Flag Financial third quarter 2003 10q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _____ to ______

Commission file number 0-24532

 

 
FLAG FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

Georgia
58-2094179
(State of incorporation)
(I.R.S. Employer Identification No.)

3475 Piedmont Road N.E. Suite 550
 
Atlanta, Georgia
30305
(Address of principal executive offices)
(Zip Code)

(404) 760-7700
(Telephone Number)
Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES XX NO

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES XX NO

Common stock, par value $1 per share: 8,510,981 shares
outstanding as of October 31, 2003
 
     
 



Flag Financial Corporation and Subsidiary
 
 
Table of Contents
 
 
Page
PART I Financial Information
 
 
 
 
 
Item 1. Financial Statements
 
 
 
 
December 31, 2002 and September 30, 2002
3
 
 
Consolidated Statements of Operations for the Nine Months and
 
Quarters Ended September 30, 2003 and 2002
4
 
 
 
Nine Months and Quarters Ended September 30, 2003 and 2002
5
 
 
 
Ended September 30, 2003 and 2002
6
 
 
7
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition
 
And Results of Operations
9
 
 
16
 
 
16
 
 
 
 
PART II Other Information
 
 
 
17
 
 
17
 
 
17
 
 
Item 4. Submission of Matters to a Vote of Security Holders
17
 
 
17
 
 
17
 
 

 
     
 
Part I. Financial Information
Item 1. Financial Statements
Flag Financial Corporation and Subsidiary

 
  
 
 
 
 
  
September 30,
December 31,
September 30,
 
  
2003
2002
2002
   
ASSETS
 
(UNAUDITED)
(AUDITED)
(UNAUDITED)
 
  
 
 
 
Cash and due from banks
 
$
17,433,857
   
14,006,428
   
12,401,953
 
Interest-bearing deposits in banks
   
19,200,963
   
6,000,000
   
-
 
Federal funds sold
   
-
   
18,304,000
   
-
 

 

  
 
 
 
Total cash and cash equivalents
   
36,634,820
   
38,310,428
   
12,401,953
 

 

  
 
 
 
Interest-bearing deposits
   
99,000
   
12,411,492
   
-
 
Investment securities available-for-sale
   
123,728,068
   
138,853,580
   
118,096,869
 
Other investments
   
15,265,257
   
6,795,257
   
7,142,682
 
Mortgage loans held-for-sale
   
4,829,334
   
12,606,080
   
7,561,919
 
Loans, net
   
428,291,726
   
374,783,897
   
376,582,848
 
Premises and equipment, net
   
16,766,237
   
21,063,278
   
13,171,474
 
Other assets
   
29,037,483
   
31,306,554
   
24,074,034
 
   
 
 
 
Total assets
 
$
654,651,925
   
636,130,566
   
559,031,779
 
   
 
 
 
 
    
 
    
 
    
 
  
LIABILITIES
   
 
    
 
    
 
  
 
    
 
    
 
    
 
  
Non interest-bearing deposits
 
$
41,475,017
   
40,039,052
   
39,347,937
 
Interest-bearing demand deposits
   
244,361,676
   
170,856,638
   
126,039,129
 
Savings
   
25,240,735
   
24,500,243
   
25,401,806
 
Time
   
200,513,656
   
274,334,991
   
232,300,619
 
   
 
 
 
Total deposits
   
511,591,084
   
509,730,924
   
423,089,491
 
   
 
 
 
Advances from Federal Home Loan Bank
   
53,000,000
   
58,000,000
   
62,000,000
 
Federal funds purchased and other borrowings
   
18,364,743
    
1,334,386
   
5,703,000
 
Borrowings under line of credit
   
1,350,000
    
-
    
-
  
   
 
 
 
Accrued interest payable and other liabilities
   
6,150,673
   
6,316,303
   
7,752,575
 
   
 
 
 
                 
Total liabilities
   
590,456,500
   
575,381,613
   
498,545,066
 
   
 
 
 
 
    
 
    
 
    
 
  
STOCKHOLDERS' EQUITY
   
 
    
 
    
 
  
 
    
 
    
 
    
 
  
Preferred stock (10,000,000 shares authorized, none
   
 
    
 
    
 
  
issued and outstanding)
   
-
   
-
   
-
 
Common stock ($1 par value, 20,000,000 shares authorized,
   
 
    
 
    
 
  
9,757,004, 9,638,501 and 9,631,451 shares issued at
   
 
    
 
    
 
  
September 30, 2003, December 31, 2002 and
   
 
    
 
    
 
  
September 30, 2002, respectively)
   
9,757,004
   
9,638,501
   
9,631,451
 
Additional paid-in capital
   
24,433,382
   
23,463,132
   
23,426,500
 
Retained earnings
   
38,276,056
   
35,224,936
   
34,424,737
 
Accumulated other comprehensive income
   
1,305,693
   
1,999,094
   
2.471,535
 
Less: Treasury stock at cost; 1,246,961 shares at September 30,2003,
   
 
    
 
    
 
  
1,246,961 shares at December 31, 2002 and 1,236,961 shares
   
 
    
 
    
 
  
at September 30, 2002, respectively
   
(9,576,710
)
 
(9,576,710
)
 
(9,467,510
)
   
 
 
 
Total stockholders' equity
   
64,195,425
   
60,748,953
   
60,486,713
 
   
 
 
 
Total liabilities and stockholders' equity
 
$
654,651,925
   
636,130,566
   
559,031,779
 
   
 
 
 

See Accompanying Notes to Consolidated Financial Statements.
 
