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, 2002

             |_|  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.)

             3475 PIEDMONT ROAD, N. E., SUITE 550, ATLANTA, GA 30305
             -------------------------------------------------------
                    (Address of principal executive offices)

                                 (404) 760-7700
                                 --------------
                         (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  past  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
                                  ---

Indicate  by  check  mark  whether  the  registrant  is an accelerated filer (as
defined  in  Exchange  Act  Rule  12b-2):  Yes    X   No     _
                                                ---       ----

The  aggregate market value of the Registrant's outstanding Common Stock held by
non-affiliates  of the Registrant on June 30, 2002 based on 7,310,760 shares was
approximately  $78,078,917.

As  of  March  21, 2003 there were 8,410,290 shares of Common Stock outstanding.

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

Portions  of  the  Registrant's  Proxy  Statement  for  the  Annual  Meeting  of
Shareholders to be held on April 15, 2003, are incorporated by reference in Part
III  hereof.


<PAGE>
<TABLE>
<CAPTION>
                           FLAG FINANCIAL CORPORATION
                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                Table of Contents


Item                                                                    Page
Number                                                                 Number
<S>               <C>                                                  <C>
PART I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
  ITEM 1.         BUSINESS . . . . . . . . . . . . . . . . . . . . . . . .  1
  ITEM 2.         PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . 12
  ITEM 3.         LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . 12
  ITEM 4.         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . 13

PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
  ITEM 5.         MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
                  SHAREHOLDER MATTERS. . . . . . . . . . . . . . . . . . . 13
  ITEM 6.         SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . 15
  ITEM 7.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . 16
  ITEM 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . 28
  ITEM 9.         CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . 56

PART III.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
  ITEM 10         DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . 56
  ITEM 11         EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . 56
  ITEM 12         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT AND RELATED SHAREHOLDER MATTERS . . . . . . . 56
  ITEM 13         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . 57
  ITEM 14         CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . 57
  ITEM 15         PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . 58

PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
  ITEM 16         EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
                  ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . 58

  SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

  CERTIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

  EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
</TABLE>


                                        i
<PAGE>
         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  the  forward-looking
statements.  The  words  "expect,"  "anticipate,"  "intend,"  "plan," "believe,"
"seek,"  "estimate,"  and  similar  expressions  are  intended  to  identify the
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.


                                        ii
<PAGE>
                                     PART I
                                     ------

ITEM  1.     BUSINESS

THE  COMPANY

     Flag  Financial  Corporation  ("Flag"  or  the "Company") is a bank holding
company  headquartered  in  Atlanta,  Georgia  and  is registered under the Bank
Holding Company Act of 1956, as amended.  The Company is the sole shareholder of
Flag  Bank  (the  "Bank")  and  was  incorporated under the laws of the State of
Georgia  on  February  9,  1993.

     As  a bank holding company, the Company facilitates the Bank's abilities to
serve  its customers' requirements for financial services.   The holding company
structure provides greater financial and operating flexibility than is available
to  the  Bank.  For  example, the Company may assist the Bank in maintaining its
required  capital ratios by borrowing money and contributing the proceeds of the
debt to the Bank as primary capital. 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 Bank and its
shareholders under regulations of the Federal Deposit Insurance Corporation (the
"FDIC"),  but  is  permissible  for  the  Company  under  Georgia  law.

     Flag  is  also  a  service  provider  of mortgage, investment and insurance
services  though  Flag  Mortgage,  Flag  Investment  Services and Flag Insurance
Services.  All  of  these  services  are  provided  by  a division of Flag Bank.

     Flag's  website  address  is  www.Flag.net.  You may obtain free electronic
copies  of  our  annual  reports  and Form 10-K, quarterly reports on Form 10-Q,
current  reports on Form 8-K and all amendments to those reports at the investor
relations section of our website.  These reports are available on our website as
soon  as  reasonably practicable after we electronically file them with the SEC.


THE  BANK

     Flag  Bank is a state bank organized under the laws of the State of Georgia
with  banking  offices  in  the  following  cities and counties: Atlanta (Fulton
County,  Dekalb  County and Cobb County), Unadilla (Dooly County), Vienna (Dooly
County),  Montezuma (Macon County), Buena Vista (Marion County), LaGrange (Troup
County),  Hogansville  (Troup  County),  Thomaston  (Upson  County), Stockbridge
(Henry  County)  and Suwanee (Forsyth County), Georgia. Flag Bank was originally
chartered  in  1931 as the Citizens Bank and became a wholly-owned subsidiary of
the  Company  through  a  series  of  acquisitions  commencing  in  1998.

     Flag  Mortgage  operates  as  a division of Flag Bank and operates mortgage
loan  production  offices  in  Atlanta (Fulton County), LaGrange (Troup County),
Columbus  (Muscogee  County)  and  Newnan  (Coweta  County),  Georgia.

     BUSINESS OF THE BANK.  The Bank's business consists 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 and office expenses and other
overhead  expenses.


                                        1
<PAGE>
     While  the  Bank  attempts  to  avoid  concentrations  of loans to a single
industry or based on a single type of collateral, the various types of loans the
Bank  makes  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 construction 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.  Real  estate  mortgage  loans present risks
involving,  among  other things, economic and demographic changes, deterioration
of  collateral  and  customer  financial  problems.

     The  Company's  primary  asset  is its stock in the Bank.  Accordingly, its
financial  performance  is  determined primarily by the results of operations of
the  Bank.  For  information  regarding the consolidated financial condition and
results  of  operations  of the Company as of December 31, 2002 and 2001 and for
the  three  years  in  the  period  ended  December  31, 2002, 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
presented in Part II hereof.  All average balances presented in this report were
derived  based  on  daily  averages.

EMPLOYEES

     As of December 31, 2002, the Company (including the Bank) had 230 full-time
and 20 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 Bank competes
not  only  with other banks and thrifts that are located in the same counties as
the  Bank  and  in  surrounding  counties, but also with other financial service
organizations  including  credit  unions,  finance  companies,  and  certain
governmental  agencies.  To  the extent that the Bank 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 Bank competes may have substantially
greater  resources and lending capabilities due to the size of the organization.
SUPERVISION  AND  REGULATION

     Both  the  Company  and the Bank are subject to extensive state and federal
banking  regulations  that  impose  restrictions  on  and  provide  for  general
regulatory  oversight of their 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 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:


                                        2
<PAGE>
     -    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;

     -    acquiring  all  or  substantially  all  of  the assets of any bank; or

     -    merging  or  consolidating  with  any  other  bank  holding  company.

     Additionally,  the  Bank  Holding  Company  Act  provides  that the Federal
Reserve  may not approve any of these transactions if it would result in or tend
to  create a monopoly or, substantially lessen competition or otherwise function
as  a  restraint  of  trade,  unless the anticompetitive effects of the proposed
transaction  are  clearly  outweighed  by  the  public  interest  in meeting the
convenience  and  needs  of  the community to be served.  The Federal Reserve is
also  required  to  consider  the  financial and managerial resources and future
prospects  of the bank holding companies and banks concerned and the convenience
and needs of the community to be served.  The Federal Reserve's consideration of
financial  resources  generally  focuses on capital adequacy, which is discussed
below.

     Under  the  Bank  Holding  Company  Act,  if  adequately  capitalized  and
adequately  managed,  the  Company  or any other 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 that has only
been  in  existence  for  a  limited  amount of time or will result in specified
concentrations  of  deposits.  For example, Georgia law prohibits a bank holding
company  from  acquiring  control  of  a  financial institution until the target
financial  institution  has been incorporated for three years.  Because the Bank
has  been incorporated for more than three years, this limitation does not apply
to  the  Bank  or  to  the  Company.

     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 refutably presumed to exist
if  a person or 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.

Our  common  stock is registered under the Securities Exchange Act of 1934.  The
regulations  provide  a  procedure for challenging any rebuttable presumption of
control.

     PERMITTED  ACTIVITIES.  A bank holding company is generally permitted under
the  Bank Holding Company Act to engage in or acquire direct or indirect control
of  more  than  5%  of the voting shares of any company engaged in the following
activities:

     -    banking  or  managing  or  controlling  banks;  and

     -    any  activity  that  the  Federal  Reserve determines to be so closely
          related  to  banking  as  to  be  a proper incident to the business of
          banking.

     Activities  that  the Federal Reserve has found to be so closely related to
banking  as  to  be  a  proper  incident  to  the  business  of banking include:


                                        3
<PAGE>
     -    factoring  accounts  receivable;

     -    making,  acquiring,  brokering  or  servicing  loans and usual related
          activities;

     -    leasing  personal  or  real  property;

     -    operating  a  non-bank  depository  institution,  such  as  a  savings
          association;

     -    trust  company  functions;

     -    financial  and  investment  advisory  activities;

     -    conducting  discount  securities  brokerage  activities;

     -    underwriting  and  dealing  in government obligations and money market
          instruments;

     -    providing  specified  management consulting and counseling activities;

     -    performing  selected  data  processing  services and support services;

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

     -    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
it  or  any  of  its  bank  subsidiaries.

     In  addition  to  the  permissible  bank  holding company activities listed
above,  a  bank  holding  company  may  qualify  and elect to become a financial
holding  company,  permitting  the  bank holding company to engage in additional
activities  that  are  financial  in  nature  or  incidental or complementary to
financial  activity.  The Bank Holding Company Act expressly lists the following
activities  as  financial  in  nature:

     -    lending,  trust  and  other  banking  activities;

     -    insuring,  guaranteeing,  or  indemnifying  against  loss  or harm, or
          providing  and  issuing  annuities, and acting as principal, agent, or
          broker  for  these  purposes,  in  any  state;

     -    providing  financial,  investment,  or  advisory  services;

     -    issuing  or  selling  instruments  representing  interests in pools of
          assets  permissible  for  a  bank  to  hold  directly;

     -    underwriting,  dealing  in  or  making  a  market  in  securities;


                                        4
<PAGE>
     -    other  activities  that  the  Federal  Reserve  may determine to be so
          closely related to banking or managing or controlling banks as to be a
          proper  incident  to  managing  or  controlling  banks;

     -    foreign  activities  permitted  outside  of  the  United States if the
          Federal  Reserve  has  determined  them to be usual in connection with
          banking  operations  abroad;

     -    merchant  banking  through  securities  or  insurance  affiliates; and

     -    insurance  company  portfolio  investments.

     To  qualify  to  become a financial holding company, the Bank and any other
depository  institution  subsidiary  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.  While  the  Company  meets  the qualification standards applicable to
financial  holding  companies, the Company has not elected to become a financial
holding  company  at  this  time.

     SUPPORT  OF  SUBSIDIARY  INSTITUTIONS.  Under  Federal  Reserve policy, the
Company is expected to act as a source of financial strength for the Bank and to
commit  resources  to  support  the Bank.  This support may be required at times
when,  without this Federal Reserve policy, the Company might not be inclined to
provide it.  In addition, any capital loans made by the Company to the Bank will
be  repaid  only  after its deposits and various other obligations are repaid in
full.  In  the  unlikely event of the Company's bankruptcy, any commitment by it
to  a federal bank regulatory agency to maintain the capital of the Bank will be
assumed  by  the  bankruptcy  trustee  and  entitled  to  a priority of payment.

THE  BANK

     Because the Bank is a commercial bank chartered under the laws of the State
of  Georgia,  it  is  primarily  subject  to  the  supervision,  examination and
reporting  requirements  of  the  FDIC and the Georgia Department of Banking and
Finance.  The  FDIC  and  Georgia  Department  of  Banking and Finance regularly
examine  the  Bank's  operations and have the authority to approve or disapprove
mergers,  the  establishment  of  branches  and similar corporate actions.  Both
regulatory  agencies have the power to prevent the continuance or development of
unsafe  or  unsound banking practices or other violations of law.  Additionally,
the  Bank's  deposits  are insured by the FDIC to the maximum extent provided by
law.  The  Bank  is  also  subject  to  numerous  state and federal statutes and
regulations  that  affect  its  business,  activities  and  operations.

     BRANCHING.  Under  current  Georgia  law,  the Bank may open branch offices
throughout  Georgia with the prior approval of the Georgia Department of Banking
and  Finance.  In addition, with prior regulatory approval, the Bank may acquire
branches  of existing banks located in Georgia.  The Bank and any other national
or  state-chartered bank generally may branch across state lines by merging with
banks  in  other states if allowed by the applicable states' laws.  Georgia law,
with  limited exceptions, currently permits branching across state lines through
interstate  mergers.

     Under  the  Federal  Deposit  Insurance  Act, states may "opt-in" and allow
out-of-state  banks  to  branch  into their state by establishing a new start-up
branch  in  the  state.  Currently,  Georgia has not opted-in to this provision.
Therefore,  interstate  merger  is  the only method through which a bank located
outside  of Georgia may branch into Georgia.  This provides a limited barrier of
entry  into  the  Georgia  banking  market,  which protects us from an important
segment  of  potential competition.  However, because Georgia has elected not to
opt-in,  our  ability to establish a new start-up branch in another state may be
limited.  Many  states  that have elected to opt-in have done so on a reciprocal
basis,  meaning  that  an  out-of-state bank may establish a new start-up branch
only  if  their  home  state  has  also  elected to opt-in.  Consequently, until
Georgia changes its election, the only way we will be able to branch into states
that  have  elected  to  opt-in on a reciprocal basis will be through interstate
merger.


                                        5
<PAGE>
     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,  the federal banking regulators have established five capital categories
(well  capitalized,  adequately  capitalized,  undercapitalized,  significantly
undercapitalized  and critically undercapitalized) in which all institutions are
placed.

     Federal  banking  regulators  are  required  to  take  various  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.  The federal banking agencies have specified by regulation the
relevant  capital  levels  for  each  category.

     An  institution  that  is  categorized  as  undercapitalized, significantly
undercapitalized  or  critically  undercapitalized  is  required  to  submit  an
acceptable  capital  restoration plan to its appropriate federal banking agency.
A  bank  holding company must guarantee that a subsidiary depository institution
meets  its  capital  restoration  plan,  subject  to  various  limitations.  The
controlling  holding  company's obligation to fund a capital restoration plan is
limited  to  the  lesser of 5% of an undercapitalized subsidiary's assets at the
time  it  became  undercapitalized  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 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  insured  depository  institutions that takes into account the risks
attributable  to  different  categories  and  concentrations  of  assets  and
liabilities.  The  system  assigns  an  institution  to  one  of  three  capital
categories:  (1)  well  capitalized;  (2)  adequately  capitalized;  and  (3)
undercapitalized.  These  three  categories  are  substantially  similar  to the
prompt corrective action categories described above, with the "undercapitalized"
category  including  institutions  that  are  undercapitalized,  significantly
undercapitalized,  and  critically undercapitalized for prompt corrective action
purposes.  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 bonds issued in
the  late  1980s  as part of the government rescue of the thrift industry.  This
assessment  rate  is  adjusted  quarterly  and  is set at 1.68 cents per $100 of
deposits  for  the  first  quarter  of  2003.

     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 that,
in  connection  with  examinations  of  financial  institutions  within  their
respective  jurisdictions,  the  Federal  Reserve or the FDIC shall evaluate the
record  of  each  financial institution in meeting the credit needs of its local
community,  including  low  and  moderate-income neighborhoods.  These facts are
also  considered 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  Bank  and  the  Company.
Additionally,  we  must  publicly  disclose  the  terms  of  various  Community
Reinvestment  Act-related  agreements.


                                        6
<PAGE>
     OTHER  REGULATIONS.  Interest and other charges collected or contracted for
by the Bank are subject to state usury laws and federal laws concerning interest
rates.  For  example, under the Soldiers' and Sailors' Civil Relief Act of 1940,
a lender is generally prohibited from charging an annual interest rate in excess
of  6%  on any obligation for which the borrower is a person on active duty with
the  United  States  military.

     The  Bank's  loan operations are also subject to federal laws applicable to
credit  transactions,  such  as  the:

     -    Federal Truth-In-Lending Act, governing disclosures of credit terms to
          consumer  borrowers;

     -    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;

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

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

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

     -    Soldiers'  and  Sailors'  Civil  Relief  Act  of  1940,  governing the
          repayment  terms  of,  and  property  rights  underlying,  secured
          obligations  of  persons  in  military  service;  and

     -    Rules and regulations of the various federal agencies charged with the
          responsibility  of  implementing  these  federal  laws.

     In  addition  to  the  federal and state laws noted above, the Georgia Fair
Lending  Act  ("GFLA")  became  effective  on October 1, 2002.  GFLA imposes new
restrictions and procedural requirements on most mortgage loans made in Georgia,
including  home  equity  loans  and  lines  of  credit.  While  many of the GFLA
requirements  will apply regardless of the interest rate or charges on the loan,
"high  cost  home  loans,"  as  defined  by  GFLA,  are  subject  to  the  most
requirements.

     Due  to the high compliance burdens associated with high cost home loans in
Georgia,  the Company has determined that it will not make such loans in Georgia
in  2003.

     However, because the Company generally has not made a significant number of
"high  cost  home  loans" in prior years, ceasing to make high cost loans should
not  have a significant impact on the Company's lending volume.  With respect to
our  other  lending,  we  have  implemented  procedures  to  comply  with  GFLA.


                                        7
<PAGE>
The  deposit  operations  of  the  Bank  are  subject  to:

     -    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

     -    The  Electronic  Funds  Transfer  Act  and  Regulation E issued by the
          Federal Reserve to implement that act, which govern 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.

CAPITAL  ADEQUACY

     The  Company  and the Bank are required to comply with the capital adequacy
standards  established  by  the Federal Reserve, in the case of the Company, and
the FDIC and Georgia Department of Banking and Finance, in the case of the Bank.
The  Federal  Reserve  has  established  a  risk-based and a leverage measure of
capital  adequacy  for  bank  holding  companies.  The  Bank  is also subject to
risk-based  and  leverage  capital  requirements  adopted by the FDIC, which are
substantially  similar  to those adopted by the Federal Reserve for bank holding
companies.

     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  consists  of  common  stock,  minority
interests  in  the  equity  accounts of consolidated subsidiaries, 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  consists  of  subordinated  debt, other preferred stock 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, 2002 our ratio of total capital to
risk-weighted  assets was 11.3% and our ratio of Tier 1 Capital to risk-weighted
assets  was  10.1%.

     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 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, 2002, our leverage ratio was 7.6%.  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 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  Bank  and  the  Company  are  also  both  subject  to leverage capital
guidelines  issued  by  the  Georgia  Department  of  Banking and Finance, which
provide  for minimum ratios of Tier 1 capital to total assets.  These guidelines
are substantially similar to those adopted by the Federal Reserve in the case of
the  Company  and  those  adopted  by  the  FDIC  in  the  case  of  the  Bank.

     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
accepting brokered deposits, and certain other restrictions on its business.  As
described  above,  significant  additional  restrictions  can  be  imposed  on
FDIC-insured  depository  institutions  that  fail  to  meet  applicable capital
requirements.  See  "-Prompt  Corrective  Action."


                                        8
<PAGE>
PAYMENT  OF  DIVIDENDS

     The  Company  is  a  legal entity separate and distinct from the Bank.  The
principal  sources  of  the  Company's  cash  flow,  including  cash flow to pay
dividends  to  its  shareholders,  are  dividends that the Bank pays to its sole
shareholder,  the  Company.  Statutory  and  regulatory limitations apply to the
Bank's  payment  of dividends to the Company as well as to the Company's payment
of  dividends  to  its  shareholders.

