SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 North Greenwood Street, LaGrange, Georgia 30240
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(Address of principal executive offices)
(706) 845-5000
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(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of
the Act: Common Stock, $1.00 par value
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Indicate by check mark whether the Registrant (1) has 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 and (2) has been subject to such filing requirements for
the 3past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the Registrant's outstanding Common Stock held by
non-affiliates of the Registrant on March 17, 1999 was approximately
$45,737,320. There were 8,222,905 shares of Common Stock outstanding as of March
17, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
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Portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders to be held on April 19, 2000, are incorporated by reference in Part
III hereof.
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FLAG FINANCIAL CORPORATION
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 1999
Table of Contents
Item Page
Number Part I Number
- ------ ------ ------
1. Business.......................................................... 1
2. Properties........................................................ 11
3. Legal Proceedings................................................. 14
4. Submission of Matters to a Vote of Security Holders............... 15
Part II
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5. Market for Registrant's Common Stock and Related
Shareholder Matters........................................... 15
6. Selected Financial Data........................................... 16
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 17
7A. Quantitative and Qualitative Disclosures about Market Risk........ 29
8. Financial Statements and Supplementary Data ...................... 30
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 57
Part III
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10. Directors and Executive Officers of the Registrant ............... 57
11. Executive Compensation............................................ 57
12. Security Ownership of Certain Beneficial Owners and Management.... 57
13. Certain Relationships and Related Transactions.................... 57
PART IV
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14. Exhibits, Financial Statement Schedules and Reports on Form 8-K... 58
Signatures........................................... 62
Index of Exhibits ................................... 64
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PART I
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ITEM 1. BUSINESS
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in this document and in documents
incorporated by reference herein, including matters discussed under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," may constitute forward-looking statements for purposes of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended. These forward-looking statements may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from future results,
performance or achievements expressed or implied by such forward-looking
statements. The words "expect," "anticipate," "intend," "plan," "believe,"
"seek," "estimate," and similar expressions are intended to identify such
forward-looking statements. The Company's actual results may differ materially
from the results anticipated in these forward-looking statements due to a
variety of factors, including, without limitation:
(1) The effects of future economic conditions;
(2) Governmental monetary and fiscal policies, as well as legislative and
regulatory changes;
(3) The risks of changes in interest rates on the level and composition of
deposits, loan demand, and the values of loan collateral, securities
and interest rate protection agreements, as well as interest rate
risks;
(4) The effects of competition from other commercial banks, thrifts,
mortgage banking firms, consumer finance companies, credit unions,
securities brokerage firms, insurance companies, money market and
other mutual funds and other financial institutions operating in the
Company's market area and elsewhere, including institutions operating
locally, regionally, nationally and internationally, together with
such competitors offering banking products and services by mail,
telephone, and computer and the Internet; and
(5) The failure of assumptions underlying the establishment of reserves
for possible loan losses and estimations of values of collateral and
various financial assets and liabilities.
All written or oral forward-looking statements attributable to the Company
are expressly qualified in their entirety by these cautionary statements.
The Company
FLAG Financial Corporation ("FLAG" or the "Company") is a multi-bank
holding company headquartered in LaGrange, Georgia and is registered under the
Bank Holding Company Act of 1956, as amended. As of March 20, 2000, the Company
is the sole shareholder of First Flag Bank, formerly known as First Federal
Savings Bank of LaGrange, Citizens Bank and Thomaston Federal Savings Bank,
(collectively, the "Banks"). FLAG merged The Citizens Bank, located in
Hogansville, Georgia, with its subsidiary, First Flag Bank, on February 11,
2000.
The Company was incorporated under the laws of the State of Georgia on
February 9, 1993 at the direction of First Flag Bank for the purpose of becoming
the holding company for First Flag Bank. As a result, shareholders of First Flag
Bank became shareholders of the Company, with the same proportional interests in
the Company as they previously held in First Flag Bank (excluding the nominal
effect on their ownership interest of the exercise of dissenters' rights by
certain shareholders of First Flag Bank). Following the reorganization into a
bank holding company structure, First Flag Bank continued its business
operations as a federally-chartered stock savings bank under the same name,
charter and bylaws. First Flag Bank converted from a federal stock savings bank
to a Georgia state-chartered bank on June 11, 1999.
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As a bank holding company, the Company facilitates the Banks' abilities to
serve their customers' requirements for financial services. The holding company
structure permits diversification by the Company into a broader range of
financial services and other business activities than currently are permitted to
the Banks under applicable law. The holding company structure also provides
greater financial and operating flexibility than is available to the Banks.
Additionally, the Articles of Incorporation and Bylaws of the Company contain
terms that provide a degree of anti-takeover protection to the Company that is
currently unavailable to the Banks and their shareholders under regulations of
the Federal Deposit Insurance Corporation (the "FDIC") and the Office of Thrift
Supervision (the "OTS"), but is permissible for the Company under Georgia law.
A substantial portion of the Company's growth has been through acquisitions
of other financial institutions. As part of its ongoing strategic plan, the
Company continually evaluates business combination opportunities and frequently
conducts due diligence activities in connection with possible business
combinations. As a result, business combination discussions, and in some cases
negotiations, frequently take place, and future business combinations involving
cash, debt or equity securities can be expected. Any future business combination
that the Company might undertake may be material, in terms of assets acquired or
liabilities assumed, to the Company's financial condition. Additionally, a
future business combination could result in dilution of book value and net
income per share for the acquirer. It is the Company's practice to avoid
possible dilution except where projections indicate a relatively short payback
period.
The Company completed a merger with Middle Georgia Bankshares, Inc.
("Middle Georgia") in March 1998. Through the merger with Middle Georgia, the
Company acquired Citizens Bank, Middle Georgia's wholly-owned bank subsidiary.
The Company completed a merger with Three Rivers Bancshares, Inc. in May 1998.
Three Rivers' wholly-owned subsidiary, Bank of Milan, merged into Citizens Bank
on January 1, 1999. The Company completed a merger with Empire Bank Corp. in
December 1998. Empire Bank Corp.'s wholly-owned subsidiary, Empire Banking
Company, merged into Citizens Bank on January 1, 1999. The Company acquired The
Brown Bank through the merger of The Brown Bank with Citizens Bank effective
December 31, 1998. The Company completed a merger with Thomaston Federal Savings
Bank, whereby, Thomaston Federal Savings Bank merged with a wholly-owned
subsidiary of the Company, created solely to facilitate the merger. Thomaston
Federal Savings Bank became a subsidiary of the Company on August 27, 1999. The
Company completed a merger with First Hogansville Bankshares, Inc., parent
company of The Citizens Bank, located in Hogansville, Georgia, on September 30,
1999. First Hogansville Bankshares, Inc. became a subsidiary of the Company. The
Citizens Bank merged into First Flag Bank, on February, 11, 2000.
As a result of the merger of Empire Banking Company into Citizens Bank, the
Company discontinued the operations of E.B.C. Financial Services, Inc. during
1999. The services provided through E.B.C. Financial Services, Inc. are now
provided through FLAG Insurance Services which operates as a division of
Citizens Bank.
FLAG is also a service provider of mortgage, appraisal, investment and
insurance services though FLAG Mortgage, FLAG Appraisal Services, FLAG
Investment Services and FLAG Insurance Services. All of these services were
provided by FLAG at year-end with the exception of FLAG Mortgage, which operates
as a division of First Flag Bank and FLAG Insurance Services which operates as a
division of Citizens Bank.
On August 16, 1999, the Company announced plans to establish a corporate
operations center named The Eagle's Landing Center, in Stockbridge, Henry
County, Georgia. The Eagle's Landing Center opened in November 1999 and supports
the Banks' data/item processing operations, serves as executive management
offices and training facility and a corporate communications center.
The Banks
First Flag Bank. First Flag Bank, formerly known as First Federal Savings
Bank of LaGrange, is a Georgia state-chartered bank headquartered in LaGrange,
Troup County, Georgia with five offices in LaGrange, Georgia. First Flag Bank
was originally chartered by the State of Georgia in January 1927 under the name
"Home Building and Loan Association." First Flag Bank received its federal
charter and changed its name to "First Federal Savings and Loan Association of
LaGrange" in 1955, and at that time its deposits became insured by the Federal
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Savings and Loan Insurance Corporation (the "FSLIC"). In December 1986, First
Flag Bank converted from a federal mutual savings and loan association to a
federal stock savings and loan association. In June 1989, First Flag Bank
converted from a federal stock savings and loan association to a federal stock
savings bank and changed its name to "First Federal Savings Bank of LaGrange."
In December 1998, First Flag Bank changed its name to "First Flag Bank." First
Flag Bank filed an application with the Georgia Department of Banking and
Finance ("GDBF") and the OTS to convert its charter from a federal stock savings
bank to a state-chartered bank which became effective June 11, 1999. At December
31, 1999, First Flag Bank had total assets of approximately $222 million.
On August 19, 1999, the Company announced plans to establish a loan
production office named First Flag Bank - Atlanta, in Suwanee, Forsyth County,
Georgia. First Flag Bank - Atlanta opened in November 1999 and operates as a
division of First Flag Bank.
On October 4, 1999, FLAG announced that its two subsidiaries, First Flag
Bank and Thomaston Federal Savings Bank, had consolidated their mortgage loan
production offices in LaGrange, Troup County, Columbus, Muscogee County and
Macon, Bibb County, Georgia and the offices of Opelika, Lee County, and Phenix
City, Russell County, Alabama to form FLAG Mortgage. FLAG Mortgage operates as a
division of First Flag Bank.
On February 11, 2000, The Citizens Bank, with offices in Hogansville,
Georgia, merged into First Flag Bank.
Citizens Bank. Citizens Bank is a state bank organized under the laws of
the State of Georgia with banking offices in the cities of Unadilla, Dooly
County, Vienna, Dooly County, Byromville, Dooly County, Montezuma, Macon County,
Cordele, Crisp County, Homerville, Clinch County, Waycross, Ware County,
Blackshear, Pierce County, Milan, Telfair County, McRae, Telfair County,
Cobbtown, Tattnall County, and Metter, Candler County, Georgia. The Oglethorpe,
Macon County, Georgia, and Pinehurst, Dooly County, Georgia, offices of Citizens
Bank discontinued operations on December 31, 1999. Citizens Bank was originally
chartered in 1931 and became a wholly-owned subsidiary of Middle Georgia in
1989. On March 31, 1998, Middle Georgia merged into the Company, and Citizens
Bank became a wholly-owned subsidiary of the Company. At December 31, 1999,
Citizens Bank had total assets of approximately $280 million.
On December 31, 1998, The Brown Bank, with offices in Cobbtown, Metter and
Reidsville, Georgia, merged into Citizens Bank. The Reidsville office of The
Brown Bank division of Citizens Bank discontinued operations on September 30,
1999.
On January 1, 1999, Empire Banking Company, with offices in Homerville,
Waycross and Blackshear, Georgia, merged into Citizens Bank.
On January 1, 1999, Bank of Milan, with offices in Milan and McRae,
Georgia, merged into Citizens Bank.
On February 22, 1999, FLAG announced plans to establish a de novo branch
office named First Flag Bank - Statesboro, in Statesboro, Bulloch County,
Georgia. The office became operational the second quarter of 1999 and became a
full-service branch of Citizens Bank on September 1, 1999.
On April 30, 1999, Citizens Bank completed its acquisition of the
Blackshear Branch Office of First Georgia Bank, located in Blackshear, Pierce
County, Georgia. The Blackshear Branch Office operates as a division of the
Empire Banking Company division of Citizens Bank.
The Brown Bank, Empire Banking Company, Bank of Milan and First Flag Bank -
Statesboro operate as divisions of Citizens Bank. Citizens Bank registered the
names "The Brown Bank," "Empire Banking Company", "Bank of Milan" and "First
Flag Bank - Statesboro " as tradenames of Citizens Bank.
Thomaston Federal Savings Bank. Thomaston Federal Savings Bank is a
federally chartered savings association headquartered in Thomaston, Upson
County, Georgia with one office located in Thomaston, Upson County, Georgia.
Thomaston Federal Savings Bank was originally chartered in 1929. On August 27,
1999, Thomaston Federal merged into the Company and became a wholly-owned
subsidiary of the Company. At December 31, 1999, Thomaston Federal had total
assets of approximately $53 million.
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The Eagles Landing Center. In November 1999, FLAG established a corporate
operations center called the Eagle's Landing Center, located in Stockbridge,
Georgia.
Business of the Banks. The Banks' businesses consist primarily of
attracting deposits from the general public and, with these and other funds,
making residential mortgage loans, consumer loans, commercial loans, commercial
real estate loans, residential construction loans and securities investments. In
addition to deposits, sources of funds for the Banks' loans and other
investments include amortization and prepayment of loans, loan origination and
commitment fees, sales of loans or participations in loans, fees received for
servicing loans sold to others and advances from the Federal Home Loan Bank of
Atlanta ("FHLBA"). The Bank's principal sources of income are interest and fees
collected on loans, including fees received for originating and selling loans
and for servicing loans sold to others, and, to a lesser extent, interest and
dividends collected on other investments and service charges on deposit
accounts. The Bank's principal expenses are interest paid on deposits, interest
paid on FHLBA advances, employee compensation, federal deposit insurance
premiums, office expenses and other overhead expenses.
While the Banks attempt to avoid concentrations of loans to a single
industry or based on a single type of collateral, the various types of loans the
Banks make have certain risks associated with them. Consumer and commercial
loans present risks which, among other things, include fraud, bankruptcy,
economic downturn, deteriorated or non-existing collateral, changes in interest
rates and customer financial problems. Real estate loans present risks related
to, among other things, whether the builder is able to sell the property,
whether the buyer is able to obtain permanent financing and the nature of
changing economic conditions.
The Company's primary asset is its stock in the Banks. Accordingly, its
financial performance is determined primarily by the results of operations of
the Banks. For information regarding the consolidated financial condition and
results of operations of the Company as of December 31, 1999 and 1998 and for
the three years in the period ended December 31, 1999, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the Consolidated Financial Statements of the Company, and the related notes
which are presented in Items 7 and 8, respectively of this Annual Report on Form
10-K. All average balances presented in this report were derived based on daily
averages.
Recent Developments
The following section describes the significant acquisitions and corporate
transactions of the Company during 1999 and in the first quarter of 2000.
On September 30, 1999, First Hogansville Bankshares, Inc., parent company
of The Citizens Bank, in Hogansville, Troup County, Georgia merged into the
Company. The Company 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, a state bank organized under the laws of the State of Georgia. As
a result of the merger of First Hogansville Bankshares, Inc. with the Company,
The Citizens Bank became a wholly-owned subsidiary of the Company. On February
11, 2000, The Citizens Bank merged into the Company's subsidiary, First Flag
Bank, and is now known as First Flag Bank - Hogansville and operates as a branch
office of First Flag Bank.
On August 27, 1999, Thomaston Federal Savings Bank merged into a
wholly-owned subsidiary of the Company. The Company formed the subsidiary for
the purpose of effecting the merger which provided that Thomaston Federal
Savings Bank would become a subsidiary of the Company. The Company issued
approximately 1,125,447 shares to the Thomaston shareholders and 49,233 shares
to the Thomaston optionholders on exercise of their options. The merger was
accounted for as a pooling of interests.
On August 16, 1999, FLAG announced plans to establish a corporate
operations center named The Eagle's Landing Center, in Stockbridge, Henry
County, Georgia. The Eagle's Landing Center opened in November 1999 and serves
as the central hub for FLAG's community bank network. The center supports
deposit operations and data/item processing functions for the Banks. The center
also facilitates improved communication and the coordination among senior
management to conduct the corporate business of FLAG.
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On December 23, 1999, FLAG announced the commencement of a stock repurchase
program pursuant to which the Company will from time to time repurchase up to
57,500 shares of its outstanding common stock. The timing of the purchases and
the actual number of common shares purchased will depend on market conditions.
The Company plans to purchase shares in the open market or in privately
negotiated transactions at prices deemed appropriate by management.
On March 10, 2000, FLAG announced that Citizens Bank had executed an
agreement on March 6, 1999 to sell three of its branch offices to Pineland State
Bank, located in Metter, Georgia. The branch offices are located in Metter,
Candler County, Cobbtown, Tattnall County, Georgia and Statesboro, Bulloch
County, Georgia. Under the terms of the proposed agreement, the Company will
sell the fixed assets, deposits and all loans of the three branch locations. On
February 29, 2000, deposits totaled approximately $29 million and loans totaled
approximately $22 million. The branch sale is subject to appropriate regulatory
approval and is projected to close prior to the end of the third quarter of
2000.
Employees
As of December 31, 1999, the Company (including the Banks) had 323
full-time and 29 part-time employees. The employees are not represented by any
collective bargaining unit, and the Company considers its relationship with its
employees to be good.
Competition
The banking business in Georgia is highly competitive. The Banks compete
not only with other banks and thrifts that are located in the same counties as
the Banks and in surrounding counties, but with other financial service
organizations including credit unions, finance companies, and certain
governmental agencies. To the extent that the Banks must maintain non-interest
earning reserves against deposits, it may be at a competitive disadvantage when
compared with other financial service organizations that are not required to
maintain reserves against substantially equivalent sources of funds. Also, other
financial institutions with which the Banks compete may have substantially
greater resources and lending capabilities due to the size of the organization.
Supervision and Regulation
Both the Company and the Banks are subject to extensive state and federal
banking regulations that impose restrictions on and provide for general
regulatory oversight of our operations. These laws are generally intended to
protect depositors and not shareholders. The following discussion describes the
material elements of the regulatory framework that applies to us.
The Company
Since the Company owns all of the capital stock of the Citizens Bank, First
Flag Bank and Thomaston Federal Savings Bank, it is a bank holding company under
the federal Bank Holding Company Act of 1956. As a result, the Company is
primarily subject to the supervision, examination, and reporting requirements of
the Bank Holding Company Act and the regulations of the Federal Reserve.
Acquisitions of Banks. The Bank Holding Company Act requires every bank
holding company to obtain the Federal Reserve's prior approval before:
o Acquiring direct or indirect ownership or control of any voting shares
of any bank if, after the acquisition, the bank holding company will
directly or indirectly own or control more than 5% of the bank's
voting shares;
o Acquiring all or substantially all of the assets of any bank; or
o Merging or consolidating with any other bank holding company.
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Under the Bank Holding Company Act, an adequately capitalized and
adequately managed bank holding company located in Georgia may purchase a bank
located outside of Georgia. Conversely, an adequately capitalized and adequately
managed bank holding company located outside of Georgia may purchase a bank
located inside Georgia. In each case, however, restrictions may be placed on the
acquisition of a bank which has only been in existence for a limited amount of
time or an acquisition which may result in specified concentrations of deposits.
Change in Bank Control. Subject to various exceptions, the Bank Holding
Company Act and the Change in Bank Control Act, together with related
regulations, require Federal Reserve approval prior to any person or company
acquiring "control" of a bank holding company. Control is conclusively presumed
to exist if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. Control is rebuttably presumed to exist
if a person or a company acquires 10% or more, but less than 25%, of any class
of voting securities and either the bank holding company has registered
securities under Section 12 of the Securities Act of 1934, or no other person
owns a greater percentage of that class of voting securities immediately after
the transaction.
Permitted Activities. Under the Bank Holding Company Act, a bank holding
company, which has not qualified or elected to become a financial holding
company is generally prohibited from engaging in or acquiring direct or indirect
control of more than 5% of the voting shares of any company engaged in
nonbanking activities unless prior to the enactment of the Gramm-Leach-Bliley
Act the Federal Reserve found those activities to be so closely related to
banking as to be a proper incident to the business of a banking. Activities that
the Federal Reserve has found to be so closely related to banking to be a proper
incident to the business of banking include:
o factoring accounts receivable,
o acquiring or servicing loans,
o leasing personal property,
o conducting discount securities brokerage activities,
o performing selected data processing services,
o acting as agent or broker in selling credit life insurance and other
types of insurance in connection with credit transactions, and
o performing selected insurance underwriting activities.
Despite prior approval, the Federal Reserve may order a bank holding company or
its subsidiaries to terminate any of these activities or to terminate its
ownership or control of any subsidiary when it has reasonable cause to believe
that the bank holding company's continued ownership, activity or control
constitutes a serious risk to the financial safety, soundness, or stability of
any of its bank subsidiaries.
On November 12, 1999 President Clinton signed the Gramm-Leach-Bliley Act,
which amends the Bank Holding Company Act and greatly expand the activities in
which bank holding companies and affiliates of banks are permitted to engage.
The Gramm-Leach-Bliley Act eliminates many federal and state law barriers to
affiliations among banks and securities firms, insurance companies, and other
financial service providers. The provisions of the Gramm-Leach-Bliley Act
relating to permitted activities of bank holding companies and affiliates of
banks became effective on March 11, 2000.
Generally, if the company qualifies and elects to become a financial
holding company, it may engage in activities that are financial in nature or
incidental or complementary to a financial activity. Activities that the
Gramm-Leach-Bliley Act expressly lists as financial in nature include insurance
activities, providing financial, investment and advisory services, underwriting
securities and limited merchant banking activities.
To qualify to become a financial holding company, the subsidiary financial
institutions of the company and any other depository institution subsidiaries of
the company must be well capitalized and well managed and must have a Community
Reinvestment Act rating of at least satisfactory. Additionally, the company must
file an election with the Federal Reserve to become a financial holding company
and must provide the Federal Reserve with 30 days written notice prior to
engaging in a permitted financial activity. Although we are eligible to elect to
become a financial holding company, we currently have no plans to make such an
election.
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Support of Subsidiary Institutions. Under Federal Reserve policy, bank
holding companies are expected to act as a source of financial strength for, and
to commit resources to support, their depository institution subsidiaries. This
support may be required at times when, without this Federal Reserve policy, the
bank holding company might not be inclined to provide it. In addition, any
capital loans by a bank holding company to a bank will be repaid only after its
deposits and other indebtedness are repaid in full. In the event of a bank
holding company's bankruptcy, any commitment by the bank holding company to a
federal bank regulatory agency to maintain the capital of a banking subsidiary
will be assumed by the bankruptcy trustee and entitled to a priority of payment.
The Banks
Citizens Bank and First Flag Bank are commercial banks charted under the
laws of the State of Georgia. Accordingly, the FDIC and the Georgia Department
of Banking and Finance regularly examine the operations of Citizens Bank and
First Flag Bank and have the authority to approve or disapprove mergers, the
establishment of branches, and similar corporate actions. Thomaston Federal
Savings Bank is a federal savings bank organized under the laws of the United
States. The Office of Thrift Supervision (the "OTS"), as well as the FDIC,
regularly examine the operations of Thomas Federal Savings Bank. These
regulatory agencies also have the power to prevent the continuance or
development of unsafe or unsound banking practices or other violations of law.
Additionally, the deposits of the bank and thrift subsidiaries are insured by
the FDIC to the maximum extent provided by law. The bank and thrift institutions
are also subject to numerous state and federal statutes and regulations that
affect their businesses, activities and operations, and they are supervised and
examined by one or more state or federal bank regulatory agencies.
Prompt Corrective Action. The Federal Deposit Insurance Corporation
Improvement Act of 1991 establishes a system of prompt corrective action to
resolve the problems of undercapitalized financial institutions. Under this
system, federal banking regulators have established five capital categories,
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized, in which all institutions are
placed. The federal banking agencies have also specified by regulation the
relevant capital levels for each of the other categories. At December 31, 1999,
we qualified for the well-capitalized category.
Federal banking regulators are required to take some mandatory supervisory
actions and are authorized to take other discretionary actions with respect to
institutions in the three undercapitalized categories. The severity of the
action depends upon the capital category in which the institution is placed.
Generally, subject to a narrow exception, the banking regulator must appoint a
receiver or conservator for an institution that is critically undercapitalized.
An institution in any of the undercapitalized categories is required to submit
an acceptable capital restoration plan to its appropriate federal banking
agency. A bank holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan up to the lesser of 5% of an
undercapitalized subsidiary's assets or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches or engaging in any new line of business, except under
an accepted capital restoration plan or with FDIC approval. The Federal Reserve
regulations also establish procedures for downgrading an institution to a lower
capital category based on supervisory factors other than capital.
