FSGI Form 11-K 12/31/2011


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


___________________
FORM 11-K
___________________

(Mark One)
 
X
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934
  For the fiscal year ended December 31, 2011
 
OR
   
TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934
  For the transition period from ________ to ________



Commission file number 000-49747
 



A.
Full title of the plan and the address of the plan, if different from that of the issuer named below:

FIRST SECURITY GROUP, INC. 401(k)
AND EMPLOYEE STOCK OWNERSHIP PLAN

B.
Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:

First Security Group, Inc.
531 Broad Street
Chattanooga, Tennessee 37402





















FIRST SECURITY GROUP, INC. 401(k)
AND EMPLOYEE STOCK OWNERSHIP PLAN
FINANCIAL STATEMENTS

December 31, 2011








First Security Group, Inc. 401(k) and Employee Stock Ownership Plan

Contents




 
Page No.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
 
 
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
 
 
NOTES TO FINANCIAL STATEMENTS
 
 
 
 
SUPPLEMENTAL SCHEDULES
 
 
 
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
 
 
SCHEDULE H, LINE 4a - SCHEDULE OF DELINQUENT PARTICIPANT CONTRIBUTIONS
 
 
EXHIBITS
 
 
SIGNATURES














REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Retirement Committee and Plan Administrator of First Security Group, Inc. 401(k) and Employee Stock Ownership Plan
Chattanooga, Tennessee

We have audited the accompanying statements of net assets available for benefits of First Security Group, Inc. 401(k) and Employee Stock Ownership Plan (the Plan) as of December 31, 2011 and 2010, and the related statement of changes in net assets available for benefits for the year ended December 31, 2011. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2011 and 2010, and the changes in the net assets available for benefits for the year ended December 31, 2011 in conformity with U.S. generally accepted accounting principles.

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of Schedule H, Line 4i - Schedule of Assets (Held at End of Year) and Schedule H, Line 4a - Schedule of Delinquent Participant Contributions are presented for the purpose of additional analysis and are not a required part of the basic financial statements, but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules are the responsibility of the Plan's management. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic 2011 financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic 2011 financial statements taken as a whole.






/s/ Crowe Horwath LLP
Brentwood, Tennessee
June 28, 2012









1




FIRST SECURITY GROUP, INC. 401(k) AND EMPLOYEE
STOCK OWNERSHIP PLAN

STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS

December 31, 2011 and 2010

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
December 31, 2010
 
Allocated
 
Unallocated
 
Total
 
Allocated
 
Unallocated
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Investments, at fair value
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash
$
179

 
$

 
$
179

 
$
1

 
$

 
$
1

Collective trust fund
1,993,932

 

 
1,993,932

 
1,505,401

 

 
1,505,401

Investment in First Security Group, Inc. common stock
161,300

 
72,203

 
233,503

 
475,815

 
519,951

 
995,766

Mutual funds
4,491,425

 

 
4,491,425

 
6,416,560

 

 
6,416,560

Total assets
6,646,836

 
72,203

 
6,719,039

 
8,397,777

 
519,951

 
8,917,728

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Excess contributions payable
7,541

 

 
7,541

 

 

 

Note payable

 
1,763,977

 
1,763,977

 

 
3,473,884

 
3,473,884

Total liabilities
7,541

 
1,763,977

 
1,771,518

 

 
3,473,884

 
3,473,884

 
 
 
 
 
 
 
 
 
 
 
 
NET ASSETS AVAILABLE
 FOR BENEFITS
$
6,639,295

 
$
(1,691,774
)
 
$
4,947,521

 
$
8,397,777

 
$
(2,953,933
)
 
$
5,443,844



The accompanying notes are an integral part of the financial statements.