     The  payment  of dividends by the Company and the Bank may also be affected
by  other  factors,  such  as the requirement to maintain adequate capital above
regulatory guidelines.  If, in the opinion of the federal banking regulator, the
Bank  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 the
Bank  stop  or  refrain  from  engaging  in  the  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"  above.

     The  Georgia  Department  of  Banking and Finance also regulates the Bank's
dividend  payments  and  must approve dividend payments that would exceed 50% of
the  Bank's net income for the prior year.  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, 2002, the Bank was unable to pay dividends to the Company
without  prior  regulatory  approval.

RESTRICTIONS  ON  TRANSACTIONS  WITH  AFFILIATES

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

     -    a  bank's  loans  or  extensions  of  credit  to  affiliates;

     -    a  bank's  investment  in  affiliates;

     -    assets  a  bank  may  purchase  from  affiliates,  except for real and
          personal  property  exempted  by  the  Federal  Reserve;

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

     -    a bank's guarantee, acceptance or letter of credit issued on behalf of
          an  affiliate.

     The  total amount 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 Bank must also comply with other
provisions  designed  to  avoid  the  taking  of  low-quality  assets.


                                        9
<PAGE>
     The  Company and the Bank are also subject to the provisions of Section 23B
of  the  Federal  Reserve Act which, among other things, prohibit 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  Bank  is  also  subject to restrictions on extensions of credit to its
executive  officers,  directors,  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

     Financial  institutions  are  required  to  disclose  their  policies  for
collecting  and  protecting  confidential  information.  Customers generally may
prevent  financial  institutions  from  sharing  nonpublic  personal  financial
information  with nonaffiliated third parties except under narrow circumstances,
such  as  the  processing  of transactions requested by the consumer or when the
financial  institution  is  jointly  sponsoring  a  product  or  service  with a
nonaffiliated  third  party.  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  to consumers.

ANTI-TERRORISM  LEGISLATION

     In  the  wake  of the tragic events of September 11th, on October 26, 2001,
the  President  signed  the  Uniting  and  Strengthening  America  by  Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act
of  2001.  Under  the  USA  PATRIOT  Act,  financial institutions are subject to
prohibitions  against specified financial transactions and account relationships
as  well  as  enhanced due diligence and "know your customer" standards in their
dealings  with  foreign  financial  institutions  and  foreign  customers.  For
example, the enhanced due diligence policies, procedures, and controls generally
require  financial  institutions  to  take  reasonable  steps-

     -    to conduct enhanced scrutiny of account relationships to guard against
          money  laundering  and  report  any  suspicious  transaction;

     -    to ascertain the identity of the nominal and beneficial owners of, and
          the  source  of  funds deposited into, each account as needed to guard
          against  money  laundering  and  report  any  suspicious transactions;

     -    to  ascertain  for  any  foreign  bank,  the  shares  of which are not
          publicly  traded,  the identity of the owners of the foreign bank, and
          the  nature  and  extent of the ownership interest of each such owner;
          and

     -    to  ascertain whether any foreign bank provides correspondent accounts
          to other foreign banks and, if so, the identity of those foreign banks
          and  related  due  diligence  information.

     Under the USA PATRIOT Act, financial institutions must establish anti-money
laundering  programs.  The  USA  PATRIOT  Act  sets  forth minimum standards for
these  programs,  including:

     -    the  development  of  internal  policies,  procedures,  and  controls;

     -    the  designation  of  a  compliance  officer;

     -    an  ongoing  employee  training  program;  and

     -    an  independent  audit  function  to  test  the  programs.


                                       10
<PAGE>
     Pursuant  to  the  mandate  of  the  USA  PATRIOT Act, the Secretary of the
Treasury  issued  regulations  effective  April 24, 2002 applicable to financial
institutions.  Because  all  federally  insured  depository  institutions  are
required  to have anti-money laundering programs, the regulations provide that a
financial  institution  which is subject to regulation by a "federal functional"
is  in  compliance  with  the  regulations  if it complies with the rules of its
primary  federal  regulator  governing  the  establishment  and  maintenance  of
anti-money  laundering  programs.

     Under  the  authority of the USA PATRIOT Act, the Secretary of the Treasury
adopted  rules  on September 26, 2002 increasing the cooperation and information
sharing  between  financial  institutions,  regulators  and  law  enforcement
authorities  regarding  individuals,  entities  and organizations engaged in, or
reasonably  suspected  based on credible evidence of engaging in, terrorist acts
or money laundering activities.  Under the new rules, a financial institution is
required  to:

     -    expeditiously  search its records to determine whether it maintains or
          has  maintained  accounts, or engaged in transactions with individuals
          or  entities,  listed  in  a request submitted by the Financial Crimes
          Enforcement  Network  ("FinCEN");

     -    notify  FinCEN  if  an  account  or  transaction  is  identified;

     -    designate  a  contact  person  to  receive  information  requests;

     -    limit  use  of  information  provided  by  FinCEN to: (1) reporting to
          FinCEN, (2) determining whether to establish or maintain an account or
          engage in a transaction and (3) assisting the financial institution in
          complying  with  the  Bank  Secrecy  Act;  and

     -    maintain  adequate  procedures  to  protect  the  security  and
          confidentiality  of  FinCEN  requests.

     Under  the  new  rules,  a financial institution may also share information
regarding  individuals,  entities,  organizations  and countries for purposes of
identifying  and,  where  appropriate, reporting activities that it suspects may
involve  possible  terrorist  activity  or  money  laundering.  Such
information-sharing  is  protected  under  a  safe  harbor  if  the  financial
institution:

     -    notifies  FinCEN  of  its  intention  to  share information, even when
          sharing  with  an  affiliated  financial  institution;

     -    takes reasonable steps to verify that, prior to sharing, the financial
          institution  or  association  of  financial institutions with which it
          intends  to  share  information  has  submitted  a  notice  to FinCEN;

     -    limits  the  use of shared information to identifying and reporting on
          money  laundering  or  terrorist  activities,  determining  whether to
          establish  or  maintain  an  account  or  engage  in a transaction, or
          assisting  it  in  complying  with  the  Bank  Security  Act;  and

     -    maintains  adequate  procedures  to  protect  the  security  and
          confidentiality  of  the  information.

     Any  financial institution complying with these rules will not be deemed to
have  violated  the  privacy  requirements  discussed  above.

     The Secretary of the Treasury also adopted a new rule on September 26, 2002
intended  to  prevent  money  laundering  and  terrorist  financing  through
correspondent  accounts  maintained  by U.S. financial institutions on behalf of
foreign  banks.  Under  the  new  rule,  financial  institutions:

     -    are  prohibited from providing correspondent accounts to foreign shell
          banks;


                                       11
<PAGE>
     -    are  required  to  obtain a certification from foreign banks for which
          they  maintain a correspondent account stating the foreign bank is not
          a  shell bank and that it will not permit a foreign shell bank to have
          access  to  the  U.S.  account;

     -    must  maintain  records  identifying the owner of the foreign bank for
          which  they  may maintain a correspondent account and its agent in the
          Unites  States  designated  to  accept  services  of  legal  process;

     -    must  terminate  correspondent  accounts of foreign banks that fail to
          comply  with  or  fail to contest a lawful request of the Secretary of
          the Treasury or the Attorney General of the United States, after being
          notified  by  the  Secretary  or  Attorney  General.

     The  new  rule  applies to correspondent accounts established after October
28,  2002.

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  operating  and  doing
business  in  the  United States.  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  affect  the  levels of bank loans, investments and deposits through its
control over the issuance of United States government securities, its regulation
of  the  discount rate applicable to member banks and its influence over reserve
requirements to which member banks are subject.  We cannot predict the nature or
impact  of  future  changes  in  monetary  and  fiscal  policies.


ITEM  2.     PROPERTIES

     The  executive  offices  of  the Company are located at 3475 Piedmont Road,
N.E., Suite 550, Atlanta, Georgia 30305.  The Company leases this property.  The
Company  and  the  Bank  conduct business from facilities primarily owned by the
Bank, all of which are in good condition and are adequate for the Bank's current
and  foreseeable  needs.  The  Company and Flag Bank provide services or perform
operational functions at 24 locations, of which 16 locations are owned and 8 are
leased.  See  "Item  1  -  Business"  for  a  list of the locations in which the
Company  and  the  Bank  have  offices.


ITEM  3.     LEGAL  PROCEEDINGS

     The  Company  and  the  Bank  are  periodically  involved  as  plaintiff or
defendant  in  various  other  legal  actions  in  the  ordinary course of their
business.  We  do  not  believe that such litigation presents a material risk to
the  Company's  business,  financial  condition  or  results  of  operations.


                                       12
<PAGE>
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  2002.


                                    PART II
                                    --------

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

     As  of  December  31, 2002, the Company had 811 shareholders of record. The
following  table  sets  forth  the high and low sales prices for the Flag common
stock,  as  reported by the Nasdaq Stock Market, and the cash dividends paid per
share  of  common  stock  for  the  periods  indicated.

<TABLE>
<CAPTION>
Quarter                            High    Low    Dividend
--------------------------------  ------  ------  ---------
<S>                               <C>     <C>     <C>
2003
  First (through March 26, 2003)  $13.39  $11.00  $    0.06

2002
  Fourth                          $11.60  $11.15  $    0.06
  Third                            11.70   10.39       0.06
  Second                           11.25    9.94       0.06
  First                            10.25    9.10       0.06

2001
  Fourth                          $ 8.60  $ 7.64  $    0.06
  Third                             7.87    7.16       0.06
  Second                            7.00    6.01       0.06
  First                             7.38    6.38       0.06
</TABLE>

     Subject  to  board  approval,  the  Company pays quarterly dividends on the
first  business day of January, April, July and October.  See "Item 1 - Business
-  Supervision  and Regulation - Payment of Dividends" for information regarding
regulatory  restrictions  on  the  Company's  ability  to  pay  dividends.


                                       13
<PAGE>
     During the first and second quarters of 2002, the Company issued a total of
1,272,000 shares of common stock and 1,272,000 warrants to purchase common stock
to  directors and members of senior management in a private placement under Rule
506  of  the  Securities  Act  of  1933, as amended.  The purchase prices of the
common  stock  and  the  exercise  prices  of  the warrants are set forth below:

<TABLE>
<CAPTION>
         NO. OF SHARES   PURCHASE AND
         AND WARRANTS   EXERCISE PRICE
         -------------  ---------------
<S>                     <C>
             1,068,000  $          9.10
                 6,000             9.51
                78,000             9.53
                30,000             9.69
                24,000             9.75
                 6,000             9.90
                 6,000             9.94
                 6,000            10.00
                48,000            10.10
</TABLE>

     The  increased prices represent adjustments necessary to match the price of
the  securities  with  the  market  price of the common stock at the time of the
sale.  The  purchase  price  of the warrants was $1.00 per warrant in each case.
The  total  number  of securities authorized for issuance was 1.3 million shares
and  1.3  million  warrants.


                                       14
<PAGE>
ITEM  6.     SELECTED  FINANCIAL  DATA

     The following selected financial data is derived from and should be read in
conjunction  with  our  consolidated  financial  statements,  which are included
elsewhere  in  this  report.

<TABLE>
<CAPTION>
(In thousands except per share data)          2002       2001      2000      1999      1998
                                            ---------  --------  --------  --------  --------
<S>                                         <C>        <C>       <C>       <C>       <C>
FOR THE YEAR
Net interest income                         $ 24,302    23,980    24,961    26,490    25,952
Provision for loan losses                      4,549     2,488     3,597     4,656     3,475
Non-interest income                            7,395    10,668    11,962    10,072     9,952
Non-interest expense                          31,005    25,701    27,633    30,615    28,882
Income taxes                                  (2,028)    1,753     1,409        78       708
Extraordinary item                               165       696        --        --        --
Net earnings (loss)                           (1,994)    4,010     4,284     1,213     2,839

PER COMMON SHARE
Basic earnings (loss) per share             $  (0.24)      .51       .52       .15       .35
Diluted earnings (loss) per share              (0.24)      .51       .52       .15       .34
Cash dividends declared                          .24       .24       .24       .24       .20
Book value                                      7.24      7.33      6.83      6.43      6.92

AT YEAR END
Loans, net                                  $374,784   368,967   384,661   419,079   424,660
Earning assets                               569,755   520,290   507,929   521,452   568,133
Assets                                       636,131   570,202   559,037   587,870   635,192
Deposits                                     509,731   440,582   461,438   483,987   521,671
Stockholders' equity                          60,749    54,023    55,498    53,197    56,869
Common shares outstanding                      8,394     7,370     8,123     8,273     8,223

AVERAGE BALANCES
Loans                                       $366,571   378,867   405,101   449,689   435,422
Earning assets                               511,737   508,752   510,898   556,577   576,245
Assets                                       560,984   560,816   566,355   617,764   624,487
Deposits                                     442,645   449,985   455,338   496,998   505,337
Stockholders' equity                          58,865    56,294    53,853    55,365    55,337
Weighted average shares outstanding            8,201     7,808     8,210     8,258     8,218

KEY PERFORMANCE RATIOS
Return on average assets                      (0.36%)      .72%      .77%      .20%      .45%
Return on average stockholders' equity        (3.39%)     7.12%     7.95%     2.19%     5.13%
Net interest margin, tax equivalent basis       4.86%     4.83%     4.99%     4.90%     4.56%
Dividend payout ratio                       N/A          46.27%    45.98%   153.50%    49.49%
Average equity to average assets               10.49%    10.04%     9.51%     8.96%     8.86%
</TABLE>


                                       15
<PAGE>
ITEM  7.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
             RESULTS  OF  OPERATIONS

GENERAL

     Flag Financial Corporation ("Flag") is a bank holding company that owns 100
percent  of  the  common  stock  of  Flag  Bank  (the  "Bank").  The  Bank  is a
full-service,  retail  oriented  bank 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  during  the three years ended
December  31,  2002.  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.

RECENT  ACQUISITIONS

     Effective  November  8,  2002,  the  Bank  acquired six branches located in
metropolitan  Atlanta  from  Encore  Bank.  Included  in  the purchase were real
estate,  personal  property  and  other  assets  used  in  the  operation of the
branches,  and $96 million in deposits.  The Bank did not purchase or assume any
loans  in  the  transaction.


     Effective  November  12,  2002,  Flag  acquired  a  specialized real estate
lending business from Atlanta-based Bankers' Capital Group, LLC (BCG), including
approximately  $23  million in loans subject to various participation interests.
Principals  of  BCG include Flag Chairman and Chief Executive Officer, Joseph W.
Evans,  board  member  William  H.  Anderson and executives and board members J.
Thomas Wiley, Jr. and Stephen W. Doughty. None of these individuals participated
in  Flag's  evaluation or approval of the transaction in view of their positions
as  principals  of  BCG.

     See Note 2 in the Notes to Consolidated Financial Statements for additional
information  regarding  the  Encore  and  BCG  transactions.

     Effective  December  31,  2001,  Flag  sold  selected  loans,  deposits and
property  of  its  bank  branches  in  Milan  and  McRae,  Georgia.

     Effective September 30, 2000, Flag sold the loans, deposits and property of
its  bank  branches  in  Cobbtown,  Metter  and  Statesboro,  Georgia.

     Effective September 30, 2000, Flag sold the loans, deposits and property of
its  bank  branches  in  Blackshear,  Homerville  and  Waycross,  Georgia.

     On December 29, 2000, Flag acquired certain loans, deposits and property of
bank  branches  in  Montezuma,  Oglethorpe,  Cusseta  and  Buena Vista, Georgia.

RESULTS  OF  OPERATIONS

     Flag recorded a net loss in 2002 of $1,994,000 or $0.24 per share, compared
to  net  income  of  $4,010,000  or  $0.51  per  share in 2001 and net income of
$4,284,000  or  $0.52  per  share  in  2000.

     Flag's  net  loss  in 2002 resulted primarily from the $6,044,000 after tax
charge  taken  in the first quarter to effect its management restructuring, loss
on  the  early repayment of Federal Home Loan Bank (FHLB) advances, and a larger
than  normal addition to the provision for loan losses.  Flag recorded after tax
extraordinary  items  related  to  the early repayment of FHLB advances totaling
$165,000  and  $696,000  in  2002  and  2001,  respectively.


                                       16
<PAGE>
NET  INTEREST  INCOME

     Net  interest  income  (the difference or spread between interest income on
earning  assets and interest expense on borrowed funds) is the largest component
of  Flag's  operating  income. Flag manages net interest income in a manner that
realizes  the largest spread while accepting certain levels of credit, liquidity
and interest rate risks.  Managing these risks requires systems and processes to
identify  and  evaluate  these risks at various levels in the organization.  Net
interest  income  was $24.3 million in 2002, compared to $24.0 million and $25.0
million  in  2001  and  2000,  respectively.   Flag's  margin has been pressured
downward  over  the  past  few  years by a decreasing interest rate environment.
Flag's  refinancing  of  FHLB advances in 2001 and 2002, coupled with aggressive
repricing  efforts on the deposit base, helped Flag reduce interest rate expense
by  approximately  38%  during  2002, and more than offset decreases in interest
income.  Net  interest  margin  increased to 4.86% in 2002 compared to 4.83% and
4.99%  in  2001  and  2000,  respectively.

     Total  interest income in 2002 was $36.7 million, compared to $44.5 million
and  $46.4  million  in  2001 and 2000, respectively.  Yields on average earning
assets  in  2002  decreased  to 7.28% from 8.87% in 2001 and 9.18% in 2000.  The
falling interest rate environment, evidenced by a prime rate of 4.25% at the end
of  2002 versus 8.50% at the beginning of 2000, has been the largest contributor
to  lower  yields  on  earning  assets.

     Total interest expense in 2002 was $12.4 million, compared to $20.6 million
and  $21.4  million  in  2001  and  2000, respectively.  Aggressive repricing of
deposit  accounts,  accompanied by early repayment and refinancing of FHLB debt,
has  allowed  Flag  to significantly reduce interest expense over the time frame
discussed.  Flag's total deposits cost 2.81%, 4.06%, and 4.17% in 2002, 2001 and
2000,  respectively, while FHLB and other borrowings cost 2.16%, 5.70% and 6.34%
over  the  same  time  periods.  (see  TABLES  1  &  2).


