UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____ to ______
Commission file number 0-24532
FLAG FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Georgia 58-2094179
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(State of incorporation) (I.R.S. Employer Identification No.)
P.O. Box 3007
LaGrange, Georgia 30241
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(Address of principal executive offices) (Zip Code)
(706) 845-5000
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(Telephone Number)
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
Common stock, par value $1 per share: 7,978,001 shares
Outstanding as of May 10, 2001
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
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TABLE OF CONTENTS
Page
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2001 and
December 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . .3
Consolidated Statements of Operations for the Three Months
Ended March 31, 2001 and 2000 . . . . . . . . . . . . . . . . 4
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 2001 and 2000 . . . . . . . . .5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2001 and 2000 . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations . . . . . . . . . . . . . . . . . .8
PART II Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . .13
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . .13
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . .14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------------------------
MARCH 31 DECEMBER 31,
2001 2000
-----------------------------
ASSETS (UNAUDITED)
------
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . $ 6,085,653 $ 19,143,110
Federal funds sold. . . . . . . . . . . . . . . . . . . . . . . . 12,974,000 2,730,000
------------- --------------
Total cash and cash equivalents . . . . . . . . . . . . . . . 19,059,653 21,873,110
------------- --------------
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . 917,416 3,451,440
Investment securities available-for-sale. . . . . . . . . . . . . 96,627,474 100,721,942
Other investments . . . . . . . . . . . . . . . . . . . . . . . . 5,949,259 5,360,609
Mortgage loans held for sale. . . . . . . . . . . . . . . . . . . 6,524,003 4,120,659
Loans, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 387,029,170 384,661,335
Premises and equipment, net . . . . . . . . . . . . . . . . . . . 14,481,948 14,933,761
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 23,427,850 23,914,244
------------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . . . $554,016,773 $ 559,037,100
============= ==============
LIABILITIES
-----------
Non interest-bearing deposits . . . . . . . . . . . . . . . . . . $ 46,966,353 $ 55,110,513
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . 409,749,881 406,326,454
Federal funds purchased and repurchase agreements . . . . . . . . 1,199,606 661,482
Other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . - 1,500,000
Advances from Federal Home Loan Bank. . . . . . . . . . . . . . . 30,810,774 31,973,304
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . 8,468,168 7,966,736
------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . 497,194,782 503,538,489
------------- --------------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock (10,000,000 shares authorized, none
issued and outstanding). . . . . . . . . . . . . . . . . . . - -
Common stock ($1 par value, 20,000,000 shares authorized
8,277,995 and 8,275,405 shares issued in 2001
and 2000, respectively . . . . . . . . . . . . . . . . . . . 8,277,995 8,275,405
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . 11,354,511 11,348,106
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 37,859,392 37,068,696
Accumulated other comprehensive income (loss) . . . . . . . . . . 1,203,610 (265,517)
Less: Treasury stock at cost; 299,994 shares in 2001 and 152,744
shares in 2000. . . . . . . . . . . . . . . . . . . . . . . . (1,873,517) (928,079)
------------- --------------
Total stockholders' equity. . . . . . . . . . . . . . . 56,821,991 55,498,611
------------- --------------
Total liabilities and stockholders' equity. . . . . . . $554,016,773 $ 559,037,100
============= ==============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
CONSOLIDATED STATEMENTS OF OPERATIONS
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THREE MONTHS ENDED
MARCH 31,
------------------------
2001 2000
(UNAUDITED)
INTEREST INCOME
Interest and fees on loans. . . . . . . . . . . . . . . . . . . . . $ 9,963,107 $10,320,866
Interest on securities. . . . . . . . . . . . . . . . . . . . . . . 1,730,191 1,445,283
Interest on federal funds sold and interest-bearing deposits. . . . 161,133 112,522
----------- -----------
Total interest income . . . . . . . . . . . . . . . . . . . . 11,854,431 11,878,671
----------- -----------
INTEREST EXPENSE
Interest on deposits. . . . . . . . . . . . . . . . . . . . . . . . 4,960,322 4,668,100
Interest on borrowings. . . . . . . . . . . . . . . . . . . . . . . 493,727 527,923
----------- -----------
Total interest expense. . . . . . . . . . . . . . . . . . . . 5,454,049 5,196,023
----------- -----------
Net interest income before provision for loan losses. . . . . 6,400,382 6,682,648
PROVISION FOR LOAN LOSSES . . . . . . . . . . . . . . . . . . . . . . 252,000 593,070
----------- -----------
Net interest income after
