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, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
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Commission file number 0-24532
FLAG FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Georgia 58-2094179
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(State of incorporation) (I.R.S. Employer Identification No.)
P.O. Box 3007
LaGrange, Georgia 30241
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(Address of principal executive offices) (Zip Code)
(706) 845-5000
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(Telephone Number)
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
Common stock, par value $1 per share: 8,229,670 shares
Outstanding as of May 08, 2002
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
================================================================================
TABLE OF CONTENTS
Page
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2002 and
December 31, 2001. . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the Three Months
Ended March 31, 2002 and 2001. . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 2002 and 2001 . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2002 and 2001. . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 12
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 13
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
=========================================================================================
MARCH 31 DECEMBER 31,
2002 2001
----------------------------
ASSETS (UNAUDITED)
------
Cash and due from banks . . . . . . . . . . . . . . . . . . $ 14,586,901 $ 20,077,641
Federal funds sold. . . . . . . . . . . . . . . . . . . . . 1,437,000 -
----------------------------
Total cash and cash equivalents . . . . . . . . . . . . 16,023,901 20,077,641
----------------------------
Interest-bearing deposits . . . . . . . . . . . . . . . . . 160,311 160,093
Investment securities available-for-sale. . . . . . . . . . 122,092,669 131,526,473
Other investments . . . . . . . . . . . . . . . . . . . . . 5,835,098 5,835,093
Mortgage loans held-for-sale. . . . . . . . . . . . . . . . 3,800,656 6,454,127
Loans, net. . . . . . . . . . . . . . . . . . . . . . . . . 337,289,308 368,967,089
Premises and equipment, net . . . . . . . . . . . . . . . . 13,989,471 13,943,542
Other assets. . . . . . . . . . . . . . . . . . . . . . . . 26,123,602 23,237,843
----------------------------
Total assets. . . . . . . . . . . . . . . . . . . . $525,315,016 $570,201,901
============================
LIABILITIES
-----------
Non interest-bearing deposits . . . . . . . . . . . . . . . $ 40,286,234 $ 48,553,710
Interest-bearing deposits . . . . . . . . . . . . . . . . . 391,751,216 392,027,616
Federal funds purchased and repurchase agreements . . . . . - 18,001,000
Other borrowings. . . . . . . . . . . . . . . . . . . . . . - 5,000,000
Advances from Federal Home Loan Bank. . . . . . . . . . . . 30,000,000 39,448,435
Other liabilities . . . . . . . . . . . . . . . . . . . . . 8,123,226 13,147,653
----------------------------
Total liabilities . . . . . . . . . . . . . . . . . 470,160,676 516,178,414
----------------------------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock (10,000,000 shares authorized, none
issued and outstanding) . . . . . . . . . . . . . . . . - -
Common stock ($1 par value, 20,000,000 shares authorized
9,393,006 and 8,277,995 shares issued in 2002
and 2001, respectively. . . . . . . . . . . . . . . . . 9,393,006 8,277,995
Additional paid-in capital. . . . . . . . . . . . . . . . . 21,292,328 11,354,511
Retained earnings . . . . . . . . . . . . . . . . . . . . . 32,616,600 39,223,132
Accumulated other comprehensive income. . . . . . . . . . . 1,319,916 1,612,488
Less: Treasury stock at cost; 1,236,961 shares in 2002 and
908,001 shares in 2001. . . . . . . . . . . . . . . . . (9,467,510) (6,444,639)
----------------------------
Total stockholders' equity. . . . . . . . . . . . . 55,154,340 54,023,487
----------------------------
Total liabilities and stockholders' equity. . . . . $525,315,016 $570,201,901
============================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
CONSOLIDATED STATEMENTS OF OPERATIONS
==============================================================================================
Three Months Ended
March 31,
-------------------------
2002 2001
(UNAUDITED)
INTEREST INCOME
Interest and fees on loans. . . . . . . . . . . . . . . . . . . . $ 7,000,932 $ 9,963,107
Interest on securities . . . . . . . . . . . . . . . . . . . . . 1,787,410 1,730,191
Interest on federal funds sold and interest-bearing deposits 41,957 161,133
--------------------------
Total interest income . . . . . . . . . . . . . . . . . . . . . 8,830,299 11,854,431
--------------------------
INTEREST EXPENSE
Interest on deposits. . . . . . . . . . . . . . . . . . . . . . . 3,272,021 4,960,322
Interest on borrowings. . . . . . . . . . . . . . . . . . . . . . 373,822 493,727
