First Security Group Announces 2013 Earnings

First Security Group, Inc. (NASDAQ:FSGI) (“First Security” or “FSG”) today reported net income available to common shareholders for 2013 of $11.4 million, 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 thousand, 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% (36.3% 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 thousand, or 5.1%, to $6.5 million compared to $6.2 million for the linked third quarter of 2013. Total interest income declined by $22 thousand 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 thousand 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% while pure deposits increased by $7.9 million, or 1.8% (7.1% 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% to 0.48% and the overall cost of deposits improving from 0.84% to 0.74%. As of December 31, 2013, pure deposits totaled 52.0% of total deposits as compared to 40.9% as of December 31, 2012.

With continued asset quality improvement and minimal charge-offs, First Security recorded a $955 thousand 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 thousand during the fourth quarter of 2013 and $565 thousand in net charge-offs for the year. Nonaccrual loans increased by $400 thousand to $7.2 million as of December 31, 2013, compared to $6.8 million as of September 30, 2013. Nonperforming loans to total loans was 1.39% as of December 31, 2013, as compared to 1.37% as of September 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 2.00% as of September 30, 2013, to 1.80% as of December 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 December 31, 2013, full-time equivalent employees declined to 285 as compared to 313 as of September 30, 2013, and 329 as of December 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.”

About First Security Group, Inc.

First Security Group, Inc. is a bank holding company headquartered in Chattanooga, Tennessee, with $1.0 billion 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)
 
 
(in thousands, except per share amounts and full-time equivalent employees)
 
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter 4th Quarter Year-to-Date Year-to-Date
2013 2013 2013 2013 2012 December 31, 2013 December 31, 2012
 
Earnings:
Net interest income $ 6,478 $ 6,165 $ 5,486 $ 5,241 $ 5,191 $ 23,370 $ 23,580
(Credit) Provision for loan and lease losses $ (955 ) $ (1,632 ) $ (826 ) $ 678 $ 10,373 $ (2,735 ) $ 20,866
Non-interest income1 $ 2,188 $ 2,292 $ 2,190 $ 2,013 $ 2,112 $ 8,683 $ 9,295
Non-interest expense1 $ 10,148 $ 11,197 $ 12,578 $ 13,835 $ 11,334 $ 47,760 $ 48,808
Income tax provision (benefit) $ 119 $ 322 $ (83 ) $ 119 $ 1,173 $ 477 $ 771
Dividends and accretion on preferred stock $ - $ - $ 858 $ 524 $ 522 $ 1,381 $ 2,078
Effect of exchange on preferred stock to common stock $ - $ - $ 26,179 $ - $ - $ 26,179 $ -
Net (loss allocated) income available to common stockholders $ (646 ) $ (1,430 ) $ 21,328 $ (7,902 ) $ (16,099 ) $ 11,349 $ (39,648 )
 
Per Share Data:
Net (loss allocated) income available to common stockholders, basic $ (0.01 ) $ (0.02 ) $ 0.39 $ (4.90 ) $ (9.90 ) $ 0.24 $ (24.58 )
Net (loss allocated) income available to common stockholders, diluted $ (0.01 ) $ (0.02 ) $ 0.39 $ (4.90 ) $ (9.90 ) $ 0.24 $ (24.58 )
Book value per common share $ 1.26 $ 1.25 $ 1.39 $ (6.58 ) $ (1.94 ) $ 1.26 $ (1.94 )
 
Performance Ratios:
Return on average assets -0.26 % -0.56 % 7.97 % -3.02 % -5.91 % 1.09 % -3.57 %
Return on average common equity -3.07 % -7.21 % 95.78 % NM NM 18.49 % -170.65 %
Efficiency ratio 117.10 % 132.40 % 163.86 % 190.72 % 155.20 % 149.00 % 148.47 %
Non-interest income to net interest income and non-interest income 25.25 % 27.10 % 28.53 % 27.75 % 28.92 % 27.09 % 28.27 %
 
Capital:
Total equity to total assets 8.56 % 8.24 % 8.12 % 2.02 % 2.74 % 8.56 % 2.74 %
 
