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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, 1998
|_| 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)
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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 past 90 days. Yes X No
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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
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The aggregate market value of the Registrant's outstanding Common Stock held by
non-affiliates of the Registrant on March 17, 1999 was approximately
$57,003,551. There were 6,561,879 shares of Common Stock outstanding as of March
17, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1998 Annual Report are incorporated by reference in
Part II hereof.
Portions of the Registrant's Proxy Statement for the 1999 Annual Meeting of
Shareholders to be held on April 21, 1999, are incorporated by reference in Part
III hereof.
FLAG FINANCIAL CORPORATION
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 1998
Table of Contents
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Item Page
Number Number
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Part I
1. Business........................................................ 3
2. Properties....................................................... 15
3. Legal Proceedings................................................ 17
4. Submission of Matters to a Vote of Security Holders.............. 17
Part II
5. Market for Registrant's Common Stock and Related Shareholder
Matters......................................................... 18
6. Selected Financial Data......................................... 18
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 18
7A. Quantitative and Qualitative Disclosures about Market Risk...... 18
8. Financial Statements and Supplementary Data .................... 18
9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 19
Part III
10. Directors and Executive Officers of the Registrant ............. 19
11. Executive Compensation.......................................... 19
12. Security Ownership of Certain Beneficial Owners and Management.. 19
13. Certain Relationships and Related Transactions.................. 20
i
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 20
Signatures................................................... 24
Index of Exhibits ........................................... 26
ii
PART I
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ITEM 1. BUSINESS
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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 legislativ
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, securitie
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
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FLAG Financial Corporation (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 (the "BHC Act"). The Company is the sole
shareholder of First Flag Bank, formerly known as First Federal Savings Bank of
LaGrange, and Citizens Bank (collectively, the "Banks").
- -
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 (the "Reorganization"). On March 1,
1994, FLAG Interim Corporation, a wholly-owned subsidiary of the Company
organized for the purpose of effecting the Reorganization, merged with and into
First Flag Bank, and the Company issued shares of its common stock to
shareholders of First Flag Bank in exchange for all of the outstanding common
stock of 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, First Flag Bank
continued its business operations as a federally-chartered stock savings bank
under the same name, charter and bylaws. First Flag Bank is in the process of
converting from a federal stock savings bank to a Georgia state-chartered bank.
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. Recent
business combinations in the banking industry have typically involved the
payment of a premium over book and market values. This practice 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.
2
The Company completed a merger with Middle Georgia Bankshares, Inc. 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 effective
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 effective 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 also acquired E.B.C. Financial Services, Inc. through its
merger with Empire Bank Corp. E.B.C. Financial Services, Inc. provides various
insurance products.
FLAG also provides investment and appraisal services through divisions
known as FLAG Investment Services and FLAG Appraisal Services. These services
were previously provided through First Flag Bank. In anticipation of the
conversion of First Flag Bank to a state chartered bank, these activities are
now provided by FLAG.
Citizens Bank provides technical services through a division known as
FlagTech and insurance services through a division known as Citizens Bank Agency
d/b/a Flag Insurance Services.
The Banks
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First Flag Bank. First Flag Bank, formerly known as First Federal
Savings Bank of LaGrange, is a federally chartered savings 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 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 by selling 805,000
shares of Common Stock to the public pursuant to a plan of conversion approved
by the members of the institution. 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. First Flag Bank had total assets of approximately
$260,832,699 at December 31, 1998. As of September 30, 1998, First Flag Bank was
the 5th largest of 29 thrift institutions headquartered in Georgia and the
largest financial institution headquartered in Troup County. First Flag Bank's
wholly-owned subsidiary, Piedmont Mortgage Service, Inc. is currently inactive.
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, Vienna,
Byromville, Montezuma, Cordele, Oglethorpe, Pinehurst, Homerville, Waycross,
Milan, McRae, Cobbtown, Reidsville and Metter, Georgia. 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,
1998, Citizens Bank had total assets of approximately $177,077,920.