--------------------------
Total interest expense. . . . . . . . . . . . . . . . . . . . . 3,645,843 5,454,049
--------------------------
Net interest income before provision for loan losses. . . . . . 5,184,456 6,400,382
PROVISION FOR LOAN LOSSES . . . . . . . . . . . . . . . . . . . . . 4,054,000 252,000
--------------------------
Net interest income after
provision for loan losses . . . . . . . . . . . . . . . . . . 1,130,456 6,148,382
--------------------------
OTHER INCOME
Fees and service charges. . . . . . . . . . . . . . . . . . . . . 895,251 1,189,334
Gain on sale of available-for-sale securities . . . . . . . . . . 6,788 -
Gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . 222,892 273,149
Other income. . . . . . . . . . . . . . . . . . . . . . . . . . . 410,567 370,252
--------------------------
Total other income. . . . . . . . . . . . . . . . . . . . . . . 1,535,498 1,832,735
--------------------------
OTHER EXPENSES
Salaries and employee benefits. . . . . . . . . . . . . . . . . . 7,037,762 3,476,410
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,056,461 944,982
Other operating . . . . . . . . . . . . . . . . . . . . . . . . . 3,998,533 1,807,711
--------------------------
Total other expenses. . . . . . . . . . . . . . . . . . . . . . 12,092,756 6,229,103
--------------------------
Earnings before provision for
income taxes. . . . . . . . . . . . . . . . . . . . . . . . . (9,426,802) 1,752,014
Provision for income taxes. . . . . . . . . . . . . . . . . . . . (3,475,666) 482,638
--------------------------
Earnings before extraordinary item. . . . . . . . . . . . . . . (5,951,136) 1,269,376
Extraordinary item - loss on redemption of debt, net of income tax
benefit of $101,377 in 2002 . . . . . . . . . . . . . . . . . . 165,404 -
--------------------------
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . $(6,116,540) $ 1,269,376
==========================
Basic and diluted earnings per share:
(Loss) earnings before extraordinary item . . . . . . . . . . . $ (0.77) $ 0.16
Extraordinary item. . . . . . . . . . . . . . . . . . . . . . . (0.02) -
--------------------------
Net (loss) earnings . . . . . . . . . . . . . . . . . . . . . . ($0.79) $ 0.16
==========================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
=====================================================================================================
THREE MONTHS ENDED
MARCH 31,
2002 2001
-------------------------
(UNAUDITED)
Net (loss) earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . $(6,116,540) $ 1,269,376
Other comprehensive income, net of tax:
Unrealized (losses) gains on investment
securities available-for-sale:
Unrealized (losses) arising during the period,
net of tax of $141,220 and $824,433 respectively . . . . . . . . (230,412) 1,345,127
Less: Reclassification adjustment for gains included in
net earnings, net of tax of $2,579 (4,209)
Unrealized (loss) gain on cash flow hedges, net of tax of $45,837
and $76,000 respectively . . . . . . . . . . . . . . . . . . . . (74,787) 124,000
-------------------------
Other comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . (292,572) 1,469,127
-------------------------
Comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . . . . $(6,409,112) $ 2,738,503
=========================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
=======================================================================================
THREE MONTHS ENDED
MARCH 31,
2002 2002
--------------------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings . . . . . . . . . . . . . . . . . . . $ (6,116,540) 1,269,376
Adjustment to reconcile net (loss) earnings to net
cash used in operating activities:
Depreciation, amortization and accretion. . . . . . . 663,057 683,927
Provision for loan losses . . . . . . . . . . . . . . 4,054,000 252,000
Gain on sale of available-for-sale securities . . . . (6,788)
Gain on sales of loans. . . . . . . . . . . . . . . . (222,892) (273,149)
Loss (gain)on sale of other real estate . . . . . . . (24,186) 7,955
Change in:
Mortgage loans-held-for sale. . . . . . . . . . . . 2,876,363 (2,130,195)
Other . . . . . . . . . . . . . . . . . . . . . . . (7,883,314) (196,689)
--------------------------
Net cash used in operating activities . . . . . . (6,660,300) (386,775)
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in interest-bearing deposits . . . . . . . . . (218) 2,534,024
Proceeds from sales and maturities of investment
securities available-for-sale . . . . . . . . . . . . . 11,126,015 6,297,494
Purchases of investment securities available-for-sale . . (2,371,300)
Purchases of other investments. . . . . . . . . . . . . . (50,000) (588,650)
Net change in loans . . . . . . . . . . . . . . . . . . . 27,623,781 (2,619,835)
Proceeds from sale of other real estate . . . . . . . . . 493,259 306,604
Proceeds from sale of premises and equipment. . . . . . . 44,200 112,438
Purchases of premises and equipment . . . . . . . . . . . (761,257) (162,099)
