Padding reserves gives FSG parent $1.9 million loss

The parent company of Chattanooga-based FSGBank on Thursday reported wider losses in the second quarter mostly because of a $6.2 million provision for loan and lease losses, according to the company.

Shares of First Security Group Inc. closed at $3.50, up a penny from the day's opening.

First Security posted a loss of $1.9 million, or 12 cents per diluted share, during the second quarter. The losses increased slightly from the first quarter when the bank holding company reported losing $1.3 million, or 8 cents a share.

First Security reported net income of $1.6 million, or 10 cents per diluted share, during the second quarter in 2008.

"Certainly we and many others in the industry are concerned about the continuation of the recession and anxious to turn the corner," said Rodger B. Holley, president and CEO of First Security. "In the meantime, our plan is to continue addressing credit issues head on, maintaining a strong balance sheet and ensure that First Security is well capitalized while focusing on core earnings."

Bank analyst Jim Schutz with Sterne, Agee and Leach in Birmingham, Ala., said First Security had a good second quarter. The company increased its net interest margin to 3.77 percent, which Mr. Schutz said was a good sign.

"I think they are doing a very prudent job of managing this franchise through this very tough time," he said.

Regarding the $6.2 million provision for loan and lease losses, Mr. Holley said the company's approach "has been to take an aggressive stance given the losses that are inevitable in this type of credit cycle."

Due to a $33 million stock purchase by the U.S. Treasury Department in January of this year, the company's tangible capital ratio has improved slightly to 11.84 percent at the end of the quarter from 11.69 percent at the end of the first quarter.

The number of full-time employees at First Security declined from 361 at the end of March to 353 at the end of the second quarter. Mr. Holley said the company work force will remain steady and it could be adding staff to its credit department.