Chattanooga-based FSGBank announces $90 million recapitalization

Chattanooga-based FSGBank announces $90 million recapitalization

February 26th, 2013 by Ellis Smith in Local - Breaking News

Michael Kramer is the president of FSG Bank.

Michael Kramer is the president of FSG Bank.

Photo by Jake Daniels /Times Free Press.

First Security Group, which owns FSGBank, has secured $90 million in recapitalization as part of a deal to convert the U.S. Treasury's stake in the business into common stock, as well as sell the majority of the bank's remaining bad loans.

While FSGBank will remain under a consent order, the deal effectively creates a new bank with a clean balance sheet, company officials say.

"Today marks an important milestone for First Security Group and FSGBank and reflects the culmination of our efforts over the last 15 months," said Michael Kramer, president and CEO of First Security. "We have rebuilt our executive management team with talented and experienced bankers, solidified our board with four new directors, three of which are former bank CEOs, and initiated the executition of our strategic plan."

As part of the deal, four lead investors will invest about $36 million in exchange for roughly 40 percent of the company, at a price of $1.50 per share.

"The commitment to our recapitaliztion will enable us to strengthen our balance sheet and provide growth capital to complete the transformation of FSGBank into a banking franchise that our clients, communities and shareholders can be proud of," Kramer said.

The influx of cash allows the bank to fund the losses associated with selling off tens of millions of dollars in bad loans, and brings it into compliance with its consent order, which required the bank to bolster its capital levels.

During the fourth quarter, the company sold $36.2 million of bad loans, restoring its capital levels nearly to the "well capitalized" tier, according to the legal definition. The sale brings the amount of nonperforming loans down to $12.6 million, and the total amount of nonperforming assets down to $25 million, less than 3 percent of the company's portfolio. That ratio is at or better than the bank's peers in the industry, said John Haddock, executive vice president and chief financial officer of FSGBank.

"The ability to organize the capital structure to full preserve our net operating losses was an important component of our value proposition of the recapitalization," Haddock said.

The company will allow existing shareholders to purchase shares of common stock at the same price as the recapitalization.

See Wednesday's Times Free Press for more.