FDIC Insurance Assessments. The FDIC has adopted a risk-based assessment
system for determining an insured depository institutions' insurance assessment
rate. The system that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. An institution is
placed into one of three capital categories: (1) well capitalized; (2)
adequately capitalized; and (3) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized and critically
undercapitalized. The FDIC also assigns an institution to one of three
supervisory subgroups based on a supervisory evaluation that the institution's
primary federal regulator provides to the FDIC and information that the FDIC
determines to be relevant to the institution's financial condition and the risk
posed to the deposit insurance funds. Assessments range from 0 to 27 cents per
$100 of deposits, depending on the institution's capital group and supervisory
subgroup. In addition, the FDIC imposes assessments to help pay off the $780
million in annual interest payments on the $8 billion Financing Corporation
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bonds issued in the late 1980s as part of the government rescue of the thrift
industry. The assessment rate is adjusted quarterly and ranged from 1.16 cents
to 1.22 cents per $100 of deposits in 1999.
The FDIC may terminate its insurance of deposits if it finds that the
institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC.
Community Reinvestment Act. The Community Reinvestment Act requires the
appropriate federal regulator, in connection with their examinations of
financial institutions within their jurisdiction, to evaluate the record of each
financial institution in meeting the credit needs of its local community,
including low and moderate-income neighborhoods. The appropriate federal
regulator considers these factors in evaluating mergers, acquisitions, and
applications to open a branch or facility. Failure to adequately meet these
criteria could impose additional requirements and limitations on the subsidiary
financial institutions. Under the Gramm-Leach-Bliley Act, banks with aggregate
assets of not more than $250 million will be subject to a Community Reinvestment
Act examination only once every 60 months if the bank receives an outstanding
rating, once every 48 months if it receives a satisfactory rating and as needed
if the rating is less than satisfactory. Additionally, under the
Gramm-Leach-Bliley Act, banks will be required to publicly disclose the terms of
various Community Reinvestment Act-related agreements.
Other Regulations. Interest and other charges collected or contracted for
by the subsidiary financial institutions are subject to state usury laws and
federal laws concerning interest rates. The loan operations of the subsidiary
financial institutions are also subject to federal laws applicable to credit
transactions, such as:
o The federal Truth-In-Lending Act, governing disclosures of credit
terms to consumer borrowers;
o The Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and public
officials to determine whether a financial institution is fulfilling
its obligation to help meet the housing needs of the community it
serves;
o The Equal Credit Opportunity Act, prohibiting discrimination on the
basis of race, creed or other prohibited factors in extending credit;
o The Fair Credit Reporting Act of 1978, governing the use and provision
of information to credit reporting agencies;
o The Fair Debt Collection Act, governing the manner in which consumer
debts may be collected by collection agencies; and
o The rules and regulations of the various federal agencies charged with
the responsibility of implementing these federal laws.
The deposit operations of the Company's subsidiary financial institutions
are subject to:
o The Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes
procedures for complying with administrative subpoenas of financial
records; and
o The Electronic Funds Transfer Act and Regulation E issued by the
Federal Reserve to implement that act, which governs automatic
deposits to and withdrawals from deposit accounts and customers'
rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
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Capital Adequacy
The Company and the Banks are required to comply with the capital adequacy
standards established by the Federal Reserve, in the case of the Company, the
FDIC and Georgia Department of Banking and Finance, in the cases of Citizens
Bank and First Flag Bank, and the FDIC and the OTS in the case of Thomaston
Federal Savings Bank. The Federal Reserve has established a risk-based and a
leverage measure of capital adequacy for bank holding companies that is
substantially similar to that adopted by the FDIC for banks under its
jurisdiction.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items,
such as letters of credit and unfunded loan commitments, are assigned to broad
risk categories, each with appropriate risk weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted assets and
off-balance-sheet items.
The minimum guideline for the ratio of total capital to risk-weighted
assets is 8%. Total capital consists of two components, Tier 1 Capital and Tier
2 Capital. Tier 1 Capital generally consist of common shareholders' equity,
minority interests in the equity accounts of consolidated subsidiaries,
qualifying noncumulative perpetual preferred stock, and a limited amount of
qualifying cumulative perpetual preferred stock, less goodwill and other
specified intangible assets. Tier 1 Capital must equal at least 4% of
risk-weighted assets. Tier 2 Capital generally consist of subordinated debt,
other preferred stock and hybrid capital and a limited amount of loan loss
reserves. The total amount of Tier 2 Capital is limited to 100% of Tier 1
Capital. At December 31, 1999, our consolidated ratio of total capital to
risk-weighted assets was 12.50% and our consolidated ratio of Tier 1 Capital to
risk-weighted assets was 11.20%.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and other specified
intangible assets, of 3% for bank holding companies that meet certain specified
criteria, including having the highest regulatory rating and implementing the
Federal Reserve's risk-based capital measure for market risk. All other bank
holding companies generally are required to maintain a leverage ratio of at
least 4%. At December 31, 1999, our consolidated leverage ratio was 8.60%. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. The Federal Reserve considers the leverage ratio and other
indicators of capital strength in evaluating proposals for expansion or new
activities.
The Company and the Banks are subject to other capital guidelines issued by
the Georgia Department of Banking and Finance, the Office of Thrift Supervision
and the Federal Reserve, which provide for minimum ratios of total capital to
total assets.
Failure to meet capital guidelines could subject a bank or bank holding
company to a variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the FDIC, a prohibition on
the taking of brokered deposits, and certain other restrictions on its business.
As described below, substantial additional restrictions can be imposed on
FDIC-insured depository institutions that fail to meet applicable capital
requirements. See "--Prompt Corrective Action."
Payment of Dividends
The Company is a legal entity separate and distinct from its subsidiary
financial institutions. The principal source of the Company's cash flow,
including cash flow to pay dividends to its shareholders, is dividends that its
subsidiary financial institutions pay to it. Statutory and regulatory
limitations apply to the ability of the subsidiary financial institutions to pay
dividends to the Company as well as to the Company's payment of dividends to its
shareholders.
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If, in the opinion of the federal banking regulator, the subsidiary
financial institutions were engaged in or about to engage in an unsafe or
unsound practice, the federal banking regulator could require, after notice and
a hearing, that it cease and desist from its practice. The federal banking
agencies have indicated that paying dividends that deplete a depository
institution's capital base to an inadequate level would be an unsafe and unsound
banking practice. Under the Federal Deposit Insurance Corporation Improvement
Act of 1991, a depository institution may not pay any dividend if payment would
cause it to become undercapitalized or if it already is undercapitalized.
Moreover, the federal agencies have issued policy statements that provide that
bank holding companies and insured banks should generally only pay dividends out
of current operating earnings. See "--Prompt Corrective Action" below.
The Georgia Department of Banking and Finance regulates the dividend
payments of Citizens Bank and First Flag Bank and must approve dividend payments
that would exceed 50% of the net income of Citizens Bank and First Flag Bank for
the prior year. The OTS similarly regulates the ability of Thomaston Federal
Savings Bank to pay dividends to the Company. Our payment of dividends may also
be affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
At December 31, 1999, the Banks were able to pay approximately $2,269,000
in dividends to the Company without prior regulatory approval.
Restrictions on Transactions with Affiliates
The Company and the Banks are subject to the provisions of Section 23A of
the Federal Reserve Act. Section 23A places limits on the amount of:
o loans or extensions of credit to affiliates;
o investment in affiliates;
o the purchase of assets from affiliates, except for real and personal
property exempted by the Federal Reserve;
o loans or extensions of credit to third parties collateralized by the
securities or obligations of affiliates; and
o any guarantee, acceptance or letter of credit issued on behalf of an
affiliate.
The aggregate of all of the above transactions is limited in amount, as to
any one affiliate, to 10% of a bank's capital and surplus and, as to all
affiliates combined, to 20% of a bank's capital and surplus. In addition to the
limitation on the amount of these transactions, each of the above transactions
must also meet specified collateral requirements. The Company must also comply
with certain provisions designed to avoid the taking of low-quality assets.
The Company and the Banks are also subject to the provisions of Section 23B
of the Federal Reserve Act which, among other things, prohibits an institution
from engaging in the above transactions with affiliates unless the transactions
are on terms substantially the same, or at least as favorable to the institution
or its subsidiaries, as those prevailing at the time for comparable transactions
with nonaffiliated companies.
The Banks are also subject to restrictions on extensions of credit to its
executive officers, directors, certain principal shareholders and their related
interests. These extensions of credit (1) must be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with third parties, and (2) must not involve more
than the normal risk of repayment or present other unfavorable features.
Privacy
The Gramm-Leach-Bliley Act also contains provisions regarding consumer
privacy. These provisions require financial institutions to disclose their
policy for collecting and protecting confidential information. Customers
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generally may prevent financial institutions from sharing personal financial
information with nonaffiliated third parties except for third parties that
market the institutions' own products and services. Additionally, financial
institutions generally may not disclose consumer account numbers to any
nonaffiliated third party for use in telemarketing, direct mail marketing or
other marketing through electronic mail to the consumer.
Proposed Legislation and Regulatory Action
New regulations and statutes are regularly proposed that contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. We cannot predict whether
or in what form any proposed regulation or statute will be adopted or the extent
to which our business may be affected by any new regulation or statute.
Effect of Governmental Monetary Polices
Our earnings are affected by domestic economic conditions and the monetary
and fiscal policies of the United States government and its agencies. The
Federal Reserve Bank's monetary policies have had, and are likely to continue to
have, an important impact on the operating results of commercial banks through
its power to implement national monetary policy in order, among other things, to
curb inflation or combat a recession. The monetary policies of the Federal
Reserve Board have major effects upon the levels of bank loans, investments and
deposits through its open market operating in United States government
securities and through its regulation of the discount rate on borrowings of
member banks and the reserve requirements against member bank deposits. It is
not possible to predict the nature or impact of future changes in monetary and
fiscal policies.
Selected Statistical Information
Selected statistical information is included in the Company's Management's
Discussion and Analysis of Financial Condition and Results of Operations as set
forth in Item 7 of this Annual Report on Form 10-K.
ITEM 2. PROPERTIES
The Company and First Flag Bank
The Company and First Flag Bank operate from a main office which contains
approximately 28,400 square feet of usable office space and is located on
approximately two acres of land at 101 North Greenwood Street, LaGrange,
Georgia. First Flag Bank owns both the building and the land.
First Flag Bank also operates three full-service branch offices and one
limited-service drive-through facility in LaGrange, Troup County, Georgia. The
first full-service office contains 2,700 square feet of office space on one acre
of land located at 1795 West Point Road at Lee's Crossing in LaGrange. The
second full-service office contains approximately 2,300 square feet of office
space on 1.2 acres of land located at 1417 LaFayette Parkway in LaGrange. The
one limited-service office contains 1,800 square feet of office space located at
306 Vernon Street in LaGrange . These two full-service office buildings and one
limited-service drive through facility and accompanying land are owned by First
Flag Bank. The third full-service branch office contains approximately 360
square feet of office space in the Winn-Dixie Marketplace grocery store at 908
Hogansville Road in LaGrange. This office is leased by First Flag Bank This
office will discontinue its full-service operations on March 31, 2000.
First Flag Bank - Atlanta Division of First Flag Bank
First Flag Bank, through its First Flag Bank - Atlanta division, operates a
loan production office that contians approximately 2,460 square feet of office
space at 3855 John's Creek Parkway, Suite B, in Suwanne, Forsyth County,
Georgia. This office is leased by First Flag Bank.
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FLAG Mortgage Division of First Flag Bank
First Flag Bank, through its FLAG Mortgage division, owns one and leases
four loan production offices located in Columbus, Macon and Newnan Georgia and
Opelika and Phenix City, Alabama. The office space located in Columbus, Muscogee
County, containing 5,952 square feet on .793 acres of land located at 5617
Princeton Road is currently owned by FLAG subsidiary, Thomaston Federal Savings
Bank. The office space located in Macon, Bibb County, containing 1,200 square
feet located at 130 Northcrest Boulevard, Suite C is leased by First Flag Bank.
The office space located in Newnan, Coweta County, containing 1,200 square feet
located at 3150 East Highway 34, Suite 305 is leased by First Flag Bank. The
office located in Opelika, Lee County, containing 1,000 square feet located at
2106 Gateway Drive, Suite C is leased by First Flag Bank. The office located in
Phenix City, Russell County, containing approximately 550 square feet located at
712 13th Street, Suite A is leased by First Flag Bank.
First Flag Bank leases approximately 2, 760 square feet of office space at
5669 Whitesville Road, Suite A, Columbus, Muscogee County, Georgia, where its
loan production office is located. This lease is anticipated to end in January
2000 with the consolidation of the FLAG Mortgage division of First Flag Bank.
First Flag Bank leases approximately 2,500 square feet of office space at
205 North Lewis Street, Suites 2 and 3, LaGrange, Troup County, Georgia.
First Flag Bank - Hogansville Division of First Flag Bank
First Flag Bank - Hogansville, formerly, The Citizens Bank operates one
full-service branch office and one limited-service branch office in Hogansville,
Troup County, Georgia. The full-service office contains 6,700 square feet of
office space located at 111 High Street in Hogansville, Georgia. This office is
owned by First Flag Bank. The limited-service office contains 400 square feet of
office space in the Ingle's Supermarket store at 1890 East Main Street in
Hogansville, Georgia. This office is leased by First Flag Bank.
Citizens Bank
Citizens Bank operates four full-service branch offices in Vienna,
Unadilla, Montezuma, and Cordele, Georgia . It also operates three
limited-service branch offices in Byromville, Oglethorpe, and Pinehurst,
Georgia.
Of the four full-service branch offices, the first full-service office
contains 10,500 square feet of office space on .85 acres of land located at 100
Union Street, Vienna, Dooly County, Georgia. The second full-service office
contains 15,127 square feet of office space on 1.48 acres of land located at
2233 Pine Street, Unadilla, Dooly County, Georgia. The third full-service office
contains 10,718 square feet of office space on 1.3 acres of land located at 102
West Railroad Street, Montezuma, Macon County, Georgia. These three full-service
office buildings and accompanying land are owned by Citizens Bank. The fourth
full-service office contains 2,000 square feet of office space located at 602
East 16th Avenue, Suite G., Cordele, Crisp County, Georgia. This office is
leased by Citizens Bank.
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Of the three limited-service branch office, the first limited-service
office contains 1,750 square feet of office space on .07 acres and is located on
Main Street, Byromville, Dooly County, Georgia. The second limited-service
office contains 2,500 square feet of office space on .6 acres of land and is
located on 130 North Sumter Street, Oglethorpe, Macon County, Georgia. The third
limited-service office contains 843 square feet of office space on .55 acres and
is located on Fullington Avenue, Pinehurst, Dooly County, Georgia. The
Oglethorpe and Pinehurst limited-service offices discontinued operations on
December 31, 1999. These three limited-service offices and accompanying land are
owned by Citizens Bank.
Citizens Bank owns three warehouse/meeting facilities located in Vienna,
Georgia, at the following locations: (1) 2nd Street, Vienna, Georgia with 4,100
square feet of space on .10 acres of land, (2) 3rd Street, Vienna, Georgia, with
2,940 square feet of office space on .09 acres of land, and (3) 3rd Street,
Vienna, Georgia, with 1,755 square feet of office space on .05 acres of land.
Citizens Bank purchased the connecting office located next to the .05 acres of
land listed in (3) above and established the FLAG Loan Processing Office located
at 111 South 3rd Street in Vienna, Georgia.
Citizens Bank also owns an office parking lot containing .42 acres of land
located at the corner of Union Street and 2nd Street, Vienna Georgia. A second
lot, located at Fullington Avenue and Highway 41, Pinehurst, Georgia, is owned
by Citizens Bank. A third lot containing 370 square feet of vacant building on
.23 acres of land located at the corner of Fullington Avenue and Cyprus Avenue,
Pinehurst, Georgia, is owned by Citizens Bank.
Bank of Milan Division of Citizens Bank
Citizens Bank, through its Bank of Milan division, operates two
full-service branch offices in Milan and McRae, Georgia. The first full-service
office contains 5,124 square feet of office space on .18 acres of land located
at 1 Mt. Zion Street, Milan, Telfair County, Georgia. This office is owned by
Citizens Bank. The second full-service office contains 1,360 square feet of
office space located at 850 East Oak Street in McRae, Telfair County, Georgia.
This office is leased by Citizens Bank.
Empire Banking Company Division of Citizens Bank
Citizens Bank, through its Empire Banking Company division, operates two
full-service branch offices in Homerville and Waycross, Georgia and one
limited-service branch office in Blackshear, Georgia. The first full-service
office contains approximately 5,000 square feet and is located at 115 East Dame
Avenue in Homerville, Clinch County, Georgia. This office also contains an
additional 2,200 square feet of office space referred to as an operations
building that is located at 115 East Dame Avenue. This office and accompanying
building are owned by Citizens Bank. Citizens Bank also owns about .75 acres in
paved parking lots near the Dame Avenue office. The second full-service office
contains 3,500 square feet of office space located at 2110 Memorial Drive in
Waycross, Ware County,Georgia. This office is owned by Citizens Bank. The
limited-service office contains 1,159 square feet of office space located at
3586 Highway 84 E. in Blackshear, Pierce County, Georgia. This office is owned
by Citizens Bank.
The Brown Bank Division of Citizens Bank
Citizens Bank, through its Brown Bank division, operates three full-service
branch offices in Metter and Cobbtown, Georgia and one limited-service branch
office in Reidsville, Georgia. The first full-service office contains 12,000
square feet of office space, of which 6,000 is used for rental offices, on .17
acres of land with a paved parking lot on .34 acres of land located at 24-28
North Broad Street in Metter, Candler County, Georgia. The second full-service
office contains 4,000 square feet of office space on .066 acres of land located
at 1 Railroad Street in Cobbtown, Tattnall County, Georgia. The third
full-service office has 6,000 square feet of office space located at 132 A. West
Brazell Street in Reidsville, Tattnall County, Georgia. These two full-service
offices are owned by Citizens Bank The limited-service office was formerly
leased by Citizens. The limited-service office in Reidsville discontinued
operations on September 30, 1999.
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Citizens Bank operates a full-service branch office through The Brown Bank
division of Citizens Bank named First Flag Bank - Statesboro. The full-service
office contains 1,568 square feet of office space located at 302 South
Zetterower Avenue in Statesboro, Bulloch County, Georgia. This office is owned
by Citizens Bank.
Citizens Bank has agreed to sell its branch offices located in Metter,
Cobbtown and Statesboro, Georgia to Pineland State Bank. Under the terms of the
agreement, the Company will sell the fixed assets, deposits and all loans of the
three branch locations. The sale is projected to close prior to the end of the
third quarter of 2000, subject to approval by appropriate regulatory
authorities.
Thomaston Federal Savings Bank
Thomaston Federal Savings Bank operates one full-service main office in
Thomaston, Upson County, Georgia The full-service office contains 18,600 square
feet of office space on 1.39 acres of land located at 206 North Church Street.
This office is owned by Thomaston Federal Savings Bank.
The Eagle's Landing Center
The Company's Corporate Operations Center, The Eagle's Landing Center,
contains 10,000 square feet of office space located at 235 Corporate Center in
Stockbridge, Henry County, Georgia. This center is leased by the Company.
All of the Company's offices are in good condition and are adequate for the
Company's current and foreseeable needs.
The Company is unaware of any potential environmental liability that it may
incur in connection with any properties or other assets owned by it.
The net book value of the Company's investment in land, premises,
furniture, fixtures and equipment totaled approximately $18.4 million at
December 31, 1999. The Company owns most of its data processing equipment.
ITEM 3. 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 is also pursing 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 is
approximately $3 million, a significant portion of which may be covered by the
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Bank's fidelity bond. Several other banks also purchased fraudulent loans from
Gulf Properties and the total amount of exposure of all banks is approximately
$32 million. The assets of Gulf Properties are being liquidated in bankruptcy
and distributed to creditors on a pro rata basis.
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., has 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 is 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. The Bank intends to vigorously defend
this claim and pursue counterclaims against the investor.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted by the Company to a vote of its shareholders during
the fourth quarter of 1999.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's common stock is traded on the Nasdaq Stock Market under
the symbol "FLAG." The Company had 8,222,905 shares of Common Stock outstanding
and 953 shareholders of record as of March 17, 2000.
The following table sets forth the high and low closing sales prices of
the Company's Common Stock, as reported by Nasdaq, for each quarter for the past
two fiscal years and the cash dividends per share of the Common Stock paid by
the Company during such fiscal quarters.
Cash
Dividends
Quarter Ended High Low Per Share
- ------------- ---- --- ---------
March 31, 1998 $14.33 $11.92 $0.04
June 30, 1998 $19.00 $12.67 $0.05
September 30, 1998 $19.38 $12.75 $0.05
December 31, 1998 $14.63 $10.25 $0.06
March 31, 1999 $11.81 $ 9.13 $0.06
June 30, 1999 $11.00 $ 9.19 $0.06
September 30, 1999 $10.38 $ 7.50 $0.06
December 31, 1999 $ 8.63 $ 6.38 $0.06
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ITEM 6. SELECTED FINANCIAL DATA
(In thousands except per share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
FOR THE YEAR
<S> <C> <C> <C> <C> <C>
Net interest income $ 26,490 25,952 23,272 21,189 19,647
Provision for loan losses 4,656 3,475 1,702 4,566 1,532
Noninterest income 10,072 9,952 8,578 7,636 6,043
Noninterest expense 30,615 28,882 22,567 21,053 17,353
Income taxes 78 708 2,305 798 2,014
Net earnings $ 1,213 2,839 5,276 2,409 4,792
PER COMMON SHARE
Basic earnings per share $ .15 .35 .64 .29 .60
Diluted earnings per share .15 .34 .64 .29 .60
Cash dividends declared .24 .20 .13 .11 .11
Book value $ 6.43 6.92 6.51 5.93 5.79
AT YEAR END
Loans, net $ 419,079 424,660 399,725 348,417 314,588
Earning assets 521,452 568,133 538,008 470,664 435,663
Assets 587,870 635,192 595,468 520,472 484,909
Deposits 483,987 521,671 485,174 438,292 396,927
Stockholders' equity $ 53,197 56,869 53,276 48,489 46,207
Common shares outstanding 8,273 8,223 8,187 8,182 7,986
AVERAGE BALANCES
Loans $ 449,689 435,422 374,065 331,095 308,702
Earning assets 556,577 576,245 496,195 451,072 430,884
Assets 617,764 624,487 549,025 494,173 468,418
Deposits 496,998 505,337 456,713 412,585 378,064
Stockholders' equity $ 55,365 55,337 50,991 47,543 44,231
Weighted average shares outstanding 8,258 8,218 8,182 8,148 8,129
KEY PERFORMANCE RATIOS
Return on average assets .20% .45% .96% .49% 1.02%
Return on average stockholders' equity 2.19% 5.13% 10.35% 5.07% 10.83%
Net interest margin, tax equivalent basis 4.90% 4.56% 4.74% 4.68% 4.56%
Dividend payout ratio 153.50% 49.49% 17.66% 38.83% 18.88%
Average equity to average assets 8.96% 8.86% 9.29% 9.62% 9.44%
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
FLAG Financial Corporation ("FLAG") is a multi-bank holding company that
owns 100 percent of the common stock of First Flag Bank , formerly First Federal
Savings Bank of LaGrange ("First Flag"), Citizens Bank ("Citizens") and
Thomaston Federal Savings Bank ("Thomaston"), (collectively, the "Banks"). First
Flag is a commercial bank doing business in West Central Georgia. Thomaston is a
federally chartered thrift that serves Upson and surrounding counties in Middle
Georgia. Citizens is a commercial bank that serves Dooly, Macon, Crisp and
surrounding counties in Middle Georgia. Citizens also serves, through its Milan,
Brown and Empire divisions; Dodge, Telfair, Candler, Clinch and Ware counties in
Middle and South Georgia. The Banks are full-service, retail oriented community
banks primarily engaged in retail banking, small business, residential and
commercial real estate lending, and mortgage banking.
The following discussion focuses on significant changes in the financial
condition and results of operations of FLAG and the Banks during the three years
ended December 31, 1999. This discussion and the financial information contained
herein are presented to assist the reader in understanding and evaluating the
financial condition, results of operations, and future prospects of FLAG and
should be read as a supplement to and in conjunction with the Consolidated
Financial Statements and Related Notes.
Capital Issues
Effective June 3, 1998, FLAG declared a 3-for-2 stock split. All per share
amounts and prices have been restated to reflect this stock split as if it had
occurred at the beginning of the earliest period presented.