 
 
     
 

 
  
 
 
 
 
  
 
(UNAUDITED)
 
 
  
Three Months Ended
Nine Months Ended
 
  
September 30,
September 30,
 
  
2003
2002
2003
2002
   
Interest Income
 
 
 
 
 
Interest and fees on loans
 
$
7,756,520
   
7,869,733
   
22,196,571
   
22,173,738
 
Interest on securities
   
1,383,247
   
1,726,540
   
4,371,419
   
5,294,916
 
Interest on federal funds sold and interest-bearing deposits
   
127,268
   
14,705
   
506,034
   
88,575
 
   
 
 
 
 
Total interest income
   
9,267,035
   
9,610,978
   
27,074,024
   
27,557,229
 
   
 
 
 
 
Interest Expense
   
 
    
 
    
 
    
 
  
Interest on deposits:
   
 
    
 
    
 
    
 
  
Demand
   
       820,420
    
487,950
   
2,345,182
   
1,489,478
 
Savings
   
37,096
   
56,102
   
111,692
   
165,768
 
Time
   
1,413,094
   
2,026,869
   
4,847,793
   
6,857,305
 
Interest on other borrowings
   
219,072
   
295,143
   
634,583
   
880,906
 
   
 
 
 
 
           
           
                   
Total interest expense
   
2,489,682
   
2,866,064
   
7,939,250
   
9,393,457
 
 
 
 
 
 
Net interest income before provision for loan losses.
   
6,777,353
   
6,744,914
   
19,134,774
   
18,163,772
 
Provision for Loan Losses
   
375,000
   
195,000
   
946,000
   
4,399,000
 
   
 
 
 
 
Net interest income after provision for loan losses.
   
6,402,353
   
6,549,914
   
18,188,774
   
13,764,772
 
   
 
 
 
 
Other Income
   
 
    
 
    
 
    
 
  
Fees and service charges on deposit accounts
   
850,477
   
848,152
   
2,571,673
   
2,529,494
 
Mortgage banking activities
   
1,143,613
   
808,331
   
3,486,767
   
1,862,331
 
Insurance commissions and brokerage fees
   
48,661
   
182,686
   
424,016
   
429,418
 
Other income
   
289,559
   
145,204
   
1,839,721
   
897,860
 
   
 
 
 
 
                   
Total other income
   
2,332,310
   
1,984,373
   
8,322,177
   
5,719,103
 
   
 
 
 
 
Other Expenses
   
 
    
 
    
 
    
 
  
Salaries and employee benefits
   
3,938,901
   
3,989,371
   
12,018,174
   
14,767,480
 
Occupancy
   
825,281
   
876,378
   
2,522,245
   
2,767,502
 
Professional fees
   
123,200
   
165,790
   
563,954
   
1,574,797
 
Postage, printing and supplies
   
229,852
   
220,347
   
758,723
   
762,613
 
Amortization of intangibles
   
22,500
   
-
   
60,000
   
-
 
Communications and data
   
625,951
   
484,814
   
1,831,806
   
1,611,714
 
Other operating
   
737,621
   
706,050
   
2,120,360
   
3,526,278
 
   
 
 
 
 
                   
Total other expenses
   
6,503,306
   
6,442,750
   
19,875,262
   
25,010,384
 
   
 
 
 
 
Earnings (loss) before provision for
   
 
    
 
    
 
    
 
  
income taxes and extraordinary item
   
2,231,357
   
2,091,537
   
6,635,689
   
(5,526,509
)
Provision for income taxes (benefit)
   
684,971
   
655,433
   
2,060,197
   
(2,394,649
)
   
 
 
 
 
Earnings (loss) before extraordinary item
   
1,546,386
   
1,436,104
   
4,575,492
   
(3,131,860
)
Extraordinary item – loss on redemption of debt, net of
   
 
    
 
    
 
    
 
  
income tax benefit of $101,377 in 2002
   
-
   
-
   
-
   
165,404
 
   
 
 
 
 
Net earnings (loss)
 
$
1,546,386
   
1,436,104
   
4,575,492
   
(3,297,264
)
   
 
 
 
 
 
    
 
    
 
    
 
    
 
  
Basic earnings (loss) per share before extraordinary item
 
$
0.18
   
0.17
   
0.54
   
(0.39
)
Extraordinary item
   
-
   
-
   
-
   
(0.02
)
   
 
 
 
 
Basic earnings (loss) per share
 
$
0.18
   
0.17
   
0.54
   
(0.41
)
   
 
 
 
 
 
    
 
    
 
    
 
    
 
  
Diluted earnings (loss) per share before extraordinary item
 
$
0.17
   
0.17
   
0.51
   
(0.39
)
Extraordinary item
   
-
   
-
   
-
   
(0.02
)
   
 
 
 
 
Diluted earnings (loss) per share
 
$
0.17
   
0.17
   
0.51
   
(0.41
)
   
 
 
 
 

 
See Accompanying Notes to Consolidated Financial Statements.
 
     
 

 
  
(UNAUDITED)
 
  
Three Months Ended
Nine Months Ended
 
  
September 30,
September 30,
 
  
 
 
 
  
2003
2002
2003
2002
   
 
  
 
 
 
 
Net earnings (loss)
 
$
1,546,386
   
1,436,104
   
4,575,492
   
(3,297,264
)
Other comprehensive income (loss), net of tax:
   
 
    
 
    
 
    
 
  
Unrealized (losses) gains on investment
   
 
    
 
    
 
    
 
  
securities available-for-sale:
   
 
    
 
    
 
    
 
  
Unrealized gains arising during the period,
   
 
    
 
    
 
    
 
  
net of tax of $386,891, $179,619, $374,718 and
   
 
    
 
    
 
    
 
  
$659,785, respectively
   
(631,244
)
 
293,063
   
(611,382
)
 
1,076,491
 
Plus: Reclassification adjustment for losses (gains) included in
   
 
    
 
    
 
    
 
  
     net earnings(loss) net of tax of $1,653, $4,430 and $4,240, respectively
   
(2,697
)
 
-
   
(7,228
)
 
6,917
 
Reclassification of gain on cash flow hedges, net of tax of $45,837, $45,840
   
 
    
 
    
 
    
 
  
and $137,512, respectively
   
-
   
(74,787
)
 
(74,791
)
 
(224,361
)
   
 
 
 
 
 
    
 
    
 
    
 
    
 
  
           
Other comprehensive (loss) income
   
(633,941
)
 
218,276
   
(693,401
)
 
859,047
 
   
 
 
 
 
 
    
 
    
 
    
 
    
 
  
           
Comprehensive income (loss)
 
$
912,445
   
1,654,380
   
3,882,091
   
(2,438,217
)
   
 
 
 
 
 
    
 
    
 
    
 
    
 
  

See Accompanying Notes to Consolidated Financial Statements


 
     
 

 
  