                                       17
<PAGE>
<TABLE>
<CAPTION>
TABLE  1  -  CONSOLIDATED  AVERAGE  BALANCES,  INTEREST,  AND  RATES  -  TAXABLE  EQUIVALENT  BASIS
(DOLLARS  IN  THOUSANDS)

                                                            YEARS  ENDED  DECEMBER  31,
                               -----------------------------------------------------------------------------------------
                                           2002                         2001                          2000
                               -----------------------------------------------------------------------------------------
                                         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 . . . . . . . . . . .  $366,571    29,702      8.10%  378,867    36,798      9.71%  405,101    40,014      9.88%
  Taxable investment
   securities . . . . . . . .   120,364     6,513      5.41%  107,777     6,825      6.33%   84,833     5,471      6.45%
  Tax-free investment
   securities . . . . . . . .    10,294       768      7.46%   10,155       887      8.74%   11,180       861      7.70%
  Interest-bearing deposits
    in other banks. . . . . .     1,748        74      4.23%    2,962       159      5.37%    2,718       163      6.00%
  Federal funds sold. . . . .    12,760       186      1.46%    8,991       435      4.84%    7,066       409      5.79%
                               --------  --------  ---------  -------  --------  ---------  -------  --------  ---------
Total interest-
     earning assets . . . . .   511,737    37,243      7.28%  508,752    45,104      8.87%  510,898    46,918      9.18%
Other assets. . . . . . . . .    49,247                        52,064                        55,457
                               --------                       -------                       -------
    Total assets. . . . . . .  $560,984                       560,816                       566,355
                               ========                       =======                       =======

LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
  Interest-bearing demand
     deposits . . . . . . . .  $131,967     2,151      1.63%  109,375     2,494      2.28%   90,539     2,228      2.46%
  Savings deposits. . . . . .    25,322       214      0.85%   25,283       371      1.47%   27,107       535      1.97%
  Other time deposits . . . .   244,113     8,900      3.65%  267,703    15,381      5.75%  284,307    16,237      5.71%
  Federal funds purchased . .     3,406        54      1.59%    3,210       158      4.92%    7,990       506      6.33%
  FHLB advances and
     other borrowings . . . .    48,715     1,053      2.16%   37,768     2,151      5.70%   30,349     1,925      6.34%
                               --------  --------  ---------  -------  --------  ---------  -------  --------  ---------
     Total interest-
      bearing liabilities . .   453,523    12,372      2.73%  443,339    20,555      4.64%  440,292    21,431      4.87%
Non-interest bearing
     demand deposits. . . . .    41,243                        47,624                        53,385
Other liabilities . . . . . .     7,353                        13,559                        18,825
Stockholders' equity. . . . .    58,865                        56,294                        53,853
                               --------                       -------                       -------
     Total liabilities and
      stockholders' equity. .  $560,984                       560,816                       566,355
                               ========                       =======                       =======
Tax-equivalent adjustment                     570                           569                           526
                                         --------                      --------                      --------
Net interest income . . . . .              24,301                        23,980                        24,961
                                         ========                      ========                      ========
Interest rate spread. . . . .                          4.55%                         4.23%                         4.31%
Net interest margin . . . . .                          4.86%                         4.83%                         4.99%
Interest-earning assets/
 interest-bearing liabilities                           113%                          115%                          116%
</TABLE>



CONSOLIDATED  AVERAGE  BALANCES,  INTEREST,  AND  RATES

     TABLE  1  presents  for  the  three  years ended December 31, 2002, 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  $511.7  million  in  2002 versus $508.8
million  in  2001  and  $510.9  million  in  2000.  Average  interest-bearing
liabilities were $453.5 million in 2002 versus $443.3 million and $440.3 million
in  2001  and  2000,  respectively.
     .
     Flag's  ratio  average  earning assets to average total assets was 91.2% in
2002,  90.7%  in  2001  and  90.2%  in  2000


                                       18
<PAGE>
     TABLE  2 shows the change in net interest income from 2001 to 2000 and from
2000  to  1999  due  to  changes  in  volumes  and  rates.

<TABLE>
<CAPTION>
TABLE  2  -  RATE/VOLUME  VARIANCE  ANALYSIS  -  TAXABLE  EQUIVALENT  BASIS
(DOLLARS  IN  THOUSANDS)

                                                   YEARS  ENDED  DECEMBER  31,
                                       -----------------------------------------------------
                                         2002 COMPARED TO 2001       2001 COMPARED TO 2000
                                       --------------------------  -------------------------


                                                  RATE/     NET              RATE/    NET
                                        VOLUME    YIELD   CHANGE   VOLUME    YIELD   CHANGE
                                       --------  -------  -------  -------  -------  -------
<S>                                    <C>       <C>      <C>      <C>      <C>      <C>
INTEREST INCOME:
  LOANS . . . . . . . . . . . . . . .  $(1,005)  (6,091)  (7,096)  (2,564)    (651)  (3,215)
  TAXABLE INVESTMENT SECURITIES . . .      681     (993)    (312)   1,453      (99)   1,354
  TAX-FREE INVESTMENT SECURITIES    .       10     (129)    (119)     (89)     115       26
  INTEREST-BEARING DEPOSITS IN
    OTHER BANKS . . . . . . . . . . .      (20)     (65)     (85)      13      (17)      (4)
  FEDERAL FUNDS SOLD. . . . . . . . .       55     (304)    (249)      93      (67)      26
                                       --------  -------  -------  -------  -------  -------
     TOTAL INTEREST INCOME. . . . . .     (279)  (7,582)  (7,861)  (1,094)    (719)  (1,813)
INTEREST EXPENSE:
  INTEREST BEARING DEMAND DEPOSITS. .      515     (858)    (343)     464     (198)     266
  SAVINGS DEPOSITS. . . . . . . . . .        1     (158)    (157)     (36)    (128)    (164)
  OTHER TIME DEPOSITS . . . . . . . .   (1,355)  (5,126)  (6,481)    (948)      92     (856)
  FEDERAL FUNDS PURCHASED . . . . . .       10     (114)    (104)    (303)     (45)    (348)
  FHLB ADVANCES AND OTHER BORROWINGS.      623   (1,721)  (1,098)     471     (245)     226
                                       --------  -------  -------  -------  -------  -------
     TOTAL INTEREST EXPENSE . . . . .     (206)  (7,977)  (8,183)    (352)    (524)    (876)
                                       --------  -------  -------  -------  -------  -------
NET INTEREST INCOME . . . . . . . . .  $   (73)     395      322     (742)    (195)    (937)
                                       ========  =======  =======  =======  =======  =======
</TABLE>


NON-INTEREST  INCOME

     Total  non-interest  income  decreased  to  $7.4 million in 2002 from $10.7
million  in 2001 and $12.0 million in 2000. The decrease in other income in 2002
resulted  largely  from  the  absence  of  a gain on the sale of branches.  Flag
recorded  gains on the sale of branches in 2001 of $3.3 million and $5.1 million
in  2000.

     Service  charges  on deposit accounts decreased during 2002 to $3.5 million
from  $3.9  million  in 2001and $3.5 million in 2000.  The decrease in 2002 from
2001  is  due  largely  to  the sale of two branch offices in December 2001 with
approximately  $31  million  in deposits.  The increase in 2001 over 2000 levels
relates  in  part  to  increased  demand  deposits  and  lower earnings credits.

     Mortgage  banking  activities  includes  origination  fees, service release
premiums  and  the  gain on the sale of mortgage loans originated solely for the
purpose  of  being sold.  The lower interest rate environment, coupled with more
effective  originators, helped Flag improve the income from its mortgage banking
activities  in  2002  by  21%  as  compared to 2001.  Total income from mortgage
banking  activities  increased to $2.9 million in 2002 from 2001 and 2000 levels
of  $2.4  million  and  $1.7  million,  respectively.

     Effective  December  31,  2001,  Flag  sold  selected  loans,  deposits and
property  of  its  branches in Milan and McRae, Georgia and recognized a gain on
sale  of  approximately  $3.3  million.

     During  2000,  Flag  sold  the  loans,  deposits  and  property of its bank
branches  in  Cobbtown,  Metter and Statesboro, Georgia and recognized a gain on
sale  of  approximately  $2.0  million.  Flag  also sold the loans, deposits and
property  of  its  bank branches in Blackshear, Homerville and Waycross, Georgia
and  recognized  a  gain  on  sale  of  approximately  $3.1  million.


                                       19
<PAGE>
NON-INTEREST  EXPENSES

     Salary  and  employee  benefits increased during 2002 to $18.6 million from
$13.9  million  in  2001 and $14.4 million in 2000. The increase in 2002 relates
largely to the management restructuring undertaken in the first quarter of 2002,
in  which  Flag took a special charge related to buyouts of employment contracts
and  severance  of approximately $3.1 million.  The decrease in 2001 compared to
2000  relates  to  the  lower  number of staff due to the sale of branch offices
during  2000.

     Occupancy  expenses  continued  a trend, decreasing to $3.6 million in 2002
from  $3.8  million  in  2001 and $4.3 million in 2000.  This positive trend for
Flag  is  the  result  of  an  effort  to  consolidate branch offices to improve
individual branch performance as well as that of the consolidated company.  This
effort  has  resulted  in 16 offices being closed or sold since the beginning of
2000.

     Professional  fees  increased to $1.8 million from $1.2 million in 2001 and
were flat against 2000 levels of $1.7 million. The higher amounts in 2002 relate
to  approximately  $350,000  of  professional  fees  related  to  the management
restructuring  and  private placement effected in the first quarter, whereas the
higher  amounts  in 2000 relate to the professional fees incurred in conjunction
with  branch divestiture in six markets.  Other expenses increased slightly over
the  prior  year  to  $3.8  million from $3.7 million.  Other expenses were $5.0
million in 2000 and relate in part to increased operating and conversion expense
associated  with  the  disposition  of  branches  in  six  markets.

INVESTMENT  SECURITIES

          The  composition  of  the  investment  securities  portfolio  reflects
management's  strategy  of  maintaining an appropriate combination of liquidity,
interest  rate  risk  and yield.  Flag seeks to maintain an investment portfolio
with  minimal credit risk, investing mostly in obligations of the US Treasury or
other  state  and  federal  governmental  agencies.

          Investment securities increased to $138.9 million at December 31, 2002
from $131.5 million at December 31, 2001.   At December 31, 2002, all investment
securities  outstanding  were classified as available-for-sale.  The increase in
investments  resulted  from the investment of a portion of the proceeds received
from  the  acquisition  of branch offices from Encore Bank in November 2002.  At
December  31,  2002,  gross  unrealized gains in the total portfolio amounted to
$3.2  million  and  gross  unrealized  losses  amounted  to  $58,000.

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

<TABLE>
<CAPTION>
TABLE  3  -  CARRYING  VALUE  OF  INVESTMENTS
(DOLLARS  IN  THOUSANDS)
                                        DECEMBER 31,
                                  2002     2001     2000
                                --------  -------  -------
<S>                             <C>       <C>      <C>
SECURITIES AVAILABLE-FOR-SALE:
  U.S. TREASURIES AND AGENCIES  $ 23,577   25,859   22,554
  CORPORATE DEBT SECURITIES. .     2,201    2,673    2,014
  STATE, COUNTY AND MUNICIPAL.     9,972   10,572   10,652
  MORTGAGE-BACKED SECURITIES .    86,784   77,418   56,202
  TRUST PREFERRED SECURITIES .    15,886   14,448    8,811
  EQUITY SECURITIES. . . . . .       434      556      489
                                --------  -------  -------
        TOTAL. . . . . . . . .  $138,854  131,526  100,722
                                ========  =======  =======
</TABLE>


                                       20
<PAGE>
LOANS

     Gross  loans  increased  to  $381.7  million in 2002 from $376.3 million at
December  31,  2001.  Gross  loans  decreased  during  the first half of 2002 to
approximately  $339.5  million  as  Flag chose to exit lower yielding and higher
risk relationships.  Flag's focus on existing markets, correspondent lending and
the  line  of  business  purchased  from BCG helped outstanding loans grow 12.5%
during  the  second  half  of  2002.

     TABLE  4 shows the changes in the makeup of Flag's loan portfolio from 1998
through  2002.

<TABLE>
<CAPTION>

TABLE  4  -  LOAN  PORTFOLIO
(DOLLARS  IN  THOUSANDS)
                                                                   DECEMBER  31,
                           ---------------------------------------------------------------------------------------------------
                               2002                2001                2000                1999                1998
                           --------  ---------  -------  ---------  -------  ---------  -------  ---------  -------  ---------
                                      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 . . . . .  $ 56,052      14.7%   74,569      19.8%   92,757      23.7%  117,728      27.6%  121,744      28.3%
REAL ESTATE CONSTRUCTION     68,169      17.7%   65,052      17.3%   37,501       9.6%   43,602      10.2%   31,814       7.4%
REAL ESTATE MORTGAGE. . .   240,182      62.9%  213,748      56.8%  228,508      58.4%  218,920      51.4%  205,753      47.8%
INSTALLMENT LOANS TO
  INDIVIDUALS . . . . . .    15,848       4.2%   17,793       4.7%   28,767       7.4%   40,620       9.5%   63,869      14.8%
LEASE FINANCINGS. . . . .     1,421       0.5%    5,153       1.4%    3,711       0.9%    5,226       1.2%    7,674       1.8%
                           --------  ---------  -------  ---------  -------  ---------  -------  ---------  -------  ---------
     TOTAL LOANS. . . . .   381,672       100%  376,315       100%  391,244       100%  426,096       100%  430,854       100%
LESS:
ALLOWANCE FOR LOAN LOSSES     6,888               7,348               6,583               7,017               6,194
                           --------             -------             -------             -------             -------
     TOTAL NET LOANS. . .  $374,784             368,967             384,661             419,079             424,660
                           ========             =======             =======             =======             =======
</TABLE>






     TABLE  5  represents the expected maturities for commercial, financial, and
agricultural loans and real estate construction loans at December 31, 2002.  The
table  also  presents  the  rate structure for these loans that mature after one
year.

<TABLE>
<CAPTION>

TABLE  5  -  LOAN  PORTFOLIO  MATURITY
(DOLLARS  IN  THOUSANDS)
                                                                             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. . . . . .  $  19,097      17,586     19,369   56,052                  22,959         13,996
REAL ESTATE - CONSTRUCTION     58,448       9,721          0   68,169                   8,615          1,106
                            ---------  ----------  ---------  -------  ----------------------  -------------
                            $  77,545      27,307     19,369  124,221                  31,574         15,102
                            =========  ==========  =========  =======  ======================  =============
</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 $4.5 million in 2002, $2.5 million in 2001 and
$3.6  million  in 2000.  Flag's increase in the provision for loan losses during
2002  was  needed  to  replenish the allowance for loan losses due to the higher
than  normal  amount  of  net  charge-offs experienced.   The provision for loan
losses  included  approximately  $1.0  million  in  2001  for  certain  large
agricultural  credits and approximately $1.8 million in 2000 related to retained
loans  in  the branch divestitures and one agricultural credit in South Georgia.

      Management determines the level of the provision for loan losses based on
outstanding  loan  balances, the levels of non-performing 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.


                                       21
<PAGE>
     As  shown  in  Table 6, the year-end allowance for loan losses decreased to
$6.9  million  at December 31, 2002, from $7.3 million at December 31, 2001. The
decrease  in  the  allowance during 2002 was the result of higher charge-offs of
problem  loans  during  2002 than experienced in 2001. Net charge-offs were $5.0
million  in  2002, $1.7 million in 2001, and $3.2 million in 2000. The allowance
for  loan losses was 1.80% of gross loans at December 31, 2002, versus 1.95% and
1.68%  at  December  31,  2001  and  2000,  respectively.

     Management believes that the allowance for loan losses is both adequate and
appropriate.  However,  the  future  level  of  the allowance for loan losses is
highly  dependent  upon  loan  growth,  loan loss experience, and other factors,
which  cannot  be  anticipated  with  a  high  degree  of  certainty.
     .
<TABLE>
<CAPTION>
TABLE  6  -  ANALYSIS  OF  THE  ALLOWANCE  FOR  LOAN  LOSSES
(DOLLARS  IN  THOUSANDS)


                                                                  Years Ended December 31,
                                                     -------------------------------------------------
                                                       2002       2001      2000      1999      1998
                                                     -------------------------------------------------
<S>                                                  <C>        <C>       <C>       <C>       <C>
Average loans . . . . . . . . . . . . . . . . . . .  $366,571   378,867   405,101   449,689   435,422
Allowance for loan losses, beginning
  of the period. . . . . . . . . .  . . . . . . . .     7,348     6,583     7,017     6,194     5,637
Charge-offs for the period:
  Commercial/financial/agricultural . . . . . . . .     1,009       400     1,246       722     1,834
  Real estate construction loans. . . . . . . . . .       284        24         -         -         -
  Real estate mortgage loans. . . . . . . . . . . .     3,737       980     2,308     1,305       296
  Installment loans to individuals. . . . . . . . .       462       453       894     1,007       818
  Lease financings. . . . . . . . . . . . . . . . .        77       206         6     1,056       314
                                                     -------------------------------------------------
Total charge-offs . . . . . . . . . . . . . . . . .     5,569     2,063     4,454     4,090     3,262
                                                     -------------------------------------------------
Recoveries for the period:
  Commercial/financial/agricultural . . . . . . . .       107       102        86        46        77
  Real estate construction loans. . . . .   . . . .         2         -         -         -         -
  Real estate mortgage loans. . . . . . . . . . . .       316       134       964        60        52
  Installment loans to individuals. . . . . . . . .       100        34        93       149       165
  Lease financings. . . . . . . . . . . . . . . . .        35        70       109         2        50
                                                     -------------------------------------------------
     Total recoveries . . . . . . . . . . . . . . .       560       340     1,252       257       344
                                                     -------------------------------------------------

       Net charge-offs for the period . . . . . . .     5,009     1,723     3,202     3,833     2,918
Provision for loan losses . . . . . . . . . . . . .     4,549     2,488     3,597     4,656     3,475
Allowance related to assets purchased and sold. . .         -         -      (829)        -         -
                                                     -------------------------------------------------
Allowance for loan losses, end of period. . . . . .  $  6,888     7,348     6,583     7,017     6,194
                                                     =================================================
Ratio of allowance for loan losses to total
  loans outstanding . . . . . . . . . . . . . . . .      1.80%     1.95%     1.68%     1.65%     1.44%
Ratio of net charge-offs during the period to total
  average loans outstanding during the period . . .      1.37%     0.45%     0.79%     0.85%     0.67%
</TABLE>


ASSET  QUALITY

     At  December 31, 2002, non-performing assets totaled $11.1 million compared
to  $20.5  million  at  the end of 2001. The decrease in 2002 is attributed to a
combination  of Flag's comprehensive loan review program, its intense management
of  problem assets, and the larger than normal amount of net charge-offs for the
year.  At  December  31,  2002,  there were no commitments to advance additional
funds  on  any  loan  classified  "non-accrual."


                                       22
<PAGE>
TABLE  7  summarizes  the non-performing assets for each of the last five years.

<TABLE>
<CAPTION>

TABLE  7  -  RISK  ELEMENTS
(DOLLARS  IN  THOUSANDS)
                                                           DECEMBER  31,
                                           --------------------------------------------
                                             2002     2001     2000     1999     1998
                                           --------------------------------------------
<S>                                        <C>       <C>      <C>      <C>      <C>
LOANS ON NONACCRUAL . . . . . . . . . . .  $ 9,243   17,122    7,144   12,118    7,729
LOANS PAST DUE 90 DAYS AND STILL ACCRUING      122      594    4,701    2,775      813
OTHER REAL ESTATE OWNED . . . . . . . . .    1,718    2,831      992      939    2,251
                                           --------------------------------------------
TOTAL NON-PERFORMING ASSETS . . . . . . .  $11,083   20,547   12,837   15,832   10,793
                                           ============================================
TOTAL NON-PERFORMING LOANS AS A
  PERCENTAGE OF GROSS LOANS . . . . . . .     2.90%    5.57%    3.34%    3.78%    2.54%
                                           ============================================
</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, 2002. At December 31,
2002,  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 Bank's
or  Flag's  liquidity,  capital  resources,  or  operations.