3
Effective December 31, 1998, The Brown Bank, with offices in Cobbtown,
Metter and Reidsville, Georgia, merged into Citizens Bank. Effective January 1,
1999, Empire Banking Company, with offices in Homerville and Waycross, Georgia,
merged into Citizens Bank. At December 31, 1998, Empire Banking Company had
approximately $69,112,755 in total assets. Effective January 1, 1999, Bank of
Milan, with offices in Milan and McRae, Georgia, merged into Citizens Bank. At
December 31, 1998, Bank of Milan had approximately $41,417,992 in total assets.
The Brown Bank, Empire Banking Company, and Bank of Milan operate as
divisions of Citizens Bank. Citizens Bank registered the names "The Brown Bank,"
"Empire Banking Company," and "Bank of Milan" as tradenames of Citizens Bank.
Citizens Bank is the sole shareholder of CB Financial Group, Inc., which is
currently inactive.
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, 1998 and 1997 and for
the three years in the period ended December 31, 1998, 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 incorporated by reference from the Company's 1998 Annual Report to
Shareholders. All average balances presented in this report were derived based
on monthly averages.
4
Recent Developments
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On February 23, 1999 the Company and First Hogansville Bankshares, Inc.
executed a Letter of Intent that provides that First Hogansville will merge into
the Company. The Letter of Intent states that the Company will exchange 6.08466
shares of Company common stock for each share of First Hogansville common stock
outstanding. The Company expects to issue approximately 575,000 shares to the
First Hogansville shareholders. The parties expect the merger to be accounted
for as a pooling of interest and expect to consummate the merger in the third
quarter of 1999, subject to approval of the First Hogansville shareholders,
approval of various regulatory authorities and other customary conditions of
closing.
First Hogansville is a bank holding company located in Hogansville,
Georgia. First Hogansville is the sole shareholder of The Citizens Bank also
located in Hogansville, Georgia.
On March 12, 1999 the Company and Thomaston Federal Savings Bank
executed a Letter of Intent that provides that Thomaston will merge into a
wholly-owned subsidiary of the Company. The Company will form the subsidiary for
the purpose of effecting the merger, and Thomaston will be the survivor of the
merger. The Letter of Intent states that the Company will exchange 1.7275 shares
of Company common stock for each share of Thomaston common stock outstanding.
The Company expects to issue approximately 1,125,447 shares to the Thomaston
shareholders and 49, 233 shares to the Thomaston optionholders on exercise of
their options. The parties expect the merger to be accounted for as a pooling of
interest and expect to consummate the Merger in the third quarter of 1999,
subject to approval of the Thomaston shareholders, approval of various
regulatory authorities and other customary conditions of closing.
Thomaston is a federal savings bank located in Thomaston, Georgia with
mortgage production offices in Columbus and Macon, Georgia and Phenix City and
Auburn, Alabama.
Citizens Bank entered into a Purchase and Assumption Agreement with
First Georgia Bank that provides that Citizens Bank will acquire First Georgia
Bank's branch office located in Blackshear, Georgia. The branch purchase is
subject to regulatory approval.
The parties expect the purchase to be completed during the second quarter of
1999.
Citizens Bank plans to file an application with the GDBF and the FDIC
for approval to open a branch office in Statesboro, Georgia. Upon receiving
regulatory approval, Citizens Bank expects to open its Statesboro office during
the second quarter of 1999. The office will be known as First Flag Bank -
Statesboro. Citizens Bank will register "First Flag Bank - Statesboro" as a
tradename.
5
Employees
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As of December 31, 1998, the Company (including the Banks) had 244
full-time and 41 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
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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
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The following discussion sets forth the material elements of the
regulatory framework applicable to bank holding companies and their bank and
thrift subsidiaries and provides certain specific information related to the
Company.
General
In connection with its acquisition of Middle Georgia, the Company
became a bank holding company registered with the Board of Governors of the
Federal Reserve System (the "Federal Reserve") under the BHC Act. As such, the
Company and its non-bank subsidiaries are subject to the supervision,
examination, and reporting requirements of the BHC Act and the regulations of
the Federal Reserve. In addition, as a savings and loan holding company, the
Company is also registered with the OTS and is subject to the regulation,
supervision, examination, and reporting requirements of the OTS.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (1) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the voting shares of the bank; (2) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (3) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any section of the United States, or the effect of which
may be substantially to lessen competition or to tend to create a monopoly in
any section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy and consideration of convenience and needs issues including the
parties' performance under the Community Reinvestment Act of 1977 (the "CRA"),
both of which are discussed below.
