UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____ to ______
Commission file number 0-24532
FLAG FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2094179
- --------------------------------------------------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
P.O. Box 3007
LaGrange, Georgia 30241
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(Address of principal executive (Zip Code)
offices)
(706) 845-5000
- --------------------------------------------------------------------------------
(Telephone Number)
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
Common stock, par value $1 per share: 3,448,924, shares
Outstanding as of May 14, 1998
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Table of Contents
Page
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1998 and
December 31, 1997..................................................... 3
Consolidated Statements of Earnings for the Three Months
Ended March 31, 1998 and 1997......................................... 4
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 1998 and 1997............................ 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997......................................... 6
Notes to Consolidated Financial Statements.............................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations.................................... 9
PART II Other Information
Item 1. Legal Proceedings................................................ 12
Item 2. Changes in Securities............................................ 12
Item 3. Defaults Upon Senior Securities.................................. 12
Item 4. Submission of Matters to a Vote of Security Holders.............. 12
Item 5. Other Information................................................ 13
Item 6. Exhibits and Reports on Form 8-K................................. 13
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
1998 1997
--------------------------
ASSETS (UNAUDITED)
Cash and cash equivalents........................... $17,909,522 $17,891,053
Interest-bearing deposits........................... 3,609,535 3,168,353
Investment securities held-to-maturity.............. 2,547,743 2,607,835
Investment securities available-for-sale............ 66,948,759 65,382,658
Other investments................................... 5,590,053 5,266,753
Mortgage loans held for sale........................ 5,727,559 3,481,678
Loans, net.......................................... 267,058,511 253,716,513
Premises and equipment, net......................... 11,701,232 10,848,183
Mortgage servicing rights .......................... 1,362,844 1,174,292
Accrued interest receivable......................... 3,606,983 4,163,311
Cash surrender value of life insurance.............. 3,584,514 3,534,620
Other assets........................................ 5,808,541 5,501,014
---------------------------
Total assets.................................$395,455,796 $376,736,263
===========================
LIABILITIES
Non interest-bearing deposits....................... $25,594,176 $28,234,904
Interest-bearing deposits........................... 277,396,801 266,034,007
Federal funds purchased............................. 0 70,000
Advances from Federal Home Loan Bank................ 48,616,667 43,637,494
Accrued interest payable............................ 1,370,000 1,223,196
Other liabilities................................... 8,401,988 4,276,444
---------------------------
Total liabilities............................. 361,379,632 343,476,045
---------------------------
STOCKHOLDERS' EQUITY
Preferred stock (10,000,000 shares authorized
none issued and outstanding) .................. - -
Common stock ($1 par value, 20,000,000 shares
authorized, 3,049,274 shares issued and
outstanding.................................... 3,049,274 3,049,274
Additional paid-in capital.......................... 10,312,958 10,312,958
Retained earnings................................... 20,609,111 19,936,046
Unrealized gain (loss) on investment securities
available-for-sale, net of tax................ 104,821 (38,060)
---------------------------
Total stockholders' equity..................... 34,076,164 33,260,218
---------------------------
Total liabilities and stockholders' equity.....$395,455,796 $376,736,263
===========================
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
1998 1997
Interest Income (UNAUDITED)
Interest and fees on loans......................... $6,552,796 $5,515,350
Interest on securities.............................. 1,212,212 984,070
Interest on time deposits........................... 53,605 104,155
---------------------
Total interest income......................... 7,818,613 6,603,575
---------------------
Interest Expense
Interest on deposits................................ 3,191,330 2,811,344
Interest on borrowings.............................. 702,724 240,870
----------------------
Total interest expense........................ 3,894,054 3,052,214
---------------------
Net interest income before
provision for loan losses................. 3,924,559 3,551,361
Provision for Loan Losses 186,000 180,000
---------------------