DEPOSITS  AND  BORROWINGS

     Total  deposits increased approximately $69.1 million during 2002, totaling
$509.7  million  at December 31, 2002 compared to $440.6 million at December 31,
2001.  The  increase  in  Flag's  deposit  base  in  2002 is attributable to the
acquisition  of  the  six  banking  offices  with  approximately $100 million in
deposits  in north metropolitan Atlanta in the fourth quarter with approximately
$96  million  in  deposits.

     The  maturities  of time deposits of $100,000 or more issued by the Bank at
December  31,  2002,  are  summarized  inTABLE  8.

<TABLE>
<CAPTION>

TABLE  8  -  MATURITIES  OF  TIME  DEPOSITS  OVER  $100,000
(DOLLARS  IN  THOUSANDS)

<S>                                      <C>
  THREE MONTHS OR LESS. . . . . . . . .  $ 34,566
  OVER THREE MONTHS THROUGH SIX MONTHS.    23,569
  OVER SIX MONTHS THROUGH TWELVE MONTHS    31,137
  OVER TWELVE MONTHS. . . . . . . . . .    12,956
                                         --------
                                         $102,228
                                         ========
</TABLE>

     At  December  31, 2002, the Bank was a shareholder in the Federal Home Loan
Bank  of  Atlanta  ("FHLB").  Through  this affiliation, advances totaling $58.0
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.

     During  2002, Flag repaid $8.4 million in fixed rate advances from the FHLB
prior  to  their original maturity date, incurring a prepayment penalty totaling
approximately  $266,000.  In  2001,  Flag  repaid  approximately  $26 million in
advances  with  prepayment  penalties totaling approximately $1.1 million. These
advances were repaid in both years due to a falling interest rate environment in
which  Flag  could  obtain  new  borrowings  at  significantly  lower  rates.


                                       23
<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,  2002 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,  2002,  the liabilities subject to rate changes within one year exceeded our
assets  subject  to  rate  changes  within  one  year. This mismatched condition
suggests  that  an  increasing  rate  environment would be detrimental to Flag's
margin.  However,  interest bearing liabilities are not as sensitive to changing
rates  as  are  Flag's  assets,  so  management  believes a rising interest rate
scenario  would  not  result  in  a decrease in net interest income.  Management
assumptions  and  theories  regarding the interest rate risk are the products of
systems  that  project net interest income under various scenarios and considers
the sensitivity of individual components of the balance sheet.  This approach is
believed  to  produce  more accurate results than the approach summarized in the
following  table.

     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 by Flag's
executive  committee  and presented at least annually to the Board of Directors.

     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 113% in 2002,
115%  in  2001  and  116%  in  2000.


                                       24
<PAGE>
<TABLE>
<CAPTION>
TABLE  9  -  INTEREST  RATE  SENSITIVITY  ANALYSIS
(DOLLARS  IN  THOUSANDS)
                                                               DECEMBER 31, 2002
                                                             MATURING OR REPRICING IN
                                          ----------------------------------------------------------
                                                      OVER 1 YEAR   OVER 3 YEARS
                                           ONE YEAR     THROUGH        THROUGH       OVER
                                           OR LESS      3 YEARS        5 YEARS      5YEARS    TOTAL
                                          ----------------------------------------------------------
<S>                                       <C>         <C>           <C>            <C>       <C>
INTEREST-EARNING ASSETS:
 ADJUSTABLE RATE MORTGAGES . . . . . . .  $ 127,982         4,949              -         -   132,931
 FIXED RATE MORTGAGES. . . . . . . . . .     26,356        41,977         18,085    20,833   107,251
 OTHER LOANS . . . . . . . . . . . . . .    109,109        13,439         12,371    19,177   154,096
 INVESTMENT SECURITIES . . . . . . . . .     47,089        25,981         11,263    61,316   145,649
 INTEREST-BEARING DEPOSITS
   IN OTHER BANKS AND FEDERAL FUNDS SOLD     36,715             -              -         -    36,715
                                          ----------------------------------------------------------
     TOTAL INTEREST-EARNING ASSETS . . .    347,251        86,346         41,719   101,326   576,642
                                          ----------------------------------------------------------
INTEREST-BEARING LIABILITIES:
 FIXED MATURITY DEPOSITS . . . . . . . .    216,441        43,056         14,290       548   274,335
 NOW AND MONEY MARKET DEMAND
    ACCOUNTS . . . . . . . . . . . . . .    170,857             -              -         -   170,857
PASSBOOK ACCOUNTS. . . . . . . . . . . .     24,500             -              -         -    24,500
FHLB ADVANCES. . . . . . . . . . . . . .      5,000             -         53,000         -    58,000
                                          ----------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES . . .    416,798        43,056         67,290       548   527,692
                                          ----------------------------------------------------------
INTEREST RATE SENSITIVITY GAP. . . . . .    (69,547)       43,290        (25,571)  100,778    48,950
CUMULATIVE INTEREST RATE SENSITIVITY GAP  $ (69,547)      (26,257)       (51,828)   48,950
CUMULATIVE INTEREST RATE SENSITIVITY GAP
      TO TOTAL ASSETS. . . . . . . . . .     (10.9%)        (4.1%)         (8.1%)      7.7%
</TABLE>


          TABLE  10  represents  the expected maturity of investment securities
by  maturity  date  and  average  yields based on amortized cost at December 31,
2002.  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>
<CAPTION>
TABLE  10  -  EXPECTED  MATURITY  OF  INVESTMENT  SECURITIES  AVAILABLE-FOR-SALE
(DOLLARS  IN  THOUSANDS)

                                                              AFTER ONE BUT       AFTER FIVE BUT
                                         WITHIN ONE YEAR    WITHIN FIVE YEARS    WITHIN TEN YEARS    AFTER TEN YEARS     TOTAL
                                      -------------------  -------------------  ------------------  ------------------  --------
                                       AMOUNT     YIELD    AMOUNT     YIELD     AMOUNT     YIELD    AMOUNT     YIELD
                                      --------  ---------  -------  ----------  -------  ---------  -------  ---------  --------
<S>                                   <C>       <C>        <C>      <C>         <C>      <C>        <C>      <C>        <C>
U.S. TREASURY AND AGENCIES . . . . .  $    500      6.20%  $22,565       5.45%  $     -         -   $     -         -   $ 23,065
STATE, COUNTY AND MUNICIPALS . . . .       400      4.36%    3,612       3.80%    1,146      4.69%    4,432      4.42%     9,590
CORPORATE DEBT SECURITIES. . . . . .         -         -     2,024       6.63%        -         -         -         -      2,024
EQUITY SECURITIES. . . . . . . . . .         -         -         -          -         -         -       416         -        416
MORTGAGE-BACKED SECURITIES . . . . .       108      6.46%   29,122       3.92%   30,992      4.67%   25,068      6.33%    85,290
TRUST PREFERRED SECURITIES . . . . .         -         -       500       6.50%        -         -    14,866      9.34%    15,366
                                      --------  ---------  -------  ----------  -------  ---------  -------  ---------  --------
                                      $  1,008      5.50%  $57,823       4.63%  $32.138      4.67%  $44,782      7.08%  $135,751
                                      ========  =========  =======  ==========  =======  =========  =======  =========  ========
</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  Bank's  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


                                       25
<PAGE>
          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 $12.6 million at December 31, 2002, 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  $77.5 million, or 19.7% of the total loan
portfolio  at  December  31, 2002.  Other short-term investments such as federal
funds  sold  are  additional  sources  of  liquidity.

          The  liability section of the balance sheet provides liquidity through
depositors' interest bearing and non-interest bearing deposit accounts.  Federal
funds  purchased,  FHLB  advances,  other  borrowings  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 used by operating activities
was  $6.8  million  during 2002.  The major uses of cash by operating activities
were the changes in mortgage loans held for sale and the changes in other assets
and  liabilities.  Net  cash  provided  by investing activities of $48.5 million
consisted  primarily of funds acquired in the acquisition of the six north-metro
Atlanta  branch  offices  and  proceeds  from sales and maturities of investment
securities,  offset  by net changes in loans, interest bearing deposits in other
banks  and  purchases  of  investment  securities.  Net  cash  used by financing
activities was $23.5 million, and consisted mostly of the net change in deposits
and  the  increase  in  amounts  due  to  the  FHLB.

          In  the  opinion  of management, Flag's liquidity position at December
31,  2002  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, 2002 increased 12.5% to $60.7
million  from  $54.0 million at December 31, 2001.  This increase is largely due
to  the  1,300,000 share private placement approved by Flag's Board of Directors
during  the  first quarter of 2002.  During 2002, 1,272,000 shares and 1,272,000
warrants  had  been  sold  for  $11.7  million  to  the  Company's management or
employees.

     Flag  continued its stock repurchase program during 2002.  Flag repurchased
338,960  shares  of its common stock in 2002, 755,257 shares of its common stock
in  2001  and  145,244  shares  of  its  common  stock  in  2000.

     The  Federal  Deposit  Insurance  Corporation  Improvement  Act  ("FDICIA")
requires 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  12  to the Consolidated
Financial  Statements  presents  a summary of FDICIA's capital tiers compared to
Flag's  and the Bank's actual capital levels. The Bank exceeded all requirements
of  a  "well-capitalized"  institution  at  December  31,  2002.


                                       26
<PAGE>
<TABLE>
<CAPTION>

TABLE  11  -  EQUITY  RATIOS

                                     YEARS ENDED DECEMBER 31,
                                  -------------------------------
                                    2002        2001       2000
                                  ---------  ----------  --------
<S>                               <C>        <C>         <C>
RETURN ON AVERAGE ASSETS . . . .    (0.36%)        .72%      .77%
RETURN ON AVERAGE EQUITY . . . .    (3.39%)       7.12%     7.95%
DIVIDEND PAYOUT RATIO. . . . . .      N/A        46.27%    45.98%
AVERAGE EQUITY TO AVERAGE ASSETS     10.49%      10.04%     9.51%
</TABLE>


     Provision  for  Income  Taxes

          The  benefit  for income taxes was $2.0 million in 2002, compared to a
provision  for income taxes of $1.8 million in 2001 and of $1.4 million in 2000.
The effective tax rate in 2002 was higher than the Federal statutory rate of 34%
due  to  interest  income on tax exempt securities and general business credits.
Also,  during  2002  the  amount  of loss before income taxes was lower than the
earnings  before income taxes in prior years.  The effect of tax exempt interest
income  and  general  business  credits  is  greater in years that income (loss)
before  taxes  is  lower.  The  tax  rates  for 2001 and 2000 are lower than the
statutory  Federal  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.

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

     Accounting  standards  that  have  been issued or proposed by the Financial
Accounting  Standards  Board  and  other  standard  setting entities that do not
require  adoption until a future date are not expected to have a material impact
on  Flag's  consolidated  financial  statements  upon  adoption.


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
senior  management  and  Board  of  Directors.  The  Company's senior management
implements  asset/liability  management  policies,  develops  and  implements
strategies  to  improve  balance  sheet  positioning and net interest income and
regularly  assesses  the  interest  rate  sensitivity  of  the  Bank.

     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
        -----------------       ---------------       -----------------
               300                    20%                    20%
               200                    20%                    20%
               100                    20%                    20%

As  of  December  31,  2002, the Company was in compliance with its ALCO policy.


                                       27
<PAGE>
ITEM  8.     FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA

     The  following  financial  statements  are  included  herein:

     Report  of  Independent  Certified  Public  Accountants
     Consolidated  Balance  Sheets  as  of  December  31,  2002  and  2001
     Consolidated  Statements  of  Operations  for  the years ended December 31,
       2002,  2001  and  2000
     Consolidated  Statements of Comprehensive Income (Loss) for the years ended
       December  31,  2002,  2001  and  2000
     Consolidated  Statements  of  Changes in Stockholders' Equity for the years
       ended  December  31,  2002,  2001  and  2000
     Consolidated  Statements  of  Cash  Flows  for the years ended December 31,
       2002,  2001  and  2000
     Notes  to  Consolidated  Financial  Statements


                                       28
<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




To  the  Board  of  Directors
Flag  Financial  Corporation
Atlanta,  Georgia


We  have  audited the accompanying consolidated balance sheets of Flag Financial
Corporation  and  subsidiary  as  of December 31, 2002 and 2001, and the related
statements  of operations, comprehensive income, changes in stockholders' equity
and  cash  flows  for  each  of the three years in the period ended December 31,
2002.  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 conducted our audits in accordance with auditing standards generally accepted
in  the  United  States  of  America.  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, the consolidated financial statements referred to above present
fairly,  in  all  material  respects,  the  financial position of Flag Financial
Corporation  and subsidiary as of December 31, 2002 and 2001, and the results of
their  operations and their cash flows for each of the three years in the period
ended  December  31,  2002,  in  conformity with accounting principles generally
accepted  in  the  United  States  of  America.



/s/  Porter  Keadle  Moore,  LLP



Atlanta,  Georgia
January  24,  2003


                                       29
<PAGE>
<TABLE>
<CAPTION>

                                        FLAG FINANCIAL CORPORATION

                                       CONSOLIDATED BALANCE SHEETS

                                        DECEMBER 31, 2002 AND 2001

                                                  ASSETS
                                                  ------


                                                                                        2002       2001
                                                                                      ---------  --------
                                                                                        (In Thousands)
<S>                                                                                   <C>        <C>
Cash and due from banks, including reserve requirements
 of $730 and $9,362                                                                   $ 14,006    20,078
Interest-bearing deposits in banks                                                       6,000         -
Federal funds sold                                                                      18,304         -
                                                                                      ---------  --------
     Cash and cash equivalents                                                          38,310    20,078
Interest-bearing deposits                                                               12,412       160
Investment securities available-for-sale                                               138,854   131,526
Other investments                                                                        6,795     5,835
Mortgage loans held-for-sale                                                            12,606     6,454
Loans, net                                                                             374,784   368,967
Premises and equipment, net                                                             21,063    13,944
Other assets                                                                            31,307    23,238
                                                                                      ---------  --------
                                                                                      $636,131   570,202
                                                                                      =========  ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

Deposits:
 Demand                                                                               $ 40,039    48,554
 Interest-bearing demand                                                               170,857   119,986
 Savings                                                                                24,500    24,249
 Time                                                                                  172,107   162,570
 Time, over $100,000                                                                   102,228    85,223
                                                                                      ---------  --------
     Total deposits                                                                    509,731   440,582

Federal funds purchased and repurchase agreements                                            -    18,001
Advances from Federal Home Loan Bank                                                    58,000    39,448
Other borrowings                                                                             -     5,000
Other liabilities                                                                        7,651    13,148
                                                                                      ---------  --------
     Total liabilities                                                                 575,382   516,179
                                                                                      ---------  --------

Stockholders' equity:
 Preferred stock (10,000,000 shares authorized; none issued and outstanding)                 -         -
 Common stock ($1 par value, 20,000,000 shares authorized, 9,638,501 and
   8,277,995 shares issued in 2002 and 2001, respectively)                               9,639     8,278
 Additional paid-in capital                                                             23,463    11,355
 Retained earnings                                                                      35,225    39,223
 Accumulated other comprehensive income                                                  1,999     1,612
 Less: treasury stock, at cost; 1,246,961 shares in 2002 and 908,001 shares in 2001     (9,577)   (6,445)
                                                                                      ---------  --------
     Total stockholders' equity                                                         60,749    54,023
                                                                                      ---------  --------
                                                                                      $636,131   570,202
                                                                                      =========  ========

<FN>
See  accompanying  notes  to  consolidated  financial  statements.
</TABLE>


                                       30
<PAGE>
<TABLE>
<CAPTION>
                                              FLAG FINANCIAL CORPORATION

                                        CONSOLIDATED STATEMENTS OF OPERATIONS

                                 FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000


                                                                                     2002           2001       2000
                                                                                ---------------  -----------  -------
                                                                                 (In Thousands Except Per Share Data)
<S>                                                                             <C>              <C>          <C>

Interest income:
 Interest and fees on loans                                                     $       29,424       36,566   39,815
 Interest on investment securities                                                       6,989        7,375    6,005
 Interest-bearing deposits and federal funds sold                                          261          594      572
                                                                                ---------------  -----------  -------
     Total interest income                                                              36,674       44,535   46,392
                                                                                ---------------  -----------  -------
Interest expense:
 Deposits                                                                               11,264       18,246   19,000
 Borrowings                                                                              1,108        2,309    2,431
                                                                                ---------------  -----------  -------
     Total interest expense                                                             12,372       20,555   21,431
                                                                                ---------------  -----------  -------
     Net interest income before provision for loan losses                               24,302       23,980   24,961
Provision for loan losses                                                                4,549        2,488    3,597
                                                                                ---------------  -----------  -------
     Net interest income after provision for loan losses                                19,753       21,492   21,364
                                                                                ---------------  -----------  -------
Other income:
 Service charges on deposit accounts                                                     3,508        3,891    3,549
 Gain (loss) on sales of investment securities                                            (341)           -     (263)
 Mortgage banking activities                                                             2,902        2,399    1,653
 Gain on sale of branches                                                                    -        3,285    5,080
 Other                                                                                   1,326        1,093    1,943
                                                                                ---------------  -----------  -------
     Total other income                                                                  7,395       10,668   11,962
                                                                                ---------------  -----------  -------
Other expenses:
 Salaries and employee benefits                                                         18,611       13,946   14,374
 Professional fees                                                                       1,796        1,211    1,663
 Postage, printing and supplies                                                          1,019          898      991
 Communications                                                                          1,840        1,702    1,382
 Occupancy                                                                               3,589        3,764    4,273
 Other operating                                                                         4,150        4,180    4,950
                                                                                ---------------  -----------  -------
     Total other expenses                                                               31,005       25,701   27,633
                                                                                ---------------  -----------  -------
     Earnings (loss) before provision for income taxes and extraordinary item           (3,857)       6,459    5,693
Provision (benefit)  for income taxes                                                   (2,028)       1,753    1,409
                                                                                ---------------  -----------  -------
     Earnings (loss) before extraordinary item                                          (1,829)       4,706    4,284
Extraordinary item - loss on redemption of debt,
 net of income tax benefit of $101 in 2002 and $427 in 2001                                165          696        -
                                                                                ---------------  -----------  -------
     Net earnings (loss)                                                        $       (1,994)       4,010    4,284
                                                                                ===============  ===========  =======

Basic and diluted earnings (loss) per share:
    Earnings (loss) before extraordinary item                                   $         (.22)         .60      .52
    Extraordinary item                                                                    (.02)        (.09)       -
                                                                                ---------------  -----------  -------
     Net earnings (loss)                                                        $         (.24)         .51      .52
                                                                                ===============  ===========  =======

<FN>
See  accompanying  notes  to  consolidated  financial  statements.
</TABLE>


                                       31
<PAGE>
<TABLE>
<CAPTION>
                                 FLAG FINANCIAL CORPORATION

                   CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

                    FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000


                                                                       2002     2001   2000
                                                                     -----------------------
                                                                         (In Thousands)
<S>                                                                  <C>       <C>     <C>

Net earnings (loss)                                                  $(1,994)  4,010   4,284
                                                                     --------  ------  -----

Other comprehensive income, net of tax:
 Unrealized gains on investment securities
   available-for-sale:
     Unrealized gains arising during the period,
       net of tax of $291, $1,169, and $177, respectively                475   1,907     288
     Reclassification adjustment for losses included
       in net earnings (loss), net of tax of $130 in 2002 and $100
       in 2000                                                           211       -     163