6
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks by
bank holding companies, such that the Company, and any other bank holding
company located in Georgia may now acquire a bank located in any other state,
and any bank holding company located outside Georgia may lawfully acquire any
Georgia-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides that, as of
June 1, 1997, national and state-chartered banks may branch interstate through
acquisitions of banks in other states. By adopting legislation prior to that
date, a state had the ability either to "opt in" and accelerate the date after
which interstate branching is permissible or "opt out" and prohibit interstate
branching altogether.
In response to the Interstate Banking Act, the Georgia General Assembly
adopted the Georgia Interstate Banking Act, which was effective on July 1, 1995.
The Georgia Interstate Banking Act provides that (1) interstate acquisitions by
institutions located in Georgia will be permitted in states that also allow
national interstate acquisitions and (2) interstate acquisitions of institutions
located in Georgia will be permitted by institutions in states that allow
national interstate acquisitions.
Additionally, on January 26, 1996, the Georgia General Assembly adopted
the Georgia Interstate Branching Act, which permits Georgia-based banks and bank
holding companies owning or acquiring banks outside of Georgia and all
non-Georgia banks and bank holding companies owning or acquiring banks in
Georgia to merge any lawfully acquired bank into an interstate branch network.
The Georgia Interstate Branching Act also allows banks to establish de novo
branches on a limited basis. As of July 1, 1998, the number of de novo branches
that may be established is no longer limited.
The BHC Act generally prohibits the Company from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a particular
activity is permissible, the Federal Reserve must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices. For example, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance in connection with credit transactions, and performing certain
insurance underwriting activities all have been determined by the Federal
Reserve to be permissible activities of bank holding companies. The BHC Act does
not place territorial limitations on permissible non-banking activities of bank
holding companies. Despite prior approval, the Federal Reserve has the power to
order a holding company or its subsidiaries to terminate any activity or to
terminate its ownership or control of any subsidiary when it has reasonable
cause to believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.
7
The bank and thrift subsidiaries of the Company are members of the
FDIC, and as such, their deposits are insured by the FDIC to the maximum extent
provided by law. Such subsidiaries 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.
All of the Company's depository institution subsidiaries that are
state-chartered banks and are not members of the Federal Reserve System are
subject to supervision and examination by the FDIC and the Georgia Department of
Banking and Finance. The Company's subsidiary that is a federal savings bank is
subject to regulation, supervision, and examination by the OTS and the FDIC. The
federal banking regulator for each of the Company's subsidiaries, as well as the
Georgia Department of Banking and Finance for each of the subsidiary banks that
is a state chartered bank, regularly examines the operations of the subsidiary
banks and is given authority to approve or disapprove mergers, consolidations,
the establishment of branches, and similar corporate actions. The federal and
state banking regulators also have the power to prevent the continuance or
development of unsafe or unsound banking practices or other violations of law.
Payment of Dividends
The Company is a legal entity separate and distinct from its
subsidiaries. The principal sources of cash flow of the Company, including cash
flow to pay dividends to its shareholders, are dividends by its bank and thrift
subsidiaries. There are statutory and regulatory limitations on the payment of
dividends by such subsidiaries to the Company as well as by the Company to its
shareholders.
As to the payment of dividends, all of the Company's depository
institution subsidiaries that are state nonmember banks are subject to the laws
and regulations of the state of Georgia and to the regulations of the FDIC. The
Company's depository institution subsidiary that is a federal savings bank is
subject to the OTS' capital distributions regulation.
If, in the opinion of the applicable federal banking regulator, a
depository institution under its jurisdiction is engaged in or is about to
engage in an unsafe or unsound practice (which, depending on the financial
condition of the depository institution, could include the payment of
dividends), such authority may require, after notice and hearing, that such
institution cease and desist from such 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 ("FDICIA"), a depository institution may not pay any dividend if payment
would cause it to become undercapitalized or if it already is undercapitalized.
See "-- Prompt Corrective Action." 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.
8
At December 31, 1998, under dividend restrictions imposed under federal
and state laws, the bank and thrift subsidiaries of the Company, without
obtaining governmental approvals, could declare aggregate dividends to the
Company of up to approximately $2,000,000.