Nine Months Ended
 
  
September 30,
 
  
2003
2002
   
 
  
(UNAUDITED)
 
  
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net earnings (loss)
 
$
4,575,492
 
$
(3,297,264
)
Adjustment to reconcile net earnings (loss) to net
   
 
    
 
  
cash provided by (used in) operating activities:
   
 
    
 
  
Depreciation, amortization and accretion
   
2,606,396
   
1,525,439
 
Provision for loan losses
   
946,000
   
4,399,000
 
(Gain) loss on sale of available-for-sale securities
   
(11,658
)
 
11,157
 
(Gain) loss on sale of fixed assets
   
(922,182
)
 
365,866
 
Gain on sale of other real estate
   
(112,569
)
 
(56,639
)
Change in:
   
 
    
 
  
Mortgage loans held-for-sale
   
7,776,746
   
(1,107,792
)
Other
   
650,325
   
(8,048,558
)
   
 
 
Net cash provided by (used in) operating activities
   
15,508,550
   
(6,208,791
)
   
 
 
 
    
 
    
 
  
CASH FLOWS FROM INVESTING ACTIVITIES:
   
 
    
 
  
Net change in interest-bearing deposits
   
12,312,492
   
160,093
 
Proceeds from sales and maturities of investment
   
 
    
 
  
securities available-for-sale
   
69,032,778
   
53,921,872
 
Purchases of investment securities available-for-sale
   
(55,874,263
)
 
(39,355,680
)
Purchases of other investments
   
(8,920,000
)
 
(1,113,700
)
Proceeds from sale of other investments
   
450,000
   
-
 
Net change in loans
   
(54,453,829
)
 
(12,014,759
)
Proceeds from sale of other real estate
   
1,933,018
   
1,271,452
 
Proceeds from sale of premises and equipment
   
4,344,757
   
430,763
 
Purchases of premises and equipment
   
(691,036
)
  
(1,297,089
)
Purchases of cash surrender value life insurance
   
(122,974
)
  
(133,023
)
   
 
 
Net cash (used in) provided by investing activities
   
(31,989,057
)
 
1,869,929
 
   
 
 
 
    
 
    
 
  
CASH FLOWS FROM FINANCING ACTIVITIES:
   
 
    
 
  
Net change in deposits
   
1,860,160
 
  
(17,491,834
)
Change in federal funds purchased and repurchase agreements
   
17,030,357
   
(12,298,000
)
Change in other borrowed funds
   
1,350,000
   
(5,000,000
)
Proceeds from FHLB advances
   
-
   
46,000,000
 
Payments of FHLB advances
   
(5,000,000
)
 
(23,448,435
)
Purchase of treasury stock
   
-
   
(3,022,872
)
Proceeds from issuance of stock
   
138,000
   
11,707,740
 
Proceeds from exercise of stock options
   
938,754
   
481,705
 
Proceeds from issuance of warrants
   
12,000
   
1,236,000
 
Cash dividends paid
   
(1,524,372
)
 
(1,501,130
)
   
 
 
Net cash provided by (used in) financing activities
   
14,804,899
   
(3,336,826
)
   
 
 
 
    
 
    
 
  
Net change in cash and cash equivalents
   
(1,675,608
)
 
(7,675,688
)
Cash and cash equivalents at beginning of period
   
38,310,428
   
20,077,641
 
   
 
 
 
    
 
    
 
  
Cash and cash equivalents at end of period
 
$
36,634,820
 
$
12,401,953
 
   
 
 


See Accompanying Notes to Consolidated Financial Statements    


 
     
 
Notes to Consolidated Financial Statements


The accompanying consolidated financial statements have not been audited. The results of operations are not necessarily indicative of the results of operations for the full year or any other interim periods.

Note 1. Basis of Presentation
The consolidated financial statements include the accounts of Flag and its wholly owned subsidiary, Flag Bank (Atlanta, Georgia). All significant inter-company accounts and transactions have been eliminated in consolidation.

The consolidated financial information furnished herein represents all adjustments that are, in the opinion of management, necessary to present a fair statement of the results of operations, and financial position for the periods covered herein and are normal and recurring in nature. For further information, refer to the consolidated financial statements and footnotes included in Flag’s annual report on Form 10-K for the year ended December 31, 2002.

Note 2. Earnings Per Share
Net earnings (loss) per common share are based on the weighted average number of common shares outstanding during each period. The calculation of basic and diluted earnings (loss) per share is as follows:


 
  
Three Months Ended
Nine Months Ended
 
  
September 30,
September 30,
 
  
                2003
                2002
              2003
               2002
   
 
  
 
 
 
 
Basic earnings (loss) per share:
 
 
 
 
 
Net earnings (loss)
 
$
1,546,386
   
1,436,104
   
4,575,492
   
(3,297,264
)
Weighted average common shares outstanding
   
8,500,030
   
8,393,364
   
8,455,895
   
8,136,955
 
Per share amount
 
$
0.18
   
0.17
    
0.54
   
(0.41
)
 
    
 
    
 
    
 
    
 
  
Diluted earnings (loss) per share:
   
 
    
 
    
 
    
 
  
Net earnings (loss)
 
$
1,546,386
   
1,436,104
   
4,575,492
   
(3,297,264
)
Effect of stock options and warrants
   
664,901
   
252,268
   
585,831
   
-
 
Diluted earnings (loss) per share
 
$
0.17
   
0.17
   
0.51
   
(0.41
)
 
    
 
    
 
    
 
    
 
  

Note 3. Stock-based Compensation
Flag sponsors stock-based compensation plans. Flag accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings (loss) and earnings (loss) per share if Flag had applied the fair value recognition provisions of Statement of Financing Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.