 Unrealized gain (loss) on cash flow hedges, net of tax of $183 in
   2002, $18 in 2001 and $247 in 2000                                   (299)    (29)    403
                                                                     --------  ------  -----

Other comprehensive income                                               387   1,878     854
                                                                     --------  ------  -----

Comprehensive income (loss)                                          $(1,607)  5,888   5,138
                                                                     ========  ======  =====

<FN>
See  accompanying  notes  to  consolidated  financial  statements.
</TABLE>


                                       32
<PAGE>
<TABLE>
<CAPTION>
                                        FLAG FINANCIAL CORPORATION

                        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                           FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000


                                                                         Accumulated
                                Common Stock     Additional                 Other
                             ------------------   Paid-in    Retained   Comprehensive   Treasury
                              Shares    Amount    Capital    Earnings   Income (Loss)     Stock     Total
                             ---------  -------  ----------  ---------  --------------  ---------  -------
                                                (In Thousands Except Share Data)
<S>                          <C>        <C>      <C>         <C>        <C>             <C>        <C>
Balance, December 31, 1999   8,272,815  $ 8,273      11,342     34,754         (1,120)       (52)   53,197

Purchase of treasury stock           -        -           -         -               -       (876)    (876)

Exercise of stock options        2,590        2           6         -               -          -        8

Change in accumulated other
 comprehensive income                -        -           -         -             854          -      854

Net earnings                         -        -           -     4,284               -          -    4,284

Dividends declared                   -        -           -    (1,969)              -          -   (1,969)
                             ---------  -------  ----------  ---------  --------------  ---------  -------

Balance, December 31, 2000   8,275,405    8,275      11,348    37,069            (266)      (928)  55,498

Purchase of treasury stock           -        -           -         -               -     (5,517)  (5,517)

Exercise of stock options        2,590        3           7         -               -          -       10

Change in accumulated other
 comprehensive income                -        -           -         -           1,878          -    1,878

Net earnings                         -        -           -     4,010               -          -    4,010

Dividends declared                   -        -           -    (1,856)              -          -   (1,856)
                             ---------  -------  ----------  ---------  --------------  ---------  -------

Balance, December 31, 2001   8,277,995    8,278      11,355    39,223           1,612     (6,445)  54,023

Sale of common stock         1,272,000    1,272      10,435         -               -              11,707

Sale of warrants                     -        -       1,236         -               -          -    1,236

Purchase of treasury stock           -        -           -         -               -     (3,132)  (3,132)

Exercise of stock options       88,506       89         437         -               -          -      526

Change in accumulated other
 comprehensive income                -        -           -         -             387          -      387

Net loss                             -        -           -    (1,994)              -          -   (1,994)

Dividends declared                   -        -           -    (2,004)              -          -   (2,004)
                             ---------  -------  ----------  ---------  --------------  ---------  -------

Balance, December 31, 2002   9,638,501  $ 9,639      23,463    35,225           1,999     (9,577)  60,749
                             =========  =======  ==========  =========  ==============  =========  =======

<FN>
See  accompanying  notes  to  consolidated  financial  statements.
</TABLE>


                                       33
<PAGE>
<TABLE>
<CAPTION>
                                              FLAG FINANCIAL CORPORATION

                                         CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000


                                                                                           2002       2001      2000
                                                                                         ---------  --------  --------
                                                                                                 (In Thousands)
<S>                                                                                      <C>        <C>       <C>
Cash flows from operating activities:
 Net earnings (loss)                                                                     $ (1,994)    4,010     4,284
 Adjustments to reconcile net earnings to net cash provided (used)
 by operating activities:
   Depreciation, amortization and accretion                                                 2,265     2,706     2,615
   Provision for loan losses                                                                4,549     2,488     3,597
   Deferred tax benefit                                                                    (1,947)   (1,159)     (219)
   Gain on sale of branches                                                                     -    (3,285)   (5,080)
   Loss on sales of securities                                                                341         -       263
   Loss (gain) on other real estate                                                          (128)        -       146
   Loss on disposal of premises and equipment                                                 912         -         -
   Change in:
     Mortgage loans held-for-sale                                                          (6,152)   (2,333)     (637)
     Other assets and liabilities                                                          (4,634)    5,862     1,554
                                                                                         ---------  --------  --------
         Net cash provided (used) by operating activities                                  (6,788)    8,289     6,523
                                                                                         ---------  --------  --------
Cash flows from investing activities (net of effect of branch sales and acquisitions):
 Net change in  interest-bearing deposits                                                 (12,252)    3,291      (660)
 Proceeds from sales and maturities of securities available-for-sale                       74,196    41,496    23,552
 Proceeds from sale of other investments                                                      154         -     1,081
 Purchases of other investments                                                            (1,114)     (474)      (28)
 Purchases of securities available-for-sale                                               (80,471)  (69,142)  (34,572)
 Net change in loans                                                                      (12,738)   (2,953)   (8,061)
 Proceeds from sales of real estate                                                                   1,194     1,903
 Purchases of premises and equipment                                                       (2,061)   (1,609)     (590)
 Cash acquired in branch acquisition, net of premium paid                                  84,167         -    48,790
 Cash paid in branch sale                                                                       -   (18,749)   (6,676)
 Cash paid in business acquisition                                                         (1,405)        -         -
                                                                                         ---------  --------  --------
         Net cash provided (used) by investing activities                                  48,476   (46,946)   24,739
                                                                                         ---------  --------  --------
Cash flows from financing activities (net of effect of branch sales and acquisitions):
 Net change in deposits                                                                   (27,400)   15,956   (24,920)
 Change in federal funds purchased and repurchase agreements                              (18,001)   17,340   (15,011)
 Change in other borrowings                                                                (5,000)    3,500     1,500
 Proceeds from FHLB advances                                                               53,000    40,000    21,000
 Payments of FHLB advances                                                                (34,448)  (32,525)  (16,200)
 Proceeds from exercise of stock options                                                      526        10         8
 Purchase of treasury stock                                                                (3,132)   (5,517)     (876)
 Proceeds from issuance of common stock                                                    11,707         -         -
 Proceeds from issuance of warrants                                                         1,236         -         -
 Cash dividends paid                                                                       (1,944)   (1,902)   (1,974)
                                                                                         ---------  --------  --------
         Net cash provided (used) by financing activities                                 (23,456)   36,862   (36,473)
                                                                                         ---------  --------  --------
Net change in cash and cash equivalents                                                    18,232    (1,795)   (5,211)
Cash and cash equivalents at beginning of year                                             20,078    21,873    27,084
                                                                                         ---------  --------  --------
Cash and cash equivalents at end of year                                                 $ 38,310    20,078    21,873
                                                                                         =========  ========  ========
</TABLE>


                                       34
<PAGE>
<TABLE>
<CAPTION>
                                       FLAG FINANCIAL CORPORATION

                            CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

                          FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



                                                                               2002     2001     2000
                                                                              -------  -------  -------
                                                                                  (In Thousands)
<S>                                                                           <C>      <C>      <C>
Supplemental disclosures of cash flow information:
 Cash paid during the year for:
   Interest                                                                   $12,814  20,820   20,382
   Income taxes                                                               $     -   1,910    1,442

Supplemental schedule of noncash investing and financing activities:
 Real estate acquired through foreclosure                                     $ 2,372   1,627    2,928
 Change in unrealized gain/loss on securities available-for-sale, net of tax  $   480   1,907      451
 Increase (decrease) in dividends payable                                     $    60     (46)      (5)
 Deposit liabilities assumed in branch acquisition                            $96,549       -   76,288
 Assets acquired in branch acquisition, other than cash
     and cash equivalents                                                     $ 8,221       -   22,191
 Assets disposed of in branch sale                                            $     -  14,858   62,212

<FN>
See  accompanying  notes  to  consolidated  financial  statements.
</TABLE>


                                       35
<PAGE>
                           FLAG FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES
     Basis  of  Presentation
     -----------------------
     The  consolidated  financial  statements  include  the  accounts  of  Flag
     Financial  Corporation  ("Flag") and its wholly-owned subsidiary, Flag Bank
     (the  "Bank").  All significant intercompany accounts and transactions have
     been  eliminated in consolidation. Flag is a bank holding company formed in
     1994 whose business is conducted by the Bank. Flag is subject to regulation
     under the Bank Holding Company Act of 1956. The Bank is primarily regulated
     by  the  Georgia  Department of Banking and Finance ("DBF") and the Federal
     Deposit  Insurance  Corporation ("FDIC"). The Bank provides a full range of
     commercial,  mortgage and consumer banking services in West-Central, Middle
     and  South  Georgia  and  metropolitan  Atlanta,  Georgia.

     The  accounting  principles  followed  by  Flag and its subsidiary, and the
     methods  of  applying  these principles, conform with accounting principles
     generally  accepted  in  the  United  States  of  America ("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, interest-bearing demand
     deposits  with  banks  and federal funds sold. Generally, federal funds are
     sold  for  one-day periods. As of December 31, 2002, the Company maintained
     cash balances with financial institutions totaling $5,500,000 that exceeded
     federal  deposit  insurance  limits.

     Investment  Securities
     ----------------------
     Flag  classifies  its  securities  in  one  of  three  categories: trading,
     available-for-sale,  or held-to-maturity. 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. As of December 31, 2002 and 2001, all of
     Flag's  investment  securities  were  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.


                                       36
<PAGE>
                           FLAG FINANCIAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(1)  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES,  CONTINUED
     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.  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.

     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.
     Flag  has  recorded  no  valuation  allowance related to its mortgage loans
     held-for-sale  as  their  cost  approximates market value. Gains and losses
     from  the  sale  of  loans are determined using the specific identification
     method.

     Loans  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.

     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.

     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.


                                       37
<PAGE>
                           FLAG FINANCIAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(1)  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES,  CONTINUED
     Premises  and  Equipment,  continued
     ------------------------------------
     Depreciation  expense  is  computed using the straight-line method over the
     following  estimated  useful  lives:

<TABLE>
<CAPTION>
<S>                                   <C>
     Buildings and improvements       15-40 years
     Furniture and equipment          3-10 years
</TABLE>

     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 ability to realize 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 9. Such a deferred tax liability
     will  only  be  recognized  when  it  becomes apparent that those temporary
     differences  will  reverse  in  the  foreseeable  future.

     Stock-Based  Compensation
     -------------------------
     At  December  31, 2002, Flag sponsors stock-based compensation plans, which
     are  described  more  fully in Note 11. Flag accounts for these plans under
     the  recognition  and  measurement  principles  of  APB  Opinion  No.  25,
     "Accounting for Stock Issued to Employees", and related Interpretations. No
     stock-based  employee  compensation cost is reflected in net income, as all
     options granted under those plans had an exercise price equal to the market
     value  of  the  underlying common stock on the date of grant. The following
     table illustrates the effect on net earnings (loss) and earnings (loss) per
     share  if  Flag  had  applied  the  fair  value  recognition  provisions of
     Statement  of  Financing Accounting Standards ("SFAS") No. 123, "Accounting
     for  Stock-Based  Compensation",  to  stock-based employee compensation (in
     thousands,  except  per  share  amounts).

<TABLE>
<CAPTION>
                                                            Year Ended December 31
                                                          2002       2001       2000
                                                        ---------  ---------  --------
<S>                                                     <C>        <C>        <C>
     Net earnings (loss) as reported                    $ (1,994)     4,010     4,284

     Deduct: Total stock-based employee compensation
       expense determined under fair-value based method
       for all awards, net of tax                         (1,839)      (880)     (873)
                                                        ---------  ---------  --------

     Pro forma net earnings (loss)                      $ (3,833)     3,130     3,411
                                                        =========  =========  ========

     Basic and diluted earnings (loss) per share:

       As reported                                      $   (.24)       .51       .52
                                                        =========  =========  ========

       Pro forma                                        $   (.47)       .40       .42
                                                        =========  =========  ========
</TABLE>


                                       38
<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 operations. Basic 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". Antidilutive stock options and
     warrants  have  not  been  included  in  the  diluted  earnings  per  share
     calculations.  Antidilutive  stock  options and warrants totaled 2,152,427,
     603,624,  and 896,198 as of December 31, 2002, 2001 and 2000, respectively.
     For 2002, the potential effect of outstanding options and warrants would be
     antidilutive,  and  therefore  is  not presented. Earnings per common share
     amounts  for  the years ended December 31, 2001 and 2000 are as follows (in
     thousands,  except  share  and  per  share  amounts):

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 2001
                                                Net Earnings   Common Share   Per Share
                                                (Numerator)    (Denominator)    Amount
                                               --------------  -------------  ----------
<S>                                            <C>             <C>            <C>
Basic earnings per share                       $        4,010      7,808,001  $      .51
Effect of dilutive securities - stock options               -         35,695           -
                                               --------------  -------------  ----------
Diluted earnings per share                     $        4,010      7,843,696  $      .51
                                               ==============  =============  ==========

FOR THE YEAR ENDED DECEMBER 31, 2000
                                               Net Earnings    Common Share   Per Share
                                                (Numerator)    (Denominator)    Amount
                                               --------------  -------------  ----------
Basic earnings per share                       $        4,284      8,210,485  $      .52
Effect of dilutive securities - stock options               -         15,521           -
                                               --------------  -------------  ----------
Diluted earnings per share                     $        4,284      8,226,006  $      .52
                                               ==============  =============  ==========
</TABLE>


     Derivative  Instruments  and  Hedging  Activities
     -------------------------------------------------
     Flag  recognizes  the fair value of derivatives as assets or liabilities in
     the  financial statements. The accounting for the changes in the fair value
     of a derivative depends on the intended use of the derivative instrument at
     inception.  The  change  in  fair  value  of instruments used as fair value
     hedges  is  accounted  for  in  the  income of the period simultaneous with
     accounting  for  the fair value change of the item being hedged. The change
     in fair value of the effective portion of cash flow hedges is accounted for
     in comprehensive income rather than income, and the change in fair value of
     foreign currency hedges is accounted for in comprehensive income as part of
     the  translation  adjustment.  The  change  in  fair  value  of  derivative
     instruments that are not intended as a hedge is accounted for in the income
     of  the  period  of  the  change.

     Accumulated  Other  Comprehensive  Income
     -----------------------------------------
     At  December  31,  2002  and  2001,  accumulated other comprehensive income
     consisted  of  net  unrealized  gains  on  investment  securities
     available-for-sale  of  $1,924,000  and  $1,239,000,  respectively; and net
     gains  on  derivatives  of  $75,000  and  $374,000,  respectively.

                                       39
<PAGE>
                                     ------
                           FLAG FINANCIAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(1)  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES,  CONTINUED
     Goodwill  and  Intangible  Assets
     ---------------------------------
     Effective  January  1,  2002,  Flag  adopted  SFAS  No.  141,  "Business
     Combinations",  SFAS  No.  142,  "Goodwill and Other Intangible Assets" and
     SFAS  No.  147,  "Acquisitions of Certain Financial Institutions". SFAS No.
     141  requires  all business combinations completed after its adoption to be
     accounted  for  under  the  purchase  method  of accounting and establishes
     specific  criteria for the recognition of intangible assets separately from
     goodwill. SFAS No. 142 addresses the accounting for goodwill and intangible
     assets  subsequent  to their initial recognition. Upon adoption of SFAS No.
     142,  goodwill  and  some intangible assets will no longer be amortized and
     will be tested for impairment at least annually. SFAS No. 147 requires that
     the  acquisition of all or a part of a financial institution that meets the
     definition  of  a business combination shall be accounted for in accordance
     with  SFAS  No.  141.

     Reclassifications
     -----------------
     Certain  reclassifications  have  been  made to the 2001 and 2000 financial
     statements  to  conform  with  classifications  for  2002.

(2)  BUSINESS  COMBINATIONS
     Branch  Purchases
     -----------------
     On November 8, 2002, Flag acquired the Atlanta banking facilities of Encore
     Bank  ("Encore  Branches") for a total purchase price of $12,905,000, which
     was all paid in cash. The results of the Encore Branches have been included
     in  the  consolidated  financial  statements  since  that  date. The Encore
     Branches  provide  an  excellent  platform  for  Flag to continue the metro
     Atlanta  expansion  strategy.

     The  following  table  summarizes  the  estimated fair values of the assets
     acquired  and  the  liabilities  assumed  at  the  date  of acquisition (in
     thousands):

<TABLE>
<CAPTION>
<S>                                       <C>
          Cash                            $  96,767
          Premises and equipment              8,059
          Deposit intangible                    900
          Goodwill                            5,214
                                           --------
               Total assets acquired        110,940
                                           --------

          Deposits                           97,817
          Accrued interest payable              218
                                           --------
               Total liabilities assumed     98,035
                                           --------
               Net assets acquired        $  12,905
                                          =========
</TABLE>

     The  deposit  intangible  is  subject  to  amortization  and  has  a
     weighted-average  useful  life  of  approximately  ten  years. The goodwill
     recorded  is  expected  to  be  fully  deductible  for  tax  purposes.

     Other  Acquisitions  and  Dispositions
     --------------------------------------
     On  November  12,  2002,  Flag  acquired the assets and the lending line of
     business  of  Bankers Capital Group, LLC ("BCG"). BCG is a company owned by
     certain  members  of  management  of  Flag  who  purchased common stock and
     warrants  during  2002 as described in note 10. The results of this line of
     business  have been included in the consolidated financial statements since
     the  date  of  acquisition.  BCG  is a commercial loan origination company,
     specializing  in higher-yielding, non-traditional financing. As a result of
     the  acquisition,  Flag expects this line of business to become a source of
     high-yielding  assets.

     The aggregate purchase price paid for BCG was $1,405,000 in cash, which was
     paid  at the time of closing, and $1,500,000, which is contingently payable
     based  on  the  future  performance  of  BCG.  If  paid,  the  contingent
     consideration  will increase the amount of goodwill recorded by Flag at the
     time  that  it  is  paid.


                                       40
<PAGE>
                           FLAG FINANCIAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(2)  BUSINESS  COMBINATIONS,  CONTINUED
     Other  Acquisitions  and  Dispositions,  continued
     --------------------------------------------------
     The  following  table  summarizes  the  estimated fair values of the assets
     acquired  at  the  date  of  acquisition  (amounts  in  thousands):

<TABLE>
<CAPTION>

<S>                               <C>
          Premises and equipment      $  130
          Goodwill                     1,275
                                      ------
               Total assets acquired  $1,405
                                      ======
</TABLE>

     The  goodwill recorded is expected to be fully deductible for tax purposes.

     During  2001, Flag sold the loans, deposits and property of its branches in
     McRae and Milan, Georgia and recognized a gain of approximately $3,285,000.

     During  2000,  Flag  sold  the  loans,  deposits,  and property of its bank
     branches  in Cobbtown, Metter and Statesboro, Georgia and recognized a gain
     on  sale  of  approximately $2,011,000. Flag also sold the loans, deposits,
     and  property  of its bank branches in Blackshear, Homerville and Waycross,
     Georgia  and  recognized  a  gain on sale of approximately $3,069,000. Also
     during  2000,  Flag  acquired  certain loans, deposits and property of bank
     branches  in  Montezuma, Oglethorpe, Cusseta and Buena Vista, Georgia for a
     net  purchase  price  of  approximately  $5,462,000.