Purchases of cash surrender value life insurance. . . . . (44,575) (46,397)
--------------------------
Net cash provided by investing activities . . . . 36,059,905 5,833,579
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits. . . . . . . . . . . . . . . . . . (8,543,875) (4,720,733)
Change in federal funds purchased . . . . . . . . . . . . (18,001,000) 538,124
Change in other borrowed funds. . . . . . . . . . . . . . (5,000,000) (1,500,000)
Payments of FHLB advances . . . . . . . . . . . . . . . . (9,448,435) (1,162,530)
Purchase of treasury stock. . . . . . . . . . . . . . . . (3,022,871) (945,437)
Proceeds from exercise of stock options . . . . . . . . . 173,568 8,995
Proceeds from issuance of stock 9,835,260
Proceeds from issuance of warrants 1,044,000
Cash dividends paid . . . . . . . . . . . . . . . . . . . (489,992) (478,680)
--------------------------
Net cash used in financing activities . . . . . . (33,453,345) (8,260,261)
--------------------------
Net change in cash and cash equivalents . . . . (4,053,740) (2,813,457)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. . . . . 20,077,641 21,873,110
--------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . . . $ 16,023,901 19,059,653
==========================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The accompanying consolidated financial statements have not been audited. The
results of operations are not necessarily indicative of the results of
operations for the full year or any other interim periods.
The accounting principles followed by FLAG Financial Corporation ("FLAG") and
its bank subsidiary and the methods of applying these principles conform with
accounting principles generally accepted in the United States of America 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, 2001.
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, 2001.
Note 2. Earnings Per Share
Net (loss) earnings per common share are based on the weighted average number of
common shares outstanding during each period. The calculation of basic and
diluted (loss) earnings per share is as follows:
THREE MONTHS ENDED
MARCH 31,
========================
2002 2001
========================
Basic (loss) earnings per share:
Net (loss) earnings. . . . . . . . . . . . $ (6,116,540) 1,269,376
Weighted average common shares
Outstanding . . . . . . . . . . . . . . 7,750,248 8,031,583
Basic (loss) earnings per share . . . . . . $ (0.79) 0.16
Diluted (loss) earnings per share:
Net (loss) earnings . . . . . . . . . . . . $ (6,116,540) 1,269,376
Effect of dilutive securities -
stock options . . . . . . . . . . . . . 21,749
Diluted (loss) earnings per share . . . . . $ (0.79) 0.16
7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
FINANCIAL CONDITION
OVERVIEW
The Company experienced a reduction in earning assets and funding during the
first quarter. Most of the reductions were the result of decisions made by
management in an effort to improve the net interest margin and/or credit
quality.
ASSETS AND FUNDING
Total assets were $525.3 million at March 31, 2002, a decrease of $45.0 million
or 7.9 percent from December 31, 2001. This decrease in total assets was mainly
attributable to a reduction in net loans outstanding of approximately $31.7
million accompanied by a reduction in investment securities of approximately
$9.4 million. A significant portion of the reduction in loans outstanding was
the result of the Company's decision to return lower yielding loan
participations to the originating bank and refocus the Company's efforts on loan
growth in existing local markets. The reduction in investment securities of $9.4
million was mainly due to expected calls and contractual maturities. At March
31, 2002, earning assets represented 91.0% of total assets compared to December
31, 2001 levels of 91.2%. Gross loans outstanding comprised approximately 72.1%
and 72.3% of total earning assets as of March 31, 2002 and December 31, 2001,
respectively.
Interest-bearing deposits decreased $276,000 compared to December 31, 2001 while
non-interest bearing deposits decreased $8.3 million over the same period. The
decrease in non-interest bearing deposits for the first three months of 2002 was
mainly attributed to a seasonal reduction resulting from traditionally high
balances at year end. Funding from non-deposit sources decreased $32.4 million
during the first quarter of 2002 as the Company repaid $18.0 million in federal
funds purchased and $9.5 million in Federal Home Loan Bank advances. Customer
deposits represented 93.5% of total funding at quarter end versus 87.6% at year
end, 2001. Non-interest bearing deposits as a percentage of total funding
decreased from 9.6% at December 31, 2001 to 8.7% at March 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains borrowing lines with various other financial institutions
including the Federal Home Loan Bank. At March 31, 2002, the Company had total
borrowing agreements of approximately $110 million of which only $30 million was
advanced.