provision for loan losses . . . . . . . . . . . . . . . . . 6,148,382 6,089,578
----------- -----------
OTHER INCOME
Fees and service charges. . . . . . . . . . . . . . . . . . . . . . 1,189,334 1,280,249
Gain (loss) on sale of available for sale securities. . . . . . . . - 41,997
Gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . . 273,149 194,813
Other income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 370,252 400,468
----------- -----------
Total other income. . . . . . . . . . . . . . . . . . . . . . 1,832,735 1,917,527
----------- -----------
OTHER EXPENSES
Salaries and employee benefits. . . . . . . . . . . . . . . . . . . 3,476,410 3,809,917
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 944,982 1,075,903
Other operating . . . . . . . . . . . . . . . . . . . . . . . . . . 1,807,711 2,297,295
----------- -----------
Total other expenses. . . . . . . . . . . . . . . . . . . . . 6,229,103 7,183,115
----------- -----------
Earnings before provision for
income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,752,014 823,990
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . 482,638 147,584
----------- -----------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 1,269,376 676,406
=========== ===========
Basic earnings per share. . . . . . . . . . . . . . . . . . . . . . $ 0.16 $ 0.08
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . $ 0.16 $ 0.08
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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THREE MONTHS ENDED
MARCH 31,
------------------------
2001 2000
(UNAUDITED)
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,269,376 676,406
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 $824,433 and $310,855 respectively . . . . . 1,345,127 (507,184)
Less: Reclassification adjustment for gains included in
net earnings, net of tax of 15,959 . . . . . . . . . . . . 26,038
Unrealized gain on cash flow hedges, net of tax of $76,000 . 124,000
------------- ---------
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . 1,469,127 (533,222)
------------- ---------
Comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . $ 2,738,503 143,184
============= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
--------------------------
2001 2000
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,269,376 676,406
Adjustment to reconcile net earnings to net
cash provided by operating activities:
Depreciation, amortization and accretion. . . . . . . . . . . . . 683,927 784,363
Provision for loan losses . . . . . . . . . . . . . . . . . . . . 252,000 593,070
(Gain) loss on sale of investment securities available for sale . - (41,997)
Gain on sales of loans. . . . . . . . . . . . . . . . . . . . . . (273,149) (194,813)
Loss (gain)on sale of other real estate . . . . . . . . . . . . . 7,955 (5,103)
Change in:
Mortgage loans held for sale . . . . . . . . . . . . . . . . (2,130,195) (99,843)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . (196,689) (1,428,547)
------------ ------------
Net cash (used in) provided by operating activities . . . (386,775) 283,536
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in interest-bearing deposits . . . . . . . . . . . . . . . . 2,534,024 708,486
Proceeds from sales and maturities of investment
securities available-for-sale . . . . . . . . . . . . . . . . . . . . 6,297,494 2,491,805
Proceeds from maturities of investment securities held-to-maturity. . . - 130,764
Purchases of other investments. . . . . . . . . . . . . . . . . . . . . (588,650) -
Net change in loans . . . . . . . . . . . . . . . . . . . . . . . . . . (2,619,835) (4,149,793)
Proceeds from sale of other real estate . . . . . . . . . . . . . . . . 306,604 110,305
Proceeds from sale of premises and equipment. . . . . . . . . . . . . . 112,438 21,520
Purchases of premises and equipment . . . . . . . . . . . . . . . . . . (162,099) (336,547)
Purchases of cash surrender value life insurance. . . . . . . . . . . . (46,397) (46,792)
------------ ------------
Net cash provided by (used in) investing activities . . . 5,833,579 (1,070,252)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits. . . . . . . . . . . . . . . . . . . . . . . . . (4,720,733) (5,366,714)
Change in federal funds purchased . . . . . . . . . . . . . . . . . . . 538,124 (2,510,000)
Change in other borrowed funds. . . . . . . . . . . . . . . . . . . . . (1,500,000) 1,500,000
Proceeds from FHLB advances . . . . . . . . . . . . . . . . . . . . . . - 5,500,000
Payments of FHLB advances . . . . . . . . . . . . . . . . . . . . . . . (1,162,530) (8,062,528)
Purchase of treasury stock. . . . . . . . . . . . . . . . . . . . . . . (945,437) (353,438)
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . 8,995 8,995
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . (478,680) (493,374)
------------ ------------
Net cash used in financing activities. . . . . . . . . . (8,260,261) (9,777,059)
------------ ------------
Net change in cash and cash equivalents. . . . . . . . (2,813,457) (10,563,775)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . 21,873,110 27,083,628
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . $19,059,653 16,519,853
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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The accompanying consolidated financial statements have not been audited. The
results of operations are not necessarily indicative of the results of
operations for the full year or any other interim periods.