     Intangible  Assets  and  Goodwill
     ---------------------------------
     As  a  result  of these business combinations, Flag has recorded intangible
     assets.  As  of  December  31,  2002,  Flag had recorded deposit intangible
     assets  that are subject to amortization totaling $900,000 with accumulated
     amortization  of  $15,000.  Flag  recognized  amortization  expense on this
     intangible  of  $15,000 during the year ended December 31, 2002 and expects
     amortization  expense  to  total  $90,000  per  year  through  2012.

     The  changes in the carrying amount of goodwill for the year ended December
     31,  2002,  are  as  follows:

<TABLE>
<CAPTION>
<S>                                               <C>
               Balance as of January 1, 2002      $ 7,904,342
               Goodwill acquired during the year    6,489,286
                                                  -----------
               Balance as of December 31, 2002    $14,393,628
                                                  ===========
</TABLE>

     The  majority of the goodwill recorded as of January 1, 2002, resulted from
     Flag's  adoption  of  SFAS No. 147 and this amount resulted from previously
     recognized  unidentified  intangible  assets reclassified as goodwill. Flag
     tests  its  goodwill  for  impairment on an annual basis using the expected
     present value of future cash flows. Flag initially applied SFAS No. 141 and
     142  on  January  1,  2002.  The  pro forma effect of the adoption of these
     statements  is  shown  in  the  table  below:

<TABLE>
<CAPTION>
                                                    2002     2001   2000
                                                  ---------  -----  -----
<S>                                               <C>        <C>    <C>
          Reported net earnings (loss)            $ (1,994)  4,010  4,284
          Add back goodwill amortization                 -     515    184
                                                  ---------  -----  -----
          Adjusted net earnings (loss)            $ (1,994)  4,525  4,468
                                                  =========  =====  =====

          Basic and diluted earnings per share:
          Reported net earnings (loss)            $   (.24)    .51    .52
          Goodwill amortization                          -     .07    .02
                                                  ---------  -----  -----

                                                  $   (.24)    .58    .54
                                                  =========  =====  =====
</TABLE>


                                       41
<PAGE>
                           FLAG FINANCIAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


(3)  INVESTMENT  SECURITIES
     Investment  securities available-for-sale at December 31, 2002 and 2001 are
     summarized  as  follows  (in  thousands):

<TABLE>
<CAPTION>
                                                   December 31, 2002
                                     ---------------------------------------------
                                                   Gross       Gross     Estimated
                                     Amortized   Unrealized  Unrealized    Fair
                                        Cost       Gains       Losses      Value
                                     ----------  ----------  ----------  ---------
<S>                                  <C>         <C>         <C>         <C>
U.S. Treasuries and agencies         $   23,065         512           -     23,577
State, county and municipals              9,590         383           1      9,972
Equity securities                           416          72          54        434
Mortgage-backed securities               85,290       1,497           3     86,784
Corporate debt securities                 2,024         177           -      2,201
Trust preferred securities               15,366         520           -     15,886
                                     ----------  ----------  ----------  ---------
                                     $  135,751       3,161          58    138,854
                                     ==========  ==========  ==========  =========

                                                   December 31, 2001
                                     ----------  ----------  ----------  ---------
                                                   Gross       Gross     Estimated
                                     Amortized   Unrealized  Unrealized    Fair
                                        Cost       Gains       Losses      Value
                                     ----------  ----------  ----------  ---------
U.S. Treasuries and agencies         $   25,263         596           -     25,859
State, county and municipals             10,470         206         104     10,572
Equity securities                           863         103         410        556
Mortgage-backed securities               76,534       1,001         117     77,418
Collateralized mortgage obligations       2,544         129           -      2,673
Trust preferred securities               13,855         593           -     14,448
                                     ----------  ----------  ----------  ---------
                                     $  129,529       2,628         631    131,526
                                     ==========  ==========  ==========  =========
</TABLE>


     The  amortized  cost  and  estimated  fair  value  of investment securities
     available-for-sale at December 31, 2002, 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>
                                                  Amortized   Estimated
                                                     Cost     Fair Value
                                                  ----------  ----------
<S>                                               <C>         <C>
     U.S. Treasuries and agencies, state, county
      and municipals and corporate debt:
        Within 1 year                             $      900         907
        1 to 5 years                                  28,201      29,057
        5 to 10 years                                  1,146       1,211
        More than 10 years                             4,432       4,575
        Equity securities                                416         434
        Mortgage-backed securities                    85,290      86,784
        Trust preferred securities                    15,366      15,886
                                                  ----------  ----------
                                                  $  135,751     138,854
                                                  ==========  ==========
</TABLE>


                                       42
<PAGE>
                           FLAG FINANCIAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(3)  INVESTMENT  SECURITIES,  CONTINUED
     Proceeds  from sales of securities available-for-sale during 2002, 2001 and
     2000  totaled  approximately  $17,723,000,  $306,000,and  $14,706,000,
     respectively.  Gross  gains  of  approximately  $72,000 and gross losses of
     approximately $413,000 were realized on those sales during 2002. No gain or
     loss was realized on those sales during 2001. Gross losses of approximately
     $263,000 were realized on those sales for the year ended December 31, 2000.

     Securities  and  interest-bearing  deposits  with  a  carrying  value  of
     approximately  $103,853,000  and $94,443,000 at December 31, 2002 and 2001,
     respectively,  were  pledged  to secure advances from FHLB, U.S. Government
     and  other  public  deposits.

(4)  LOANS
     Major classifications of loans at December 31, 2002 and 2001 are summarized
     as  follows  (in  thousands):

<TABLE>
<CAPTION>
                                               2002     2001
                                             --------  -------
<S>                                          <C>       <C>
     Commercial, financial and agricultural  $ 56,052   74,569
     Real estate - construction                68,189   65,052
     Real estate - mortgage                   240,162  213,748
     Installment loans to individuals          15,848   17,793
     Lease financings                           1,421    5,153
                                             --------  -------
        Gross loans                           381,672  376,315
     Less allowance for loan losses             6,888    7,348
                                             --------  -------
                                             $374,784  368,967
                                             ========  =======
</TABLE>

     Flag  concentrates  its  lending activities in the origination of permanent
     residential  mortgage  loans,  permanent  residential  construction  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 and
     metropolitan  Atlanta,  Georgia.

     Flag  has  recognized  impaired  loans  of  approximately  $1,513,0000  and
     $10,259,000  at  December  31,  2002  and  2001, respectively, with a total
     allowance  for loan losses related to these loans of approximately $910,000
     and  $2,893,000,  respectively.  The  average balance of impaired loans was
     approximately  $4,236,000,  $3,650,000  and  $977,000 during 2002, 2001 and
     2000,  respectively.  Interest  income  on  impaired loans of approximately
     $88,000, $480,000 and $839,000 was recognized for cash payments received in
     2002,  2001  and  2000,  respectively.

     Activity  in the allowance for loan losses is summarized as follows for the
     years  ended  December  31,  2001,  2000  and  1999  (in  thousands):

<TABLE>
<CAPTION>
                                                      2002     2001     2000
                                                    --------  -------  -------
<S>                                                 <C>       <C>      <C>
     Balance at beginning of year                   $ 7,348    6,583    7,017
     Provisions charged to operations                 4,549    2,488    3,597
     Loans charged off                               (5,569)  (2,063)  (4,454)
     Recoveries on loans previously charged off         560      340    1,252
     Allowance related to loans sold and purchased        -        -     (829)
                                                    --------  -------  -------
     Balance at end of year                         $ 6,888    7,348    6,583
                                                    ========  =======  =======
</TABLE>

     Mortgage  loans  secured  by  1-4  family residences totaling approximately
     $50,700,000 and $33,519,000 were pledged as collateral for outstanding FHLB
     advances  as  of  December  31,  2002  and  2001,  respectively.


                                       43
<PAGE>
                           FLAG FINANCIAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(5)  PREMISES  AND  EQUIPMENT
     Premises  and  equipment  at  December  31, 2002 and 2001 are summarized as
     follows  (in  thousands):

<TABLE>
<CAPTION>
                                     2002     2001
                                    -------  ------
<S>                                 <C>      <C>
     Land and land improvements     $ 6,311   1,911
     Buildings and improvements      15,832  11,943
     Furniture and equipment         16,478  16,672
                                    -------  ------
                                     38,621  30,526
     Less accumulated depreciation   17,558  16,582
                                    -------  ------

                                    $21,063  13,944
                                    =======  ======
</TABLE>

     Depreciation  expense  approximated  $2,037,000, $2,273,000, and $3,573,000
     for  the  years  ended  December  31,  2002,  2001  and 2000, respectively.

(6)  TIME  DEPOSITS
     At  December  31,  2002,  contractual  maturities  of  time  deposits  are
     summarized  as  follows  (in  thousands):

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S>                                       <C>
                2003                      $216,441
                2004                        24,155
                2005                        18,901
                2006                         7,425
                2007                         6,865
                Thereafter                     548
                                          --------
                                          $274,335
                                          ========
</TABLE>


(7)  ADVANCES  FROM  FEDERAL  HOME  LOAN  BANK
     Advances  from  FHLB  are  collateralized by FHLB stock, certain investment
     securities and certain first mortgage loans. Advances from FHLB outstanding
     at  December  31,  2002 mature and bear fixed interest rates as follows (in
     thousands):

<TABLE>
<CAPTION>
     Maturing In  Amount    Interest Rate
     -----------  -------  ---------------
<S>               <C>      <C>
     2003         $ 5,000            1.859%
     2007          53,000   1.220% - 1.590%
                  -------

                  $58,000   1.220% - 1.859%
                  =======
</TABLE>

     In  2002 and 2001, Flag repaid $9,434,000 and $26,000,000, respectively, in
     advances from the FHLB prior to their original maturity date and incurred a
     prepayment  penalty of approximately $266,000 and $1,123,000, respectively.
     These  advances  were  repaid due to a falling interest rate environment in
     which  Flag could obtain new borrowings at significantly lower rates. These
     redemptions  of  debt  have  been recorded as an extraordinary item, net of
     income  taxes  of approximately $101,000 and $427,000, in the 2002 and 2001
     statements  of  operations,  respectively.


                                       44
<PAGE>
                           FLAG FINANCIAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(8)  OTHER  BORROWINGS
     Other borrowings as of December 31, 2001 consisted of a line of credit with
     a  bank  with  a  total commitment amount of $5,000,000. The line of credit
     bore  interest  at .5% below the prime rate and was secured by common stock
     of  the  Bank. The line of credit was repaid in 2002 and expired on October
     1,  2002.

(9)  INCOME  TAXES
     The  following  is  an  analysis  of  the  components of income tax expense
     (benefit)  for  the  years  ended  December  31,  2002,  2001  and 2000 (in
     thousands):

<TABLE>
<CAPTION>
                      2002     2001     2000
                    --------  -------  ------
<S>                 <C>       <C>      <C>
          Current.  $   (81)   2,912   1,628
          Deferred   (1,947)  (1,159)   (219)
                    --------  -------  ------

                    $(2,028)   1,753   1,409
                    ========  =======  ======
</TABLE>

     The  differences  between  income  tax  expense  (benefit)  and  the amount
     computed  by  applying  the  statutory  federal income tax rate to earnings
     (loss)  before  taxes  for the years ended December 31, 2002, 2001 and 2000
     are  as  follows  (in  thousands):

<TABLE>
<CAPTION>
                                                                  2002     2001    2000
                                                               --------  ------  ------
<S>                                                            <C>       <C>     <C>
     Pretax income (loss) at statutory rate                    $(1,311)  2,196   1,936
     Add (deduct):
          Tax-exempt interest income                              (316)   (309)   (366)
          State income taxes, net of federal effect               (343)    258     228
          Increase in cash surrender value of life insurance       (63)    (52)    (79)
          General business credits                                 (42)   (123)   (120)
          Other                                                     47    (217)   (190)
                                                               --------  ------  ------

                                                               $(2,028)  1,753   1,409
                                                               ========  ======  ======
</TABLE>

     The following summarizes the net deferred tax asset. The deferred tax asset
     is  included  as  a component of other assets at December 31, 2002 and 2001
     (in  thousands).

<TABLE>
<CAPTION>
                                                              2002   2001
                                                             ------  -----
<S>                                                          <C>     <C>
     Deferred tax assets:
          Allowance for loan losses                         $2,615  2,738
          Net operating loss carryforwards and credits       2,601    201
          Nondeductible interest on non-accrual loans          139    139
          Nondeductible expenses                               313    158
          Nondeductible loss                                   138      -
          Other                                                417    454
                                                            ------  -----
               Total gross deferred tax assets               6,223  3,690
                                                            ------  -----
     Deferred tax liabilities:
          Premises and equipment                               400     77
          Unrealized gain on cash flow hedges                   46    299
          Goodwill                                             270      -
          Unrealized gain on securities available-for-sale   1,179    759
          Other                                                 23     30
                                                            ------  -----
              Total gross deferred tax liabilities           1,918  1,165
                                                            ------  -----
              Net deferred tax asset                        $4,305  2,525
                                                            ======  =====
</TABLE>


                                       45
<PAGE>
                           FLAG FINANCIAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(9)  INCOME  TAXES,  CONTINUED
     As  of  December  31,  2002,  Flag had federal and state net operating loss
     carryforwards  totaling  $5,157,000 and $6,452,000, respectively, that will
     begin  to  expire  in  2017  unless  previously  utilized.

     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, certain banks that have been merged
     into  the Bank began to compute their tax bad debt reserves under the rules
     of  IRC  section  585,  which  apply to commercial banks. In years prior to
     1996,  these  banks  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 the Bank ceases to qualify
     as  a  bank  pursuant  to  the  provisions  of  IRC  section  585.

(10) STOCKHOLDERS'  EQUITY
     During  2002,  the  Company sold 1,272,000 shares of common stock through a
     private  placement  at  a  price  between  $9.10  and $10.10 per share. The
     private  placement  resulted  in  total  proceeds  of  $11,707,740  and was
     completed  on  May  17,  2002.  The proceeds of this offering were used for
     general  corporate  purposes.

     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 10000000 shares. Each resolution shall include the number
     of shares issued, preferences, special rights and limitations as determined
     by  the  Board.

(11) EMPLOYEE  AND  DIRECTOR  BENEFIT  PLANS
     Defined  Contribution  Plan
     ---------------------------
     Flag  sponsors  the  Flag  Financial  Profit  Sharing  Thrift  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  December  31,  2002,  2001  and 2000, the Company contributed
     approximately  $430,000, $420,000, and $391,000, respectively, to this plan
     under  its  matching  provisions.

     Directors'  Retirement  Plan
     ----------------------------
     The  Bank  sponsors  a  defined contribution postretirement benefit plan to
     provide  retirement  benefits to certain of their Board of Directors and to
     provide death benefits for their designated beneficiaries. Under this plan,
     the Bank 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,  the Bank has no obligation to contribute to the plan. At December
     31,  2002 and 2001, the cash surrender value of the insurance contracts was
     approximately  $4,629,000  and  $4,478,000, respectively. Expenses incurred
     for  benefits  were  approximately $6,000 and $8,250, during 2002 and 2001,
     respectively.

     Stock  Option  Plan  and  Warrants
     ----------------------------------
     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
     1,314,000  shares  were  reserved  for possible issuance under the employee
     plan  and 266,938 shares were reserved under the director plan. The options
     generally  vest  over  a  four-year  period  and  expire  after  ten years.


                                       46
<PAGE>
                           FLAG FINANCIAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(11) EMPLOYEE  AND  DIRECTOR  BENEFIT  PLANS,  CONTINUED
     Stock  Option  Plan  and  Warrants,  continued
     ----------------------------------
     In  connection  with  the Company's private placement in 2002, warrants for
     1,236,000  shares  were issued to the purchasers of the common stock for $1
     per  warrant.  The  warrants  allow  each holder to purchase one additional
     share  of  common  stock  for  each  share purchased in connection with the
     private  placement  and  were  issued  as of the date of issuance of common
     stock sold in the private placement. The warrants will be exercisable for a
     period  of  ten  years following issuance at the private placement price of
     $9.10  per  share.

     A  summary  of activity in the warrants and stock option plans is presented
     below:

<TABLE>
<CAPTION>
                                          2002                  2001                   2000
                                 ----------------------  --------------------  ---------------------
                                              Weighted              Weighted               Weighted
                                              Average               Average                Average
                                               Price                 Price                  Price
                                   Shares    Per Share    Shares   Per Share    Shares    Per Share
                                 ----------  ----------  --------  ----------  ---------  ----------
<S>                              <C>         <C>         <C>       <C>         <C>        <C>
Outstanding , beginning of year    998,095   $     9.22  949,949   $     9.48   813,409   $    10.34
Granted during the year          1,415,000         9.12   90,250         6.93   257,751         6.62
Cancelled during the year         (172,162)       10.25  (39,514)        9.20  (118,621)        9.73
Exercised during the year          (88,506)        5.94   (2,590)        3.47    (2,590)        3.47
                                 ----------  ----------  --------  ----------  ---------  ----------

Outstanding, end of year         2,152,427   $     9.21  998,095   $     9.22   949,949   $     9.48
                                 ==========  ==========  ========  ==========  =========  ==========
</TABLE>

A  summary  of  options  and  warrants  outstanding  as  of December 31, 2002 is
presented  below:

<TABLE>
<CAPTION>
                               Weighted                Options     Weighted
Options          Range of      Average               and Warrants   Average
and Warrants    Price per       Price       Years     Currently      Price
Outstanding       Share       Per Share   Remaining  Exercisable   Per Share
------------  --------------  ----------  ---------  ------------  ---------
<S>           <C>             <C>         <C>        <C>           <C>
      20,029  $  3.46 - 5.13  $     4.06          7        12,897       3.93
   1,836,317     6.00 - 9.69        8.70          9     1,493,596       8.84
     296,081   10.00 - 13.75       12.72          6       404,894      12.17
------------  --------------  ----------  ---------  ------------  ---------

   2,152,427  $10.00 - 13.75  $     9.21          9     1,911,387       9.51
============  ==============  ==========  =========  ============  =========
</TABLE>

     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 2.35%, volatility of .2973 to .9803; risk
     free  interest  rate  ranging from 3.85% to 6.00% and an expected life of 5
     years.  The  weighted average grant-date fair value of options and warrants
     granted  in  2002, 2001 and 2000 was $1.82, $1.79, and $5.21, respectively.


                                       47
<PAGE>
                           FLAG FINANCIAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(12) REGULATORY  MATTERS
     Flag  and  the  Bank 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 Bank's financial statements. Under
     capital  adequacy  guidelines  and  the  regulatory  framework  for  prompt
     corrective  action,  the  Bank  must  meet specific capital guidelines that
     involve  quantitative  measures  of  the  Bank's  assets,  liabilities, and
     certain  off-balance  sheet items as calculated under regulatory accounting
     practices.  The  Bank's capital amounts and classification are also subject
     to  qualitative  judgements  by  the  regulators  about  components,  risk
     weightings,  and  other  factors.

     Quantitative  measures established by regulation to ensure capital adequacy
     require the Bank 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, 2002 that Flag and the Bank meet all capital adequacy
     requirements  to  which  they  are  subject.

