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 June 30, 2000
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
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(Exact name of registrant as specified in its charter)
Georgia 58-2094179
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(State of incorporation) (I.R.S. Employer Identification No.)
P.O. Box 3007
LaGrange, Georgia 30241
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(Address of principal executive offices) (Zip Code)
(706) 845-5000
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(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: 8,217,905 shares
Outstanding as of August 10, 2000
<PAGE>
FLAG Financial Corporation and Subsidiaries
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Table of Contents
Page
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2000 and
December 31, 1999......................................... 3
Consolidated Statements of Earnings for the Six Months and
Quarter Ended June 30, 2000 and 1999....................... 4
Consolidated Statements of Comprehensive Income for the
Six Months and Quarter Ended June 30, 2000 and 1999....... 5
Consolidated Statements of Cash Flows for the Six Months
and Quarter Ended June 30, 2000 and 1999................... 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............................................. 13
Item 2. Changes in Securities......................................... 13
Item 3. Defaults Upon Senior Securities............................... 13
Item 4. Submission of Matters to a Vote of Security Holders........... 14
Item 5. Other Information............................................. 14
Item 6. Exhibits and Reports on Form 8-K.............................. 14
<PAGE>
Part I. Financial Information
Item I. Financial Statments
FLAG Financial Corporation and Subsidiaries
Consolidated Balance Sheets
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June 30, December 31,
2000 1999
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ASSETS (UNAUDITED)
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Cash and due from banks.................... $ 17,476,520 $ 26,633,628
Federal funds sold......................... 70,000 450,000
--------------------------------
Total cash and cash equivalents........ 17,546,520 27,083,628
--------------------------------
Interest-bearing deposits.................. 1,357,884 2,791,688
Investment securities held-to-maturity..... - 16,243,837
Investment securities available-for-sale... 91,078,953 73,311,398
Other investments.......................... 4,788,795 6,091,761
Mortgage loans held for sale............... 4,278,017 3,483,833
Loans, net................................. 411,118,402 419,079,161
Premises and equipment, net................ 17,183,561 18,391,527
Other assets............................... 22,853,770 21,392,436
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Total assets............... $ 570,205,902 $ 587,869,269
==================================
LIABILITIES
Non interest-bearing deposits............ $ 53,097,193 $ 58,512,630
Interest-bearing deposits................ 412,022,105 425,474,502
Federal funds purchased.................. 14,040,000 15,320,000
Other borrowed funds..................... 2,468,666 -
Advances from Federal Home Loan Bank..... 29,375,331 27,172,889
Other liabilities........................ 6,798,660 8,192,353
-----------------------------------
Total liabilities........ 517,801,955 534,672,374
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STOCKHOLDERS' EQUITY
Preferred stock (10,000,000 shares authorized, none
issued and outstanding)............... - -
Common stock ($1 par value, 20,000,000 shares
authorized 8,275,405 and 8,272,815 shares
issued in 2000 and 1999, respectively.. 8,275,405 8,272,815
Additional paid-in capital................ 11,348,106 11,341,701
Retained earnings......................... 35,104,289 34,754,397
Accumulated other comprehensive income (loss) (1,918,384) (1,119,987)
Less: Treasury stock at cost; 57,500 shares in 2000 and 7,500
shares in 1999....................... (405,469) (52,031)
---------------------------------
Total stockholders' equity............... 52,403,947 53,196,895
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Total liabilities and stockholders' equity $570,205,902 $587,869,269
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See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
Consolidated Statements of Earnings
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<TABLE>
<CAPTION>
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
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<S> <C> <C> <C> <C>
2000 1999 2000 1999
Interest Income
Interest and fees on loans.......................... $10,488,721 $10,701,224 20,809,587 21,438,750
Interest on securities.............................. 1,464,443 1,449,089 2,909,726 2,874,780
Interest on federal funds sold and interest-bearing deposits 77,030 52,024 189,552 368,102
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Total interest income......................... 12,030,194 12,202,337 23,908,865 24,681,632
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Interest Expense