2



FIRST SECURITY GROUP, INC. 401(k) AND EMPLOYEE
STOCK OWNERSHIP PLAN

STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS

Year Ended December 31, 2011
    
 
 
 
 
 
 
 
December 31, 2011
 
Allocated
 
Unallocated
 
Total
ADDITIONS
 
 
 
 
 
Investment income (Loss)
 
 
 
 
 
Net depreciation in fair value of investments
$
(798,976
)
 
$
(353,690
)
 
$
(1,152,666
)
Other dividend and interest income
206,968

 

 
206,968

Allocation of 27,054 shares, at fair value
94,058

 

 
94,058

 
(497,950
)
 
(353,690
)
 
(851,640
)
 
 
 
 
 
 
Contributions
 
 
 
 
 
Employer

 
1,901,268

 
1,901,268

Participants
585,997

 

 
585,997

 
585,997

 
1,901,268

 
2,487,265

 
 
 
 
 
 
Total additions
88,047

 
1,547,578

 
1,635,625

 
 
 
 
 
 
DEDUCTIONS
 
 
 
 
 
Benefits paid to participants
1,830,907

 

 
1,830,907

Interest expense

 
191,361

 
191,361

Administrative expenses
15,622

 

 
15,622

Allocation of 27,054 shares, at fair value

 
94,058

 
94,058

 
 
 
 
 
 
Total deductions
1,846,529

 
285,419

 
2,131,948

 
 
 
 
 
 
NET INCREASE / (DECREASE)
(1,758,482
)
 
1,262,159

 
(496,323
)
 
 
 
 
 
 
NET ASSETS AVAILABLE FOR BENEFITS
 
 
 
 
 
Beginning of year
8,397,777

 
(2,953,933
)
 
5,443,844

End of year
$
6,639,295

 
$
(1,691,774
)
 
$
4,947,521


The accompanying notes are an integral part of the financial statements.


3



First Security Group, Inc. 401(k) and
Employee Stock Ownership Plan

Notes to Financial Statements
December 31, 2011 and 2010



NOTE 1 - PLAN DESCRIPTION

The following description of the First Security Group, Inc. 401(k) and Employee Stock Ownership Plan (the Plan) is provided for general information purposes only. More complete information regarding the Plan's provisions is provided in the Plan documents.

General
The Plan, as amended, is a defined contribution plan covering all employees of First Security Group, Inc. and Subsidiary (the Company) who have completed 90 days of service and are twenty-one years of age or older. Employees that have not met the age requirement are eligible to participate in the Plan after completing 1 year or service with at least 1,000 hours of service. The Plan is subject to the provisions of the Employee Retirement Income Security Act (ERISA) and designed to comply with all regulations of the Internal Revenue Service (IRS). The Plan is administered by the Company's Retirement Committee.

Within the Plan, there are two parts, the Employee Stock Ownership Plan (ESOP) and the 401(k) Plan (401(k)). Unless specified, the following information applies to both parts of the Plan.

The ESOP operates as a leveraged employee stock ownership plan. The ESOP purchased common stock of the Company with the proceeds of a note payable from the Company. The note is collateralized by the unallocated shares of stock and is guaranteed by the Company. The Company has no rights against shares once they are allocated. Accordingly, the financial statements of the Plan separately present the assets and liabilities and changes therein for allocated and unallocated shares.

Effective January 1, 2007 the Plan was amended in order to satisfy the requirements of a “safe harbor” plan, as defined by the IRS. Effective July 1, 2010, the Plan no longer satisfied the requirements of a “safe harbor” plan due to an amendment to the Plan reducing the employer matching contributions of Company common stock from 6 percent of the participant's eligible compensation to 1 percent of the participant's eligible compensation.

Contributions
401(k) - Each year, participants may contribute up to 75 percent of pretax annual compensation, not to exceed the annual limitations set by the IRS. Participants may also contribute amounts representing eligible rollover distributions from other eligible retirement plans. Participants direct the investment of their contributions into various investment options offered by the Plan. The Plan currently offers fifteen mutual funds and one collective trust fund, as well as Company stock as the investment options for participants. The Company matches eligible employee contributions dollar for dollar in Company common stock up to 1 percent of the participant's eligible compensation. The Plan provides immediate vesting and immediate diversification of the Company contributions. As such, the Company contributions are considered to be participant directed transactions. Contributions are subject to certain limitations.