The payment of dividends by the Company and its subsidiaries may also
be affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
Capital Adequacy
The Company and its depository institution subsidiaries are required
to comply with the capital adequacy standards established by the Federal Reserve
and the appropriate federal banking regulator in the case of its depository
institution subsidiaries. There are two basic measures of capital adequacy for
bank holding companies that have been promulgated by the Federal Reserve: a
risk-based measure and a leverage measure. All applicable capital standards must
be satisfied for a bank holding company to be considered in compliance.
The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profile 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 are assigned to broad risk categories, each with appropriate 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 (the "Total Risk-Based Capital
Ratio") of total capital ("Total Capital") to risk-weighted assets (including
certain off-balance-sheet items, such as standby letters of credit) is 8%. At
least half of Total Capital must comprise common stock, minority interests in
the equity accounts of consolidated subsidiaries, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less goodwill and certain other intangible assets ("Tier 1 Capital"). The
remainder may consist of subordinated debt, other preferred stock, and a limited
amount of loan loss reserves ("Tier 2 Capital"). At December 31, 1998, the
Company's consolidated Total Risk-Based Capital Ratio and its Tier 1 Risk-Based
Capital Ratio (i.e., the ratio of Tier 1 Capital to risk-weighted assets) were
14.0% and 12.3%, respectively.
9
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies generally are required to maintain a Leverage Ratio
of at least 3%, plus an additional cushion of 100 to 200 basis points. The
Company's Leverage Ratio at December 31, 1998 was 8.4%. 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. Furthermore, the Federal Reserve has indicated that it will consider a
"tangible Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities.
The Company's depository institution subsidiaries are subject to
risk-based and leverage capital requirements adopted by their applicable federal
regulators, which are substantially similar to those adopted by the Federal
Reserve for bank holding companies. Such subsidiaries were in compliance with
applicable minimum capital requirements as of December 31, 1998. The Company has
not been advised by any federal banking agency of any specific minimum capital
ratio requirement applicable to it or its subsidiary depository institutions.
Failure to meet capital guidelines could subject an institution 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 upon FDIC-insured
depository institutions that fail to meet applicable capital requirements. See
"-- Prompt Corrective Action."
Community Reinvestment
The Company's subsidiaries are subject to the provisions of the CRA.
Under the terms of the CRA, the subsidiaries have a continuing and affirmative
obligation consistent with their safe and sound operation to help meet the
credit needs of their entire communities, including low- and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires each appropriate federal bank regulatory agency, in connection with its
examination of a subsidiary depository institution, to assess such institution's
record in assessing and meeting the credit needs of the community served by that
institution, including low- and moderate-income neighborhoods. The regulatory
agency's assessment of the institution's record is made available to the public.
Further, such assessment is required of any institution which has applied to:
(1) charter a national bank; (2) obtain deposit insurance coverage for a newly
chartered institution; (3) establish a new branch office that will accept
deposits; (4) relocate an office; or (5) merge or consolidate with, or acquire
the assets or assume the liabilities of, a federally regulated financial
institution. In the case of a bank holding company applying for approval to
acquire a bank or other bank holding company, the Federal Reserve will assess
the record of each subsidiary depository institution of the applicant bank
holding company, and such records may be the basis for denying the application.
All of the Company's subsidiary depository institutions received at least a
"satisfactory" CRA rating in their most recent examinations.
10
In April 1995, the federal banking agencies adopted amendments revising
their CRA regulations, with a phase-in schedule applicable to various
provisions. Among other things, the amended CRA regulations, implemented on July
1, 1997, substitute for the prior process-based assessment factors a new
evaluation system that rates an institution based on its actual performance in
meeting community needs. In particular, the system focuses on three tests: (1) a
lending test, to evaluate the institution's record of making loans in its
service areas; (2) an investment test, to evaluate the institution's record of
investing in community development projects; and (3) a service test, to evaluate
the institution's delivery of services through its branches, ATM's and other
offices. The amended CRA regulations also clarify how an institution's CRA
performance will be considered in the application process.