Interest on deposits................................ 4,824,338 4,924,243 9,492,438 10,128,824
Interest on borrowings.............................. 644,607 734,043 1,172,530 1,404,685
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Total interest expense........................ 5,468,945 5,658,268 10,664,968 11,533,509
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Net interest income before provision for loan losses... 6,561,249 6,544,051 13,243,897 13,148,123
Provision for Loan Losses.................................. 733,070 1,070,639 1,326,140 1,432,639
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Net interest income after
provision for loan losses................... 5,828,179 5,473,412 11,917,757 11,715,484
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Other Income
Fees and service charges............................. 1,212,346 874,734 2,492,595 2,173,408
Gain on sale of available for sale securities........ - 996,146 41,997 1,105,442
Gain on trading securities........................... - 483,151 - 800,512
Gain on sale of loans................................ 294,369 842,800 489,182 1,324,479
Other income......................................... 380,797 740,221 779,038 1,155,362
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Total other income............................ 1,887,512 3,937,052 3,802,812 6,559,203
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Other Expenses
Salaries and employee benefits...................... 3,607,946 3,932,432 7,417,864 7,617,029
Occupancy........................................... 1,069,866 1,356,379 2,145,769 2,258,825
Other operating..................................... 2,257,805 2,124,877 4,552,872 4,658,740
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Total other expenses.......................... 6,935,617 7,413,688 14,116,505 14,534,594
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Earnings before provision for
income taxes............................... 780,074 1,996,776 1,604,064 3,740,093
Provision for income taxes.......................... 120,439 684,223 268,023 1,235,790
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Net earnings................................. $ 659,635 1,312,553 1,336,041 2,504,303
============================================================
Basic earnings per share........................... $ 0.08 $ 0.16 $ 0.16 $ 0.30
Diluted earnings per share......................... $ 0.08 $ 0.16 $ 0.16 $ 0.30
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
Consolidated Statements of Comprehensive Income
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<TABLE>
<CAPTION>
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C>
2000 1999 2000 1999
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Net earnings.......................................................... $659,635 1,312,553 1,336,041 2,504,303
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 $162,527, $ 601,976, $473,381 and
$ 424,900, respectively...................................... (265,175) (982,171) (772,359) (692,666)
Less: Reclassification adjustment for gains (losses) included in net
earnings, net of tax of $378,515, $15,959 and $420,068,respectively - (617,611) (26,038) (685,374)
Gain on trading securities included in net earnings
in 1999, net of tax of $183,597 and $304,195 respectively.... (299,554) (496,317)
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Other comprehensive income............................................ (265,175) (1,899,336) (798,397) (1,874,357)
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Comprehensive income.................................................. $ 394,460 (586,783) 537,644 629,946
=====================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
Consolidated Statements of Cash Flows
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<TABLE>
<CAPTION>
(UNAUDITED)
June 30,
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<S> <C> <C>
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................ $1,336,041 $2,504,303
Adjustment to reconcile net earnings to net
cash provided by operating activities:
Depreciation, amortization and accretion........ 1,556,567 1,372,723
Provision for loan losses....................... 1,326,140 1,432,639
Gain on sale of investment securities
available-for-sale.......................... (41,997) (1,105,442)
Proceeds from sale of trading securities....... 292,487
Gain on sale of trading securities............. (286,019)
Unrealized gain on sale of trading securities.. (514,493)
Gain on sales of loans.......................... (489,182) (1,324,479)
Change in:
Mortgage loans held for sale.................. (337,301) 4,271,740
Other......................................... (2,115,526) (365,500)
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Net cash provided by operating activities.. 1,234,772 6,277,959
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in interest-bearing deposits................. 1,433,804 (592,851)
Proceeds from sales and maturities of investment
securities available-for-sale....................... 6,232,613 29,854,423
Proceeds from maturities of investment securities