ESOP - The Plan purchased common stock of the Company with the proceeds of a note payable. The Company is obligated to make contributions in cash to the Plan which, when aggregated with the Plan's earnings, are equal to the amount necessary to enable the Plan to make the annual scheduled payments of principal and interest due on the note. Discretionary contributions can be made at the option of the Company's Board of Directors. The Company has elected to make quarterly principal and interest payments to reduce the risk of price volatility in the Company's matching contribution. The Plan Sponsor calculates the principal and interest payment each quarter to release shares with a fair value equal to the employer match required under the 401(k) provisions of the Plan. On September 13, 2011, shareholders approved at the Company's annual meeting a proposal to amend the Company's Articles of Incorporation that effected a one-for-ten (1-for-10) reverse stock split of the Company's common stock. The reverse stock split was effective at the opening of business on September 19, 2011. Fractional shares were rounded up to the next whole share. The number of shares of common stock authorized and the par value of the common stock were not affected. All prior period share amounts have been retroactively restated to reflect the reverse stock split.

Participant Accounts
401(k) - Each participant's account is credited with the participant's contribution and allocations of (a) the Company's contribution, (b) Plan earnings, and is charged with his or her withdrawals and an allocation of Plan expenses. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account.

4



ESOP - Each participant's account is credited with the allocated shares of Company stock based on the amount of the loan payment. Payments are required at least annually. The aggregate number of shares allocated is determined by multiplying the number of unallocated shares on the payment date by the proportion of the principal and interest payment to the total current and future principal and interest payments for the loan as defined by the Plan document and loan document.
Stock dividends on allocated shares are credited to each participant's account. Stock and cash dividends on unallocated shares are required to repay the loan. Based on each participant's election, cash dividends on allocated shares may be (a) credited to the participant account and reinvested in Company stock or (b) distributed in cash to the participant. The Plan Administrator may elect to use cash dividends paid on allocated shares of Company stock in the ESOP accounts to repay the loan. Such an election by the Plan Administrator would supersede the participant's election. In the event that cash dividends on allocated shares are used to repay the loan, an additional allocation of shares to participants for not less than the value of the cash dividend is required. More complete information regarding the allocation of shares to individual participant accounts may be found in the Plan document.

Forfeitures and Vesting
Effective January 1, 2007, all participants were fully vested in Company matching contributions and any earnings thereon. Effective August 26, 2009, prior forfeited balances of terminated participants' non-vested accounts are available to pay administrative expenses of the Plan or to reduce Company contributions to the Plan. As of December 31, 2011 and 2010, forfeited nonvested accounts totaled $41,941 and $39,976, respectively. The Company did not utilize this balance during 2011.

Payment of Benefits
401(k) - Upon termination of service due to death, disability or retirement, or for other reasons, a participant will receive a lump-sum distribution equal to the value of the participant's vested interest in his or her account.
ESOP - Upon termination of service due to death, disability or retirement, a participant will receive the vested portion of his or her account in whole shares of Company stock, cash or a combination of both as elected by the participant.

Voting Rights
Each participant is entitled to exercise voting rights attributable to the shares allocated to his or her account and is notified by FSGBank, N.A., the Trustee of the Plan (the Trustee), prior to the time that such rights are to be exercised. The Trustee is not permitted to vote any allocated shares for which instructions have not been given by a participant. The Trustee is required, however, to vote any unallocated shares on behalf of the collective best interest of Plan participants and beneficiaries.

Diversification
A participant may diversify his or her account, including the allocated Company stock in the ESOP, to any available investment options of the Plan.

Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become fully vested in their employer contributions.

Fees
Investment management fees and operating expenses charged to the Plan for investments in the mutual funds are deducted from income earned on a daily basis and are not separately reflected. Consequently, management fees and operating expenses are reflected as a reduction of investment return for such investments.




5



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies and practices followed by the Plan are as follows:

Basis of Accounting
The accompanying financial statements are prepared on the accrual basis of accounting.

Investment Valuation and Income Recognition
The Plan's investments are stated at fair value. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.