Support of Subsidiary Institutions
Under Federal Reserve policy, the Company is expected to act as a
source of financial strength for, and to commit resources to support, each of
its banking subsidiaries. This support may be required at times when, absent
such Federal Reserve policy, the Company may not be inclined to provide it. In
addition, any capital loans by a bank holding company to any of its depository
institution subsidiaries are subordinate in right of payment to deposits and to
certain other indebtedness of such banks. 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 depository institution
subsidiaries will be assumed by the bankruptcy trustee and entitled to a
priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989, in
connection with (1) the default of a commonly controlled FDIC-insured depository
institution or (2) any assistance provided by the FDIC to any commonly
controlled FDIC-insured depository institution "in danger of default." "Default"
is defined generally as the appointment of a conservator or receiver, and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a default is likely to occur in the absence of regulatory
assistance. The FDIC's claim for damages is superior to claims of shareholders
of the insured depository institution or its holding company, but is subordinate
to claims of depositors, secured creditors, and holders of subordinated debt
(other than affiliates) of the commonly controlled insured depository
institution. The subsidiary depository institutions of the Company are subject
to these cross-guarantee provisions. As a result, any loss suffered by the FDIC
in respect of these subsidiaries would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses against the
depository institution's banking affiliates, and a potential loss of the
Company's investment in such other subsidiary depository institutions.
11
Prompt Corrective Action
FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to a
narrow exception, FDICIA requires the regulator to appoint a receiver or
conservator for an institution that is critically undercapitalized. The federal
banking agencies have specified by regulation the relevant capital level for
each category.
The capital levels established for each of the categories are as
follows:
========================== ================ =================== ============== ===================
Total Tier 1 Risk-
Capital Category Tier 1 Capital Risk-Based Capital Based Capital Other
========================== ================ =================== ============== ===================
Well Capitalized 5% or more 10% or more 6% or more Not subject to a
capital directive
========================== ---------------- ------------------- -------------- ===================
Adequately Capitalized 4% or more 8% or more 4% or more --
========================== ---------------- ------------------- -------------- ===================
Undercapitalized Less than 4% less than 8% less than 4% --
========================== ---------------- ------------------- -------------- ===================
Significantly Less than 3% less than 6% less than 3% --
Undercapitalized
========================== ================ =================== ============== ===================
Critically 2% or less -- -- --
Undercapitalized tangible equity
========================== ================ =================== ============== ===================
For purposes of the regulation, the term "tangible equity" includes
core capital elements counted as Tier 1 Capital for purposes of the risk-based
capital standards, plus the amount of outstanding cumulative perpetual preferred
stock (including related surplus), minus all intangible assets with certain
exceptions. A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan, subject to certain limitations.
The obligation of a controlling holding company under FDICIA to fund a capital
restoration plan is limited 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 in accordance with an
accepted capital restoration plan or with the approval of the FDIC. In addition,
the appropriate federal banking agency is given authority with respect to any
undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.
12
At December 31, 1998, the Company's depository institution subsidiaries
had the requisite capital levels to qualify as well capitalized.
FDIC Insurance Assessments
Pursuant to FDICIA, the FDIC adopted a risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The system
assigns an institution to 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 for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information which the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital category and supervisory category to which
it is assigned. Under the risk-based assessment system, there are nine
assessment risk classifications (i.e., combinations of capital groups and
supervisory subgroups) to which different assessment rates are applied.
Pursuant to the Deposit Insurance Funds Act of 1996, the FDIC
implemented a special one-time assessment of approximately 65.7 basis points
(0.657%) on a depository institution's SAIF-insured deposits held as of March
31, 1995 (or approximately 52.6 basis points on SAIF deposits acquired by banks
in certain qualifying transactions) and adopted revisions to the assessment rate
schedules that would generally eliminate the disparity between assessment rates
applicable to the deposits insured by the Bank Insurance Fund ("BIF") and the
SAIF. The revisions in the assessment rate schedules reduced assessment rates on
SAIF-insured deposits and would generally equalize BIF and SAIF assessment rates
by January, 2000. The Company anticipates that the net effect of the decrease in
the premium assessment rate on SAIF deposits will result in a reduction in its
total deposit insurance premium assessments through 1999 as compared to years
prior to 1997, assuming no further changes in announced premium assessment
rates. The Company recorded a charge against earnings for the special assessment
in the quarter ended September 30, 1996, in the pre-tax amount of approximately
$1,150,000.
Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding 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.
13
Proposed Legislation and Regulatory Action
New statutes and regulations are regularly proposed that contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or what form any proposed statute or regulation will be adopted or the
extent to which the business of the Company may be affected by such statute or
regulation.
Selected Statistical Information
Selected statistical information is included in the Company's
Management's Discussion and Analysis of Financial Condition and Results of
Operation set forth on pages 16 through 24 of the Company's 1998 Annual Report.
Such information is incorporated by reference.
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
drive-through facility in LaGrange, Georgia. One of the full-service branches
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. A second full-service branch office is located at
1795 West Point Road at Lee's Crossing in LaGrange. This office contains
approximately 2,700 square feet of office space on one acre of land, and both
the land and the building are owned by First Flag Bank. The third full-service
branch office is located at 1417 LaFayette Parkway in LaGrange. This office
contains approximately 2,300 square feet of office space on 1.2 acres of land,
and it has three drive through lanes. Both the building and the land are owned
by First Flag Bank. The drive-through facility is located at 306 Vernon Street
in LaGrange. This facility contains approximately 1,800 square feet of space,
and both the building and the land are owned by First Flag Bank.
First Flag Bank leases approximately 2,760 square feet of office space
at 5669 Whitesville Road, Suite A, Columbus, Georgia, where its loan production
office is located.
First Flag Bank leases approximately 600 square feet of office space at
200 Broad Street, Suite D, LaGrange, Georgia.
First Flag Bank leases approximately 2,500 square feet of office space
at 205 North Lewis Street, Suites 2 and 3, LaGrange, Georgia.
14
Citizens Bank
Citizens Bank operates four full-service offices in Vienna, Unadilla,
Montezuma, and Cordele. It also operates three limited-service offices in
Byromville, Oglethorpe, and Pinehurst.
One of the full-service offices has 10,500 square feet of office space
on .85 acres of land that is owned by Citizens Bank and is located at 100 Union
Street, Vienna, Georgia. The second full-service office has 15,127 square feet
of office space on 1.48 acres of land that is owned by Citizens Bank and is
located at 2233 Pine Street, Unadilla, Georgia. The third full-service office
has 10,718 square feet of office space on 1.3 acres of land that is owned by
Citizens Bank and is located at 102 West Railroad Street, Montezuma, Georgia.
The fourth full-service office has 2,000 square feet of office space that is
leased by Citizens Bank and is located at 602 East 16th Avenue, Suite G.,
Cordele, Georgia.
One of the limited-service offices has 1,750 square feet of office
space on .07 acres and is located on Main Street, Byromville, Georgia. The
second limited-service office has 2,500 square feet of office space on .6 acres
of land and is located at 130 North Sumter Street, Oglethorpe, Georgia. The
third limited-service office has 843 square feet of office space on .55 acres
and is located on Fullington Avenue, Pinehurst, Georgia. Citizens Bank owns each
of these properties.
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 also owns an office parking lot at the corner of Union
Street and 2nd Street, Vienna Georgia. The lot is on .42 acres of land. Another
lot owned by Citizens Bank is located at Fullington Avenue and Highway 41,
Pinehurst, Georgia. Citizens Bank also owns a lot located at the corner of
Fullington Avenue and Cyprus Avenue, Pinehurst, Georgia with 370 square feet of
a vacant building on .23 acres of land.
Bank of Milan Division of Citizens Bank
Citizens Bank, through its Bank of Milan division, operates two
full-service offices in Milan and McRae, Georgia. Citizens Bank owns the office
located at 1 Mt. Zion Street, Milan, Georgia. It has 5,124 square feet of office
space on .18 acres of land. Citizens Bank leases the office located at 850 East
Oak Street, McRae, Georgia. It has 1,360 square feet of office space.
Empire Banking Company Division of Citizens Bank
Citizens Bank, through its Empire Banking Company division, operates
two full-service offices in Homerville and Waycross, Georgia. Citizens Bank owns
two buildings in Homerville located at 115 East Dame Avenue comprising the main
office building that has approximately 5,000 square feet of office space and an
operations building that has approximately 2,200 square feet of office space.
