FSGBank to retool, close some branches

FSGBank to retool, close some branches

September 14th, 2011 by Ellis Smith in Business Around the Region


Headquarters: Chattanooga

Assets: $1.1 billion

Deposits: $1 billion

Cash on hand: $225 million

Founded: 1999

Branches: 36

Share price: 30 cents per share

Shares outstanding: 16 million

Source: First Security Group

FSGBank continues to tinker under the hood of its business in a play to escape the real estate malaise that has slowed the national economy, the company told shareholders Tuesday at its annual meeting in Chattanooga.

"We're trying to become a little more focused on expanding our loans to small- to medium-sized businesses," said Ralph "Gene" Coffman, interim chairman, chief operating officer and president of bank holding company First Security Group. "We are not interested in continuing to perform as if we are a not-for-profit."

After losing money for more than two years, Coffman plans to cut costs by closing five to seven branches in October that are duplicated by other, nearby branches.

The branch closures should save $1 million per year that could be turned around and loaned out.

In addition, FSG will launch a $100 million loan campaign in coming weeks after slowing the rate of new loans with the onset of the recession. The loan campaign follows hot on the heels of a successful deposit campaign that generated millions in new cash on hand.

"Our goal is to loan a sizable portion of this back into our local economy," FSG Chief Financial Officer John Haddock said.

Tuesday's meeting also saw shareholders approve a measure designed to keep FSG listed on the Nasdaq and make the shares more attractive to institutional investors. The measure, a reverse stock split, will exchange 10 shares of FSG stock for one share of equal value in coming weeks.

The company's stock closed at 30 cents per share Tuesday, well below the $1 required to maintain a listing on the Nasdaq Exchange.

A swap of ten 30-cent shares for one share at $3 would bump the bank's stock up to an acceptable level and reduce the number of outstanding shares from about 16 million to 1.6 million.

Executive changes

The bank also continues to swap out its old executive team for a new one, with a heavy emphasis on experience.

Joseph Dell joined what was already a team of seasoned newcomers at the helm on Sept. 1, taking over as chief lending officer.

His arrival still leaves two executive-level positions still unfilled, reflecting the difficulty of attracting "the best people to an institution that's not performing as well as it could perform," Coffman said.

Officials are still searching for a chief credit officer and a permanent CEO, following the abrupt exit of former CEO Rodger Holley and the exodus of other top executives.

Coffman did not hint at whether or not he will remain as head of the bank, or if the board will choose a new top executive.

Desperate times

The drastic measures were made necessary when the young bank, founded in 1999, was hit hard after aggressive construction and development loans made in the early, heady 2000s failed to perform.

That was compounded when the bank's collateral was found to be worth less than it's assessed value, forcing the bank to take losses on what was at the time a fifth of its portfolio.

The bank "never came close" to being shut down by regulators, Coffman said, even when deposits took hits in 2010 as the bank's financial results got worse and worse.

Haddock said that while the bank's capital ratios are below what regulators would prefer, they are still above the officially-defined threshold for a "well-capitalized bank."

Though the company is still losing money -- about $5.9 million or 37 cents per share in the second quarter of 2011 -- First Security still had equity of nearly $84.8 million as of June 30.

By loaning out more of the bank's cash to its businesses and consumers, Coffman aims to increase its earnings per share and return to profitability for the first time since the real estate crash.

"We are still losing money, but we are doing a better job than we anticipated," Coffman said.