During the fourth quarter of 1999, FLAG implemented a stock repurchase
program. FLAG intends to purchase shares, not to exceed 57,500 shares, from time
to time at certain prices. As of December 31, 1999, a total of 7,500 shares had
been repurchased and is being held as treasury stock. As of March 17, 2000, a
total of 52, 500 shares had been repurchased.
Restatement of Financial Statements and Management's Discussion and Analysis
Effective March 30, 1998, FLAG completed the acquisition of Middle Georgia
Bankshares, Inc., the parent company of the $129 million Citizens Bank in
Vienna, Georgia. FLAG issued approximately 1.5 million shares of its common
stock in connection with this acquisition.
Effective May 8, 1998, FLAG completed the acquisition of Three Rivers
Bancshares, Inc., the parent company of the $35 million Bank of Milan in Milan,
Georgia. FLAG issued approximately 597,000 shares of its common stock in
connection with this acquisition.
Effective December 11, 1998, FLAG completed the acquisition of Empire
Banking Corp., the parent company of the $70 million Empire Banking Company of
Homerville, Georgia. FLAG issued approximately 1.1 million shares of its common
stock in connection with this acquisition.
Effective December 31, 1998, FLAG completed the acquisition of the $31
million Brown Bank in Metter, Georgia. FLAG issued approximately 255,000 shares
of its common stock in connection with this acquisition.
Effective August 31, 1999, FLAG acquired, for approximately 1.2 million
shares of its common stock, all of the outstanding stock of Thomaston, a $55
million thrift located in Thomaston, Georgia.
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Effective September 30, 1999, FLAG acquired, for approximately 575,000
shares of its common stock, all of the outstanding stock of First Hogansville
Bankshares, Inc., the holding company of the $31 million Citizens Bank, located
in Hogansville, Georgia.
These acquisitions were accounted for as poolings of interests and,
accordingly, the consolidated financial statements and management's discussion
and analysis for all periods have been restated to include the financial
position and results of operations as if the combinations had occurred at the
beginning of the earliest period presented.
Subsequent Event
On March 6, 2000, FLAG entered into an agreement to sell certain branch
locations of Citizens in Metter, Cobbtown and Statesboro, Georgia. The sale
agreement provides for a net sales price of approximately $3.2 million and
includes all deposit liabilities, loans and premises and equipment of these
branches. This branch sale is subject to various regulatory approvals.
Year 2000 Issues
FLAG did not experience any material disruptions in its operations or
activities 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 effect on FLAG.
Net Interest Income
Net interest income (the difference between the interest earned on assets
and the interest paid on deposits and other interest-bearing liabilities) is the
single largest component of FLAG's operating income. The management of net
interest income is of most importance in the banking industry. FLAG manages this
income source while it controls credit, liquidity, and interest rate risks.
Net interest income increased 2.07% in 1999, from $26.0 million in 1998 to
$26.5 million in 1999. Net interest income increased 11.5% in 1998 compared to
1997.
Total interest income decreased 3.9% in 1999 and increased 13.4% in 1998.
Interest expense decreased approximately 10.1% in 1999 and increased 15.4% in
1998. The interest expense variances from year to year have been primarily
influenced by the average balances of interest-bearing liabilities (see Tables 1
& 2).
18
<PAGE>
Table 1 - Consolidated Average Balances, Interest, and Rates - Taxable
Equivalent Basis (dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------------------------------
Interest Weighted Interest Weighted Interest Weighted
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans.............. $ 449,689 43,131 9.59% 435,422 43,156 9.91% 374,065 37,704 10.08%
Taxable investment
securities........ 83,485 5,170 6.19% 97,159 5,886 6.06% 96,459 6,070 6.29%
Tax-free investment
securities........ 11,324 990 8.74% 12,448 947 7.61% 10,302 753 7.31%
Interest-bearing deposits
in other banks... 6,576 361 5.49% 9,603 459 4.78% 5,147 333 6.47%
Federal funds sold. 5,503 277 5.03% 21,613 1,046 4.84% 10,222 528 5.17%
----- --- ---- ------ ----- ---- ------ --- ----
Total interest-
earning assets.. 556,577 49,929 8.97% 576,245 51,494 8.94% 496,195 45,388 9.15%
Other assets......... 61,187 48,242 52,830
-------- -------- --------
Total assets..... $ 617,764 624,487 549,025
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand
deposits........ $ 59,000 996 1.69% 60,950 1,254 2.06% 86,047 2,309 2.68%
Savings deposits .. 70,332 2,069 2.94% 69,440 2,225 3.20% 31,980 844 2.64%
Other time deposits 309,484 16,527 5.34% 319,475 18,460 5.78% 291,091 16,824 5.78%
Federal funds purchased 4,697 240 5.11% 1,238 60 4.85% 1,287 86 6.68%
FHLB advances and
other borrowings 52,122 2,831 5.43% 56,854 3,221 5.66% 30,896 1,799 5.82%
Total interest-
bearing liabilities 495,635 22,663 4.57% 507,957 25,220 4.96% 441,301 21,862 4.95%
Noninterest bearing
demand deposits. 58,182 55,472 47,595
Other liabilities.... 8,582 6,721 9,138
Stockholders' equity. 55,365 55,337 50,991
--------- -------- --------
Total liabilities and
stockholders' equity $617,764 625,487 549,025
======= ======= =======
Tax-equivalent adjustment 776 322 254
--- --- ---
Net interest income.. 26,490 25,952 23,272
====== ====== ======
Interest rate spread. 4.40% 3.97% 4.19%
Net interest margin.. 4.90% 4.56% 4.74%
Interest-earning assets/
interest-bearing liabilities 112% 113% 112%
</TABLE>
19
<PAGE>
Consolidated Average Balances, Interest, and Rates
Net interest income is determined by the amount of interest-earning assets
compared to interest-bearing liabilities and their related yields and costs. The
difference between the weighted average interest rates earned on
interest-earning assets (i.e., loans and investment securities) and the weighted
average interest rates paid on interest-bearing liabilities (i.e., deposits and
borrowings) is called the net interest spread. Another measure of the difference
in interest income earned versus interest expense paid is net interest margin.
Net interest margin is calculated by dividing net interest income by average
earning assets.
Table 1 presents for the three years ended December 31, 1999, average
balances of interest-earning assets and interest-bearing liabilities and the
weighted average interest rates earned and paid on those balances. In addition,
interest rate spreads, net interest margins and the ratio of interest-earning
assets versus interest-bearing liabilities for those years are presented.
Average interest-earning assets were $556.6 million in 1999 versus $576.2
million in 1998, and $496.2 million in 1997. Average interest-bearing
liabilities were $495.6 million in 1999 versus $508.0 million in 1998 and $441.3
million in 1997. The interest rate spread was 4.40% in 1999 versus 3.97% in 1998
and 4.19% in 1997, while the net interest margin was 4.90% in 1999, 4.56% in
1998 and 4.74% in 1997.
Table 2 shows the change in net interest income from 1999 to 1998 and from
1998 to 1997 due to changes in volumes and rates.
Table 2 - Rate/Volume Variance Analysis - Taxable Equivalent Basis
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------
1999 Compared to 1998 1998 Compared to 1997
` ----------------------------- ---------------------------
Rate/ Net Rate/ Net
Volume Yield Change Volume Yield Change
------ ----- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans .................................... $ 1,388 (1,413) (25) 6,081 (629) 5,452
Taxable investment securities ............ (847) 131 (716) 42 (226) (184)
Tax-free investment securities ........... (98) 141 43 163 31 194
Interest-bearing deposits in
other banks ............................ (166) 68 (98) 213 (87) 126
Federal funds sold ....................... (811) 42 (769) 551 (33) 518
---- -- ---- --- --- ---
Total interest income ................. (534) (1,031) (1,565) 7,050 (944) 6,106
Interest expense:
Interest bearing demand deposits ......... (40) (218) (258) (516) (539) (1,055)
Savings deposits ......................... 29 (185) (156) 1,200 181 1,381
Other time deposits ...................... (577) (1,356) (1,933) 1,640 (4) 1,636
Federal funds purchased .................. 168 12 180 (2) (24) (26)
FHLB advances and other borrowings ....... (268) (121) (389) 1,470 (49) 1,421
---- ---- ---- ----- --- -----
Total interest expense ................ (688) (1,868) (2,556) 3,792 (435) 3,357
---- ------ ------ ----- ---- -----
Net interest income....................... .$ 154 837 991 3,258 (509) 2,749
===== === === ===== ==== =====
</TABLE>
Noninterest Income
Other income increased to $10.1 million in 1999 from $10.0 million in 1998
and $8.6 million in 1997. The increases in other income in 1999 and 1998
resulted from increased gains on the sale of investment securities and increased
fee income related to transaction deposit accounts, respectively.
Gain on sales of investment securities increased to $1,148,000 in 1999
versus $273,000 in 1998 and $179,000 in 1997. The increase in gain on sales of
investment securities in 1999 primarily resulted from gains on the sale of the
Company's holdings in Towne Services, Inc.
20
<PAGE>
Fees and service charges on deposits decreased to $4.6 million in 1999 from
$5.4 million in 1998 and $5.0 million in 1997.
Noninterest Expenses
Salary and employee benefits increased to $15.1 million in 1999 from $13.4
million in 1998 and $11.4 million in 1997. This increase in 1999 was primarily
due to additional staffing requirements, the use of temporary employees for
special projects and the improvement of our employee benefit package. The
benefits currently offered are, in the opinion of management, necessary to
effectively compete in hiring and maintaining a quality staff. Management also
believes consolidation efficiencies will continue to be realized and reduce the
need for some personnel.
Occupancy expenses decreased to $4.1 million in 1999 from $4.4 million in
1998 and $3.9 million in 1997. The decrease in 1999 occupancy expense was the
result of a decrease in depreciation on certain fixtures and equipment,
partially offset by an increase in expenses related to the operations center at
Eagle's Landing. The increase in occupancy expense in 1998 was due to an
increase in the number of branch locations.
Other expenses were $11.4 million in 1999 versus $11.0 million in 1998 and
$7.3 million in 1997. The increase in other operating expenses from 1998 to 1999
was due to certain merger-related expenses, and an increase in data processing
expense. This increase in data processing expense was due to Year 2000 expenses
and certain conversion costs recognized in 1999. The increase in other expenses
in 1998 compared to 1997 was due to certain merger-related expenses.
Investment Securities
The composition of the investment securities portfolio reflects
management's strategy of maintaining an appropriate level of liquidity, while
providing a relatively stable source of income. The portfolio also provides a
balance to interest rate risk and credit risk in other categories of FLAG's
balance sheet while providing a vehicle for the investment of available funds,
furnishing liquidity, and providing securities to pledge as required collateral
for certain deposits.
Investment securities decreased $8.1 million to $89.6 million at December
31, 1999 from $97.6 million at December 31, 1998. At December 31, 1999, $73.3
million, approximately 82% of investment securities outstanding, was classified
as available-for-sale, while the remainder was classified as held-to-maturity.
The overall decrease in the amount of investments was due to sale of investment
securities, maturities and paydowns. At December 31, 1999, gross unrealized
gains in the total portfolio amounted to $781,000 and gross unrealized losses
amounted to $3,012,000.
Table 3 reflects the carrying amount of the investment securities portfolio
for the past three years.
21
<PAGE>
Table 3 - Carrying Value of Investments
(dollars in thousands)
December 31,
1999 1998 1997
---- ---- ----
Securities held-to-maturity:
U.S. Treasuries and agencies .............$10,178 11,624 21,802
State, county and municipal .............. 2,997 3,111 6,108
Mortgage-backed securities ............... 2,318 1,127 3,445
Collateralized mortgage obligations ...... 751 1,037 1,788
Securities available-for-sale:
U.S. Treasuries and agencies .............. 18,877 22,002 40,879
Corporate debt securities ................. -- 999 999
State, county and municipal ............... 8,732 9,767 18,499
Mortgage-backed securities ................ 22,376 32,541 54,917
Trust Preferred Securities ................ 7,431 -- --
Collateralized mortgage obligations ....... 14,264 11,520 25,784
Equity securities ......................... 1,631 3,895 5,340
----- ----- -----
Total ...........................$89,555 97,623 179,561
======= ====== =======
Carrying Value of investments
The December 31, 1999 market value of securities held to maturity, as a
percentage of amortized cost, was 98%, down from 104% at December 31, 1998. The
market value of the securities held-to-maturity will change as interest rates
change and such unrealized gains and losses will not flow through the earnings
statement unless the related securities become permanently impaired or they are
called at prices which differ from the carrying value at the time of the call.
Loans
Gross loans receivable decreased by approximately $4.8 million in 1999 to
$426.1 million from $430.9 million at December 31, 1998. This decrease was the
result of declines in commercial, financial and agricultural loans, installment
loans and lease financing loans, partially offset by an increase in real estate
construction and real estate mortgages. As shown in Table 4, real estate
construction and real estate mortgage loans increased approximately $25.0
million, commercial, financial and agricultural loans decreased approximately
$4.0 million, installment loans decreased approximately $23.2 million and lease
financing receivables decreased approximately $2.4 million.
22
<PAGE>
Table 4 - Loan Portfolio
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial/financial/agricultural $117,728 27.6% $121,744 28.3% $76,673 18.9% 60,778 20.0% 53,244 16.8%
Real estate construction....... 43,602 10.2% 31,814 7.4% 13,864 3.4% 10,784 3.5% 19,906 6.3%
Real estate mortgage........... 218,920 51.4% 205,753 47.8% 266,837 65.8% 191,478 62.9% 193,446 61.1%
Installment loans to individuals 40,620 9.5% 63,869 14.8% 38,679 9.5% 33,744 11.1% 42,755 13.5%
Lease financings............... 5,226 1.2% 7,674 1.8% 9,308 2.3% 7,723 2.5% 7,404 2.3%
--------------------------------------------------------------------------------------------
Total loans............... 426,096 100% 430,854 100% 405,361 100% 304,507 100% 316,755 100%
Less:
Allowance for loan losses...... 7,017 6,194 6,636 6,384 3,960
--------------------------------------------------------------------------------------------
Total net loans........... $419,079 424,660 399,725 298,123 312,795
============================================================================================
</TABLE>
Table 5 represents the expected maturities for commercial, financial, and
agricultural loans and real estate construction loans at December 31, 1999. The
table also presents the rate structure for these loans that mature after one
year.
Table 5 - Loan Portfolio Maturity
(dollars in thousands)
<TABLE>
<CAPTION>
Rate Structure for Loans
Maturity Maturity Over One Year
---------------------------------------------------------------------------------------------
Over One Year
One Year Through Over Five Floating or Adjustable Predetermined
or Less Five Years Years Total Interest Rate Rate
------- ---------- ----- ----- ------------- ----
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural............... $ 58,090 26,424 33,214 117,728 30,681 28,957
Real estate - construction .... 37,187 3,600 2,815 43,602 6,403 12
------ ----- ----- ------ ----- --
$ $95,277 30,024 36,029 161,330 37,084 28,969
======= ====== ====== ======= ====== ======
</TABLE>
Provision and Allowance for Loan Losses
Table 6 presents an analysis of activities in the allowance for loan losses
for the past five years. An allowance for possible losses is provided through
charges to FLAG's earnings in the form of a provision for loan losses. The
provision for loan losses was $4,656,000 in 1999, $3,475,000 in 1998 and
$1,702,000 in 1997. The increase in the provision in 1999 compared to 1998 was
due to provisions made for certain lease financing receivables booked prior to
1999, as well as various commercial and agricultural credits. These commercial
and agricultural credits included provisions for a large residential
construction company as well as for certain timber and agricultural loans. The
large increase in the provision for loan losses from 1997 to 1998 is directly
attributable to Gulf Properties Financial, Inc. (Gulf Properties). First Flag
had provided a warehouse line to Gulf Properties with which Gulf Properties
would originate loans and sell them to First Flag. During 1998, it was
discovered that certain loans would not be collectible. Provisions relating to
Gulf Properties totaled $2,000,000 in 1998. During 1999, we continued to pursue
collection of Gulf Properties through legal proceedings as well as claims made
through our insurance carrier. Management feels that adequate provisions have
been made on behalf of Gulf Properties in view of our collection efforts to
date. Management determines the level of the provision for loan losses based on
outstanding loan balances, the levels of nonperforming assets, and reviews of
assets classified as substandard, doubtful, or loss and larger credits, together
with an analysis of historical loss experience, and current economic conditions.
The increased loan loss provision for 1999 can also be attributed to
management's continued emphasis on improved credit administration, an increase
in quality internal loan review and management's conservative approach to loan
loss reserve methodology.
23
<PAGE>
Historically, the loan portfolio has consisted primarily of loans secured
by one-to-four family residential properties, and actual losses have not been
significant. The Banks also provide other services and loan products to meet the
growing financial needs of FLAG's communities, including consumer loans,
commercial loans, and commercial real estate loans. Because these loans present
a somewhat higher credit risk than loans secured by residential properties,
management has significantly increased the allowance for loan losses compared to
historic levels to reflect the increased potential for future losses.
As shown in Table 6, the year-end allowance for loan losses increased to
$7.0 million at December 31, 1999, from $6.2 million at December 31, 1998. The
allowance for loan losses was $5.6 million at December 31, 1997. The increase in
the allowance at December 31, 1999 was due primarily to the increased provisions
associated with increased classifications attributed to management's continued
focus on asset quality and loan review. The increase in the allowance for losses
in 1998 was primarily due to the provision made for Gulf Properties. Total
charge-offs were $4.1 million in 1999, $3.3 million in 1998, and $3.4 million in
1997. The allowance for loan losses was 1.67% of net outstanding loans at
December 31, 1999, versus 1.46% of net outstanding loans at December 31, 1998,
and 1.41% of net outstanding loans at December 31, 1997.
Management believes that the allowance for loan losses is both adequate and
appropriate. However, the future level of the allowance for loan losses is
highly dependent upon loan growth, loan loss experience, and other factors,
which cannot be anticipated with a high degree of certainty.
Table 6 - Analysis of the Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average net loans ........................... $449,689 435,422 374,065 331,589 261,031
Allowance for loan losses, beginning
of the period ............................. 6,194 5,637 7,051 3,960 3,455
Charge-offs for the period:
Commercial/financial/agricultural ......... 722 1,834 328 828 464
Real estate construction loans ............ -- -- -- 24 23
Real estate mortgage loans ................ 1,305 296 242 433 452
Installment loans to individuals .......... 1,007 818 349 309 277
Lease financings .......................... 1,056 314 2,465 -- --
----- --- ----- ---- ----
Total charge-offs ........................... 4,090 3,262 3,384 1,594 1,216
----- ----- ----- ----- -----
Recoveries for the period:
Commercial/financial/agricultural ......... 46 77 7 -- 78
Real estate construction loans ............ -- -- -- -- --
Real estate mortgage loans ................ 60 52 106 -- --
Installment loans to individuals .......... 149 165 155 119 112
Lease financings .......................... 2 50 -- -- --
--- --- --- --- ---
Total recoveries ....................... 257 344 268 119 190
--- --- --- --- ---
Net charge-offs for the period ....... 3,833 2,918 3,116 1,475 1,026
Provision for loan losses ................... 4,656 3,475 1,702 4,566 1,515
----- ----- ----- ----- -----
Allowance for loan losses, end of period .... $ 7,017 6,194 5,637 7,051 3,944
======== ===== ===== ===== =====
Ratio of allowance for loan losses to total
net loans outstanding ..................... 1.67% 1.46% 1.41% 2.37% 1.26%
Ratio of net charge-offs during the period to
average net loans outstanding during the
period ...................................... 0.85% 0.67% 0.83% 0.44% 0.39%
</TABLE>
24
<PAGE>
Asset Quality
At December 31, 1999, non-performing assets totaled $15.8 million compared
to $10.8 million at year-end 1998. The increase in 1999 is primarily attributed
to the increase in loans on non-accrual as well as loans past due 90 days and
still accruing. As part of the Company's renewed credit culture, a special
assets division has been established for the purpose of managing all
nonperforming assets. The primary concentration of nonaccrual loans reside with
several agri-business concerns as well as construction loans attributed to one
particular relationship. There were no commitments to lend additional funds to
customers with loans on nonaccrual at December 31, 1999. Table 7 summarizes the
non-performing assets for each of the last five years.
Table 7 - Risk Elements
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual...................... $ 12,118 7,729 6,501 9,132 3,394
Loans past due 90 days and still accruing 2,775 813 701 1,762 749
Other real estate owned.................. 939 2,251 1,040 1,085 975
------------------------------------------------------
Total non-performing assets.............. $ 15,832 10,793 8,242 11,979 5,118
======================================================
Total non-performing loans as a
percentage of net loans............. 3.78% 2.54% 2.06% 4.02% 1.64%
======================================================
</TABLE>
Risk Elements
There may be additional loans within FLAG's loan portfolio that may become
classified as conditions may dictate; however, management was not aware of any
such loans that are material in amount at December 31, 1999. At December 31,
1999, management was unaware of any known trends, events, or uncertainties that
will have, or that are reasonably likely to have a material effect on the Banks'
or FLAG's liquidity, capital resources, or operations.
Deposits
Total deposits decreased approximately $37.7 million during 1999, totaling
$484.0 million at December 31, 1999 versus $521.7 million at December 31, 1998.
Total deposits decreased during 1999 from levels of 1998 due primarily to
management's restructuring of First Flag's balance sheet through decreased
reliance on larger, volatile certificates of deposit and more emphasis on
funding of core deposits. The maturities of time deposits of $100,000 or more
issued by the Banks at December 31, 1999, are summarized in Table 8.
Table 8 - Maturities of Time Deposits Over $100,000
(dollars in thousands)
Three months or less.................. $ 18,837
Over three months through six months.. 17,374
Over six months through twelve months. 27,108
Over twelve months.................... 10,348
------
$ 73,667
======
At December 31, 1999, the Banks were shareholders in the Federal Home Loan
Bank of Atlanta ("FHLBA"). Through this affiliation, advances totaling $27.2
million were outstanding at rates competitive with time deposits of like
maturities. Management anticipates continued utilization of this short- and
long-term source of funds to minimize interest rate risk and to fund competitive
fixed rate loans to customers.
25
<PAGE>
Asset-Liability Management
A primary objective of FLAG's asset and liability management program is to
control exposure to interest rate risk (the exposure to changes in net interest
income due to changes in market interest rates) so as to enhance its earnings
and protect its net worth against potential loss resulting from interest rate
fluctuations.
Historically, the average term to maturity or repricing (rate changes) of
assets (primarily loans and investment securities) has exceeded the average
repricing period of liabilities (primarily deposits and borrowings). Table 9
provides information about the amounts of interest-earning assets and
interest-bearing liabilities outstanding as of December 31, 1999, that are
expected to mature, prepay, or reprice in each of the future time periods shown
(i.e., the interest rate sensitivity). As presented in this table, at December
31, 1999, the liabilities subject to rate changes within one year exceeded its
assets subject to rate changes within one year. This mismatched condition
subjects FLAG to interest rate risk within the one year period because the
assets, due to their generally shorter term to maturity or repricing, are more
sensitive to short-term interest rate changes than the liabilities. It is
management's belief that the result of this position would be a decrease in net
interest income if market interest rates rise and an increase in net interest
income if market interest rates decline.
Management carefully measures and monitors interest rate sensitivity and
believes that its operating strategies offer protection against interest rate
risk. As required by various regulatory authorities, FLAG's Board of Directors
has established an interest rate risk policy, which sets specific limits on
interest rate risk exposure. Adherence to this policy is reviewed quarterly by
the Board of Directors' Asset Liability Committee.
Management has maintained positive ratios of average interest-earning
assets to average interest-bearing liabilities. As represented in Table 1 this
ratio, based on average balances for the respective years, was 112% in 1999,
113% in 1998 and 112% in 1997.