Net interest income after
provision for loan losses................... 3,738,559 3,371,361
---------------------
Other Income
Fees and service charges............................ 916,102 803,869
Gain on sale of investment securities............... 63,999 81,545
Gain on sale of loans............................... 298,652 94,907
Gain (loss) on sale of real estate, net............. 17,737 (9,486)
Other income........................................ 658,441 179,232
---------------------
Total other income............................ 1,954,931 1,150,067
---------------------
Other Expenses
Salaries and employee benefits...................... 2,031,455 1,503,159
Occupancy .......................................... 808,509 691,698
Other operating..................................... 1,514,250 876,839
---------------------
Total other expenses.......................... 4,354,214 3,071,696
---------------------
Earnings before provision for income taxes.... 1,339,276 1,449,732
Provision for income taxes.......................... 428,833 477,844
---------------------
Net earnings ................................ $910,443 $971,888
======================
Basic earnings per share............................ $0.30 $0.32
Diluted earnings per share.......................... $0.30 $0.32
See Accompanying Notes to Consolidated Financial Statements
4
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FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
- --------------------------------------------------------------------------------
Three months ended
March 31,
1998 1997
---- ----
Net earnings........................................... $ 910,443 $ 971,888
Other comprehensive income, net of tax:
Unrealized gains (losses) on investment securities
available-for-sale:
Unrealized gains (losses) arising during the period,
net of tax of $87,572 and ($45,200),
respectively ................................... 142,881 (73,747)
Less: Reclassification adjustment for gains
included in net earnings, net of tax
of $24,320 and $30,987, respectively..... (39,679) (50,558)
--------------------
Other comprehensive income ........................... 103,202 (124,305)
---------------------
Comprehensive income................................... $ 1,013,645 $847,583
======================
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
March 31,
1998 1997
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings .................................. $ 910,443 $ 971,888
Adjustment to reconcile net earnings to net
cash provided by operating activities:
Depreciation, amortization and accretion ...... 423,954 335,248
Provision for loan losses ..................... 186,000 180,000
Gain on sale of investment securities
available-for-sale ........................ (63,999) (81,545)
Gain on sales of loans ........................ (298,652) (94,907)
(Gain) loss on other real estate .............. (17,737) 9,486
Change in:
Mortgage loans held for sale ........... (1,947,229) (664,066)
Other .................................. 4,223,602 783,117
--------- -------
Net cash provided by operating activities .... 3,416,831 1,437,574
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in interest-bearing deposits ....... (441,182) (1,319,105)
Proceeds from sales and maturities of
investment securities available-for-sale .. 17,979,484 44,747,242
Proceeds from maturities of investment
securities held-to-maturity ............... 56,024 132,756
Purchases of other investments ................ (323,300) (99,995)
Purchases of investment securities
available-for-sale ....................... (19,269,688) 38,538,149)
Net change in loans ........................... (13,527,998) 6,452,261
Purchases of premises and equipment ........... (1,215,220) (550,768)
Purchases of cash surrender value
life insurance ........................... (49,894) (84,937)
------- -------
Net cash provided by (used in)
investing activities ...................... (16,792,223) 10,740,952
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits ........................ 8,722,066 1,831,454
Decrease in federal funds purchased ........... (70,000) (2,210,000)
Proceeds from FHLB advances ................... 5,000,000 1,500,000
Payments of FHLB advances ..................... (20,827) (4,520,833)
Cash dividends paid ........................... (237,378) (237,086)
-------- --------
Net cash provided by (used in)
financing activities ....................... 13,393,861 (3,636,465)
---------- ----------
Net change in cash and cash equivalents ...... 18,469 8,542,061
Cash and cash equivalents at beginning of
the period ................................. 17,891,053 10,664,077
---------- ----------
Cash and cash equivalents at end of period ..... $ 17,909,522 $ 19,206,138
============ ============
See Accompanying Notes to Consolidated Financial Statements
6
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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The accompanying consolidated financial statements have not been audited. The
results of operations are not necessarily indicative of the results of
operations for the full year or any other interim periods.