The Company's Board of Directors approved a 1,300,000 share private placement
during the first quarter of 2002. At March 31, 2002, approximately 1,100,000
shares and 1,100,000 warrants had been sold for $10.9 million, while a
substantial portion of the remaining shares and warrants were subscribed but not
yet purchased. All shares and warrants purchased or subscribed through the
private placement were with the Company's management or employees.
The funds provided from the private placement contributed to an increase in
stockholders' equity to $55.2 million, an increase of 2.1% over December 31,
2001. The increase provided by the private placement funds was partially offset
by the net loss of $6.1 million and purchases of treasury stock of $3.0 million.
Stockholders' equity as a percentage of total assets was 10.5% percent at March
31, 2002 versus 9.47% percent at December 31, 2001.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
RESULTS OF OPERATIONS
Three months ended March 31, 2002 and 2001
OVERVIEW
Net loss for the three months ending March 31, 2002 was $6,117,000 or $0.79 per
share versus net earnings of $1,269,000 or $0.16 per share for the same period
in 2001. The net loss included an after tax restructuring charge of $3,380,000,
an after tax provision for loan losses of $2,483,000, and an after tax
extraordinary charge of $165,000 related to the prepayment of a portion of the
Company's Federal Home Loan Bank borrowings.
NET INTEREST INCOME
Net interest income for the three months ending March 31, 2002 decreased
approximately $1.2million or 19% over the comparable period in 2001. Net
interest income as a percentage of average earning assets decreased
approximately 15% from 4.96% to 4.22%.
Interest income for the first quarter of 2002 of approximately $8.8 million
represented a decrease of $3.0 million or 26%. This decrease resulted from a
combination of lower volume and lower yields over the comparable quarter in
2001. Average earning assets in the first quarter of 2001 were $513 million
with 76% invested in loans compared to first quarter 2002 levels of $497 million
with 71% invested in loans respectively. Yields on these earning assets
decreased from 8.77% during 2001 to 6.78% during 2002.
Interest expense decreased approximately $1.8 million to $3.6 million during the
quarter ended March 31, 2002 versus $5.5 million during the quarter ended March
31, 2001, a decrease of approximately 33%. Total cost of funds decreased
approximately 132 basis points from 4.39% to 3.07%. Non-interest bearing
balances represented 8.7% of total funding at March 31, 2002 versus comparable
2001 levels of 9.6%.
NON-INTEREST INCOME AND EXPENSE
Non-interest income for the three months ended March 31, 2002 decreased $297,000
or 16% compared to the first three months of 2001. Mortgage related income
(origination fees, gain on sale of loans and service release premiums) decreased
from $609,000 at March 31, 2001 to $407,000 at March 31, 2002. Service charges
on deposit accounts decreased $137,000 from $883,000 in the first quarter of
2001 to $746,000 in the first quarter of 2002. This decrease is primarily
attributable to the sale of two branches in December 2001 with approximately $37
million in deposits.
9
Non-interest expense increased $5,864,000 or 94 percent to $12,093,000 for the
quarter ended March 31, 2002 compared to the same period in 2001. Restructuring
charges of $4.9 million included approximately $650,000 for expected
professional fees relating to the Company's management restructure and private
placement transaction. Also included was approximately $3.8 million of
severance and contract buyouts related to the company's decision to close five
branches and reduce its workforce by 20%. Increases in salaries and employee
benefits, net of the restructuring charges, were approximately $232,000.
INCOME TAXES
Income tax benefit for the first quarter of 2002 was $3,476,000 compared to
income tax expense of $483,000 for the same period in 2001. The effective tax
rate for the quarter ended March 31, 2002 was 37 percent compared 28 percent for
the quarter ended March 31, 2001.
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 the
Company'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 provision for loan losses
for the first quarter of 2002 was $4,054,000 versus $252,000 for comparable
period in 2001. The loan loss provision reflected both the results of an
in-depth study of the loan portfolio at the subsidiary bank where recent
management changes have occurred and a revision of the estimation process used
by the Company. The allowance for loan and lease losses at March 31, 2002 was
$7.5 million compared to $7.3 million at December 31, 2001. The ratio of the
allowance for loan losses to net outstanding loans at March 31, 2002 and
December 31, 2001 was 2.28 percent and 1.99 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
Non-performing assets (non-accrual loans, real estate owned and repossessions)
totaled approximately $10.45 million at March 31, 2002 compared to $19.95
million at December 31, 2001. These levels as a percentage of total assets
represented 1.99% and 3.50%, respectively.
