FSGI Q2 call

First Security Group Inc. reported a 45 percent drop in net income for the second quarter compared to the same period a year ago, marking the second consecutive quarter the bank has experienced a decline in profits.

The Chattanooga-based parent of FSGBank reported net income of $1.6 million, or 10 cents per diluted share, for the quarter, down from $2.9 million, or 17 cents per diluted share in the same quarter of 2007, according to a news release.

Net interest income in the second quarter of this year dropped by 6.7 percent, or $820,000, compared to the second quarter of 2007, and was due to a reduction in net interest margin.

First Security’s stock closed Tuesday at $7.27 a share, up 12 cents.

The Federal Reserve System’s interest rate cuts over the past year led to a reduction in its net interest margin from 4.91 percent for the second quarter of 2007 to 4.12 percent for the second quarter of this year, according to the company. First Security officials anticipate the lender’s net interest margin will stabilize in the latter half of 2008.

First Security’s loan portfolio grew $29.3 million in loan balances during the quarter to reach a total of $1 billion as of June 30.

“As for the current economic conditions, in my 30 years in the banking industry I have certainly experienced similar rate environments and credit cycles,” said Rodger B. Holley, chairman and CEO of First Security. “We will remain steadfast in pursuing the strategies that have successfully propelled First Security so far: consistent, profitable growth, diversification of our revenue stream and sound asset quality.”

FSGBank’s total deposits increased $15 million in the quarter to $950.5 million as of June 30.

David Scharf, an analyst with FTN Midwest Securities in Nashville, said FSGBank’s asset quality is good compared to that of other banks in the region.

For the most part, the company met his expectations for the quarter, he said.

northgate branch

During an earnings call, Mr. Holley announced the company’s plans to build a branch near Northgate Mall. The company bought the property in June and plans for the branch to open early in 2009.

Mr. Holley called Volkswagen plans to build a $1 billion automobile assembly plant in Chattanooga a “tremendous opportunity” that will create jobs and generate money for the entire region.

“Consumer confidence in the area is very high right now,” Mr. Holley said. “We believe a tremendous amount of capital will be invested here over the next few years. Across the board everyone is optimistic, and we are very optimistic that our financials will benefit and reflect this activity and grow.”

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