SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K


                |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1999

              |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                 For the transition period from ______ to ______

                           Commission File No. 0-24532
                           FLAG FINANCIAL CORPORATION
                           --------------------------
             (Exact name of Registrant as specified in its charter)


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

               101 North Greenwood Street, LaGrange, Georgia 30240
               ---------------------------------------------------
                    (Address of principal executive offices)

                                 (706) 845-5000
                                 --------------
                         (Registrant's telephone number)

        Securities registered pursuant to Section 12(b) of the Act: None
               Securities registered pursuant to Section 12(g) of
                     the Act: Common Stock, $1.00 par value
                                 ---------------

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the 3past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  Registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. X

The aggregate market value of the Registrant's  outstanding Common Stock held by
non-affiliates   of  the   Registrant  on  March  17,  1999  was   approximately
$45,737,320. There were 8,222,905 shares of Common Stock outstanding as of March
17, 1999.

                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------

Portions of the  Registrant's  Proxy  Statement  for the 2000 Annual  Meeting of
Shareholders to be held on April 19, 2000, are incorporated by reference in Part
III hereof.


<PAGE>



                           FLAG FINANCIAL CORPORATION
                           Annual Report on Form 10-K
                   For the Fiscal Year Ended December 31, 1999

                                Table of Contents
Item                                                                       Page
Number                               Part I                               Number
------                               ------                               ------

  1.       Business..........................................................  1

  2.       Properties........................................................ 11

  3.       Legal Proceedings................................................. 14

  4.       Submission of Matters to a Vote of Security Holders............... 15

                                     Part II
                                     -------

  5.       Market for Registrant's Common Stock and Related
               Shareholder Matters........................................... 15

  6.       Selected Financial Data........................................... 16

  7.       Management's Discussion and Analysis of Financial Condition and
               Results of Operations......................................... 17

 7A.       Quantitative and Qualitative Disclosures about Market Risk........ 29

  8.       Financial Statements and Supplementary Data ...................... 30

  9.       Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure.......................... 57

                                    Part III
                                    --------

 10.       Directors and Executive Officers of the Registrant ............... 57

 11.       Executive Compensation............................................ 57

 12.       Security Ownership of Certain Beneficial Owners and Management.... 57

 13.       Certain Relationships and Related Transactions.................... 57

                                     PART IV
                                     -------

 14.       Exhibits, Financial Statement Schedules and Reports on Form 8-K... 58

                        Signatures........................................... 62

                        Index of Exhibits ................................... 64



<PAGE>


                                     PART I
                                     ------

ITEM 1.  BUSINESS

     SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

     Certain  of the  matters  discussed  in  this  document  and  in  documents
incorporated by reference herein,  including matters discussed under the caption
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations,"  may  constitute  forward-looking  statements  for  purposes of the
Securities Act of 1933, as amended,  and the Securities Exchange Act of 1934, as
amended.  These forward-looking  statements may involve known and unknown risks,
uncertainties and other factors which may cause the actual results,  performance
or achievements  of the Company to be materially  different from future results,
performance  or  achievements  expressed  or  implied  by  such  forward-looking
statements.  The words  "expect,"  "anticipate,"  "intend,"  "plan,"  "believe,"
"seek,"  "estimate,"  and similar  expressions  are  intended  to identify  such
forward-looking  statements.  The Company's actual results may differ materially
from the  results  anticipated  in  these  forward-looking  statements  due to a
variety of factors, including, without limitation:

     (1)  The effects of future economic conditions;

     (2)  Governmental  monetary and fiscal policies, as well as legislative and
          regulatory changes;

     (3)  The risks of changes in interest rates on the level and composition of
          deposits,  loan demand, and the values of loan collateral,  securities
          and interest  rate  protection  agreements,  as well as interest  rate
          risks;

     (4)  The  effects of  competition  from other  commercial  banks,  thrifts,
          mortgage  banking firms,  consumer finance  companies,  credit unions,
          securities  brokerage  firms,  insurance  companies,  money market and
          other mutual funds and other financial  institutions  operating in the
          Company's market area and elsewhere,  including institutions operating
          locally,  regionally,  nationally and  internationally,  together with
          such  competitors  offering  banking  products  and  services by mail,
          telephone, and computer and the Internet; and

     (5)  The failure of assumptions  underlying the  establishment  of reserves
          for possible loan losses and  estimations  of values of collateral and
          various financial assets and liabilities.

     All written or oral forward-looking  statements attributable to the Company
are expressly qualified in their entirety by these cautionary statements.

The Company

     FLAG  Financial  Corporation  ("FLAG"  or the  "Company")  is a  multi-bank
holding company  headquartered in LaGrange,  Georgia and is registered under the
Bank Holding Company Act of 1956, as amended.  As of March 20, 2000, the Company
is the sole  shareholder  of First Flag Bank,  formerly  known as First  Federal
Savings Bank of LaGrange,  Citizens  Bank and  Thomaston  Federal  Savings Bank,
(collectively,   the  "Banks").  FLAG  merged  The  Citizens  Bank,  located  in
Hogansville,  Georgia,  with its  subsidiary,  First Flag Bank,  on February 11,
2000.

     The  Company  was  incorporated  under the laws of the State of  Georgia on
February 9, 1993 at the direction of First Flag Bank for the purpose of becoming
the holding company for First Flag Bank. As a result, shareholders of First Flag
Bank became shareholders of the Company, with the same proportional interests in
the Company as they  previously  held in First Flag Bank  (excluding the nominal
effect on their  ownership  interest of the  exercise of  dissenters'  rights by
certain  shareholders of First Flag Bank).  Following the reorganization  into a
bank  holding  company  structure,   First  Flag  Bank  continued  its  business
operations  as a  federally-chartered  stock  savings  bank under the same name,
charter and bylaws.  First Flag Bank converted from a federal stock savings bank
to a Georgia state-chartered bank on June 11, 1999.


                                       1
<PAGE>


     As a bank holding company,  the Company facilitates the Banks' abilities to
serve their customers'  requirements for financial services. The holding company
structure  permits  diversification  by the  Company  into a  broader  range  of
financial services and other business activities than currently are permitted to
the Banks under  applicable  law. The holding  company  structure  also provides
greater  financial  and  operating  flexibility  than is available to the Banks.
Additionally,  the Articles of  Incorporation  and Bylaws of the Company contain
terms that provide a degree of  anti-takeover  protection to the Company that is
currently  unavailable to the Banks and their  shareholders under regulations of
the Federal Deposit Insurance  Corporation (the "FDIC") and the Office of Thrift
Supervision (the "OTS"), but is permissible for the Company under Georgia law.

     A substantial portion of the Company's growth has been through acquisitions
of other  financial  institutions.  As part of its ongoing  strategic  plan, the
Company continually evaluates business combination  opportunities and frequently
conducts  due  diligence   activities  in  connection  with  possible   business
combinations.  As a result, business combination discussions,  and in some cases
negotiations,  frequently take place, and future business combinations involving
cash, debt or equity securities can be expected. Any future business combination
that the Company might undertake may be material, in terms of assets acquired or
liabilities  assumed,  to the Company's  financial  condition.  Additionally,  a
future  business  combination  could  result in  dilution  of book value and net
income  per  share  for the  acquirer.  It is the  Company's  practice  to avoid
possible dilution except where  projections  indicate a relatively short payback
period.

     The  Company  completed  a merger  with  Middle  Georgia  Bankshares,  Inc.
("Middle  Georgia") in March 1998.  Through the merger with Middle Georgia,  the
Company acquired Citizens Bank,  Middle Georgia's  wholly-owned bank subsidiary.
The Company completed a merger with Three Rivers  Bancshares,  Inc. in May 1998.
Three Rivers' wholly-owned subsidiary,  Bank of Milan, merged into Citizens Bank
on January 1, 1999.  The Company  completed  a merger with Empire Bank Corp.  in
December  1998.  Empire Bank Corp.'s  wholly-owned  subsidiary,  Empire  Banking
Company,  merged into Citizens Bank on January 1, 1999. The Company acquired The
Brown Bank  through the merger of The Brown Bank with  Citizens  Bank  effective
December 31, 1998. The Company completed a merger with Thomaston Federal Savings
Bank,  whereby,  Thomaston  Federal  Savings  Bank  merged  with a  wholly-owned
subsidiary of the Company,  created solely to facilitate  the merger.  Thomaston
Federal  Savings Bank became a subsidiary of the Company on August 27, 1999. The
Company  completed  a merger with First  Hogansville  Bankshares,  Inc.,  parent
company of The Citizens Bank, located in Hogansville,  Georgia, on September 30,
1999. First Hogansville Bankshares, Inc. became a subsidiary of the Company. The
Citizens Bank merged into First Flag Bank, on February, 11, 2000.

     As a result of the merger of Empire Banking Company into Citizens Bank, the
Company  discontinued the operations of E.B.C.  Financial Services,  Inc. during
1999. The services  provided  through E.B.C.  Financial  Services,  Inc. are now
provided  through  FLAG  Insurance  Services  which  operates  as a division  of
Citizens Bank.

     FLAG is also a service  provider of  mortgage,  appraisal,  investment  and
insurance  services  though  FLAG  Mortgage,   FLAG  Appraisal  Services,   FLAG
Investment  Services and FLAG  Insurance  Services.  All of these  services were
provided by FLAG at year-end with the exception of FLAG Mortgage, which operates
as a division of First Flag Bank and FLAG Insurance Services which operates as a
division of Citizens Bank.

     On August 16, 1999,  the Company  announced  plans to establish a corporate
operations  center  named The Eagle's  Landing  Center,  in  Stockbridge,  Henry
County, Georgia. The Eagle's Landing Center opened in November 1999 and supports
the Banks'  data/item  processing  operations,  serves as  executive  management
offices and training facility and a corporate communications center.

The Banks

     First Flag Bank.  First Flag Bank,  formerly known as First Federal Savings
Bank of LaGrange,  is a Georgia  state-chartered bank headquartered in LaGrange,
Troup County,  Georgia with five offices in LaGrange,  Georgia.  First Flag Bank
was originally  chartered by the State of Georgia in January 1927 under the name
"Home  Building  and Loan  Association."  First Flag Bank  received  its federal
charter and changed its name to "First Federal  Savings and Loan  Association of
LaGrange" in 1955,  and at that time its deposits  became insured by the Federal


                                       2
<PAGE>


Savings and Loan Insurance  Corporation  (the "FSLIC").  In December 1986, First
Flag Bank  converted  from a federal  mutual  savings and loan  association to a
federal  stock  savings  and loan  association.  In June  1989,  First Flag Bank
converted  from a federal stock savings and loan  association to a federal stock
savings bank and changed its name to "First  Federal  Savings Bank of LaGrange."
In December  1998,  First Flag Bank changed its name to "First Flag Bank." First
Flag Bank filed an  application  with the  Georgia  Department  of  Banking  and
Finance ("GDBF") and the OTS to convert its charter from a federal stock savings
bank to a state-chartered bank which became effective June 11, 1999. At December
31, 1999, First Flag Bank had total assets of approximately $222 million.

     On August  19,  1999,  the  Company  announced  plans to  establish  a loan
production office named First Flag Bank - Atlanta,  in Suwanee,  Forsyth County,
Georgia.  First Flag Bank - Atlanta  opened in November  1999 and  operates as a
division of First Flag Bank.

     On October 4, 1999,  FLAG announced that its two  subsidiaries,  First Flag
Bank and Thomaston  Federal Savings Bank, had  consolidated  their mortgage loan
production  offices in LaGrange,  Troup County,  Columbus,  Muscogee  County and
Macon, Bibb County,  Georgia and the offices of Opelika,  Lee County, and Phenix
City, Russell County, Alabama to form FLAG Mortgage. FLAG Mortgage operates as a
division of First Flag Bank.

     On February  11,  2000,  The Citizens  Bank,  with offices in  Hogansville,
Georgia, merged into First Flag Bank.

     Citizens Bank.  Citizens Bank is a state bank  organized  under the laws of
the State of Georgia  with  banking  offices in the  cities of  Unadilla,  Dooly
County, Vienna, Dooly County, Byromville, Dooly County, Montezuma, Macon County,
Cordele,  Crisp  County,  Homerville,  Clinch  County,  Waycross,  Ware  County,
Blackshear,  Pierce  County,  Milan,  Telfair  County,  McRae,  Telfair  County,
Cobbtown,  Tattnall County, and Metter, Candler County, Georgia. The Oglethorpe,
Macon County, Georgia, and Pinehurst, Dooly County, Georgia, offices of Citizens
Bank discontinued  operations on December 31, 1999. Citizens Bank was originally
chartered  in 1931 and became a  wholly-owned  subsidiary  of Middle  Georgia in
1989. On March 31, 1998,  Middle Georgia  merged into the Company,  and Citizens
Bank became a  wholly-owned  subsidiary  of the  Company.  At December 31, 1999,
Citizens Bank had total assets of approximately $280 million.

     On December 31, 1998, The Brown Bank, with offices in Cobbtown,  Metter and
Reidsville,  Georgia,  merged into Citizens Bank.  The Reidsville  office of The
Brown Bank  division of Citizens Bank  discontinued  operations on September 30,
1999.

     On January 1, 1999,  Empire  Banking  Company,  with offices in Homerville,
Waycross and Blackshear, Georgia, merged into Citizens Bank.

     On  January  1,  1999,  Bank of Milan,  with  offices  in Milan and  McRae,
Georgia, merged into Citizens Bank.

     On February 22, 1999,  FLAG  announced  plans to establish a de novo branch
office  named  First Flag Bank -  Statesboro,  in  Statesboro,  Bulloch  County,
Georgia.  The office became  operational the second quarter of 1999 and became a
full-service branch of Citizens Bank on September 1, 1999.

     On  April  30,  1999,  Citizens  Bank  completed  its  acquisition  of  the
Blackshear  Branch Office of First Georgia Bank,  located in Blackshear,  Pierce
County,  Georgia.  The  Blackshear  Branch Office  operates as a division of the
Empire Banking Company division of Citizens Bank.

     The Brown Bank, Empire Banking Company, Bank of Milan and First Flag Bank -
Statesboro  operate as divisions of Citizens Bank.  Citizens Bank registered the
names "The Brown Bank,"  "Empire  Banking  Company",  "Bank of Milan" and "First
Flag Bank - Statesboro " as tradenames of Citizens Bank.

     Thomaston  Federal  Savings  Bank.  Thomaston  Federal  Savings  Bank  is a
federally  chartered  savings  association  headquartered  in  Thomaston,  Upson
County,  Georgia with one office  located in Thomaston,  Upson County,  Georgia.
Thomaston  Federal Savings Bank was originally  chartered in 1929. On August 27,
1999,  Thomaston  Federal  merged  into the  Company  and became a  wholly-owned
subsidiary  of the Company.  At December 31, 1999,  Thomaston  Federal had total
assets of approximately $53 million.


                                       3
<PAGE>


     The Eagles Landing Center.  In November 1999, FLAG  established a corporate
operations  center called the Eagle's  Landing  Center,  located in Stockbridge,
Georgia.

     Business  of  the  Banks.  The  Banks'  businesses   consist  primarily  of
attracting  deposits  from the general  public and,  with these and other funds,
making residential mortgage loans, consumer loans,  commercial loans, commercial
real estate loans, residential construction loans and securities investments. In
addition  to  deposits,  sources  of  funds  for  the  Banks'  loans  and  other
investments  include  amortization and prepayment of loans, loan origination and
commitment fees, sales of loans or  participations  in loans,  fees received for
servicing  loans sold to others and advances  from the Federal Home Loan Bank of
Atlanta ("FHLBA").  The Bank's principal sources of income are interest and fees
collected on loans,  including fees received for  originating  and selling loans
and for servicing  loans sold to others,  and, to a lesser extent,  interest and
dividends  collected  on  other  investments  and  service  charges  on  deposit
accounts. The Bank's principal expenses are interest paid on deposits,  interest
paid  on  FHLBA  advances,  employee  compensation,  federal  deposit  insurance
premiums, office expenses and other overhead expenses.

     While  the  Banks  attempt  to  avoid  concentrations  of loans to a single
industry or based on a single type of collateral, the various types of loans the
Banks make have certain  risks  associated  with them.  Consumer and  commercial
loans  present  risks which,  among other  things,  include  fraud,  bankruptcy,
economic downturn,  deteriorated or non-existing collateral, changes in interest
rates and customer financial  problems.  Real estate loans present risks related
to,  among  other  things,  whether  the  builder is able to sell the  property,
whether  the  buyer is able to  obtain  permanent  financing  and the  nature of
changing economic conditions.

     The  Company's  primary asset is its stock in the Banks.  Accordingly,  its
financial  performance  is determined  primarily by the results of operations of
the Banks. For information  regarding the consolidated  financial  condition and
results of  operations  of the Company as of December  31, 1999 and 1998 and for
the three  years in the  period  ended  December  31,  1999,  see  "Management's
Discussion and Analysis of Financial  Condition and Results of Operations,"  and
the  Consolidated  Financial  Statements  of the Company,  and the related notes
which are presented in Items 7 and 8, respectively of this Annual Report on Form
10-K. All average balances  presented in this report were derived based on daily
averages.

Recent Developments

     The following section describes the significant  acquisitions and corporate
transactions of the Company during 1999 and in the first quarter of 2000.

     On September 30, 1999, First Hogansville  Bankshares,  Inc., parent company
of The Citizens  Bank, in  Hogansville,  Troup County,  Georgia  merged into the
Company.  The  Company  issued   approximately   575,000  shares  to  the  First
Hogansville  shareholders.  The  merger  was  accounted  for  as  a  pooling  of
interests.  First Hogansville Bankshares,  Inc., was the sole shareholder of The
Citizens Bank, a state bank organized under the laws of the State of Georgia. As
a result of the merger of First Hogansville  Bankshares,  Inc. with the Company,
The Citizens Bank became a wholly-owned  subsidiary of the Company.  On February
11, 2000,  The Citizens  Bank merged into the Company's  subsidiary,  First Flag
Bank, and is now known as First Flag Bank - Hogansville and operates as a branch
office of First Flag Bank.

     On  August  27,  1999,   Thomaston  Federal  Savings  Bank  merged  into  a
wholly-owned  subsidiary of the Company.  The Company  formed the subsidiary for
the purpose of  effecting  the merger  which  provided  that  Thomaston  Federal
Savings  Bank would  become a  subsidiary  of the  Company.  The Company  issued
approximately  1,125,447 shares to the Thomaston  shareholders and 49,233 shares
to the  Thomaston  optionholders  on exercise of their  options.  The merger was
accounted for as a pooling of interests.

     On  August  16,  1999,  FLAG  announced  plans  to  establish  a  corporate
operations  center  named The Eagle's  Landing  Center,  in  Stockbridge,  Henry
County,  Georgia.  The Eagle's Landing Center opened in November 1999 and serves
as the  central  hub for FLAG's  community  bank  network.  The center  supports
deposit operations and data/item  processing functions for the Banks. The center
also  facilitates  improved  communication  and the  coordination  among  senior
management to conduct the corporate business of FLAG.


                                       4
<PAGE>


     On December 23, 1999, FLAG announced the commencement of a stock repurchase
program  pursuant to which the Company will from time to time  repurchase  up to
57,500 shares of its outstanding  common stock.  The timing of the purchases and
the actual number of common shares  purchased will depend on market  conditions.
The  Company  plans to  purchase  shares  in the  open  market  or in  privately
negotiated transactions at prices deemed appropriate by management.

     On March 10,  2000,  FLAG  announced  that  Citizens  Bank had  executed an
agreement on March 6, 1999 to sell three of its branch offices to Pineland State
Bank,  located in Metter,  Georgia.  The branch  offices  are located in Metter,
Candler County,  Cobbtown,  Tattnall  County,  Georgia and  Statesboro,  Bulloch
County,  Georgia.  Under the terms of the proposed  agreement,  the Company will
sell the fixed assets,  deposits and all loans of the three branch locations. On
February 29, 2000, deposits totaled  approximately $29 million and loans totaled
approximately $22 million. The branch sale is subject to appropriate  regulatory
approval  and is  projected  to close  prior to the end of the third  quarter of
2000.

Employees

     As of  December  31,  1999,  the  Company  (including  the  Banks)  had 323
full-time and 29 part-time  employees.  The employees are not represented by any
collective  bargaining unit, and the Company considers its relationship with its
employees to be good.

Competition

     The banking  business in Georgia is highly  competitive.  The Banks compete
not only with other banks and thrifts  that are located in the same  counties as
the  Banks  and in  surrounding  counties,  but  with  other  financial  service
organizations   including  credit  unions,   finance   companies,   and  certain
governmental  agencies.  To the extent that the Banks must maintain non-interest
earning reserves against deposits, it may be at a competitive  disadvantage when
compared with other  financial  service  organizations  that are not required to
maintain reserves against substantially equivalent sources of funds. Also, other
financial  institutions  with  which the Banks  compete  may have  substantially
greater resources and lending capabilities due to the size of the organization.

Supervision and Regulation

     Both the Company and the Banks are subject to  extensive  state and federal
banking  regulations  that  impose  restrictions  on  and  provide  for  general
regulatory  oversight of our  operations.  These laws are generally  intended to
protect depositors and not shareholders.  The following discussion describes the
material elements of the regulatory framework that applies to us.

The Company

     Since the Company owns all of the capital stock of the Citizens Bank, First
Flag Bank and Thomaston Federal Savings Bank, it is a bank holding company under
the  federal  Bank  Holding  Company  Act of 1956.  As a result,  the Company is
primarily subject to the supervision, examination, and reporting requirements of
the Bank Holding Company Act and the regulations of the Federal Reserve.

     Acquisitions  of Banks.  The Bank Holding  Company Act requires  every bank
holding company to obtain the Federal Reserve's prior approval before:

     o    Acquiring direct or indirect ownership or control of any voting shares
          of any bank if, after the  acquisition,  the bank holding company will
          directly  or  indirectly  own or  control  more than 5% of the  bank's
          voting shares;

     o    Acquiring all or substantially all of the assets of any bank; or

     o    Merging or consolidating with any other bank holding company.


                                       5
<PAGE>


     Under  the  Bank  Holding  Company  Act,  an  adequately   capitalized  and
adequately  managed bank holding  company located in Georgia may purchase a bank
located outside of Georgia. Conversely, an adequately capitalized and adequately
managed  bank  holding  company  located  outside of Georgia may purchase a bank
located inside Georgia. In each case, however, restrictions may be placed on the
acquisition  of a bank which has only been in existence for a limited  amount of
time or an acquisition which may result in specified concentrations of deposits.

     Change in Bank  Control.  Subject to various  exceptions,  the Bank Holding
Company  Act  and  the  Change  in  Bank  Control  Act,  together  with  related
regulations,  require  Federal  Reserve  approval prior to any person or company
acquiring "control" of a bank holding company.  Control is conclusively presumed
to exist if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company.  Control is rebuttably presumed to exist
if a person or a company  acquires 10% or more,  but less than 25%, of any class
of  voting  securities  and  either  the bank  holding  company  has  registered
securities  under Section 12 of the  Securities  Act of 1934, or no other person
owns a greater  percentage of that class of voting securities  immediately after
the transaction.

     Permitted  Activities.  Under the Bank Holding  Company Act, a bank holding
company,  which has not  qualified  or  elected  to become a  financial  holding
company is generally prohibited from engaging in or acquiring direct or indirect
control  of  more  than  5% of the  voting  shares  of any  company  engaged  in
nonbanking  activities  unless prior to the enactment of the  Gramm-Leach-Bliley
Act the Federal  Reserve  found  those  activities  to be so closely  related to
banking as to be a proper incident to the business of a banking. Activities that
the Federal Reserve has found to be so closely related to banking to be a proper
incident to the business of banking include:

     o    factoring accounts receivable,

     o    acquiring or servicing loans,

     o    leasing personal property,

     o    conducting discount securities brokerage activities,

     o    performing selected data processing services,

     o    acting as agent or broker in selling  credit life  insurance and other
          types of insurance in connection with credit transactions, and

     o    performing selected insurance underwriting activities.

Despite prior approval,  the Federal Reserve may order a bank holding company or
its  subsidiaries  to terminate  any of these  activities  or to  terminate  its
ownership or control of any subsidiary  when it has reasonable  cause to believe
that the  bank  holding  company's  continued  ownership,  activity  or  control
constitutes a serious risk to the financial safety,  soundness,  or stability of
any of its bank subsidiaries.

     On November 12, 1999 President Clinton signed the  Gramm-Leach-Bliley  Act,
which amends the Bank Holding  Company Act and greatly  expand the activities in
which bank holding  companies  and  affiliates of banks are permitted to engage.
The  Gramm-Leach-Bliley  Act  eliminates  many federal and state law barriers to
affiliations among banks and securities firms,  insurance  companies,  and other
financial  service  providers.  The  provisions  of the  Gramm-Leach-Bliley  Act
relating to permitted  activities of bank holding  companies  and  affiliates of
banks became effective on March 11, 2000.

     Generally,  if the  company  qualifies  and  elects to  become a  financial
holding  company,  it may engage in  activities  that are financial in nature or
incidental  or  complementary  to a  financial  activity.  Activities  that  the
Gramm-Leach-Bliley  Act expressly lists as financial in nature include insurance
activities,  providing financial, investment and advisory services, underwriting
securities and limited merchant banking activities.

     To qualify to become a financial holding company,  the subsidiary financial
institutions of the company and any other depository institution subsidiaries of
the company must be well  capitalized and well managed and must have a Community
Reinvestment Act rating of at least satisfactory. Additionally, the company must
file an election with the Federal Reserve to become a financial  holding company
and must  provide the  Federal  Reserve  with 30 days  written  notice  prior to
engaging in a permitted financial activity. Although we are eligible to elect to
become a financial  holding company,  we currently have no plans to make such an
election.


