Profile: First Security Group Inc (FSGI.OQ)

First Security Group, Inc. (First Security), incorporated on February 1, 1999, is a bank holding company. The Bank operates 30 full-service banking offices through its wholly owned bank subsidiary, FSGBank. It serves the banking and financial needs of various communities in eastern and middle Tennessee, as well as northern Georgia. Through FSGBank, it offers a range of lending services that are primarily secured by single and multi-family real estate, residential construction and owner-occupied commercial buildings. In addition, it focus on serving the needs of small-to medium-sized businesses, by offering a range of lending, deposit and wealth management services to these businesses and their owners.

The Bank offers a range of deposit services, including checking, savings, money market accounts and certificates of deposit, and obtain most of its deposits from individuals and businesses in its market areas, including the majority of its loan customers. Its wealth management division offers private client services, financial planning, trust administration, investment management and estate planning services. It also provide mortgage banking and electronic banking services, such as Internet banking, online bill payment, cash management, automated clearing house (ACH) originations and remote deposit capture. As of December 31, 2011, it had total assets of approximately $1.1 billion. In Dalton, Georgia, FSGBank operates under the name of Dalton Whitfield Bank, while FSGBank operates under the name of Jackson Bank & Trust along the Interstate 40 corridor.

Lending Activities

The Bank originates loans primarily secured by single and multi-family real estate, residential construction and owner-occupied commercial buildings. In addition, it makes loans to small and medium-sized commercial businesses, as well as to consumers for a variety of purposes. Its residential mortgage loan program primarily originates loans for the purchase of residential property to individuals for other third-party lenders. Residential loans to individuals retained in its loan portfolio primarily consist of first liens on 1-4 family residential mortgages, home equity loans and lines of credit.

The Bank makes commercial mortgage loans to finance the purchase of real property, as well as loans to smaller business ventures, credit lines for working capital and short-term seasonal or inventory financing, including letters of credit, that are also secured by real estate. In addition, a substantial percentage of its commercial mortgage loan portfolio is secured by owner-occupied commercial buildings. Its commercial mortgage loans are collateralized by first liens on real estate, have fixed or floating interest rates and amortize over a 10 to 20-year period with balloon payments due at the end of 1 to 5 years. It also makes construction and development loans to residential and commercial contractors and developers located within its market areas. Construction loans are secured by first liens on real estate and have floating interest rates.

The Bank’s commercial loan portfolio includes loans to smaller business ventures, credit lines for working capital and short-term seasonal or inventory financing, as well as letters of credit that are secured by collateral other than real estate. Commercial borrowers typically secure their loans with assets of the business, personal guaranties of their principals and often mortgages on the principals’ personal residences. Its commercial loans are primarily made within its market areas and are underwritten on the basis of the commercial borrower’s ability to service the debt from income. It make a variety of loans to individuals for personal, family and household purposes, including secured and unsecured installment and term loans. Its commercial lease portfolio includes leases made by its leasing companies, Kenesaw Leasing and J&S Leasing. Kenesaw Leasing leases new and used equipment, fixtures and furnishings to owner-managed businesses, while J&S Leasing leases forklifts, heavy equipment and other machinery to owner-managed businesses primarily in the trucking and construction industries.

Investment activities

All of the Company’s investments are classified as available-for-sale. Securities in its portfolio totaled $193 million as of December 31, 2011. As of December 31, 2011, its securities portfolio consisted of tax-exempt municipal securities, federal agency bonds, federal agency issued Real Estate Mortgage Investment Conduits (REMICs) and federal agency issued pools.

Sources of Funds

The Bank’s principal source of funds for loans and investing in securities is core deposits. It offers a range of deposit services, including checking, savings, money market accounts and certificates of deposit. It obtains most of its deposits from individuals and businesses in its market areas. Its brokered deposits represented 23.4% of total deposits as of December 31, 2011. Other sources of funding include advances from the Federal Home Loan Bank of Cincinnati (FHLB), subordinated debt and other borrowings.