Liquidity, Yields and Rates:
Interest-bearing cash - average balance $ 34,075 $ 68,964 $ 122,499 $ 156,117 $ 179,116 $ 111,276 $ 195,996
Investment securities - average balance 330,094 329,385 322,747 253,265 252,356 301,375 238,367
Loans - average balance   550,749     529,406     547,499     554,204     574,768     545,803     590,109  
Average Earning Assets $ 914,918   $ 927,755   $ 992,745   $ 963,586   $ 1,006,240   $ 958,454   $ 1,024,472  
Pure deposits2 - average balance $ 452,495 $ 454,379 $ 431,988 $ 414,244 $ 408,804 $ 434,791 $ 397,800
Core deposits3 - average balance 640,177 653,044 648,373 639,559 640,328 644,579 629,448
Customer deposits4 - average balance 801,827 829,926 847,007 839,308 845,347 831,923 829,066
Brokered deposits - average balance   84,143     90,323     111,801     153,741     178,876       114,926     198,454  
Total deposits - average balance $ 885,970   $ 920,249   $ 958,808   $ 993,049   $ 1,024,223     $ 946,849   $ 1,027,520  
Total loans to total deposits 68.02 % 58.76 % 56.59 % 54.53 % 53.68 % 68.02 % 53.68 %
Yield on earning assets 3.53 % 3.57 % 3.20 % 3.33 % 3.18 % 3.39 % 3.70 %
Rate on customer deposits (including impact of non-interest bearing DDAs) 0.48 % 0.56 % 0.63 % 0.68 % 0.69 % 0.59 % 0.78 %
Cost of deposits 0.74 % 0.84 % 0.94 % 1.04 % 1.09 % 0.89 % 1.20 %
Rate on interest-bearing funding 0.73 % 1.01 % 1.11 % 1.20 % 1.10 % 1.04 % 1.44 %
Net interest margin, taxable equivalent 2.89 % 2.71 % 2.09 % 2.25 % 2.10 % 2.50 % 2.45 %
 
Asset Quality:
Net (recoveries) charge-offs $ (754 ) $ (32 ) $ 374 $ 978 $ 14,064 $ 565 $ 26,666
Net loan (recoveries) charged-offs to average loans, annualized -0.55 % -0.02 % 0.27 % 0.71 % 9.79 % 0.10 % 4.52 %
Non-accrual loans $ 7,203 $ 6,803 $ 8,628 $ 10,194 $ 25,071 $ 7,203 $ 25,071
Other real estate owned and repossessed assets, net $ 8,213 $ 8,678 $ 10,549 $ 12,722 $ 13,449 $ 8,213 $ 13,449
Loans 90 days past due $ 928 $ 509 $ 332 $ 1,270 $ 1,656 $ 928 $ 1,656
Non-performing assets (NPA) $ 16,344 $ 15,990 $ 19,509 $ 24,186 $ 40,176 $ 16,344 $ 40,176
NPA to total assets 1.67 % 1.58 % 1.83 % 2.32 % 3.78 % 1.67 % 3.78 %
Non-performing loans (NPL) $ 8,131 $ 7,312 $ 8,960 $ 11,464 $ 26,727 $ 8,131 $ 26,727
NPL to total loans 1.39 % 1.37 % 1.65 % 2.12 % 4.94 % 1.39 % 4.94 %
Allowance for loan and lease losses to total loans 1.80 % 2.00 % 2.27 % 2.50 % 2.55 % 1.80 % 2.55 %
Allowance for loan and lease losses to NPL 129.14 % 146.33 % 137.28 % 117.76 % 51.63 % 129.14 % 51.63 %
 
Period End Balances:
Loans, excluding HFS $ 583,097 $ 534,627 $ 542,019 $ 540,288 $ 541,130 $ 583,097 $ 541,130
Allowance for loan and lease losses $ 10,500 $ 10,700 $ 12,300 $ 13,500 $ 13,800 $ 10,500 $ 13,800
Intangible assets $ 330 $ 388 $ 455 $ 526 $ 600 $ 330 $ 600
Assets $ 977,574 $ 1,011,855 $ 1,066,649 $ 1,040,753 $ 1,063,555 $ 977,574 $ 1,063,555
Total deposits $ 857,268 $ 909,848 $ 957,811 $ 990,894 $ 1,008,066 $ 857,268 $ 1,008,066
Common stockholders' equity $ 83,649 $ 83,388 $ 86,654 $ (11,666 ) $ (3,439 ) $ 83,649 $ (3,439 )
Total stockholders' equity $ 83,649 $ 83,388 $ 86,654 $ 20,994 $ 29,110 $ 83,649 $ 29,110
Common stock market capitalization $ 153,187 $ 138,534 $ 135,469 $ 4,678 $ 3,952 $ 153,187 $ 3,952
Full-time equivalent employees 285 313 327 325 329 285 329
Common shares outstanding 66,603 66,603 62,428 1,772 1,772 66,603 1,772
 