                                       6
<PAGE>


     Support of Subsidiary  Institutions.  Under Federal  Reserve  policy,  bank
holding companies are expected to act as a source of financial strength for, and
to commit resources to support, their depository institution subsidiaries.  This
support may be required at times when,  without this Federal Reserve policy, the
bank  holding  company  might not be inclined to provide  it. In  addition,  any
capital loans by a bank holding  company to a bank will be repaid only after its
deposits  and other  indebtedness  are  repaid  in full.  In the event of a bank
holding  company's  bankruptcy,  any commitment by the bank holding company to a
federal bank regulatory  agency to maintain the capital of a banking  subsidiary
will be assumed by the bankruptcy trustee and entitled to a priority of payment.

The Banks

     Citizens  Bank and First Flag Bank are  commercial  banks charted under the
laws of the State of Georgia.  Accordingly,  the FDIC and the Georgia Department
of Banking and Finance  regularly  examine the  operations  of Citizens Bank and
First Flag Bank and have the  authority to approve or  disapprove  mergers,  the
establishment of branches,  and similar  corporate  actions.  Thomaston  Federal
Savings Bank is a federal  savings bank  organized  under the laws of the United
States.  The  Office of Thrift  Supervision  (the  "OTS"),  as well as the FDIC,
regularly   examine  the  operations  of  Thomas  Federal  Savings  Bank.  These
regulatory   agencies  also  have  the  power  to  prevent  the  continuance  or
development of unsafe or unsound banking  practices or other  violations of law.
Additionally,  the deposits of the bank and thrift  subsidiaries  are insured by
the FDIC to the maximum extent provided by law. The bank and thrift institutions
are also subject to numerous  state and federal  statutes and  regulations  that
affect their businesses,  activities and operations, and they are supervised and
examined by one or more state or federal bank regulatory agencies.

     Prompt  Corrective  Action.  The  Federal  Deposit  Insurance   Corporation
Improvement  Act of 1991  establishes  a system of prompt  corrective  action to
resolve the  problems of  undercapitalized  financial  institutions.  Under this
system,  federal banking  regulators have established  five capital  categories,
well  capitalized,  adequately  capitalized,   undercapitalized,   significantly
undercapitalized and critically undercapitalized,  in which all institutions are
placed.  The federal  banking  agencies have also  specified by  regulation  the
relevant capital levels for each of the other categories.  At December 31, 1999,
we qualified for the well-capitalized category.

     Federal banking regulators are required to take some mandatory  supervisory
actions and are authorized to take other  discretionary  actions with respect to
institutions  in the three  undercapitalized  categories.  The  severity  of the
action  depends upon the capital  category in which the  institution  is placed.
Generally,  subject to a narrow exception,  the banking regulator must appoint a
receiver or conservator for an institution that is critically  undercapitalized.
An institution in any of the  undercapitalized  categories is required to submit
an  acceptable  capital  restoration  plan to its  appropriate  federal  banking
agency.  A bank holding  company  must  guarantee  that a subsidiary  depository
institution  meets its  capital  restoration  plan up to the  lesser of 5% of an
undercapitalized  subsidiary's  assets or the amount required to meet regulatory
capital  requirements.   An  undercapitalized   institution  is  also  generally
prohibited  from  increasing  its average  total  assets,  making  acquisitions,
establishing any branches or engaging in any new line of business,  except under
an accepted capital restoration plan or with FDIC approval.  The Federal Reserve
regulations also establish  procedures for downgrading an institution to a lower
capital category based on supervisory factors other than capital.

     FDIC Insurance  Assessments.  The FDIC has adopted a risk-based  assessment
system for determining an insured depository  institutions' insurance assessment
rate.  The system that takes into  account the risks  attributable  to different
categories  and  concentrations  of assets and  liabilities.  An  institution is
placed  into  one  of  three  capital  categories:  (1)  well  capitalized;  (2)
adequately  capitalized;  and (3)  undercapitalized.  These three categories are
substantially  similar  to the prompt  corrective  action  categories  described
above,  with the  "undercapitalized"  category  including  institutions that are
undercapitalized,      significantly     undercapitalized     and     critically
undercapitalized.  The  FDIC  also  assigns  an  institution  to  one  of  three
supervisory  subgroups based on a supervisory  evaluation that the institution's
primary federal  regulator  provides to the FDIC and  information  that the FDIC
determines to be relevant to the institution's  financial condition and the risk
posed to the deposit  insurance funds.  Assessments range from 0 to 27 cents per
$100 of deposits,  depending on the institution's  capital group and supervisory
subgroup.  In addition,  the FDIC imposes  assessments  to help pay off the $780
million in annual  interest  payments  on the $8 billion  Financing  Corporation


                                       7
<PAGE>


bonds  issued in the late 1980s as part of the  government  rescue of the thrift
industry.  The assessment rate is adjusted  quarterly and ranged from 1.16 cents
to 1.22 cents per $100 of deposits in 1999.

     The FDIC may  terminate  its  insurance  of  deposits  if it finds that the
institution  has  engaged in unsafe and  unsound  practices,  is in an unsafe or
unsound  condition to continue  operations or has violated any  applicable  law,
regulation, rule, order, or condition imposed by the FDIC.

     Community  Reinvestment  Act. The Community  Reinvestment  Act requires the
appropriate  federal  regulator,   in  connection  with  their  examinations  of
financial institutions within their jurisdiction, to evaluate the record of each
financial  institution  in  meeting  the  credit  needs of its local  community,
including  low  and  moderate-income  neighborhoods.   The  appropriate  federal
regulator  considers  these factors in  evaluating  mergers,  acquisitions,  and
applications  to open a branch or  facility.  Failure to  adequately  meet these
criteria could impose additional  requirements and limitations on the subsidiary
financial  institutions.  Under the Gramm-Leach-Bliley Act, banks with aggregate
assets of not more than $250 million will be subject to a Community Reinvestment
Act  examination  only once every 60 months if the bank receives an  outstanding
rating,  once every 48 months if it receives a satisfactory rating and as needed
if  the   rating   is  less   than   satisfactory.   Additionally,   under   the
Gramm-Leach-Bliley Act, banks will be required to publicly disclose the terms of
various Community Reinvestment Act-related agreements.

     Other  Regulations.  Interest and other charges collected or contracted for
by the  subsidiary  financial  institutions  are subject to state usury laws and
federal laws concerning  interest  rates.  The loan operations of the subsidiary
financial  institutions  are also subject to federal laws  applicable  to credit
transactions, such as:

     o    The federal  Truth-In-Lending  Act,  governing  disclosures  of credit
          terms to consumer borrowers;

     o    The  Home  Mortgage  Disclosure  Act  of  1975,   requiring  financial
          institutions  to provide  information  to enable the public and public
          officials to determine  whether a financial  institution is fulfilling
          its  obligation  to help meet the housing  needs of the  community  it
          serves;

     o    The Equal Credit  Opportunity Act,  prohibiting  discrimination on the
          basis of race, creed or other prohibited factors in extending credit;

     o    The Fair Credit Reporting Act of 1978, governing the use and provision
          of information to credit reporting agencies;

     o    The Fair Debt Collection  Act,  governing the manner in which consumer
          debts may be collected by collection agencies; and

     o    The rules and regulations of the various federal agencies charged with
          the responsibility of implementing these federal laws.

     The deposit operations of the Company's subsidiary  financial  institutions
are subject to:

     o    The Right to Financial  Privacy Act,  which imposes a duty to maintain
          confidentiality   of  consumer   financial   records  and   prescribes
          procedures  for complying with  administrative  subpoenas of financial
          records; and

     o    The  Electronic  Funds  Transfer  Act and  Regulation  E issued by the
          Federal  Reserve  to  implement  that  act,  which  governs  automatic
          deposits to and  withdrawals  from  deposit  accounts  and  customers'
          rights  and  liabilities  arising  from  the use of  automated  teller
          machines and other electronic banking services.


                                       8
<PAGE>


Capital Adequacy

     The Company and the Banks are required to comply with the capital  adequacy
standards  established by the Federal Reserve,  in the case of the Company,  the
FDIC and Georgia  Department  of Banking and  Finance,  in the cases of Citizens
Bank and  First  Flag  Bank,  and the FDIC and the OTS in the case of  Thomaston
Federal  Savings Bank.  The Federal  Reserve has  established a risk-based and a
leverage  measure  of  capital  adequacy  for  bank  holding  companies  that is
substantially  similar  to  that  adopted  by  the  FDIC  for  banks  under  its
jurisdiction.

     The risk-based  capital  standards are designed to make regulatory  capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies,  to account for off-balance-sheet  exposure,  and to minimize
disincentives  for holding liquid assets.  Assets and  off-balance-sheet  items,
such as letters of credit and unfunded loan  commitments,  are assigned to broad
risk  categories,  each with  appropriate  risk weights.  The resulting  capital
ratios  represent  capital as a  percentage  of total  risk-weighted  assets and
off-balance-sheet items.

     The  minimum  guideline  for the ratio of total  capital  to  risk-weighted
assets is 8%. Total capital consists of two components,  Tier 1 Capital and Tier
2 Capital.  Tier 1 Capital  generally  consist of common  shareholders'  equity,
minority  interests  in  the  equity  accounts  of  consolidated   subsidiaries,
qualifying  noncumulative  perpetual  preferred  stock,  and a limited amount of
qualifying  cumulative  perpetual  preferred  stock,  less  goodwill  and  other
specified  intangible  assets.  Tier  1  Capital  must  equal  at  least  4%  of
risk-weighted  assets.  Tier 2 Capital generally  consist of subordinated  debt,
other  preferred  stock and  hybrid  capital  and a limited  amount of loan loss
reserves.  The  total  amount  of Tier 2 Capital  is  limited  to 100% of Tier 1
Capital.  At December  31,  1999,  our  consolidated  ratio of total  capital to
risk-weighted  assets was 12.50% and our consolidated ratio of Tier 1 Capital to
risk-weighted assets was 11.20%.

     In addition,  the Federal  Reserve has established  minimum  leverage ratio
guidelines for bank holding  companies.  These guidelines  provide for a minimum
ratio of Tier 1 Capital to average  assets,  less  goodwill and other  specified
intangible  assets, of 3% for bank holding companies that meet certain specified
criteria,  including having the highest  regulatory  rating and implementing the
Federal  Reserve's  risk-based  capital  measure for market risk. All other bank
holding  companies  generally  are  required to maintain a leverage  ratio of at
least 4%. At December 31, 1999, our  consolidated  leverage ratio was 8.60%. The
guidelines also provide that bank holding companies experiencing internal growth
or making  acquisitions  will be expected to maintain  strong capital  positions
substantially above the minimum supervisory levels without significant  reliance
on intangible assets. The Federal Reserve considers the leverage ratio and other
indicators  of capital  strength in  evaluating  proposals  for expansion or new
activities.

     The Company and the Banks are subject to other capital guidelines issued by
the Georgia Department of Banking and Finance,  the Office of Thrift Supervision
and the Federal  Reserve,  which provide for minimum  ratios of total capital to
total assets.

     Failure to meet  capital  guidelines  could  subject a bank or bank holding
company to a variety of enforcement  remedies,  including  issuance of a capital
directive,  the  termination of deposit  insurance by the FDIC, a prohibition on
the taking of brokered deposits, and certain other restrictions on its business.
As  described  below,  substantial  additional  restrictions  can be  imposed on
FDIC-insured  depository  institutions  that  fail  to meet  applicable  capital
requirements. See "--Prompt Corrective Action."

Payment of Dividends

     The Company is a legal entity  separate and  distinct  from its  subsidiary
financial  institutions.  The  principal  source  of the  Company's  cash  flow,
including cash flow to pay dividends to its shareholders,  is dividends that its
subsidiary   financial   institutions   pay  to  it.  Statutory  and  regulatory
limitations apply to the ability of the subsidiary financial institutions to pay
dividends to the Company as well as to the Company's payment of dividends to its
shareholders.


                                       9
<PAGE>


     If,  in the  opinion  of the  federal  banking  regulator,  the  subsidiary
financial  institutions  were  engaged  in or about to  engage  in an  unsafe or
unsound practice,  the federal banking regulator could require, after notice and
a hearing,  that it cease and desist  from its  practice.  The  federal  banking
agencies  have  indicated  that  paying  dividends  that  deplete  a  depository
institution's capital base to an inadequate level would be an unsafe and unsound
banking practice.  Under the Federal Deposit Insurance  Corporation  Improvement
Act of 1991, a depository  institution may not pay any dividend if payment would
cause  it to  become  undercapitalized  or if it  already  is  undercapitalized.
Moreover,  the federal agencies have issued policy  statements that provide that
bank holding companies and insured banks should generally only pay dividends out
of current operating earnings. See "--Prompt Corrective Action" below.

     The  Georgia  Department  of Banking  and Finance  regulates  the  dividend
payments of Citizens Bank and First Flag Bank and must approve dividend payments
that would exceed 50% of the net income of Citizens Bank and First Flag Bank for
the prior year.  The OTS similarly  regulates  the ability of Thomaston  Federal
Savings Bank to pay dividends to the Company.  Our payment of dividends may also
be affected or limited by other  factors,  such as the  requirement  to maintain
adequate capital above regulatory guidelines.

     At December 31, 1999, the Banks were able to pay  approximately  $2,269,000
in dividends to the Company without prior regulatory approval.

Restrictions on Transactions with Affiliates

     The Company and the Banks are subject to the  provisions  of Section 23A of
the Federal Reserve Act. Section 23A places limits on the amount of:

     o    loans or extensions of credit to affiliates;

     o    investment in affiliates;

     o    the purchase of assets from  affiliates,  except for real and personal
          property exempted by the Federal Reserve;

     o    loans or extensions of credit to third parties  collateralized  by the
          securities or obligations of affiliates; and

     o    any  guarantee,  acceptance or letter of credit issued on behalf of an
          affiliate.

     The aggregate of all of the above  transactions is limited in amount, as to
any one  affiliate,  to 10% of a  bank's  capital  and  surplus  and,  as to all
affiliates combined,  to 20% of a bank's capital and surplus. In addition to the
limitation on the amount of these  transactions,  each of the above transactions
must also meet specified collateral  requirements.  The Company must also comply
with certain provisions designed to avoid the taking of low-quality assets.

     The Company and the Banks are also subject to the provisions of Section 23B
of the Federal Reserve Act which,  among other things,  prohibits an institution
from engaging in the above  transactions with affiliates unless the transactions
are on terms substantially the same, or at least as favorable to the institution
or its subsidiaries, as those prevailing at the time for comparable transactions
with nonaffiliated companies.

     The Banks are also subject to  restrictions  on extensions of credit to its
executive officers,  directors, certain principal shareholders and their related
interests. These extensions of credit (1) must be made on substantially the same
terms, including interest rates and collateral,  as those prevailing at the time
for comparable  transactions  with third parties,  and (2) must not involve more
than the normal risk of repayment or present other unfavorable features.

Privacy

     The  Gramm-Leach-Bliley  Act also contains  provisions  regarding  consumer
privacy.  These  provisions  require  financial  institutions  to disclose their
policy  for  collecting  and  protecting  confidential  information.   Customers


                                       10
<PAGE>


generally may prevent  financial  institutions  from sharing personal  financial
information  with  nonaffiliated  third  parties  except for third  parties that
market the  institutions'  own products and  services.  Additionally,  financial
institutions  generally  may  not  disclose  consumer  account  numbers  to  any
nonaffiliated  third party for use in  telemarketing,  direct mail  marketing or
other marketing through electronic mail to the consumer.

Proposed Legislation and Regulatory Action

     New   regulations   and  statutes  are  regularly   proposed  that  contain
wide-ranging proposals for altering the structures,  regulations and competitive
relationships of the nation's financial institutions.  We cannot predict whether
or in what form any proposed regulation or statute will be adopted or the extent
to which our business may be affected by any new regulation or statute.

Effect of Governmental Monetary Polices

     Our earnings are affected by domestic economic  conditions and the monetary
and fiscal  policies  of the United  States  government  and its  agencies.  The
Federal Reserve Bank's monetary policies have had, and are likely to continue to
have, an important  impact on the operating  results of commercial banks through
its power to implement national monetary policy in order, among other things, to
curb  inflation  or combat a  recession.  The  monetary  policies of the Federal
Reserve Board have major effects upon the levels of bank loans,  investments and
deposits  through  its  open  market  operating  in  United  States   government
securities  and through its  regulation  of the discount  rate on  borrowings of
member banks and the reserve  requirements  against member bank deposits.  It is
not  possible to predict the nature or impact of future  changes in monetary and
fiscal policies.

Selected Statistical Information

     Selected statistical  information is included in the Company's Management's
Discussion and Analysis of Financial  Condition and Results of Operations as set
forth in Item 7 of this Annual Report on Form 10-K.

ITEM 2.  PROPERTIES

The Company and First Flag Bank

     The Company and First Flag Bank operate  from a main office which  contains
approximately  28,400  square  feet of usable  office  space and is  located  on
approximately  two  acres  of  land at 101  North  Greenwood  Street,  LaGrange,
Georgia. First Flag Bank owns both the building and the land.

     First Flag Bank also operates  three  full-service  branch  offices and one
limited-service  drive-through facility in LaGrange,  Troup County, Georgia. The
first full-service office contains 2,700 square feet of office space on one acre
of land  located at 1795 West  Point Road at Lee's  Crossing  in  LaGrange.  The
second  full-service  office contains  approximately 2,300 square feet of office
space on 1.2 acres of land located at 1417  LaFayette  Parkway in LaGrange.  The
one limited-service office contains 1,800 square feet of office space located at
306 Vernon Street in LaGrange . These two full-service  office buildings and one
limited-service  drive through facility and accompanying land are owned by First
Flag Bank.  The third  full-service  branch office  contains  approximately  360
square feet of office space in the Winn-Dixie  Marketplace  grocery store at 908
Hogansville  Road in  LaGrange.  This  office is leased by First  Flag Bank This
office will discontinue its full-service operations on March 31, 2000.

First Flag Bank - Atlanta Division of First Flag Bank

     First Flag Bank, through its First Flag Bank - Atlanta division, operates a
loan production office that contians  approximately  2,460 square feet of office
space at 3855  John's  Creek  Parkway,  Suite  B, in  Suwanne,  Forsyth  County,
Georgia. This office is leased by First Flag Bank.


                                       11
<PAGE>


FLAG Mortgage Division of First Flag Bank

     First Flag Bank,  through its FLAG Mortgage  division,  owns one and leases
four loan production  offices located in Columbus,  Macon and Newnan Georgia and
Opelika and Phenix City, Alabama. The office space located in Columbus, Muscogee
County,  containing  5,952  square  feet on .793  acres of land  located at 5617
Princeton Road is currently owned by FLAG subsidiary,  Thomaston Federal Savings
Bank. The office space located in Macon,  Bibb County,  containing  1,200 square
feet located at 130 Northcrest Boulevard,  Suite C is leased by First Flag Bank.
The office space located in Newnan, Coweta County,  containing 1,200 square feet
located at 3150 East  Highway  34,  Suite 305 is leased by First Flag Bank.  The
office located in Opelika,  Lee County,  containing 1,000 square feet located at
2106 Gateway Drive,  Suite C is leased by First Flag Bank. The office located in
Phenix City, Russell County, containing approximately 550 square feet located at
712 13th Street, Suite A is leased by First Flag Bank.

     First Flag Bank leases  approximately 2, 760 square feet of office space at
5669 Whitesville Road, Suite A, Columbus,  Muscogee County,  Georgia,  where its
loan production  office is located.  This lease is anticipated to end in January
2000 with the consolidation of the FLAG Mortgage division of First Flag Bank.

     First Flag Bank leases  approximately  2,500 square feet of office space at
205 North Lewis Street, Suites 2 and 3, LaGrange, Troup County, Georgia.

First Flag Bank - Hogansville Division of First Flag Bank

     First Flag Bank -  Hogansville,  formerly,  The Citizens  Bank operates one
full-service branch office and one limited-service branch office in Hogansville,
Troup County,  Georgia.  The  full-service  office contains 6,700 square feet of
office space located at 111 High Street in Hogansville,  Georgia. This office is
owned by First Flag Bank. The limited-service office contains 400 square feet of
office  space in the  Ingle's  Supermarket  store at 1890  East  Main  Street in
Hogansville, Georgia. This office is leased by First Flag Bank.

Citizens Bank

     Citizens  Bank  operates  four  full-service   branch  offices  in  Vienna,
Unadilla,   Montezuma,   and  Cordele,   Georgia  .  It  also   operates   three
limited-service  branch  offices  in  Byromville,   Oglethorpe,  and  Pinehurst,
Georgia.

     Of the four  full-service  branch offices,  the first  full-service  office
contains  10,500 square feet of office space on .85 acres of land located at 100
Union Street,  Vienna,  Dooly County,  Georgia.  The second  full-service office
contains  15,127  square feet of office  space on 1.48 acres of land  located at
2233 Pine Street, Unadilla, Dooly County, Georgia. The third full-service office
contains  10,718 square feet of office space on 1.3 acres of land located at 102
West Railroad Street, Montezuma, Macon County, Georgia. These three full-service
office  buildings and  accompanying  land are owned by Citizens Bank. The fourth
full-service  office  contains  2,000 square feet of office space located at 602
East 16th Avenue,  Suite G.,  Cordele,  Crisp  County,  Georgia.  This office is
leased by Citizens Bank.


                                       12
<PAGE>


     Of the three  limited-service  branch  office,  the  first  limited-service
office contains 1,750 square feet of office space on .07 acres and is located on
Main Street,  Byromville,  Dooly  County,  Georgia.  The second  limited-service
office  contains  2,500  square feet of office  space on .6 acres of land and is
located on 130 North Sumter Street, Oglethorpe, Macon County, Georgia. The third
limited-service office contains 843 square feet of office space on .55 acres and
is  located  on  Fullington  Avenue,  Pinehurst,   Dooly  County,  Georgia.  The
Oglethorpe  and Pinehurst  limited-service  offices  discontinued  operations on
December 31, 1999. These three limited-service offices and accompanying land are
owned by Citizens Bank.

     Citizens Bank owns three  warehouse/meeting  facilities  located in Vienna,
Georgia, at the following locations:  (1) 2nd Street, Vienna, Georgia with 4,100
square feet of space on .10 acres of land, (2) 3rd Street, Vienna, Georgia, with
2,940  square  feet of office  space on .09 acres of land,  and (3) 3rd  Street,
Vienna,  Georgia,  with 1,755  square feet of office space on .05 acres of land.
Citizens Bank purchased the  connecting  office located next to the .05 acres of
land listed in (3) above and established the FLAG Loan Processing Office located
at 111 South 3rd Street in Vienna, Georgia.

     Citizens Bank also owns an office  parking lot containing .42 acres of land
located at the corner of Union Street and 2nd Street,  Vienna Georgia.  A second
lot, located at Fullington Avenue and Highway 41, Pinehurst,  Georgia,  is owned
by Citizens Bank. A third lot  containing 370 square feet of vacant  building on
 .23 acres of land located at the corner of Fullington  Avenue and Cyprus Avenue,
Pinehurst, Georgia, is owned by Citizens Bank.

Bank of Milan Division of Citizens Bank

     Citizens  Bank,   through  its  Bank  of  Milan   division,   operates  two
full-service branch offices in Milan and McRae,  Georgia. The first full-service
office  contains  5,124 square feet of office space on .18 acres of land located
at 1 Mt. Zion Street,  Milan, Telfair County,  Georgia.  This office is owned by
Citizens  Bank.  The second  full-service  office  contains 1,360 square feet of
office space located at 850 East Oak Street in McRae,  Telfair County,  Georgia.
This office is leased by Citizens Bank.

Empire Banking Company Division of Citizens Bank

     Citizens Bank,  through its Empire Banking Company  division,  operates two
full-service  branch  offices  in  Homerville  and  Waycross,  Georgia  and  one
limited-service  branch office in Blackshear,  Georgia.  The first  full-service
office contains  approximately 5,000 square feet and is located at 115 East Dame
Avenue in  Homerville,  Clinch  County,  Georgia.  This office also  contains an
additional  2,200  square  feet of office  space  referred  to as an  operations
building that is located at 115 East Dame Avenue.  This office and  accompanying
building are owned by Citizens Bank.  Citizens Bank also owns about .75 acres in
paved parking lots near the Dame Avenue office. The second  full-service  office
contains  3,500 square feet of office space  located at 2110  Memorial  Drive in
Waycross,  Ware  County,Georgia.  This  office is owned by  Citizens  Bank.  The
limited-service  office  contains  1,159 square feet of office space  located at
3586 Highway 84 E. in Blackshear,  Pierce County,  Georgia. This office is owned
by Citizens Bank.

The Brown Bank Division of Citizens Bank

     Citizens Bank, through its Brown Bank division, operates three full-service
branch offices in Metter and Cobbtown,  Georgia and one  limited-service  branch
office in Reidsville,  Georgia.  The first  full-service  office contains 12,000
square feet of office space, of which 6,000 is used for rental  offices,  on .17
acres of land with a paved  parking  lot on .34 acres of land  located  at 24-28
North Broad Street in Metter,  Candler County,  Georgia. The second full-service
office  contains 4,000 square feet of office space on .066 acres of land located
at  1  Railroad  Street  in  Cobbtown,   Tattnall  County,  Georgia.  The  third
full-service office has 6,000 square feet of office space located at 132 A. West
Brazell Street in Reidsville,  Tattnall County,  Georgia. These two full-service
offices  are owned by  Citizens  Bank The  limited-service  office was  formerly
leased  by  Citizens.  The  limited-service  office in  Reidsville  discontinued
operations on September 30, 1999.


                                       13
<PAGE>


     Citizens Bank operates a full-service  branch office through The Brown Bank
division of Citizens Bank named First Flag Bank - Statesboro.  The  full-service
office  contains  1,568  square  feet  of  office  space  located  at 302  South
Zetterower Avenue in Statesboro,  Bulloch County,  Georgia. This office is owned
by Citizens Bank.