Fair value measurements and disclosures (ASC 820) defines fair value as the price that would be received by the Plan for an asset or paid by the Plan to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date in the Plan's principal or most advantageous market for the asset or liability. ASC 820 establishes a fair value hierarchy which requires the Plan to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy places the highest priority on unadjusted quoted market prices in active markets for identical assets or liabilities (level 1 measurements) and gives the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs within the fair value hierarchy are defined as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Plan has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect the Plan's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.

The following descriptions of the valuation methods and assumptions used by the Plan to estimate the fair values of investments apply to investments held directly by the Plan.

Mutual funds: The fair values of mutual fund investments are determined by obtaining quoted prices on nationally recognized securities exchanges (level 1 inputs).

Company common stock: Investments in Company common stock are valued by quoted market prices on a nationally recognized securities exchange (level 1 inputs).
Collective trust fund: The fair value of interests in the collective trust fund (the fund) classified as a stable value fund is based upon the net asset value of such fund reflecting all investments at fair value,including indirect interests in fully benefit responsive contracts, as reported in the audited financial statements of the fund (level 2 inputs). The collective trust has underlying investments in guaranteed investment contracts (GICs), synthetic GICs and money market instruments that potentially have investments in various high-quality, short-term, fixed-income securities that can be carried at contract value and investment companies invested primarily in such high-quality, short-term, fixed-income securities. The fund may invest in any other fixed-income securities that can be carried at contract value, including bank investment contract (BICs), annuities, group annuity contracts and funding agreements issued by insurance companies. Under normal market conditions, the fund will attempt to invest at least 90% of its assets in GICs and synthetic GICs. The fund generally will attempt to maintain a cash position between 5% and 10% of total Fund assets, which will be invested in money market instruments. No more than 10% of the fund's total assets at the time of purchase will be invested in GICs issued by any single insurance company. The fund maintains a weighted average credit quality of at least AA. The collective trust provides for daily redemptions by the Plan at reported net asset values per share, with no advance notice requirement for funding participant directed transactions. Other withdrawals from the fund require 12 months advance written notice. The investment objective of the fund is stability of principal and high current income.


6



The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

See Note 3 for additional information on fair value.

Net Appreciation (Depreciation) in the Fair Value of Investments
The Plan presents in the Statement of Changes in Net Assets Available for Benefits the net appreciation or (depreciation) in the fair value of its investments, which consist of realized gains and losses and the unrealized appreciation or (depreciation) on those investments.

Fully Benefit-Responsive Investment Contracts
While Plan investments are presented at fair value in the Statement of Net Assets Available for Benefits, any material difference between the fair value of the Plan's direct and indirect interests in fully benefit-responsive investment contracts and their contract value is presented as an adjustment line in the Statement of Net Assets Available for Benefits, because contract value is the relevant measurement attribute for that portion of the Plan's net assets available for benefits. Contract value represents contributions made to a contract, plus earnings, less participant withdrawals and administrative expenses. Participants in fully benefit-responsive contracts may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value. The Plan holds an indirect interest in such contracts through its investment in a stable value fund. No adjustments from fair value to contract value are presented in the Statement of Net Assets Available for Benefits, as the amounts of the adjustments have been determined to be immaterial.

Risks and Uncertainties
The Plan's investments consist of a combination of investments. Investments are exposed to various risks, such as interest rate, market, liquidity and credit risks. Due to the level of risk associated with certain investments and the sensitivity of certain fair value estimates to changes in valuation assumptions, it is at least reasonably possible that changes in risks in the near term would materially affect participants' account balances and the amount reported in the financial statements. See Note 7 for concentration of market risks and other exposures.

Payment of Benefits
Benefits are recorded when paid.

Excess Contributions
Refunds of excess participant deferral contributions may be required to satisfy the relevant nondiscrimination provisions of the Plan. Such refunds are accrued as a liability and reduction in contributions in the Plan year in which the excess deferrals were made to the Plan.

Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.