     Minimum  ratios  required by the Bank 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 Bank 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 Bank. 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, 2002:
 Total Capital (to Risk Weighted Assets)
   Flag consolidated. . . . . . . . . . .  $ 51,551   11.3%  $   36,347      8.00%           N/A         N/A
   Flag Bank. . . . . . . . . . . . . . .  $ 46,088   10.2%  $   36,103      8.00%  $     45,129       10.0%
 Tier 1 Capital (to Risk Weighted Assets)
   Flag consolidated. . . . . . . . . . .  $ 45,910   10.1%  $   18,173      4.00%           N/A         N/A
   Flag Bank. . . . . . . . . . . . . . .  $ 40,447    9.0%  $   18,052      4.00%  $     27,078        6.0%
 Tier 1 Capital (to Average Assets)
   Flag consolidated. . . . . . . . . . .  $ 45,910    7.6%  $   24,127      4.00%           N/A         N/A
   Flag Bank. . . . . . . . . . . . . . .  $ 40,447    6.8%  $   23,779      4.00%  $     29,724        5.0%

AS OF DECEMBER 31, 2001:
 Total Capital (to Risk Weighted Assets)
   Flag consolidated. . . . . . . . . . .  $ 51,196   11.5%  $   35,754       8.0%           N/A         N/A
   Flag Bank. . . . . . . . . . . . . . .  $ 53,211   12.0%  $   35,458       8.0%  $     44,322       10.0%
 Tier 1 Capital (to Risk Weighted Assets)
   Flag consolidated. . . . . . . . . . .  $ 45,640   10.3%  $   17,877       4.0%           N/A         N/A
   Flag Bank. . . . . . . . . . . . . . .  $ 47,897   10.8%  $   17,729       4.0%  $     26,593        6.0%
 Tier 1 Capital (to Average Assets)
   Flag consolidated. . . . . . . . . . .  $ 45,640    8.1%  $   22,634       4.0%           N/A         N/A
   Flag Bank. . . . . . . . . . . . . . .  $ 47,897    8.5%  $   22,512       4.0%  $     28,141        5.0%
</TABLE>

     Banking  regulations limit the amount of dividends the Bank 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  2003, the Bank cannot pay dividends without prior regulatory
     approval.


                                       48
<PAGE>
                           FLAG FINANCIAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(13) COMMITMENTS  AND  CONTINGENCIES
     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  and  standby  letters  of  credit.  These
     instruments  involve, to varying degrees, elements of credit risk in excess
     of  the amounts recognized in the consolidated balance sheets. 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  Bank  evaluates  each  customer's
     creditworthiness  on  a  case-by-case  basis.  The  amount  of  collateral
     obtained,  if  deemed  necessary  by  the Bank upon extension of credit, is
     based  on  management's  credit  evaluation of the counterparty. The Bank's
     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
     Bank  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, 2002 and 2001.

<TABLE>
<CAPTION>
                                                         2002     2001
                                                        -------  ------
<S>                                                     <C>      <C>
          Financial instruments whose contract amounts
              represent credit risk (in thousands):
                  Commitments to extend credit          $53,621  71,599
                  Standby letters of credit             $ 1,245     955
</TABLE>

     In  connection  with  its  private  placement of common stock, in 2002 Flag
     agreed  to  guarantee loans used to fund the purchase of stock and warrants
     by  certain  employees. The loans approximate $2,427,000 and the guarantees
     are  collateralized  by  the  stock  and  warrants  purchased.

     Flag  maintains  an  overall  interest  rate  risk-management strategy that
     incorporates  the  use  of  derivative  instruments to minimize significant
     unplanned  fluctuations  in  earnings  that  are  caused  by  interest rate
     volatility.  The  goal  is to manage interest rate sensitivity by modifying
     the repricing or maturity characteristics of certain assets and liabilities
     so  that  the  net  interest  margin is not, on a material basis, adversely
     affected  by  certain movements in interest rates. Flag views this strategy
     as  a  prudent  management of interest rate sensitivity, such that earnings
     are  not  exposed  to  undue  risk  presented by changes in interest rates.

     Derivative  instruments  that  are  used  as  part  of Flag's interest rate
     risk-management  strategy  include  interest rate contracts. As a matter of
     policy,  Flag  does  not  use  highly  leveraged derivative instruments for
     interest  rate  risk  management.  During  2001,  Flag settled a previously
     outstanding  interest  rate  contract. The gain realized upon settlement is
     being  recognized  over  the  original  life  of  the  contract.


                                       49
<PAGE>
                           FLAG FINANCIAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(13) COMMITMENTS  AND  CONTINGENCIES,  CONTINUED
     By using derivative instruments, Flag is exposed to credit and market risk.
     If the counterparty fails to perform, credit risk is equal to the extent of
     the  fair-value  gain  in a derivative. When the fair value of a derivative
     contract  is  positive, this generally indicates that the counterparty owes
     Flag,  and,  therefore,  creates  a  repayment risk for Flag. When the fair
     value of a derivative contract is negative, Flag owes the counterparty and,
     therefore,  it  has  no  repayment  risk.  Flag  minimizes  the  credit (or
     repayment)  risk  in  derivative  instruments by entering into transactions
     with  high-quality  counterparties  that  are  reviewed  periodically.

     Flag's  derivative  activities  are  monitored  by  its  asset/liability
     management  committee  as  part  of  that  committee's  oversight of Flag's
     asset/liability and treasury functions. Flag's asset/liability committee is
     responsible  for implementing various hedging strategies that are developed
     through  its  analysis  of  data from financial simulation models and other
     internal  and  industry  sources. The resulting hedging strategies are then
     incorporated  into  the  overall  interest-rate  risk  management.

     For  the  year  ended  December  31,  2002,  there were no material amounts
     recognized  which  represented the ineffective portion of cash flow hedges.
     All  components  of  each  derivative's  gain  or  loss are included in the
     assessment  of  hedge  effectiveness,  unless  otherwise  noted.

(14) RELATED  PARTY  TRANSACTIONS
     Flag  conducts  transactions  with  its  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 2002 (in
     thousands).

<TABLE>
<CAPTION>
<S>                                                         <C>
          Balance at December 31, 2001                      $1,097
          New loans                                          2,917
          Repayments                                          (377)
          Changes in directors and executive officers, net    (916)
                                                            -------

          Balance at December 31, 2002                      $2,721
                                                            =======
</TABLE>

     At December 31, 2002, deposits from directors, executive officers and their
     related  interests aggregated approximately $2,904,000. These deposits were
     taken  in  the  normal  course  of  business  at  market  interest  rates.


                                       50
<PAGE>
                           FLAG FINANCIAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(15) FLAG  FINANCIAL  CORPORATION  (PARENT  COMPANY  ONLY) FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                         Balance Sheets

                                   December 31, 2002 and 2001

                                             Assets
                                             ------


                                                                                 2002     2001
                                                                               --------  -------
                                                                                (In Thousands)
<S>                                                                            <C>       <C>
Cash                                                                           $  2,880      706
Investment securities                                                             1,276    1,403
Investment in subsidiary                                                         55,268   56,538
Equipment, net                                                                        -       32
Other assets                                                                      1,840    1,013
                                                                               --------  -------

                                                                               $ 61,264   59,692
                                                                               ========  =======
                                Liabilities and Stockholders' Equity
                                ------------------------------------
Accounts payable and accrued expenses                                          $    515      669
Other borrowings                                                                      -    5,000
Stockholders' equity                                                             60,749   54,023
                                                                               --------  -------
                                                                               $ 61,264   59,692
                                                                               ========  =======
</TABLE>


<TABLE>
<CAPTION>
                                        Statements of Operations

                          For the Years Ended December 31, 2002, 2001 and 2000


                                                                                  2002    2001    2000
                                                                                --------  -----  -------
                                                                                    (In Thousands)
<S>                                                                             <C>       <C>    <C>
Income:
 Dividend income from subsidiaries                                              $ 5,021   3,250   2,000
 Interest income                                                                      5       5       6
 Other                                                                                2       3   7,715
                                                                                --------  -----  -------
         Total income                                                             5,028   3,258   9,721
                                                                                --------  -----  -------
Operating expenses:
 Interest expense                                                                    42      93     110
 Loss on investments                                                                380       -       -
 Other                                                                              851     200  10,278
                                                                                --------  -----  -------
         Total operating expenses                                                 1,273     293  10,388
                                                                                --------  -----  -------
         Earnings (loss)before income tax benefit and dividends received in
           excess of earnings of subsidiaries and equity in undistributed
           earnings of subsidiaries                                               3,755   2,965    (667)
Income tax benefit                                                                  209     107   1,004
                                                                                --------  -----  -------
         Earnings before dividends received in excess of earnings of
           subsidiaries and equity in undistributed earnings  of subsidiaries     3,964   3,072     337
Dividends received in excess of earnings of subsidiaries                         (5,958)      -       -
Equity in undistributed earnings of subsidiaries                                      -     938   3,947
                                                                                --------  -----  -------
         Net earnings (loss)                                                    $(1,994)  4,010   4,284
                                                                                ========  =====  =======
</TABLE>


                                       51
<PAGE>
                           FLAG FINANCIAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(15)     FLAG FINANCIAL CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION,
CONTINUED

<TABLE>
<CAPTION>
                                     Statements of Cash Flows

                       For the Years Ended December 31, 2002, 2001 and 2000


                                                                          2002     2001     2000
                                                                        --------  -------  -------
                                                                              (In Thousands)
<S>                                                                     <C>       <C>      <C>
Cash flows from operating activities:
 Net earnings (loss)                                                    $(1,994)   4,010    4,284
 Adjustments to reconcile net earnings (loss) to net cash provided by
   operating activities:
     Depreciation and amortization                                            3       15      502
     Loss on investments                                                    380        -        -
     Write down of premises and equipment                                    29        -        -
     Dividends received in excess of earnings of subsidiaries             5,958        -        -
     Equity in undistributed earnings of subsidiaries                         -     (938)  (3,947)
     Change in other assets and liabilities                              (1,162)  (1,020)     148
                                                                        --------  -------  -------

           Net cash provided by operating activities                      3,214    2,067      987
                                                                        --------  -------  -------

Cash flows from investing activities:
 Purchase of investment securities                                          (50)    (450)       -
 Proceeds from sale of investment securities                                117       34        1
 Purchase of equipment                                                        -        -     (328)
 Proceeds from sale of equipment to subsidiary                                -    2,590        -
 Investment in subsidiary                                                (4,500)       -        -
                                                                        --------  -------  -------

           Net cash used (provided) by investing activities              (4,433)   2,174     (327)
                                                                        --------  -------  -------

Cash flows from financing activities:
 Sale of common stock                                                    11,707        -        -
 Sale of stock warrants                                                   1,236
 Change in other borrowings                                              (5,000)   3,500    1,500
 Exercise of stock options                                                  526       10        8
 Purchase of treasury stock                                              (3,132)  (5,517)    (876)
 Dividends paid                                                          (1,944)  (1,902)  (1,974)
                                                                        --------  -------  -------

           Net cash used (provided) by financing activities               3,393   (3,909)  (1,342)
                                                                        --------  -------  -------

Net change in cash                                                        2,174      332     (682)

Cash at beginning of year                                                   706      374    1,056
                                                                        --------  -------  -------

Cash at end of year                                                     $ 2,880      706      374
                                                                        ========  =======  =======
</TABLE>


                                       52
<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, 2002
     and  2001  (amounts  in  thousands,  except  per  share  amounts):

<TABLE>
<CAPTION>
                                                               2002
                                            ----------------------------------------
                                                          QUARTER ENDED
                                              DEC. 31   SEPT. 30  JUNE 30  MARCH 31
                                            ----------  --------  -------  ---------
<S>                                         <C>         <C>       <C>      <C>
Interest income                             $    9,117     9,611    9,116     8,830
Interest expense                                 2,978     2,866    2,882     3,646
                                            ----------  --------  -------  ---------
Net interest income                              6,139     6,745    6,234     5,184
Provision for loan losses                          150       195      150     4,054
                                            ----------  --------  -------  ---------
Net interest income after provision
 for loan losses                                 5,989     6,550    6,084     1,130
Noninterest income                               2,042     1,984    1,833     1,536
Noninterest expense                              6,362     6,440    6,239    11,964
                                            ----------  --------  -------  ---------
Earnings (loss) before income taxes
 and extraordinary item                          1,669     2,094    1,678    (9,298)
Provision (benefit) for income taxes               367       656      376    (3,427)
                                            ----------  --------  -------  ---------

Earnings (loss) before extraordinary item        1,302     1,438    1,302    (5,871)
Extraordinary item                                   -         -        -       165
                                            ----------  --------  -------  ---------

Net earnings (loss)                         $    1,302     1,438    1,302    (6,036)
                                            ==========  ========  =======  =========

Net earnings (loss) per share               $      .16       .17      .16      (.78)
                                            ==========  ========  =======  =========

Weighted average shares outstanding              8,391     8,393    8,260     7,750
                                            ==========  ========  =======  =========

                                                               2001
                                            ----------------------------------------
                                                         QUARTER ENDED
                                              DEC. 31   SEPT. 30  JUNE 30  MARCH 31
                                            ----------  --------  -------  ---------

Interest income                             $   10,013    11,118   11,550    11,854
Interest expense                                 4,785     5,101    5,215     5,454
                                            ----------  --------  -------  ---------
Net interest income                              5,228     6,017    6,335     6,400
Provision for loan losses                        1,900        84      252       252
                                            ----------  --------  -------  ---------
Net interest income after provision
 for loan losses                                 3,328     5,933    6,083     6,148
Noninterest income                               5,226     1,931    1,678     1,833
Noninterest expense                              6,746     6,260    6,466     6,229
                                            ----------  --------  -------  ---------
Earnings before income taxes
Provision for income taxes                       1,808     1,604    1,295     1,752
                                                   509       438      323       483
                                            ----------  --------  -------  ---------

Earnings before extraordinary item               1,299     1,166      972     1,269
Extraordinary item                                 696         -        -         -
                                            ----------  --------  -------  ---------

Net earnings                                $      603     1,166      972     1,269
                                            ==========  ========  =======  =========

Net earnings per share                      $      .08       .15      .12       .16
                                            ==========  ========  =======  =========

Weighted average shares outstanding              7,465     7,769    7,973     8,032
                                            ==========  ========  =======  =========
</TABLE>


                                       53
<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 the Bank, 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 and interest-bearing deposits
     with  other  banks  the  carrying  amount  is a reasonable estimate of fair
     value.

     Securities  Available-for-Sale
     ------------------------------
     Fair  values  for  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,  Repurchase  Agreements  and  Other  Borrowings
     --------------------------------------------------------------------------
     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 generally short-term and at
     variable rates, the contract value and estimated fair value associated with
     these  instruments  are  immaterial.

     Interest  Rate  Contracts
     -------------------------
     The  fair  value of interest rate contracts is obtained from dealer quotes.
     These  values  represent  the amount the Company would receive to terminate
     the  contracts  or  agreements,  taking into account current interest rates
     and,  when appropriate, the current creditworthiness of the counterparties.


                                       54
<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, 2002 and 2001 are as follows (In Thousands):

<TABLE>
<CAPTION>
                                                            2002                  2001
                                                    ---------------------  --------------------
                                                    CARRYING   ESTIMATED   CARRYING  ESTIMATED
                                                     AMOUNT    FAIR VALUE   AMOUNT   FAIR VALUE
                                                    ---------  ----------  --------  ----------
<S>                                                 <C>        <C>         <C>       <C>
ASSETS:
 Cash and cash equivalents                          $  38,310      38,310    20,078      20,078
 Interest-bearing deposits                             12,412      12,412       160         160
 Investment securities available-for-sale             138,854     138,854   131,526     131,526
 Other investments                                      6,795       6,795     5,835       5,835
 Mortgage loans held-for-sale                          12,606      12,606     6,454       6,454
 Loans, net                                           374,784     376,214   368,967     369,611
 Cash surrender value of life insurance                 4,629       4,629     4,478       4,478
 Interest rate contracts                                  121         121       673         673

LIABILITIES:
 Deposits                                           $ 509,731     517,139   440,582     444,957
 Federal funds purchased and repurchase agreements          -           -    18,001      18,001
 FHLB advances                                         58,000      58,653    39,448      39,904
 Other borrowings                                           -           -     5,000       5,000
</TABLE>


                                       55
<PAGE>
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, -
Information  Regarding  Nominees  and  Continuing  Directors  and  -  Executive
Officers"  in  the  Company's  Proxy  Statement  for  its 2002 Annual Meeting of
Shareholders  to  be  held  on April 15, 2003.  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  Bank  is set forth under the caption "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Proxy Statement referred to
above.  Such  information is incorporated herein by reference.  To the Company's
knowledge,  no person was the beneficial owner of more than 10% of the Company's
common  stock  during  2002.


ITEM  11.     EXECUTIVE  COMPENSATION

     Information  relating  to  executive  compensation  is  set forth under the
captions  "Proposal  1-  Election  of  Directors-  Director  Compensation"  and
"Executive  Compensation"  in  the Proxy Statement referred to in Item 10 above.
Such  information  is  incorporated  herein  by  reference.


ITEM  12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED  SHAREHOLDER  MATTERS

     Information regarding ownership of the Company's common stock by management
and beneficial owners of 5% of the Company's common stock is set forth under the
caption "Proposal 1 - Election of Directors - Management Stock Ownership" in the
Proxy  Statement  referred  in  Item  10  above  and  is  incorporated herein by
reference.


                                       56
<PAGE>
The  following  table  provides  information  regarding compensation plans under
which equity securities of the Company are authorized for issuance.  All data is
presented  as  of  December  31,  2002.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                         Equity Compensation Plan Table
--------------------------------------------------------------------------------------------------------------
                                     (a)                           (b)                          (c)
-------------------------  ---------------------------  -----------------------------  -----------------------
Plan category              Number of securities to be   Weighted-average exercise      Number of securities
                           issued upon exercise of      price of outstanding           remaining available for
                           outstanding options,         options, warrants and rights   future issuance under
                           warrants and rights          equity compensation plans
                           (excluding securities
                           reflected in column (a))
-------------------------  ---------------------------  -----------------------------  -----------------------
<S>                        <C>                          <C>                            <C>
Equity compensation plans
approved by security                         2,152,427                           9.21                  664,511
holders
-------------------------  ---------------------------  -----------------------------  -----------------------
Equity compensation plans
not approved by security                             0                              -                        0
holders
-------------------------  ---------------------------  -----------------------------  -----------------------
Total                                        2,152,427                           9.21                  664,511
-------------------------  ---------------------------  -----------------------------  -----------------------
</TABLE>


ITEM  13.     CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

     Information  regarding  certain transactions between the Bank and directors
and  executive  officers  of  the  Company  and  the Bank is set forth under the
caption  "Related Party Transactions" in the Proxy Statement referred to in Item
10  above  and  is  incorporated  herein  by  reference.


ITEM  14.     CONTROLS  AND  PROCEDURES

     Within 90 days prior to the date of this report, the Company carried out an
evaluation,  under  the  supervision and with the participation of the Company's
management,  including the Company's Chief Executive Officer and Chief Financial
Officer,  of  the  effectiveness  of  the  design and operation of the Company's
disclosure  controls and procedures pursuant to Exchange Act Rule 13a-14.  Based
upon  that evaluation, the Company's Chief Executive Officer and Chief Financial
Officer  concluded  that  the  Company's  disclosure controls and procedures are
effective  in  timely  alerting  them  to  material  information relating to the
Company  (including  its  consolidated  subsidiaries)  that  is  required  to be
included  in  the  Company's  periodic  filings with the Securities and Exchange
Commission.  There  have  been  no significant changes in the Company's internal
controls  or,  to  the  Company's  knowledge,  in  other  factors  that  could
significantly  affect those internal controls subsequent to the date the Company
carried  out  its  evaluation,  and  there  have been no corrective actions with
respect  to  significant  deficiencies  or  material  weaknesses.