 
  
Three months ended
Nine months ended
 
  
September 30,
September 30,
 
  
                 2003
               2002
               2003
                  2002
Net earnings (loss) as reported
 
$
1,546,386
   
1,436,104
   
4,575,492
   
(3,297,264
)
Compensation expense determined by fair value method
   
(76,546
)
 
(459,648
)
 
(229,638
)
 
(1,378,944
)
   
 
 
 
 
Pro forma net earnings (loss)
 
$
1,469,840
   
976,456
   
4,345,854
   
(4,676,208
)
   
 
 
 
 
Basic earnings (loss) per share:
   
 
    
 
    
 
    
 
  
As reported
 
$
.18
   
.17
   
.54
   
(.41
)
   
 
 
 
 
Pro forma
 
$
.17
   
.12
   
.51
   
(.57
)
   
 
 
 
 
Diluted earnings (loss) per share:
   
 
    
 
    
 
    
 
  
As reported
 
$
.17
   
.17
   
.51
   
(.41
)
   
 
 
 
 
Pro forma
 
$
.16
   
.11
   
.48
   
(.57
)
   
 
 
 
 

Notes to Consolidated Financial Statements



 
     
 
 
Note 4. Loans
Flag engages in a full complement of lending activities, including real estate-related, commercial and financial loans and consumer installment loans. Flag generally concentrates lending efforts on real estate related loans. As of September 30, 2003, Flag’s loan portfolio consisted of 82.2% real estate-related loans, 13.4% commercial and financial loans, and 4.4% consumer installment loans. While risk of loss is primarily tied to the credit quality of the various borrowers, risk of loss may also increase due to factors beyond the Flag’s control, such as local, regional and/or national economic downturns. General conditions in the real estate market may also impact the relative risk in the real estate portfolio. Of the target areas of lending activities, commercial and financial loans are generally considered to have a greater risk of loss than real estate loans or consumer installment loans.

Loans are stated at unpaid balances, net of unearned income and deferred loan fees. Balances within the major loans receivable categories are represented in the following table: (in thousands)


 
  
September 30,
December 31,
September 30,
 
  
                2003
              2002
              2002
   
 
  
 
 
 
Commercial/financial/agricultural
 
$
58,224
   
57,473
   
42,750
 
Real estate – Construction
   
81,111
   
68,169
   
76,036
 
Real estate – Mortgage
   
58,941
   
57,560
   
53,858
 
Real estate – Other
   
217,503
   
182,622
   
194,142
 
Installment loans to individuals
   
19,300
   
15,848
   
17,094
 
   
 
 
 
Total loans
   
435,079
   
381,672
   
383,880
 
Less: Allowance for loan losses
   
6,787
   
6,888
   
7,297
 
   
 
 
 
Total net loans
 
$
428,292
   
374,784
   
376,583
 
   
 
 
 


Note 5. Goodwill and Intangible Assets
The majority of the goodwill recorded as of January 1, 2002, resulted from Flag’s adoption of SFAS No. 147 and this amount resulted from previously recognized unidentified intangible assets reclassified as goodwill. Flag tests its goodwill for impairment on an annual basis using the expected present value of future cash flows. Flag initially applied SFAS No. 141 and 142 on January 1, 2002. Flag restated its financial statements in 2002 for the adoption of SFAS No. 141 and 142 resulting in an after-tax increase in net income of $78,348 for the quarter ended September 30, 2002 and of $239,265 for the nine months ended September 30, 2002.

 
     
 
 

Forward-Looking Statements
The following discussion and comments contain "forward-looking statements" relating to, without limitation, future economic performance, plans and objectives of management for future operations, and projections of revenues and other financial items that are based on the beliefs of our management, as well as assumptions made by and information currently available to our management. The words "expect", "estimate", "anticipate", and "believe", as well as similar expressions, are intended to identify forward-looking statements. Our actual results may differ materially from the results discussed in the forward-looking statements, and our operating performance each quarter is subject to various risks and uncertainties. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, (i) the strength of the U.S. economy as well as the strength of the local economies in which operations are conducted; (ii) the effects of changing interest rates which could lower margins; (iii) inflation, interest rate, market and monetary fluctuations; (iv) unanticipated regulatory proceedings or legal actions, or changes in accounting policies and practices as adopted by the Financial Accounting Standards Board; (v) issues involved in the integration of acquisitions; and (vi) the timely development of products and services that position Flag to succeed in an increasingly competitive industry. If we are unsuccessful in managing the risks relating to these factors, together with other risks incident to the operation of our business, our financial condition, results of operations and cash flows could be adversely affected . Forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect the occurrence of unanticipated events.

Critical Accounting Policies
The accounting and reporting policies of Flag Financial Corporation and its subsidiary are in accordance with accounting principles generally accepted in the United States and conform to general practices and policies within the banking industry. Flag’s financial position and results of operations are affected by management’s application of accounting policies, including judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in Flag’s consolidated financial position and/or consolidated results of operations. The more critical accounting and reporting policies include the accounting for securities, loans and leases, the allowance for loan and lease losses and income taxes. The most critical and meaningful accounting policies are those involved with the allowance for loan and lease losses.  These specific accounting policies involve the use of estimates and require significant judgments to be made by management.  Different assumptions in the application of these policies could result in material changes in Flag’s consolidated financial position or consolidated results of operations.

Summary Financial Data
The following table presents summary financial data for the previous five quarters.
 
     
 

Item 2
 
 
 
l Condition and Operating Results
 
 
 
2003
 
2002
(unaudited)
Third Quarter
 
  Second Quarter
 
  First Quarter
 
  Fourth Quarter
  Third Quarter
INCOME SUMMARY
 
 
 
 
 
 
 
 
 
 
Interest income
$
9,267,035
 
$
8,725,651
 
$
9,081,338
 
$
9,117,033
 
$
9,610,978
 
Interest expense
2,489,682
 
2,606,388
 
2,843,180
 
2,978,299
 
2,866,064
 
Net interest income
6,777,353
 
6,119,263
 
6,238,158
 
6,138,734
 
6,744,914
 
Provision for loan losses
375,000
 
315,000
 
256,000
 
150,000
 
195,000
 
Other income
2,332,310
 
3,536,695
 
2,453,172
 
2,041,870
 
1,984,373
 
Other expenses
6,503,306
 
7,083,158
 
6,288,798
 
6,258,940
 
6,442,750
 
Income before taxes
2,231,357
 
2,257,800
 
2,146,532
 
1,771,664
 
2,091,537
 
Income taxes
684,971
 
735,972
 
639,254
 
468,270
 
655,433
 
Net income
$ 
1,546,386
 
$
1,521,828
 
$
1,507,278
 
$
1,303,394
 
$
1,436,104
 
OPERATING PERFORMANCE  
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
    Basic
$
0.18
 