Table 9 - Interest Rate Sensitivity Analysis
(dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1999
Maturing or Repricing in
--------------------------------------------------------------------------
Over 1 Year Over 3 Years
One Year Through Through Over
or Less 3 Years 5 Years 5 Years Total
------- ------- ------- ------- -----
Interest-earning assets:
<S> <C> <C> <C> <C> <C>
Adjustable rate mortgages............ $ 96,555 10,226 4,736 7,436 118,953
Fixed rate mortgages................. 84,868 35,935 13,436 2,536 136,775
Other loans.......................... 126,039 34,823 8,999 3,991 173,852
Investment securities................ 31,132 13,657 27,298 23,560 95,647
Interest-bearing deposits
in other banks and Federal funds sold 3,242 - - - 3,242
---------------------------------------------------------------------------
Total interest-earning assets.... 341,836 94,641 54,469 37,523 528,469
--------------------------------------------------------------------------
Interest-bearing liabilities:
Fixed maturity deposits.............. 246,398 38,628 14,986 730 300,742
NOW and money market demand
accounts.......................... 96,354 - - - 96,354
Fed funds purchased.................. 15,320 - - - 15,320
Passbook accounts.................... 28,378 - - - 28,378
FHLB advances........................ 6,675 4,370 5,712 10,416 27,173
---------------------------------------------------------------------------
Total interest-bearing liabilities.... 393,125 42,998 20,698 11,146 467,967
--------------------------------------------------------------------------
Interest rate sensitivity gap......... (51,289) 51,643 33,771 26,377 60,502
Cumulative interest rate sensitivity
gap............................. $ (51,289) 354 34,125 60,502
Cumulative interest rate sensitivity gap
to total assets................. (8.72)% 0.06% 5.80% 10.29%
</TABLE>
26
<PAGE>
Table 10 represents the expected maturity of the total investment
securities by maturity date and average yields based on amortized cost at
December 31, 1999. It should be noted that the composition and
maturity/repricing distribution of the investment portfolio is subject to change
depending on rate sensitivity, capital needs, and liquidity needs.
Table 10 - Expected Maturity of Investment Securities
(dollars in thousands)
<TABLE>
<CAPTION>
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
-------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Totals
------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held-to-maturity:
U.S. Treasuries and agencies ...... $ -- -- 8,729 5.94% 1,449 6.21% -- -- 10,178
State, county and municipals ...... 209 10.59% 996 7.00% 1,655 7.69% 137 7.53% 2,997
Mortgage-backed securities ........ 482 5.16% 87 6.50% 1,347 6.08% 402 6.52% 2,318
Collateralized mortgage obligations 4 8.80% -- -- -- -- 747 5.97% 751
- ---- ----- ----- ----- ----- --- ---- ---
695 6.82% 9,812 6.28% 4,451 6.72% 1,286 6.31% 16,244
--- ----- ----- ----- ----- ----- ----- ----- ------
Securities available-for-sale:
U.S. Treasury and agencies ........ 1,499 5.71% 12,235 5.74% 4,177 7.13% 1,536 6.07% 19,447
State, county and municipals ...... 882 6.75% 1,646 6.61% 1,739 6.34% 4,680 7.73% 8,947
Equity securities ................. 1,146 6.11% -- -- -- -- -- -- 1,146
Mortgage-backed securities ........ 91 7.65% 1,812 6.48% 1,147 5.074 19,865 5.74% 22,915
Trust preferred securities .... -- -- -- -- -- -- 8,050 9.25% 8,050
Collateralized mortgage obligations -- -- -- -- 7,865 5.76% 6,742 6.21% 14,607
----- ----- ----- ----- ----- ---- ----- ---- ------
3,618 6.14% 15,693 5.91% 14,928 6.21% 40,873 6.86% 75,112
----- ---- ------ ---- ------ ---- - ----- ---- ------
Total .................... $4,313 6.25% 25,505 6.06% 19,379 6.33% 42,159 6.84% 91,356
====== ==== ====== ==== ====== ==== ====== ==== ======
</TABLE>
Liquidity
The objective of liquidity management is to ensure that sufficient funding
is available, at reasonable cost, to meet the ongoing operational cash needs of
FLAG and to take advantage of income producing opportunities as they arise.
While the desired level of liquidity will vary depending upon a variety of
factors, it is the primary goal of FLAG to maintain a sufficient level of
liquidity in all expected economic environments. Liquidity is defined as the
ability of a bank to convert assets into cash or cash equivalents without
significant loss and to raise additional funds by increasing liabilities.
Liquidity management involves maintaining FLAG's ability to meet the daily cash
flow requirements of the Banks' customers, both depositors and borrowers.
The primary objectives of asset/liability management are to provide for
adequate liquidity in order to meet the needs of customers and to maintain an
optimal balance between interest-sensitive assets and interest-sensitive
liabilities, so that FLAG can also meet the investment requirements of its
shareholders as market interest rates change. Daily monitoring of the sources
and use of funds is necessary to maintain a position that meets both
requirements.
The asset portion of the balance sheet provides liquidity primarily through
loan principal repayments and the maturities and sales of securities. Mortgage
loans held for sale totaled $3.5 million at December 31, 1999, and typically
turn over every 45 days as the closed loans are sold to investors in the
secondary market. Real estate-construction and commercial loans that mature in
one year or less amounted to $95.3 million, or 22%, of the total loan portfolio
at December 31, 1999. Other short-term investments such as federal funds sold
are additional sources of liquidity.
27
<PAGE>
The liability section of the balance sheet provides liquidity through
depositors' interest bearing and non-interest bearing deposit accounts. Federal
funds purchased, FHLBA advances and securities sold under agreements to
repurchase are additional sources of liquidity and represent FLAG's incremental
borrowing capacity. These sources of liquidity are short-term in nature and are
used as necessary to fund asset growth and meet other short-term liquidity
needs.
As disclosed in FLAG's consolidated statements of cash flows included in
the consolidated financial statements, net cash provided by operating activities
was $16.8 million during 1999. The major sources of cash provided by operating
activities are net income and the decrease in mortgage loans held for sale. Net
cash provided by investing activities of $11.1 million was funded largely by
proceeds from sales and maturities of investments and cash acquired in a branch
acquisition, net of the premium paid. Net cash used by financing activities
consisted primarily of a $46.5 million net decrease in deposits and a net
decrease in FHLBA advances of $21.2 million.
In the opinion of management, FLAG's liquidity position at December 31,
1999, is sufficient to meet its expected cash flow requirements. Reference
should be made to the consolidated statements of cash flows appearing in the
consolidated financial statements for the three-year analysis of the changes in
cash and cash equivalents resulting from operating, investing and financing
activities.
Capital Resources and Dividends
Stockholders' equity at December 31, 1999, decreased 6.5% from December 31,
1998. This decline resulted from the increase in unrealized losses on securities
available-for-sale. Dividends of $1.9 million or $.24 per share were declared in
1999, compared to $1.4 million or $.20 per share in 1998.
Average stockholders' equity as a percent of total average assets is one
measure used to determine capital strength. The ratio of average stockholders'
equity to average total assets was 8.96% for 1999 and 8.86% for 1998. Table 11
summarizes these and other key ratios for FLAG for each of the last three years.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA")
required federal banking agencies to take "prompt corrective action" with regard
to institutions that do not meet minimum capital requirements. As a result of
FDICIA, the federal banking agencies introduced an additional capital measure
called the "Tier 1 risk-based capital ratio." The Tier 1 ratio is the ratio of
core capital to risk adjusted total assets. Note 11 to the Consolidated
Financial Statements presents a summary of FDICIA's capital tiers compared to
FLAG's and the Banks' actual capital levels. The Banks exceeded all requirements
of a "well-capitalized" institution at December 31, 1999.
Table 11 - Equity Ratios
Years Ended December 31,
------------------------
1999 1998 1997
----------------------------
Return on average assets........... .20% .45% .96%
Return on average equity........... 2.19% 5.13% 10.35%
Dividend payout ratio.............. 153.50% 49.49% 17.66%
Average equity to average assets... 8.96% 8.86% 9.29%
Provision for Income Taxes
The provision for income taxes was $78,000 in 1999, versus $708,000 in
1998, and $2,350,000 in 1997. The effective actual tax rates for 1999, 1998, and
1997 (tax provision as a percentage of income before taxes) were 6%, 20%, and
30%, respectively. These tax rates are lower than the statutory Federal tax rate
of 34% primarily due to interest income on tax exempt securities and general
business credits. See FLAG's consolidated financial statements for an analysis
of income taxes.
28
<PAGE>
Impact of Inflation and Changing Prices
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with generally accepted accounting
principles which require the measurement of financial position and operating
results in terms of historical dollars without considering changes in relative
purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than does the effect of inflation. The liquidity and
maturity structures of FLAG's assets and liabilities are critical to the
maintenance of acceptable performance levels.
Recent Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("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. 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
believes the adoption of SFAS No. 133 will not have a material impact on its
financial position, results of operations or liquidity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's net interest income and the fair value of its financial
instruments (interest-earning assets and interest-bearing liabilities) are
influenced by changes in market interest rates. The Company actively manages its
exposure to interest rate fluctuations through policies established by its
Asset/Liability Management Committee (the "ALCO"). The ALCO meets regularly and
is responsible for approving asset/liability management policies, developing and
implementing strategies to improve balance sheet positioning and net interest
income and assessing the interest rate sensitivity of the Banks.
The Company utilizes an interest rate simulation model to monitor and
evaluate the impact of changing interest rates on net interest income and the
market value of its investment portfolio. The ALCO policy limits the maximum
percentage changes in net interest income and investment portfolio equity,
assuming a simultaneous, instantaneous change in interest rate. These percentage
changes are as follows:
Changes in Percentage Percent Change in
Interest Rates Change in Net Market Value of
(In Basis Points) Interest Income Portfolio Equity
400 30% 40%
300 25% 30%
200 20% 20%
100 10% 10%
As of December 31, 1999, the Company was in compliance with its ALCO policy.
29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the registrant and report of
independent auditors are included herein as follows:
[Porter Keadle Moore, LLP LOGO]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
FLAG Financial Corporation
Stockbridge, Georgia
We have audited the accompanying consolidated balance sheets of FLAG Financial
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
statements of earnings, comprehensive income, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of FLAG's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the 1998 and 1997 financial statements of
Thomaston Federal Savings Bank and the 1997 consolidated financial statements of
Three Rivers Bancshares, Inc. and subsidiary, all of which were pooled with FLAG
Financial Corporation in 1999 and 1998 as explained in note 2 to the
consolidated financial statements. Those statements are included in the
accompanying consolidated financial statements and reflect total assets of
$53,619,000 as of December 31, 1998 and net earnings of $611,000 and $1,279,000
for the years ended December 31, 1998 and 1997, respectively. Those statements
were audited by other auditors whose reports have been furnished to us and our
opinion, insofar as it relates to these amounts, is based solely on the reports
of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. 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, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of FLAG Financial Corporation and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
/s/ Porter Keadle Moore, LLP
Atlanta, Georgia
January 28, 2000, except for note 18, as to
which the date is March 6, 2000
30
<PAGE>
FLAG FINANCIAL CORPORATION
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets
------
1999 1998
---- ----
(In Thousands)
<S> <C> <C>
Cash and due from banks, including reserve requirements
of $3,487 and $2,207 ................................................................... $ 26,634 28,287
Federal funds sold ......................................................................... 450 25,030
--- ------
Cash and cash equivalents ....................................................... 27,084 53,317
Interest-bearing deposits .................................................................. 2,792 3,577
Investment securities available-for-sale ................................................... 73,311 80,724
Investment securities held-to-maturity (fair value of
$15,814 in 1999 and $17,105 in 1998) ................................................... 16,244 16,899
Other investments .......................................................................... 6,092 7,023
Mortgage loans held for sale ............................................................... 3,484 10,220
Loans, net ................................................................................. 419,079 424,660
Premises and equipment, net ................................................................ 18,392 17,772
Other assets ............................................................................... 21,392 21,000
------ ------
$ 587,870 635,192
========= =======
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand ................................................................................. $ 58,513 63,042
Interest-bearing demand ................................................................ 96,354 105,527
Savings ................................................................................ 28,378 29,936
Time ................................................................................... 227,075 230,447
Time, over $100,000 .................................................................... 73,667 92,719
------ ------
Total deposits ................................................................. 483,987 521,671
Federal funds purchased and repurchase agreements........................................... 15,320 --
Advances from Federal Home Loan Bank ....................................................... 27,173 48,398
Other liabilities .......................................................................... 8,193 8,254
----- -----
Total liabilities ............................................................... 534,673 578,323
------- -------
Stockholders' equity:
Preferred stock (10,000,000 shares authorized; none issued and outstanding) ............ -- --
Common stock ($1 par value, 20,000,000 shares authorized, 8,272,815 and
8,223,231 shares issued in 1999 and 1998, respectively) ............................. 8,273 8,223
Additional paid-in capital ............................................................. 11,342 11,306
Retained earnings ...................................................................... 34,754 35,403
Accumulated other comprehensive income (loss) .......................................... (1,120) 1,937
------ -----
53,249 56,869
Less: treasury stock, at cost; 7,500 shares in 1999 .................................... (52) --
Total stockholders' equity....................................................... 53,197 56,869
------ ------
$ 587,870 635,192
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
FLAG FINANCIAL CORPORATION
Consolidated Statements of Earnings
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(In Thousands Except Per Share Data)
<S> <C> <C> <C>
Interest income:
Interest and fees on loans ................................ $ 42,749 43,217 37,778
Interest on investment securities ......................... 5,765 6,450 6,495
Interest -bearing deposits ................................ 361 459 333
Federal funds sold ........................................ 278 1,046 528
--- ----- ---
Total interest income .............................. 49,153 51,172 45,134
------ ------ ------
Interest expense:
Deposits .................................................. 19,592 21,939 19,978
Borrowings ................................................ 3,071 3,281 1,884
----- ----- -----
Total interest expense ............................. 22,663 25,220 21,862
------ ------ ------
Net interest income before provision for loan losses 26,490 25,952 23,272
Provision for loan losses ..................................... 4,656 3,475 1,702
----- ----- -----
Net interest income after provision for loan losses 21,834 22,477 21,570
------ ------ ------
Other income:
Fees and service charges .................................. 4,633 5,424 4,978
Gain on sales of investment securities .................... 1,148 273 179
Gain on sale of trading securities ........................ 286 -- --
Unrealized gain on trading securities ..................... 255 -- --
Gain on sales of loans .................................... 2,086 2,429 2,321
Gain (loss) on other real estate, net ..................... (382) 26 (83)
Other ..................................................... 2,046 1,800 1,183
----- ----- -----
Total other income ................................. 10,072 9,952 8,578
------ ----- -----
Other expenses:
Salaries and employee benefits ............................ 15,097 13,437 11,369
Occupancy ................................................. 4,134 4,407 3.911
Other operating ........................................... 11,384 11,044 7,287
------ ------ -----
Total other expenses ............................... 30,615 28,882 22,567
------ ------ ------
Earnings before provision for income taxes ......... 1,291 3,547 7,581
Provision for income taxes .................................... 78 708 2,305
-- --- -----
Net earnings .................................................. $ 1,213 2,839 5,276
======== ===== =====
Basic earnings per share ...................................... $ .15 .35 .64
======== === ===
Diluted earnings per share .................................... $ .15 .34 .64
======== === ===
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
FLAG FINANCIAL CORPORATION
Consolidated Statements of Comprehensive Income
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Net earnings ................................................................. $ 1,213 2,839 5,276
------- ----- -----
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 $1,232, $1,302 and $302, respectively .................. (2,101) 2,125 493
Less: reclassification adjustment for gains included in net
earnings, net of tax of $436, $104 and $68, respectively ............. (712) (170) (111)
Gain on trading securiteis included in
net earnings, net of tax of $206 (335) - -
---- ---- ----
Other comprehensive income (loss) ............................................ (3,057) 1,955 382
------ ----- ---
Comprehensive income (loss) .................................................. $(1,844) 4,794 5,658
------- ----- -----
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
FLAG FINANCIAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
A ccumulated
Common Stock Additional Other
--------------- Paid-in Retained Comprehensive Treasury
Shares Amount Capital Earnings Income Stock Total
------ ------ ------- -------- ------- ----- -----
(In Thousands Except Share Data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996,
as previously stated ............ 6,515,593 $ 6,516 10,270 24,759 (347) - 41,198
Adjustment to reflect pooling
of interests .................... 1,662,881 1,663 816 4,865 (53) - 7,291
--------- ----- --- ----- --- --- -----
Balance, December 31, 1996 .......... 8,178,474 8,179 11,086 29,624 (400) - 48,489
Treasury stock activity of
pooled entity ................... 8,646 8 51 - - - 59
Proceeds from issuance of stock ..... 173 - 1 - - - 1
Change in unrealized loss on
securities available-for-sale ... - - - - 382 - 382
Net earnings ........................ - - - 5,276 - - 5,276
Dividends declared .................. - - - (931) - - (931)
--- --- --- ---- --- --- ----
Balance, December 31, 1997 .......... 8,187,293 8,187 11,138 33,969 (18) - 53,276
Treasury stock activity of pooled
entity .......................... 26,265 26 104 - - - 130
Proceeds from issuance of stock ..... 173 - 1 - - - 1
Exercise of stock options .......... 9,500 10 63 - - - 73
Change in unrealized gain
(loss) on securities available-
for-sale ........................ - - - - 1,955 - 1,955
Net earnings ........................ - - - 2,839 - - 2,839
Dividends declared .................. - - - (1,405) - - (1,405)
--- --- --- ------ --- --- ------
Balance, December 31, 1998 .......... 8,223,231 8,223 11,306 35,403 1,937 - 56,869
Purchase of treasury stock .......... - - - - - (52) (52)
Exercise of stock options of
pooled subsidiary ............... 38,175 38 - - - - 38
Exercise of stock options ........... 11,409 12 36 - - - 48
Change in unrealized gain
(loss) on securities available-
for-sale ........................ - - - - (3,057) - (3,057)
Net earnings ........................ - - - 1,213 - - 1,213
Dividends declared .................. - - - (1,862) - - (1,862)
--- --- --- ------ --- --- ------
Balance, December 31, 1999 .......... 8,272,815 $ 8,273 11,342 34,754 (1,120) (52) 53,197
========= ======= ====== ====== ====== === ======
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
FLAG FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ................................................................. $ 1,213 2,839 5,276
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation, amortization and accretion ................................... 2,674 2,678 2,083
Provision for loan losses .................................................. 4,656 3,475 1,702
Provision for deferred taxes ............................................... (868) (350) 838
Gains on sales of securities ............................................... (1,148) (273) (179)
Unrealized gain on trading securities ...................................... (255) -- --
Gain on sale of trading securities ......................................... (286) -- --
Gain on sales of loans ..................................................... (2,086) (2,429) (2,321)
(Gain) loss on other real estate ........................................... 382 (26) 83
Proceeds from sale of trading securities ................................... 1,701 -- --
Change in:
Mortgage loans held for sale ............................................. 8,822 (2,893) 1,142
Other assets and liabilities ............................................. 1,991 (940) 4,286
----- ---- -----
Net cash provided by operating activities ........................... 16,796 2,081 12,910
------ ----- ------
Cash flows from investing activities:
Net change in interest-bearing deposits ..................................... 786 2,309 (2,233)
Proceeds from sales and maturities of securities available-for-sale .......... 30,643 67,423 63,215
Proceeds from maturities of securities held-to-maturity ...................... 4,814 9,198 3,848
Proceeds from sale of other investments ...................................... 6,245 5,764 225
Purchases of other investments ............................................... (5,213) (6,079) (964)
Purchases of securities available-for-sale ................................... (28,364) (52,037) (71,591)
Purchases of investments held-to-maturity .................................... (4,155) (9,327) (5,500)
Net change in loans .......................................................... 68 (30,648) (51,284)
Proceeds from sales of real estate ........................................... 1,542 1,377 185
Purchases of premises and equipment .......................................... (3,152) (3,444) (3,121)
Proceeds from sale of premises and equipment ................................. -- 475 --
Purchase of cash surrender value life insurance .............................. -- (377) (244)
Cash acquired in branch acquisition, net of premium paid ..................... 7,909 -- 25,417
Other ........................................................................ -- -- 2
---- ---- ----
Net cash provided by (used in) investing activities ................. 11,123 (15,366) (42,045)
------ ------- -------
Cash flows from financing activities:
Net change in deposits ....................................................... (46,536) 36,120 17,438
Change in federal funds purchased and repurchase agreements................... 15,320 (170) (2,870)
Change in repurchase agreements .............................................. 14,500 -- --
Proceeds from FHLB advances .................................................. 6,500 25,000 42,859
Payments of FHLB advances .................................................... (27,726) (25,900) (19,433)
Proceeds from exercise of stock options ...................................... 48 73 --
Purchase of treasury stock ................................................... (52) -- --
Stock transactions of pooled entities ........................................ 38 130 59
Cash dividends paid .......................................................... (1,744) (1,200) (931)
Other ........................................................................ -- (19) (36)
---- --- ---
Net cash (used in ) provided by financing activities ................ (54,152) 34,034 37,086
------- ------ ------
Net change in cash and cash equivalents .......................................... (26,233) 20,749 7,951
Cash and cash equivalents at beginning of year ................................... 53,317 32,568 24,617
------ ------ ------
Cash and cash equivalents at end of year ......................................... $ 27,084 53,317 32,568
======== ====== ======
</TABLE>
35
<PAGE>
FLAG FINANCIAL CORPORATION
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(In Thousands)
Supplemental disclosures of cash flow information:
Cash paid during the year for:
<S> <C> <C> <C>
Interest .................................................................. $ 22,959 23,131 19,698
Income taxes .............................................................. $ 1,131 1,731 1,906
Supplemental schedule of noncash investing and financing activities:
Real estate acquired through foreclosure ..................................... $ 857 2,416 871
Change in unrealized loss on securities available-for-sale, net of tax ....... $ (3,057) 1,955 382
Transfer of investment securities from available-for-sale to trading.......... $ 1,428 -- --
Transfer of investment securities from trading to available-for-sale ......... $ 268 -- --
Increase in dividends payable ................................................ $ 118 205 --
Deposit liabilities assumed in branch acquisition ............................ $ 8,852 -- 29,083
Assets acquired in branch acquisition, other than cash
and cash equivalents ..................................................... $ 60 -- 1,661
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Basisof Presentation
--------------------
The consolidated financial statements include the accounts of FLAG
Financial Corporation ("FLAG"), its wholly- owned subsidiaries First Flag
Bank, formerly First Federal Savings Bank of LaGrange ("First Flag"),
Citizens Bank ("Citizens"), Thomaston Federal Savings Bank ("Thomaston")
and The Citizens Bank ("Hogansville") ("the Banks", collectively). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
FLAG is a multi-bank holding company formed in 1994 whose business is
conducted by the Banks. FLAG is subject to regulation under the Bank
Holding Company Act of 1956. The Banks are primarily regulated by the
Georgia Department of Banking and Finance ("DBF") and the Federal Deposit
Insurance Corporation ("FDIC") and in the case of Thomaston, the Office of
Thrift Supervision. The Banks provide a full range of commercial, mortgage
and consumer banking services in West-Central, Middle and South Georgia.
The accounting principles followed by FLAG and its subsidiaries, and the
methods of applying these principles, conform with generally accepted
accounting principles ("GAAP") and with general practices within the
banking industry. In preparing financial statements in conformity with
GAAP, management is required to make estimates and assumptions that affect
the reported amounts in the financial statements. Actual results could
differ significantly from those estimates. Material estimates common to the
banking industry that are particularly susceptible to significant change in
the near term include, but are not limited to, the determination of the
allowance for loan losses, the valuation of real estate acquired in
connection with or in lieu of foreclosure on loans, the valuation allowance
for mortgage servicing rights and valuation allowances associated with the
realization of deferred tax assets which are based on future taxable
income.
Cash and Cash Equivalents
-------------------------
Cash equivalents include amounts due from banks and federal funds sold.
Generally, federal funds are sold for one-day periods.
Investment Securities
---------------------
FLAG classifies its securities in one of three categories: trading,
available-for-sale, or held-to-maturity. There were no trading securities
at December 31, 1999 and 1998. Trading securities are securities held for
the purpose of generating profits on short-term differences in price.
Securities held-to-maturity are those securities for which FLAG has the
ability and intent to hold to maturity. All other securities are classified
as available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding
gains and losses on trading securities are included in earnings in the
period in which the gain or loss occurs. Unrealized holding gains and
losses, net of the related tax effect, on securities available-for-sale are
excluded from earnings and are reported as a separate component of
stockholders' equity until realized. Transfers of securities between
categories are recorded at fair value at the date of transfer.