     Citizens  Bank has  agreed to sell its  branch  offices  located in Metter,
Cobbtown and Statesboro,  Georgia to Pineland State Bank. Under the terms of the
agreement, the Company will sell the fixed assets, deposits and all loans of the
three branch  locations.  The sale is projected to close prior to the end of the
third  quarter  of  2000,   subject  to  approval  by   appropriate   regulatory
authorities.

Thomaston Federal Savings Bank

     Thomaston  Federal  Savings Bank operates one  full-service  main office in
Thomaston,  Upson County, Georgia The full-service office contains 18,600 square
feet of office space on 1.39 acres of land  located at 206 North Church  Street.
This office is owned by Thomaston Federal Savings Bank.

The Eagle's Landing Center

     The Company's  Corporate  Operations  Center,  The Eagle's  Landing Center,
contains  10,000 square feet of office space located at 235 Corporate  Center in
Stockbridge, Henry County, Georgia. This center is leased by the Company.

     All of the Company's offices are in good condition and are adequate for the
Company's current and foreseeable needs.

     The Company is unaware of any potential environmental liability that it may
incur in connection with any properties or other assets owned by it.

     The  net  book  value  of  the  Company's  investment  in  land,  premises,
furniture,  fixtures  and  equipment  totaled  approximately  $18.4  million  at
December 31, 1999. The Company owns most of its data processing equipment.

ITEM 3.  LEGAL PROCEEDINGS

     FLAG and the Banks are  periodically  involved as plaintiff or defendant in
various legal actions in the ordinary course of its business.

     As  previously  reported,  First Flag Bank is a named  defendant  in a suit
filed in December  1998 in  Superior  Court of the State of  California  for the
County of Los Angeles.  The plaintiffs  leased ATM machines from First Flag Bank
and other defendants.  Another named defendant arranged the leases and agreed to
manage the ATMs and leases on behalf of the  plaintiffs.  The plaintiffs  allege
that this  defendant has breached his contract with the  plaintiffs.  First Flag
Bank leased the plaintiffs  ten ATMs having an original  value of  approximately
$20,000 each. The plaintiffs  allege,  among other things,  that First Flag Bank
and the other lessor defendants are liable for fraud, restitution, recission and
negligent misrepresentation.  The parties currently are exploring settlement. If
the parties do not reach a  settlement,  First Flag Bank  intends to  vigorously
defend the claims and pursue counterclaims against the plaintiffs.

     As previously  reported,  First Flag Bank purchased certain warehouse loans
of Gulf Properties Financial Services,  Inc., a residential mortgage broker. The
loans  that  Gulf  Properties  sold to First  Flag Bank  were  fraudulent.  Gulf
Properties  filed Chapter 11 bankruptcy on December 30, 1998. First Flag Bank is
serving on the  creditors'  committee  and is  assisting in the  liquidation  of
assets, which will be distributed on a pro rata basis among the creditors. First
Flag Bank is also pursing a claim under its fidelity bond regarding this matter.
The perpetrators of the fraud have pled guilty to criminal charges and have been
sentenced to prison. First Flag Bank obtained a restitution order as part of the
criminal  sentence.  First  Flag  Bank's  exposure  as a result  of the fraud is
approximately $3 million,  a significant  portion of which may be covered by the


                                       14
<PAGE>


Bank's fidelity bond.  Several other banks also purchased  fraudulent loans from
Gulf  Properties and the total amount of exposure of all banks is  approximately
$32 million.  The assets of Gulf  Properties are being  liquidated in bankruptcy
and distributed to creditors on a pro rata basis.

     As previously  reported,  Tad Moore Golf,  Inc. is a borrower of First Flag
Bank.  An investor in Tad Moore  Golf,  Inc.,  who is also a lender to Tad Moore
Golf,  Inc.,  has sued First Flag Bank in  Southern  District  Court in New York
alleging that First Flag Bank  fraudulently  induced the investor into allegedly
subordinating  his loan to the loan of First Flag Bank.  The  investor is also a
borrower  of  First  Flag  Bank.  The  plaintiff  is  claming  $1.6  million  in
consequential  damages and $10 million in punitive damages.  First Flag Bank has
succeeded in having the venue of this matter transferred from New York to United
States District Court in Newnan,  Georgia. The Bank intends to vigorously defend
this claim and pursue counterclaims against the investor.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matter was submitted by the Company to a vote of its shareholders during
the fourth quarter of 1999.

                                     PART II
                                     -------

ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

         The  Company's  common stock is traded on the Nasdaq Stock Market under
the symbol "FLAG." The Company had 8,222,905 shares of Common Stock  outstanding
and 953 shareholders of record as of March 17, 2000.

         The following table sets forth the high and low closing sales prices of
the Company's Common Stock, as reported by Nasdaq, for each quarter for the past
two fiscal  years and the cash  dividends  per share of the Common Stock paid by
the Company during such fiscal quarters.


                                                              Cash
                                                            Dividends
Quarter Ended              High             Low             Per Share
-------------              ----             ---             ---------
March 31, 1998             $14.33           $11.92            $0.04
June 30, 1998              $19.00           $12.67            $0.05
September 30, 1998         $19.38           $12.75            $0.05
December 31, 1998          $14.63           $10.25            $0.06

March 31, 1999             $11.81           $ 9.13            $0.06
June 30, 1999              $11.00           $ 9.19            $0.06
September 30, 1999         $10.38           $ 7.50            $0.06
December 31, 1999          $ 8.63           $ 6.38            $0.06



                                       15
<PAGE>



ITEM 6.       SELECTED FINANCIAL DATA


   (In thousands except per share data)
<TABLE>
<CAPTION>
                                                       1999           1998           1997          1996         1995
                                                       ----           ----           ----          ----         ----
   FOR THE YEAR
<S>                                             <C>                       <C>           <C>          <C>           <C>
   Net interest income                          $         26,490          25,952        23,272       21,189        19,647
   Provision for loan losses                               4,656           3,475         1,702        4,566         1,532
   Noninterest income                                     10,072           9,952         8,578        7,636         6,043
   Noninterest expense                                    30,615          28,882        22,567       21,053        17,353
   Income taxes                                               78             708         2,305          798         2,014
   Net earnings                                 $          1,213           2,839         5,276        2,409         4,792

   PER COMMON SHARE
   Basic earnings per share                     $            .15             .35           .64          .29           .60
   Diluted earnings per share                                .15             .34           .64          .29           .60
   Cash dividends declared                                   .24             .20           .13          .11           .11
   Book value                                   $           6.43            6.92          6.51         5.93          5.79

   AT YEAR END
   Loans, net                                   $        419,079         424,660       399,725      348,417       314,588
   Earning assets                                        521,452         568,133       538,008      470,664       435,663
   Assets                                                587,870         635,192       595,468      520,472       484,909
   Deposits                                              483,987         521,671       485,174      438,292       396,927
   Stockholders' equity                         $         53,197          56,869        53,276       48,489        46,207
   Common shares outstanding                               8,273           8,223         8,187        8,182         7,986

   AVERAGE BALANCES
   Loans                                        $        449,689         435,422       374,065      331,095       308,702
   Earning assets                                        556,577         576,245       496,195      451,072       430,884
   Assets                                                617,764         624,487       549,025      494,173       468,418
   Deposits                                              496,998         505,337       456,713      412,585       378,064
   Stockholders' equity                         $         55,365          55,337        50,991       47,543        44,231
   Weighted average shares outstanding                     8,258           8,218         8,182        8,148         8,129

   KEY PERFORMANCE RATIOS
   Return on average assets                                 .20%            .45%          .96%         .49%         1.02%
   Return on average stockholders' equity                  2.19%           5.13%        10.35%        5.07%        10.83%
   Net interest margin, tax equivalent basis               4.90%           4.56%         4.74%        4.68%         4.56%
   Dividend payout ratio                                 153.50%          49.49%        17.66%       38.83%        18.88%
   Average equity to average assets                        8.96%           8.86%         9.29%        9.62%         9.44%
</TABLE>


                                       16
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

General

     FLAG Financial  Corporation  ("FLAG") is a multi-bank  holding company that
owns 100 percent of the common stock of First Flag Bank , formerly First Federal
Savings  Bank  of  LaGrange  ("First  Flag"),  Citizens  Bank  ("Citizens")  and
Thomaston Federal Savings Bank ("Thomaston"), (collectively, the "Banks"). First
Flag is a commercial bank doing business in West Central Georgia. Thomaston is a
federally chartered thrift that serves Upson and surrounding  counties in Middle
Georgia.  Citizens is a  commercial  bank that serves  Dooly,  Macon,  Crisp and
surrounding counties in Middle Georgia. Citizens also serves, through its Milan,
Brown and Empire divisions; Dodge, Telfair, Candler, Clinch and Ware counties in
Middle and South Georgia. The Banks are full-service,  retail oriented community
banks  primarily  engaged in retail  banking,  small  business,  residential and
commercial real estate lending, and mortgage banking.

     The following  discussion  focuses on significant  changes in the financial
condition and results of operations of FLAG and the Banks during the three years
ended December 31, 1999. This discussion and the financial information contained
herein are presented to assist the reader in  understanding  and  evaluating the
financial  condition,  results of operations,  and future  prospects of FLAG and
should  be read as a  supplement  to and in  conjunction  with the  Consolidated
Financial Statements and Related Notes.

Capital Issues

     Effective June 3, 1998, FLAG declared a 3-for-2 stock split.  All per share
amounts and prices have been  restated to reflect  this stock split as if it had
occurred at the beginning of the earliest period presented.

     During the fourth  quarter of 1999,  FLAG  implemented  a stock  repurchase
program. FLAG intends to purchase shares, not to exceed 57,500 shares, from time
to time at certain prices.  As of December 31, 1999, a total of 7,500 shares had
been  repurchased  and is being held as treasury  stock. As of March 17, 2000, a
total of 52, 500 shares had been repurchased.

Restatement of Financial Statements and Management's Discussion and Analysis

     Effective  March 30, 1998, FLAG completed the acquisition of Middle Georgia
Bankshares,  Inc.,  the parent  company  of the $129  million  Citizens  Bank in
Vienna,  Georgia.  FLAG issued  approximately  1.5 million  shares of its common
stock in connection with this acquisition.

     Effective  May 8, 1998,  FLAG  completed  the  acquisition  of Three Rivers
Bancshares,  Inc., the parent company of the $35 million Bank of Milan in Milan,
Georgia.  FLAG  issued  approximately  597,000  shares  of its  common  stock in
connection with this acquisition.

     Effective  December 11, 1998,  FLAG  completed  the  acquisition  of Empire
Banking Corp.,  the parent company of the $70 million Empire Banking  Company of
Homerville,  Georgia. FLAG issued approximately 1.1 million shares of its common
stock in connection with this acquisition.

     Effective  December 31, 1998,  FLAG  completed the  acquisition  of the $31
million Brown Bank in Metter,  Georgia. FLAG issued approximately 255,000 shares
of its common stock in connection with this acquisition.

     Effective  August 31, 1999, FLAG acquired,  for  approximately  1.2 million
shares of its common stock,  all of the  outstanding  stock of Thomaston,  a $55
million thrift located in Thomaston, Georgia.


                                       17
<PAGE>


     Effective  September 30, 1999,  FLAG acquired,  for  approximately  575,000
shares of its common stock,  all of the outstanding  stock of First  Hogansville
Bankshares,  Inc., the holding company of the $31 million Citizens Bank, located
in Hogansville, Georgia.

     These  acquisitions  were  accounted  for as  poolings  of  interests  and,
accordingly,  the consolidated financial statements and management's  discussion
and  analysis  for all  periods  have been  restated  to include  the  financial
position and results of  operations as if the  combinations  had occurred at the
beginning of the earliest period presented.

Subsequent Event

     On March 6, 2000,  FLAG entered  into an  agreement to sell certain  branch
locations of Citizens in Metter,  Cobbtown  and  Statesboro,  Georgia.  The sale
agreement  provides  for a net sales  price of  approximately  $3.2  million and
includes all deposit  liabilities,  loans and  premises  and  equipment of these
branches. This branch sale is subject to various regulatory approvals.

Year 2000 Issues

     FLAG did not  experience  any material  disruptions  in its  operations  or
activities  as a result of the "Year 2000"  problem.  In  addition,  FLAG is not
aware that any of their  suppliers or  customers  has  experienced  any material
disruptions in their operations or activities. FLAG does not expect to encounter
any such problems in the foreseeable future, although we continue to monitor our
computer operations for signs of such problems.

     It is possible,  however, that if Year 2000 problems are incurred by FLAG's
customers,  such problems could have a negative impact on future  operations and
financial  performance,  although we have not identified any such problems among
our customers or suppliers.  Furthermore, the Year 2000 problem may impact other
entities with which FLAG  transacts  business and FLAG cannot predict the effect
of the Year 2000 problem on such entities or resulting effect on FLAG.

Net Interest Income

     Net interest income (the  difference  between the interest earned on assets
and the interest paid on deposits and other interest-bearing liabilities) is the
single  largest  component of FLAG's  operating  income.  The  management of net
interest income is of most importance in the banking industry. FLAG manages this
income source while it controls credit, liquidity, and interest rate risks.

     Net interest income  increased 2.07% in 1999, from $26.0 million in 1998 to
$26.5 million in 1999. Net interest  income  increased 11.5% in 1998 compared to
1997.

     Total interest  income  decreased 3.9% in 1999 and increased 13.4% in 1998.
Interest expense  decreased  approximately  10.1% in 1999 and increased 15.4% in
1998.  The  interest  expense  variances  from year to year have been  primarily
influenced by the average balances of interest-bearing liabilities (see Tables 1
& 2).


                                       18
<PAGE>


Table  1  -  Consolidated  Average  Balances,  Interest,  and  Rates  -  Taxable
Equivalent Basis (dollars in thousands)

<TABLE>
<CAPTION>
                                                               Years Ended December 31,
                         ----------------------------------------------------------------------------------------------------
                                       1999                              1998                             1997
                         ----------------------------------------------------------------------------------------------------
                                     Interest   Weighted               Interest   Weighted               Interest    Weighted
                          Average     Income/    Average      Average   Income/    Average     Average    Income/     Average
                          Balance     Expense     Rate        Balance   Expense     Rate       Balance    Expense     Rate
                         ----------------------------------------------------------------------------------------------------
<S>                        <C>           <C>        <C>          <C>        <C>       <C>        <C>        <C>         <C>
ASSETS
Interest-earning assets:
  Loans..............   $ 449,689      43,131      9.59%      435,422   43,156      9.91%       374,065     37,704     10.08%
  Taxable investment
   securities........      83,485       5,170      6.19%       97,159    5,886      6.06%        96,459      6,070      6.29%
  Tax-free investment
   securities........      11,324         990      8.74%       12,448      947      7.61%        10,302        753      7.31%
  Interest-bearing deposits
    in other banks...       6,576         361      5.49%        9,603      459      4.78%         5,147        333      6.47%
  Federal funds sold.       5,503         277      5.03%       21,613    1,046      4.84%        10,222        528      5.17%
                            -----         ---      ----        ------    -----      ----         ------        ---      ----
Total interest-
     earning assets..     556,577      49,929      8.97%      576,245   51,494      8.94%       496,195     45,388      9.15%
Other assets.........      61,187                              48,242                            52,830
                         --------                            --------                          --------
    Total assets.....   $ 617,764                             624,487                           549,025
                          =======                             =======                           =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
  Interest-bearing demand
     deposits........   $  59,000         996      1.69%       60,950    1,254      2.06%        86,047      2,309      2.68%
  Savings deposits ..      70,332       2,069      2.94%       69,440    2,225      3.20%        31,980        844      2.64%
  Other time deposits     309,484      16,527      5.34%      319,475   18,460      5.78%       291,091     16,824      5.78%
  Federal funds purchased   4,697         240      5.11%        1,238       60      4.85%         1,287         86      6.68%
  FHLB advances and
     other borrowings      52,122       2,831      5.43%       56,854    3,221      5.66%        30,896      1,799      5.82%

Total interest-
      bearing liabilities 495,635      22,663      4.57%      507,957   25,220      4.96%       441,301     21,862      4.95%
Noninterest bearing
     demand deposits.      58,182                              55,472                           47,595
Other liabilities....       8,582                               6,721                            9,138
Stockholders' equity.      55,365                              55,337                           50,991
                        ---------                            --------                          --------
   Total liabilities and
    stockholders' equity $617,764                             625,487                           549,025
                          =======                             =======                           =======
Tax-equivalent adjustment                 776                              322                                254
                                          ---                              ---                                ---
Net interest income..                  26,490                           25,952                             23,272
                                       ======                           ======                             ======
Interest rate spread.                              4.40%                            3.97%                               4.19%
Net interest margin..                              4.90%                            4.56%                               4.74%
Interest-earning assets/
 interest-bearing liabilities                        112%                             113%                                112%
</TABLE>


                                       19
<PAGE>


Consolidated Average Balances, Interest, and Rates

     Net interest income is determined by the amount of interest-earning  assets
compared to interest-bearing liabilities and their related yields and costs. The
difference   between   the   weighted   average   interest   rates   earned   on
interest-earning assets (i.e., loans and investment securities) and the weighted
average interest rates paid on interest-bearing  liabilities (i.e., deposits and
borrowings) is called the net interest spread. Another measure of the difference
in interest income earned versus interest  expense paid is net interest  margin.
Net interest  margin is  calculated  by dividing net interest  income by average
earning assets.

     Table 1 presents  for the three  years ended  December  31,  1999,  average
balances of  interest-earning  assets and  interest-bearing  liabilities and the
weighted average interest rates earned and paid on those balances.  In addition,
interest rate spreads,  net interest  margins and the ratio of  interest-earning
assets  versus  interest-bearing  liabilities  for those  years  are  presented.
Average  interest-earning  assets  were  $556.6  million in 1999  versus  $576.2
million  in  1998,  and  $496.2  million  in  1997.   Average   interest-bearing
liabilities were $495.6 million in 1999 versus $508.0 million in 1998 and $441.3
million in 1997. The interest rate spread was 4.40% in 1999 versus 3.97% in 1998
and 4.19% in 1997,  while the net  interest  margin was 4.90% in 1999,  4.56% in
1998 and 4.74% in 1997.

     Table 2 shows the change in net interest  income from 1999 to 1998 and from
1998 to 1997 due to changes in volumes and rates.

Table 2 - Rate/Volume Variance Analysis - Taxable Equivalent Basis
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                 Years Ended December 31,
                                                ---------------------------------------------------------
                                                   1999 Compared to 1998          1998 Compared to 1997
                                    `          -----------------------------   ---------------------------
                                                            Rate/      Net                 Rate/    Net
                                                Volume      Yield     Change   Volume      Yield   Change
                                                ------      -----     ------   ------      -----   ------
<S>                                          <C>           <C>          <C>     <C>        <C>      <C>
Interest income:
  Loans .................................... $  1,388      (1,413)      (25)    6,081      (629)    5,452
  Taxable investment securities ............     (847)        131      (716)       42      (226)     (184)
  Tax-free investment securities ...........      (98)        141        43       163        31       194
  Interest-bearing deposits in
    other banks ............................     (166)         68       (98)      213       (87)      126
  Federal funds sold .......................     (811)         42      (769)      551       (33)      518
                                                 ----          --      ----       ---       ---       ---
     Total interest income .................     (534)     (1,031)   (1,565)    7,050      (944)    6,106

Interest expense:
  Interest bearing demand deposits .........      (40)       (218)     (258)     (516)     (539)   (1,055)
  Savings deposits .........................       29        (185)     (156)    1,200       181     1,381
  Other time deposits ......................     (577)     (1,356)   (1,933)    1,640        (4)    1,636
  Federal funds purchased ..................      168          12       180        (2)      (24)      (26)
  FHLB advances and other borrowings .......     (268)       (121)     (389)    1,470       (49)    1,421
                                                 ----        ----      ----     -----       ---     -----
     Total interest expense ................     (688)     (1,868)   (2,556)    3,792      (435)    3,357
                                                 ----      ------    ------     -----      ----     -----
Net interest income.......................   .$   154         837       991     3,258      (509)    2,749
                                                =====         ===       ===     =====      ====     =====
</TABLE>


Noninterest Income

     Other income  increased to $10.1 million in 1999 from $10.0 million in 1998
and $8.6  million  in 1997.  The  increases  in  other  income  in 1999 and 1998
resulted from increased gains on the sale of investment securities and increased
fee income related to transaction deposit accounts, respectively.

     Gain on sales of  investment  securities  increased to  $1,148,000  in 1999
versus  $273,000 in 1998 and $179,000 in 1997.  The increase in gain on sales of
investment  securities in 1999 primarily  resulted from gains on the sale of the
Company's holdings in Towne Services, Inc.


                                       20
<PAGE>


     Fees and service charges on deposits decreased to $4.6 million in 1999 from
$5.4 million in 1998 and $5.0 million in 1997.

Noninterest Expenses

     Salary and employee benefits  increased to $15.1 million in 1999 from $13.4
million in 1998 and $11.4  million in 1997.  This increase in 1999 was primarily
due to  additional  staffing  requirements,  the use of temporary  employees for
special  projects and the  improvement  of our  employee  benefit  package.  The
benefits  currently  offered  are, in the opinion of  management,  necessary  to
effectively  compete in hiring and maintaining a quality staff.  Management also
believes consolidation  efficiencies will continue to be realized and reduce the
need for some personnel.

     Occupancy  expenses  decreased to $4.1 million in 1999 from $4.4 million in
1998 and $3.9 million in 1997.  The decrease in 1999  occupancy  expense was the
result  of a  decrease  in  depreciation  on  certain  fixtures  and  equipment,
partially offset by an increase in expenses related to the operations  center at
Eagle's  Landing.  The  increase  in  occupancy  expense  in 1998  was due to an
increase in the number of branch locations.

     Other  expenses were $11.4 million in 1999 versus $11.0 million in 1998 and
$7.3 million in 1997. The increase in other operating expenses from 1998 to 1999
was due to certain  merger-related  expenses, and an increase in data processing
expense.  This increase in data processing expense was due to Year 2000 expenses
and certain  conversion costs recognized in 1999. The increase in other expenses
in 1998 compared to 1997 was due to certain merger-related expenses.

Investment Securities

     The   composition  of  the   investment   securities   portfolio   reflects
management's  strategy of maintaining an appropriate  level of liquidity,  while
providing a relatively  stable source of income.  The portfolio  also provides a
balance to  interest  rate risk and credit  risk in other  categories  of FLAG's
balance sheet while  providing a vehicle for the investment of available  funds,
furnishing liquidity,  and providing securities to pledge as required collateral
for certain deposits.

     Investment  securities  decreased $8.1 million to $89.6 million at December
31, 1999 from $97.6  million at December 31, 1998.  At December 31, 1999,  $73.3
million,  approximately 82% of investment securities outstanding, was classified
as  available-for-sale,  while the remainder was classified as held-to-maturity.
The overall  decrease in the amount of investments was due to sale of investment
securities,  maturities  and paydowns.  At December 31, 1999,  gross  unrealized
gains in the total portfolio  amounted to $781,000 and gross  unrealized  losses
amounted to $3,012,000.

     Table 3 reflects the carrying amount of the investment securities portfolio
for the past three years.


                                       21
<PAGE>


Table 3 - Carrying Value of Investments
     (dollars in thousands)

                                                        December 31,
                                                1999      1998      1997
                                                ----      ----      ----
Securities held-to-maturity:
   U.S. Treasuries and agencies .............$10,178    11,624    21,802
   State, county and municipal ..............  2,997     3,111     6,108
   Mortgage-backed securities ...............  2,318     1,127     3,445
   Collateralized mortgage obligations ......    751     1,037     1,788

Securities available-for-sale:
  U.S. Treasuries and agencies .............. 18,877    22,002    40,879
  Corporate debt securities .................   --         999       999
  State, county and municipal ...............  8,732     9,767    18,499
  Mortgage-backed securities ................ 22,376    32,541    54,917
  Trust Preferred Securities ................  7,431      --        --
  Collateralized mortgage obligations ....... 14,264    11,520    25,784
  Equity securities .........................  1,631     3,895     5,340
                                               -----     -----     -----
            Total ...........................$89,555    97,623   179,561
                                             =======    ======   =======



Carrying Value of investments

     The  December 31, 1999 market value of  securities  held to maturity,  as a
percentage of amortized  cost, was 98%, down from 104% at December 31, 1998. The
market value of the  securities  held-to-maturity  will change as interest rates
change and such  unrealized  gains and losses will not flow through the earnings
statement unless the related securities become permanently  impaired or they are
called at prices which differ from the carrying value at the time of the call.

Loans

     Gross loans receivable  decreased by approximately  $4.8 million in 1999 to
$426.1 million from $430.9  million at December 31, 1998.  This decrease was the
result of declines in commercial,  financial and agricultural loans, installment
loans and lease financing loans,  partially offset by an increase in real estate
construction  and real  estate  mortgages.  As shown  in  Table 4,  real  estate
construction  and real  estate  mortgage  loans  increased  approximately  $25.0
million,  commercial,  financial and agricultural loans decreased  approximately
$4.0 million,  installment loans decreased approximately $23.2 million and lease
financing receivables decreased approximately $2.4 million.


