Savings and Money Market Accounts 204,007 206,125 191,889
Certificates of Deposit of less than $100 thousand 172,449 182,408
224,494 Certificates of Deposit of $100 thousand or more 142,247
153,750 201,405 Brokered Deposits 72,559 75,062
139,715 Total Deposits 841,832 857,269 990,894
Federal Funds Purchased and Securities
Sold under Agreements to Repurchase
12,661 12,520 13,048 Security Deposits — 14 42 Other Borrowings
37,585 20,000 — Other Liabilities 3,773 4,123 15,775
Total Liabilities 895,851 893,926 1,019,759
STOCKHOLDERS' EQUITY Preferred Stock - no par value
10,000,000 authorized; no shares issued as of March 31, 2014 or
December 31, 2013; 33,000 issued as of March 31, 2013; Liquidation
value of $0 as of March 31, 2014 and December 31, 2013 and $38,569
as of March 31, 2013 — — 32,660 Common Stock - $.01 par value
150,000,000 shares authorized; 66,635,101 shares issued as of March
31, 2014; 66,602,601 shares issued as of December 31, 2013,
1,772,342 shares issued as of March 31, 2013 764 764 115 Paid-In
Surplus 196,841 196,536 106,622 Common Stock Warrants — — 2,006
Accumulated Deficit (104,087 ) (104,042 ) (123,293 ) Accumulated
Other Comprehensive Income (8,864 ) (9,610 ) 2,884 Total
Stockholders' Equity 84,654 83,648 20,994
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 980,505
$ 977,574 $ 1,040,753
First Security Group, Inc. and
Subsidiary
Consolidated Statements of
Operations
(unaudited)
Three Months Ended March 31, (in thousands except
per share amounts) 2014 2013
INTEREST INCOME Loans, including fees $ 7,016 $ 6,670
Investment Securities - taxable 1,060 812 Investment Securities -
non-taxable 240 205 Other 13 122 Total Interest
Income 8,329 7,809
INTEREST EXPENSE
Interest Bearing Demand Deposits 47 74 Savings Deposits and Money
Market Accounts 130 222 Certificates of Deposit of less than $100
thousand 309 564 Certificates of Deposit of $100 thousand or more
304 556 Brokered Deposits 561 1,136 Other 53 16 Total
Interest Expense 1,404 2,568
NET INTEREST
INCOME 6,925 5,241 (Credit) Provision for Loan and Lease Losses
(972 ) 678
NET INTEREST INCOME AFTER PROVISION FOR
LOAN AND LEASE LOSSES 7,897 4,563
NON-INTEREST INCOME1 Service Charges on Deposit
Accounts 741 736 Mortgage Banking Income 180 296 Gain on Sales of
Available for Sale Securities, net 371 — Other 1,343 1,188
Total Non-interest Income 2,635 2,220
NON-INTEREST EXPENSE1 Salaries and Employee Benefits
5,274 5,609 Expense on Premises and Fixed Assets, net of rental
income 1,377 1,447 Other 3,794 6,986 Total
Non-interest Expense 10,445 14,042
INCOME
(LOSS) BEFORE INCOME TAX PROVISION 87 (7,259 ) Income Tax
Expense 132 119
NET LOSS (45 ) (7,378 )
Preferred Stock Dividends — (413 ) Accretion on Preferred Stock
Discount — (111 ) Effect of Exchange of Preferred Stock to Common
Stock — —
NET LOSS ALLOCATED TO COMMON
STOCKHOLDERS $ (45 ) $ (7,902 )
NET INCOME (LOSS) PER
SHARE: Net Income (Loss) Per Share - basic $ 0.00 $ (4.90 ) Net
Income (Loss) Per Share - diluted $ 0.00 $ (4.90 )
WEIGHTED AVERAGE SHARES OUTSTANDING BASIC 65,726 1,613
DILUTED 65,726 1,613 1 Certain amounts were reclassified
between non-interest income and non-interest expense to conform
with the current presentation.
First Security Group, Inc.John R. Haddock, 423-308-2075EVP &
CFOjhaddock@FSGBank.com
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