Citizens Bank also owns about 3/4 acres in paved parking lots near the Dame
Avenue office. Additionally, Citizens Bank owns a building located at 2110
Memorial Drive, Waycross, Georgia that has 3,500 square feet of office space.
15
The Brown Bank Division of Citizens Bank
Citizens Bank, through its Brown Bank division, operates two
full-service offices in Metter and Cobbtown, Georgia and a full-service office
in Reidsville, Georgia that it leases. The office located at 24-28 North Broad
Street, Metter, Georgia has 12,000 square feet of office space, of which 6,000
is used for banking operations and 6,000 is used for rental offices. This office
sits on .17 acres of land and has a paved parking lot on .34 acres also on North
Broad Street. The office located at 1 Railroad Street in Cobbtown, Georgia has
4,000 square feet of office space and sits on .066 acres of land. The office
located at 132 A West Brazell Street, Reidsville, Georgia has 6,000 square feet
of office space.
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 $14.9 million at
December 31, 1998. The Company owns most of its data processing equipment.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company and the Banks are periodically involved as plaintiff or
defendant in various legal actions in the ordinary course of its business.
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.
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 the bankruptcy is pending. First Flag Bank's exposure
as a result of the fraud is 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.
16
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 1998.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
--------------------------------------------------------------------
Information relating to the market for, holders of and dividends paid
on the Company's Common Stock is set forth under the caption "Corporate
Information-Stock Prices and Dividends" on the inside back cover of the
Company's 1998 Annual Report. Such information is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
Selected consolidated financial data for the Company and its
subsidiaries for each year of the five-year period ended December 31, 1998 is
set forth under the caption "Financial Highlights" on page 5 of the 1998 Annual
Report. Such financial data is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Management's Discussion and Analysis of Financial Condition and Results
of Operations is set forth on pages 16 through 24 of the Company's 1998 Annual
Report. Such information is incorporated herein by reference.
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:
17
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, 1998, the Company was in compliance with its ALCO policy.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The following financial statements are included in the Company's 1998
Annual Report on pages 26 through 52 and are incorporated herein by reference:
Independent Auditor's Report
Financial Statements
Consolidated Balance Sheets dated as of December 31, 1998 and
1997 Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996 Consolidated Statements of
Cash Flows for the years ended December 31, 1998, 1997 and
1996 Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders Equity
Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
On February 20, 1997, the Company engaged Porter Keadle Moore, LLP as
independent accountants to audit the Company's financial statements for the
fiscal year ended December 31, 1997, and elected not to renew the engagement of
the Company's previous independent accountants, Robinson, Grimes & Company, P.C.
No adverse opinions or disclaimers of opinion were given by Robinson, Grimes &
Company, P.C. during the fiscal years ended December 31, 1995, and 1996, nor
were any of their opinions qualified as to uncertainty, audit scope, or
accounting principle, during the time Robinson, Grimes & Company was engaged.
There were no disagreements or "reportable events" of any nature between the
Company and Robinson, Grimes & Company, P.C. during the fiscal years ended
December 31, 1995, 1996, and the subsequent interim period through February 20,
1997, as described in Items 304(a) (1) (iv) and (v) of Regulation S-K. The
decision was approved by the Company's Audit Committee and Board of Directors.
18
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 1999 Annual Meeting of Shareholders to be held on April 21, 1998. 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. Such information
is incorporated herein by reference. To the Company's knowledge, no person was
the beneficial owner of more than 10% of the Company's common stock during 1998.
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.
Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Information regarding ownership of the Company's common stock as of
December 31, 1998, 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 to in Item 10
above. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information regarding certain transactions between the Bank and
affiliates 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. Such information is incorporated herein by reference.
19
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
------------------------------------------------------
(a)(1) The list of all financial statements is included at Item 8.
(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 (adopted by resolution of Board of
Directors on October 19, 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 Ellison C. Rudd and the Company dated as
of April 1, 1998 (incorporated by reference from Exhibit 10.3 to
Amendment No. 1 to the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1997)*
20
10.4 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)*
10.5 Separation Agreement between Charles A. Hinely and the Company dated
April 1, 1998 (incorporated by reference from Exhibit 10.5 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 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)*
10.7 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)
21
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)*
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)*
10.17FLAG 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)*
10.18FLAG 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)*
13 1998 Annual Report to Shareholders+
22
21 Subsidiaries
27 Financial Data Schedule
99.1 Report of Robinson, Grimes & Company, P.C., dated January 31, 1997
99.2 Report of Thigpen, Jones, Seaton & Co., P.C., dated January 28, 1998
- --------------------
* The indicated exhibit is a compensatory plan required to be filed as
an exhibit to this Form 10-K.