held-to-maturity................................... 108,520 1,541,167
Proceeds from sale of other investments................. 3,037,048
Purchases of other investments.......................... (27,700) (3,821,000)
Purchases of investment securities available-for-sale... (8,070,165) (25,171,909)
Net change in loans..................................... 6,666,919 (31,253,842)
Proceeds from sale of ORE............................... 225,226 979,501
Proceeds from sale of premises and equipment............ 21,520
Purchases of premises and equipment..................... (405,811) (424,867)
Purchases of cash surrender value life insurance........ (139,987) 83,113)
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Net cash provided by (used in) investing activities.. 6,044,939 (25,935,443)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits.................................. (18,867,835) (28,337,239)
Change in federal funds purchased....................... (1,280,000) 15,965,236
Change in other borrowed funds.......................... 2,468,665 (45,420)
Proceeds from FHLB advances............................. 19,000,000 22,350,000
Payments of FHLB advances............................... (16,797,558) (16,917,673)
Purchase of treasury stock .......................... (353,438)
Proceeds from exercise of stock options................. 8,995 52,693
Repayment of note payable (9,500) (9,500)
Cash dividends paid..................................... (986,148) (885,714)
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Net cash used in financing activities......... (16,816,819) (7,827,617)
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Net change in cash and cash equivalents.... (9,537,108) (27,485,101)
Cash and cash equivalents at beginning of period........ 27,083,628 53,316,956
---------------------------------------
Cash and cash equivalents at end of period............... 17,546,520 25,831,855
=======================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
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, 1999.
Note 1. Basis of Presentation
The consolidated financial statements include the accounts of FLAG and its
wholly owned subsidiaries, First Flag Bank (LaGrange, Georgia), Citizens Bank
(Vienna, Georgia), and Thomaston Federal Savings Bank (Thomaston, Georgia). All
significant inter-company accounts and transactions have been eliminated in
consolidation.
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, 1999.
Note 2. Business Combinations
On September 30, 1999, First Hogansville Bankshares, Inc., parent company of The
Citizens Bank, in Hogansville, Troup County, Georgia merged into the FLAG. FLAG
issued approximately 575,000 shares to the First Hogansville shareholders. The
merger was accounted for as a pooling of interests. First Hogansville
Bankshares, Inc. was the sole shareholder of The Citizens Bank (Hogansville,
Georgia), a state bank organized under the laws of the State of Georgia. As a
result of the merger of First Hogansville Bankshares, Inc., with FLAG, The
Citizens Bank became a wholly-owned subsidiary of FLAG. On February 11, 2000,
The Citizens Bank merged into FLAG's subsidiary, First Flag Bank, and is now
known as First Flag Bank-Hogansville and operates as a branch office of First
Flag Bank.
<PAGE>
Notes to Consolidated Financial Statements
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Note 3. 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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
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<S> <C> <C> <C> <C>
2000 1999 2000 1999
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Basic earnings per share:
Net earnings............................... $ 659,635 1,312,553 1,336,041 2,504,303
Weighted average common shares
outstanding............................ $8,217,905 8,262,281 8,228,897 8,250,808
Per share amount $ 0.08 0.16 0.16 0.30
Diluted earnings per share:
Net earnings............................... $ 659,635 1,312,553 1,336,041 2,504,303
Effect of dilutive securities -
stock options *...................... - - - -
Diluted earnings per share $ 0.08 0.16 0.16 0.30
</TABLE>
* Stock options were anti-dilutive as of 6/30/00 and 06/30/99
Note 4. Recently Issued Accounting Standards
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS No. 133 establishes accounting and reporting
standards for hedging activities and for derivative instruments including
derivative instruments embedded in other contracts. It requires the fair value
recognition of derivatives as assets or liabilities in the financial statements.
The accounting for the changes in the fair value of a derivative depends on the
intended use of the derivative instrument at inception. SFAS No. 133 is
effective for all fiscal quarters in fiscal years beginning after June 15, 2000,
but initial application of the statement must be made as of the beginning of the
quarter.
At the date of initial application, an entity may transfer any held-to-maturity
security into the available-for-sale or trading categories without calling into
question the entity's intent to hold other securities to maturity in the future.