The accounting principles followed by FLAG Financial Corporation ("FLAG") and
its bank subsidiary and the methods of applying these principles conform with
generally accepted accounting principles and with general practices within the
banking industry. Certain principles, which significantly affect the
determination of financial position, results of operations, and cash flows are
summarized below and in FLAG's annual report on Form 10-K for the year ended
December 31, 2000.
Note 1. Basis of Presentation
The consolidated financial statements include the accounts of FLAG and its
wholly owned subsidiary, FLAG Bank (Vienna, 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, 2000.
Note 2. Earnings Per Share
Net earnings per common share are based on the weighted average number of common
shares outstanding during each period. The calculation of basic and diluted
earnings per share is as follows:
THREE MONTHS ENDED
MARCH 31,
--------------------------
2001 2000 .
--------------------------
Basic earnings per share:
Net earnings. . . . . . . . . . . . $1,269,376 676,406
Weighted average common shares
Outstanding . . . . . . . . . . . 8,031,583 8,239,888
Basic earnings per share $ 0.16 0.08
Diluted earnings per share:
Net earnings. . . . . . . . . . . . $1,269,376 676,406
Effect of dilutive securities -
stock options. . . . . . . . . . 21,749 25,931
Diluted earnings per share $ 0.16 0.08
7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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FINANCIAL CONDITION
OVERVIEW
Total assets were $554.0 million at March 31, 2001, a decrease of $5.0 million
or .9 percent from December 31, 2000. This decrease in total assets was
primarily due to decreases in investment securities available-for-sale as a
result of maturities and calls during the quarter ended March 31, 2001.
ASSETS AND FUNDING
At March 31, 2001 earning assets totaled $510.0 million, an increase of $9.0
million from December 31, 2000. Loans comprised 76 percent of earning assets and
investment securities were 20 percent of earning assets at March 31, 2001.
At March 31, 2001, interest-bearing deposits increased $3.4 million compared to
December 31, 2000. Non-interest bearing deposits decreased $8.1 million in the
first three months of 2001 and totaled $47.0 million at March 31, 2001. The
decrease in non-interest bearing deposits for the first three months of 2001 was
mainly attributed to a seasonal reduction of approximately $5 million in one
commercial demand deposit account. Federal Home Loan Bank advances decreased
$1.2 million in the first three months of 2001 and totaled $30.8 million at
March 31, 2001. At March 31, 2001 deposits represented 93 percent of FLAG's
interest-bearing liabilities and Federal Home Loan Bank advances represented 7
percent.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities totaled $400 thousand for the three months
ended March 31, 2001. Net cash provided by investing activities totaling $5.8
million consisted largely of $6.3 million in proceeds from sales and maturities
of investment securities available-for-sale and a net decrease in
interest-bearing deposits of $2.5 million partially offset by a $2.6 million
increase in loans outstanding. Net cash used in financing activities consisted
largely of a $4.7 million decrease in deposits, a $1.5 million decrease in other
borrowings and a $1.2 million in Federal Home Loan Bank advances.
Total stockholders' equity at March 31, 2001, was 10.26 percent of total assets
compared to 9.93 percent at December 31, 2000. The increase is attributed to a
$1.3 million decrease in net earnings since December 31, 2000, less dividends
paid to stockholders.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Three months ended March 31, 2001 and 2000
OVERVIEW
Net earnings for the three months ended March 31, 2001 increased $593,000 or 88
percent compared to the first three months of 2000. Net earnings per common
share increased 100 percent for the first three months of 2001 and are $0.16
compared to $0.08 in the first three months of 2000. Net interest income
decreased 4 percent for the three months ended March 31, 2001 over the same
period of 2000 to $6.4 million. Non-interest income decreased 4 percent for the
first three months of 2001 compared to the same period of 2000 and non-interest
expense decreased 13 percent for the first three months of 2001 compared to
2000.
NET INTEREST INCOME
Net interest income for the three months ended March 31, 2001 decreased $282,000
compared to the first three months of 2000. This decrease resulted from a
$24,000 or .20 percent decrease in interest income coupled with a $258,000 or 5
percent increase in interest expense.
NON-INTEREST INCOME AND EXPENSE
Non-interest income for the three months ended March 31, 2001 decreased $85,000
or 4 percent compared to the first three months of 2000. This increase was due
largely to a decrease of $91,000 in fees and service charges, partially offset
by an increase of $78,000 in gain on sale of loans.