                                       22
<PAGE>


Table 4 - Loan Portfolio
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                             December 31,
                                    -------------------------------------------------------------------------------------------
                                         1999              1998               1997               1996              1995
                                    -------------------------------------------------------------------------------------------
                                            Percent            Percent            Percent            Percent           Percent
                                    Amount  of Total  Amount   of Total  Amount   of Total   Amount  of Total  Amount  of Total
                                    ------  --------  ------   --------  ------   --------   ------  --------  ------  --------
<S>                               <C>        <C>     <C>        <C>     <C>        <C>       <C>       <C>     <C>      <C>
Commercial/financial/agricultural $117,728   27.6%   $121,744   28.3%    $76,673   18.9%     60,778    20.0%   53,244   16.8%
Real estate construction.......     43,602   10.2%     31,814    7.4%     13,864    3.4%     10,784     3.5%   19,906    6.3%
Real estate mortgage...........    218,920   51.4%    205,753   47.8%    266,837   65.8%    191,478    62.9%  193,446   61.1%
Installment loans to individuals    40,620    9.5%     63,869   14.8%     38,679    9.5%     33,744    11.1%   42,755   13.5%
Lease financings...............      5,226    1.2%      7,674    1.8%      9,308    2.3%      7,723     2.5%    7,404    2.3%
                                   --------------------------------------------------------------------------------------------
     Total loans...............    426,096    100%    430,854    100%    405,361    100%    304,507     100%  316,755    100%
Less:
Allowance for loan losses......      7,017              6,194              6,636              6,384             3,960
                                   --------------------------------------------------------------------------------------------
     Total net loans...........   $419,079            424,660            399,725            298,123           312,795
                                   ============================================================================================
</TABLE>


     Table 5 represents the expected maturities for commercial,  financial,  and
agricultural loans and real estate  construction loans at December 31, 1999. The
table also  presents  the rate  structure  for these loans that mature after one
year.

Table 5  - Loan Portfolio Maturity
(dollars in thousands)
<TABLE>
<CAPTION>

                                                                                                Rate Structure for Loans
                                                 Maturity                                        Maturity Over One Year
                                  ---------------------------------------------------------------------------------------------
                                               Over One Year
                                  One Year        Through        Over Five               Floating or Adjustable   Predetermined
                                   or Less       Five Years        Years        Total         Interest Rate             Rate
                                   -------       ----------        -----        -----         -------------             ----
<S>                           <C>                  <C>             <C>         <C>               <C>                  <C>
Commercial, financial, and
   agricultural...............  $  58,090          26,424          33,214      117,728           30,681               28,957
Real estate - construction ....    37,187           3,600           2,815       43,602            6,403                   12
                                   ------           -----           -----       ------            -----                   --
                                $ $95,277          30,024          36,029      161,330           37,084               28,969
                                  =======          ======          ======      =======           ======               ======
</TABLE>



Provision and Allowance for Loan Losses

     Table 6 presents an analysis of activities in the allowance for loan losses
for the past five years.  An allowance for possible  losses is provided  through
charges to FLAG's  earnings  in the form of a  provision  for loan  losses.  The
provision  for  loan  losses  was  $4,656,000  in 1999,  $3,475,000  in 1998 and
$1,702,000  in 1997.  The increase in the provision in 1999 compared to 1998 was
due to provisions made for certain lease financing  receivables  booked prior to
1999, as well as various commercial and agricultural  credits.  These commercial
and   agricultural   credits  included   provisions  for  a  large   residential
construction  company as well as for certain timber and agricultural  loans. The
large  increase in the  provision  for loan losses from 1997 to 1998 is directly
attributable to Gulf Properties  Financial,  Inc. (Gulf Properties).  First Flag
had  provided a warehouse  line to Gulf  Properties  with which Gulf  Properties
would  originate  loans  and  sell  them to  First  Flag.  During  1998,  it was
discovered that certain loans would not be collectible.  Provisions  relating to
Gulf Properties  totaled $2,000,000 in 1998. During 1999, we continued to pursue
collection of Gulf Properties  through legal  proceedings as well as claims made
through our insurance  carrier.  Management feels that adequate  provisions have
been made on behalf of Gulf  Properties  in view of our  collection  efforts  to
date.  Management determines the level of the provision for loan losses based on
outstanding loan balances,  the levels of nonperforming  assets,  and reviews of
assets classified as substandard, doubtful, or loss and larger credits, together
with an analysis of historical loss experience, and current economic conditions.
The  increased   loan  loss  provision  for  1999  can  also  be  attributed  to
management's continued emphasis on improved credit  administration,  an increase
in quality internal loan review and management's  conservative  approach to loan
loss reserve methodology.


                                       23
<PAGE>


     Historically,  the loan portfolio has consisted  primarily of loans secured
by one-to-four  family residential  properties,  and actual losses have not been
significant. The Banks also provide other services and loan products to meet the
growing  financial  needs  of  FLAG's  communities,  including  consumer  loans,
commercial loans, and commercial real estate loans.  Because these loans present
a somewhat  higher  credit risk than loans  secured by  residential  properties,
management has significantly increased the allowance for loan losses compared to
historic levels to reflect the increased potential for future losses.

     As shown in Table 6, the year-end  allowance  for loan losses  increased to
$7.0 million at December 31, 1999,  from $6.2 million at December 31, 1998.  The
allowance for loan losses was $5.6 million at December 31, 1997. The increase in
the allowance at December 31, 1999 was due primarily to the increased provisions
associated with increased  classifications  attributed to management's continued
focus on asset quality and loan review. The increase in the allowance for losses
in 1998 was  primarily  due to the  provision  made for Gulf  Properties.  Total
charge-offs were $4.1 million in 1999, $3.3 million in 1998, and $3.4 million in
1997.  The  allowance  for loan  losses  was 1.67% of net  outstanding  loans at
December 31, 1999,  versus 1.46% of net outstanding  loans at December 31, 1998,
and 1.41% of net outstanding  loans at December 31, 1997.

     Management believes that the allowance for loan losses is both adequate and
appropriate.  However,  the future  level of the  allowance  for loan  losses is
highly  dependent  upon loan growth,  loan loss  experience,  and other factors,
which cannot be anticipated with a high degree of certainty.

Table 6 - Analysis of the Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>

                                                                 Years Ended December 31,
                                                   ----------------------------------------------------
                                                   1999        1998        1997        1996        1995
                                                   ----        ----        ----        ----        ----
<S>                                             <C>          <C>         <C>         <C>         <C>
Average net loans ...........................   $449,689     435,422     374,065     331,589     261,031
Allowance for loan losses, beginning
  of the period .............................      6,194       5,637       7,051       3,960       3,455
Charge-offs for the period:
  Commercial/financial/agricultural .........        722       1,834         328         828         464
  Real estate construction loans ............       --          --          --            24          23
  Real estate mortgage loans ................      1,305         296         242         433         452
  Installment loans to individuals ..........      1,007         818         349         309         277
  Lease financings ..........................      1,056         314       2,465        --          --
                                                   -----         ---       -----        ----        ----
Total charge-offs ...........................      4,090       3,262       3,384       1,594       1,216
                                                   -----       -----       -----       -----       -----
Recoveries for the period:
  Commercial/financial/agricultural .........         46          77           7        --            78

  Real estate construction loans ............       --            --          --        --          --

  Real estate mortgage loans ................         60          52         106        --          --
  Installment loans to individuals ..........        149         165         155         119         112
  Lease financings ..........................          2          50        --          --          --
                                                     ---         ---        ---         ---         ---
     Total recoveries .......................        257         344         268         119         190
                                                     ---         ---         ---         ---         ---
       Net charge-offs for the period .......      3,833       2,918       3,116       1,475       1,026
Provision for loan losses ...................      4,656       3,475       1,702       4,566       1,515
                                                   -----       -----       -----       -----       -----
Allowance for loan losses, end of period ....   $  7,017       6,194       5,637       7,051       3,944
                                                ========       =====       =====       =====       =====
Ratio of allowance for loan losses to total
  net loans outstanding .....................       1.67%       1.46%       1.41%       2.37%       1.26%
Ratio of net charge-offs during the period to
  average net loans outstanding during the
   period ......................................    0.85%       0.67%       0.83%       0.44%       0.39%
</TABLE>


                                       24
<PAGE>


Asset Quality

     At December 31, 1999,  non-performing assets totaled $15.8 million compared
to $10.8 million at year-end 1998. The increase in 1999 is primarily  attributed
to the  increase in loans on  non-accrual  as well as loans past due 90 days and
still  accruing.  As part of the Company's  renewed  credit  culture,  a special
assets   division  has  been   established  for  the  purpose  of  managing  all
nonperforming  assets. The primary concentration of nonaccrual loans reside with
several  agri-business  concerns as well as construction loans attributed to one
particular  relationship.  There were no commitments to lend additional funds to
customers with loans on nonaccrual at December 31, 1999.  Table 7 summarizes the
non-performing assets for each of the last five years.


Table 7 - Risk Elements
(dollars in thousands)
<TABLE>
<CAPTION>
                                                                     December 31,
                                                 ------------------------------------------------------
                                                   1999        1998         1997      1996         1995
                                                 ------------------------------------------------------
<S>                                            <C>             <C>         <C>        <C>         <C>
Loans on nonaccrual......................      $  12,118       7,729       6,501      9,132       3,394
Loans past due 90 days and still accruing          2,775         813         701      1,762         749
Other real estate owned..................            939       2,251       1,040      1,085         975
                                                 ------------------------------------------------------
Total non-performing assets..............      $  15,832      10,793       8,242     11,979       5,118
                                                 ======================================================
Total non-performing loans as a
     percentage of net loans.............           3.78%       2.54%       2.06%      4.02%       1.64%
                                                 ======================================================
</TABLE>

Risk Elements

     There may be additional  loans within FLAG's loan portfolio that may become
classified as conditions may dictate;  however,  management was not aware of any
such loans that are  material in amount at December  31,  1999.  At December 31,
1999, management was unaware of any known trends,  events, or uncertainties that
will have, or that are reasonably likely to have a material effect on the Banks'
or FLAG's liquidity, capital resources, or operations.

Deposits

     Total deposits decreased  approximately $37.7 million during 1999, totaling
$484.0  million at December 31, 1999 versus $521.7 million at December 31, 1998.
Total  deposits  decreased  during  1999 from  levels of 1998 due  primarily  to
management's  restructuring  of First Flag's  balance  sheet  through  decreased
reliance  on larger,  volatile  certificates  of deposit  and more  emphasis  on
funding of core  deposits.  The  maturities of time deposits of $100,000 or more
issued by the Banks at December 31, 1999, are summarized in Table 8.

Table 8 - Maturities of Time Deposits Over $100,000
(dollars in thousands)

    Three months or less..................         $ 18,837
    Over three months through six months..           17,374
    Over six months through twelve months.           27,108
    Over twelve months....................           10,348
                                                     ------
                                                   $ 73,667
                                                     ======

     At December 31, 1999, the Banks were  shareholders in the Federal Home Loan
Bank of Atlanta  ("FHLBA").  Through this  affiliation,  advances totaling $27.2
million  were  outstanding  at rates  competitive  with  time  deposits  of like
maturities.  Management  anticipates  continued  utilization  of this short- and
long-term source of funds to minimize interest rate risk and to fund competitive
fixed rate loans to customers.


                                       25
<PAGE>


Asset-Liability Management

     A primary objective of FLAG's asset and liability  management program is to
control  exposure to interest rate risk (the exposure to changes in net interest
income due to changes in market  interest  rates) so as to enhance its  earnings
and protect its net worth against  potential  loss  resulting from interest rate
fluctuations.

     Historically,  the average term to maturity or repricing  (rate changes) of
assets  (primarily  loans and  investment  securities)  has exceeded the average
repricing period of liabilities  (primarily  deposits and  borrowings).  Table 9
provides   information  about  the  amounts  of   interest-earning   assets  and
interest-bearing  liabilities  outstanding  as of December  31,  1999,  that are
expected to mature,  prepay, or reprice in each of the future time periods shown
(i.e., the interest rate  sensitivity).  As presented in this table, at December
31, 1999, the  liabilities  subject to rate changes within one year exceeded its
assets  subject to rate  changes  within  one year.  This  mismatched  condition
subjects  FLAG to  interest  rate risk  within the one year  period  because the
assets,  due to their generally shorter term to maturity or repricing,  are more
sensitive  to  short-term  interest  rate changes  than the  liabilities.  It is
management's  belief that the result of this position would be a decrease in net
interest  income if market  interest  rates rise and an increase in net interest
income if market interest rates decline.

     Management  carefully  measures and monitors  interest rate sensitivity and
believes that its operating  strategies offer  protection  against interest rate
risk. As required by various regulatory  authorities,  FLAG's Board of Directors
has  established  an interest rate risk policy,  which sets  specific  limits on
interest rate risk exposure.  Adherence to this policy is reviewed  quarterly by
the Board of Directors' Asset Liability Committee.

     Management  has  maintained  positive  ratios of  average  interest-earning
assets to average interest-bearing  liabilities.  As represented in Table 1 this
ratio,  based on average  balances for the respective  years,  was 112% in 1999,
113% in 1998 and 112% in 1997.

Table 9 - Interest Rate Sensitivity Analysis
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                     December 31, 1999
                                                                  Maturing or Repricing in
                                         --------------------------------------------------------------------------
                                                       Over 1 Year      Over 3 Years
                                         One Year        Through           Through          Over
                                          or Less        3 Years            5 Years        5 Years           Total
                                          -------        -------            -------        -------           -----
Interest-earning assets:
<S>                                     <C>               <C>               <C>              <C>            <C>
 Adjustable rate mortgages............  $ 96,555          10,226            4,736            7,436          118,953
 Fixed rate mortgages.................    84,868          35,935           13,436            2,536          136,775
 Other loans..........................   126,039          34,823            8,999            3,991          173,852
 Investment securities................    31,132          13,657           27,298           23,560           95,647
 Interest-bearing deposits
   in other banks and Federal funds sold   3,242               -                -                -            3,242
                                         ---------------------------------------------------------------------------
     Total interest-earning assets....   341,836          94,641           54,469           37,523          528,469
                                         --------------------------------------------------------------------------
Interest-bearing liabilities:
 Fixed maturity deposits..............   246,398          38,628           14,986              730          300,742
 NOW and money market demand
    accounts..........................    96,354               -                -                -           96,354
 Fed funds purchased..................    15,320               -                -                -           15,320
 Passbook accounts....................    28,378               -                -                -           28,378
 FHLB advances........................     6,675           4,370            5,712           10,416           27,173
                                        ---------------------------------------------------------------------------
Total interest-bearing liabilities....   393,125          42,998           20,698           11,146          467,967
                                         --------------------------------------------------------------------------
Interest rate sensitivity gap.........  (51,289)           51,643          33,771           26,377           60,502
Cumulative interest rate sensitivity
     gap............................. $ (51,289)             354           34,125           60,502
Cumulative interest rate sensitivity gap
      to total assets.................    (8.72)%           0.06%            5.80%          10.29%
</TABLE>


                                       26
<PAGE>


     Table  10  represents  the  expected   maturity  of  the  total  investment
securities  by  maturity  date and average  yields  based on  amortized  cost at
December   31,   1999.   It   should   be  noted   that  the   composition   and
maturity/repricing distribution of the investment portfolio is subject to change
depending on rate sensitivity, capital needs, and liquidity needs.

Table 10 - Expected Maturity of Investment Securities
(dollars in thousands)

<TABLE>
<CAPTION>

                                                                  After One But      After Five But
                                             Within One Year    Within Five Years   Within Ten Years     After Ten Years
                                             -------------------------------------------------------------------------------------
                                             Amount   Yield    Amount      Yield    Amount     Yield    Amount     Yield   Totals
                                             ------   -----    ------      -----    ------     -----    ------     -----   ------
<S>                                        <C>         <C>         <C>         <C>      <C>       <C>     <C>      <C>       <C>
Securities held-to-maturity:
     U.S. Treasuries and agencies ......   $   --         --    8,729       5.94%    1,449     6.21%      --         --    10,178
     State, county and municipals ......      209     10.59%      996       7.00%    1,655     7.69%      137      7.53%    2,997
     Mortgage-backed securities ........      482      5.16%       87       6.50%    1,347     6.08%      402      6.52%    2,318
     Collateralized mortgage obligations        4      8.80%       --          --      --         --      747      5.97%      751
                                                -      ----     -----       -----    -----     -----      ---      ----       ---
                                              695      6.82%    9,812       6.28%    4,451     6.72%    1,286      6.31%   16,244
                                              ---      -----    -----       -----    -----     -----    -----      -----   ------
Securities available-for-sale:
     U.S. Treasury and agencies ........    1,499      5.71%   12,235       5.74%    4,177     7.13%    1,536      6.07%   19,447
     State, county and municipals ......      882      6.75%    1,646       6.61%    1,739     6.34%    4,680      7.73%    8,947
     Equity securities .................    1,146      6.11%       --          --       --        --       --        --     1,146
     Mortgage-backed securities ........       91      7.65%    1,812       6.48%    1,147     5.074   19,865      5.74%   22,915
         Trust preferred securities ....     --          --        --          --      --        --     8,050      9.25%    8,050
     Collateralized mortgage obligations     --          --        --          --    7,865     5.76%    6,742      6.21%   14,607
                                            -----      -----    -----       -----    -----     ----     -----      ----    ------
                                            3,618      6.14%   15,693       5.91%   14,928     6.21%   40,873      6.86%   75,112
                                            -----      ----    ------       ----    ------     ---- -   -----      ----    ------
              Total ....................   $4,313      6.25%   25,505       6.06%   19,379     6.33%   42,159      6.84%   91,356
                                           ======      ====    ======       ====    ======     ====    ======      ====    ======
</TABLE>

Liquidity

     The objective of liquidity  management is to ensure that sufficient funding
is available,  at reasonable cost, to meet the ongoing operational cash needs of
FLAG and to take  advantage  of income  producing  opportunities  as they arise.
While the  desired  level of  liquidity  will vary  depending  upon a variety of
factors,  it is the  primary  goal of FLAG to  maintain  a  sufficient  level of
liquidity in all  expected  economic  environments.  Liquidity is defined as the
ability  of a bank to  convert  assets  into  cash or cash  equivalents  without
significant  loss  and to raise  additional  funds  by  increasing  liabilities.
Liquidity  management involves maintaining FLAG's ability to meet the daily cash
flow requirements of the Banks' customers, both depositors and borrowers.

     The primary  objectives of  asset/liability  management  are to provide for
adequate  liquidity in order to meet the needs of  customers  and to maintain an
optimal  balance  between   interest-sensitive   assets  and  interest-sensitive
liabilities,  so that  FLAG can also  meet the  investment  requirements  of its
shareholders  as market interest rates change.  Daily  monitoring of the sources
and  use  of  funds  is  necessary  to  maintain  a  position  that  meets  both
requirements.

     The asset portion of the balance sheet provides liquidity primarily through
loan principal  repayments and the maturities and sales of securities.  Mortgage
loans held for sale totaled $3.5  million at December  31, 1999,  and  typically
turn  over  every  45 days as the  closed  loans  are sold to  investors  in the
secondary market. Real  estate-construction  and commercial loans that mature in
one year or less amounted to $95.3 million,  or 22%, of the total loan portfolio
at December 31, 1999.  Other  short-term  investments such as federal funds sold
are additional sources of liquidity.


                                       27
<PAGE>


     The  liability  section of the balance  sheet  provides  liquidity  through
depositors' interest bearing and non-interest bearing deposit accounts.  Federal
funds  purchased,  FHLBA  advances  and  securities  sold  under  agreements  to
repurchase are additional  sources of liquidity and represent FLAG's incremental
borrowing capacity.  These sources of liquidity are short-term in nature and are
used as  necessary  to fund asset  growth and meet  other  short-term  liquidity
needs.

     As disclosed in FLAG's  consolidated  statements of cash flows  included in
the consolidated financial statements, net cash provided by operating activities
was $16.8 million  during 1999.  The major sources of cash provided by operating
activities  are net income and the decrease in mortgage loans held for sale. Net
cash provided by investing  activities  of $11.1  million was funded  largely by
proceeds from sales and maturities of investments  and cash acquired in a branch
acquisition,  net of the premium  paid.  Net cash used by  financing  activities
consisted  primarily  of a $46.5  million net  decrease  in  deposits  and a net
decrease in FHLBA advances of $21.2 million.

     In the opinion of  management,  FLAG's  liquidity  position at December 31,
1999,  is  sufficient  to meet its expected  cash flow  requirements.  Reference
should be made to the  consolidated  statements  of cash flows  appearing in the
consolidated  financial statements for the three-year analysis of the changes in
cash and cash  equivalents  resulting  from  operating,  investing and financing
activities.

Capital Resources and Dividends

     Stockholders' equity at December 31, 1999, decreased 6.5% from December 31,
1998. This decline resulted from the increase in unrealized losses on securities
available-for-sale. Dividends of $1.9 million or $.24 per share were declared in
1999, compared to $1.4 million or $.20 per share in 1998.

     Average  stockholders'  equity as a percent of total average  assets is one
measure used to determine capital strength.  The ratio of average  stockholders'
equity to average  total assets was 8.96% for 1999 and 8.86% for 1998.  Table 11
summarizes these and other key ratios for FLAG for each of the last three years.

     The  Federal  Deposit  Insurance  Corporation  Improvement  Act  ("FDICIA")
required federal banking agencies to take "prompt corrective action" with regard
to institutions  that do not meet minimum capital  requirements.  As a result of
FDICIA,  the federal banking agencies  introduced an additional  capital measure
called the "Tier 1 risk-based  capital  ratio." The Tier 1 ratio is the ratio of
core  capital  to  risk  adjusted  total  assets.  Note  11 to the  Consolidated
Financial  Statements  presents a summary of FDICIA's  capital tiers compared to
FLAG's and the Banks' actual capital levels. The Banks exceeded all requirements
of a "well-capitalized" institution at December 31, 1999.

Table 11 - Equity Ratios
                                          Years Ended December 31,
                                          ------------------------
                                         1999        1998       1997
                                        ----------------------------
Return on average assets...........        .20%       .45%      .96%
Return on average equity...........       2.19%      5.13%    10.35%
Dividend payout ratio..............     153.50%     49.49%    17.66%
Average equity to average assets...       8.96%      8.86%     9.29%

Provision for Income Taxes

     The  provision  for income  taxes was $78,000 in 1999,  versus  $708,000 in
1998, and $2,350,000 in 1997. The effective actual tax rates for 1999, 1998, and
1997 (tax  provision as a percentage  of income  before taxes) were 6%, 20%, and
30%, respectively. These tax rates are lower than the statutory Federal tax rate
of 34% primarily  due to interest  income on tax exempt  securities  and general
business credits.  See FLAG's consolidated  financial statements for an analysis
of income taxes.


                                       28
<PAGE>


Impact of Inflation and Changing Prices

     The consolidated  financial statements and related financial data presented
herein have been  prepared in  accordance  with  generally  accepted  accounting
principles  which require the  measurement  of financial  position and operating
results in terms of historical dollars without  considering  changes in relative
purchasing power over time due to inflation.

     Unlike  most  industrial  companies,   virtually  all  of  the  assets  and
liabilities  of a financial  institution  are  monetary in nature.  As a result,
interest  rates  generally  have  a  more  significant  impact  on  a  financial
institution's  performance than does the effect of inflation.  The liquidity and
maturity  structures  of FLAG's  assets  and  liabilities  are  critical  to the
maintenance of acceptable performance levels.

Recent Accounting Pronouncements

     In 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  133  ("SFAS No.  133"),  "Accounting  for
Derivative  Instruments  and  Hedging  Activities".  SFAS  No.  133  establishes
accounting  and reporting  standards for hedging  activities  and for derivative
instruments  including derivative  instruments  embedded in other contracts.  It
requires the fair value  recognition  of derivatives as assets or liabilities in
the financial  statements.  SFAS No. 133 is effective for all fiscal quarters in
fiscal years  beginning  after June 15,  2000,  but initial  application  of the
statement  must be made  as of the  beginning  of the  quarter.  At the  date of
initial application,  an entity may transfer any held-to-maturity  security into
the  available-for-sale  or trading categories without calling into question the
entity's  intent to hold  other  securities  to  maturity  in the  future.  FLAG
believes  the  adoption  of SFAS No. 133 will not have a material  impact on its
financial position, results of operations or liquidity.

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The  Company's  net  interest  income and the fair  value of its  financial
instruments  (interest-earning  assets  and  interest-bearing  liabilities)  are
influenced by changes in market interest rates. The Company actively manages its
exposure to interest  rate  fluctuations  through  policies  established  by its
Asset/Liability  Management Committee (the "ALCO"). The ALCO meets regularly and
is responsible for approving asset/liability management policies, developing and
implementing  strategies to improve  balance sheet  positioning and net interest
income and assessing the interest rate sensitivity of the Banks.

         The Company  utilizes an interest rate simulation  model to monitor and
evaluate the impact of changing  interest  rates on net interest  income and the
market value of its  investment  portfolio.  The ALCO policy  limits the maximum
percentage  changes in net  interest  income and  investment  portfolio  equity,
assuming a simultaneous, instantaneous change in interest rate. These percentage
changes are as follows:

          Changes in           Percentage        Percent Change in
        Interest Rates        Change in Net       Market Value of
      (In Basis Points)      Interest Income     Portfolio Equity

              400                  30%                  40%
              300                  25%                  30%
              200                  20%                  20%
              100                  10%                  10%

As of December 31, 1999, the Company was in compliance with its ALCO policy.


                                       29
<PAGE>


ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The consolidated  financial  statements of the registrant and report of
independent auditors are included herein as follows:

                        [Porter Keadle Moore, LLP LOGO]

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




To the Board of Directors
FLAG Financial Corporation
Stockbridge, Georgia


We have audited the accompanying  consolidated  balance sheets of FLAG Financial
Corporation  and  subsidiaries as of December 31, 1999 and 1998, and the related
statements of earnings,  comprehensive  income,  changes in stockholders' equity
and cash flows for each of the three  years in the  period  ended  December  31,
1999. These financial  statements are the  responsibility of FLAG's  management.
Our responsibility is to express an opinion on these financial  statements based
on our  audits.  We did not  audit  the 1998 and 1997  financial  statements  of
Thomaston Federal Savings Bank and the 1997 consolidated financial statements of
Three Rivers Bancshares, Inc. and subsidiary, all of which were pooled with FLAG
Financial  Corporation  in  1999  and  1998  as  explained  in  note  2  to  the
consolidated  financial  statements.   Those  statements  are  included  in  the
accompanying  consolidated  financial  statements  and reflect  total  assets of
$53,619,000  as of December 31, 1998 and net earnings of $611,000 and $1,279,000
for the years ended December 31, 1998 and 1997,  respectively.  Those statements
were audited by other  auditors  whose reports have been furnished to us and our
opinion,  insofar as it relates to these amounts, is based solely on the reports
of the other auditors.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our  opinion,  based on our audits and the  reports  of other  auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material  respects,  the financial  position of FLAG Financial  Corporation  and
subsidiaries  as of  December  31,  1999  and  1998,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.