                                       57
<PAGE>
ITEM  15.     PRINCIPAL  ACCOUNTANT  FEES  AND  SERVICES

     Information  relating  to  the  fees  paid  to  the  Company's  independent
accountants is set forth under the captions "Audit Fees" and "Other Fees" in the
Proxy  Statement  referred  to  in  Item  10 above and is incorporated herein by
reference.

                                     PART IV
                                     -------

ITEM  16.     EXHIBITS,  FINANCIAL  STATEMENT  SCHEDULES AND REPORTS ON FORM 8-K

(a)(1)     The  list  of  financial  statements  is  included  at  Item  8.

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

(a)(3)     Exhibit  List

EXHIBIT  NO.                       DESCRIPTION
-----------                        -----------

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

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

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

     3.4       Amendment  to  Bylaws  of the Company as adopted by resolution of
               the  Board  of  Directors  on  December 20, 2000 (incorporated by
               reference  from Exhibit 3.4 to the Annual Report on Form 10-K for
               the  fiscal  year  ended  December  31,  2000)

     3.5       Amendment  to  Bylaws  of the Company as adopted by resolution of
               the  Board  of  Directors  on  February 19, 2001 (incorporated by
               reference  from Exhibit 3.5 to the Annual Report on Form 10-K for
               the  fiscal  year  ended  December  31,  2001)

     4.1       Instruments Defining the Rights of Security Holders (See Articles
               of  Incorporation  at  Exhibit  3.1 hereto and Bylaws at Exhibits
               3.2,  3.3,  3.4  and  3.5  hereto)

     10.1*     Amended  and  Restated  Employment  Agreement  between  J. Daniel
               Speight,  Jr.  and  the  Company  dated  as  of February 21, 2002
               (incorporated by reference from exhibit of the same number to the
               Annual Report on Form 10-K for the fiscal year ended December 31,
               2001)

     10.2*     Amended  and  Restated Employment Agreement between John S. Holle
               and  the  Company  dated  as  of January 1, 2001 (incorporated by
               reference from exhibit of the same number to the Annual Report on
               Form  10-K  for  the  fiscal  year  ended  December 31, 2000), as
               cancelled  pursuant to the Cancellation Agreement between John S.
               Holle  and  the Company dated as of February 20, 2002, as amended
               as  of  March 26, 2002 (each incorporated by reference to exhibit
               of  the  same  number  to  the Annual Report on Form 10-K for the
               fiscal  year  ended  December  31,  2001)


                                       58
<PAGE>
     10.3*     Amended  and  Restated  Employment  Agreement  between Charles O.
               Hinely  and  the  Company  dated  as  of  February  21,  2002
               (incorporated  by  reference  from  Exhibit 10.3 to the Company's
               Annual Report on Form 10-K for the fiscal year ended December 31,
               2001),  as  cancelled  pursuant  to  the  Cancellation  Agreement
               between  Charles  O.  Hinely and the Company dated as of July 31,
               2002

     10.4*     Employment  Agreement  between Stephen W. Doughty and the Company
               dated  January  13,  2003

     10.5*     Employment Agreement between J. Thomas Wiley, Jr. and the Company
               dated  January  13,  2003

     10.6*     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)

     10.7*     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)

     10.8*     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)

     10.9*     Form  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)

     10.10*    Director  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)

     10.11*    Form  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)

     10.12*    Form  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)

     10.13*    Form  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)


                                       59
<PAGE>
     10.14*    Form  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)

     10.15*    Indexed  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)

     10.16*    Form  of  Deferred  Compensation Plan by and between The Citizens
               Bank  and  individuals listed on exhibit cover page (incorporated
               by reference from exhibit of the same number to the Annual Report
               on  Form  10-K  for  the  fiscal  year  ended  December 31, 2000)

     10.17*    Flag  Financial  Corporation  1994 Employees Stock Incentive Plan
               (as amended and restated through March 30, 1998) (incorporated by
               reference from exhibit of the same number to the Annual Report on
               Form  10-K  for  the  fiscal  year  ended  December  31,  2000)

     10.18*    Flag  Financial  Corporation  1994 Directors Stock Incentive Plan
               (as  amended  through  September  18,  1997)  (incorporated  by
               reference from exhibit of the same number to the Annual Report on
               Form  10-K  for  the  fiscal  year  ended  December  31,  2000)

     10.19*    First  Amendment to the Flag Financial Corporation 1994 Employees
               Stock  Incentive  Plan  (as  amended and restated as of March 30,
               1998), dated as of March 15, 1999 (incorporated by reference from
               exhibit  of the same number to the Annual Report on Form 10-K for
               the  fiscal  year  ended  December  31,  2000)

     10.20*    Second Amendment to the Flag Financial Corporation 1994 Employees
               Stock  Incentive  Plan  (as  amended and restated as of March 30,
               1998),  dated  as  of January 16, 2001 (incorporated by reference
               from exhibit of the same number to the Annual Report on Form 10-K
               for  the  fiscal  year  ended  December  31,  2000)

     10.21*    First  Amendment to the Flag Financial Corporation 1994 Directors
               Stock Incentive Plan (as amended and restated as of September 18,
               1997),  dated  as of December 21, 1998 (incorporated by reference
               from exhibit of the same number to the Annual Report on Form 10-K
               for  the  fiscal  year  ended  December  31,  2000)

     10.22*    Second Amendment to the Flag Financial Corporation 1994 Directors
               Stock Incentive Plan (as amended and restated as of September 18,
               1997),  dated  as  of October 25, 1999 (incorporated by reference
               from exhibit of the same number to the Annual Report on Form 10-K
               for  the  fiscal  year  ended  December  31,  2000)

     10.23*    Third  Amendment to the Flag Financial Corporation 1994 Directors
               Stock Incentive Plan (as amended and restated as of September 18,
               1997),  dated  January  16,  2001 (incorporated by reference from
               exhibit  of the same number to the Annual Report on Form 10-K for
               the  fiscal  year  ended  December  31,  2000)

     10.24*    Third  Amendment  to  Flag  Financial  Corporation 1994 Employees
               Stock  Incentive  Plan  (as  amended and restated as of March 30,
               1998),  dated  as of February 19, 2002 (incorporated by reference
               from exhibit of same number to the Annual Report on Form 10-K for
               the  fiscal  year  ended  December  31,  2001.


                                       60
<PAGE>
     10.25*    Fourth  Amendment  to  Flag  Financial Corporation 1994 Directors
               Stock Incentive Plan (as amended and restated as of September 18,
               1997),  dated  as of February 19, 2002 (incorporated by reference
               to  Exhibit  10.2  to  the  Quarterly Report on Form 10-Q for the
               quarter  ended  March  31,  2002)

         21    Subsidiaries  (incorporated by reference from exhibit of the same
               number  to  the  Annual  Report  on Form 10-K for the fiscal year
               ended  December  31,  2000)

         23    Consent  of  Porter  Keadle  Moore,  LLP

       99.1    Certifications  by  Chief  Executive  Officer and Chief Financial
               Officer
____________________

          *    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  filed  during  Fourth  Quarter  of  2002

     Report  on  Form  8-K  filed  on  November 22, 2002 reporting the Company's
     acquisition  of  six  branches  from  Encore  Bank.

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

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


                                       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  27,  2003                    By: /s/  Joseph  W.  Evans
                                              --------------------------
                                               Joseph  W.  Evans
                                               Chief  Executive  Officer


                                       62
<PAGE>
                                  Certification

I,  Joseph  W.  Evans,  Chief  Executive  Officer of Flag Financial Corporation,
certify  that:

1.   I  have  reviewed  the  annual  report  on  Form  10-K  of  Flag  Financial
     Corporation;

2.   Based  on  my  knowledge,  this  annual  report does not contain any untrue
     statement  of a material fact or omit to state a material fact necessary to
     make  the  statements  made, in light of the circumstances under which such
     statements  were made, not misleading with respect to the period covered by
     this  annual  report;

3.   Based  on  my  knowledge,  the  financial  statements,  and other financial
     information  included in this annual report, fairly present in all material
     respects  the  financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officer  and  I  are  responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in  Exchange  Act  Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to  ensure that
          material  information  relating  to  the  registrant,  including  its
          consolidated  subsidiaries, is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is  being  prepared;

     b)   evaluated  the  effectiveness  of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this  annual  report  (the  "Evaluation  Date");  and

     c)   presented  in  this  annual  report  our  conclusions  about  the
          effectiveness  of  the disclosure controls and procedures based on our
          evaluation  as  of  the  Evaluation  Date;

5.   The  registrant's  other  certifying officer and I have disclosed, based on
     our  most  recent  evaluation,  to  the registrant's auditors and the audit
     committee  of  registrant's  board  of directors (or persons performing the
     equivalent  function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which  could  adversely  affect  the registrant's ability to
          record,  process,  summarize  and  report  financial  data  and  have
          identified  for  the  registrant's auditors any material weaknesses in
          internal  controls;  and

     b)   any  fraud, whether or not material, that involves management or other
          employees  who  have  a  significant role in the registrant's internal
          controls;  and

6.   The  registrant's  other  certifying  officer  and I have indicated in this
     annual  report  whether  or  not there were significant changes in internal
     controls  or  in  other  factors  that  could significantly affect internal
     controls  subsequent  to  the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:  March  27,  2003

                                   /s/  Joseph  W.  Evans
                                   ----------------------
                                   Joseph  W.  Evans
                                   Chief  Executive  Officer

                                       63
<PAGE>
                                  Certification

I,  J.  Daniel  Speight,  Chief Financial Officer of Flag Financial Corporation,
certify  that:

1.   I  have  reviewed  this  annual  report  on  Form  10-K  of  Flag Financial
     Corporation;

2.   Based  on  my  knowledge,  this  annual  report does not contain any untrue
     statement  of a material fact or omit to state a material fact necessary to
     make  the  statements  made, in light of the circumstances under which such
     statements  were made, not misleading with respect to the period covered by
     this  annual  report;

3.   Based  on  my  knowledge,  the  financial  statements,  and other financial
     information  included in this annual report, fairly present in all material
     respects  the  financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officer  and  I  are  responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in  Exchange  Act  Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to  ensure that
          material  information  relating  to  the  registrant,  including  its
          consolidated  subsidiaries, is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is  being  prepared;

     b)   evaluated  the  effectiveness  of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this  annual  report  (the  "Evaluation  Date");  and

     c)   presented  in  this  annual  report  our  conclusions  about  the
          effectiveness  of  the disclosure controls and procedures based on our
          evaluation  as  of  the  Evaluation  Date;

5.   The  registrant's  other  certifying officer and I have disclosed, based on
     our  most  recent  evaluation,  to  the registrant's auditors and the audit
     committee  of  registrant's  board  of directors (or persons performing the
     equivalent  function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which  could  adversely  affect  the registrant's ability to
          record,  process,  summarize  and  report  financial  data  and  have
          identified  for  the  registrant's auditors any material weaknesses in
          internal  controls;  and

     b)   any  fraud, whether or not material, that involves management or other
          employees  who  have  a  significant role in the registrant's internal
          controls;  and

6.   The  registrant's  other  certifying  officer  and I have indicated in this
     annual  report  whether  or  not there were significant changes in internal
     controls  or  in  other  factors  that  could significantly affect internal
     controls  subsequent  to  the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:  March  27,  2003

                                   /s/  J.  Daniel  Speight
                                   ------------------------
                                   J.  Daniel  Speight
                                   Chief  Financial  Officer


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<PAGE>

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 27, 2003:


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

/s/  William  H.  Anderson,  II           Director
----------------------------------------
          William  H.  Anderson,  II


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


/s/  Stephen  W.  Doughty                 Vice  Chairman,  Chief  Risk
----------------------------------------  Management Officer and Director
          Stephen  W. Doughty


/s/  David  B.  Dunaway                   Director
----------------------------------------
          David  B.  Dunaway


/s/  Joseph  W. Evans                     Chairman, President and Chief
----------------------------------------  Executive  Officer
          Joseph  W.  Evans               (principal  executive  officer)


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


/s/  J.  Daniel  Speight                  Vice  Chairman,  Chief
----------------------------------------  Financial  Officer,  Secretary
          J. Daniel Speight               and Director (principal financial
                                          officer)


/s/  J.  Thomas  Wiley, Jr.               Vice Chairman, Chief Banking
----------------------------------------  Officer
          J.  Thomas  Wiley,  Jr.         and  Director


/s/Dennis  J.  Zember                     Treasurer
----------------------------------------  (principal  accounting  officer)
          Dennis  J.  Zember


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<PAGE>
EXHIBIT  INDEX
--------------

     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 to the Annual Report on Form 10-K for the fiscal
               year  ended  December  31,  1998)

        3.4    Amendment  to  Bylaws  of the Company as adopted by resolution of
               the  Board  of  Directors  on  December 20, 2000 (incorporated by
               reference  from Exhibit 3.4 to the Annual Report on Form 10-K for
               the  fiscal  year  ended  December  31,  2000)

        3.5    Amendment  to  Bylaws  of the Company as adopted by resolution of
               the  Board  of  Directors  on  February 19, 2001 (incorporated by
               reference  from Exhibit 3.5 to the Annual Report on Form 10-K for
               the  fiscal  year  ended  December  31,  2001)

        4.1    Instruments Defining the Rights of Security Holders (See Articles
               of  Incorporation  at  Exhibit  3.1 hereto and Bylaws at Exhibits
               3.2,  3.3,  3.4  and  3.5  hereto)

      10.1*    Amended  and  Restated  Employment  Agreement between J. Daniel
               Speight,  Jr.  and  the  Company  dated  as  of February 21, 2002
               (incorporated by reference from exhibit of the same number to the
               Annual Report on Form 10-K for the fiscal year ended December 31,
               2001)

      10.2*    Amended and Restated Employment Agreement between John S. Holle
               and  the  Company  dated  as  of January 1, 2001 (incorporated by
               reference from exhibit of the same number to the Annual Report on
               Form  10-K  for  the  fiscal  year  ended  December 31, 2000), as
               cancelled  pursuant to the Cancellation Agreement between John S.
               Holle  and  the Company dated as of February 20, 2002, as amended
               as  of  March 26, 2002 (each incorporated by reference to exhibit
               of  the  same  number  to  the Annual Report on Form 10-K for the
               fiscal  year  ended  December  31,  2001)

      10.3*    Amended  and  Restated  Employment Agreement between Charles O.
               Hinely  and  the  Company  dated  as  of  February  21,  2002
               (incorporated  by  reference  from  Exhibit 10.3 to the Company's
               Annual Report on Form 10-K for the fiscal year ended December 31,
               2001),  as  cancelled  pursuant  to  the  Cancellation  Agreement
               between  Charles  O.  Hinely and the Company dated as of July 31,
               2002

      10.4*    Employment Agreement between Stephen W. Doughty and the Company
               dated  January  13,  2003


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<PAGE>
      10.5*    Employment  Agreement  between  J.  Thomas  Wiley,  Jr. and the
               Company  dated  January  13,  2003

      10.6*    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)

      10.7*    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)

      10.8*    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)

      10.9*    Form 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)

     10.10*    Director  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)

     10.11*    Form  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)

     10.12*    Form  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)

     10.13*    Form 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)

     10.14*    Form  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)

     10.15*    Indexed  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)


                                       67
<PAGE>
     10.16*    Form of Deferred Compensation Plan by and between The Citizens
               Bank  and  individuals listed on exhibit cover page (incorporated
               by reference from exhibit of the same number to the Annual Report
               on  Form  10-K  for  the  fiscal  year  ended  December 31, 2000)

     10.17*    Flag Financial Corporation 1994 Employees Stock Incentive Plan
               (as amended and restated through March 30, 1998) (incorporated by
               reference from exhibit of the same number to the Annual Report on
               Form  10-K  for  the  fiscal  year  ended  December  31,  2000)

     10.18*    Flag Financial Corporation 1994 Directors Stock Incentive Plan
               (as  amended  through  September  18,  1997)  (incorporated  by
               reference from exhibit of the same number to the Annual Report on
               Form  10-K  for  the  fiscal  year  ended  December  31,  2000)

     10.19*    First  Amendment  to  the  Flag  Financial  Corporation  1994
               Employees  Stock  Incentive  Plan  (as amended and restated as of
               March  30,  1998),  dated  as  of March 15, 1999 (incorporated by
               reference from exhibit of the same number to the Annual Report on
               Form  10-K  for  the  fiscal  year  ended  December  31,  2000)

     10.20*    Second  Amendment  to  the  Flag  Financial  Corporation  1994
               Employees  Stock  Incentive  Plan  (as amended and restated as of
               March  30,  1998),  dated as of January 16, 2001 (incorporated by
               reference from exhibit of the same number to the Annual Report on
               Form  10-K  for  the  fiscal  year  ended  December  31,  2000)

     10.21*    First  Amendment  to  the  Flag  Financial  Corporation  1994
               Directors  Stock  Incentive  Plan  (as amended and restated as of
               September  18, 1997), dated as of December 21, 1998 (incorporated
               by reference from exhibit of the same number to the Annual Report
               on  Form  10-K  for  the  fiscal  year  ended  December 31, 2000)

     10.22*    Second  Amendment  to  the  Flag  Financial  Corporation  1994
               Directors  Stock  Incentive  Plan  (as amended and restated as of
               September  18,  1997), dated as of October 25, 1999 (incorporated
               by reference from exhibit of the same number to the Annual Report
               on  Form  10-K  for  the  fiscal  year  ended  December 31, 2000)

     10.23*    Third  Amendment  to  the  Flag  Financial  Corporation  1994
               Directors  Stock  Incentive  Plan  (as amended and restated as of
               September  18,  1997),  dated  January  16, 2001 (incorporated by
               reference from exhibit of the same number to the Annual Report on
               Form  10-K  for  the  fiscal  year  ended  December  31,  2000)

     10.24*    Third  Amendment  to Flag Financial Corporation 1994 Employees
               Stock  Incentive  Plan  (as  amended and restated as of March 30,
               1998),  dated  as of February 19, 2002 (incorporated by reference
               from exhibit of the same number to the Annual Report on Form 10-K
               for  the  fiscal  year  ended  December  31,  2001).

     10.25*    Fourth  Amendment to Flag Financial Corporation 1994 Directors
               Stock Incentive Plan (as amended and restated as of September 18,
               1997),  dated  as of February 19, 2002 (incorporated by reference
               to  Exhibit  10.2  to  the  Quarterly Report on Form 10-Q for the
               quarter  ended  March  31,  2002)


                                       68
<PAGE>
        22     Subsidiaries  (incorporated by reference from exhibit of the same
               number  to  the  Annual  Report  on Form 10-K for the fiscal year
               ended  December  31,  2000)

        23     Consent  of  Porter  Keadle  Moore,  LLP

      99.1     Certifications  by  Chief  Executive  Officer and Chief Financial
               Officer
____________________

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


                                       69
<PAGE>