The accounting principles followed by FLAG Financial Corporation ("FLAG") and
its bank subsidiaries and the methods of applying these principles conform with
generally accepted accounting principles and with general practices within the
banking industry. Certain principles, which significantly affect the
determination of financial position, results of operations, and cash flows are
summarized below and in FLAG's annual report on Form 10-K for the year ended
December 31, 1997.
Note 1. Basis of Presentation
The consolidated financial statements include the accounts of FLAG and its
wholly-owned subsidiaries, First Federal Savings Bank of LaGrange (LaGrange) and
Citizens Bank (Vienna). All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain items in prior period's financial
statements have been reclassified to conform to the current financial statement
presentation.
The consolidated financial information furnished herein represents all
adjustments that are, in the opinion of management, necessary to present a fair
statement of the results of operations, and financial position for the periods
covered herein and are normal and recurring in nature. For further information,
refer to the consolidated financial statements and footnotes included in FLAG's
annual report on Form 10-K for the year ended December 31, 1997.
Note 2. Business Combinations
On March 30, 1998, FLAG announced the completion of its merger with Middle
Georgia Bankshares, Inc. ("MGB"). The transaction has been accounted for as a
pooling of interests, and all prior period financial statements of FLAG have
been restated to reflect the merger as if it had occurred at the beginning of
the earliest period presented.
On May 12, 1998, FLAG announced the completion of its merger with Three Rivers
Bancshares, Inc. ("TRB"), parent company of Bank of Milan in Milan, Georgia. The
transaction will be accounted for as a pooling of interests. As of March 31,
1998, TRB had approximately $36 million in assets and operated two branch
offices located in Milan and McRae, Georgia.
7
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Note 4. Earnings per share
Net earnings per common share are based on the weighted average number of common
shares outstanding during each period. The calculation of basic and diluted
earnings per share is as follows:
March 31,
---------------------------
1998 1997
---------------------------
Basic earnings per share:
Net earnings ................................. 910,443 971,888
Weighted Average Common shares
Outstanding .............................. 3,049,274 3,044,077
Per share amount ............................. 0.30 0.32
Diluted earnings per share:
Net earnings ................................. 910,443 971,888
Effect of dilutive securities -
stock options ............................ 34,787 8,376
Diluted earnings per share ................... 0.30 0.32
Note 5. Recently issued accounting standards
On January 1, 1998, The Company adopted Statement of Financial Accounting
Standard No. 130, "Reporting Comprehensive Income." This Statement establishes
standards for the reporting and display of comprehensive income and its
components in the financial statements. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. For the Company,
comprehensive income includes net income reported in the statements of earnings
and changes in the fair value of securities available-for-sale reported as a
component of stockholders' equity.
8
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Results of Operations
Quarters ended March 31, 1998 and 1997
Overview
- --------
Net earnings for the quarter ended March 31, 1998 decreased $61,000 or 6 percent
compared to first quarter 1997. Net earnings per common share also decreased 6
percent for the first quarter of 1998 and is $0.30 compared to $0.32 in the
first quarter of 1997. Net interest income increased 11% for the quarter ended
March 31, 1998 over the same period of 1997 to $3.9 million. Non-interest income
and expense rose 70 percent and 42 percent, respectively, for the first quarter
of 1998 compared to the same period of 1997.
Net Interest Income
- -------------------
Net interest income for the quarter ended March 31, 1998 increased $373,000
compared to the first quarter of 1997. This increase resulted from a $1,215,000,
or 18 percent increase in interest income and a $842,000 or 28 percent increase
in interest expense. The increase in interest income resulted from an increase
in average earning assets of $61.5 million partially offset by a decrease in the
average yield on earning assets from 9.10 percent to 8.89 percent. The increase
in interest expense was primarily due to a $60.9 million increase in average
interest bearing liabilities.