                                        /s/ Porter Keadle Moore, LLP

Atlanta, Georgia
January 28, 2000, except for note 18, as to
     which the date is March  6, 2000



                                       30
<PAGE>


                           FLAG FINANCIAL CORPORATION

                           Consolidated Balance Sheets

                           December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                     Assets
                                     ------
                                                                                                  1999          1998
                                                                                                  ----          ----
                                                                                                    (In Thousands)
<S>                                                                                             <C>            <C>
Cash and due from banks, including reserve requirements
    of $3,487 and $2,207 ...................................................................   $  26,634       28,287
Federal funds sold .........................................................................         450       25,030
                                                                                                     ---       ------
           Cash and cash equivalents .......................................................      27,084       53,317

Interest-bearing deposits ..................................................................       2,792        3,577
Investment securities available-for-sale ...................................................      73,311       80,724
Investment securities held-to-maturity (fair value of
    $15,814 in 1999 and $17,105 in 1998) ...................................................      16,244       16,899
Other investments ..........................................................................       6,092        7,023
Mortgage loans held for sale ...............................................................       3,484       10,220
Loans, net .................................................................................     419,079      424,660
Premises and equipment, net ................................................................      18,392       17,772
Other assets ...............................................................................      21,392       21,000
                                                                                                  ------       ------
                                                                                               $ 587,870      635,192
                                                                                               =========      =======
                      Liabilities and Stockholders' Equity
                      ------------------------------------
Deposits:
    Demand .................................................................................   $  58,513       63,042
    Interest-bearing demand ................................................................      96,354      105,527
    Savings ................................................................................      28,378       29,936
    Time ...................................................................................     227,075      230,447
    Time, over $100,000 ....................................................................      73,667       92,719
                                                                                                  ------       ------
           Total deposits .................................................................      483,987      521,671
Federal funds purchased and repurchase agreements...........................................      15,320         --
Advances from Federal Home Loan Bank .......................................................      27,173       48,398
Other liabilities ..........................................................................       8,193        8,254
                                                                                                   -----        -----
           Total liabilities ...............................................................     534,673      578,323
                                                                                                 -------      -------


Stockholders' equity:
    Preferred stock (10,000,000 shares authorized; none issued and outstanding) ............        --           --
    Common stock ($1 par value, 20,000,000 shares authorized, 8,272,815 and
       8,223,231 shares issued in 1999 and 1998, respectively) .............................       8,273        8,223
    Additional paid-in capital .............................................................      11,342       11,306
    Retained earnings ......................................................................      34,754       35,403
    Accumulated other comprehensive income (loss) ..........................................      (1,120)       1,937
                                                                                                  ------        -----
                                                                                                  53,249       56,869

    Less: treasury stock, at cost; 7,500 shares in 1999 ....................................         (52)       --

           Total stockholders' equity.......................................................      53,197       56,869
                                                                                                  ------       ------
                                                                                               $ 587,870      635,192
                                                                                               =========      =======
</TABLE>


See accompanying notes to consolidated financial statements.


                                       31
<PAGE>


                           FLAG FINANCIAL CORPORATION

                       Consolidated Statements of Earnings

              For the Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                    1999          1998        1997
                                                                    ----          ----        ----
                                                                 (In Thousands Except Per Share Data)
<S>                                                               <C>           <C>        <C>
Interest income:
    Interest and fees on loans ................................   $ 42,749      43,217     37,778
    Interest on investment securities .........................      5,765       6,450      6,495
    Interest -bearing deposits ................................        361         459        333
    Federal funds sold ........................................        278       1,046        528
                                                                       ---       -----        ---
           Total interest income ..............................     49,153      51,172     45,134
                                                                    ------      ------     ------
Interest expense:
    Deposits ..................................................     19,592      21,939     19,978
    Borrowings ................................................      3,071       3,281      1,884
                                                                     -----       -----      -----
           Total interest expense .............................     22,663      25,220     21,862
                                                                    ------      ------     ------

           Net interest income before provision for loan losses     26,490      25,952     23,272

Provision for loan losses .....................................      4,656       3,475      1,702
                                                                     -----       -----      -----

           Net interest income after provision for loan losses      21,834      22,477     21,570
                                                                    ------      ------     ------
Other income:
    Fees and service charges ..................................      4,633       5,424      4,978
    Gain on sales of investment securities ....................      1,148         273        179
    Gain on sale of trading securities ........................        286        --         --
    Unrealized gain on trading securities .....................        255        --         --
    Gain on sales of loans ....................................      2,086       2,429      2,321
    Gain (loss) on other real estate, net .....................       (382)         26        (83)
    Other .....................................................      2,046       1,800      1,183
                                                                     -----       -----      -----

           Total other income .................................     10,072       9,952      8,578
                                                                    ------       -----      -----
Other expenses:
    Salaries and employee benefits ............................     15,097      13,437     11,369
    Occupancy .................................................      4,134       4,407      3.911
    Other operating ...........................................     11,384      11,044      7,287
                                                                    ------      ------      -----

           Total other expenses ...............................     30,615      28,882     22,567
                                                                    ------      ------     ------

           Earnings before provision for income taxes .........      1,291       3,547      7,581

Provision for income taxes ....................................         78         708      2,305
                                                                        --         ---      -----

Net earnings ..................................................   $  1,213       2,839      5,276
                                                                  ========       =====      =====

Basic earnings per share ......................................   $    .15         .35        .64
                                                                  ========         ===        ===

Diluted earnings per share ....................................   $    .15         .34        .64
                                                                  ========         ===        ===
</TABLE>


See accompanying notes to consolidated financial statements.


                                       32
<PAGE>


                           FLAG FINANCIAL CORPORATION

                 Consolidated Statements of Comprehensive Income

              For the Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                 1999          1998       1997
                                                                                 ----          ----       ----
                                                                                         (In Thousands)
<S>                                                                              <C>          <C>        <C>
Net earnings .................................................................   $ 1,213      2,839      5,276
                                                                                 -------      -----      -----
Other comprehensive income, net of tax:
    Unrealized gains (losses) on investment securities
       available-for-sale:
      Unrealized gains (losses) arising during the period,
         net of tax of $1,232, $1,302 and $302, respectively ..................   (2,101)     2,125        493
      Less:  reclassification adjustment for gains included in net
         earnings, net of tax of $436, $104 and $68, respectively .............     (712)      (170)      (111)

    Gain on trading securiteis included in
       net earnings, net of tax of $206                                             (335)         -          -
                                                                                    ----       ----       ----

Other comprehensive income (loss) ............................................    (3,057)     1,955        382
                                                                                  ------      -----        ---

Comprehensive income (loss) ..................................................   $(1,844)     4,794      5,658
                                                                                 -------      -----      -----
</TABLE>


See accompanying notes to consolidated financial statements.


                                       33
<PAGE>


                           FLAG FINANCIAL CORPORATION

           Consolidated Statements of Changes in Stockholders' Equity

              For the Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                             A ccumulated
                                              Common Stock        Additional                     Other
                                            ---------------        Paid-in     Retained       Comprehensive   Treasury
                                           Shares      Amount      Capital     Earnings          Income         Stock       Total
                                           ------      ------      -------     --------          -------        -----       -----
                                                                      (In Thousands Except Share Data)
<S>                                        <C>        <C>           <C>         <C>               <C>          <C>          <C>
    Balance, December 31, 1996,
        as previously stated ............  6,515,593  $ 6,516       10,270      24,759            (347)           -        41,198

    Adjustment to reflect pooling
        of interests ....................  1,662,881    1,663          816       4,865             (53)           -         7,291
                                           ---------    -----          ---       -----             ---           ---        -----

    Balance, December 31, 1996 ..........  8,178,474    8,179       11,086      29,624            (400)           -        48,489
    Treasury stock activity of
        pooled entity ...................      8,646        8           51         -                -             -            59
    Proceeds from issuance of stock .....        173      -              1         -                -             -             1
    Change in unrealized loss on
        securities available-for-sale ...      -          -            -           -               382            -           382
    Net earnings ........................      -          -            -         5,276              -             -         5,276
    Dividends declared ..................      -          -            -          (931)             -             -          (931)
                                              ---        ---          ---         ----             ---           ---         ----

    Balance, December 31, 1997 ..........  8,187,293    8,187       11,138      33,969             (18)           -        53,276
    Treasury stock activity of pooled
        entity ..........................     26,265       26          104         -                -             -           130
    Proceeds from issuance of stock .....        173     -               1         -                -             -             1
    Exercise of  stock options ..........      9,500       10           63         -                -             -            73
    Change in unrealized gain
        (loss) on securities available-
        for-sale ........................      -         -            -            -             1,955            -         1,955
    Net earnings ........................      -         -            -          2,839              -             -         2,839
    Dividends declared ..................      -         -            -         (1,405)             -             -        (1,405)
                                              ---       ---          ---        ------             ---           ---        ------

    Balance, December 31, 1998 ..........  8,223,231    8,223       11,306      35,403           1,937            -        56,869

    Purchase of treasury stock ..........      -         -            -            -                -            (52)         (52)

    Exercise of stock options of
        pooled subsidiary ...............     38,175       38         -             -               -             -            38

    Exercise of stock options ...........     11,409       12           36          -               -             -            48

    Change in unrealized gain
        (loss) on securities available-
        for-sale ........................      -         -            -             -           (3,057)           -        (3,057)

    Net earnings ........................      -         -            -          1,213            -               -          1,213

    Dividends declared ..................      -         -            -         (1,862)           -               -         (1,862)
                                              ---       ---          ---         ------          ---             ---         ------

    Balance, December 31, 1999 ..........  8,272,815  $ 8,273       11,342      34,754         (1,120)           (52)       53,197
                                           =========  =======       ======      ======         ======            ===        ======
</TABLE>


See accompanying notes to consolidated financial statements.


                                       34
<PAGE>



                           FLAG FINANCIAL CORPORATION

                      Consolidated Statements of Cash Flows

              For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
                                                                                       1999       1998         1997
                                                                                       ----       ----         ----
                                                                                              (In Thousands)
<S>                                                                                 <C>            <C>         <C>
Cash flows from operating activities:
    Net earnings .................................................................  $  1,213       2,839       5,276
    Adjustments to reconcile net earnings to net cash provided by operating
          activities:
      Depreciation, amortization and accretion ...................................     2,674       2,678       2,083
      Provision for loan losses ..................................................     4,656       3,475       1,702
      Provision for deferred taxes ...............................................      (868)       (350)        838
      Gains on sales of securities ...............................................    (1,148)       (273)       (179)
      Unrealized gain on trading securities ......................................      (255)       --          --
      Gain on sale of trading securities .........................................      (286)       --          --
      Gain on sales of loans .....................................................    (2,086)     (2,429)     (2,321)
      (Gain) loss on other real estate ...........................................       382         (26)         83
      Proceeds from sale of trading securities ...................................     1,701        --          --
      Change in:
        Mortgage loans held for sale .............................................     8,822      (2,893)      1,142
        Other assets and liabilities .............................................     1,991        (940)      4,286
                                                                                       -----        ----       -----
             Net cash provided by operating activities ...........................    16,796       2,081      12,910
                                                                                      ------       -----      ------
Cash flows from investing activities:
    Net change in  interest-bearing deposits .....................................       786       2,309      (2,233)
    Proceeds from sales and maturities of securities available-for-sale ..........    30,643      67,423      63,215
    Proceeds from maturities of securities held-to-maturity ......................     4,814       9,198       3,848
    Proceeds from sale of other investments ......................................     6,245       5,764         225
    Purchases of other investments ...............................................    (5,213)     (6,079)       (964)
    Purchases of securities available-for-sale ...................................   (28,364)    (52,037)    (71,591)
    Purchases of investments held-to-maturity ....................................    (4,155)     (9,327)     (5,500)
    Net change in loans ..........................................................        68     (30,648)    (51,284)
    Proceeds from sales of real estate ...........................................     1,542       1,377         185
    Purchases of premises and equipment ..........................................    (3,152)     (3,444)     (3,121)
    Proceeds from sale of premises and equipment .................................      --           475        --
    Purchase of cash surrender value life insurance ..............................      --          (377)       (244)
    Cash acquired in branch acquisition, net of premium paid .....................     7,909        --        25,417
    Other ........................................................................      --          --             2
                                                                                       ----        ----          ----
             Net cash provided by (used in) investing activities .................    11,123     (15,366)    (42,045)
                                                                                      ------     -------     -------
Cash flows from financing activities:
    Net change in deposits .......................................................   (46,536)     36,120      17,438
    Change in federal funds purchased and repurchase agreements...................    15,320        (170)     (2,870)
    Change in repurchase agreements ..............................................    14,500        --          --
    Proceeds from FHLB advances ..................................................     6,500      25,000      42,859
    Payments of FHLB advances ....................................................   (27,726)    (25,900)    (19,433)
    Proceeds from exercise of stock options ......................................        48          73        --
    Purchase of treasury stock ...................................................       (52)       --          --
    Stock transactions of pooled entities ........................................        38         130          59
    Cash dividends paid ..........................................................    (1,744)     (1,200)       (931)
    Other ........................................................................        --         (19)        (36)
                                                                                         ----        ---         ---
             Net cash (used in ) provided by financing activities ................   (54,152)     34,034      37,086
                                                                                     -------      ------      ------

Net change in cash and cash equivalents ..........................................   (26,233)     20,749       7,951
Cash and cash equivalents at beginning of year ...................................    53,317      32,568      24,617
                                                                                      ------      ------      ------
Cash and cash equivalents at end of year .........................................  $ 27,084      53,317      32,568
                                                                                    ========      ======      ======
</TABLE>


                                       35
<PAGE>


                           FLAG FINANCIAL CORPORATION

                Consolidated Statements of Cash Flows, continued

              For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
                                                                                        1999       1998        1997
                                                                                        ----       ----        ----
                                                                                             (In Thousands)
Supplemental  disclosures  of cash flow  information:
  Cash paid during the year for:
<S>                                                                                   <C>         <C>         <C>
       Interest ..................................................................    $ 22,959    23,131      19,698
       Income taxes ..............................................................    $  1,131     1,731       1,906

Supplemental schedule of noncash investing and financing activities:
    Real estate acquired through foreclosure .....................................    $    857     2,416         871
    Change in unrealized loss on securities available-for-sale, net of tax .......    $ (3,057)    1,955         382
    Transfer of investment securities from available-for-sale to trading..........    $  1,428      --          --
    Transfer of investment securities from trading to available-for-sale .........    $    268      --          --
    Increase in dividends payable ................................................    $    118       205        --
    Deposit liabilities assumed in branch acquisition ............................    $  8,852      --        29,083
    Assets acquired in branch acquisition, other than cash
        and cash equivalents .....................................................    $     60      --         1,661
</TABLE>


See accompanying notes to consolidated financial statements.


                                       36
<PAGE>


                           FLAG FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

(1)  Summary of Significant Accounting Policies

     Basisof Presentation
     --------------------
     The  consolidated   financial  statements  include  the  accounts  of  FLAG
     Financial Corporation  ("FLAG"),  its wholly- owned subsidiaries First Flag
     Bank,  formerly  First  Federal  Savings Bank of LaGrange  ("First  Flag"),
     Citizens Bank  ("Citizens"),  Thomaston Federal Savings Bank  ("Thomaston")
     and The Citizens  Bank  ("Hogansville")  ("the Banks",  collectively).  All
     significant  intercompany accounts and transactions have been eliminated in
     consolidation.

     FLAG is a  multi-bank  holding  company  formed in 1994 whose  business  is
     conducted  by the  Banks.  FLAG is  subject  to  regulation  under the Bank
     Holding  Company  Act of 1956.  The Banks are  primarily  regulated  by the
     Georgia  Department of Banking and Finance  ("DBF") and the Federal Deposit
     Insurance Corporation ("FDIC") and in the case of Thomaston,  the Office of
     Thrift Supervision. The Banks provide a full range of commercial,  mortgage
     and consumer banking services in West-Central, Middle and South Georgia.

     The accounting  principles  followed by FLAG and its subsidiaries,  and the
     methods of applying  these  principles,  conform  with  generally  accepted
     accounting  principles  ("GAAP")  and with  general  practices  within  the
     banking  industry.  In preparing  financial  statements in conformity  with
     GAAP,  management is required to make estimates and assumptions that affect
     the reported  amounts in the  financial  statements.  Actual  results could
     differ significantly from those estimates. Material estimates common to the
     banking industry that are particularly susceptible to significant change in
     the near term  include,  but are not limited to, the  determination  of the
     allowance  for loan  losses,  the  valuation  of real  estate  acquired  in
     connection with or in lieu of foreclosure on loans, the valuation allowance
     for mortgage servicing rights and valuation allowances  associated with the
     realization  of  deferred  tax  assets  which are  based on future  taxable
     income.

     Cash and Cash Equivalents
     -------------------------
     Cash  equivalents  include  amounts due from banks and federal  funds sold.
     Generally, federal funds are sold for one-day periods.

     Investment Securities
     ---------------------
     FLAG  classifies  its  securities  in one  of  three  categories:  trading,
     available-for-sale,  or held-to-maturity.  There were no trading securities
     at December 31, 1999 and 1998.  Trading  securities are securities held for
     the  purpose of  generating  profits on  short-term  differences  in price.
     Securities  held-to-maturity  are those  securities  for which FLAG has the
     ability and intent to hold to maturity. All other securities are classified
     as available-for-sale.

     Trading  and  available-for-sale  securities  are  recorded  at fair value.
     Held-to-maturity   securities  are  recorded  at  cost,  adjusted  for  the
     amortization  or accretion  of premiums or  discounts.  Unrealized  holding
     gains and losses on trading  securities  are  included  in  earnings in the
     period  in which  the gain or loss  occurs.  Unrealized  holding  gains and
     losses, net of the related tax effect, on securities available-for-sale are
     excluded  from  earnings  and  are  reported  as a  separate  component  of
     stockholders'  equity  until  realized.  Transfers  of  securities  between
     categories are recorded at fair value at the date of transfer.

     A decline in the market value of any available-for-sale or held-to-maturity
     investment  below cost that is deemed  other than  temporary  is charged to
     earnings and establishes a new cost basis for the security.

     Premiums  and  discounts  are  amortized  or accreted  over the life of the
     related  security as an adjustment to the yield.  Realized gains and losses
     are included in earnings and the cost of securities  sold are derived using
     the specific identification method.

     Other Investments
     -----------------
     Other  investments  include  Federal Home Loan Bank ("FHLB")  stock,  other
     equity securities with no readily determinable fair value and an investment
     in a limited  partnership.  An  investment in FHLB stock is required by law
     for a federally insured savings bank. FLAG owns a 43% interest in a limited
     partnership,  which  invests  in  multi-family  real  estate and passes low
     income housing credits to the investors.  FLAG recognizes these tax credits
     in the  year  received.  These  investments  are  carried  at cost ,  which
     approximates fair value.


                                       37
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(1)  Summary of Significant Accounting Policies, continued

     Mortgage Loans Held for Sale
     ----------------------------
     Mortgage loans originated and intended for sale in the secondary market are
     carried at the lower of aggregate cost or market value. The amount by which
     cost  exceeds  market  value is  accounted  for as a  valuation  allowance.
     Changes,   if  any,  in  the  valuation   allowance  are  included  in  the
     determination  of net  earnings  in the period in which the change  occurs.
     Gains and losses from the sale of loans are  determined  using the specific
     identification method.

     Loans,  Loan Fees and Interest Income
     -------------------------------------
     Loans  that  management  has  the  intent  and  ability  to  hold  for  the
     foreseeable  future or until  maturity  are  reported at their  outstanding
     unpaid principal balances,  net of the allowance for loan losses,  deferred
     fees or costs on originated loans and unamortized  premiums or discounts on
     purchased loans.

     Loan fees and certain direct loan origination  costs are deferred,  and the
     net fee or cost is  recognized  in interest  income  using the  level-yield
     method over the  contractual  lives of the loans,  adjusted  for  estimated
     prepayments   based  on  the  Banks'  historical   prepayment   experience.
     Commitment  fees and costs  relating to  commitments  whose  likelihood  of
     exercise  is  remote  are  recognized  over  the  commitment  period  on  a
     straight-line basis. If the commitment is subsequently exercised during the
     commitment period, the remaining unamortized  commitment fee at the time of
     exercise is  recognized  over the life of the loan as an  adjustment to the
     yield.  Premiums and discounts on purchased  loans are  amortized  over the
     remaining  lives of the loans using the  level-yield  method.  Fees arising
     from servicing loans for others are recognized as earned.

     FLAG  considers a loan  impaired  when,  based on current  information  and
     events,  it is probable that all amounts due  according to the  contractual
     terms of the loan  agreement  will not be  collected.  Impaired  loans  are
     measured  based  on the  present  value  of  expected  future  cash  flows,
     discounted  at  the  loan's  effective  interest  rate  or  at  the  loan's
     observable market price, or the fair value of the collateral of the loan if
     the loan is collateral  dependent.  Interest  income from impaired loans is
     recognized  using a cash basis method of accounting  during the time within
     that period in which the loans were impaired.

     Allowance for Loan Losses
     -------------------------
     The allowance for loan losses is  established  through  provisions for loan
     losses charged to expense. Loans are charged against the allowance for loan
     losses when  management  believes  that the  collection of the principal is
     unlikely. The allowance is an amount which, in management's judgment,  will
     be   adequate  to  absorb   losses  on  existing   loans  that  may  become
     uncollectible.  The allowance is established through  consideration of such
     factors as changes in the nature and volume of the  portfolio,  adequacy of
     collateral,  delinquency  trends,  loan  concentrations,  specific  problem
     loans,  and economic  conditions that may affect the borrower's  ability to
     pay.

     Management  believes that the allowance for loan losses is adequate.  While
     management uses available  information to recognize losses on loans, future
     additions to the  allowance  may be necessary  based on changes in economic
     conditions.  In addition,  various regulatory agencies, as an integral part
     of their examination process, periodically review FLAG's allowance for loan
     losses.  Such  agencies  may require  FLAG to  recognize  additions  to the
     allowance based on their judgments about  information  available to them at
     the time of their examination.

     Other Real Estate Owned
     -----------------------
     Real estate  acquired  through  foreclosure is carried at the lower of cost
     (defined as fair value at  foreclosure)  or fair value less estimated costs
     to  dispose.  Fair value is defined as the amount  that is  expected  to be
     received in a current sale between a willing buyer and seller other than in
     a forced or  liquidation  sale.  Fair  values at  foreclosure  are based on
     appraisals.  Losses arising from the  acquisition of foreclosed  properties
     are charged  against the allowance for loan losses.  Subsequent  writedowns
     are provided by a charge to operations  through the allowance for losses on
     other real estate in the period in which the need arises.


                                       38
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(1)  Summary of Significant Accounting Policies, continued

     Premises and Equipment
     ----------------------
     Premises and  equipment are stated at cost less  accumulated  depreciation.
     Major  additions and  improvements  are charged to the asset accounts while
     maintenance  and repairs  that do not improve or extend the useful lives of
     the assets are  expensed  currently.  When assets are retired or  otherwise
     disposed of, the cost and related accumulated depreciation are removed from
     the accounts, and any gain or loss is reflected in earnings for the period.

     Depreciation  expense is computed using the  straight-line  method over the
     following estimated useful lives:

         Buildings and improvements                       15-40 years
         Furniture and equipment                           3-10 years

     Mortgage Servicing Rights
     -------------------------
     FLAG's mortgage banking division accounts for mortgage  servicing rights as
     a separate  asset  regardless of whether the servicing  rights are acquired
     through purchase or origination. FLAG's mortgage servicing rights represent
     the  unamortized  cost of purchased and  originated  contractual  rights to
     service  mortgages for others in exchange for a servicing fee and ancillary
     loan  administration  income.  Mortgage servicing rights are amortized over
     the period of estimated net servicing income and are periodically  adjusted
     for actual and  anticipated  prepayments of the underlying  mortgage loans.
     Impairment  analysis is performed quarterly after stratifying the rights by
     interest rate.  Impairment,  defined as the excess of the asset's  carrying
     value over its  current  fair  value,  is  recognized  through a  valuation
     allowance.  At December  31, 1999 and 1998,  no valuation  allowances  were
     required for FLAG's mortgage servicing rights.

     FLAG recognized approximately $460,000,  $966,000 and $526,000 in servicing
     assets  during  1999,   1998  and  1997,   respectively,   and   recognized
     amortization   expense   relating  to  servicing  assets  of  approximately
     $346,000,  $312,000 and $612,000 during 1999, 1998 and 1997,  respectively.
     The risk  characteristics  that FLAG uses to stratify recognized  servicing
     assets for purposes of measuring  impairment  include the interest rate and
     term of the underlying loans serviced.

     Core Deposit Intangible
     -----------------------
     During 1997,  Citizens  entered into an agreement to acquire certain loans,
     deposits and other liabilities of a bank branch in Montezuma, Georgia and a
     branch  in  Oglethorpe,  Georgia  for a net  purchase  price  approximating
     $2,095,000.  During 1999,  Citizens  acquired a bank branch in  Blackshear,
     Georgia,  including certain loans, deposits and property for a net purchase
     price of approximately $882,000. The purchased core deposit intangibles and
     the associated expenses have been capitalized and are being amortized using
     the  straight-line  method over the 15 year  estimated  average life of the
     deposit  base  acquired  and is included as a  component  of other  assets.
     Amortization  expense approximated  $179,000,  $140,000 and $58,000 for the
     years ended December 31, 1999, 1998 and 1997, respectively.

