FSG losses raise doubts about company

FSG losses raise doubts about company

December 17th, 2010 by Brittany Cofer in News

FSG Bank

FSG Bank

Photo by John Rawlston /Times Free Press.

Despite a statement in First Security Group's most recent quarterly report expressing concern about the company's future viability, chief executive Rodger Holley said the bank is on track for a turnaround.

"Right now we've still got capital, we've still got liquidity. We're in the business of banking, and we're adding to our staff and adding to our board," said the CEO of Chattanooga-based FSG Bank on Thursday.

But the bank holding company's third-quarter financial report to the Securities and Exchange Commission said it has experienced losses from operations during the last two years "that raise possible doubt as to its ability to continue as a going concern."

The company last month posted a $34.5 million net loss available to common stockholders for the nine months ending Sept. 30. That followed a $31.8 million net loss for the same period in 2009.

First Security's shares closed Thursday at 62 cents, down 1.57 percent. A year ago, the company's stock closed at $3.17 per share.

The company has noted its continued operation is "contingent upon its ability to devise and successfully execute a management plan to develop profitable operations," satisfy regulatory actions and lower the level of its problem assets to "an acceptable level."

Holley said the statement about the company's ability to continue was "driven off of the loss that we had last year and, of course, if you continue that level of loss, we'd really need to be trying to access capital market. That's why we put that statement in there."

Asked if the statement indicates the bank could cease to exist, he said those who bank with the company should know that it has capital and liquidity.

"We've got a very good capital plan and strategic plan," Holley said. "We want to make some loans and grow deposits and get profitable."

Michael Rose of Raymond James & Associates, an analyst who follows the company, lowered the firm's investment rating of company shares to "underperform," citing a larger-than-expected third-quarter loss and language in its SEC filing "that points to going concern risk."

In the 2010 third quarter - the three-month period from July through September - the company reported a net loss available to common stockholders of $30.2 million, compared to a $28.6 million net loss in the year-ago period.

"With both the holding company and bank under regulatory orders to increase capital, lack of a tax shield given to a $17.4 million deferred tax asset valuation allowance it took this quarter, highly elevated credit metrics and dwindling capital levels, we see very few strategic options for the company," Rose said in a report to investors.

Holley said recent additions, such as newly named president and chief operating officer Gene Coffman, as well as two new directors - a commercial banking president and retail banking president - represent efforts to move the company forward.

Outlined in the company's quarterly report is its capital and strategic plan, which includes management reorganization, restructuring of credit and lending functions and reducing adversely classified assets, among other things.

First Security Group has been insured by the Federal Deposit Insurance Corp. since its inception in 2000, meaning all checking, savings, trust, certificates of deposit and IRA retirement accounts held at the bank are insured up to $250,000, according to the FDIC.

Nondeposit investments such as mutual funds, annuities, life insurance policies, stocks and bonds are not insured by the FDIC.

Follow Brittany Cofer on Twitter at twitter.com/brittanycofer.