published Wednesday, August 6th, 2014

Chattanooga's FSG Bank battles back to profitability

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    Michael Kramer, FSG Bank
    Photo by Dan Henry.
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First Security Group, the Chattanooga-based holding company for FSG Bank, bounced back to its first profitable quarter in years after more than $140 million of losses since 2008.

FSG also regained its status as a billion-dollar bank, after slipping under $1 billion in assets during its turnaround.

Chattanooga's biggest independent bank was badly battered by a loan portfolio that was highly exposed to the Great Recession, including vast tracts of real estate that became worthless after the housing bubble popped. FSG was forced to take bailout money from the U.S. Troubled Asset Relief Program, which led to the installation of U.S. Treasury-approved directors on its board.

But a 2013 recapitalization brought more than $90 million to bolster the bank's cash reserves, allowing it to rid itself of bad assets, pay off TARP and begin making new loans. The bank's officers signaled solidarity by buying stock in the company during the recapitalization, and executives expanded the company's trust business in the wake of big banks that exited the Chattanooga market.

First Security Group earned $613,000 in the second quarter, or a penny per share, as net interest income climbed to $7.5 million from $5.5 million in the second quarter of 2013.

"We believe that we have reached an inflection point in our recovery and that barring any unforeseen events," said Michael Kramer, president and CEO of First Security Group, "First Security is on a path to healthy profitability built on a strong, and improving, balance sheet."

Loan losses fell to $270,000 from $826,000 in the second quarter of 2013, and expenses fell by $2.5 million to $10 million.

"Our loan growth, combined with improvements in our deposit mix and enhancements to our non-interest income, are all on positive trajectories to produce both sustainable and increasing profitability," Kramer said.

Though the company previously showed $21 million in net income for the second quarter of 2013, that was a result of the company's recapitalization rather than an indication that the company had become profitable on the strength of its core banking operations.

Though the average balance of total deposits has fallen to $841 million from $958 million in the second quarter of 2013, the non-interest income on those deposits has grown to $3 million from $2.2 million in the second quarter of 2013.

Kramer believes the future looks bright for the Chattanooga-based bank, given the brightening economic picture in the Chattanooga region.

"The recent announcement of the $600 million Volkswagen expansion in Chattanooga that includes an estimated 2,000 direct and 3,600 indirect jobs as well as the South's first automotive research and development center speaks volumes to the economic activity and growth potential within our East Tennessee markets," said Kramer.

Contact staff writer Ellis Smith at 423-757-6315 or

about Ellis Smith...

Ellis Smith joined the Chattanooga Times Free Press in January 2010 as a business reporter. His beat includes the flooring industry, Chattem, Unum, Krystal, the automobile market, real estate and technology. Ellis is from Marietta, Ga., and has a bachelor’s degree in mass communication at the University of West Georgia. He previously worked at UTV-13 News, Carrollton, Ga., as a producer; at the The West Georgian, Carrollton, Ga., as editor; and at the Times-Georgian, Carrollton, ...

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