     Income Taxes
     ------------
     Deferred  tax  assets  and  liabilities  are  recorded  for the  future tax
     consequences  attributable to differences  between the financial  statement
     carrying  amounts of existing assets and  liabilities and their  respective
     tax bases.  Future tax benefits,  such as net operating loss carryforwards,
     are  recognized  to the extent that  realization  of such  benefits is more
     likely than not.  Deferred tax assets and  liabilities  are measured  using
     enacted tax rates expected to apply to taxable income in the years in which
     the assets and  liabilities  are expected to be  recovered or settled.  The
     effect on deferred tax assets and  liabilities  of a change in tax rates is
     recognized  in income tax expense in the period that includes the enactment
     date.

     In the event  the  future  tax  consequences  of  differences  between  the
     financial   reporting  bases  and  the  tax  bases  of  FLAG's  assets  and
     liabilities   results  in  deferred  tax  assets,   an  evaluation  of  the
     probability of being able to realize the future benefits  indicated by such
     assets is  required.  A valuation  allowance  is  provided  when it is more
     likely than not that some portion or all of the deferred tax asset will not
     be realized.  In assessing  the  realizability  of the deferred tax assets,
     management  considers the scheduled  reversals of deferred tax liabilities,
     projected future taxable income, and tax planning strategies.

     A deferred tax  liability is not  recognized  for portions of the allowance
     for loan  losses  for  income  tax  purposes  in  excess  of the  financial
     statement  balance,  as described in note 8. Such a deferred tax  liability
     will only be  recognized  when it becomes  apparent  that  those  temporary
     differences will reverse in the foreseeable future.


                                       39
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(1)  Summary of Significant Accounting Policies, continued

     Net Earnings Per Common Share
     -----------------------------
     FLAG is required to report  earnings  per common share with and without the
     dilutive  effects of potential common stock issuances from instruments such
     as  options,  convertible  securities  and  warrants  on  the  face  of the
     statements of earnings. Earnings per common share are based on the weighted
     average  number of common  shares  outstanding  during the period while the
     effects  of  potential  common  shares  outstanding  during  the period are
     included in diluted earnings per share.  Additionally,  FLAG must reconcile
     the amounts used in the  computation of both "basic earnings per share" and
     "diluted  earnings per share".  Earnings  per common share  amounts for the
     years ended December 31, 1999,  1998 and 1997 are as follows (in thousands,
     except share and per share amounts):

<TABLE>
<CAPTION>
       For the Year Ended December 31, 1999
                                                            Net Earnings      Common Share     Per Share
                                                            (Numerator)       (Denominator)      Amount
                                                            -----------       -------------      ------
<S>                                                             <C>             <C>               <C>
       Basic earnings per share ..........................      $1,213          8,257,607         .15

       Effect of dilutive securities - stock options .....         -                  -             -
                                                              ---------         ---------      -------

       Diluted earnings per share ........................      $1,213          8,257,607         .15
                                                                 =====          =========         ===

       For the Year Ended December 31, 1998
                                                            Net Earnings      Common Share     Per Share
                                                            (Numerator)       (Denominator)      Amount
                                                            -----------       -------------      ------
       Basic earnings per share ..........................     $ 2,839          8,217,854         .35

       Effect of dilutive securities - stock options .....         -               91,633        (.01)
                                                              ---------         ---------        -----

       Diluted earnings per share ........................     $ 2,839          8,309,487         .34
                                                                 =====          =========         ===

       For the Year Ended December 31, 1997
                                                            Net Earnings      Common Share     Per Share
                                                            (Numerator)       (Denominator)      Amount
                                                            -----------       -------------      ------
       Basic earnings per share ..........................     $ 5,276          8,182,224         .64

       Effect of dilutive securities - stock options .....         -               76,146           -
                                                              --------          ---------         ---

       Diluted earnings per share ........................     $ 5,276          8,258,370         .64
                                                                 =====          =========         ===
</TABLE>

     Recent Accounting Pronouncements
     --------------------------------
     In 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
     Financial  Accounting  Standards No. 133 ("SFAS No. 133"),  "Accounting for
     Derivative  Instruments and Hedging  Activities".  SFAS No. 133 establishes
     accounting  and  reporting   standards  for  hedging   activities  and  for
     derivative  instruments including derivative  instruments embedded in other
     contracts.  It requires the fair value recognition of derivatives as assets
     or liabilities in the financial  statements.  SFAS No. 133 is effective for
     all fiscal  quarters in fiscal years  beginning  after June 15,  2000,  but
     initial  application  of the statement  must be made as of the beginning of
     the quarter. At the date of initial application, an entity may transfer any
     held-to-maturity security into the available-for-sale or trading categories
     without calling into question the entity's intent to hold other  securities
     to maturity in the future.  FLAG believes the adoption of SFAS No. 133 will
     not have a material impact on its financial position, results of operations
     or liquidity.


                                       40
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(2)  Business  Combinations
     Effective  March 30, 1998,  FLAG acquired,  for  approximately  1.5 million
     shares of its common stock, all of the outstanding  stock of Middle Georgia
     Bankshares,  Inc., the holding  company of the $129 million  Citizens Bank,
     located in Vienna,  Georgia.  Effective  May 8, 1998,  FLAG  acquired,  for
     approximately  597,000  shares of its common  stock all of the  outstanding
     stock of Three  Rivers  Bancshares,  Inc.,  the holding  company of the $35
     million Bank of Milan,  located in Milan,  Georgia.  Effective December 11,
     1998,  FLAG acquired,  for  approximately  1.1 million shares of its common
     stock,  all of the outstanding  stock of Empire Banking Corp.,  the holding
     company of the $70 million Empire Banking  Company,  located in Homerville,
     Georgia.  Effective  December 31, 1998,  FLAG acquired,  for  approximately
     255,000  shares of its common stock,  all of the  outstanding  stock of The
     Brown Bank, a $31 million bank located in Metter, Georgia. Effective August
     31, 1999, FLAG acquired, for approximately 1.2 million shares of its common
     stock,  all of the  outstanding  stock of Thomaston,  a $55 million  thrift
     located in Thomaston, Georgia. Effective September 30, 1999, FLAG acquired,
     for  approximately   575,000  shares  of  its  common  stock,  all  of  the
     outstanding  stock of  First  Hogansville  Bankshares,  Inc.,  the  holding
     company of the $31  million  The  Citizens  Bank,  located in  Hogansville,
     Georgia. These acquisitions were accounted for as poolings of interests and
     accordingly,   the  consolidated   financial  statements  for  all  periods
     presented have been restated to include the financial  position and results
     of operations as if the  combination  had occurred on January 1, 1997,  the
     earliest period presented..

     The following is a reconciliation of the amounts of net interest income and
     net earnings previously reported with the restated amounts (in thousands):

                                                             1998         1997
                                                             ----         ----
        Net interest income:
                    FLAG ..............................    $ 22,823       8,542
                    Citizens ..........................        -          5,623
                    Milan .............................        -          1,831
                    Empire ............................        -          2,616
                    Brown .............................        -          1,494
                    Thomaston .........................       1,629       1,657
                    Hogansville .......................       1,500       1,509
                                                              -----       -----
                             As restated ..............    $ 25,952      23,272
                                                           ========      ======

        Net earnings (loss):
                    FLAG ..............................     $ 1,960       2,033
                    Citizens ..........................        -          1,053
                    Milan .............................        -            662
                    Empire ............................        -            693
                    Brown .............................        -           (131)
                    Thomaston .........................         611         617
                    Hogansville .......................         268         349
                                                                ---         ---
                             As restated ..............   $   2,839       5,276
                                                          =========       =====


                                       41
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(3)  Investment Securities
     Investment  securities  at  December  31, 1999 and 1998 are  summarized  as
     follows (in thousands):
<TABLE>
<CAPTION>
                                                                            December 31, 1999
                                                      -------------------------------------------------------------
                                                                           Gross            Gross         Estimated
                                                       Amortized         Unrealized      Unrealized         Fair
        Securities Available-for-Sale                     Cost             Gains           Losses           Value
                                                          ----             -----           ------           -----
<S>                                                    <C>                      <C>          <C>           <C>
        U.S. treasuries and agencies ..............    $ 19,447                 2            572          18,877
        State, county and municipals ..............       8,947                43            258            8,732
        Equity securities .........................       1,146               658            173            1,631
        Mortgage-backed securities ................      22,915                23            562           22,376
        Collateralized mortgage obligations .......      14,607                19            362           14,264
        Trust preferred securities ................       8,050                -             619            7,431
                                                          -----                              ---            -----
                                                       $ 75,112               745          2,546           73,311
                                                         ======               ===          =====           ======


                                                                            December 31, 1999
                                                      -------------------------------------------------------------
                                                                           Gross            Gross         Estimated
                                                       Amortized         Unrealized      Unrealized         Fair
        Securities Held-to-Maturity                       Cost             Gains           Losses           Value
                                                          ----             -----           ------           -----
        U.S. treasuries and agencies ..............    $ 10,178                 -            366            9,812
        State, county and municipals ..............       2,997                34             15            3,016
        Mortgage-backed securities ................       2,318                 1             66            2,253
        Collateralized mortgage obligations .......         751                 1             19              733
                                                            ---                 -             --              ---
                                                       $ 16,244                36            466           15,814
                                                       ========                ==            ===           ======


                                                                            December 31, 1998
                                                      -------------------------------------------------------------
                                                                           Gross            Gross         Estimated
                                                       Amortized         Unrealized      Unrealized         Fair
        Securities Available-for-Sale                     Cost             Gains           Losses           Value
                                                          ----             -----           ------           -----
        U.S. treasuries and agencies ..............     $21,803               218             19           22,002
        State, county and municipals ..............       9,503               282             18            9,767
        Corporate debt securities .................         998                 1              -              999
        Equity securities .........................       1,228             2,730             63            3,895
        Mortgage-backed securities ................      32,472               214            145           32,541
        Collateralized mortgage obligations .......      11,594                31            105           11,520
                                                            ---                               --              ---
                                                        $77,598             3,476            350           80,724
                                                        =======             =====            ===           ======


                                                                            December 31, 1998
                                                       -------------------------------------------------------------
                                                                           Gross            Gross         Estimated
                                                       Amortized         Unrealized      Unrealized         Fair
        Securities Held-to-Maturity                       Cost             Gains           Losses           Value
                                                          ----             -----           ------           -----
        U.S. treasuries and agencies...............     $11,624                79              -           11,703
        State, county and municipals ..............       3,111               140              -            3,251
        Mortgage-backed securities ................       1,127                 3              1            1,129
        Collateralized mortgage obligations .......       1,037                 1             16            1,022
                                                          -----                 -             --            -----
                                                        $16,899               223             17           17,105
                                                        =======               ===             ==           ======
</TABLE>


                                       42
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(3)  Investment  Securities,  continued
     The   amortized    cost   and   estimated    fair   value   of   securities
     available-for-sale and securities held-to-maturity at December 31, 1999, by
     contractual maturity,  are shown below (in thousands).  Expected maturities
     may differ from contractual maturities because borrowers may have the right
     to call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
                                                   Securities Available-for-Sale  Securities Held-to-Maturity
                                                   -----------------------------  ---------------------------
                                                      Amortized    Estimated       Amortized     Estimated
                                                         Cost      Fair Value         Cost      Fair Value
                                                         ----      ----------         ----      ----------
        U.S. Treasuries and agencies
            and state, county and municipals:
<S>                                                    <C>             <C>             <C>           <C>
               Within 1 year .......................   $ 2,379         2,381           209           212
               1 to 5 years ........................    14,785        14,480         9,725         9,437
               5 to 10 years .......................     5,893         5,769         3,104         3,041
               More than 10 years ..................     5,337         4,979           137           138
                                                         -----         -----           ---           ---
                                                        28,394        27,609        13,175        12,828

               Equity securities ...................     1,146         1,631          -              -
               Mortgage-backed securities ..........    22,915        22,376         2,318         2,253
               Collateralized mortgage obligations .    14,607        14,264           751           733
               Trust preferred securities ..........     8,050         7,431          -              -
                                                         -----         -----        ------         -----
                                                      $ 75,112        73,311        16,244        15,814
                                                      ========        ======        ======        ======
</TABLE>


     There were no sales of securities  held-to-maturity  during 1999,  1998 and
     1997.  Proceeds  from sales of securities  available-for-sale  during 1999,
     1998  and  1997  totalled  approximately  $11,720,000,   $14,843,000,   and
     $10,327,000,   respectively.   Gross  gains  of  approximately  $1,213,000,
     $326,000 and $210,000 and gross losses of  approximately  $65,000,  $52,000
     and $31,000 were  realized on those sales for the years ended  December 31,
     1999, 1998 and 1997, respectively. During 1999, FLAG recognized gross gains
     of $255,000 and no losses in earnings from transfers of securities from the
     available-for-sale category into the trading category.

     Securities  and   interest-bearing   deposits  with  a  carrying  value  of
     approximately  $46,211,000  and  $61,646,000 at December 31, 1999 and 1998,
     respectively,  were pledged to secure advances from FHLB,  U.S.  Government
     and other public deposits.

(4)  Loans
     Major classifications of loans at December 31, 1999 and 1998 are summarized
     as follows (in thousands):

                                                      1999         1998
                                                      ----         ----
        Commercial, financial and agricultural ..  $ 117,728      121,744
        Real estate - construction ..............     43,602       31,814
        Real estate - mortgage ..................    218,920      205,753
        Installment loans to individuals ........     40,620       63,869
        Lease financings ........................      5,226        7,674
                                                       -----        -----

                Gross loans .....................    426,096      430,854
        Less allowance for loan losses ..........      7,017        6,194
                                                       -----        -----
                                                   $ 419,079      424,660
                                                   =========      =======


     FLAG  concentrates  its lending  activities in the origination of permanent
     residential mortgage loans,  commercial mortgage loans, commercial business
     loans, and consumer  installment  loans. The majority of FLAG's real estate
     loans are  secured by real  property  located in  West-Central,  Middle and
     South Georgia.


                                       43
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(4)  Loans, continued
     FLAG  has  recognized  impaired  loans  of  approximately   $2,170,000  and
     $3,700,000  at  December  31,  1999 and  1998,  respectively,  with a total
     allowance  for  loan  losses  related  to  these  loans  of   approximately
     $1,090,000 and $2,150,000,  respectively. Interest income on impaired loans
     of  approximately  $279,000 and $150,000 was  recognized  for cash payments
     received in 1999 and 1998, respectively.

     Activity in the  allowance for loan losses is summarized as follows for the
     years ended December 31, 1999, 1998 and 1997 (in thousands):


                                                      1999       1998      1997
                                                      ----       ----      ----
        Balance at beginning of year ............  $ 6,194      5,637     7,051
        Provisions charged to operations ........    4,656      3,475     1,702
        Loans charged off .......................   (4,090)    (3,262)   (3,384)
        Recoveries on loans previously charged off     257        344       268
                                                       ---        ---       ---
        Balance at end of year ..................   $7,017      6,194     5,637
                                                    ======      =====     =====

     Mortgage  loans  serviced for others are not  included in the  accompanying
     consolidated financial statements. Unpaid principal balances of these loans
     at December 31, 1999 and 1998 approximate  $202,914,000  and  $292,558,000,
     respectively.  Custodial escrow balances maintained in connection with loan
     servicing, and included in demand deposits, were approximately $390,000 and
     $816,000 at December 31, 1999 and 1998, respectively.

     Mortgage  loans  secured by 1-4 family  residences  totaling  approximately
     $46,541,000 and $57,393,000 were pledged as collateral for outstanding FHLB
     advances as of December 31, 1999 and 1998, respectively.

(5)  Premises and Equipment
     Premises  and  equipment at December  31, 1999 and 1998 are  summarized  as
     follows (in thousands):

                                             1999       1998
                                             ----       ----
        Land and land improvements .......  $2,145      2,143
        Buildings and improvements .......  13,429     12,757
        Furniture and equipment ..........  18,256     15,738
                                            ------     ------
                                            33,830     30,638
        Less accumulated depreciation ....  15,438     12,866
                                            ------     ------
                                            $18,392    17,772
                                            =======    ======

     Depreciation expense approximated $2,589,000,  $2,342,000 and $1,882,000 at
     December 31, 1999, 1998 and 1997, respectively.

(6)  Time Deposits
     At  December  31,  1999,   contractual  maturities  of  time  deposits  are
     summarized as follows (in thousands):

         Year ending December 31,

                   2000                    $ 246,398
                   2001                       26,432
                   2002                       12,196
                   2003                        9,264
                   2004                        5,722
                   Thereafter                    730
                                          ----------
                                           $ 300,742
                                           =========


                                       44
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(7)  FHLB Advances
     FHLB  advances  are  collateralized  by  FHLB  stock,   certain  investment
     securities and first mortgage loans.  Advances from the FHLB outstanding at
     December  31,  1999  mature and bear fixed  interest  rates as follows  (in
     thousands):


                Year                      Amount         Interest Rate
                ----                      ------         -------------
                2000                      $6,675         5.48% - 8.13%
                2001                       3,000         4.55% - 8.13%
                2002                       1,370         5.97% - 8.00%
                2003                       4,356         5.52% - 7.55%
                2004                       1,356         5.97% - 7.55%
                Thereafter                10,416         5.97% - 8.13%
                                          ------         -------------
                                        $ 27,173         4.55% - 8.13%
                                          ======         =============

(8)  Income Taxes
     The  following  is an  analysis  of the  components  of income tax  expense
     (benefit)  for the  years  ended  December  31,  1999,  1998  and  1997 (in
     thousands):

                                            1999       1998      1997
                                            ----       ----      ----
        Current .........................  $ 946      1,058     1,467
        Deferred ........................   (817)      (218)      895
        Change in valuation allowance ...    (51)      (132)      (57)
                                             ---       ----       ---
                                          $   78        708     2,305
                                          ======        ===     =====


     The  differences  between  income tax  expense  and the amount  computed by
     applying the statutory federal income tax rate to earnings before taxes for
     the  years  ended  December  31,  1999,  1998 and 1997 are as  follows  (in
     thousands):
<TABLE>
<CAPTION>

                                                                      1999       1998        1997
                                                                      ----       ----        ----
<S>                                                                  <C>        <C>         <C>
        Pretax income at statutory rate .........................    $ 439      1,206       2,578
        Add (deduct):
              Tax-exempt interest income .......................      (352)      (347)       (299)
              State income taxes, net of federal effect ........        52        142         303
              Increase in cash surrender value of life insurance       (56)       (64)        (75)
              Nondeductible merger expenses ....................       252        109         -
              General business credite..........................      (121)      (113)       (104)
              Other ............................................       (85)       (93)        (41)
              Change in valuation allowance ....................       (51)      (132)        (57)
                                                                       ---       ----         ---
                                                                    $   78        708       2,305
                                                                    ======        ===       =====
</TABLE>


                                       45
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(8)  Income Taxes, continued
     The following summarizes the net deferred tax asset. The deferred tax asset
     is included as a component  of other  assets at December  31, 1999 and 1998
     (in thousands).
<TABLE>
<CAPTION>

                                                                       1999        1998
                                                                      ----        ----
        Deferred tax assets:
<S>                                                                 <C>           <C>
             Allowance for loan losses ...........................  $ 2,119       1,632
             Allowance for other real estate owned ...............        9          28
             Net operating loss carryforwards and credits ........      358         215
             Unrealized losses on securities available-for-sale ..    1,048         -
             Other ...............................................      482         353
                                                                        ---         ---

                   Total gross deferred tax assets ...............    4,016       2,228

             Less: valuation allowance ...........................      -           (51)
                                                                       ---           ---
                                                                      4,016       2,177
                                                                      -----       -----

        Deferred tax liabilities:
             Premises and equipment ..............................      701         670
             Net deferred loan fees ..............................       25          75
             Unrealized gain on securities available-for-sale ....      -         1,145
             Other ...............................................       37          95
                                                                         --          --

                   Total gross deferred tax liabilities ..........      763       1,985
                                                                        ---       -----

                   Net deferred tax asset ........................  $ 3,253         192
                                                                    =======         ===
</TABLE>


     The  Internal  Revenue  Code  ("IRC") was  amended  during 1996 and the IRC
     section 593  reserve  method for loan  losses for thrift  institutions  was
     repealed.  Effective  January 1, 1996, First Flag and Thomaston now compute
     their tax bad debt reserves under the rules of IRC section 585, which apply
     to  commercial  banks.  In years  prior to 1996,  First Flag and  Thomaston
     obtained tax bad debt  deductions  approximating  $2.9 million in excess of
     their financial  statement allowance for loan losses for which no provision
     for federal income tax was made. These amounts were then subject to federal
     income tax in future years pursuant to the prior IRC section 593 provisions
     if used for  purposes  other  than to  absorb  bad debt  losses.  Effective
     January  1, 1996,  approximately  $2.9  million  of the  excess  reserve is
     subject to recapture only if First Flag and Thomaston cease to qualify as a
     bank pursuant to the provisions of IRC section 585.

(9)  Employee and Director Benefit Plans

     Defined Contribution Plans
     --------------------------
     FLAG  sponsors  the  FLAG  Financial  Profit  Sharing  Trift  Plan  that is
     qualified  pursuant  to  IRC  section  401(k).  The  plan  allows  eligible
     employees to defer a portion of their income by making  contributions  into
     the plan on a pretax basis. The plan provides a matching contribution based
     on a percentage of the amount  contributed  by the employee.  The plan also
     provides that the Board of Directors may make discretionary  profit-sharing
     contributions  up to 15% of  eligible  compensation  to the plan.  The plan
     allows  participants  to direct up to 75% of their account  balance  and/or
     contributions  to be invested in the common  stock of FLAG.  The trustee of
     the plan is required to purchase the FLAG stock at market value and may not
     acquire  more than 25% of the issued  and  outstanding  shares.  During the
     years ended 1999,  1998 and 1997,  the  Company  contributed  approximately
     $329,000,  $105,000  and  $59,000,  respectively,  to this  plan  under its
     matching provisions.  FLAG recognized no expense in 1999 or 1998 related to
     the profit-sharing provisions under the plan and recognized $194,000 during
     the year ended December 31, 1997.

     The  companies  acquired in 1998  sponsored  certain  defined  contribution
     employee  benefit  plans that have been  terminated or merged into existing
     plans of FLAG. Under these plans, the acquired companies recognized expense
     of approximately $58,000 and $88,000 in 1998 and 1997, respectively.  These
     amounts are included in the accompanying statements of earnings.

     The  companies  acquired in 1999  sponsored  certain  defined  contribution
     employee  benefit  plans that have been  terminated or merged into existing
     plans of FLAG. Under these plans, the acquired companies recognized expense
     of  approximately  $12,000,  $23,000  and  $20,000 in 1999,  1998 and 1997,
     respectively.  One of the companies  acquired in 1999  sponsored a deferred
     compensation  plan for its directors.  The acquired  company has recognized
     expense of $70,000,  $54,000 and $50,000 in 1999,  1998 and 1997 related to
     this plan.


                                       46
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(9)  Employee and Director Benefit Plans, continued

     Directors' Retirement Plan
     --------------------------
     First Flag and Citizens sponsor defined contribution postretirement benefit
     plans to provide  retirement  benefits to their Board of  Directors  and to
     provide death benefits for their designated beneficiaries. Under this plan,
     First  Flag  and  Citizens  purchased  split-dollar  whole  life  insurance
     contracts on the lives of each  Director.  The  increase in cash  surrender
     value of the contracts,  less the Bank's cost of funds,  constitutes  their
     contribution  to the plan each year. In the event the  insurance  contracts
     fail  to  produce  positive  returns,  First  Flag  and  Citizens  have  no
     obligation to  contribute  to the plan. At December 31, 1999 and 1998,  the
     cash  surrender  value  of  the  insurance   contracts  was   approximately
     $4,134,000   and   $3,971,000.   Expenses   incurred  for   benefits   were
     approximately  $50,000,  $7,000 and  $22,000  during  1999,  1998 and 1997,
     respectively.

     Defined Benefit Plans
     ---------------------
     Prior to 1998, FLAG sponsored a trusteed defined benefit pension plan which
     covered substantially all employees. This pension plan was frozen effective
     January 15,  1998 and  terminated  effective  May 1, 1998 at which time all
     accrued  benefits  became fully vested.  During 1998, FLAG fully funded the
     liability  under this plan and as of December 31, 1999 all assets have been
     distributed to the participants.

     Net pension  expense for the year ended  December 31, 1997 is summarized as
     follows:


        Service cost - benefits earned .......................  $ 93,676
        Interest cost on projected benefit obligation ........   116,072
        Actual return on plan assets .........................   (99,024)
        Net amortization .....................................    12,191
                                                                  ------
                                                               $ 122,915
                                                               =========

     The  assumed  rate of  return on assets  was 8% for 1997,  with an  assumed
     discount rate of 8% and an assumed rate of compensation increase of 4.5% in
     1997.  Prior service  costs were  generally  amortized  over a period of 17
     years.

     Hogansville  sponsors  a  noncontributory   defined  benefit  pension  plan
     covering  substantially all of its employees who have completed one year of
     service.  Hogansville's  funding  policy  is to  fund  the  maximum  amount
     deductible for income tax purposes.  Contributions  are intended to provide
     not only for  benefits  attributed  to  service  to date but also for those
     expected to be earned in the future.

     The  following  table sets  forth this  plan's  funded  status and  amounts
     recognized in the balance sheets at December 31, 1999 and 1998. Plan assets
     are stated at fair  value and  consist of cash,  certificates  of  deposit,
     equity and government securities.