Non-Interest Income and Expense
- -------------------------------
Non-interest income for the first three months of 1998 increased $804,864 or 70
percent compared to the first quarter of 1997. Other income includes a loan fee
of $530,000 that FLAG received for its assistance in originating, finding
participants and selling an R&D loan in the first quarter of 1998. Fees and
service charges increased $112,000 or 14 percent during 1998 compared to the
first three months of 1997. Of this increase, $44,000 was due to increases in
deposit account fees and service charges. Another contributing factor to the
increase in 1998 earnings was gains related primarily to sales of currently
originated residential mortgage loans. These gains increased $204,000 in 1998,
more than doubling first quarter 1997 gains, due to an increased number of
residential loan refinancings.
Non-interest expense increased almost $1.3 million or 42 percent in the first
quarter of 1998 compared to the same period in 1997. Salaries and employee
benefits increased $528,000, a 35% increase over first quarter 1997. The
increase was primarily due to additional staffing requirements. Many of the
additional positions were sales related, that management believes in the
long-term will increase revenues. Management also believes consolidation
efficiencies will be realized from its recent merger with MGB that will reduce
the need for some personnel.
9
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Other expenses increased $637,000 or 73 percent this period compared to the
first three months in 1997. Approximately $400,000 of this increase is legal and
professional fees related to FLAG's merger with MGB.
Income Taxes
- ------------
Income tax expense for the first three months was $429,000 in 1998 compared to
$478,000 in 1997. The effective tax rates for the first three months ended March
31, 1998 and 1997 were 32 percent and 33 percent, respectively.
Provision and Allowance for Possible Loan and Lease Losses
- ----------------------------------------------------------
The adequacy of the allowance for loan and lease losses is determined through
management's informed judgment concerning the amount of risk inherent in FLAG's
loan and lease portfolios. This judgment is based on such factors as the change
in levels of non-performing and past due loans and leases, historical loan loss
experience, borrowers' financial condition, concentration of loans to specific
borrowers and industries, estimated values of underlying collateral, and current
and prospective economic conditions. The allowance for loan and lease at March
31, 1998 was $3.6 million compared to $3.5 million at December 31, 1997. The
ratio of the allowance for loan losses to outstanding loans at March 31, 1998
was 1.32 percent compared to 1.37 percent at December 31, 1997. It is
management's belief that the allowance for loan losses is adequate to absorb
possible loss in the loan portfolio.
Non-Performing Assets and Past Due Loans
- ----------------------------------------
Non-performing assets, comprised of real estate owned, non-accrual loans and
loans for which payments are more than 90 days past due, totaled $2.5 million at
March 31, 1998 compared to $8.9 million at March 31, 1997. Non-performing assets
as a percentage of total loans and real estate owned at March 31, 1998 and March
31, 1997 were 0.94 percent and 4.08 percent respectively.
FLAG has a loan review function that continually monitors selected accruing
loans for which general economic conditions or changes within a particular
industry could cause the borrowers financial difficulties. The loan review
function also identifies loans with high degrees of credit or other risks. The
focus of loan review as well as FLAG management is to maintain a low level of
non-performing assets and return current non-performing assets to earning
status.
Management is unaware of any known trends, events or uncertainties that will
have or that are reasonably likely to have a material effect on FLAG's
liquidity, capital resources or operations.
10
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Financial Condition
Overview
- --------
Total assets were $395 million at March 31, 1998, an increase of $18.7 million
or 5 percent from December 31, 1997.
Assets and Funding
- ------------------
At March 31, 1998 earning assets totaled $361 million, an increase of more than
$21.5 million from December 31, 1997. The mix of interest earning assets
remained relatively the same in the first 3 months of 1998. Loans remained at 76
percent of earning assets and investment securities decreased to 21 percent of
earning assets from 22 percent at December 31, 1997.