A decline in the market value of any available-for-sale or held-to-maturity
investment below cost that is deemed other than temporary is charged to
earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and losses
are included in earnings and the cost of securities sold are derived using
the specific identification method.
Other Investments
-----------------
Other investments include Federal Home Loan Bank ("FHLB") stock, other
equity securities with no readily determinable fair value and an investment
in a limited partnership. An investment in FHLB stock is required by law
for a federally insured savings bank. FLAG owns a 43% interest in a limited
partnership, which invests in multi-family real estate and passes low
income housing credits to the investors. FLAG recognizes these tax credits
in the year received. These investments are carried at cost , which
approximates fair value.
37
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Mortgage Loans Held for Sale
----------------------------
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of aggregate cost or market value. The amount by which
cost exceeds market value is accounted for as a valuation allowance.
Changes, if any, in the valuation allowance are included in the
determination of net earnings in the period in which the change occurs.
Gains and losses from the sale of loans are determined using the specific
identification method.
Loans, Loan Fees and Interest Income
-------------------------------------
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity are reported at their outstanding
unpaid principal balances, net of the allowance for loan losses, deferred
fees or costs on originated loans and unamortized premiums or discounts on
purchased loans.
Loan fees and certain direct loan origination costs are deferred, and the
net fee or cost is recognized in interest income using the level-yield
method over the contractual lives of the loans, adjusted for estimated
prepayments based on the Banks' historical prepayment experience.
Commitment fees and costs relating to commitments whose likelihood of
exercise is remote are recognized over the commitment period on a
straight-line basis. If the commitment is subsequently exercised during the
commitment period, the remaining unamortized commitment fee at the time of
exercise is recognized over the life of the loan as an adjustment to the
yield. Premiums and discounts on purchased loans are amortized over the
remaining lives of the loans using the level-yield method. Fees arising
from servicing loans for others are recognized as earned.
FLAG considers a loan impaired when, based on current information and
events, it is probable that all amounts due according to the contractual
terms of the loan agreement will not be collected. Impaired loans are
measured based on the present value of expected future cash flows,
discounted at the loan's effective interest rate or at the loan's
observable market price, or the fair value of the collateral of the loan if
the loan is collateral dependent. Interest income from impaired loans is
recognized using a cash basis method of accounting during the time within
that period in which the loans were impaired.
Allowance for Loan Losses
-------------------------
The allowance for loan losses is established through provisions for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collection of the principal is
unlikely. The allowance is an amount which, in management's judgment, will
be adequate to absorb losses on existing loans that may become
uncollectible. The allowance is established through consideration of such
factors as changes in the nature and volume of the portfolio, adequacy of
collateral, delinquency trends, loan concentrations, specific problem
loans, and economic conditions that may affect the borrower's ability to
pay.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review FLAG's allowance for loan
losses. Such agencies may require FLAG to recognize additions to the
allowance based on their judgments about information available to them at
the time of their examination.
Other Real Estate Owned
-----------------------
Real estate acquired through foreclosure is carried at the lower of cost
(defined as fair value at foreclosure) or fair value less estimated costs
to dispose. Fair value is defined as the amount that is expected to be
received in a current sale between a willing buyer and seller other than in
a forced or liquidation sale. Fair values at foreclosure are based on
appraisals. Losses arising from the acquisition of foreclosed properties
are charged against the allowance for loan losses. Subsequent writedowns
are provided by a charge to operations through the allowance for losses on
other real estate in the period in which the need arises.
38
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Major additions and improvements are charged to the asset accounts while
maintenance and repairs that do not improve or extend the useful lives of
the assets are expensed currently. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from
the accounts, and any gain or loss is reflected in earnings for the period.
Depreciation expense is computed using the straight-line method over the
following estimated useful lives:
Buildings and improvements 15-40 years
Furniture and equipment 3-10 years
Mortgage Servicing Rights
-------------------------
FLAG's mortgage banking division accounts for mortgage servicing rights as
a separate asset regardless of whether the servicing rights are acquired
through purchase or origination. FLAG's mortgage servicing rights represent
the unamortized cost of purchased and originated contractual rights to
service mortgages for others in exchange for a servicing fee and ancillary
loan administration income. Mortgage servicing rights are amortized over
the period of estimated net servicing income and are periodically adjusted
for actual and anticipated prepayments of the underlying mortgage loans.
Impairment analysis is performed quarterly after stratifying the rights by
interest rate. Impairment, defined as the excess of the asset's carrying
value over its current fair value, is recognized through a valuation
allowance. At December 31, 1999 and 1998, no valuation allowances were
required for FLAG's mortgage servicing rights.
FLAG recognized approximately $460,000, $966,000 and $526,000 in servicing
assets during 1999, 1998 and 1997, respectively, and recognized
amortization expense relating to servicing assets of approximately
$346,000, $312,000 and $612,000 during 1999, 1998 and 1997, respectively.
The risk characteristics that FLAG uses to stratify recognized servicing
assets for purposes of measuring impairment include the interest rate and
term of the underlying loans serviced.
Core Deposit Intangible
-----------------------
During 1997, Citizens entered into an agreement to acquire certain loans,
deposits and other liabilities of a bank branch in Montezuma, Georgia and a
branch in Oglethorpe, Georgia for a net purchase price approximating
$2,095,000. During 1999, Citizens acquired a bank branch in Blackshear,
Georgia, including certain loans, deposits and property for a net purchase
price of approximately $882,000. The purchased core deposit intangibles and
the associated expenses have been capitalized and are being amortized using
the straight-line method over the 15 year estimated average life of the
deposit base acquired and is included as a component of other assets.
Amortization expense approximated $179,000, $140,000 and $58,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
Income Taxes
------------
Deferred tax assets and liabilities are recorded for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Future tax benefits, such as net operating loss carryforwards,
are recognized to the extent that realization of such benefits is more
likely than not. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
the assets and liabilities are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income tax expense in the period that includes the enactment
date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of FLAG's assets and
liabilities results in deferred tax assets, an evaluation of the
probability of being able to realize the future benefits indicated by such
assets is required. A valuation allowance is provided when it is more
likely than not that some portion or all of the deferred tax asset will not
be realized. In assessing the realizability of the deferred tax assets,
management considers the scheduled reversals of deferred tax liabilities,
projected future taxable income, and tax planning strategies.
A deferred tax liability is not recognized for portions of the allowance
for loan losses for income tax purposes in excess of the financial
statement balance, as described in note 8. Such a deferred tax liability
will only be recognized when it becomes apparent that those temporary
differences will reverse in the foreseeable future.
39
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Net Earnings Per Common Share
-----------------------------
FLAG is required to report earnings per common share with and without the
dilutive effects of potential common stock issuances from instruments such
as options, convertible securities and warrants on the face of the
statements of earnings. Earnings per common share are based on the weighted
average number of common shares outstanding during the period while the
effects of potential common shares outstanding during the period are
included in diluted earnings per share. Additionally, FLAG must reconcile
the amounts used in the computation of both "basic earnings per share" and
"diluted earnings per share". Earnings per common share amounts for the
years ended December 31, 1999, 1998 and 1997 are as follows (in thousands,
except share and per share amounts):
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
Net Earnings Common Share Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic earnings per share .......................... $1,213 8,257,607 .15
Effect of dilutive securities - stock options ..... - - -
--------- --------- -------
Diluted earnings per share ........................ $1,213 8,257,607 .15
===== ========= ===
For the Year Ended December 31, 1998
Net Earnings Common Share Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share .......................... $ 2,839 8,217,854 .35
Effect of dilutive securities - stock options ..... - 91,633 (.01)
--------- --------- -----
Diluted earnings per share ........................ $ 2,839 8,309,487 .34
===== ========= ===
For the Year Ended December 31, 1997
Net Earnings Common Share Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share .......................... $ 5,276 8,182,224 .64
Effect of dilutive securities - stock options ..... - 76,146 -
-------- --------- ---
Diluted earnings per share ........................ $ 5,276 8,258,370 .64
===== ========= ===
</TABLE>
Recent Accounting Pronouncements
--------------------------------
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("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. 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 believes the adoption of SFAS No. 133 will
not have a material impact on its financial position, results of operations
or liquidity.
40
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(2) Business Combinations
Effective March 30, 1998, FLAG acquired, for approximately 1.5 million
shares of its common stock, all of the outstanding stock of Middle Georgia
Bankshares, Inc., the holding company of the $129 million Citizens Bank,
located in Vienna, Georgia. Effective May 8, 1998, FLAG acquired, for
approximately 597,000 shares of its common stock all of the outstanding
stock of Three Rivers Bancshares, Inc., the holding company of the $35
million Bank of Milan, located in Milan, Georgia. Effective December 11,
1998, FLAG acquired, for approximately 1.1 million shares of its common
stock, all of the outstanding stock of Empire Banking Corp., the holding
company of the $70 million Empire Banking Company, located in Homerville,
Georgia. Effective December 31, 1998, FLAG acquired, for approximately
255,000 shares of its common stock, all of the outstanding stock of The
Brown Bank, a $31 million bank located in Metter, Georgia. Effective August
31, 1999, FLAG acquired, for approximately 1.2 million shares of its common
stock, all of the outstanding stock of Thomaston, a $55 million thrift
located in Thomaston, Georgia. Effective September 30, 1999, FLAG acquired,
for approximately 575,000 shares of its common stock, all of the
outstanding stock of First Hogansville Bankshares, Inc., the holding
company of the $31 million The Citizens Bank, located in Hogansville,
Georgia. These acquisitions were accounted for as poolings of interests and
accordingly, the consolidated financial statements for all periods
presented have been restated to include the financial position and results
of operations as if the combination had occurred on January 1, 1997, the
earliest period presented..
The following is a reconciliation of the amounts of net interest income and
net earnings previously reported with the restated amounts (in thousands):
1998 1997
---- ----
Net interest income:
FLAG .............................. $ 22,823 8,542
Citizens .......................... - 5,623
Milan ............................. - 1,831
Empire ............................ - 2,616
Brown ............................. - 1,494
Thomaston ......................... 1,629 1,657
Hogansville ....................... 1,500 1,509
----- -----
As restated .............. $ 25,952 23,272
======== ======
Net earnings (loss):
FLAG .............................. $ 1,960 2,033
Citizens .......................... - 1,053
Milan ............................. - 662
Empire ............................ - 693
Brown ............................. - (131)
Thomaston ......................... 611 617
Hogansville ....................... 268 349
--- ---
As restated .............. $ 2,839 5,276
========= =====
41
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(3) Investment Securities
Investment securities at December 31, 1999 and 1998 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available-for-Sale Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. treasuries and agencies .............. $ 19,447 2 572 18,877
State, county and municipals .............. 8,947 43 258 8,732
Equity securities ......................... 1,146 658 173 1,631
Mortgage-backed securities ................ 22,915 23 562 22,376
Collateralized mortgage obligations ....... 14,607 19 362 14,264
Trust preferred securities ................ 8,050 - 619 7,431
----- --- -----
$ 75,112 745 2,546 73,311
====== === ===== ======
December 31, 1999
-------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Held-to-Maturity Cost Gains Losses Value
---- ----- ------ -----
U.S. treasuries and agencies .............. $ 10,178 - 366 9,812
State, county and municipals .............. 2,997 34 15 3,016
Mortgage-backed securities ................ 2,318 1 66 2,253
Collateralized mortgage obligations ....... 751 1 19 733
--- - -- ---
$ 16,244 36 466 15,814
======== == === ======
December 31, 1998
-------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available-for-Sale Cost Gains Losses Value
---- ----- ------ -----
U.S. treasuries and agencies .............. $21,803 218 19 22,002
State, county and municipals .............. 9,503 282 18 9,767
Corporate debt securities ................. 998 1 - 999
Equity securities ......................... 1,228 2,730 63 3,895
Mortgage-backed securities ................ 32,472 214 145 32,541
Collateralized mortgage obligations ....... 11,594 31 105 11,520
--- -- ---
$77,598 3,476 350 80,724
======= ===== === ======
December 31, 1998
-------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Held-to-Maturity Cost Gains Losses Value
---- ----- ------ -----
U.S. treasuries and agencies............... $11,624 79 - 11,703
State, county and municipals .............. 3,111 140 - 3,251
Mortgage-backed securities ................ 1,127 3 1 1,129
Collateralized mortgage obligations ....... 1,037 1 16 1,022
----- - -- -----
$16,899 223 17 17,105
======= === == ======
</TABLE>
42
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(3) Investment Securities, continued
The amortized cost and estimated fair value of securities
available-for-sale and securities held-to-maturity at December 31, 1999, by
contractual maturity, are shown below (in thousands). Expected maturities
may differ from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Available-for-Sale Securities Held-to-Maturity
----------------------------- ---------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
U.S. Treasuries and agencies
and state, county and municipals:
<S> <C> <C> <C> <C>
Within 1 year ....................... $ 2,379 2,381 209 212
1 to 5 years ........................ 14,785 14,480 9,725 9,437
5 to 10 years ....................... 5,893 5,769 3,104 3,041
More than 10 years .................. 5,337 4,979 137 138
----- ----- --- ---
28,394 27,609 13,175 12,828
Equity securities ................... 1,146 1,631 - -
Mortgage-backed securities .......... 22,915 22,376 2,318 2,253
Collateralized mortgage obligations . 14,607 14,264 751 733
Trust preferred securities .......... 8,050 7,431 - -
----- ----- ------ -----
$ 75,112 73,311 16,244 15,814
======== ====== ====== ======
</TABLE>
There were no sales of securities held-to-maturity during 1999, 1998 and
1997. Proceeds from sales of securities available-for-sale during 1999,
1998 and 1997 totalled approximately $11,720,000, $14,843,000, and
$10,327,000, respectively. Gross gains of approximately $1,213,000,
$326,000 and $210,000 and gross losses of approximately $65,000, $52,000
and $31,000 were realized on those sales for the years ended December 31,
1999, 1998 and 1997, respectively. During 1999, FLAG recognized gross gains
of $255,000 and no losses in earnings from transfers of securities from the
available-for-sale category into the trading category.
Securities and interest-bearing deposits with a carrying value of
approximately $46,211,000 and $61,646,000 at December 31, 1999 and 1998,
respectively, were pledged to secure advances from FHLB, U.S. Government
and other public deposits.
(4) Loans
Major classifications of loans at December 31, 1999 and 1998 are summarized
as follows (in thousands):
1999 1998
---- ----
Commercial, financial and agricultural .. $ 117,728 121,744
Real estate - construction .............. 43,602 31,814
Real estate - mortgage .................. 218,920 205,753
Installment loans to individuals ........ 40,620 63,869
Lease financings ........................ 5,226 7,674
----- -----
Gross loans ..................... 426,096 430,854
Less allowance for loan losses .......... 7,017 6,194
----- -----
$ 419,079 424,660
========= =======
FLAG concentrates its lending activities in the origination of permanent
residential mortgage loans, commercial mortgage loans, commercial business
loans, and consumer installment loans. The majority of FLAG's real estate
loans are secured by real property located in West-Central, Middle and
South Georgia.
43
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(4) Loans, continued
FLAG has recognized impaired loans of approximately $2,170,000 and
$3,700,000 at December 31, 1999 and 1998, respectively, with a total
allowance for loan losses related to these loans of approximately
$1,090,000 and $2,150,000, respectively. Interest income on impaired loans
of approximately $279,000 and $150,000 was recognized for cash payments
received in 1999 and 1998, respectively.
Activity in the allowance for loan losses is summarized as follows for the
years ended December 31, 1999, 1998 and 1997 (in thousands):
1999 1998 1997
---- ---- ----
Balance at beginning of year ............ $ 6,194 5,637 7,051
Provisions charged to operations ........ 4,656 3,475 1,702
Loans charged off ....................... (4,090) (3,262) (3,384)
Recoveries on loans previously charged off 257 344 268
--- --- ---
Balance at end of year .................. $7,017 6,194 5,637
====== ===== =====
Mortgage loans serviced for others are not included in the accompanying
consolidated financial statements. Unpaid principal balances of these loans
at December 31, 1999 and 1998 approximate $202,914,000 and $292,558,000,
respectively. Custodial escrow balances maintained in connection with loan
servicing, and included in demand deposits, were approximately $390,000 and
$816,000 at December 31, 1999 and 1998, respectively.
Mortgage loans secured by 1-4 family residences totaling approximately
$46,541,000 and $57,393,000 were pledged as collateral for outstanding FHLB
advances as of December 31, 1999 and 1998, respectively.
(5) Premises and Equipment
Premises and equipment at December 31, 1999 and 1998 are summarized as
follows (in thousands):
1999 1998
---- ----
Land and land improvements ....... $2,145 2,143
Buildings and improvements ....... 13,429 12,757
Furniture and equipment .......... 18,256 15,738
------ ------
33,830 30,638
Less accumulated depreciation .... 15,438 12,866
------ ------
$18,392 17,772
======= ======
Depreciation expense approximated $2,589,000, $2,342,000 and $1,882,000 at
December 31, 1999, 1998 and 1997, respectively.
(6) Time Deposits
At December 31, 1999, contractual maturities of time deposits are
summarized as follows (in thousands):
Year ending December 31,
2000 $ 246,398
2001 26,432
2002 12,196
2003 9,264
2004 5,722
Thereafter 730
----------
$ 300,742
=========
44
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(7) FHLB Advances
FHLB advances are collateralized by FHLB stock, certain investment
securities and first mortgage loans. Advances from the FHLB outstanding at
December 31, 1999 mature and bear fixed interest rates as follows (in
thousands):
Year Amount Interest Rate
---- ------ -------------
2000 $6,675 5.48% - 8.13%
2001 3,000 4.55% - 8.13%
2002 1,370 5.97% - 8.00%
2003 4,356 5.52% - 7.55%
2004 1,356 5.97% - 7.55%
Thereafter 10,416 5.97% - 8.13%
------ -------------
$ 27,173 4.55% - 8.13%
====== =============
(8) Income Taxes
The following is an analysis of the components of income tax expense
(benefit) for the years ended December 31, 1999, 1998 and 1997 (in
thousands):
1999 1998 1997
---- ---- ----
Current ......................... $ 946 1,058 1,467
Deferred ........................ (817) (218) 895
Change in valuation allowance ... (51) (132) (57)
--- ---- ---
$ 78 708 2,305
====== === =====
The differences between income tax expense and the amount computed by
applying the statutory federal income tax rate to earnings before taxes for
the years ended December 31, 1999, 1998 and 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pretax income at statutory rate ......................... $ 439 1,206 2,578
Add (deduct):
Tax-exempt interest income ....................... (352) (347) (299)
State income taxes, net of federal effect ........ 52 142 303
Increase in cash surrender value of life insurance (56) (64) (75)
Nondeductible merger expenses .................... 252 109 -
General business credite.......................... (121) (113) (104)
Other ............................................ (85) (93) (41)
Change in valuation allowance .................... (51) (132) (57)
--- ---- ---
$ 78 708 2,305
====== === =====
</TABLE>
45
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(8) Income Taxes, continued
The following summarizes the net deferred tax asset. The deferred tax asset
is included as a component of other assets at December 31, 1999 and 1998
(in thousands).
<TABLE>
<CAPTION>
1999 1998
---- ----
Deferred tax assets:
<S> <C> <C>
Allowance for loan losses ........................... $ 2,119 1,632
Allowance for other real estate owned ............... 9 28
Net operating loss carryforwards and credits ........ 358 215
Unrealized losses on securities available-for-sale .. 1,048 -
Other ............................................... 482 353
--- ---
Total gross deferred tax assets ............... 4,016 2,228
Less: valuation allowance ........................... - (51)
--- ---
4,016 2,177
----- -----
Deferred tax liabilities:
Premises and equipment .............................. 701 670
Net deferred loan fees .............................. 25 75
Unrealized gain on securities available-for-sale .... - 1,145
Other ............................................... 37 95
-- --
Total gross deferred tax liabilities .......... 763 1,985
--- -----
Net deferred tax asset ........................ $ 3,253 192
======= ===
</TABLE>
The Internal Revenue Code ("IRC") was amended during 1996 and the IRC
section 593 reserve method for loan losses for thrift institutions was
repealed. Effective January 1, 1996, First Flag and Thomaston now compute
their tax bad debt reserves under the rules of IRC section 585, which apply
to commercial banks. In years prior to 1996, First Flag and Thomaston
obtained tax bad debt deductions approximating $2.9 million in excess of
their financial statement allowance for loan losses for which no provision
for federal income tax was made. These amounts were then subject to federal
income tax in future years pursuant to the prior IRC section 593 provisions
if used for purposes other than to absorb bad debt losses. Effective
January 1, 1996, approximately $2.9 million of the excess reserve is
subject to recapture only if First Flag and Thomaston cease to qualify as a
bank pursuant to the provisions of IRC section 585.
(9) Employee and Director Benefit Plans
Defined Contribution Plans
--------------------------
FLAG sponsors the FLAG Financial Profit Sharing Trift Plan that is
qualified pursuant to IRC section 401(k). The plan allows eligible
employees to defer a portion of their income by making contributions into
the plan on a pretax basis. The plan provides a matching contribution based
on a percentage of the amount contributed by the employee. The plan also
provides that the Board of Directors may make discretionary profit-sharing
contributions up to 15% of eligible compensation to the plan. The plan
allows participants to direct up to 75% of their account balance and/or
contributions to be invested in the common stock of FLAG. The trustee of
the plan is required to purchase the FLAG stock at market value and may not
acquire more than 25% of the issued and outstanding shares. During the
years ended 1999, 1998 and 1997, the Company contributed approximately
$329,000, $105,000 and $59,000, respectively, to this plan under its
matching provisions. FLAG recognized no expense in 1999 or 1998 related to
the profit-sharing provisions under the plan and recognized $194,000 during
the year ended December 31, 1997.
The companies acquired in 1998 sponsored certain defined contribution
employee benefit plans that have been terminated or merged into existing
plans of FLAG. Under these plans, the acquired companies recognized expense
of approximately $58,000 and $88,000 in 1998 and 1997, respectively. These
amounts are included in the accompanying statements of earnings.
The companies acquired in 1999 sponsored certain defined contribution
employee benefit plans that have been terminated or merged into existing
plans of FLAG. Under these plans, the acquired companies recognized expense
of approximately $12,000, $23,000 and $20,000 in 1999, 1998 and 1997,
respectively. One of the companies acquired in 1999 sponsored a deferred
compensation plan for its directors. The acquired company has recognized
expense of $70,000, $54,000 and $50,000 in 1999, 1998 and 1997 related to
this plan.
46
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(9) Employee and Director Benefit Plans, continued
Directors' Retirement Plan
--------------------------
First Flag and Citizens sponsor defined contribution postretirement benefit
plans to provide retirement benefits to their Board of Directors and to
provide death benefits for their designated beneficiaries. Under this plan,
First Flag and Citizens purchased split-dollar whole life insurance
contracts on the lives of each Director. The increase in cash surrender
value of the contracts, less the Bank's cost of funds, constitutes their
contribution to the plan each year. In the event the insurance contracts
fail to produce positive returns, First Flag and Citizens have no
obligation to contribute to the plan. At December 31, 1999 and 1998, the
cash surrender value of the insurance contracts was approximately
$4,134,000 and $3,971,000. Expenses incurred for benefits were
approximately $50,000, $7,000 and $22,000 during 1999, 1998 and 1997,
respectively.
Defined Benefit Plans
---------------------
Prior to 1998, FLAG sponsored a trusteed defined benefit pension plan which
covered substantially all employees. This pension plan was frozen effective
January 15, 1998 and terminated effective May 1, 1998 at which time all
accrued benefits became fully vested. During 1998, FLAG fully funded the
liability under this plan and as of December 31, 1999 all assets have been
distributed to the participants.
Net pension expense for the year ended December 31, 1997 is summarized as
follows:
Service cost - benefits earned ....................... $ 93,676
Interest cost on projected benefit obligation ........ 116,072
Actual return on plan assets ......................... (99,024)
Net amortization ..................................... 12,191
------
$ 122,915
=========
The assumed rate of return on assets was 8% for 1997, with an assumed
discount rate of 8% and an assumed rate of compensation increase of 4.5% in
1997. Prior service costs were generally amortized over a period of 17
years.
Hogansville sponsors a noncontributory defined benefit pension plan
covering substantially all of its employees who have completed one year of
service. Hogansville's funding policy is to fund the maximum amount
deductible for income tax purposes. Contributions are intended to provide
not only for benefits attributed to service to date but also for those
expected to be earned in the future.