     Actuarial present value of benefit obligations:
<TABLE>
<CAPTION>

                                                                                      1999           1998
                                                                                      ----           ----
<S>                                                                                <C>              <C>
        Vested ...............................................................     $ 490,941        430,368
        Nonvested ............................................................        11,705          5,394
                                                                                      ------          -----
                Total accumulated benefit obligations ........................     $  502,646        435,762
                                                                                   ==========        =======

        Projected benefit obligations for services rendered to date ..........     $ 584,905        528,873
        Plan assets at fair value ............................................       773,833        714,419
                                                                                     -------        -------

                Assets in excess of projected benefit obligation .............       188,928        185,546

        Unamortized transition gain existing at date of adoption of SFAS No. 87     (35,584)        (39,570)
        Unamortized net gain from past experience different from that assumed
          and effects of changes in assumptions ..............................     (190,866)       (177,297)
                                                                                   --------        --------
                Accrued pension cost .........................................    $ (37,522)        (31,321)
                                                                                  =========         =======
</TABLE>


                                       47
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(9)  Employee and Director Benefit Plans, continued

     Defined Benefit Plans, continued
     --------------------------------
     The  components of net pension cost for the years ended  December 31, 1999,
     1998 and 1997 are as follows:
<TABLE>
<CAPTION>

                                                               1999        1998         1997
                                                               ----        ----         ----
<S>                                                         <C>           <C>          <C>
        Service cost for benefits earned .................  $ 27,389      22,920       21,507
        Interest cost on projected benefit obligations ...    37,153      33,197       39,966
        Actual return on plan assets .....................   (59,414)    (96,437)    (134,873)
        Net amortization and deferral ....................     1,073      45,215       79,242
                                                               -----      ------       ------
        Net pension cost ................................. $   6,201       4,895        5,842
                                                             =======       =====        =====
</TABLE>

     The following  assumptions  were used in determining the actuarial  present
     value of the projected  benefit  obligations at December 31, 1999, 1998 and
     1997:

<TABLE>
<CAPTION>
                                                               1999       1998       1997
                                                               ----       ----       ----
<S>                                                            <C>       <C>         <C>
        Discount rate ......................................   7.75%     7.00%       7.00%
        Rate of increase in future compensation levels .....   5.00%     5.00%       5.00%
        Expected long-term rate of return on assets ........   8.25%     8.25%       8.25%
</TABLE>

     Stock Option Plan
     -----------------
     FLAG  sponsors  an  employee  stock  incentive  plan and a  director  stock
     incentive plan. The plans were adopted for the benefit of directors and key
     officers  and  employees  in order that they may  purchase  FLAG stock at a
     price  equal to the fair  market  value  on the date of  grant.  A total of
     914,000 shares were reserved for possible  issuance under the employee plan
     and 166,938  shares were  reserved  under the  director  plan.  The options
     generally vest over a four-year period and expire after ten years.

     Thomaston  previously  sponsored a stock option plan for its  directors and
     key officers.  Prior to its merger with FLAG,  Thomaston had  approximately
     27,595 options  outstanding to purchase  Thomaston common stock. This stock
     option plan was  terminated  upon  Thomaston's  merger with FLAG,  and each
     option holder was issued options to purchase FLAG common stock in an amount
     equal to their options  previously  outstanding  under the Thomaston  stock
     option plan multiplied by the conversion factor of 1.7275.

     SFAS No. 123, "Accounting for Stock-Based  Compensation,"  became effective
     January 1, 1996. This statement encourages,  but does not require, entities
     to compute the fair value of options at the date of grant and to  recognize
     such  costs as  compensation  expense  immediately  if there is no  vesting
     period or ratably over the vesting  period of the options.  FLAG has chosen
     not to  adopt  the  cost  recognition  principles  of  this  statement.  No
     compensation  expense has been  recognized in 1999, 1998 or 1997 related to
     the stock option plans.  Had  compensation  cost been determined based upon
     the fair value of the options at the grant dates consistent with the method
     of the new statement,  FLAG's net earnings and net earnings per share would
     have been reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>

                                                           1999       1998       1997
                                                           ----       ----       ----
<S>                                                        <C>       <C>        <C>
         Net earnings (in thousands)      As reported ...  1,213     2,839      5,276
                                          Pro forma .....    545     2,395      5,255

         Basic earnings per share         As reported ...    .15       .35        .64
                                          Pro forma .....    .07       .29        .64

         Diluted earnings per share       As reported ...    .15       .34        .64
                                          Pro forma .....    .07       .29        .64
</TABLE>


                                       48
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(9)  Employee and Director Benefit Plans, continued

     Stock Option Plan, continued
     ----------------------------
     The fair value of each option is  estimated  on the date of grant using the
     Black-Scholes  options-pricing  model with the following  weighted  average
     assumptions:  dividend yield of 3%; volatility ranging from .9424 to .9803;
     risk free interest rate of 6% and an expected life of 5 years. The weighted
     average grant date fair value of options granted in 1999, 1998 and 1997 was
     $5.38, $6.12 and $2.79, respectively.

     A summary of activity in these stock option plans is presented below:

<TABLE>
<CAPTION>
                                                            1999                      1998                      1997
                                                   --------------------------------------------------------------------------
                                                                Weighted                  Weighted                   Weighted
                                                                 Average                   Average                   Average
                                                              Option Price              Option Price               Option Price
                                                    Shares      Per Share     Shares      Per Share     Shares      Per Share
                                                    ------      ---------     ------      ---------     ------      ---------
<S>                                                   <C>       <C>            <C>         <C>            <C>         <C>
         Outstanding , beginning of year ........    539,024    $ 11.87        109,125     $ 7.01         69,000      $ 6.68
         Granted during the year ................    274,749       8.53        445,399      12.99         42,000        7.58
         Granted for merger with Thomaston ......     47,670       3.47         -             -           -             -
         Cancelled during the year ..............    (36,625)     12.24         (6,000)     13.33         (1,875)       7.50
         Exercised during the year ..............    (11,409)      4.13         (9,500)      7.68            -             -
                                                     -------       ----          ------       ----       --------         ---

         Outstanding, end of year ...............    813,409    $ 10.34        539,024    $ 11.87        109,125      $ 7.01
                                                     =======      =====        =======      =====        =======        ====

</TABLE>

     A summeryof optoins outstnading as of December 31, 1999 is presented below.

<TABLE>
<CAPTION>

                           Weighted                                            Weighted
                           Range of            Average                          Options           Average
         Options          Price per         Option Price       Years           Currently        Option Price
       Outstanding          Share             Per Share      Remaining        Exercisable        Per Share
       -----------          -----             ---------      ---------        -----------        ---------

<S>         <C>            <C>                <C>                 <C>             <C>              <C>
            38,136         $ 3.473            $ 3.473             9               38,136           $ 3.473
           349,875     $ 6.33 -   9.875       $ 7.999             8              150,781           $ 7.513
           425,398     $ 10.00 - 19.375       $12.882             8              249,417          $ 12.966
           -------                                                                -------

           813,409     $ 3.473 - 19.375       $ 10.34             8              438,335          $ 10.265
           =======       ==============       =======             =              =======            ======
</TABLE>


(10) Stockholders' Equity
     Shares of  preferred  stock may be issued  from time to time in one or more
     series as  established  by resolution of the Board of Directors of FLAG, up
     to a maximum of 10,000,000 shares. Each resolution shall include the number
     of shares issued, preferences, special rights and limitations as determined
     by the Board.

     On May 18, 1998, FLAG declared a three for two stock split, payable on June
     3, 1998 to  shareholders of record on May 22, 1998. All share and per share
     amounts  have  been  restated  to  reflect  this  stock  split as if it had
     occurred on January 1, 1997.

(11) Regulatory Matters
     The  Banks  are  subject  to  various   regulatory   capital   requirements
     administered  by the  Federal  banking  agencies.  Failure to meet  minimum
     capital   requirements  can  initiate  certain   mandatory,   and  possibly
     additional discretionary,  action by regulators that, if undertaken,  could
     have a direct material  effect on the Banks'  financial  statements.  Under
     capital  adequacy  guidelines  and  the  regulatory  framework  for  prompt
     corrective  action,  the Banks must meet specific  capital  guidelines that
     involve  quantitative  measures  of the  Banks'  assets,  liabilities,  and
     certain  off-balance sheet items as calculated under regulatory  accounting
     practices.  The Banks' capital amounts and  classification are also subject
     to  qualitative  judgements  by  the  regulators  about  components,   risk
     weightings, and other factors.


                                       49
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(11) Regulatory Matters, continued
     Quantitative  measures established by regulation to ensure capital adequacy
     require the Banks to maintain  minimum amounts and ratios of total and Tier
     1 capital (as defined) to risk-weighted assets (as defined),  and of Tier 1
     capital (as defined) to average assets (as defined).  Management  believes,
     as  of  December  31,  1999  that  the  Banks  meet  all  capital  adequacy
     requirements to which they are subject.

     Minimum ratios required by the Banks to ensure capital  adequacy are 8% for
     total  capital  to risk  weighted  assets and 4% each for Tier 1 capital to
     average assets. Minimum ratios required by the Banks to be well capitalized
     under prompt corrective action provisions are 10% for total capital to risk
     weighted  assets,  6% for Tier 1 capital to risk weighted assets and 5% for
     Tier 1 capital to average  assets.  Minimum  amounts  required  for capital
     adequacy purposes and to be well capitalized under prompt corrective action
     provisions  are presented  below for FLAG and the most  significant  of the
     Banks.  Prompt  corrective  action  provisions do not apply to bank holding
     companies.

<TABLE>
<CAPTION>
                                                                                                         To Be Well
                                                                                                      Capitalized Under
                                                                                   For Capital        Prompt Corrective
                                                               Actual           Adequacy Purposes     Action Provisions
                                                               ------           -----------------     -----------------
                                                         Amount      Ratio      Amount      Ratio     Amount     Ratio
                                                         ------      -----      ------      -----     ------     -----
                                                        (000's)                 (000's)               (000's)
<S>                                                      <C>         <C>         <C>         <C>      <C>         <C>
        As of December 31, 1999:
           Total Capital (to Risk Weighted Assets)
             FLAG consolidated .......................   $57,179     12.5%       36,615      8.0%        N/A       N/A
             First Flag ..............................   $20,487     11.3%       14,491      8.0%     18,114     10.0%
             Citizens ................................   $23,791     10.5%       18,174      8.0%     22,718     10.0%
           Tier 1 Capital (to Risk Weighted Assets)
             FLAG consolidated .......................   $51,442     11.2%       18,307      4.0%        N/A       N/A
             First Flag ..............................   $18,214     10.1%        7,246      4.0%     10,868      6.0%
             Citizens ................................   $20,944      9.2%        9,087      4.0%     13,631      6.0%
           Tier 1 Capital (to Average Assets)
             FLAG consolidated .......................   $51,442      8.6%       23,964      4.0%        N/A       N/A
             First Flag ..............................   $18,214      7.8%        9,349      4.0%     11,686      5.0%
             Citizens ................................   $20,944      7.5%       11,227      4.0%     14,034      5.0%
        As of December 31, 1998:
           Total Capital (to Risk Weighted Assets)
             FLAG consolidated .......................   $60,984     14.7%       33,263      8.0%        N/A       N/A
             First Flag ..............................   $18,418     10.5%       13,967      8.0%     17,459     10.0%
             Citizens ................................   $13,883      9.9%       11,234      8.0%     14,043     10.0%
           Tier 1 Capital (to Risk Weighted Assets)
             FLAG consolidated .......................   $54,926     13.2%       16,631      4.0%        N/A       N/A
             First Flag ..............................   $18,418     10.5%        6,983      4.0%     10,475      6.0%
             Citizens ................................   $12,134      8.6%        5,617      4.0%      8,426      6.0%
           Tier 1 Capital (to Average Assets)
             FLAG consolidated .......................   $54,926      8.7%       25,262      4.0%        N/A       N/A
             First Flag ..............................   $18,418      7.0%       10,467      4.0%     13,095      5.0%
             Citizens ................................   $12,134      7.1%        6,858      4.0%      8,573      5.0%
</TABLE>


     Banking regulations limit the amount of dividends the Banks can pay to FLAG
     without prior  regulatory  approval.  These  limitations  are a function of
     excess  regulatory  capital and net  earnings  in the year the  dividend is
     declared.  In 2000,  the Banks  can pay  dividends  totaling  approximately
     $2,269,000  plus  net  income  of  Thomaston   during  2000  without  prior
     regulatory approval.

(12) Commitments and Contingencies
     FLAG has a  partially  self-insured  health  care plan for the  benefit  of
     eligible employees and their eligible  dependents,  administered by a third
     party administrator.  Claims in excess of $15,000 per person annually,  but
     less than  $1,000,000,  are covered by an insurance  policy with  Guarantee
     Mutual Life Company.  FLAG is responsible  for any claims less than $15,000
     per person annually.


                                       50
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(12) Commitments and Contingencies, continued
     FLAG is a party to financial instruments with off-balance sheet risk in the
     normal course of business to meet the financing  needs of its customers and
     to  manage  its  cost  of  funds.  These  financial   instruments   include
     commitments  to extend  credit,  standby  letters of credit and an interest
     rate cap agreement. These instruments involve, to varying degrees, elements
     of credit  risk in excess of the  amounts  recognized  in the  consolidated
     statements  of  financial   condition.   The  contract   amounts  of  these
     instruments  reflect the extent of  involvement  the Bank has in particular
     classes of financial instruments.

     Commitments  to originate  first  mortgage  loans and to extend  credit are
     agreements  to lend to a customer as long as there is no  violation  of any
     condition  established  in the contract.  Commitments  generally have fixed
     expiration dates or other termination  clauses and may require payment of a
     fee.  Since many of the  commitments  are expected to expire  without being
     drawn  upon,  the total  commitment  amounts do not  necessarily  represent
     future   cash   requirements.    The   Banks   evaluate   each   customer's
     creditworthiness   on  a  case-by-case  basis.  The  amount  of  collateral
     obtained,  if deemed  necessary by the Banks upon  extension of credit,  is
     based on management's  credit  evaluation of the  counterparty.  The Banks'
     loans  are  primarily   collateralized   by  residential   and  other  real
     properties,  automobiles,  savings deposits, accounts receivable, inventory
     and equipment.

     Standby letters of credit are written conditional commitments issued by the
     Banks to guarantee the  performance  of a customer to a third party.  Those
     guarantees  are primarily  issued to support  public and private  borrowing
     arrangements.  Most  letters of credit  extend for less than one year.  The
     credit risk involved in issuing  letters of credit is essentially  the same
     as that involved in extending loan facilities to customers.

     FLAG's exposure to credit loss in the event of  nonperformance by the other
     party to the  financial  instrument  for  commitments  to extend credit and
     standby letters of credit is represented by the contractual amount of those
     instruments.  The Bank uses the same credit policies in making  commitments
     and conditional  obligations as it does for on-balance  sheet  instruments.
     All standby letters of credit are secured at December 31, 1999 and 1998.

                                                               1999       1998
                                                               ----       ----
        Financial  instruments  whose contract amounts
           represent credit risk (in thousands):
              Commitments to extend credit ..............   $ 56,872     78,745
              Standby letters of credit .................   $    819        767

(13) Related Party Transactions
     At December 31, 1999, deposits from directors, executive officers and their
     related interests aggregated approximately $1,456,000.  These deposits were
     taken in the normal course of business at market interest rates.

     FLAG conducts transactions with directors and executive officers, including
     companies in which they have beneficial  interest,  in the normal course of
     business.  It is the policy of FLAG that loan  transactions  with directors
     and  executive  officers be made on  substantially  the same terms as those
     prevailing at the time for comparable loans to other persons. The following
     is a summary of activity for related party loans for 1999 (in thousands).

         Balance at December 31, 1998 ..........  $  521
         New loans .............................      74
         Repayments ............................    (307)
                                                     ---
         Balance at December 31, 1999 ..........  $  288
                                                     ===

(14) Miscellaneous Operating Expenses
     Components  of other  operating  expenses in excess of 1% of  interest  and
     other income for the years ended  December  31, 1999,  1998 and 1997 are as
     follows (in thousands):

                                     1999         1998        1997
                                     ----         ----        ----
        Data processing .........  $ 1,587        1,486         889
        Telephone ...............  $   884          655         472
        Office supplies .........  $ 1,013          843         695


                                       51
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(15) FLAG Financial Corporation (Parent Company Only) Financial Information

                                 Balance Sheets

                           December 31, 1999 and 1998

                                     Assets
                                     ------

                                                   1999        1998
                                                   ----        ----
                                                    (In Thousands)
        Cash ..................................   $ 1,056         401
        Investment securities .................     1,787       3,538
        Investment in subsidiaries ............    48,426      52,832
        Equipment, net ........................     2,804         938
        Other assets ..........................     1,156         308
                                                    -----         ---
                                                 $ 55,229      58,017
                                                   ======      ======

                      Liabilities and Stockholders' Equity
                      ------------------------------------

        Accounts payable and accrued expenses .   $ 2,032       1,148

        Stockholders' equity ..................    53,197      56,869
                                                   ------      ------
                                                 $ 55,229      58,017
                                                   ======      ======


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(16) FLAG Financial  Corporation  (Parent Company Only)  Financial  Information,
     continued


                             Statements of Earnings

              For the Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                               1999        1998        1997
                                                                                ----        ----        ----
                                                                                     (In Thousands)
Income:
<S>                                                                         <C>            <C>        <C>
  Dividend income from subsidiaries .....................................   $  5,770       4,195      1,601
  Interest income .......................................................         17          23          7
  Gain on investments ...................................................      1,627        --         --
  Other .................................................................      4,126       1,473        148
                                                                               -----       -----        ---

      Total income ......................................................     11,540       5,691      1,756
                                                                              ------       -----      -----

Operating expenses:
  Interest expense ......................................................          3          33          1
  Other .................................................................      7,857       4,562        604
                                                                               -----       -----        ---

      Total operating expenses ..........................................      7,860       4,595        605
                                                                               -----       -----        ---

      Earnings before income tax benefit and dividends received
       in excess of earnings of subsidiaries and equity in
         undistributed earnings of subsidiaries .........................      3,680       1,096      1,151

Income tax benefit ......................................................        617       1,077        157
                                                                                 ---       -----        ---

      Earnings before dividends received in excess of
       earnings of subsidiaries and equity in undistributed
        earnings  of subsidiaries .......................................      4,297       2,173      1,308

Dividends received in excess of earnings of subsidiaries ................     (3,084)       --         --

Equity in undistributed earnings of subsidiaries ........................       --           666      3,968
                                                                               ----          ---      -----

           Net earnings .................................................   $  1,213       2,839      5,276
                                                                            ========       =====      =====
</TABLE>


                                       52
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(15) FLAG Financial  Corporation  (Parent Company Only)  Financial  Information,
     continued

                            Statements of Cash Flows

              For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>

                                                                                     1999        1998        1997
                                                                                     ----        ----        ----
                                                                                           (In Thousands)
Cash flows from operating activities:
<S>                                                                                 <C>          <C>        <C>
  Net earnings ..................................................................   $ 1,213      2,839      5,276
  Adjustments to reconcile net earnings to net cash provided by
     operating activities:
       Depreciation and amortization ............................................       298        125         27
       Gain on investments ......................................................    (1,627)      --         --
       Proceeds from sale of trading securities .................................     1,701       --
       Dividends received in excess of earnings of subsidiaries .................     3,084       --         --
       Equity in undistributed earnings of subsidiaries .........................      --         (666)    (3,968)
       Change in other assets and liabilities ...................................       740      1,005        183
                                                                                        ---      -----        ---

             Net cash provided by operating activities ..........................     5,409      3,303      1,518
                                                                                      -----      -----      -----

Cash flows from investing activities:
  Purchase of securities available-for-sale .....................................      (908)      (274)      (503)
  Proceeds from sale of investment securities ...................................       418        263       --
  Purchase of equipment .........................................................    (2,164)      (526)      (537)
  Investment in subsidiaries ....................................................      (390)    (2,554)      --
                                                                                        ---        ---       ----

             Net cash used in investing activities ..............................    (3,044)    (3,091)    (1,040)
                                                                                     ------     ------     ------

Cash flows from financing activities:
  Stock transactions of pooled entities .........................................        38        130         59
  Exercise of stock options .....................................................        48         73       --
  Purchase of treasury stock ....................................................       (52)      --         --
  Dividends paid ................................................................    (1,744)    (1,200)      (931)
                                                                                     ------     ------       ----

             Net cash used in financing activities ..............................    (1,710)      (997)      (872)
                                                                                     ------       ----       ----

Net change in cash ..............................................................       655       (785)      (394)

Cash at beginning of year .......................................................       401      1,186      1,580
                                                                                        ---      -----      -----

Cash at end of year .............................................................   $ 1,056        401      1,186
                                                                                    =======        ===      =====
</TABLE>


                                       53
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(16) Quarterly Operating Results (Unaudited)
     The  following  is  a  summary  of  the  unaudited  condensed  consolidated
     quarterly  operating  results of FLAG for the years ended December 31, 1999
     and 1998 (amounts in thousands, except per share amounts):

<TABLE>
<CAPTION>

                                                                               1999
                                                     ----------------------------------------------------------
                                                                          Quarter Ended
                                                                          -------------
                                                     Dec. 31          Sept. 30         June 30         March 31
                                                     -------          --------         -------         --------
<S>                                                   <C>             <C>              <C>             <C>
        Interest income ...........................   $12,252         12,213           12,209          12,479
        Interest expense ..........................     5,472          5,657            5,659           5,875
                                                        -----          -----            -----           -----

        Net interest income .......................     6,780          6,556            6,550           6,604
        Provision for loan losses .................     1,634          1,589            1,071             362
                                                        -----          -----            -----             ---

        Net interest income after provision
          for loan losses .........................     5,146          4,967            5,479           6,242
        Noninterest income ........................     2,317          1,217            3,903           2,635
        Noninterest expense .......................     7,600          8,494            7,388           7,133
                                                        -----          -----            -----           -----

        Earnings (loss) before income taxes .......      (137)        (2,310)           1,994           1,744
        Provision (benefit) for income taxes ......      (287)          (870)             683             552
                                                         ----           ----              ---             ---

        Net earnings (loss) .......................   $   150         (1,440)           1,311           1,192
                                                      =======         ======            =====           =====

        Net earnings (loss) per share .............   $   .02           (.17)             .16             .14
                                                      =======           ====              ===             ===

        Weighted average shares outstanding .......     8,266          8,263            8,263           8,238
                                                        =====          =====            =====           =====



                                                                              1998
                                                     ----------------------------------------------------------
                                                                          Quarter Ended
                                                                          -------------
                                                     Dec. 31          Sept. 30         June 30         March 31
                                                     -------          --------         -------         --------
        Interest income ...........................   $13,458         12,702           12,445          12,567
        Interest expense ..........................     6,343          6,422            6,309           6,146
                                                        -----          -----            -----           -----

        Net interest income .......................     7,115          6,280            6,136           6,421
        Provision for loan losses .................     2,678            257              273             267
                                                        -----            ---              ---             ---

        Net interest income after provision
          for loan losses .........................     4,437          6,023            5,863           6,154
        Noninterest income ........................     2,105          2,332            2,572           2,943
        Noninterest expense .......................     8,101          7,781            6,437           6,563
                                                        -----          -----            -----           -----

        Earnings (loss) before income taxes .......    (1,559)           574            1,998           2,534
        Provision (benefit) for income taxes ......      (738)            61              585             800
                                                         ----             --              ---             ---

        Net earnings (loss) .......................   $  (821)           513            1,413           1,734
                                                      =======            ===            =====           =====

        Net earnings (loss) per share .............   $  (.09)           .06              .17             .21
                                                      =======            ===              ===             ===

        Weighted average shares outstanding .......     8,22 3         8,219            8,215           8,196
                                                        =====          =====            =====           =====
</TABLE>


                                       54
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(17) Fair Value of Financial Instruments
     FLAG is  required  to  disclose  fair  value  information  about  financial
     instruments,  whether or not  recognized on the face of the balance  sheet,
     for which it is practicable to estimate that value. The assumptions used in
     the  estimation  of the fair  value of  FLAG's  financial  instruments  are
     detailed  below.  Where quoted  prices are not  available,  fair values are
     based  on  estimates  using  discounted  cash  flows  and  other  valuation
     techniques.  The use of discounted cash flows can be significantly affected
     by the  assumptions  used,  including  the discount  rate and  estimates of
     future cash flows.  The  following  disclosures  should not be considered a
     surrogate of the liquidation value of FLAG or its subsidiary,  but rather a
     good-faith  estimate of the  increase  or  decrease  in value of  financial
     instruments held by FLAG since purchase, origination or issuance.

     Cash and Cash Equivalents and Interest-Bearing Deposits
     -------------------------------------------------------
     For cash,  due from banks,  federal funds sold,  interest-bearing  deposits
     with other banks,  and  proceeds  receivable  from  secondary  market,  the
     carrying amount is a reasonable estimate of fair value.

     Securities Held-to-Maturity and Securities Available-for-Sale
     -------------------------------------------------------------
     Fair    values   for    securities    held-to-maturity    and    securities
     available-for-sale are based on quoted market prices.

     Other investments
     -----------------
     The carrying value of other investments approximates fair value.

     Loans and Mortgage Loans Held for Sale
     --------------------------------------
     The fair value of fixed rate loans is estimated by  discounting  the future
     cash flows using the current  rates at which similar loans would be made to
     borrowers  with  similar  credit  ratings.  For  variable  rate loans,  the
     carrying amount is a reasonable estimate of fair value.

     Cash Surrender Value of Life Insurance
     --------------------------------------
     The carrying value of cash surrender  value of life insurance  approximates
     fair value.

     Deposits
     --------
     The fair value of demand deposits,  savings accounts, NOW accounts, certain
     money market  deposits,  advances from  borrowers  and advances  payable to
     secondary market is the amount payable on demand at the reporting date. The
     fair  value of fixed  maturity  certificates  of deposit  is  estimated  by
     discounting  the future  cash flows using the rates  currently  offered for
     deposits of similar remaining maturities.