$
0.18
 
$
0.18
 
$
0.16
 
$
0.17
 
    Diluted 
 
0.17
 
0.17
 
0.17
 
0.15
 
0.17
 
Return on average equity
 
9.70
%
9.65
%
9.94
%
8.61
%
9.56
%
Return on average assets
 
0.98
%
0.97
%
0.95
%
0.85
%
1.04
%
Net interest margin
 
4.67
%
4.52
%
4.36
%
4.29
%
5.24
%
Yield on Earning Assets
 
6.39
%
 
6.13
%
 
6.23
%
 
6.39
%
 
7.47
%
Cost of Funds
 
1.77
%
 
1.85
%
 
1.97
%
 
2.14
%
 
2.34
%
Efficiency ratio
 
71.82
%
73.22
%
72.35
%
78.24
%
74.27
%
Net overhead ratio
 
2.65
%
 
2.27
%
 
2.40
%
 
2.79
%
 
3.22
%
Dividend payout ratio 
 
33.02
%
33.47
%
33.51
%
38.67
%
35.07
%
ASSET QUALITY
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
$
6,787,138
 
$
6,441,458
 
$
6,402,226
 
$
6,888,167
 
$
7,297,108
 
Non-performing assets
 
7,658,223
 
9,412,217
 
11,297,126
 
11,083,389
 
12,537,024
 
Allowance for loan losses to loans
 
1.56
%
1.64
%
1.71
%
1.75
%
1.90
%
Non-performing assets to total assets
 
1.17
%
1.50
%
1.72
%
1.73
%
2.24
%
Net charge-offs to average loans
 
0.03
%
0.29
%
0.77
%
0.59
%
0.60
%
AVERAGE BALANCES
 
 
 
 
 
 
 
 
 
 
 
  Loans
$
406,258,330
 
$
381,157,519
 
$
385,493,430
 
$
379,673,033
 
$
370,364,207
 
  Earning assets
 
575,303,708
 
564,456,772
 
578,720,591
 
564,806,935
 
504,707,300
 
  Total assets
 
628,899,360
 
626,368,024
 
639,847,976
 
624,422,898
 
548,626,716
 
  Deposits
 
499,709,951
 
500,347,369
 
512,553,229
 
492,526,058
 
422,880,539
 
  Stockholders’ equity
 
63,797,914
 
62,799,562
 
61,287,471
 
60,482,496
 
59,940,657
 
  Common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
    Basic
 
8,500,030
 
8,470,308
 
8,396,207
 
8,390,979
 
8,393,364
 
    Diluted
 
9,164,931
 
9,130,266
 
8,875,015
 
8,815,672
 
8,645,632
 
AT PERIOD END
 
 
 
 
 
 
 
 
 
 
 
  Loans
$
435,078,864
 
$
393,515,141
 
$
375,055,976
 
$
381,672,065
 
$
383,879,956
 
  Earning assets
 
598,201,486
 
564,220,499
 
587,051,508
 
576,642,475
 
516,925,309
 
  Total assets
 
654,651,925
 
623,426,376
 
648,315,956
 
636,130,566
 
559,031,779
 
  Deposits
 
511,591,084
 
496,722,408
 
520,561,166
 
509,730,924
 
423,089,491
 
  Stockholders’ equity
 
64,195,425
 
63,655,111
 
61,974,104
 
60,748,953
 
60,486,713
 
  Common shares outstanding
 
8,510,043
 
8,489,472
 
8,417,790
 
8,391,540
 
8,394,490
 

 
     
 
 

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Overview of Financial Condition
Total assets were $654.7 million at September 30, 2003, an increase of $18.5 million or 2.9% from December 31, 2002. Earning assets (consisting of loans, investment securities and short-term investments) totaled $598.2 million or 91.4% of total assets at September 30, 2003 compared to $576.6 million or 90.6% of total assets at December 31, 2002. During the same period, stockholders’ equity increased $3.4 million or 5.7% to $64.2 million at September 30, 2003.

Loans
Gross loans outstanding at September 30, 2003 totaled $435.1million, an increase of $53.4 million over December 31, 2002 balances. Mortgage loans held-for-sale decreased from $12.6 million at December 31, 2002 to $4.8 million at September 30, 2003. Construction loans increased 19.0% to $81.1 million at September 30, 2003. Loans outstanding, including mortgage loans held-for-sale, comprised 73.5% of earning assets at September 30, 2003, compared to 68.4% at December 31, 2002. Flag’s efforts at developing private banking and correspondent bank relationships through its Atlanta expansion initiative were responsible for most of the increase in loans outstanding, although the Company also continues to have reliable lending activity in its traditional Central and West Georgia regions.

Investment Securities
Investment securities at September 30, 2003 totaled $139.0 million, a decrease of $6.7 million or 4.6% from December 31, 2002. Yield and price levels on bonds during the first nine months of 2003 allowed Flag to sell $24.1 million of lower yielding investments with an after tax loss of approximately $1,300. The low rate environment has also contributed to faster prepayments on the mortgage backed securities within Flag’s investment portfolio. Flag’s success in its lending activities combined with the lower rates on investment opportunities have caused an unwillingness on management’s part to reinvest most of the cash flows from the portfolio, deciding instead to carry the proceeds in federal funds sold or interest bearing deposits in other banks. Investment securities comprised 23.2% and 25.3% of earning assets at September 30, 2003 and December 31, 2002, respectively.

Federal Funds Sold and Interest Bearing Deposits
Short term investments (federal funds sold and interest bearing deposits) totaled $19.3 million at September 30, 2003, a decrease of $17.4 million from December 31, 2002. Historically, Flag has maintained lower levels of short term investments, choosing instead to invest more heavily in loans and investment securities. Our level of short term investments has remained high during the first nine months of 2003 as we have been unwilling to invest at current market interest rates. Our short-term investments decreased from December 31, 2002, as we were able to loan more funds at acceptable rates. Short-term investments amounted to 3.2% of earning assets at September 30, 2003 and 6.3% of earning assets at December 31, 2002.