Average Balances:
Loans, including HFS $ 550,749 $ 529,406 $ 547,499 $ 554,204 $ 574,768 $ 545,803 $ 590,109
Intangible assets $ 363 $ 405 $ 476 $ 574 $ 649 $ 466 $ 781
Earning assets $ 914,918 $ 927,755 $ 992,745 $ 963,586 $ 1,006,240 $ 958,454 $ 1,024,472
Assets $ 993,447 $ 1,016,919 $ 1,070,895 $ 1,047,184 $ 1,089,841 $ 1,039,941 $ 1,110,794
Deposits $ 885,970 $ 920,249 $ 958,808 $ 993,048 $ 1,024,222 $ 946,849 $ 1,027,520
Common stockholders' equity $ 84,125 $ 79,382 $ 89,069 $ (5,402 ) $ 10,108 $ 61,368 $ 23,233
Total stockholders' equity $ 84,125 $ 79,382 $ 92,658 $ 27,184 $ 42,584 $ 70,298 $ 55,549
Common shares outstanding, basic - wtd 66,603 62,600 55,174 1,613 1,626 46,500 1,613
Common shares outstanding, diluted - wtd 66,603 62,600 55,176 1,613 1,626 46,500 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.
 
               
 
Non-GAAP Reconciliation Table
 
 
(in thousands, except per share data)
 
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter Year-to-Date Year-to-Date
2013 2013 2013 2013 2012 2012 December 31, 2013 December 31, 2012
 
 
Total stockholders' equity $ 83,649 $ 83,388 $ 86,654 $ 20,994 $ 29,110 $ 44,722 $ 83,649 $ 29,110
Effect of preferred stock   -   -   -     (32,660 )   (32,549 )   (32,439 )   -     (32,549 )
Common stockholders' equity $ 83,649 $ 83,388 $ 86,654   $ (11,666 ) $ (3,439 ) $ 12,283   $ 83,649   $ (3,439 )
 
Average total stockholders' equity $ 84,125 $ 79,382 $ 92,658 $ 27,184 $ 42,584 $ 52,181 $ 70,298 $ 55,549
Effect of average preferred stock   -   -   (3,589 )   (32,586 )   (32,476 )   (32,368 )   (8,930 )   (32,316 )
Average common stockholders' equity 84,125 79,382 89,069 (5,402 ) 10,108 19,813 61,368 23,233
 
   
 
First Security Group, Inc. and Subsidiary
Consolidated Balance Sheets
 
 
December 31, December 31,
(in thousands, except share data) 2013 2012
(unaudited)
ASSETS
Cash & Due from Banks $ 10,742 $ 12,806
Interest Bearing Deposits in Banks   10,126     159,665  
Cash and Cash Equivalents 20,868 172,471
Securities Available-for-Sale 172,830 254,057
Securities Held-to-Maturity, at amortized cost (fair value - $132,104) 132,568 -
Loans Held for Sale 220 25,920
Loans 583,097 541,130
Less: Allowance for Loan and Lease Losses   10,500     13,800  
Net Loans 572,597 527,330
Premises and Equipment, net 27,888 29,304
Bank Owned Life Insurance 28,346 27,576
Intangible Assets 330 600
Other Real Estate Owned 8,201 13,441
Other Assets   13,726     12,856  
TOTAL ASSETS $ 977,574   $ 1,063,555  
 
LIABILITIES
Deposits
Noninterest-Bearing Demand $ 144,365 $ 141,400
Interest-Bearing Demand 95,559 86,575
Savings and Money Market Accounts 206,125 184,597
Certificates of Deposit of less than $100 thousand 182,408 228,144
Certificates of Deposit of $100 thousand or more 153,750 201,873
Brokered Deposits   75,062     165,477  
Total Deposits 857,269 1,008,066

Federal Funds Purchased and Securities Sold under Agreements to Repurchase
12,520 12,481
Security Deposits 14 58
Other Borrowings 20,000 -
Other Liabilities   4,123     13,840  
Total Liabilities   893,926     1,034,445  
 