The following table sets forth this plan's funded status and amounts
recognized in the balance sheets at December 31, 1999 and 1998. Plan assets
are stated at fair value and consist of cash, certificates of deposit,
equity and government securities.
Actuarial present value of benefit obligations:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Vested ............................................................... $ 490,941 430,368
Nonvested ............................................................ 11,705 5,394
------ -----
Total accumulated benefit obligations ........................ $ 502,646 435,762
========== =======
Projected benefit obligations for services rendered to date .......... $ 584,905 528,873
Plan assets at fair value ............................................ 773,833 714,419
------- -------
Assets in excess of projected benefit obligation ............. 188,928 185,546
Unamortized transition gain existing at date of adoption of SFAS No. 87 (35,584) (39,570)
Unamortized net gain from past experience different from that assumed
and effects of changes in assumptions .............................. (190,866) (177,297)
-------- --------
Accrued pension cost ......................................... $ (37,522) (31,321)
========= =======
</TABLE>
47
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(9) Employee and Director Benefit Plans, continued
Defined Benefit Plans, continued
--------------------------------
The components of net pension cost for the years ended December 31, 1999,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned ................. $ 27,389 22,920 21,507
Interest cost on projected benefit obligations ... 37,153 33,197 39,966
Actual return on plan assets ..................... (59,414) (96,437) (134,873)
Net amortization and deferral .................... 1,073 45,215 79,242
----- ------ ------
Net pension cost ................................. $ 6,201 4,895 5,842
======= ===== =====
</TABLE>
The following assumptions were used in determining the actuarial present
value of the projected benefit obligations at December 31, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate ...................................... 7.75% 7.00% 7.00%
Rate of increase in future compensation levels ..... 5.00% 5.00% 5.00%
Expected long-term rate of return on assets ........ 8.25% 8.25% 8.25%
</TABLE>
Stock Option Plan
-----------------
FLAG sponsors an employee stock incentive plan and a director stock
incentive plan. The plans were adopted for the benefit of directors and key
officers and employees in order that they may purchase FLAG stock at a
price equal to the fair market value on the date of grant. A total of
914,000 shares were reserved for possible issuance under the employee plan
and 166,938 shares were reserved under the director plan. The options
generally vest over a four-year period and expire after ten years.
Thomaston previously sponsored a stock option plan for its directors and
key officers. Prior to its merger with FLAG, Thomaston had approximately
27,595 options outstanding to purchase Thomaston common stock. This stock
option plan was terminated upon Thomaston's merger with FLAG, and each
option holder was issued options to purchase FLAG common stock in an amount
equal to their options previously outstanding under the Thomaston stock
option plan multiplied by the conversion factor of 1.7275.
SFAS No. 123, "Accounting for Stock-Based Compensation," became effective
January 1, 1996. This statement encourages, but does not require, entities
to compute the fair value of options at the date of grant and to recognize
such costs as compensation expense immediately if there is no vesting
period or ratably over the vesting period of the options. FLAG has chosen
not to adopt the cost recognition principles of this statement. No
compensation expense has been recognized in 1999, 1998 or 1997 related to
the stock option plans. Had compensation cost been determined based upon
the fair value of the options at the grant dates consistent with the method
of the new statement, FLAG's net earnings and net earnings per share would
have been reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net earnings (in thousands) As reported ... 1,213 2,839 5,276
Pro forma ..... 545 2,395 5,255
Basic earnings per share As reported ... .15 .35 .64
Pro forma ..... .07 .29 .64
Diluted earnings per share As reported ... .15 .34 .64
Pro forma ..... .07 .29 .64
</TABLE>
48
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(9) Employee and Director Benefit Plans, continued
Stock Option Plan, continued
----------------------------
The fair value of each option is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted average
assumptions: dividend yield of 3%; volatility ranging from .9424 to .9803;
risk free interest rate of 6% and an expected life of 5 years. The weighted
average grant date fair value of options granted in 1999, 1998 and 1997 was
$5.38, $6.12 and $2.79, respectively.
A summary of activity in these stock option plans is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Option Price Option Price Option Price
Shares Per Share Shares Per Share Shares Per Share
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding , beginning of year ........ 539,024 $ 11.87 109,125 $ 7.01 69,000 $ 6.68
Granted during the year ................ 274,749 8.53 445,399 12.99 42,000 7.58
Granted for merger with Thomaston ...... 47,670 3.47 - - - -
Cancelled during the year .............. (36,625) 12.24 (6,000) 13.33 (1,875) 7.50
Exercised during the year .............. (11,409) 4.13 (9,500) 7.68 - -
------- ---- ------ ---- -------- ---
Outstanding, end of year ............... 813,409 $ 10.34 539,024 $ 11.87 109,125 $ 7.01
======= ===== ======= ===== ======= ====
</TABLE>
A summeryof optoins outstnading as of December 31, 1999 is presented below.
<TABLE>
<CAPTION>
Weighted Weighted
Range of Average Options Average
Options Price per Option Price Years Currently Option Price
Outstanding Share Per Share Remaining Exercisable Per Share
----------- ----- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
38,136 $ 3.473 $ 3.473 9 38,136 $ 3.473
349,875 $ 6.33 - 9.875 $ 7.999 8 150,781 $ 7.513
425,398 $ 10.00 - 19.375 $12.882 8 249,417 $ 12.966
------- -------
813,409 $ 3.473 - 19.375 $ 10.34 8 438,335 $ 10.265
======= ============== ======= = ======= ======
</TABLE>
(10) Stockholders' Equity
Shares of preferred stock may be issued from time to time in one or more
series as established by resolution of the Board of Directors of FLAG, up
to a maximum of 10,000,000 shares. Each resolution shall include the number
of shares issued, preferences, special rights and limitations as determined
by the Board.
On May 18, 1998, FLAG declared a three for two stock split, payable on June
3, 1998 to shareholders of record on May 22, 1998. All share and per share
amounts have been restated to reflect this stock split as if it had
occurred on January 1, 1997.
(11) Regulatory Matters
The Banks are subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly
additional discretionary, action by regulators that, if undertaken, could
have a direct material effect on the Banks' financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Banks must meet specific capital guidelines that
involve quantitative measures of the Banks' assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Banks' capital amounts and classification are also subject
to qualitative judgements by the regulators about components, risk
weightings, and other factors.
49
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(11) Regulatory Matters, continued
Quantitative measures established by regulation to ensure capital adequacy
require the Banks to maintain minimum amounts and ratios of total and Tier
1 capital (as defined) to risk-weighted assets (as defined), and of Tier 1
capital (as defined) to average assets (as defined). Management believes,
as of December 31, 1999 that the Banks meet all capital adequacy
requirements to which they are subject.
Minimum ratios required by the Banks to ensure capital adequacy are 8% for
total capital to risk weighted assets and 4% each for Tier 1 capital to
average assets. Minimum ratios required by the Banks to be well capitalized
under prompt corrective action provisions are 10% for total capital to risk
weighted assets, 6% for Tier 1 capital to risk weighted assets and 5% for
Tier 1 capital to average assets. Minimum amounts required for capital
adequacy purposes and to be well capitalized under prompt corrective action
provisions are presented below for FLAG and the most significant of the
Banks. Prompt corrective action provisions do not apply to bank holding
companies.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(000's) (000's) (000's)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk Weighted Assets)
FLAG consolidated ....................... $57,179 12.5% 36,615 8.0% N/A N/A
First Flag .............................. $20,487 11.3% 14,491 8.0% 18,114 10.0%
Citizens ................................ $23,791 10.5% 18,174 8.0% 22,718 10.0%
Tier 1 Capital (to Risk Weighted Assets)
FLAG consolidated ....................... $51,442 11.2% 18,307 4.0% N/A N/A
First Flag .............................. $18,214 10.1% 7,246 4.0% 10,868 6.0%
Citizens ................................ $20,944 9.2% 9,087 4.0% 13,631 6.0%
Tier 1 Capital (to Average Assets)
FLAG consolidated ....................... $51,442 8.6% 23,964 4.0% N/A N/A
First Flag .............................. $18,214 7.8% 9,349 4.0% 11,686 5.0%
Citizens ................................ $20,944 7.5% 11,227 4.0% 14,034 5.0%
As of December 31, 1998:
Total Capital (to Risk Weighted Assets)
FLAG consolidated ....................... $60,984 14.7% 33,263 8.0% N/A N/A
First Flag .............................. $18,418 10.5% 13,967 8.0% 17,459 10.0%
Citizens ................................ $13,883 9.9% 11,234 8.0% 14,043 10.0%
Tier 1 Capital (to Risk Weighted Assets)
FLAG consolidated ....................... $54,926 13.2% 16,631 4.0% N/A N/A
First Flag .............................. $18,418 10.5% 6,983 4.0% 10,475 6.0%
Citizens ................................ $12,134 8.6% 5,617 4.0% 8,426 6.0%
Tier 1 Capital (to Average Assets)
FLAG consolidated ....................... $54,926 8.7% 25,262 4.0% N/A N/A
First Flag .............................. $18,418 7.0% 10,467 4.0% 13,095 5.0%
Citizens ................................ $12,134 7.1% 6,858 4.0% 8,573 5.0%
</TABLE>
Banking regulations limit the amount of dividends the Banks can pay to FLAG
without prior regulatory approval. These limitations are a function of
excess regulatory capital and net earnings in the year the dividend is
declared. In 2000, the Banks can pay dividends totaling approximately
$2,269,000 plus net income of Thomaston during 2000 without prior
regulatory approval.
(12) Commitments and Contingencies
FLAG has a partially self-insured health care plan for the benefit of
eligible employees and their eligible dependents, administered by a third
party administrator. Claims in excess of $15,000 per person annually, but
less than $1,000,000, are covered by an insurance policy with Guarantee
Mutual Life Company. FLAG is responsible for any claims less than $15,000
per person annually.
50
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(12) Commitments and Contingencies, continued
FLAG is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers and
to manage its cost of funds. These financial instruments include
commitments to extend credit, standby letters of credit and an interest
rate cap agreement. These instruments involve, to varying degrees, elements
of credit risk in excess of the amounts recognized in the consolidated
statements of financial condition. The contract amounts of these
instruments reflect the extent of involvement the Bank has in particular
classes of financial instruments.
Commitments to originate first mortgage loans and to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a
fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The Banks evaluate each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Banks upon extension of credit, is
based on management's credit evaluation of the counterparty. The Banks'
loans are primarily collateralized by residential and other real
properties, automobiles, savings deposits, accounts receivable, inventory
and equipment.
Standby letters of credit are written conditional commitments issued by the
Banks to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements. Most letters of credit extend for less than one year. The
credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers.
FLAG's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments.
All standby letters of credit are secured at December 31, 1999 and 1998.
1999 1998
---- ----
Financial instruments whose contract amounts
represent credit risk (in thousands):
Commitments to extend credit .............. $ 56,872 78,745
Standby letters of credit ................. $ 819 767
(13) Related Party Transactions
At December 31, 1999, deposits from directors, executive officers and their
related interests aggregated approximately $1,456,000. These deposits were
taken in the normal course of business at market interest rates.
FLAG conducts transactions with directors and executive officers, including
companies in which they have beneficial interest, in the normal course of
business. It is the policy of FLAG that loan transactions with directors
and executive officers be made on substantially the same terms as those
prevailing at the time for comparable loans to other persons. The following
is a summary of activity for related party loans for 1999 (in thousands).
Balance at December 31, 1998 .......... $ 521
New loans ............................. 74
Repayments ............................ (307)
---
Balance at December 31, 1999 .......... $ 288
===
(14) Miscellaneous Operating Expenses
Components of other operating expenses in excess of 1% of interest and
other income for the years ended December 31, 1999, 1998 and 1997 are as
follows (in thousands):
1999 1998 1997
---- ---- ----
Data processing ......... $ 1,587 1,486 889
Telephone ............... $ 884 655 472
Office supplies ......... $ 1,013 843 695
51
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(15) FLAG Financial Corporation (Parent Company Only) Financial Information
Balance Sheets
December 31, 1999 and 1998
Assets
------
1999 1998
---- ----
(In Thousands)
Cash .................................. $ 1,056 401
Investment securities ................. 1,787 3,538
Investment in subsidiaries ............ 48,426 52,832
Equipment, net ........................ 2,804 938
Other assets .......................... 1,156 308
----- ---
$ 55,229 58,017
====== ======
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable and accrued expenses . $ 2,032 1,148
Stockholders' equity .................. 53,197 56,869
------ ------
$ 55,229 58,017
====== ======
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(16) FLAG Financial Corporation (Parent Company Only) Financial Information,
continued
Statements of Earnings
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(In Thousands)
Income:
<S> <C> <C> <C>
Dividend income from subsidiaries ..................................... $ 5,770 4,195 1,601
Interest income ....................................................... 17 23 7
Gain on investments ................................................... 1,627 -- --
Other ................................................................. 4,126 1,473 148
----- ----- ---
Total income ...................................................... 11,540 5,691 1,756
------ ----- -----
Operating expenses:
Interest expense ...................................................... 3 33 1
Other ................................................................. 7,857 4,562 604
----- ----- ---
Total operating expenses .......................................... 7,860 4,595 605
----- ----- ---
Earnings before income tax benefit and dividends received
in excess of earnings of subsidiaries and equity in
undistributed earnings of subsidiaries ......................... 3,680 1,096 1,151
Income tax benefit ...................................................... 617 1,077 157
--- ----- ---
Earnings before dividends received in excess of
earnings of subsidiaries and equity in undistributed
earnings of subsidiaries ....................................... 4,297 2,173 1,308
Dividends received in excess of earnings of subsidiaries ................ (3,084) -- --
Equity in undistributed earnings of subsidiaries ........................ -- 666 3,968
---- --- -----
Net earnings ................................................. $ 1,213 2,839 5,276
======== ===== =====
</TABLE>
52
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(15) FLAG Financial Corporation (Parent Company Only) Financial Information,
continued
Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(In Thousands)
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings .................................................................. $ 1,213 2,839 5,276
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization ............................................ 298 125 27
Gain on investments ...................................................... (1,627) -- --
Proceeds from sale of trading securities ................................. 1,701 --
Dividends received in excess of earnings of subsidiaries ................. 3,084 -- --
Equity in undistributed earnings of subsidiaries ......................... -- (666) (3,968)
Change in other assets and liabilities ................................... 740 1,005 183
--- ----- ---
Net cash provided by operating activities .......................... 5,409 3,303 1,518
----- ----- -----
Cash flows from investing activities:
Purchase of securities available-for-sale ..................................... (908) (274) (503)
Proceeds from sale of investment securities ................................... 418 263 --
Purchase of equipment ......................................................... (2,164) (526) (537)
Investment in subsidiaries .................................................... (390) (2,554) --
--- --- ----
Net cash used in investing activities .............................. (3,044) (3,091) (1,040)
------ ------ ------
Cash flows from financing activities:
Stock transactions of pooled entities ......................................... 38 130 59
Exercise of stock options ..................................................... 48 73 --
Purchase of treasury stock .................................................... (52) -- --
Dividends paid ................................................................ (1,744) (1,200) (931)
------ ------ ----
Net cash used in financing activities .............................. (1,710) (997) (872)
------ ---- ----
Net change in cash .............................................................. 655 (785) (394)
Cash at beginning of year ....................................................... 401 1,186 1,580
--- ----- -----
Cash at end of year ............................................................. $ 1,056 401 1,186
======= === =====
</TABLE>
53
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(16) Quarterly Operating Results (Unaudited)
The following is a summary of the unaudited condensed consolidated
quarterly operating results of FLAG for the years ended December 31, 1999
and 1998 (amounts in thousands, except per share amounts):
<TABLE>
<CAPTION>
1999
----------------------------------------------------------
Quarter Ended
-------------
Dec. 31 Sept. 30 June 30 March 31
------- -------- ------- --------
<S> <C> <C> <C> <C>
Interest income ........................... $12,252 12,213 12,209 12,479
Interest expense .......................... 5,472 5,657 5,659 5,875
----- ----- ----- -----
Net interest income ....................... 6,780 6,556 6,550 6,604
Provision for loan losses ................. 1,634 1,589 1,071 362
----- ----- ----- ---
Net interest income after provision
for loan losses ......................... 5,146 4,967 5,479 6,242
Noninterest income ........................ 2,317 1,217 3,903 2,635
Noninterest expense ....................... 7,600 8,494 7,388 7,133
----- ----- ----- -----
Earnings (loss) before income taxes ....... (137) (2,310) 1,994 1,744
Provision (benefit) for income taxes ...... (287) (870) 683 552
---- ---- --- ---
Net earnings (loss) ....................... $ 150 (1,440) 1,311 1,192
======= ====== ===== =====
Net earnings (loss) per share ............. $ .02 (.17) .16 .14
======= ==== === ===
Weighted average shares outstanding ....... 8,266 8,263 8,263 8,238
===== ===== ===== =====
1998
----------------------------------------------------------
Quarter Ended
-------------
Dec. 31 Sept. 30 June 30 March 31
------- -------- ------- --------
Interest income ........................... $13,458 12,702 12,445 12,567
Interest expense .......................... 6,343 6,422 6,309 6,146
----- ----- ----- -----
Net interest income ....................... 7,115 6,280 6,136 6,421
Provision for loan losses ................. 2,678 257 273 267
----- --- --- ---
Net interest income after provision
for loan losses ......................... 4,437 6,023 5,863 6,154
Noninterest income ........................ 2,105 2,332 2,572 2,943
Noninterest expense ....................... 8,101 7,781 6,437 6,563
----- ----- ----- -----
Earnings (loss) before income taxes ....... (1,559) 574 1,998 2,534
Provision (benefit) for income taxes ...... (738) 61 585 800
---- -- --- ---
Net earnings (loss) ....................... $ (821) 513 1,413 1,734
======= === ===== =====
Net earnings (loss) per share ............. $ (.09) .06 .17 .21
======= === === ===
Weighted average shares outstanding ....... 8,22 3 8,219 8,215 8,196
===== ===== ===== =====
</TABLE>
54
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(17) Fair Value of Financial Instruments
FLAG is required to disclose fair value information about financial
instruments, whether or not recognized on the face of the balance sheet,
for which it is practicable to estimate that value. The assumptions used in
the estimation of the fair value of FLAG's financial instruments are
detailed below. Where quoted prices are not available, fair values are
based on estimates using discounted cash flows and other valuation
techniques. The use of discounted cash flows can be significantly affected
by the assumptions used, including the discount rate and estimates of
future cash flows. The following disclosures should not be considered a
surrogate of the liquidation value of FLAG or its subsidiary, but rather a
good-faith estimate of the increase or decrease in value of financial
instruments held by FLAG since purchase, origination or issuance.
Cash and Cash Equivalents and Interest-Bearing Deposits
-------------------------------------------------------
For cash, due from banks, federal funds sold, interest-bearing deposits
with other banks, and proceeds receivable from secondary market, the
carrying amount is a reasonable estimate of fair value.
Securities Held-to-Maturity and Securities Available-for-Sale
-------------------------------------------------------------
Fair values for securities held-to-maturity and securities
available-for-sale are based on quoted market prices.
Other investments
-----------------
The carrying value of other investments approximates fair value.
Loans and Mortgage Loans Held for Sale
--------------------------------------
The fair value of fixed rate loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings. For variable rate loans, the
carrying amount is a reasonable estimate of fair value.
Cash Surrender Value of Life Insurance
--------------------------------------
The carrying value of cash surrender value of life insurance approximates
fair value.
Deposits
--------
The fair value of demand deposits, savings accounts, NOW accounts, certain
money market deposits, advances from borrowers and advances payable to
secondary market is the amount payable on demand at the reporting date. The
fair value of fixed maturity certificates of deposit is estimated by
discounting the future cash flows using the rates currently offered for
deposits of similar remaining maturities.
Federal Funds Purchased and Repurchase Agreements
-------------------------------------------------
For federal funds purchased and repurchase agreements, the carrying amount
is a reasonable estimate of fair value.
Advances from the Federal Home Loan Bank
----------------------------------------
The fair value of the FHLB fixed rate borrowings are estimated using
discounted cash flows, based on the current incremental borrowing rates for
similar types of borrowing arrangements.
Commitments to Originate First Mortgage Loans, Commitments to Extend Credit
---------------------------------------------------------------------------
and Standby Letters of Credit
-----------------------------
Because commitments to originate first mortgage loans, commitments to
extend credit and standby letters of credit are made using variable rates,
the contract value is a reasonable estimate of fair value.
55
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(17) Fair Value of Financial Instruments, continued
Limitations
-----------
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result
from offering for sale at one time FLAG's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
FLAG's financial instruments, fair value estimates are based on many
judgments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly
affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Significant assets and
liabilities that are not considered financial instruments include the
mortgage banking operation, deferred income taxes, premises and equipment
and purchased core deposit intangible. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in
the estimates.
The carrying amount and estimated fair values of FLAG's financial
instruments at December 31, 1999 and 1998 are as follows (In Thousands):
<TABLE>
<CAPTION>
1999 1998
----------------------- ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents ................. 27,084 27,084 53,317 53,317
Interest-bearing deposits ................. 2,792 2,792 3,577 3,577
Investment securities ..................... 89,555 89,125 97,623 97,829
Other investments ......................... 6,092 6,092 7,023 7,023
Mortgage loans held for sale .............. 3,484 3,484 10,220 10,220
Loans, net ................................ 419,079 417,150 424,660 425,707
Cash surrender value of life insurance..... 4,134 4,134 3,971 3,971
Liabilities:
Deposits .................................. 483,987 483,886 521,671 522,371
Federal funds purchased and repurchase
agreements........... ................... 15,320 15,320 - -
FHLB advances ............................. 27,173 24,953 48,398 47,119
Unrecognized financial instruments:
Commitments to extend credit .............. 56,872 56,872 78,745 78,745
Standby letters of credit ................. 819 819 767 767
</TABLE>
56
<PAGE>
(18) Subsequent Event
On March 6, 2000, FLAG entered into an agreement to sell certain branch
locations of Citizens in Metter, Cobbtown and Statesboro, Georgia. The
sale agreement provides for a net sales price of approximately $3.2 million
and includes all deposit liabilities, loans and premises and equipment of
these branches. This branch sale is subject to various regulatory
approvals.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors and executive officers of the Company
is set forth under the captions "Proposal 1 - Election of Directors-Nominees"
and "Proposal 1 - Election of Directors-Information Regarding Nominees and
Continuing Directors" in the Company's Proxy Statement for its 2000 Annual
Meeting of Shareholders to be held on April 19, 2000. Such information is
incorporated herein by reference. Information regarding compliance with Section
16(a) of the Securities Exchange Act of 1934, as amended, by directors and
executive officers of the Company and the Banks is set forth under the caption
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
Proxy Statement referred to above. The Company is incorporating by reference
that information from the Proxy Statement. To the Company's knowledge, no person
was the beneficial owner of more than 10% of the Company's common stock during
1999.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation and the sale of stock to
certain directors is set forth under the captions "Proposal 1 - Election of
Directors - Director Compensation" and "Executive Compensation" in the Proxy
Statement referred to above. The Company is incorporating by reference that
information from the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding ownership of the Company's common stock as of
December 31, 1999, by certain persons is set forth under the captions "Voting -
Stock Ownership" and "Proposal 1 - Election of Directors - Information Regarding
Nominees and Continuing Directors" in the Proxy Statement referred in Item 10
above. The Company is incorporating by reference that information from the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain transactions between the Banks and directors
and executive officers of the Company and the Bank is set forth under the
caption "Executive Compensation - Loans to Management" in the Proxy Statement
referred to in Item 10 above. The Company is incorporating by reference that
information from the Proxy Statement.
57
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The following consolidated financial statements
together with the report thereon of Porter Keadle Moore, LLP are located
in Item 8 of this Report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Earnings for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
(a)(2) The financial statement schedules are either included in the financial
statements or are not applicable.
(a)(3) Exhibit List
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation of the Company, as amended through October 15,
1993 (incorporated by reference from Exhibit 3.1(i) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993)
3.2 Bylaws of the Company, as amended through March 30, 1998 (incorporated by
reference from Exhibit 3.1(ii) to the Company's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1997)
3.3 Amendment to Bylaws of the Company as adopted by resolution of Board of
Directors on October 19, 1998 (incorporated by reference from Exhibit 3.3
on Annual Report on Form 10-K for the fiscal year ended December 31, 1998).