7



NOTE 3 - FAIR VALUE

As described in Note 2, the Plan uses fair value, as defined by ASC 820, for the Plan investments. Investments measured at fair value on a recurring basis are summarized below:

Plan Investments Measured at Fair Value on a Recurring Basis as of December 31, 2011
 
Balance as of December 31, 2011
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
 
 
 
 
 
 
 
     Collective Trust Fund
$
1,993,932

 
$

 
$
1,993,932

 
$

     Domestic Equity Mutual Funds
2,372,238

 
2,372,238

 

 

     Foreign Equity Mutual Funds
464,247

 
464,247

 

 

     Bond Mutual Funds
872,831

 
872,831

 

 

     Life Cycle Mutual Funds
782,109

 
782,109

 

 

     Company Common Stock
233,503

 
233,503

 

 

     Interest-bearing Cash
179

 
179

 

 


Plan Investments Measured at Fair Value on a Recurring Basis as of December 31, 2010
 
Balance as of December 31, 2010
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
 
 
 
 
 
 
 
     Collective Trust Fund
$
1,505,401

 
$

 
$
1,505,401

 
$

     Domestic Equity Mutual Funds
3,527,158

 
3,527,158

 

 

     Foreign Equity Mutual Funds
918,281

 
918,281

 

 

     Bond Mutual Funds
1,276,700

 
1,276,700

 

 

     Life Cycle Mutual Funds
694,421

 
694,421

 

 

     Company Common Stock
995,766

 
995,766

 

 

     Interest-bearing Cash
1

 
1

 

 



The estimated fair value of the note payable is $1,768,810 and $3,453,862 as of December 31, 2011 and 2010, respectfully. The fair value was estimated by utilizing current market rates and the discounted cash flows of the note payable.




8



NOTE 4 - INVESTMENTS

Except for the investment in unallocated common stock of the Company, the Plan's investments are held by the custodian, Federated Investors Trust Company. The fair value of the individual investments applicable to the 401(k) that represent 5 percent or more of the Plan's net assets available for benefits are separately identified as follows:

 
2011
 
2010
Interest-bearing Cash
 
 
 
Other Funds *
$
179

 
$
1

 
 
 
 
Collective Trust Fund
 
 
 
Federated Capital Preservation Fund ISP
1,993,932

 
1,505,401

 
 
 
 
Mutual Funds
 
 
 
T. Rowe Price Retirement 2020 ADV
461,777

 
428,178

Janus Overseas Fund S
435,623

 
868,627

Goldman Sachs Mid Cap Value - Service
416,359

 
573,128

Hartford Midcap R4
401,346

 
602,822

American Funds Growth Fund of America
513,631

 
881,299

Federated Max Cap Index Fund SS
272,164

 
390,143

T. Rowe Price Equity Income Fund - R
409,535

 
484,955

Federated Asset Allocation Fund A

 
376,745

Federated Total Return Bond Svc
822,786

 
1,276,700

Other Funds *
758,204

 
533,963

 
4,491,425

 
6,416,560

 
 
 
 
TOTAL
$
6,485,536

 
$
7,921,962


* Fair value of investments did not represent 5 percent or more of the Plan's net assets available for benefits.

During 2011, the mutual funds within the 401(k) (including gains and losses on investments bought and sold as well as held during the year) depreciated in value by $456,286.

ESOP - The ESOP's investments consist solely of the Company's common stock as follows:

 
2011
 
2010
 
Allocated
 
Unallocated
 
Allocated
 
Unallocated
Number of shares
68,638

 
30,725

 
52,868

 
57,772

Cost
$
1,930,000

 
$
3,278,055

 
$
2,224,625

 
$
5,206,279

Fair value
$
161,300

 
$
72,203

 
$
475,815

 
$
519,951


The fair value of the ESOP investments have been measured by quoted prices in an active market. In addition to the matching ESOP contributions, participants may directly purchase Company common stock and may reinvest Company common stock cash dividends into additional shares. These participant-directed investments into Company common stock are purchased in open market transactions. The Company common stock depreciated in value by $696,380 during 2011. The Company contributions of $1,901,268 during 2011 to the ESOP released 27,054 shares with a fair value of $94,058 as of the allocation dates.