Premises and Equipment
Premises and equipment at September 30, 2003 totaled $16.8 million compared to $21.1 million at December 31, 2002. This decrease related to the sale of one of Flag’s banking centers for $4.5 million during the third quarter of 2003. Flag maintained a branch location in the center under a lease negotiated with the buyer.

Deposits and Other Funding
Total deposits at September 30, 2003 were $511.6 million, an increase of $1.9 million over December 31, 2002 balances. Interest-bearing demand deposits (money market and NOW accounts) have increased 43.0% or $73.5 million over this period, due largely to sales efforts focused in the Atlanta deposit market that Flag entered in November of 2002. Flag’s focus and success in growing demand deposits has allowed Flag to reduce rates on time deposits that historically have carried higher rates. Time deposits have decreased $73.8 million or 26.9% to $200.5 million at September 30, 2003. Federal funds purchased and other borrowings of $19.7 million at September 30, 2003 represented an increase of $18.4 million from December 31, 2002. The majority of these borrowings were federal funds purchased under lines with various financial institutions and resulted from an acceleration in loan growth during the last part of the third quarter. Flag expects to replace most of this funding during the fourth quarter with more traditional funding from demand and time deposits.

Advances from the Federal Home Loan Bank
Advances from the Federal Home Loan Bank (FHLB) amounted to $53 million at September 30, 2003 compared to $58 million at December 31, 2002. This decrease related to one advance totaling $5 million that matured in the second quarter of 2003.


 
     
 

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Liquidity and Market Risk Sensitivity
Liquidity management involves Flag’s ability to maintain adequate short-term assets to meet the cash flow expectations of depositors and other lending institutions, and to provide funds for the growth in earning assets. Liquidity is managed daily by understanding the cash flow expectations of depositors and other lending institutions and maintaining enough liquid assets to meet these expectations. As of September 30, 2003, Flag had $311.1 million of deposits due on demand and $171.7 million of time deposits and other borrowings due within one year. Potential liquidity needs of these liabilities are met with liquid assets (assets that can be easily converted to cash). Liquid assets at September 30, 2003 totaled $180.6 million and included cash and due from banks, federal funds sold and interest bearing deposits with other banks, investment securities available-for-sale, other investments and mortgage loans held-for-sale. In addition to using liquid assets to meet potential liquidity needs, Flag maintains available lines of credit with other financial institutions. These include federal funds and other lines of credit totaling $46 million and a line of credit with the Federal Home Loan Bank totaling $95 million. At September 30, 2003, $71 million of the available $141 million in total lines was advanced to Flag.

Market rate sensitivity is the tendency for changes in the interest rate environment to be reflected in Flag’s net interest income and results of operations. Flag seeks to balance maturities and rates on earning assets and the corresponding funding such that interest rate fluctuations have a minimal impact on earnings and the value of Flag’s equity.

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). Flag’s liabilities over the past year have shifted from mostly time deposits with longer maturities to demand deposits which reprice daily. This shift in funding results from sales and pricing disciplines that in the long run will prove profitable, but currently shows Flag with more liabilities repricing in the early months of a rate change than do earning assets. This would indicate that Flag’s net interest income would be negatively impacted by rising rates. Flag believes, however, that the growing demand deposit base will not reprice upwards to the same degree and intensity as Flag’s assets and that there is opportunity for improvement in net interest income should rates begin to rise.

Management carefully measures and monitors market 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 established an interest rate risk policy, which sets specific limits on interest rate risk exposure. Adherence to this policy is reviewed by Flag's executive committee and presented at least annually to the Board of Directors.

Capital
At September 30, 2003, the capital ratios of Flag and Flag Bank (the "Bank") were adequate compared to the minimum regulatory capital requirements.  Minimum regulatory capital levels for banks and holding companies require Tier one capital (core capital accounts less intangible assets) to risk-weighted assets of at least 4%, total capital (tier one capital plus a portion of the allowance for loan losses) to risk-weighted assets of 8%, and tier one capital to average assets of at least 4%. The following table reflects Flag’s capital position with respect to the regulatory minimums as of September 30, 2003:


 
  
Actual
 
Required
 
Excess
 
 
  
Amount%
 
Amount%
 
Amount%
 
  
 
  
 
 
 
 
 
 
Total Capital (to Risk Weighted Assets)
 
 
$56,718
   
10.83
%
 
$49,044
   
8.00
%
 
$7,674
   
2.83
%
Tier 1 Capital (to Risk Weighted Assets)
 
 
$50,131
   
9.57
%
 
$24,522
   
4.00
%
 
$25,609
   
5.57
%
Tier 1 Capital (to Average Assets)
 
 
$50,131
   
8.18
%
 
$20,943
   
4.00
%
 
$29,188
   
4.18
%
 
    
 
    
 
    
 
    
 
    
 
    
 
  


 
     
 
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Non-Performing Assets
Non-performing assets (nonaccrual loans, loans over 90 days past due and still accruing, real estate owned and repossessions) totaled approximately $7.7 million at September 30, 2003, compared to $11.1 million at December 31, 2002. These levels as a percentage of total assets represented 1.17% and 1.74% respectively.  The improvement in Flag's non-performing assets was due largely to an improved collateral position and operating performance on a large agricultural loan that allowed Flag to move this credit to accrual status in the third quarter. 

Flag has a loan review function that continually monitors selected accruing loans for which general economic conditions or changes within a particular industry could cause the borrowers financial difficulties. The loan review function also identifies loans with high degrees of credit or other risks. The focus of loan review is to maintain a low level of non-performing assets and to return current non-performing assets to earning status.


Non-performing assets
 
September 30,
December 31,
September 30,
 
  
2003
2002
2002
   
Loans on nonaccrual
 
$
5,190
   
9,243
   
9,464
 
Loans past due 90 days and still accruing
   
330
   
122
   
2,084
 
Other real estate owned and repossessions
   
2,138
   
1,718
   
989
 
   
 
 
 
Total non-performing assets
 
$
7,658
   
11,083
   
12,537
 
   
 
 
 
Total non-performing assets as a percentage of
   
 
    
 
    
 
  
total assets
   
1.17
%
 
1.74
%
 
2.24
%

Results of Operations for the Nine Month Periods Ended September 30, 2003 and 2002

Net income - Net income for the nine month period ended September 30, 2003 was $4.6 million or $0.51 per diluted share compared to a net loss of $3.3 million or $0.41 per share for the same period in 2002.