     Federal Funds Purchased and Repurchase Agreements
     -------------------------------------------------
     For federal funds purchased and repurchase agreements,  the carrying amount
     is a reasonable estimate of fair value.

     Advances from the Federal Home Loan Bank
     ----------------------------------------
     The fair  value of the FHLB  fixed  rate  borrowings  are  estimated  using
     discounted cash flows, based on the current incremental borrowing rates for
     similar types of borrowing arrangements.

     Commitments to Originate First Mortgage Loans, Commitments to Extend Credit
     ---------------------------------------------------------------------------
     and Standby Letters of Credit
     -----------------------------
     Because  commitments  to originate  first  mortgage  loans,  commitments to
     extend credit and standby  letters of credit are made using variable rates,
     the contract value is a reasonable estimate of fair value.


                                       55
<PAGE>


                           FLAG FINANCIAL CORPORATION

              Notes to Consolidated Financial Statements, continued

(17) Fair Value of Financial Instruments, continued
     Limitations
     -----------
     Fair  value  estimates  are made at a  specific  point  in  time,  based on
     relevant market information and information about the financial instrument.
     These  estimates  do not reflect any premium or discount  that could result
     from offering for sale at one time FLAG's  entire  holdings of a particular
     financial instrument. Because no market exists for a significant portion of
     FLAG's  financial  instruments,  fair  value  estimates  are  based on many
     judgments.   These   estimates   are   subjective  in  nature  and  involve
     uncertainties  and matters of significant  judgment and therefore cannot be
     determined  with  precision.  Changes in  assumptions  could  significantly
     affect the estimates.

     Fair  value  estimates  are  based on  existing  on and  off-balance  sheet
     financial   instruments   without  attempting  to  estimate  the  value  of
     anticipated  future business and the value of assets and  liabilities  that
     are  not  considered   financial   instruments.   Significant   assets  and
     liabilities  that are not  considered  financial  instruments  include  the
     mortgage banking operation,  deferred income taxes,  premises and equipment
     and purchased core deposit intangible.  In addition,  the tax ramifications
     related to the  realization of the  unrealized  gains and losses can have a
     significant  effect on fair value estimates and have not been considered in
     the estimates.

     The  carrying  amount  and  estimated  fair  values  of  FLAG's   financial
     instruments at December 31, 1999 and 1998 are as follows (In Thousands):

<TABLE>
<CAPTION>
                                                               1999                       1998
                                                      -----------------------    ------------------------
                                                      Carrying     Estimated     Carrying      Estimated
                                                       Amount      Fair Value     Amount      Fair Value
                                                       ------      ----------     ------      ----------
        Assets:
<S>                                                     <C>           <C>          <C>            <C>
          Cash and cash equivalents .................   27,084        27,084       53,317         53,317
          Interest-bearing deposits .................    2,792         2,792        3,577          3,577
          Investment securities .....................   89,555        89,125       97,623         97,829
          Other investments .........................    6,092         6,092        7,023          7,023
          Mortgage loans held for sale ..............    3,484         3,484       10,220         10,220
          Loans, net ................................  419,079       417,150      424,660        425,707
          Cash surrender value of life insurance.....    4,134         4,134        3,971          3,971

        Liabilities:
          Deposits ..................................  483,987       483,886      521,671        522,371
          Federal funds purchased and repurchase
            agreements........... ...................   15,320        15,320          -              -
          FHLB advances .............................   27,173        24,953       48,398         47,119

        Unrecognized financial instruments:
          Commitments to extend credit ..............   56,872        56,872       78,745         78,745
          Standby letters of credit .................      819           819          767            767
</TABLE>


                                       56
<PAGE>


(18) Subsequent Event
     On March 6, 2000,  FLAG entered  into an  agreement to sell certain  branch
     locations of Citizens in  Metter,  Cobbtown and  Statesboro,  Georgia.  The
     sale agreement provides for a net sales price of approximately $3.2 million
     and includes all deposit  liabilities,  loans and premises and equipment of
     these  branches.   This  branch  sale  is  subject  to  various  regulatory
     approvals.


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

     None


                                    PART III
                                    --------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information relating to the directors and executive officers of the Company
is set forth under the  captions  "Proposal 1 - Election of  Directors-Nominees"
and  "Proposal  1 - Election of  Directors-Information  Regarding  Nominees  and
Continuing  Directors"  in the  Company's  Proxy  Statement  for its 2000 Annual
Meeting  of  Shareholders  to be held on April 19,  2000.  Such  information  is
incorporated herein by reference.  Information regarding compliance with Section
16(a) of the  Securities  Exchange Act of 1934,  as amended,  by  directors  and
executive  officers  of the Company and the Banks is set forth under the caption
"Compliance  with Section 16(a) of the  Securities  Exchange Act of 1934" in the
Proxy Statement  referred to above.  The Company is  incorporating  by reference
that information from the Proxy Statement. To the Company's knowledge, no person
was the beneficial  owner of more than 10% of the Company's  common stock during
1999.

ITEM 11. EXECUTIVE COMPENSATION

     Information  relating to  executive  compensation  and the sale of stock to
certain  directors  is set forth  under the  captions  "Proposal 1 - Election of
Directors - Director  Compensation"  and "Executive  Compensation"  in the Proxy
Statement  referred to above.  The Company is  incorporating  by reference  that
information from the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information  regarding  ownership  of  the  Company's  common  stock  as of
December 31, 1999, by certain persons is set forth under the captions  "Voting -
Stock Ownership" and "Proposal 1 - Election of Directors - Information Regarding
Nominees and Continuing  Directors" in the Proxy  Statement  referred in Item 10
above. The Company is incorporating by reference that information from the Proxy
Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information  regarding certain transactions between the Banks and directors
and  executive  officers  of the  Company  and the Bank is set  forth  under the
caption  "Executive  Compensation - Loans to Management" in the Proxy  Statement
referred to in Item 10 above.  The Company is  incorporating  by reference  that
information from the Proxy Statement.


                                       57
<PAGE>


                                     PART IV
                                     -------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Financial  Statements.  The following  consolidated  financial statements
       together with the report thereon of Porter Keadle Moore, LLP are  located
       in Item 8 of this Report:

          Report of Independent Certified Public Accountants
          Consolidated Balance Sheets as of December 31, 1999 and 1998
          Consolidated  Statements of Earnings for the years ended  December 31,
               1999, 1998 and 1997
          Consolidated  Statements of  Comprehensive  Income for the years ended
               December 31, 1999, 1998 and 1997
          Consolidated  Statements  of Changes in  Stockholders'  Equity for the
               years ended December 31, 1999, 1998 and 1997
          Consolidated Statements of Cash Flows for the years ended December 31,
               1999, 1998 and 1997
          Notes to Consolidated Financial Statements


(a)(2) The financial  statement  schedules are either  included in the financial
       statements or are not applicable.

(a)(3) Exhibit List


Exhibit No.                         Description
-----------                         -----------

3.1  Articles of  Incorporation  of the Company,  as amended through October 15,
     1993 (incorporated by reference from Exhibit 3.1(i) to the Company's Annual
     Report on Form 10-K for the fiscal year ended December 31, 1993)

3.2  Bylaws of the Company,  as amended through March 30, 1998  (incorporated by
     reference  from  Exhibit  3.1(ii) to the  Company's  Annual  Report on Form
     10-K/A for the fiscal year ended December 31, 1997)

3.3  Amendment  to Bylaws of the  Company as adopted by  resolution  of Board of
     Directors on October 19, 1998  (incorporated  by reference from Exhibit 3.3
     on Annual Report on Form 10-K for the fiscal year ended December 31, 1998).

4.1  Instruments  Defining  the Rights of  Security  Holders  (See  Articles  of
     Incorporation at Exhibit 3.1 hereto and Bylaws at Exhibit 3.2 hereto)

10.1 Employment  Agreement between J. Daniel Speight,  Jr. and the Company dated
     as of April  1,  1998  (incorporated  by  reference  from  Exhibit  10.1 to
     Amendment  No. 1 to the  Company's  Annual  Report on Form  10-K/A  for the
     fiscal year ended December 31, 1997)*

10.2 Employment  Agreement  between  John S. Holle and the  Company  dated as of
     April 1, 1998 (incorporated by reference from Exhibit 10.2 to Amendment No.
     1 to the  Company's  Annual Report on Form 10-K/A for the fiscal year ended
     December 31, 1997)*


                                       58
<PAGE>


10.3 Employment  Agreement  between  Patti S. Davis and the Company  dated as of
     April 1, 1998 (incorporated by reference from Exhibit 10.4 to Amendment No.
     1 to the  Company's  Annual Report on Form 10-K/A for the fiscal year ended
     December 31, 1997)*

10.4 Employment  Agreement between Charles O. Hinely and the Company dated as of
     April 1, 1999*

10.5 Separation  Agreement  between J. Preston  Martin and the Company dated May
     13, 1998 (incorporated by reference from Exhibit 10.6 to Amendment No. 1 to
     the  Company's  Annual  Report on Form  10-K/A  for the  fiscal  year ended
     December 31, 1997)*

10.6 Separation Agreement between Robert G. Cochran and the Company dated August
     27, 1999  (incorporated  by reference  from  Exhibit 10.1 to the  Company's
     Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1999)*

10.7 Split  Dollar  Insurance  Agreement  between  J.  Daniel  Speight,  Jr. and
     Citizens  Bank dated  November  2, 1992  (incorporated  by  reference  from
     Exhibit  10.7 to Amendment  No. 1 to the  Company's  Annual  Report on Form
     10-K/A for the fiscal year ended December 31, 1997)*

10.8 Director  Indexed  Retirement  Program for Citizens  Bank dated January 13,
     1995 (incorporated by reference from Exhibit 10.8 to Amendment No. 1 to the
     Company's  Annual Report on Form 10-K/A for the fiscal year ended  December
     31, 1997)*

10.9 Form of  Executive  Agreement  (pursuant  to  Director  Indexed  Retirement
     Program for Citizens  Bank) for  individuals  listed on exhibit  cover page
     (incorporated  by reference  from  Exhibit  10.9 to Amendment  No. 1 to the
     Company's  Annual Report on Form 10-K/A for the fiscal year ended  December
     31, 1997)*

10.10Form of Flexible  Premium Life  Insurance  Endorsement  Method Split Dollar
     Plan  Agreement  (pursuant  to  Director  Indexed  Retirement  Program  for
     Citizens Bank) for individuals  listed on exhibit cover page  (incorporated
     by reference from Exhibit 10.10 to Amendment No. 1 to the Company's  Annual
     Report on Form 10-K/A for the fiscal year ended December 31, 1997)*

10.11Director  Indexed Fee  Continuation  Program for First Federal Savings Bank
     of LaGrange  effective  February 3, 1995  (incorporated  by reference  from
     Exhibit  10.12 to Amendment  No. 1 to the  Company's  Annual Report on Form
     10-K/A for the fiscal year ended December 31, 1997)

10.12Form of Director  Agreement  (pursuant to Director Indexed Fee Construction
     Program for First Federal Savings Bank of LaGrange) for individuals  listed
     on exhibit  cover page  (incorporated  by reference  from Exhibit  10.13 to
     Amendment  No. 1 to the  Company's  Annual  Report on Form  10-K/A  for the
     fiscal year ended December 31, 1997)*

10.13Form of Flexible  Premium Life  Insurance  Endorsement  Method Split Dollar
     Plan Agreement  (pursuant to Director Indexed Fee  Continuation  Program of
     First Federal Savings Bank of LaGrange) for  individuals  listed on exhibit
     cover page (incorporated by reference from Exhibit 10.14 to Amendment No. 1
     to the  Company's  Annual  Report on Form  10-K/A for the fiscal year ended
     December 31, 1997)*

10.14Form  of  Indexed  Executive  Salary  Continuation  Plan  Agreement  by and
     between First Federal  Savings Bank of LaGrange and  individuals  listed on
     exhibit  cover  page  (incorporated  by  reference  from  Exhibit  10.15 to
     Amendment  No. 1 to the  Company's  Annual  Report on Form  10-K/A  for the
     fiscal year ended December 31, 1997)*

10.15Form of Flexible  Premium Life  Insurance  Endorsement  Method Split Dollar
     Plan Agreement  (pursuant to Executive Salary  Continuation  Plan for First
     Federal Savings Bank of LaGrange) for  individuals  listed on exhibit cover
     page  (incorporated  by reference  from Exhibit 10.16 to Amendment No. 1 to
     the  Company's  Annual  Report on Form  10-K/A  for the  fiscal  year ended
     December 31, 1997)*

                                       59
<PAGE>

10.16Indexed  Executive Salary  Continuation Plan Agreement by and between First
     Federal  Savings Bank of LaGrange and William F. Holle,  Jr. dated February
     3, 1995 (incorporated by reference from Exhibit 10.17 to Amendment No. 1 to
     the  Company's  Annual  Report on Form  10-K/A  for the  fiscal  year ended
     December 31, 1997)*

10.17Form of Deferred  Compensation  Plan by and between The  Citizens  Bank and
     individuals listed on exhibit cover page*

10.18FLAG   Financial   Corporation   1994   Employees   Stock   Incentive  Plan
     (incorporated by reference from Exhibit 10.6 to the Company's Annual Report
     on Form 10-K for the fiscal year ended December 31, 1993)*

10.19FLAG   Financial   Corporation   1994   Directors   Stock   Incentive  Plan
     (incorporated by reference from Exhibit 10.7 to the Company's Annual Report
     on Form 10-K for the fiscal year ended December 31, 1993)*

21   Subsidiaries

27   Financial Data Schedule

--------------------

*    The  indicated  exhibit is a  compensatory  plan required to be filed as an
     exhibit to this Form 10-K.

(b)  Reports on Form 8-K.

     Reports on Form 8-K filed during Fourth Quarter of 1999

o    A Current Report on Form 8-K filed October 6, 1999  regarding  announcement
     of FLAG  Financial  Corporation  on September 24, 1999 that FLAG  Financial
     Corporation  and  Abbeville  Capital   Corporation  were  contemplating  an
     amendment to the Agreement  and Plan of Merger  between  Abbeville  Capital
     Corporation, parent company of The Bank of Abbeville, located in Abbeville,
     South Carolina, and FLAG Financial Corporation.

o    A Current Report on Form 8-K filed October 6, 1999 regarding the completion
     of the merger of First Hogansville Bankshares,  Inc., parent company of The
     Citizens  Bank,  located  in  Hogansville,  Georgia,  with  and  into  FLAG
     Financial  Corporation  pursuant to an Agreement and Plan of Merger,  dated
     June  1,  1999,  by  and  between  FLAG  Financial  Corporation  and  First
     Hogansville Bankshares, Inc.

o    A Current Report on Form 8-K filed October 19, 1999 regarding the execution
     of a Mutual  Termination  Agreement between FLAG Financial  Corporation and
     Abbeville  Capital  Corporation,  parent  company of The Bank of Abbeville,
     located in Abbeville, South Carolina, pursuant to which both parties agreed
     to cancel their plans to merge.

o    A  Current  Report  on Form 8-K  filed  December  23,  1999  regarding  the
     announcement of the commencement of a stock repurchase  program pursuant to
     which the Company will from time to time  repurchase up to 57,500 shares of
     its outstanding common stock in the open market or in privately  negotiated
     transactions.


                                       60
<PAGE>


     Reports on Form 8-K filed since Year End 1999

o    The Company has not made any Form 8-K filings.


(c)  The  Exhibits  not  incorporated  herein by  reference  are  submitted as a
     separate part of this report.

(d)  Financial  Statements  Schedules:  The  financial  statement  schedules are
     either included in the financial statements or are not applicable.


                                       61
<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934,  the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

                                       FLAG FINANCIAL CORPORATION
                                                 (Registrant)



Date:  March 20, 2000             By:  /s/ J. Daniel Speight, Jr.
                                      --------------------------------
                                       J. Daniel Speight, Jr.
                                       President and Chief Executive Officer



                                POWER OF ATTORNEY

     KNOW ALL  PERSONS  BY THESE  PRESENTS,  that each  person  whose  signature
appears below constitutes and appoints J. Daniel Speight, Jr. and John S. Holle,
and each of them,  as true and lawful  attorneys-in-fact  and agents,  with full
power of substitution and  resubstitution for him or her and in his or her name,
place and stead,  in any and all  capacities,  to sign any and all amendments to
this  Report,  and to file  the  same,  with all  exhibits  thereto,  and  other
documents in connection therewith,  as amended, with the Securities and Exchange
Commission,  granting unto said  attorneys-in-fact and agents, and each of them,
full  power  and  authority  to do and  perform  each and  every  act and  thing
requisite and  necessary to be done in and about the  premises,  as fully and to
all  intents  and  purposes  as he or she  might or could do in  person,  hereby
ratifying and confirming all which said  attorneys-in-fact  and agents or either
of them, or their or his substitute or substitutes, may lawfully do, or cause to
be done by virtue hereof.

     Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed by the following  persons in the  capacities  indicated on March 20,
2000.


              Signature                       Title
              ---------                       -----

/s/ Dennis D. Allen                          Director
------------------------------------------
              Dennis D. Allen

/s/ Dr. A. Glenn Bailey                      Director
------------------------------------------
              Dr. A. Glenn Bailey

/s/ H. Speer Burdette, III                   Director
------------------------------------------
              H. Speer Burdette, III

/s/ Robert G. Cochran                        Director
------------------------------------------
              Robert G. Cochran

/s/ Patti S. Davis                           Director, Senior Vice President,
------------------------------------------   Assistant Secretary
              Patti S. Davis

/s/ Fred A. Durand, III                      Director
------------------------------------------
              Fred A. Durand, III


                                       62
<PAGE>


/s/ John R. Hines, Jr.                       Director
------------------------------------------
              John R. Hines, Jr.

/s/ John S. Holle                            Chairman of the Board and Director
------------------------------------------
              John S. Holle

/s/ James W. Johnson                         Director
------------------------------------------
              James W. Johnson

/s/ Kelly R. Linch                           Director
------------------------------------------
              Kelly R. Linch

/s/ J. Preston Martin                        Director
------------------------------------------
              J. Preston Martin

/s/ J. Daniel Speight, Jr.                   President, Chief Executive Officer
------------------------------------------   and Director(principal executive
              J. Daniel Speight, Jr.         officer)

/s/ John W. Stewart, Jr.                     Director
------------------------------------------
              John W. Stewart, Jr.

/s/ Robert W. Walters                        Director
------------------------------------------
              Robert W. Walters

/s/ Thomas L. Redding                        Senior Vice President, Chief
------------------------------------------   Financial Officer, Secretary
              Thomas L. Redding              (principal financial and accounting
                                             officer)




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<PAGE>


                           FLAG FINANCIAL CORPORATION

                                Index of Exhibits

     The following exhibits are filed as part of or incorporated by reference in
this  report.  Where such  filing is made by  incorporation  by  reference  to a
previously filed registration  statement or report, such registration  statement
or report is identified in parentheses.

Exhibit No.                        Description
-----------                        -----------

3.1  Articles of  Incorporation  of the Company,  as amended through October 15,
     1993 (incorporated by reference from Exhibit 3.1(i) to the Company's Annual
     Report on Form 10-K for the fiscal year ended December 31, 1993)

3.2  Bylaws of the Company,  as amended through March 30, 1998  (incorporated by
     reference  from  Exhibit  3.1(ii) to the  Company's  Annual  Report on Form
     10-K/A for the fiscal year ended December 31, 1997)

3.3  Amendment  to Bylaws of the  Company as adopted by  resolution  of Board of
     Directors on October 19, 1998  (incorporated  by reference from Exhibit 3.3
     on Annual Report on Form 10-K for the fiscal year ended December 31, 1998).

4.1  Instruments  Defining  the Rights of  Security  Holders  (See  Articles  of
     Incorporation at Exhibit 3.1 hereto and Bylaws at Exhibit 3.2 hereto)

10.1 Employment  Agreement between J. Daniel Speight,  Jr. and the Company dated
     as of April  1,  1998  (incorporated  by  reference  from  Exhibit  10.1 to
     Amendment  No. 1 to the  Company's  Annual  Report on Form  10-K/A  for the
     fiscal year ended December 31, 1997)*

10.2 Employment  Agreement  between  John S. Holle and the  Company  dated as of
     April 1, 1998 (incorporated by reference from Exhibit 10.2 to Amendment No.
     1 to the  Company's  Annual Report on Form 10-K/A for the fiscal year ended
     December 31, 1997)*

10.3 Employment  Agreement  between  Patti S. Davis and the Company  dated as of
     April 1, 1998 (incorporated by reference from Exhibit 10.4 to Amendment No.
     1 to the  Company's  Annual Report on Form 10-K/A for the fiscal year ended
     December 31, 1997)*

10.4 Employment  Agreement between Charles O. Hinely and the Company dated as of
     April 1, 1999*

10.5 Separation  Agreement  between J. Preston  Martin and the Company dated May
     13, 1998 (incorporated by reference from Exhibit 10.6 to Amendment No. 1 to
     the  Company's  Annual  Report on Form  10-K/A  for the  fiscal  year ended
     December 31, 1997)*

10.6 Separation Agreement between Robert G. Cochran and the Company dated August
     27, 1999  (incorporated  by reference  from  Exhibit 10.1 to the  Company's
     Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1999)*

10.7 Split  Dollar  Insurance  Agreement  between  J.  Daniel  Speight,  Jr. and
     Citizens  Bank dated  November  2, 1992  (incorporated  by  reference  from
     Exhibit  10.7 to Amendment  No. 1 to the  Company's  Annual  Report on Form
     10-K/A for the fiscal year ended December 31, 1997)*

10.8 Director  Indexed  Retirement  Program for Citizens  Bank dated January 13,
     1995 (incorporated by reference from Exhibit 10.8 to Amendment No. 1 to the
     Company's  Annual Report on Form 10-K/A for the fiscal year ended  December
     31, 1997)*

10.9 Form of  Executive  Agreement  (pursuant  to  Director  Indexed  Retirement
     Program for Citizens  Bank) for  individuals  listed on exhibit  cover page
     (incorporated  by reference  from  Exhibit  10.9 to Amendment  No. 1 to the
     Company's  Annual Report on Form 10-K/A for the fiscal year ended  December
     31, 1997)*

10.10Form of Flexible  Premium Life  Insurance  Endorsement  Method Split Dollar
     Plan  Agreement  (pursuant  to  Director  Indexed  Retirement  Program  for
     Citizens Bank) for individuals  listed on exhibit cover page  (incorporated
     by reference from Exhibit 10.10 to Amendment No. 1 to the Company's  Annual
     Report on Form 10-K/A for the fiscal year ended December 31, 1997)*

10.11Director  Indexed Fee  Continuation  Program for First Federal Savings Bank
     of LaGrange  effective  February 3, 1995  (incorporated  by reference  from
     Exhibit  10.12 to Amendment  No. 1 to the  Company's  Annual Report on Form
     10-K/A for the fiscal year ended December 31, 1997)

10.12Form of Director  Agreement  (pursuant to Director Indexed Fee Construction
     Program for First Federal Savings Bank of LaGrange) for individuals  listed
     on exhibit  cover page  (incorporated  by reference  from Exhibit  10.13 to
     Amendment  No. 1 to the  Company's  Annual  Report on Form  10-K/A  for the
     fiscal year ended December 31, 1997)*



                                       64
<PAGE>


10.13Form of Flexible  Premium Life  Insurance  Endorsement  Method Split Dollar
     Plan Agreement  (pursuant to Director Indexed Fee  Continuation  Program of
     First Federal Savings Bank of LaGrange) for  individuals  listed on exhibit
     cover page (incorporated by reference from Exhibit 10.14 to Amendment No. 1
     to the  Company's  Annual  Report on Form  10-K/A for the fiscal year ended
     December 31, 1997)*

10.14Form  of  Indexed  Executive  Salary  Continuation  Plan  Agreement  by and
     between First Federal  Savings Bank of LaGrange and  individuals  listed on
     exhibit  cover  page  (incorporated  by  reference  from  Exhibit  10.15 to
     Amendment  No. 1 to the  Company's  Annual  Report on Form  10-K/A  for the
     fiscal year ended December 31, 1997)*

10.15Form of Flexible  Premium Life  Insurance  Endorsement  Method Split Dollar
     Plan Agreement  (pursuant to Executive Salary  Continuation  Plan for First
     Federal Savings Bank of LaGrange) for  individuals  listed on exhibit cover
     page  (incorporated  by reference  from Exhibit 10.16 to Amendment No. 1 to
     the  Company's  Annual  Report on Form  10-K/A  for the  fiscal  year ended
     December 31, 1997)*

10.16Indexed  Executive Salary  Continuation Plan Agreement by and between First
     Federal  Savings Bank of LaGrange and William F. Holle,  Jr. dated February
     3, 1995 (incorporated by reference from Exhibit 10.17 to Amendment No. 1 to
     the  Company's  Annual  Report on Form  10-K/A  for the  fiscal  year ended
     December 31, 1997)*

10.17Form of Deferred  Compensation  Plan by and between The  Citizens  Bank and
     the individuals listed on exhibit cover page*

10.18FLAG   Financial   Corporation   1994   Employees   Stock   Incentive  Plan
     (incorporated by reference from Exhibit 10.6 to the Company's Annual Report
     on Form 10-K for the fiscal year ended December 31, 1993)*

10.19FLAG   Financial   Corporation   1994   Directors   Stock   Incentive  Plan
     (incorporated by reference from Exhibit 10.7 to the Company's Annual Report
     on Form 10-K for the fiscal year ended December 31, 1993)*

21   Subsidiaries

27   Financial Data Schedule

--------------------

*    The  indicated  exhibit is a  compensatory  plan required to be filed as an
     exhibit to this Form 10-K.



                                       65