First Security Group (FSGI) in Chattanooga, Tenn., is poised to raise $90 million from institutional investors.

Four institutional investors are leading the recapitalization of the holding company for the $1.1 billion-asset FSGBank, according to a press release Tuesday. Each of the four will invest $9 million for a 9.9% stake in First Security. Its stock will be priced at $1.50 as a result of the recapitalization, a 43% discount to its closing price of $2.61 on Monday.

First Security at the same time announced that it has reached an agreement with the Treasury Department to convert the preferred stock it issued under the Troubled Asset Relief Program to common stock. Treasury will then sell the common stock to investors. The Treasury holds $33 million of the preferred stock, which First Security issued in January 2009.

First Security also announced that this month it sold nonperforming loans with outstanding balances of $36.2 million. It took a $13.9 million loss on the sales; further details were not provided.

The recapitalization is expected to raise FSGBank's Tier 1 leverage ratio to 8.5% from 2.5%, and its total risk-based capital ratio to 16.7% from 5.8%.

First Security has restructured its management team in the last year, hiring Michael Kramer from private-equity firm Ridley Capital Group to be its president and chief executive in February 2012. The Treasury named a director to the company’s board last March.

"We appreciate the confidence and support of our lead investors," Kramer said in the news release. "Their commitment to our recapitalization 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."

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