Net interest income - Net interest income for the nine month period ended September 30, 2003 totaled $19.1 million, an increase of 5.3% over the same period in 2002. Total interest income decreased only slightly, by 1.7% to $27.1 million; however, interest expense decreased substantially. Total interest expense for the nine month period ended September 30, 2003 was $7.9 million, a decrease of 15.9% or $1.5 million. This improvement in interest expense is attributed largely to the shift towards demand deposits and aggressive repricing of time deposits.

Provision for loan losses - Flag’s provision for loan losses in the first nine months of 2003 amounted to $946,000, compared to $4.4 million for the same period in 2002. The unusually large provision in 2002 related to a special provision of $4.0 million which reflected both the results of an in-depth study of the loan portfolio at the Bank, where recent management changes had occurred, and a revision of the estimation process used by the Company. See "Allowance for Possible Loan and Lease Losses."

Non-interest income - Non-interest income totaled $8.3 million for the nine month period ending September 30, 2003. This increase of $2.6 million or 45.5% relates primarily to an increase in income from Flag’s mortgage banking line of business. Mortgage banking revenues, buoyed by the low interest rate environment and refinancing trends, increased dramatically from $1.9 million in the first nine months of 2002 to $3.5 million in the first nine months of 2003. Service charges on deposit accounts remained mostly constant, improving slightly to $2.6 million in the first nine months of 2003, an increase of 1.7%. Other non-interest income improved by $942,000 to $1.8 million, due mostly to the non-recurring gain on the sale of fixed assets in the second quarter of 2003 totaling $922,000.

Non-interest expense - Non-interest expense for the nine month period ending September 30, 2003 totaled $19.9 million, a decrease of $5.1 million from the same period in 2002. Flag recorded approximately $5.4 million of pre-tax charges in the first quarter of 2002 related to a management restructuring. These charges included legal and professional fees, contract terminations and severance payments related to Flag’s twenty percent reduction in employee work force.

Provision for income taxes - Flag’s provision for income taxes during the first nine months of 2003 amounted to $2.1 million for an effective tax rate of 31.0%. During the first nine months of 2002, Flag recorded an income tax benefit of approximately $2.4 million for an effective rate of 43.3%.

 
     
 
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Provision and Allowance for Possible Loan and Lease Losses

Flag maintains an allowance for loan losses appropriate for the quality of the loan portfolio and sufficient to meet anticipated future loan losses. Flag also utilizes a comprehensive loan review and risk identification process and the analysis of Flag’s financial trends to determine the adequacy of the allowance. Many factors are considered when evaluating the allowance. The analysis is based on historical loss trends; trends in criticized and classified loans in the portfolio; trends in past due and non-accrual loans; trends in portfolio volume, composition, maturity, and concentrations; changes in local and regional economic market conditions; the accuracy of the loan review and risk identification system, and the experience, ability, and depth of lending personnel and management.

In determining the appropriate level of the allowance for Flag, management relies primarily on analysis of the major components of the loan portfolio such as commercial loans, commercial real estate loans, consumer loans, construction loans, residential real estate loans, and all other loans and unfunded commitments. Flag has established a minimum loss factor for certain problem loan grade categories and for general categories of all other loans. All significant problem loans are reviewed individually to establish either the minimum loss factor (formula) or a specific reserve higher than the formula. All significant non-problem loans are reserved at the greater of the minimum loss rate for the category of loans or the weighted average historical loss rate over a defined loss horizon. Other homogenous loan pools such as the consumer loans, construction loans, and residential mortgage loans are reserved at the greater of the minimum loss rate or the weighted average historical loss rate as computed in the historical analysis.

Management evaluates the allowance on a quarterly basis. Through this evaluation, the appropriate provision for loan losses is determined by considering the current allowance level, actual loan losses and loan recoveries.

The following table presents an analysis of the allowance for loan losses for the nine month periods ended September 30, 2003 and 2002:

 
  
2003
2002
   
 
  
 
 
Balance of allowance for loan losses at beginning of period
 
$
6,888
   
7,348
 
Provision charged to operating expense
   
946
   
4,399
 
Charge offs:
   
 
    
 
  
Commercial
   
222
   
959
 
Real estate – mortgage
   
32
   
469
 
Real estate – other
   
946
   
3,221
 
Consumer
   
151
   
312
 
   
 
 
Total charge-offs
   
1,351
   
4,961
 
Recoveries:
   
 
    
 
  
Commercial
   
75
   
120
 
Construction
   
-
   
1
 
Real estate – mortgage
   
17
   
23
 
Real estate – other
   
90
   
283
 
Consumer
   
122
   
84
 
   
 
 
Total recoveries
   
304
   
511
 
Net charge-offs
   
1,047
   
4,450
 
   
 
 
Balance of allowance for loan losses at end of period
 
$
6,787
   
7,297
 
   
 
 


 
     
 
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Results of Operations for the Three Month Periods Ended September 30, 2003 and 2002

Net income – Net income for the quarter ended September 30, 2003 was $1.5 million or $.17 per diluted share, compared to $1.4 million or $.17 per diluted share for the quarter ended September 30, 2002. Flag’s return on average assets was .98% and 1.04% for the third quarter of 2003 and 2002, respectively, while return on average equity was 9.70% and 9.56% on average equity of $63.8 and $59.9 for the same quarters.

Interest income - Interest income for the quarter ended September 30, 2003 was $9.3 million, a decrease of $344,000 compared to levels for the same quarter in 2002. Interest income and fees on loans in the current quarter decreased $113,000, or 1.4%, to $7.8 million compared to the same quarter in 2002. Although loans outstanding increased during the quarter, yields on loans declined from 8.4% in the third quarter of 2002 to 7.3% in the third quarter of 2003. Interest on investment securities also declined during the quarter from $1.7 million in the third quarter of 2002 to $1.4 million in the third quarter of 2003, due in part to the lower interest rate environment and lower average balances of investment securities. Interest on federal funds sold and interest bearing deposits in other banks increased during the third quarter of 2003 as Flag maintained higher levels of liquidity than in the past. Interest on federal funds sold and interest bearing deposits in other banks increased $113,000 to $127,000 when comparing the third quarters of 2002 and 2003, respectively.