Other operating income decreased $30,000 or 8 percent for the quarter ended
March 31, 2001 compared to the same period in 2000. This decrease was due in
large part to decreased mortgage servicing fees for the first three months of
2001 compared to 2000.
Non-interest expense decreased $954,000 or 13 percent for the quarter ended
March 31, 2001 compared to the same period of 2000. Salaries and employee
benefits decreased $333,000 or 9 percent during the first three months of 2001
compared to 2000. The decrease in non-interest expense was primarily attributed
to reduced expenses as a result of the sale of branches during the third quarter
of 2000.
INCOME TAXES
Income tax expense for the first quarter of 2001 was $483,000 compared to
$148,000 for the same period in 2000. The effective tax rate for the quarter
ended March 31, 2001 was 28 percent and for the quarter ended March 31, 2000 was
18 percent.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The adequacy of the allowance for loan and lease losses is determined through
management's informed judgment concerning the amount of risk inherent in FLAG's
loan and lease portfolios. This judgment is based on such factors as the change
in levels of non-performing and past due loans and leases, historical loan loss
experience, borrowers' financial condition, concentration of loans to specific
borrowers and industries, estimated values of underlying collateral, and current
and prospective economic conditions. The allowance for loan and lease losses at
March 31, 2001 was $6.9 million compared to $6.6 million at December 31, 2000.
The ratio of the allowance for loan losses to net outstanding loans at March 31,
2001 and December 31, 2000 was 1.76 percent and 1.68 percent, respectively.
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.
NON-PERFORMING ASSETS AND PAST DUE LOANS
Non-performing assets, comprised of real estate owned, non-accrual loans and
loans for which payments are more than 90 days past due, totaled $8.9 million at
March 31, 2001 compared to $12.8 million at December 31, 2000. Non-performing
assets as a percentage of net loans and other real estate owned at March 31,
2001 and December 31, 2000 were 2.31 percent and 3.28 percent, respectively.
FLAG has a loan review function that continually monitors selected accruing
loans for which general economic conditions or changes within a particular
industry could cause the borrowers financial difficulties. The loan review
function also identifies loans with high degrees of credit or other risks. The
focus of loan review as well as FLAG management is to maintain a low level of
non-performing assets and return current non-performing assets to earning
status.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
At March 31, 2001, FLAG and its bank were in compliance with various regulatory
capital requirements administered by Federal and State banking agencies. The
following is a table representing FLAG's consolidated Tier-1 Capital, Tangible
Capital, and Risk-Based Capital:
MARCH 31, 2001
------------------------------------------------------------------------------------
ACTUAL REQUIRED EXCESS
AMOUNT % AMOUNT % AMOUNT %
------------------------------------------------------------------------------------
Tier 1 Capital $47,312 8.59% $22,041 4.00% $25,271 4.59%
Tangible Capital $47,312 8.59% $ 8,265 1.50% $39,047 7.09%
Risk-Based Capital $52,718 12.23% $34,492 8.00% $18,226 4.23%
11
PART 2. OTHER INFORMATION
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
PART II. Other Information
Item 1. Legal Proceedings
FLAG and the Bank are periodically involved as plaintiff or defendant in
various legal actions in the ordinary course of its business.
As previously reported, FLAG Bank purchased certain warehouse loans of Gulf
Properties Financial Services, Inc., a residential mortgage broker. The loans
that Gulf Properties sold to FLAG Bank were fraudulent. Gulf Properties filed
Chapter 11 bankruptcy on December 30, 1998. 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. As of December 31,
2000, FLAG Bank has collected approximately $950,000 as part of the bankruptcy
proceedings. Additionally, FLAG Bank has received $1.6 million from a claim
under its fidelity bond regarding this matter. The perpetrators of the fraud
have pled guilty to criminal charges and have been sentenced to prison. FLAG
Bank obtained a restitution order as part of the criminal sentence. FLAG Bank's
exposure as a result of the fraud was approximately $3 million. Several other
banks also purchased fraudulent loans from Gulf Properties and the total amount
of exposure of all banks is approximately $32 million.
As previously reported, Tad Moore Golf, Inc. is a borrower of FLAG Bank.
An investor in Tad Moore Golf, Inc., who is also a lender to Tad Moore Golf,
Inc., sued FLAG Bank in Southern District Court in New York alleging that FLAG
Bank fraudulently induced the investor into allegedly subordinating his loan to
the loan of FLAG Bank. The investor was also a borrower of FLAG Bank. The
plaintiff is claming $1.6 million in consequential damages and $10 million in
punitive damages. FLAG Bank has succeeded in having the venue of this matter
transferred from New York to United States District Court in Newnan, Georgia.