4.1 Instruments Defining the Rights of Security Holders (See Articles of
Incorporation at Exhibit 3.1 hereto and Bylaws at Exhibit 3.2 hereto)
10.1 Employment Agreement between J. Daniel Speight, Jr. and the Company dated
as of April 1, 1998 (incorporated by reference from Exhibit 10.1 to
Amendment No. 1 to the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1997)*
10.2 Employment Agreement between John S. Holle and the Company dated as of
April 1, 1998 (incorporated by reference from Exhibit 10.2 to Amendment No.
1 to the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997)*
58
<PAGE>
10.3 Employment Agreement between Patti S. Davis and the Company dated as of
April 1, 1998 (incorporated by reference from Exhibit 10.4 to Amendment No.
1 to the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997)*
10.4 Employment Agreement between Charles O. Hinely and the Company dated as of
April 1, 1999*
10.5 Separation Agreement between J. Preston Martin and the Company dated May
13, 1998 (incorporated by reference from Exhibit 10.6 to Amendment No. 1 to
the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997)*
10.6 Separation Agreement between Robert G. Cochran and the Company dated August
27, 1999 (incorporated by reference from Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1999)*
10.7 Split Dollar Insurance Agreement between J. Daniel Speight, Jr. and
Citizens Bank dated November 2, 1992 (incorporated by reference from
Exhibit 10.7 to Amendment No. 1 to the Company's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1997)*
10.8 Director Indexed Retirement Program for Citizens Bank dated January 13,
1995 (incorporated by reference from Exhibit 10.8 to Amendment No. 1 to the
Company's Annual Report on Form 10-K/A for the fiscal year ended December
31, 1997)*
10.9 Form of Executive Agreement (pursuant to Director Indexed Retirement
Program for Citizens Bank) for individuals listed on exhibit cover page
(incorporated by reference from Exhibit 10.9 to Amendment No. 1 to the
Company's Annual Report on Form 10-K/A for the fiscal year ended December
31, 1997)*
10.10Form of Flexible Premium Life Insurance Endorsement Method Split Dollar
Plan Agreement (pursuant to Director Indexed Retirement Program for
Citizens Bank) for individuals listed on exhibit cover page (incorporated
by reference from Exhibit 10.10 to Amendment No. 1 to the Company's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1997)*
10.11Director Indexed Fee Continuation Program for First Federal Savings Bank
of LaGrange effective February 3, 1995 (incorporated by reference from
Exhibit 10.12 to Amendment No. 1 to the Company's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1997)
10.12Form of Director Agreement (pursuant to Director Indexed Fee Construction
Program for First Federal Savings Bank of LaGrange) for individuals listed
on exhibit cover page (incorporated by reference from Exhibit 10.13 to
Amendment No. 1 to the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1997)*
10.13Form of Flexible Premium Life Insurance Endorsement Method Split Dollar
Plan Agreement (pursuant to Director Indexed Fee Continuation Program of
First Federal Savings Bank of LaGrange) for individuals listed on exhibit
cover page (incorporated by reference from Exhibit 10.14 to Amendment No. 1
to the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997)*
10.14Form of Indexed Executive Salary Continuation Plan Agreement by and
between First Federal Savings Bank of LaGrange and individuals listed on
exhibit cover page (incorporated by reference from Exhibit 10.15 to
Amendment No. 1 to the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1997)*
10.15Form of Flexible Premium Life Insurance Endorsement Method Split Dollar
Plan Agreement (pursuant to Executive Salary Continuation Plan for First
Federal Savings Bank of LaGrange) for individuals listed on exhibit cover
page (incorporated by reference from Exhibit 10.16 to Amendment No. 1 to
the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997)*
59
<PAGE>
10.16Indexed Executive Salary Continuation Plan Agreement by and between First
Federal Savings Bank of LaGrange and William F. Holle, Jr. dated February
3, 1995 (incorporated by reference from Exhibit 10.17 to Amendment No. 1 to
the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997)*
10.17Form of Deferred Compensation Plan by and between The Citizens Bank and
individuals listed on exhibit cover page*
10.18FLAG Financial Corporation 1994 Employees Stock Incentive Plan
(incorporated by reference from Exhibit 10.6 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993)*
10.19FLAG Financial Corporation 1994 Directors Stock Incentive Plan
(incorporated by reference from Exhibit 10.7 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993)*
21 Subsidiaries
27 Financial Data Schedule
- --------------------
* The indicated exhibit is a compensatory plan required to be filed as an
exhibit to this Form 10-K.
(b) Reports on Form 8-K.
Reports on Form 8-K filed during Fourth Quarter of 1999
o A Current Report on Form 8-K filed October 6, 1999 regarding announcement
of FLAG Financial Corporation on September 24, 1999 that FLAG Financial
Corporation and Abbeville Capital Corporation were contemplating an
amendment to the Agreement and Plan of Merger between Abbeville Capital
Corporation, parent company of The Bank of Abbeville, located in Abbeville,
South Carolina, and FLAG Financial Corporation.
o A Current Report on Form 8-K filed October 6, 1999 regarding the completion
of the merger of First Hogansville Bankshares, Inc., parent company of The
Citizens Bank, located in Hogansville, Georgia, with and into FLAG
Financial Corporation pursuant to an Agreement and Plan of Merger, dated
June 1, 1999, by and between FLAG Financial Corporation and First
Hogansville Bankshares, Inc.
o A Current Report on Form 8-K filed October 19, 1999 regarding the execution
of a Mutual Termination Agreement between FLAG Financial Corporation and
Abbeville Capital Corporation, parent company of The Bank of Abbeville,
located in Abbeville, South Carolina, pursuant to which both parties agreed
to cancel their plans to merge.
o A Current Report on Form 8-K filed December 23, 1999 regarding the
announcement of the commencement of a stock repurchase program pursuant to
which the Company will from time to time repurchase up to 57,500 shares of
its outstanding common stock in the open market or in privately negotiated
transactions.
60
<PAGE>
Reports on Form 8-K filed since Year End 1999
o The Company has not made any Form 8-K filings.
(c) The Exhibits not incorporated herein by reference are submitted as a
separate part of this report.
(d) Financial Statements Schedules: The financial statement schedules are
either included in the financial statements or are not applicable.
61
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
FLAG FINANCIAL CORPORATION
(Registrant)
Date: March 20, 2000 By: /s/ J. Daniel Speight, Jr.
--------------------------------
J. Daniel Speight, Jr.
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints J. Daniel Speight, Jr. and John S. Holle,
and each of them, as true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments to
this Report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, as amended, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all which said attorneys-in-fact and agents or either
of them, or their or his substitute or substitutes, may lawfully do, or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed by the following persons in the capacities indicated on March 20,
2000.
Signature Title
--------- -----
/s/ Dennis D. Allen Director
- ------------------------------------------
Dennis D. Allen
/s/ Dr. A. Glenn Bailey Director
- ------------------------------------------
Dr. A. Glenn Bailey
/s/ H. Speer Burdette, III Director
- ------------------------------------------
H. Speer Burdette, III
/s/ Robert G. Cochran Director
- ------------------------------------------
Robert G. Cochran
/s/ Patti S. Davis Director, Senior Vice President,
- ------------------------------------------ Assistant Secretary
Patti S. Davis
/s/ Fred A. Durand, III Director
- ------------------------------------------
Fred A. Durand, III
62
<PAGE>
/s/ John R. Hines, Jr. Director
- ------------------------------------------
John R. Hines, Jr.
/s/ John S. Holle Chairman of the Board and Director
- ------------------------------------------
John S. Holle
/s/ James W. Johnson Director
- ------------------------------------------
James W. Johnson
/s/ Kelly R. Linch Director
- ------------------------------------------
Kelly R. Linch
/s/ J. Preston Martin Director
- ------------------------------------------
J. Preston Martin
/s/ J. Daniel Speight, Jr. President, Chief Executive Officer
- ------------------------------------------ and Director(principal executive
J. Daniel Speight, Jr. officer)
/s/ John W. Stewart, Jr. Director
- ------------------------------------------
John W. Stewart, Jr.
/s/ Robert W. Walters Director
- ------------------------------------------
Robert W. Walters
/s/ Thomas L. Redding Senior Vice President, Chief
- ------------------------------------------ Financial Officer, Secretary
Thomas L. Redding (principal financial and accounting
officer)
63
<PAGE>
FLAG FINANCIAL CORPORATION
Index of Exhibits
The following exhibits are filed as part of or incorporated by reference in
this report. Where such filing is made by incorporation by reference to a
previously filed registration statement or report, such registration statement
or report is identified in parentheses.
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation of the Company, as amended through October 15,
1993 (incorporated by reference from Exhibit 3.1(i) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993)
3.2 Bylaws of the Company, as amended through March 30, 1998 (incorporated by
reference from Exhibit 3.1(ii) to the Company's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1997)
3.3 Amendment to Bylaws of the Company as adopted by resolution of Board of
Directors on October 19, 1998 (incorporated by reference from Exhibit 3.3
on Annual Report on Form 10-K for the fiscal year ended December 31, 1998).
4.1 Instruments Defining the Rights of Security Holders (See Articles of
Incorporation at Exhibit 3.1 hereto and Bylaws at Exhibit 3.2 hereto)
10.1 Employment Agreement between J. Daniel Speight, Jr. and the Company dated
as of April 1, 1998 (incorporated by reference from Exhibit 10.1 to
Amendment No. 1 to the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1997)*
10.2 Employment Agreement between John S. Holle and the Company dated as of
April 1, 1998 (incorporated by reference from Exhibit 10.2 to Amendment No.
1 to the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997)*
10.3 Employment Agreement between Patti S. Davis and the Company dated as of
April 1, 1998 (incorporated by reference from Exhibit 10.4 to Amendment No.
1 to the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997)*
10.4 Employment Agreement between Charles O. Hinely and the Company dated as of
April 1, 1999*
10.5 Separation Agreement between J. Preston Martin and the Company dated May
13, 1998 (incorporated by reference from Exhibit 10.6 to Amendment No. 1 to
the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997)*
10.6 Separation Agreement between Robert G. Cochran and the Company dated August
27, 1999 (incorporated by reference from Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1999)*
10.7 Split Dollar Insurance Agreement between J. Daniel Speight, Jr. and
Citizens Bank dated November 2, 1992 (incorporated by reference from
Exhibit 10.7 to Amendment No. 1 to the Company's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1997)*
10.8 Director Indexed Retirement Program for Citizens Bank dated January 13,
1995 (incorporated by reference from Exhibit 10.8 to Amendment No. 1 to the
Company's Annual Report on Form 10-K/A for the fiscal year ended December
31, 1997)*
10.9 Form of Executive Agreement (pursuant to Director Indexed Retirement
Program for Citizens Bank) for individuals listed on exhibit cover page
(incorporated by reference from Exhibit 10.9 to Amendment No. 1 to the
Company's Annual Report on Form 10-K/A for the fiscal year ended December
31, 1997)*
10.10Form of Flexible Premium Life Insurance Endorsement Method Split Dollar
Plan Agreement (pursuant to Director Indexed Retirement Program for
Citizens Bank) for individuals listed on exhibit cover page (incorporated
by reference from Exhibit 10.10 to Amendment No. 1 to the Company's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1997)*
10.11Director Indexed Fee Continuation Program for First Federal Savings Bank
of LaGrange effective February 3, 1995 (incorporated by reference from
Exhibit 10.12 to Amendment No. 1 to the Company's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1997)
10.12Form of Director Agreement (pursuant to Director Indexed Fee Construction
Program for First Federal Savings Bank of LaGrange) for individuals listed
on exhibit cover page (incorporated by reference from Exhibit 10.13 to
Amendment No. 1 to the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1997)*
64
<PAGE>
10.13Form of Flexible Premium Life Insurance Endorsement Method Split Dollar
Plan Agreement (pursuant to Director Indexed Fee Continuation Program of
First Federal Savings Bank of LaGrange) for individuals listed on exhibit
cover page (incorporated by reference from Exhibit 10.14 to Amendment No. 1
to the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997)*
10.14Form of Indexed Executive Salary Continuation Plan Agreement by and
between First Federal Savings Bank of LaGrange and individuals listed on
exhibit cover page (incorporated by reference from Exhibit 10.15 to
Amendment No. 1 to the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1997)*
10.15Form of Flexible Premium Life Insurance Endorsement Method Split Dollar
Plan Agreement (pursuant to Executive Salary Continuation Plan for First
Federal Savings Bank of LaGrange) for individuals listed on exhibit cover
page (incorporated by reference from Exhibit 10.16 to Amendment No. 1 to
the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997)*
10.16Indexed Executive Salary Continuation Plan Agreement by and between First
Federal Savings Bank of LaGrange and William F. Holle, Jr. dated February
3, 1995 (incorporated by reference from Exhibit 10.17 to Amendment No. 1 to
the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997)*
10.17Form of Deferred Compensation Plan by and between The Citizens Bank and
the individuals listed on exhibit cover page*
10.18FLAG Financial Corporation 1994 Employees Stock Incentive Plan
(incorporated by reference from Exhibit 10.6 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993)*
10.19FLAG Financial Corporation 1994 Directors Stock Incentive Plan
(incorporated by reference from Exhibit 10.7 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993)*
21 Subsidiaries
27 Financial Data Schedule
- --------------------
* The indicated exhibit is a compensatory plan required to be filed as an
exhibit to this Form 10-K.
65
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of April, 1999 (the "Effective
Date"), between FLAG Financial Corporation, a Georgia corporation (the
"Employer"), and CHARLES O. HINELY, a resident of the State of Georgia (the
"Employee").
RECITALS:
The Employer desires to employ the Employee as the Executive Vice President
and Chief Operating Officer of the Employer and the Employee desires to accept
such employment.
In consideration of the above premises and the mutual agreements
hereinafter set forth, the parties hereby agree as follows:
1. Definitions.
- ---------------
Whenever used in this Agreement, the following terms and their variant
forms shall have the meaning set forth below:
1.1 "Agreement" shall mean this Agreement and any exhibits incorporated
herein together with any amendments hereto made in the manner described in this
Agreement.
1.2 "Affiliate" shall mean any business entity which controls the Employer,
is controlled by or is under common control with the Employer.
1.3 "Area" shall mean, as of any applicable date, the counties in those
states where the Employer and Bank are then transacting business. It is the
express intent of the parties that the Area as defined herein is the area where
the Employee performs or performed services on behalf of the Employer under this
Agreement as of, or within a reasonable time prior to, the termination of the
Employee's employment hereunder.
1.4 "Average Monthly Compensation" shall mean the quotient determined (a)
by dividing the sum of the Employee's then current Base Salary (as defined
below) and most recently paid Incentive Compensation (as defined below) (b) by
twelve.
1.5 "Bank" shall mean, collectively, First Flag Bank of LaGrange, Citizens
Bank, and additional Partner Banks of the Employer, if and when added, or their
successors.
1.6 "Business of the Employer" shall mean the business conducted by the
Employer, which is the business of banking, including the solicitation of time
and demand deposits and the making of residential, consumer, commercial and
corporate loans.
1.7. "Cause" shall mean:
1.7.1 With respect to termination by the Employer:
(a) A material breach of the terms of this Agreement by the
Employee, including, without limitation, failure by the Employee to
<PAGE>
perform the Employees' duties and responsibilities in the manner and
to the extent required under this Agreement, which breach remains
uncured after the expiration of thirty (30) days following the
delivery of written notice of such breach to the Employee by the
Employer;
(b) Conduct by the Employee that (i) constitutes fraud,
dishonesty, gross malfeasance of duty or conduct grossly inappropriate
to the Employee's office and (ii) is demonstrably likely to lead to
material injury to the Employer or the Bank or resulted or was
intended to result in direct or indirect gain to or personal
enrichment of the Employee; provided, however, that such conduct shall
not constitute "Cause" unless there shall have been delivered to the
Employee a written notice setting forth with specificity the reasons
that the Employer believes the Employee's conduct meets the standard
set forth in this Section 1.7.1(b), the Employee shall have been
provided with an opportunity to be heard in person by the Board of
Directors of the Employer (with the assistance of counsel, if desired)
and, in the event of any such hearing, the decision of the Employer is
evidenced by a resolution adopted by two-thirds of the members of the
Board of Directors of the Employer after the hearing;
(c) Conduct resulting in the conviction of the Employee of a
felony; or
(d) Conduct by the Employee that results in the permanent removal
from the Employee's position as an officer or employee of the Employer
pursuant to a written order by any regulatory agency with authority or
jurisdiction over the Employer.
1.7.2 With respect to termination by the Employee:
(a) a material diminution in the powers, responsibilities, duties
or total compensation of the Employee hereunder by the Employer, which
condition remains uncured after the expiration of thirty (30) days
following the delivery of written notice of such condition to the
Employer by the Employee; or
(b) a material breach of the terms of this Agreement by the
Employer, which breach remains uncured after the expiration of thirty
(30) days following the delivery of written notice of such breach to
the Employer by the Employee.
1.8 "Employer Information" means Confidential Information and Trade
Secrets.
1.9 "Confidential Information" means data and information relating to the
business of the Employer (which does not rise to the status of a Trade Secret)
which is or has been disclosed to the Employee or of which the Employee became
aware as a consequence of or through the Employee's relationship to the Employer
and which has value to the Employer and is not generally known to its
competitors. Without limiting the foregoing, Confidential Information shall
include:
(a) all items of information that could be classified as a trade
secret pursuant to law;
(b) The names, addresses and banking requirements of the
customers of the Bank and the nature and amount of business done with
such customers;
(c) The names and addresses of employees and other business
contacts of Bank;
2
<PAGE>
(d) The particular names, methods and procedures utilized by the
Employer and the Bank in the conduct and advertising of their
business;
(e) Application, operating system, communication and other
computer software and derivatives thereof, including, without
limitation, sources and object codes, flow charts, coding sheets,
routines, subrouting and related documentation and manuals of the
Employer and the Bank; and
(f) Marketing techniques, purchasing information, pricing
policies, loan policies, quoting procedures, financial information,
customer data and other materials or information relating to Bank's
manner of doing business.
Confidential Information shall not include any data or information that has been
voluntarily disclosed to the public by the Employer (except where such public
disclosure has been made by the Employee without authorization) or that has been
independently developed and disclosed by others, or that otherwise enters the
public domain through lawful means.
1.10 "Change in Control" means any one of the following events occurring
after the Effective Date:
(a) the acquisition by any person or persons acting in concert of
the then outstanding voting securities of the Employer, if, after the
transaction, the acquiring person (or persons) owns, controls or holds
with power to vote twenty-five percent (25%) or more of any class of
voting securities of the Employer or such other transaction as may be
described under 12 C.F.R. Section 225.41(b)(1) or any successor
thereto;
(b) within any twelve-month period (beginning on or after the
Effective Date) the persons who were directors of the Employer
immediately before the beginning of such twelve-month period (the
"Incumbent Directors") shall cease to constitute at least a majority
of such board of directors; provided that any director who was not a
director as of the Effective Date shall be deemed to be an Incumbent
Director if that director was elected to such board of directors by,
or on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Incumbent Directors;
and provided further that no director whose initial assumption of
office is in connection with an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Securities Exchange Act of 1934) relating to the election of
directors shall be deemed to be an Incumbent Director;
(c) the approval by the stockholders of the Employer of a
reorganization, merger or consolidation, with respect to which persons
who were the stockholders of the Employer immediately prior to such
reorganization, merger or consolidation do not, immediately
thereafter, own more than fifty percent (50%) of the combined voting
power entitled to vote in the election of directors of the
reorganized, merged or consolidated company's then outstanding voting
securities; or
(d) the sale, transfer or assignment of all or substantially all
of the assets of the Employer and its subsidiaries to any third party.
3
<PAGE>
1.11 "Initial Term" shall mean that period of time commencing on the
Effective Date and running until the day immediately preceding the third
anniversary of the Effective Date.
1.12 "Permanent Disability" shall mean a condition for which benefits would
be payable under any long-term disability coverage (without regard to the
application of any elimination period requirement) then provided to the Employee
by the Employer or, if no such coverage is then being provided, the inability of
the Employee to perform the material aspects of the Employee's duties under this
Agreement for a period of at least 180 consecutive days as certified by a
physician chosen by the Employee and reasonably acceptable to the Employer.
1.13. "Term" shall mean the term of this Agreement and shall consist of the
Initial Term; provided, however, that the Initial Term shall automatically renew
each day after the Effective Date so that the Term remains a three-year term
until either party provides written notice to the other of the intent that the
automatic renewals shall cease, in which case, the Term shall expire on the
third anniversary of the date of the written notice so provided.
1.14 "Trade Secrets" means information including, but not limited to,
technical or nontechnical data, formulas, patterns, compilations, programs,
devices, methods, techniques, drawings, processes, financial data, financial
plans, product plans or lists of actual or potential customers or suppliers
which (a) derives economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other persons
who can obtain economic value from its disclosure or use; and (b) is the subject
of efforts that are reasonable under the circumstances to maintain its secrecy.
2. Duties.
- ----------
2.1 The Employee is employed initially as the Executive Vice President of
the Employer and, subject to the direction of the Board of Directors of the
Employer or its designee, consistent with this Agreement and the designation of
Employee as Executive Vice President, shall perform and discharge well and
faithfully the duties which may be assigned to the Employee from time to time by
the Employer in connection with the conduct of its business. The duties and
responsibilities of the Employee are set forth on Exhibit A attached hereto.
2.2 In addition to the duties and responsibilities specifically assigned
to the Employee pursuant to Section 2.1 hereof, the Employee shall: (a) devote
substantially all of the Employee's time, energy and skill during regular
business hours to the performance of the duties of the Employee's employment
(reasonable vacations and reasonable absences due to illness excepted) and
faithfully and industriously perform such duties; (b) diligently follow and
implement all management policies and decisions communicated to the Employee by
the Employer which are consistent with this Agreement and the designation of
Employee as Executive Vice President; and (c) timely prepare and forward to the
Employer all reports and accounting as may be requested of the Employee.
2.3 The Employee shall devote the Employee's entire business time,
attention and energies to the Business of the Employer and shall not during the
term of this Agreement be engaged (whether or not during normal business hours)
in any other business or professional activity, whether or not such activity is
pursued for gain, profit or other pecuniary advantage; but this shall not be
construed as preventing the Employee from (a) investing the Employee's personal
assets in businesses which (subject to clause (b) below) are not in competition
4
<PAGE>
with the Business of the Employer and which will not require any services on the
part of the Employee in their operation or affairs and in which the Employee's
participation is solely that of an investor, (b) purchasing securities or other
interests in any entity provided that such purchase shall not result in the
Employee's collectively owning beneficially at any time five percent (5%) or
more of the equity securities of any business in competition with the Business
of the Employer and (c) participating in civic and professional affairs and
organizations and conferences, preparing or publishing papers or books or
teaching so long as the Board approves of such activities prior to the
Employee's engaging in them.
3. Term and Termination.
- ------------------------
3.1 Term.This Agreement shall remain in effect for the Term or until a
termination of this Agreement prior to the expiration of the Term in accordance
with the remaining provisions of this Section.
3.2 Termination. During the Term, the employment of the Employee under this
Agreement may be terminated only as follows: -----------
3.2.1 By the Employer:
(a) For Cause, following approval of such action by at least 75%
of the membership of the Board of Directors of the Employer and only
after providing Employee with at least thirty (30) days' written
notice, in which event the Employer shall have no further obligation
to the Employee except for the payment of any amounts payable as of
the effective date of termination; or
(b) Without Cause at any time, provided that the Employer shall
give the Employee sixty (60) days' prior written notice of its intent
to terminate, in which event the Employer shall be required to meet
its obligations to the Employee under Section 3.3 below.
3.2.2 By the Employee:
(a) For Cause, with no prior notice except as provided in Section
1.7.2, in which event the Employer shall be required to meet its
obligations to the Employee under Section 3.3 below; or
(b) Without Cause, provided that the Employee shall give the
Employer sixty (60) days' prior written notice of the Employee's
intent to terminate, in which event the Employer shall have no further
obligation to the Employee except for payment of any amounts payable
as of the effective date of the termination.