9



NOTE 5 - NOTE PAYABLE

The ESOP entered into a $5,000,000 note with the Company on December 22, 2005. This note was amended during 2006 to allow the Plan to borrow up to $5,750,000 to purchase Company common stock until December 31, 2006. This note was amended during 2008 to allow the Plan to borrow up to $13,396,767 to purchase Company common stock until December 31, 2008. This note was amended on January 28, 2010, to allow the Plan to borrow up to $12,745,136 to purchase Company common stock until December 31, 2010. The amended note has a term of 30 years, bears interest at 6.25 percent and requires annual payments beginning December 31, 2010. The scheduled principal payments of the note for the next five years and thereafter are as follows:

Year
 
Note Amortization
2012*
 
$
624,868

2013
 
427,974

2014
 
455,356

2015
 
255,779

2016
 

Thereafter
 


* Includes additional discretionary payments that have already been paid in 2012.

The note is secured by the Company common stock purchased by the Plan that has not been allocated to participant accounts. The Company is required to make contributions to the ESOP sufficient to amortize required payments of principal and interest on the note. In addition, the Company may make discretionary profit sharing contributions to the ESOP. Any ESOP contribution will first be used to repay the note. As the note is repaid, shares are allocated as described in Note 1. The treatment of cash dividends on allocated and unallocated shares are also described in Note 1.

As of December 31, 2011, the note had a balance of $1,763,977. The quarterly principal and interest payment based on the note amount as of December 31, 2011, is $122,317.


NOTE 6 - TAX STATUS

The Internal Revenue Service has determined and informed the Company, by a letter dated October 13, 2009, that the Plan and the related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). The Plan has been amended since receiving the determination letter. The Plan administrator believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC. The Company has filed for a new IRS determination letter.


NOTE 7 - CONCENTRATION OF MARKET RISKS AND OTHER EXPOSURES

The Plan had investments in the common stock of the Company of $233,503, approximating 3.5 percent of total assets and 4.7 percent of net assets available for benefits as of December 31, 2011, and $995,766, approximating 11.2 percent of total assets and 18.3 percent of net assets available for benefits as of December 31, 2010.

Based on the financial condition of the Plan Sponsor, the fair value of the Company common stock is subject to significant volatility. The Plan Sponsor has incurred losses from operations for the past two years and is also operating under formal supervisory agreements with their regulators. The Plan Sponsor is not in compliance with all provisions of these agreements. Failure to achieve all of these requirements may lead to additional regulatory actions. Other investments of the Plan are also exposed to various risks, such as interest rate, market, liquidity and credit risks that may result in adverse changes in fair value.

Due to the level of risk associated with the common stock of the Company and other investments of the Plan and the sensitivity of certain fair value estimates to changes in valuation assumptions, it is reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect participants' account balances and the amounts reported in the Statement of Net Assets Available for Benefits.




10



NOTE 8 - PLAN AMENDMENTS

From time to time, the Plan has been amended to comply with the provisions of ERISA and all applicable regulations of the IRS.

Effective January 1, 2011, the Plan was amended and restated to consolidate all amendments made subsequent to the last restatement of the Plan and to make other miscellaneous changes to the Plan for the Plan's determination letter filing with the Internal Revenue Service mentioned in Note 6. Note 1 provides the current provisions of the Plan, as amended and restated.


NOTE 9 - PARTY-IN-INTEREST TRANSACTIONS

Parties in interest are defined under Department of Labor regulations as any fiduciary of the Plan, any party rendering service to the Plan, the employer, and certain others. The Plan holds shares of First Security Group, Inc. common stock, and recognized no dividend income during 2011 from this related party investment. Certain administrative functions are performed by officers or employees of the Company. No such officer or employee receives compensation from the Plan. The Company pays a majority of administrative fees on behalf of the Plan, including all legal and accounting fees. The participants of the Plan are responsible for all advisory and investment fees. Federated Retirement Plan Services is the recordkeeper for the Plan. Federated Investors Trust Company (Federated) is the custodian for the Plan. The Plan contains mutual funds and a collective trust fund that are issued by Federated or its wholly-owned trust company subsidiary, and therefore, Federated and these investments are considered parties-in-interest.