Yields on earning assets decreased during the quarter ended September 30, 2003 when compared to the third quarter of 2002. Yields on earning assets for the current quarter were 6.39% compared to the quarter ended September 30, 2002 when earning assets yielded 7.47%.

Interest expense – Interest expense for the third quarter of 2003 was $2.5 million, a decrease of $376,000 over the same quarter in 2002. This decrease in interest expense came despite a 19.1% increase in total funding, from $490.8 million to $584.3 million at September 30, 2003 and 2002, respectively. Demand deposits (interest-bearing and non-interest bearing) comprised 48.9% of total funding at September 30, 2003 compared to 33.7% at September 30, 2002. This improvement in funding along with lower renewal rates on time deposits helped reduce Flag’s cost of funds to 1.77% for the third quarter of 2003 compared to 2.34% in the third quarter of 2002.

Net interest income – Net interest income for the quarter ended September 30, 2003 was $6.8 million, an increase of 0.5% from the quarter ended September 30, 2002. Flag’s net interest margin (net interest income divided by average earning assets) decreased from 5.24% to 4.67% on average earning assets of $510.7 million and $575.3 million for the quarters ended September 30, 2002 and September 30, 2003, respectively.

Non-interest income – Non-interest income for the quarter ended September 30, 2003 totaled $2.3 million, an increase of 17.5% compared to the quarter ended September 30, 2002. Flag’s income from mortgage banking activities continued to benefit from the low interest rate environment, increasing income from $808,000 to $1.1 million during the third quarters of 2002 and 2003, respectively. Service charges on deposit accounts remained mostly unchanged at $850,000 compared to $848,000 for the same quarter in 2002.

Non-interest expense - Non-interest expense for the third quarter of 2003 totaled $6.5 million compared to $6.4 million in the same quarter of 2002. Salaries and benefits decreased $50,000 from $4.0 million in 2002 to $3.9 million in the third quarter of 2003, despite larger-than-normal levels of commission expense associated with strong mortgage performance in the third quarter of 2003. Occupancy expense also decreased slightly from $876,000 for the third quarter of 2002 to $825,000 for the same quarter of 2003. During the third quarter, Flag completed the consolidation of its Sandy Springs office into several other branches in the immediate area as well as the move of its back office operations and support functions into a smaller, less costly location. These decreases in occupancy expenses coupled with decreases in professional fees of $43,000 helped offset increases in communications and data expense of $141,000 when comparing the quarters ended September 30, 2002 to September 30, 2003. Most of the increase in communications and data relates to Flag’s move to an outsourced data center operation in the first half of 2003.

Income taxes – Income tax expense for the quarter ended September 30, 2003 totaled $685,000 compared to $655,000 for the same quarter of 2002. Flag’s effective tax rate was 30.7% and 31.3% for the third quarter of 2003 and 2002 respectively.

 
     
 
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures about Market Risk
As of September 30, 2003, there were no substantial changes in the composition of Flag’s market-sensitive assets and liabilities or their related market values from that reported as of December 31, 2002. The foregoing disclosures related to the market risk of Flag should be read in conjunction with Flag’s audited consolidated financial statements, related notes and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2002 included in Flag’s 2002 Annual Report on Form 10-K.

Item 4. Controls and Procedures

As of the end of the period covered by this report, Flag carried out an evaluation, under the supervision and with the participation of Flag’s management, including Flag’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation o f Flag’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, Flag’s Chief Executive Officer and Chief Financial Officer concluded that Flag’s disclosure controls and procedures are effective in timely alerting them to material information relating to Flag (including its consolidated subsidiary) that is required to be included in Flag’s periodic filings with the Securities and Exchange Commission. There have been no significant changes in Flag’s internal controls or, to Flag’s knowledge, in other factors that could significantly affect those internal controls subsequent to the date Flag carried out its evaluation, and there have been no corrective actions with respect to significant deficiencies or material weaknesses.




 
     
 
Part 2. Other Information
Flag Financial Corporation and Subsidiary


PART II. Other Information

Item 1. Legal Proceedings - None

Item 2. Changes in Securities - None

Item 3. Defaults upon Senior Securities – None

Item 4. Submission of Matters to a Vote of Security Holders - None

Item 5. Other Information
Pursuant to Rule 14a-14(c)(1) promulgated under the Securities Exchange Act of 1934, as amended, shareholders desiring to present a proposal for consideration at the Company’s 2004 Annual Meeting of Shareholders must notify the Company in writing to the Secretary of the Company, at 3475 Piedmont Road, N.E., Suite 550, Atlanta, Georgia, 30305, of the contents of such proposal no later than December 15, 2003 to be included in the 2004 Proxy Materials. A shareholder must notify the Company before January 15, 2004 of a proposal for the 2004 Annual Meeting that the shareholder intends to present other than by inclusion in the Company’s proxy material. If the Company does not receive such notice prior to January 15, 2004, proxies solicited by the management of the Company will confer discretionary authority upon the management of the Company to vote upon any such matter.



Item 6.
 
 
 
 
(a)
Exhibits
 
 
 
 
31.1
Section 302 Certification by Chief Executive Officer
 
31.2
Section 302 Certification by Chief Financial Officer
 
 
 
 
32.1
Section 906 Certification by Chief Executive Officer and Chief Financial Officer
 
 
 
 
(b)
Reports on Form 8-K
 
 
 
 
Reports on Form 8-K filed during the Third Quarter of 2003:
 
 
 
July 17, 2003: Report on Form 8-K containing Flag’s second quarter 2003 earnings press release pursuant to Item 9 (Regulation FD disclosure).
 
 
 
 
 
 
 
 





 
     
 

Flag Financial Corporation and Subsidiary














SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


 
Flag Financial Corporation
 
 
 
 
 
/s/ Joseph W Evans
 
Joseph W. Evans
 
Chief Executive Officer
 
 
 
November 10, 2003



 
/s/ J. Daniel Speight, Jr.
 
J. Daniel Speight, Jr.
 
Chief Financial Officer
 
 
 
November 10, 2003