FLAG adopted SFAS No. 133 as of April 1, 2000, and transferred all held to
maturity securities to available for sale which decreased stockholders' equity
by $273,000 for the net of tax effect for the unrealized losses.
<PAGE>
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
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Results of Operations
Six months and quarters ended June 30, 2000 and 1999
Overview
Net earnings for the six months ended June 30, 2000 decreased $1,168,000 or 47
percent compared to the first six months of 1999. Net earnings per common share
decreased 47 percent for the first six months of 2000 and are $0.16 compared to
$0.30 in the first six months of 1999. Net earnings for the quarter ended June
30, 2000 decreased $653,000 or 50 percent compared to the quarter ended June 30,
1999. Net earnings per common share decreased 50 percent for the quarter ended
June 30, 2000 and are $.08 compared to $.16 in the quarter ended June 30, 1999.
Net interest income increased 1 percent for the six months ended June 30, 2000
over the same period of 1999 to $13.2 million. Non-interest income decreased 42
percent for the first six months of 2000 compared to the same period of 1999 and
non-interest expense decreased 3 percent for the first six months of 2000
compared to 1999. Non-interest income decreased 52 percent for the quarter ended
June 30, 2000 compared to the same period of 1999 and non-interest expense
decreased 6 percent for the quarter ended June 30, 2000 compared to 1999.
Net Interest Income
Net interest income for the first six months ended June 30, 2000 increased
$96,000 compared to the first six months of 1999. This increase resulted from a
$868,000 or 7 percent decrease in interest expense partially offset by a
$773,000 or 3 percent decrease in interest income. Net interest income for the
quarter ended June 30, 2000 did not change significantly from the quarter ended
June 30, 1999.
Non-Interest Income and Expense
Non-interest income for the first six months of 2000 decreased $2,756,000 or 42
percent compared to the first six months of 1999. Non-interest income for the
quarter ended June 30, 2000 decreased $2,049,000 or 52 percent compared to the
quarter ended June 30, 1999. These decreases were due largely to a decrease in
gain on sale of available-for-sale securities, as well as a decrease in gain on
trading securities. Gain on sale of loans for the first six months of 2000
decreased 63 percent or $835,000 compared to the same period of 1999, and
decreased $548,000 or 65 percent for the quarter ended June 30, 1999. This
decrease was due in part to a one time gain on the sale of the guaranteed
portion of a commercial loan during 1999 in the amount of $382,000. Other
operating income for the first six months of 2000 decreased $379,000 or 33
percent compared to the first six months of 1999, in part due to a decrease in
mortgage servicing income as a result of the sale of a significant portion of
the mortgage servicing portfolio during the fourth quarter of 1999. Other
operating income decreased $359,000 or 49 percent for the quarter ended June 30,
2000 compared to the same period in 1999 also due to the sale of the mortgage
servicing portfolio. Non-interest expense decreased $418,000 or 3 percent in the
first six months of 2000 compared to the same period in 1999. Non-interest
expense decreased $474,000 or 6% for the quarter ended June 30, 2000 compared to
the same period of 1999. Salaries and employee benefits decreased $199,000 or 3
percent during the first six months of 2000 compared to 1999 and decreased
$324,000 or 8 percent during the quarter ended June 30, 1999. This decrease
reflects management's continued emphasis on consolidation and cost containment
in an effort to increase the efficiency of our operations.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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Income Taxes
Income tax expense for the first six months of 2000 was $268,000 compared to
$1,236,000 for the first six months of 1999. The effective tax rate for the six
months ended June 30, 2000 was 17 percent and for the six months ended June 30,
1999 was 33 percent. Income tax expense for the quarter ended June 30, 2000 was
$120,000 compared to $684,000 for the same period in 1999. The effective tax
rate for the quarter ended June 30, 2000 was 15 percent and for the quarter
ended June 30, 1999 was 34 percent.
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 losses at
June 30, 2000 was $7.2 million compared to $7.0 million at December 31, 1999.
The ratio of the allowance for loan losses to net outstanding loans at June 30,
2000 and December 31, 1999 was 1.75 percent and 1.67 percent, respectively.