NOTE 10 - TRUSTEE

The Trustee under the Plan shall have no discretionary authority or responsibility to direct the investment of assets under the Plan other than as specifically directed by the Retirement Committee of the Company or participants and beneficiaries of the Plan.



11


































SUPPLEMENTAL SCHEDULES








FIRST SECURITY GROUP, INC. 401(k) AND EMPLOYEE
STOCK OWNERSHIP PLAN
SCHEDULE H, LINE 4i SCHEDULE OF ASSETS (HELD AT END OF YEAR)
Schedule H, Part IV, Line 4(i) to Form 5500

December 31, 2011


Employer Identification Number: 58-246148 Plan Number: 001

Identity of Issue, Borrower,
Description
 
Current
  Lessor or Similar Party
Of Investment
Cost
Value
 
 
 
 
Interest-bearing Cash:
 
 
 
*First Security Stock Awaiting Purchase Fund

**
$
179

 
 
 
 
Collective Trust Fund:
 
 
 
*Federated Capital Preservation Fund ISP
199,393 units

**
1,993,932

 
 
 
 
Mutual Funds:
 
 
 
T. Rowe Price Retirement 2010 ADV
14,518 units

**
217,191

T. Rowe Price Retirement 2020 ADV
29,189 units

**
461,777

T. Rowe Price Retirement 2030 ADV
6,274 units

**
103,141

Janus Overseas Fund S
13,927 units

**
435,623

T. Rowe Price Int'l Growth & Income R
2,483 units

**
28,624

Baron Small Cap Fund
3,103 units

**
71,145

Franklin Small Cap Value Fund - R
1,339 units

**
54,415

Goldman Sachs Mid Cap Value - Service
12,609 units

**
416,359

Hartford Midcap R4
20,709 units

**
401,346

American Funds Growth Fund of America R3
18,130 units

**
513,631

*Federated Max Cap Index Fund SS
21,447 units

**
272,164

T. Rowe Price Equity Income Fund - R
17,821 units

**
409,535

*Federated Asset Allocation Fund A
13,760 units

**
233,643

*Federated High Yield Fund SS
8,734 units

**
50,045

*Federated Total Return Bond Svc
72,942 units

**
822,786

 
 
 
 
Common Stock:
 
 
 
*First Security Group, Inc. (allocated to participants)
68,638 shares

**
161,300

*First Security Group, Inc. (unallocated to participants)
30,725 shares

3,278,055
72,203

 
 
 
 
TOTAL INVESTMENTS
 
 
$
6,719,039


*A party-in-interest as defined by ERISA.
**Cost omitted for participant directed investments.



12



FIRST SECURITY GROUP, INC. 401(k) AND EMPLOYEE
STOCK OWNERSHIP PLAN
SCHEDULE H, LINE 4a - SCHEDULE OF DELINQUENT PARTICIPANT CONTRIBUTIONS
Schedule H, Part IV, Line 4(a) to Form 5500

Year ended December 31, 2011


Name of plan sponsor:          First Security Group, Inc.     
Employer identification number:          58-2461486         
Three digit plan Number:          001         


Check here if Late Participant Loan Repayments are Included
 
Total that Constitute Nonexempt Prohibited Transactions
 
Total Fully Corrected Under VFCP and PTE 2002-51
 
Contributions Not Corrected
 
Contributions Corrected Outside VFCP
 
Contributions Pending Correction in VFCP
 












 

 
$
36

 

 



13



EXHIBITS



The following exhibits are filed with this statement:

Exhibit No.     Description

23.1     Consent of Crowe Horwath LLP.



14



SIGNATURES




Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
 
FIRST SECURITY GROUP, INC. 401(k) AND EMPLOYEE STOCK OWNERSHIP PLAN
 
  
 
Date: June 28, 2012
By:  
FSGBank, N.A.,
as trustee

By:/s/ D. Michael Kramer
D. Michael Kramer
Chief Executive Officer
 
 



15




Exhibit Index

    
 
Exhibit No.
Description
 
 
 
 
23.1
Consent of Crowe Horwath LLP.



16