STOCKHOLDERS' EQUITY

Preferred Stock - no par value 10,000,000 authorized; no shares issued as of December 31, 2013; 33,000 issued as of December 31, 2012; Liquidation value of $0 as of December 31, 2013, and $38,156 as of December 31, 2012
- 32,549
Common Stock - $.01 par value 150,000,000 shares authorized; 66,602,601 shares issued as of December 31, 2013, 1,772,342 shares issued as of December 31, 2012 764 115
Paid-In Surplus 196,536 106,531
Common Stock Warrants - 2,006
Accumulated Deficit (104,042 ) (115,391 )
Accumulated Other Comprehensive Income   (9,610 )   3,300  
Total Stockholders' Equity   83,648     29,110  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 977,574   $ 1,063,555  
 
       
 
First Security Group, Inc. and Subsidiary
Consolidated Statements of Income
 
 
Three Months Ended Year-to-Date
December 31, December 31,
(in thousands except per share amounts) 2013 2012 2013 2012
(unaudited) (unaudited) (unaudited)
INTEREST INCOME
Loans, including fees $ 6,562 $ 6,975 $ 26,099 $ 31,264
Investment Securities - taxable 1,224 740 4,366 3,528
Investment Securities - non-taxable 323 226 1,071 1,006
Other   40     125     378     512  
Total Interest Income   8,149     8,066     31,914     36,310  
 
INTEREST EXPENSE
Interest Bearing Demand Deposits 46 63 259 191
Savings Deposits and Money Market Accounts 142 214 770 1,045
Certificates of Deposit of less than $100 thousand 387 618 1,938 2,681
Certificates of Deposit of $100 thousand or more 395 606 1,953 2,554
Brokered Deposits 682 1,324 3,554 5,863
Other   19     50     70     396  
Total Interest Expense   1,671     2,875     8,544     12,730  
 
NET INTEREST INCOME 6,478 5,191 23,370 23,580
(Credit) Provision for Loan and Lease Losses   (955 )   10,373     (2,735 )   20,866  

NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES
7,433 (5,182 ) 26,105 2,714
 
NON-INTEREST INCOME1
Service Charges on Deposit Accounts 800 872 3,097 3,032
Mortgage Banking Income 208 256 1,135 974
Gain on Sales of Available for Sale Securities, net 168 11 322 154
Other   1,012     973     4,129     3,986  
Total Non-interest Income   2,188     2,112     8,683     8,146  
 
NON-INTEREST EXPENSE1
Salaries and Employee Benefits 5,503 5,535 22,584 20,446
Expense on Premises and Fixed Assets, net of rental income 1,341 1,407 5,644 5,469
Other   3,304     4,392     19,532     21,744  
Total Non-interest Expense   10,148     11,334     47,760     47,659  
 
LOSS BEFORE INCOME TAX PROVISION (527 ) (14,404 ) (12,972 ) (36,799 )
Income Tax Expense   119     1,173     477     771  
NET LOSS   (646 )   (15,577 )   (13,449 )   (37,570 )
Preferred Stock Dividends - (413 ) (929 ) (1,650 )
Accretion on Preferred Stock Discount - (109 ) (452 ) (428 )
Effect of Exchange of Preferred Stock to Common Stock   -     -     26,179     -  
NET (LOSS ALLOCATED) INCOME AVAILABLE TO COMMON STOCKHOLDERS $ (646 ) $ (16,099 ) $ 11,349   $ (39,648 )
 
 
NET (LOSS) INCOME PER SHARE:
Net (Loss) Income Per Share - basic $ (0.01 ) $ (9.90 ) $ 0.24 $ (24.58 )
Net (Loss) Income Per Share - diluted $ (0.01 ) $ (9.90 ) $ 0.24 $ (24.58 )
 
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 66,603 1,626 46,500 1,613
DILUTED 66,603 1,626 46,500 1,613
 
 

(1) Certain amounts were reclassified between non-interest income and non-interest expense to conform with the current presentation.
 

Copyright Business Wire 2010

More from Press Releases

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

21st Century Fox Scoops Up Local News Stations

21st Century Fox Scoops Up Local News Stations

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Three-Part FREE Webinar Series

Three-Part FREE Webinar Series

March 24 Full-Day Course Offering: Professional Approach to Trading SPX

March 24 Full-Day Course Offering: Professional Approach to Trading SPX