FLAG Bank settled the matter in its favor in March of this year.
On June 28, 2000, David and Trenne Baker filed a suit against America's
Homeplace, Southern Homestead Mortgage and FLAG Bank in Superior Court of Bartow
County, Georgia. The Complaint alleges that the defendants are liable to the
plaintiffs for unspecified damages for fraud, suppression and concealment,
breach of contract, intentional infliction of emotional distress, negligent
infliction of emotional distress, conspiracy and violations of Georgia RICO
arising out of the construction and purchase of a house from a co-defendant by
the plaintiff. FLAG Bank provided the construction financing on the home.
Co-defendant America's Homeplace has filed a motion to compel arbitration in
accordance with the plaintiff's contract. The motion was granted and the
plaintiffs are now pursuing their claim against AHP only in an arbitration
proceeding. FLAG Bank intends to vigorously defend the claims.
In September 2000, Bank of Milan filed suit against one of its Borrowers,
Walter T. Branyan, to collect upon an outstanding loan in the amount of
$1,349,066.66. The Bank of Milan also filed suit against the borrower's father,
Walter C. Branyan, and a business associate, R. Tommy Gilder as Guarantors of
the obligation. Walter C. Branyan has settled his obligation with the Bank of
Milan and the court has entered a default judgment against Walter T. Branyan.
R. Tommy Gilder is defending the suit and has counterclaimed against the Bank
for breach of fiduciary duty based upon an alleged confidential relationship
with the Bank of Milan. Gilder's defenses and counterclaims are without merit
and the Bank of Milan intends to pursue and defend this matter vigorously.
12
OTHER INFORMATION
--------------------------------------------------------------------------------
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 2001 Annual Meeting of Shareholders was held on April 18, 2001.
(b) Election of Directors
The following are the results of the votes cast by shareholders
present at the 2001 Annual Meeting of Shareholders, by proxy or in
person, for the proposal to elect the following directors to serve
until the 2004 Annual Meeting of Shareholders:
For Withhold
--- --------
Dr. A. Glenn Bailey 6,235,928 209,935
James A. Brett 6,234,928 210,935
David B. Dunaway 6,235,928 209,935
John R. Hines, Jr. 6,231,700 214,163
Kelly R. Linch 6,235,928 209,935
J. Daniel Speight, Jr. 6,227,600 218,263
Additionally, the shareholders voted 6,235,928 in the affirmative and
209,935 were withheld for the election of Charles O. Hinely to serve a
term of one year until the 2002 Annual Meeting of Shareholders.
(c) Ratifying the appointment of Porter Keadle Moore LLP, as independent
accountants of the Company for the fiscal year ending December 31,
2001.
The shareholders voted 6,430,677 shares in the affirmative, 3,709
shares in the negative, with 11,477 shares abstaining for the
ratification and appointment of Porter Keadle Moore LLP as independent
accountants for the Company for the fiscal year ending December 31,
2001.
(d) Amending the Company's 1994 Employees Stock Incentive Plan
The shareholders voted 3,985,524 in the affirmative and 623,409 shares
in the negative, with 49,112 shares abstaining for the amendment of
the 1994 Employees Stock Incentive Plan.
(e) Amending the Company's 1994 Directors Stock Incentive Plan
The shareholders voted 3,874,216 in the affirmative and 663,788 shares
in the negative, with 120,041 shares abstaining for the amendment of
the 1994 Directors Stock Incentive Plan.
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OTHER INFORMATION
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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 2002 Annual Meeting of Shareholders must notify
the Company in writing to the Secretary of the Company, at Eagle's Landing, 235
Corporate Center Drive, Stockbridge, Georgia 30281 of the contents of such
proposal no later than November 12, 2001 to be included in the 2002 Proxy
Materials. A shareholder must notify the Company before January 26, 2002 of a
proposal for the 2002 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 26, 2002, proxies solicited by the
management of the Company will confer discretionary authority upon the
management of the Company to vote upon any such matter.
Item 6. Exhibits and Report on Form 8-K
Reports on Form 8-K filed during the First Quarter of 2001:
None.
Reports on Form 8-K filed from Quarter End 2001 to Present:
None.
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FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLAG Financial Corporation
By: /s/ Thomas L. Redding
---------------------------
Thomas L. Redding
(Chief Financial Officer)
Date: May 15, 2001
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