At March 31, 1998, interest-bearing deposits increased $11.4 million compared to
December 1997. Noninterest-bearing deposits decreased $2.6 million in the first
three months of 1998 and totaled $25.6 million at March 31, 1998. Federal Home
Loan Bank advances increased $5 million in the first quarter of 1998 and totaled
$48.6 million at March 31, 1998. At March 31, 1998, deposits represented 86
percent of FLAG's interest-bearing liabilities and Federal Home Bank advances
represented 14 percent.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operations totaled $3,417,000 for the quarter ended March
31, 1998. Net cash used by investing activities totaling $16,792,000 consisted
of $18,035,000 of proceeds from sale and maturities of investment securities,
offset by cash flows of $19,593,000 in investment securities purchases, a
$441,000 increase in interest-bearing deposits, a $13,528,000 net increase in
loans outstanding, purchases of bank premises and equipment of $1,215,000, and a
$50,000 increase in cash surrender value of life insurance. Net cash provided by
financing activities consisted largely of $8,722,000 increases in deposits and
increases in Federal Home Loan Bank advances of $4,979,000.
Total stockholders' equity at March 31, 1998, was 8.62 percent of total assets
compared to 8.83 percent at December 31, 1997. The slight decrease is attributed
to an $18 million increase in total assets since December 31, 1997.
11
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
At March 31, 1998, FLAG and its banks were in compliance with various regulatory
capital requirements administered by Federal and state banking agencies. The
following is a table representing FLAG's consolidated Tier-1, tangible capital,
and risk-based capital
March 31, 1998
- --------------------------------------------------------------------------------
Actual Required Excess
Amount % Amount % Amount %
- --------------------------------------------------------------------------------
Tier 1 capital ....... $ 31,950 7.91% $ 16,166 4.00% $ 15,784 3.91%
Tangible capital ..... 31,950 7.91% 6,062 1.50% $ 25,888 6.41%
Risk-based capital ... 34,238 12.69% 21,580 8.00% $ 12,658 4.69%
PART II.
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1998 Annual Meeting of Shareholders was held on May 13, 1998.
(b) Election of directors
The shareholders voted 2,449,565.596 shares in the affirmative and
7004 shares were withheld from the authority to vote for the election
of Dr. A. Glenn Bailey, Kelly R. Linch and J. Daniel Speight, Jr. as a
class of directors, each to serve a three year term as a director of
the Company.
(c) The shareholders voted 2,320,011.640 shares in the affirmative and
89,570.843 shares in the negative, with 33,022.113 shares abstaining
for the amendment of the 1994 Employee Stock Incentive Plan.
12
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
(c) The shareholders voted 2,448,658.560 shares in the affirmative and 0
shares in the negative, with 7,911.036 shares abstaining for the
ratification and appointment of Porter, Keadle, Moore LLP as
independent accountants of the Company for the fiscal year ending
December 31, 1998.
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
On April 15, 1998, FLAG filed a Form 8-K announcing the completion of a
merger agreement with Middle Georgia Bankshares with and into FLAG on March 31,
1998.
On January 28, 1998, FLAG announced the execution of a Letter of Intent
with Three Rivers Bancshares, Inc ("Three Rivers") to merge with and into FLAG.
On February 18, 1998, FLAG filed a Form 8-K announcing the execution of a
Definitive Agreement and Plan of Merger with Three Rivers.
Exhibit 27 - Financial Data Schedule (for SEC use only)
13
<PAGE>
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLAG Financial Corporation
By:/s/ Ellison C. Rudd
----------------------
Ellison C. Rudd
(Chief Financial Officer)
Date: May 15, 1998
14
<PAGE>
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,390
<INT-BEARING-DEPOSITS> 3,610
<FED-FUNDS-SOLD> 9,520
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 66,949
<INVESTMENTS-CARRYING> 2,548
<INVESTMENTS-MARKET> 2,513
<LOANS> 267,059
<ALLOWANCE> 3,580
<TOTAL-ASSETS> 395,456
<DEPOSITS> 302,991
<SHORT-TERM> 48,617
<LIABILITIES-OTHER> 9,772
<LONG-TERM> 0
0
0
<COMMON> 3,049
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<TOTAL-LIABILITIES-AND-EQUITY> 395,456
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<EXTRAORDINARY> 0
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<NET-INCOME> 910
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