The Company 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 the Company's 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
================================================================================
CAPITAL
At March 31, 2002, 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 the Company's consolidated Tier-1 Capital,
Tangible Capital, and Risk-Based Capital:
MARCH 31, 2002
----------------------------------------------------------------------
ACTUAL REQUIRED EXCESS
AMOUNT % AMOUNT % AMOUNT %
----------------------------------------------------------------------
Tier 1 Capital $47,019 8.81% $ 21,347 4.00% $25,672 4.81%
Tangible Capital $47,019 8.81% $ 8,005 1.50% $39,014 7.31%
Risk-Based Capital $52,148 12.71% $ 32,816 8.00% $19,332 4.71%
11
PART 2. OTHER INFORMATION
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
================================================================================
PART II. Other Information
Item 1. Legal Proceedings
Walter Terry Branyan and Robert Tommy Gilder III. Terry Branyan was a
borrower from the Company, borrowing $1,271,324.54 in three separate promissory
notes on March 17, 1999. Terry Branyan's obligation was guaranteed by Walter
Branyan for $300,000 and Tommy Gilder for $1,000,000. Terry Branyan defaulted
on his obligation, and the Company initiated suit to collect against all three.
Walter Branyan has settled his portion of the guaranty. Default judgment was
entered against Terry Branyan on January 3, 2001. Mr. Gilder answered the
complaint and counterclaimed against the Company for breach of fiduciary duty in
connection with his guaranty. The company and Mr. Gilder have reached a
settlement agreement which is in the process of being documented. In the
unlikely event the settlement is not consummated, the Company intends to
vigorously pursue its claims and vigorously defend against the claims of Mr.
Gilder. At this time it is impossible to determine the likelihood of a
favorable outcome or make an estimate as to the range of potential loss
resulting from an unfavorable outcome as to Mr. Gilder's claims.
The Company and the Bank are periodically involved as plaintiff or
defendant in various other legal actions in the ordinary course of their
business. We do not believe that such litigation presents a material risk to
the Company's business, financial condition or results of operations.
Item 2. Changes in Securities
On February 19, 2002, the Company issued 1,062,000 shares of common stock
and warrants, with each share of common stock having a purchase price of $9.10
and each warrant having a purchase price of $1.00 and an exercise price of
$9.10. Between March 7, 2002 and March 31, 2002 the company issued an additional
18,000 shares of common stock and warrants on the same terms, except that the
purchase price of the common stock and the exercise price of the warrants ranged
from $9.10 to $9.90 per share. The shares were sold to members of FLAG's senior
management team in a private placement under Rule 506 of the Securities Act of
1933, as amended. The warrants are immediately exercisable in full and have a
ten-year term.
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
Pursuant to Rule 14a-14(c)(1) promulgated under the Securities Exchange Act of
1934, as amended, shareholders desiring to present a proposal for consideration
at the Company's 2003 Annual Meeting of Shareholders must notify the Company in
writing to the Secretary of the Company, at Eagle's Landing, 235 Corporate
Center Drive, Stockbridge, Georgia 30281 of the contents of such proposal no
later than December 15, 2002 to be included in the 2003 Proxy Materials. A
shareholder must notify the Company before January 15, 2003 of a proposal for
the 2003 Annual Meeting that the shareholder intends to present other than by
inclusion in the Company's proxy material. If the Company does not receive such
notice prior to January 15, 2003, proxies solicited by the management of the
Company will confer discretionary authority upon the management of the Company
to vote upon any such matter.
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OTHER INFORMATION
FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
================================================================================
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
10.1 Amended and Restated Employment Agreement between Patti S. Davis
and FLAG dated as of February 21, 2002.
10.2 Fourth Amendment to the FLAG Financial Corporation 1994 Director
Stock Incentive Plan.
(b) Reports on Form 8-K
Reports on Form 8-K filed during the First Quarter of 2002:
A current report on Form 8-K dated February 19, 2002 reporting the
abandonment of a contemplated reverse stock split and the receipt of
an unsolicited acquisition offer.
A current report on Form 8-K dated March 5, 2002 reporting the filing
of a shareholder suit that was later dismissed.
Reports on Form 8-K filed from Quarter End 2002 to Present:
None.
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FLAG FINANCIAL CORPORATION AND SUBSIDIARIES
================================================================================
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/
-----------------------
Joseph W. Evans
(Chief Executive Officer)
Date: 5/14/02
---------------------
By: /s/
-----------------------
Charles O. Hinely
(Chief Financial Officer)
Date: 5/14/02
---------------------
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