3.2.3 By the Employee within the period commencing three (3) months
prior to and ending twelve (12) months after a Change in Control of the
Employer (the "Election Period"), provided that the Employee shall give
thirty (30) days written notice prior to the end of the Election Period to
the Employer of the Employee's intention to terminate this Agreement, in
which event the Employer shall be required to meet its obligations to the
Employee under Section 3.3 below.
5
<PAGE>
3.2.4 At any time upon mutual, written agreement of the parties, in
which event the Employer shall have no further obligation to the Employee
except for the payment of any amounts payable as of the effective date of
the termination.
3.2.5 Notwithstanding anything in this Agreement to the contrary, the
Term shall expire automatically upon the Employee's death or Permanent
Disability, in which event the Employer shall have no further obligation to
the Employee except for the payment of any amounts payable as of the
effective date of termination and, if the reason for termination is the
Employee's Permanent Disability, the Employer shall pay to the Employee as
liquidated damages an amount equal to Average Monthly Compensation for each
full month following such termination until the earlier of the month prior
to the month for which the Employee's long-term disability benefits become
payable or six full months commencing with the month following the month in
which the date of termination occurs.
3.3 Termination Payments.From the Effective Date until December 31, 1999,
in the event Employee's employment is terminated under this Agreement pursuant
Section 3.2.1(b), Section 3.2.2(a) or Section 3.2.3, the Employer shall pay to
the Employee as severance pay and liquidated damages a lump sum amount equal to
twelve (12) months of Average Monthly Compensation. From January 1, 2000 and
thereafter, in the event Employee's employment is terminated under this
Agreement prior to the expiration of the Term pursuant Section 3.2.1(b), Section
3.2.2(a) or Section 3.2.3, the Employer shall pay to the Employee as severance
pay and liquidated damages a lump sum amount equal to the lesser of (a) eighteen
(18) months of Average Monthly Compensation or (b) the number of whole calendar
months remaining in the unexpired portion of the Term. In addition, if the
Employee's employment is so terminated as otherwise provided in this Section
3.3, the Employer shall reimburse the Employee for his cost of COBRA health
continuation coverage for the Employee and eligible dependents for as long as
Employee is entitled to health continuation coverage under the Employer's group
health plan.
Notwithstanding any other provision of this Agreement to the contrary, if
the aggregate of the payments provided for in this Agreement and the other
payments and benefits which the Employee has the right to receive from the
Employer (the "Total Payments") would constitute a "parachute payment," as
defined in Section 280G(b)(2) of the Internal Revenue Code, as amended (the
"Code"), the Employee shall receive the Total Payments unless the (a) after-tax
amount that would be retained by the Employee (after taking into account all
federal, state and local income taxes payable by the Employee and the amount of
any excise taxes payable by the Employee under Section 4999 of the Code that
would be payable by the Employee (the "Excise Taxes")) if the Employee were to
receive the Total Payments has a lesser aggregate value than (b) the after-tax
amount that would be retained by the Employee (after taking into account all
federal, state and local income taxes payable by the Employee) if the Employee
were to receive the Total Payments reduced to the largest amount as would result
in no portion of the Total Payments being subject to Excise Taxes (the "Reduced
Payments"), in which case the Employee shall be entitled only to the Reduced
Payments. If the Employee is to receive the Reduced Payments, the Employee shall
be entitled to determine which of the Total Payments, and the relative portions
of each, are to be reduced.
4. Compensation.
- ----------------
The Employee shall receive the following salary and benefits during the
Term:
6
<PAGE>
4.1 Base Salary. The Employee shall be compensated at a base rate of One
Hundred Sixty Thousand Dollars ($160,000) per year ("Base Salary"). The
Employee's salary shall be reviewed by the Board of Directors of the Employer
annually, and the Employee shall be entitled to receive annually an increase in
such amount, if any, as may be determined by the Board of Directors of the
Employer based upon the performance of the Employer and the Employee. Such
salary shall be payable in accordance with the Employer's normal payroll
practices.
4.2 Incentive Compensation. The Employee shall be entitled to participate
in such bonus, incentive and other executive compensation programs as are made
available to senior management of the Bank from time to time (the "Incentive
Compensation").
4.3 Stock Options. The Employer will grant to the Employee stock options
commensurate with the Employee's position taking into account options held by
the Employee as of the Effective Date. Any such options shall be reflected by a
separate written award.
4.4 Benefits. The Employee shall be entitled to such benefits as may be
available from time to time for senior executives of the Employer and Bank
similarly situated to the Employee. All such benefits shall be awarded and
administered in accordance with the Employer's standard policies and practices.
Such benefits may include, by way of example only, profit sharing plans,
retirement or investment funds, dental, health and life insurance benefits and
such other benefits as the Employer deems appropriate.
4.5 Disability Insurance. The Employer shall provide the Employee with
amounts, as additional compensation, as and when necessary, to allow the
Employee to pay the premiums that become due under the personal disability
insurance policy currently owned by the Employee.
4.6 Automobile. The Employer shall provide the Employee with an automobile
comparable to the automobile provided to the Employee by Employer immediately
prior to the Effective Date, with such automobile to be used by the Employee for
business and personal purposes. The automobile shall be replaced with a new,
comparable automobile no less frequently than every twenty-four (24) months. The
Employer will pay expenses associated with the operation and maintenance of the
automobile, including taxes, insurance and repairs.
4.7 Business Expenses. The Employer shall reimburse the Employee for
reasonable business (including travel) expenses incurred by the Employee in
performance of the Employee's duties hereunder; provided, however, that the
Employee shall, as a condition of reimbursement, submit verification of the
nature and amount of such expenses in accordance with reimbursement policies
from time to time adopted by the Employer and in sufficient detail to comply
with rules and regulations promulgated by the Internal Revenue Service.
4.8 Memberships. The Employer shall reimburse the Employee for the annual
dues associated with membership in one country or eating club selected by the
Employee; provided, however, that the aggregate annual dues for such memberships
shall not exceed five percent (5%) of the Employee's Base Salary then in effect,
and for memberships in such professional associations which are commensurate
with the Employee's position; provided, however, that the Employee shall, as a
condition of reimbursement, submit verification of the nature and amount of such
expenses in accordance with reimbursement policies from time to time adopted by
the Employer and in sufficient detail to comply with rules and regulations
promulgated by the Internal Revenue Service.
7
<PAGE>
4.9 Vacation. On a non-cumulative basis the Employee shall be entitled to a
minimum of four (4) weeks of vacation annually, during which the Employee's
compensation shall be paid in full.
4.10 Withholding. The Employer may deduct from each payment of compensation
hereunder all amounts required to be deducted and withheld in accordance with
applicable federal and state income, FICA and other withholding requirements.
5. Employer Information.
- ------------------------
5.1 Ownership of Information. All Employer Information received or
developed by the Employee while employed by the Employer will remain the sole
and exclusive property of the Employer.
5.2 Obligations of the Employee. The Employee agrees (a) to hold Employer
Information in strictest confidence, and (b) not to use, duplicate, reproduce,
distribute, disclose or otherwise disseminate Employer Information or any
physical embodiments thereof and may in no event take any action causing or fail
to take any action necessary in order to prevent any Employer Information from
losing its character or ceasing to qualify as Confidential Information or a
Trade Secret. In the event that the Employee is required by law to disclose any
Employer Information, the Employee will not make such disclosure unless (and
then only to the extent that) the Employee has been advised by independent legal
counsel that such disclosure is required by law and then only after prior
written notice is given to the Employer when the Employee becomes aware that
such disclosure has been requested and is required by law. This Section 5 shall
survive for a period of twelve (12) months following termination of this
Agreement with respect to Confidential Information, and shall survive
termination of this Agreement for so long as is permitted by the then-current
Georgia Trade Secrets Act of 1990, O.C.G.A. ss.ss. 10-1-760-10-1-767, with
respect to Trade Secrets.
5.3 Delivery upon Request or Termination. Upon request by the Employer, and
in any event upon termination of the Employee's employment with the Employer,
the Employee will promptly deliver to the Employer all property belonging to the
Employer, including without limitation all Employer Information then in the
Employee's possession or control.
6. Non-Competition.
- -------------------
The Employee agrees that during his employment by the Employer hereunder
and, in the event of his termination other than by the Employer without Cause
pursuant to Section 3.2.1(b), by the Employee for Cause pursuant to Section
3.2.2(a), or by the Employee pursuant to Section 3.2.3, for a period of twelve
(12) months thereafter, the Employee will not (except on behalf of or with the
prior written consent of the Employer), within the Area, either directly or
indirectly, on his own behalf or in the service or on behalf of others, as a
principal, partner, officer, director, manager, supervisor, administrator,
consultant, executive employee or in any other capacity which involves duties
and responsibilities similar to those undertaken for the Employer, engage in any
business which is the same as or essentially the same as the Business of the
Employer.
7. Non-Solicitation of Customers.
- ---------------------------------
The Employee agrees that during the Employee's employment by the Employer
hereunder and, in the event of Employee's termination other than by the Employer
without Cause pursuant to Section 3.2.1(b), by the Employee for Cause pursuant
to Section 3.2.2(a), or by the Employee pursuant to Section 3.2.3, for a period
of twelve (12) months thereafter, the Employee will not (except on behalf of or
8
<PAGE>
with the prior written consent of the Employer), within the Area, on the
Employee's own behalf or in the service or on behalf of others, solicit, divert
or appropriate or attempt to solicit, divert or appropriate, directly or by
assisting others, any business from any of the Employer's or the Bank's
customers, including actively sought prospective customers, with whom the
Employee has or had material contact during the last two (2) years of the
Employee's employment, for purposes of providing products or services that are
competitive with those provided by the Employer and the Bank.
8. Non-Solicitation of Employees.
- ---------------------------------
The Employee agrees that during the Employee's employment by the Employer
hereunder and, in the event of the Employee's termination other than by the
Employer without Cause pursuant to Section 3.2.1(b), by the Employee for Cause
pursuant to Section 3.2.3(a), or by the Employee pursuant to Section 3.2.3, for
a period of twelve (12) months thereafter, the Employee will not, within the
Area, on the Employee's own behalf or in the service or on behalf of others,
solicit, recruit or hire away or attempt to solicit, recruit or hire away,
directly or by assisting others, any employee of the Employer or its Affiliates,
whether or not such employee is a full-time employee or a temporary employee of
the Employer or its Affiliates and whether or not such employment is pursuant to
written agreement and whether or not such employment is for a determined period
or is at will.
9. Remedies.
- ------------
The Employee agrees that the covenants contained in Sections 5 through 8
hereof are of the essence of this Agreement; that each of the covenants is
reasonable and necessary to protect the business, interests and properties of
the Employer; and that irreparable loss and damage will be suffered by the
Employer should he breach any of the covenants. Therefore, the Employee agrees
and consents that, in addition to all the remedies provided by law or in equity,
the Employer shall be entitled to a temporary restraining order and temporary
and permanent injunctions to prevent a breach or contemplated breach of any of
the covenants. The Employer and the Employee agree that all remedies available
to the Employer or the Employee, as applicable, shall be cumulative. In
addition, in the event the Employee fails to comply with any of the covenants
contained in Section 5 hereof and such failure shall not be cured to the
reasonable satisfaction of the Employer within thirty (30) days after receipt of
written notice thereof from the Employer, the Employer shall thereupon be
relieved of liability for all obligations then remaining under Section 3.3
hereof.
10. Severability.
- -----------------
The parties agree that each of the provisions included in this Agreement is
separate, distinct and severable from the other provisions of this Agreement and
that the invalidity or unenforceability of any Agreement provision shall not
affect the validity or enforceability of any other provision of this Agreement.
Further, if any provision of this Agreement is ruled invalid or unenforceable by
a court of competent jurisdiction because of a conflict between the provision
and any applicable law or public policy, the provision shall be redrawn to make
the provision consistent with and valid and enforceable under the law or public
policy.
11. No Set-Off by the Employee.
- -------------------------------
The existence of any claim, demand, action or cause of action by the
Employee against the Employer, or any Affiliate of the Employer, whether
predicated upon this Agreement or otherwise, shall not constitute a defense to
the enforcement by the Employer of any of its rights hereunder.
12. Notice.
- -----------
All notices and other communications required or permitted under this
Agreement shall be in writing and, if mailed by prepaid first-class mail or
certified mail, return receipt requested, shall be deemed to have been received
on the earlier of the date shown on the receipt or three (3) business days after
the postmarked date thereof. In addition, notices hereunder may be delivered by
8
<PAGE>
hand, facsimile transmission or overnight courier, in which event the notice
shall be deemed effective when delivered or transmitted. All notices and other
communications under this Agreement shall be given to the parties hereto at the
following addresses:
(a) If to the Employer, to it at:
101 North Greenwood Street
PO Box 3007
LaGrange, GA 30240-2699
Attn: Chairman of the Board
FLAG Financial Corporation
(b) If to the Employee, to the Employee at:
3789 S. Rockridge Road
Stone Mountain, GA 30087
13. Assignment.
- ---------------
Neither party hereto may assign or delegate this Agreement or any of its
rights and obligations hereunder without the written consent of the other party
hereto; provided, however, that this Agreement shall be assumed by and shall be
binding upon any successor to the Employer.
14. Waiver.
- -----------
A waiver by the Employer of any breach of this Agreement by the Employee
shall not be effective unless in writing, and no waiver shall operate or be
construed as a waiver of the same or another breach on a subsequent occasion.
15. Arbitration.
- ----------------
Any controversy or claim arising out of or relating to this contract, or
the breach thereof, shall be settled by binding arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association. The
Employer and the Employee agree that they will seek to enforce any arbitration
award in the Superior Court of Troup County. The decision of the arbitration
panel shall be final and binding upon the parties and judgment upon the award
rendered by the arbitration panel may be entered by any court having
jurisdiction. The Employer and the Employee agree to share equally the fees and
expenses associated with the arbitration proceedings.
16. Attorneys' Fees.
- --------------------
With respect to arbitration of disputes and if litigation ensues between
the parties concerning the enforcement of an arbitration award, each party shall
pay its own fees, costs and expenses; provided, however, the Employer shall
advance to the Employee reasonable fees, costs and expenses incurred by the
Employee in preparing for and in initiating or defending against any proceeding
or suit brought to enforce rights or obligations set forth in this Agreement.
Such advances shall be made within thirty (30) days after receiving copies of
invoices presented by the Employee for such fees, costs and expenses. The
Employee shall have the obligation to reimburse the Employer within sixty (60)
days following the final disposition of the matter (including appeals) to the
full extent of the aggregate advances unless the panel of arbitrators or court,
as the case may be, has ruled in favor of the Employee on the merits of the
substantive issues in dispute.
17. Applicable Law.
- -------------------
This Agreement shall be construed and enforced under and in accordance with
the laws of the State of Georgia. The parties agree that the Superior Court of
Troup County, Georgia, shall have jurisdiction of any case or controversy
10
<PAGE>
arising under or in connection with this Agreement and shall be a proper forum
in which to adjudicate such case or controversy. The parties consent to the
jurisdiction of such courts.
18. Interpretation.
- -------------------
Words importing any gender includes all genders. Words importing the
singular form shall include the plural, and vice versa. The terms "herein,"
"hereunder," "hereby, "hereto, "hereof" and any similar terms refer to this
Agreement. Any captions, titles or headings preceding the text of any article,
se or subsection herein are solely for convenience of reference and shall not
constitute part of this Agreement or affect its meaning, construction or effect.
19. Entire Agreement.
- ---------------------
This Agreement embodies the entire and final agreement of the parties on
the subject matter stated in the Agreement. No amendment or modification of this
Agreement shall be valid or binding upon the Employer or the Employee unless
made in writing and signed by both parties. All prior understandings and
agreements relating to the subject matter of this Agreement are hereby expressly
terminated; provided, however, that this Agreement shall not alter, limit or
otherwise impair the Employee's rights under any tax-qualified retirement plan
in which the Employee is or may become a participant.
20. Rights of Third Parties.
- ----------------------------
Nothing herein expressed is intended to or shall be construed to confer
upon or give to any person, firm or other entity, other than the parties hereto
and their permitted assigns, any rights or remedies under or by reason of this
Agreement.
21. Survival.
- -------------
The obligations of the Employer pursuant to Sections 3.2.5 and 3.3 and the
obligations of the Employee pursuant to Sections 5, 6, 7, 8 and 9 shall survive
the termination of the employment of the Employee hereunder for the period
designated under each of those respective sections.
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
Agreement in accordance with the provisions hereof.
FLAG FINANCIAL CORPORATION
/s/J. Daniel Speight, Jr.
-------------------------
Print Name:J. Daniel Speight, Jr.
---------------------------------
ATTEST: President and CEO
Date:March 18, 1999
-------------------
Ricky Smith
-------------------
SVP Asst. Secretary
-------------------
Date: March 18, 1999
--------------------
/s/ Charles O. Hinely
---------------------
Charles O. Hinely
11
<PAGE>
Exhibit A
Duties of the Employee
o Directs overall administration of the Employer.
o Coordinates activities in accordance with established policies and
procedures; in the absence of the Chairman or President and Chief Executive
Officer, acts in the Chairman or CEO's place.
o Serves as chief administrator of Fiscal/Accounting, Human Resources,
Mortgage Lending, Operations/Administration, Audit/Loan Review, Treasury,
Consulting, Information Services and FLAG Tech.
o Oversees the development and implementation of Employer operating policies
and procedures.
o Identifies opportunities for corporate growth and development and
coordinates the development of strategic plans to reach those goals.
o Analyzes operational problems and develops procedures for their resolution.
o Plans and oversees activities related to mergers and acquisitions.
o Recommends equipment changes and reviews and approves equipment
expenditures.
o Monitors and ensures efficient operation of data processing and other
technical services as necessary.
EXHIBIT 10.17
FORM OF DEFERRED COMPENSATION AGREEMENT
BETWEEN THE CITIZENS BANK AND
THE FOLLOWING INDIVIDUALS:
John, R. Hines, Jr.
Yvonne McKibben
Phil Waldrop
Billy Tucker
Jim Lasater
John McKibben
Mack Reynolds
<PAGE>
FORM OF
DEFERRED COMPENSATION AGREEMENT
Agreement, this ___day of ________, between The Citizens Bank, a
corporation having its principal office in Hogansville, Georgia (hereinafter
referred to as the Bank) and ______________ (hereinafter referred to as the
Director) a resident of Troup County and State of Georgia.
Whereas the Director has been on the Board of the Bank for a period of ___
years and is responsible for the supervisory and functional operation of the
Bank; and
Whereas the Director has rendered the Bank valuable service and it is the
desire of the Bank to have the benefit of the Director's continued loyalty,
service and counsel and also to assist him in providing for retirement and
death, it is hereby agreed:
1. If the Director dies prior to retirement and while still serving in his
capacity as Director, the Bank shall, beginning on the first anniversary of the
Director's death, pay annual installments of $_____________ for ten (10) years,
with each payment due on the anniversary of the Director's death.
2. If the Director serves continuously as a Director until his sixty-fifth
birthday, then, beginning on his sixty-sixth birthday, the Bank will pay to the
Director annual installments of $_____________ for a period of ten (10) years
with each installment being due on the director's birthday. If the Director dies
after retirement but prior to receiving the ten annual installments as herein
provided, the unpaid balance of the payments due will continue to be paid by the
Bank to the Director's beneficiary as defined in paragraph 8 hereof.
3. The Director shall forfeit all rights in and to any benefits payable
under the terms of this Agreement if:
(a) He dies by suicide (whether sane or insane) within two years after
the signing of this Agreement.
(b) If he voluntarily leaves the Bank's service as a Director any time
prior to sixty months from the date of this Agreement.
(c) He is discharged or not reelected by the stockholders for any just
cause prior to his death or his attainment of age sixty-five whichever
first occurs.
4. In the event a Director voluntarily leaves the service of the Bank in
his capacity as a director after a period of sixty months from the date of this
Agreement, then and in that event upon said director's reaching his sixty-fifth
birthday, or his death whichever first occurs, he or his beneficiary hereinafter
specified in paragraph 8 will be entitled to a portion of the benefit described
in paragraph 2 hereinabove. Said portion to be a ratio of the stated benefit in
said paragraph 2. The numerator of said ratio being the number of years served
after the date of this Agreement and the denominator being the number of years
between the date of this Agreement and the date of the director's sixty-fifth
birthday.
5. The Bank may, in its sole discretion, permit the Director to take a
leave of absence for a period not to exceed twelve months. During this time the
Director will be considered to be in the service of the Bank for the purposes of
this Agreement.
6. Except to the extent that this provision may be contrary to law, no
collateral assignment, pledge, collateralization, or attachment of any of the
benefits under this Agreement shall be valid or recognized by the Bank. None of
the payments provided for by this Agreement shall be subject to seizure for
payment of any debts or judgments against the Director or any Beneficiary, nor
shall the Director or any Beneficiary have any right to transfer, modify,
anticipate or encumber any rights or benefits hereunder; except that the
provisions of this paragraph are not intended to and will not prohibit an
assignment of this Agreement executed pursuant to the Director's individual tax
and/or estate planning program. However, the Assignee for any such purpose shall
hold any interest obtained subject to and controlled by all the provisions
stated hereinabove.
<PAGE>
7. During the lifetime of the Director, this Agreement may be amended or
revoked at any time in whole or in part by the mutual written agreement of the
Parties.
8. In the event of the Director's death, any remaining installments
provided for in paragraph 2 hereof or any payments provided in paragraph 1 shall
be paid to _____________, if living, or if _____________ predeceases the
Director, then to _____________. The Beneficiary named herein may be changed at
any time by a written amendment property executed by the Director and the Bank
and attached to and made a part of this Agreement.
9. This Agreement shall be governed by the laws of the State of Georgia.
This Agreement is solely between the Bank and the Director. It shall be
binding upon the parties hereto, their heirs, assigns, successors, executors and
administrators. The successors of the Bank shall include but not be limited to
successors by purchase, merger, or consolidation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement at
Hogansville, Georgia, in the County of Troup, State of Georgia, on this ____ day
of ____________.
The Citizens Bank
By:________________
Attest:______________
- ------------------
Witness
------------------
Director
- ---------------------
Witness
EXHIBIT 21
SUBSIDIARIES OF FLAG FINANCIAL CORPORATION
FirstFlag Bank (formerly known as First Federal Savings Bank of LaGrange),
a Georgia state chartered bank organized under the laws of the United States and
operates under the following trade names: First Flag Bank Hogansville, First
Flag Bank - Atlanta and FLAG Mortgage..
Citizens Bank, a state bank organized under the laws of the State of
Georgia. Citizens Bank also operates under the following tradenames: Bank of
Milan, Empire Banking Company, The Brown Bank, First Flag Bank- Statesboro,
FlagTech and Citizens Bank Agency d/b/a Flag Insurance Services.
Thomaston Federal Savings Bank is a federally chartered savings bank
organized under the laws of the United States.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1999
<CASH> 26,634
<INT-BEARING-DEPOSITS> 2,792
<FED-FUNDS-SOLD> 450
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 73,311
<INVESTMENTS-CARRYING> 16,244
<INVESTMENTS-MARKET> 6,072
<LOANS> 429,580
<ALLOWANCE> 7,017
<TOTAL-ASSETS> 587,870
<DEPOSITS> 483,987
<SHORT-TERM> 42,493
<LIABILITIES-OTHER> 8,193
<LONG-TERM> 0
0
0
<COMMON> 8,273
<OTHER-SE> 44,924
<TOTAL-LIABILITIES-AND-EQUITY> 587,870
<INTEREST-LOAN> 42,749
<INTEREST-INVEST> 5,765
<INTEREST-OTHER> 639
<INTEREST-TOTAL> 49,153
<INTEREST-DEPOSIT> 19,592
<INTEREST-EXPENSE> 22,663
<INTEREST-INCOME-NET> 26,490
<LOAN-LOSSES> 4,656
<SECURITIES-GAINS> 1,689
<EXPENSE-OTHER> 30,615
<INCOME-PRETAX> 1,291
<INCOME-PRE-EXTRAORDINARY> 1,291
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,213
<EPS-BASIC> 0.15
<EPS-DILUTED> 0.15
<YIELD-ACTUAL> 4.90
<LOANS-NON> 12,118
<LOANS-PAST> 2,775
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,170
<ALLOWANCE-OPEN> 6,194
<CHARGE-OFFS> 4,090
<RECOVERIES> 257
<ALLOWANCE-CLOSE> 7,017
<ALLOWANCE-DOMESTIC> 7,017
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 7,017
</TABLE>