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 $16.9 million
at June 30, 2000 compared to $15.8 million at December 31, 1999. Non-performing
assets as a percentage of net loans at June 30, 2000 and December 31, 1999 were
4.11 percent and 3.78 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.
.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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Financial Condition
Overview
Total assets were $570.2 million at June 30, 2000, a decrease of $17.7 million
or 3.0 percent from December 31, 1999.
Assets and Funding
At June 30, 2000 earning assets totaled $512.7 million, a decrease of $8.8
million from December 31, 1999. Loans comprised 80 percent of earning assets and
investment securities were 19 percent of earning assets at June 30, 2000.
At June 30, 2000, interest-bearing deposits decreased $13.4 million compared to
December 31, 1999. Non-interest bearing deposits decreased $5.4 million in the
first six months of 2000 and totaled $53.1 million at June 30, 2000. Federal
Home Loan Bank advances increased $2.2 million in the first six months of 2000
and totaled $29.4 million at June 30, 2000. At June 30, 2000, deposits
represented 90 percent of FLAG's interest-bearing liabilities and Federal Home
Loan Bank advances represented 6 percent. These changes in the mix reflect
management's continued emphasis on balance sheet restructuring.
Liquidity and Capital Resources
Net cash provided by operating activities totaled $1.2 million for the six
months ended June 30, 2000. Net cash provided by investing activities totaling
$6.0 million consisted of a $6.7 million net decrease in loans outstanding, and
$6.2 million in proceeds from sales and maturities of investment securities
available-for-sale, partially offset by purchases of $8.0 million of investment
securities available-for-sale. Net cash used in financing activities consisted
largely of a $18.9 million decrease in deposits, partially offset by a $2.2
million net increase in Federal Home Loan Bank advances.
Total stockholders' equity at June 30, 2000, was 9.19 percent of total assets
compared to 9.05 percent at December 31, 1999. The slight increase is attributed
to a $17.7 million decrease in total assets since December 31, 1999.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
--------------------------------------------------------------------------------
At June 30, 2000, 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 Capital, Tangible
Capital, and Risk-Based Capital:
June 30, 2000
-------------------------------------------------------------------------------
Actual Required Excess
Amount % Amount % Amount %
-------------------------------------------------------------------------------
Tier 1 Capital $ 51,064 9.06% $ 22,556 4.00% $ 28,508 5.06%
Tangible Capital $ 51,064 9.06% $ 8,458 1.50% $ 42,606 7.56%
Risk-Based Capital $ 56,667 12.69% $ 35,728 8.00% $ 20,939 4.69%
Year 2000
FLAG did not experience any material disruptions in its operations as a result
of the "Year 2000" problem. In addition, FLAG is not aware that any of their
suppliers or customers has experienced any material disruptions in their
operations or activities. FLAG does not expect to encounter any such problems in
the foreseeable future, although we continue to monitor our computer operations
for signs of such problems.
It is possible, however, that if Year 2000 problems are incurred by FLAG's
customers, such problems could have a negative impact on future operations and
financial performance, although we have not identified any such problems among
our customers or suppliers. Furthermore, the Year 2000 problem may impact other
entities with which FLAG transacts business and FLAG cannot predict the effect
of the Year 2000 problem on such entities or resulting effects on FLAG.
<PAGE>
Part 2. Other Information
FLAG Financial Corporation and Subsidiaries
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PART II. Other Information
Item 1. Legal Proceedings
FLAG and the Banks are periodically involved as plaintiff or defendant
in various legal actions in the ordinary course of its business.
As previously reported, First Flag Bank is a named defendant in a suit
filed in December 1998 in Superior Court of the State of California for the
County of Los Angeles. The plaintiffs leased ATM machines from First Flag Bank
and other defendants. Another named defendant arranged the leases and agreed to
manage the ATMs and leases on behalf of the plaintiffs. The plaintiffs allege
that this defendant has breached his contract with the plaintiffs. First Flag
Bank leased the plaintiffs ten ATMs having an original value of approximately
$20,000 each. The plaintiffs allege, among other things, that First Flag Bank
and the other lessor defendants are liable for fraud, restitution, recission and
negligent misrepresentation. The parties currently are exploring settlement. If
the parties do not reach a settlement, First Flag Bank intends to vigorously
defend the claims and pursue counterclaims against the plaintiffs.