+ Portions of the Company's 1998 Annual Report, as indicated in this
report, are incorporated herein by reference. Other than as noted
herein, the Company's 1998 Annual Report is furnished to the
Securities and Exchange Commission solely for its information and is
not deemed to be "filed" with the Securities and Exchange Commission
or subject to the liabilities of Section 18 of the Securities Exchange
Act of 1934, as amended.
(b) Reports on Form 8-K.
Reports on Form 8-K filed during fourth quarter of 1998
o A Current Report on Form 8-K filed October 6, 1998 regarding execution
of Letter of Intent to purchase branch in Blackshear, Georgia from
First Georgia Bank.
o A Current Report on Form 8-K filed November 16, 1998 regarding
execution of Mutual Termination Agreement with Heart of Georgia
Bancshares, Inc. to cancel plans to merge.
Reports on Form 8-K filed since Year End 1998
o A Current Report on Form 8-K filed January 8, 1999 regarding
consummation of merger with Empire Bank Corp. on December 11, 1998.
o A Current Report on Form 8-K filed January 11, 1999 regarding
consummation of merger between Citizens Bank and The Brown Bank on
December 31, 1998.
o A Current Report on Form 8-K filed March 2, 1999 regarding execution
of Letter of Intent to merge First Hogansville Bankshares, Inc. with
FLAG Financial Corporation.
o A Current Report on Form 8-K filed March 18, 1999 regarding execution
of Letter of Intent to acquire Thomaston Federal Savings Bank.
(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.
23
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 24, 1999 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
24, 1999
Signature Title
--------- -----
/s/ Dennis D. Allen Director
- ---------------------------
Dennis D. Allen
s/ Dr. A. Glenn Bailey Director
- ---------------------------
Dr. A. Glenn Bailey
24
/s/ Leonard H. Bateman Director
- ---------------------------
Leonard H. Bateman
/s/ H. Speer Burdette, III Director
- ---------------------------
H. Speer Burdette, III
/s/ Patti S. Davis Director, Senior Vice President,
- --------------------------- Chief Financial Officer and Assistant
Patti S. Davis Secretary (principal financial and
accounting officer)
/s/ Fred A. Durand, III Director
- ---------------------------
Fred A. Durand, III
/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 officer)
J. Daniel Speight, Jr.
/s/ John W. Stewart, Jr. Director
- ---------------------------
John W. Stewart, Jr.
/s/ Robert W. Walters Director
- ---------------------------
Robert W. Walters
26
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 (adopted by resolution of Board of
Directors on October 19, 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 Ellison C. Rudd and the Company dated as
of April 1, 1998 (incorporated by reference from Exhibit 10.3 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 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)*
26
10.5 Separation Agreement between Charles A. Hinely and the Company dated
April 1, 1998 (incorporated by reference from Exhibit 10.5 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 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)*
10.7 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)*Form of Executive Agreement (pursuant to
Director Indexed Retirement Program for Citizens Bank) for individuals
listed on exhibit cover
10.9 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)*
27
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)*
10.17FLAG 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)*
10.18FLAG 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)*
13 1998 Annual Report to Shareholders+
22 Subsidiaries
27 Financial Data Schedule
99.1 Report of Robinson, Grimes & Company, P.C., dated January 31, 19997
99.2 Report of Thigpen, Jones, Seaton & Co., P.C., dated January 28, 1998
- --------------------
* The indicated exhibit is a compensatory plan required to be filed as
an exhibit to this Form 10-K.
+ Portions of the Company's 1998 Annual Report, as indicated in this
report, are incorporated herein by reference. Other than as noted
herein, the Company's 1998 Annual Report is furnished to the
Securities and Exchange Commission solely for its information and is
not deemed to be "filed" with the Securities and Exchange Commission
or subject to the liabilities of Section 18 of the Securities Exchange
Act of 1934, as amended.
28