First Security Group, Inc. (FSGI)

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First Security Group, Inc. (FSGI)

Q3 2008 Earnings Call Transcript

October 21, 2008 3:00 pm ET


Rodger Holley – Chairman and CEO

Dave Haynes – Senior Corporate Credit Officer and SVP

Chip Lusk – CFO, EVP and Secretary

Barry Ritchie [ph] – Senior Corporate Lender and SVP

Lloyd Montgomery – President and COO


Charlie Ernst – Sandler O'Neill Asset Management

Michael Rose – Raymond James

Sam Caldwell – KBW



Welcome to First Security Group, Inc. third quarter earnings conference call. There will be a question-and-answer period at the end of the presentation. (Operator instructions)

Before we begin today's call, I would like to remind everyone that this call may involve certain forward-looking statements such as projections of revenue, earnings and capital structure, as well as statements on the plans and objectives of the company or its management statements on economic performance and statements regarding the underlying assumptions of the company's business. The company's actual results could differ materially from any forward-looking statements made today due to several important factors described in the company's latest Securities and Exchange Commission filing. The company assumes no obligation to update any forward-looking statements made during this call. If anyone does not already have a copy of the press release issued by First Security today, you can access it at the company's Web site www.fsgbank.com.

On the conference call today from First Security Group, Inc. we have Rodger B. Holley,
Chairman and Chief Executive Officer, Lloyd L. Monty” Montgomery, Chief Operating Officer and President, William L. “Chip” Lusk, Chief Financial Officer and Executive Vice President, Barry Ritchie [ph], Senior Corporate Lender and Senior Vice President and David R. Haynes, Senior Corporate Credit Officer and Senior Vice President.

We will begin the call with management's prepared remarks and then open the call up to questions. At this point, I would like to turn the call over to Mr. Holley.

Rodger Holley

Good afternoon, everyone. Thank you for joining us. Today, we announced our financial results for the third quarter. And I would like to highlight some of the results.

Net income of $826,000, diluted earnings per share of $5 billion. Total assets of $1.282 billion at quarter-end. Total loans $1.17 billion, a modest increase of $10.8 million from the second quarter 2008. Total deposits $976.5 million at quarter-end compared to $950.5 million at the end of the second quarter 2008.

Net charge-offs for the quarter were $2.5 million, 0.98% on a quarterly annualized basis. And the allowance for loan and lease losses was increased to 1.31%, from 1.18% at the end of the second quarter. For the third quarter provision expense was $3.96 million compared to $1.95 million in the second quarter, and $1.18 million of the first quarter. Given the additional credit costs that we and many others in the industry are facing we are pleased with this quarter's results.

I would like to spend a few minutes on the subject of asset quality and then allow Dave Haynes to elaborate further.

In response to the downturn of the national economy, and some slowing locally, the frequency of our credit monitoring have increased. We are taking a proactive aggressive step and managing through credit issues when they arise.

Our third quarter charge-off rate was decidedly larger than we had planned. One relationship accounted for nearly three quarters of the total for this quarter. We had maintained a longstanding relationship with this account. However, the borrowers business saw a quick and pronounced downturn and was unable to refinance and/or sell several real estate related projects due in part to the overall tightening of the credit market. We maintain a relationship with this account and we are aggressively pursuing collection of the charge-off.

Regarding our regional economy, as you may know, we are headquartered in Chattanooga, Tennessee and operating communities along I-75 corridor between Dalton, Georgia, Nashville, Tennessee and along asset I-40 corridor based in Nashville, Tennessee, and this region we did face many of the same economic issues that are affecting most of the U.S. such as slower housing sales, higher gas and diesel prices, and inflationary pressure. However, we are fortunate in that this area has and continues to see positive growth trend.

Without the highs and lows of some market, as you might recall from last quarter's call Volkswagen Group of America announced on July 15 it would build the U.S. automotive production facility on the 1350 acre mega site 12 miles Northeast of Downtown, Chattanooga, and adjacent I-75. This manufacturing plant will bring about 2,000 direct jobs and up to 10,000 related jobs to the area. Hiring has begun and site work is well underway on the new facility which is scheduled to begin production in year 2011.

Because of this economic development in our core regions, we feel the impact of the economic downturn will not be as severe regionally as in other areas. Our analysis of our asset quality indicates that we are running about 90 days behind other areas. And with this economic development we feel we may come out of the downturn ahead of other wages. However, we won't be realistic about our economy.

Our customers are conscious, they are tightening their belts and demonstrating a wait and see attitude. This attitude is reflected in our loan and lease pipeline. Presently, our pipeline is running about half of previous quarter end level or about $45 million.

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