As previously reported, First Flag Bank purchased certain warehouse
loans of Gulf Properties Financial Services, Inc., a residential mortgage
broker. The loans that Gulf Properties sold to First Flag Bank were fraudulent.
Gulf Properties filed Chapter 11 bankruptcy on December 30, 1998. First Flag
Bank is serving on the creditors' committee and is assisting in the liquidation
of assets, which will be distributed on a pro rata basis among the creditors.
First Flag Bank has collected $928,047 as part of the bankruptcy proceedings.
Additionally, First Flag Bank will receive $1.6 million from a claim under its
fidelity bond regarding this matter. The perpetrators of the fraud have pled
guilty to criminal charges and have been sentenced to prison. First Flag Bank
obtained a restitution order as part of the criminal sentence. First Flag Bank's
exposure as a result of the fraud was approximately $3 million. Several other
banks also purchased fraudulent loans from Gulf Properties and the total amount
of exposure of all banks is approximately $32 million.
As previously reported, Tad Moore Golf, Inc. is a borrower of First
Flag Bank. An investor in Tad Moore Golf, Inc., who is also a lender to Tad
Moore Golf, Inc., sued First Flag Bank in Southern District Court in New York
alleging that First Flag Bank fraudulently induced the investor into allegedly
subordinating his loan to the loan of First Flag Bank. The investor was also a
borrower of First Flag Bank. The plaintiff is claming $1.6 million in
consequential damages and $10 million in punitive damages. First Flag Bank has
succeeded in having the venue of this matter transferred from New York to United
States District Court in Newnan, Georgia. Discovery ended on July 31, 2000.
The plaintiffs have filed a motion to extend discovery and First Flag Bank has
filed an objection to the motion to extend. First Flag Bank intends to continue
vigorously defending this claim and pursue counterclaims against the investor.
On June 28, 2000, David and Trenne Baker filed a suit against America's
Homeplace, Southern Homestead Mortgage and First Flag Bank in Superior Court of
Bartow County, Georgia. The Complaint alleges that the defendants are liable to
the plaintiffs for unspecified damages for fraud, suppression and concealment,
breach of contract, intentional infliction of emotional distress, negligent
infliction of emotional distress, conspiracy and violations of Georgia RICO
arising out of the construction and purchase of a house from a co-defendant by
the plaintiff. First Flag bank Other Information provided the construction
financing on the home. First Flag Bank intends to vigorously defend the claim.
<PAGE>
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
Pursuant to Rule 14a-14(c)(1) promulgated under the Securities Exchange
Act of 1934, as amended, shareholders desiring to present a proposal for
consideration at the Company's 2001 Annual Meeting of Shareholders must notify
the Company in writing to the Secretary of the Company, at Eagle's Landing, 235
Corporate Center Drive, Stockbridge, Georgia 30281 of the contents of such
proposal no later than December 15, 2000 to be included in the 2001 Proxy
Materials. A shareholder must notify the Company before January 15, 2001 of a
proposal for the 2001 Annual Meeting that the shareholder intends to present
other than by inclusion in the Company's proxy material. If the Company does not
receive such notice prior to January 15, 2001, proxies solicited by the
management of the Company will confer discretionary authority upon the
management of the Company to vote upon any such matter.
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits: 27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K filed during the Second Quarter 2000:
The Company has not made any Form 8-K filings.
Reports on Form 8-K filed since Quarter End 2000 to Present:
Current Report on Form 8-K, dated August 3, 2000, regarding completion of
branch sale.
<PAGE>
FLAG Financial Corporation and Subsidiaries
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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:_____________________
Thomas L. Redding
(Chief Financial Officer)
Date:____________________
