SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1998

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

                           Commission File No. 0-24532
                           FLAG FINANCIAL CORPORATION
                           --------------------------
             (Exact name of Registrant as specified in its charter)
        
                Georgia                                  58-2094179            
                -------                                  ----------            
     (State or other jurisdiction of                  (I.R.S. Employer
      incorporation or organization)                 Identification No.)

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

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the 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
                            ---
The aggregate market value of the Registrant's  outstanding Common Stock held by
non-affiliates   of  the   Registrant  on  March  17,  1999  was   approximately
$57,003,551. There were 6,561,879 shares of Common Stock outstanding as of March
17, 1999.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's 1998 Annual Report are incorporated by reference in
Part II hereof.

Portions of the  Registrant's  Proxy  Statement  for the 1999 Annual  Meeting of
Shareholders to be held on April 21, 1999, are incorporated by reference in Part
III hereof.


<PAGE>

                           FLAG FINANCIAL CORPORATION
                           Annual Report on Form 10-K
                   For the Fiscal Year Ended December 31, 1998

                                Table of Contents
                                -----------------
Item                                                                    Page
Number                                                                 Number
------                                                                 ------
                                     Part I
  1.  Business........................................................    3

  2.  Properties.......................................................  15

  3.  Legal Proceedings................................................  17

  4.  Submission of Matters to a Vote of Security Holders..............  17

                                     Part II

  5.  Market for Registrant's Common Stock and Related Shareholder
      Matters.........................................................   18

  6.  Selected Financial Data.........................................   18

  7.  Management's Discussion and Analysis of Financial Condition and
      Results of Operations...........................................   18
 
 7A.  Quantitative and Qualitative Disclosures about Market Risk......   18

  8.  Financial Statements and Supplementary Data ....................   18
 
  9.  Changes and Disagreements with Accountants on Accounting and
      Financial Disclosure............................................   19

                                    Part III

 10.  Directors and Executive Officers of the Registrant .............   19

 11.  Executive Compensation..........................................   19

 12.  Security Ownership of Certain Beneficial Owners and Management..   19

 13.  Certain Relationships and Related Transactions..................   20

                                       i
<PAGE>

                                     PART IV

 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K..  20

          Signatures...................................................  24

          Index of Exhibits ...........................................  26

                                       ii
<PAGE>

                                     PART I
                                     ------

ITEM 1.  BUSINESS
         --------

         SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

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

     (1)  The effects of future economic conditions;

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

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

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

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

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

The Company
-----------

         FLAG  Financial  Corporation  (the  "Company") is a multi-bank  holding
company  headquartered  in LaGrange,  Georgia and is  registered  under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). The Company is the sole
shareholder of First Flag Bank,  formerly known as First Federal Savings Bank of
LaGrange, and Citizens Bank (collectively, the "Banks").
-
         The Company was incorporated  under the laws of the State of Georgia on
February 9, 1993 at the direction of First Flag Bank for the purpose of becoming
the  holding  company  for First Flag Bank (the  "Reorganization").  On March 1,
1994,  FLAG  Interim  Corporation,  a  wholly-owned  subsidiary  of the  Company
organized for the purpose of effecting the Reorganization,  merged with and into
First  Flag  Bank,  and  the  Company  issued  shares  of its  common  stock  to
shareholders  of First Flag Bank in exchange for all of the  outstanding  common
stock of First Flag Bank.  As a result,  shareholders  of First Flag Bank became
shareholders of the Company, with the same proportional interests in the Company
as they  previously  held in First Flag Bank  (excluding  the nominal  effect on
their  ownership  interest  of the  exercise  of  dissenters'  rights by certain
shareholders of First Flag Bank). Following the Reorganization,  First Flag Bank
continued its business  operations as a  federally-chartered  stock savings bank
under the same name,  charter and  bylaws.  First Flag Bank is in the process of
converting from a federal stock savings bank to a Georgia state-chartered bank.

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

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

                                       2
<PAGE>

        The Company completed a merger with Middle Georgia Bankshares,  Inc. in
March  1998.  Through  the merger with  Middle  Georgia,  the  Company  acquired
Citizens  Bank,  Middle  Georgia's  wholly-owned  bank  subsidiary.  The Company
completed a merger with Three Rivers Bancshares, Inc. in May 1998. Three Rivers'
wholly-owned  subsidiary,  Bank of Milan,  merged into Citizens  Bank  effective
January 1, 1999.  The Company  completed  a merger  with  Empire  Bank Corp.  in
December  1998.  Empire Bank Corp.'s  wholly-owned  subsidiary,  Empire  Banking
Company,  merged  into  Citizens  Bank  effective  January 1, 1999.  The Company
acquired The Brown Bank through the merger of The Brown Bank with  Citizens Bank
effective December 31, 1998.

         The Company also  acquired E.B.C. Financial Services, Inc.  through its
merger with  Empire Bank Corp.  E.B.C. Financial Services, Inc. provides various
insurance products.

         FLAG also provides  investment and appraisal services through divisions
known as FLAG Investment  Services and FLAG Appraisal  Services.  These services
were  previously  provided  through  First Flag  Bank.  In  anticipation  of the
conversion of First Flag Bank to a state  chartered bank,  these  activities are
now provided by FLAG.

         Citizens Bank provides  technical  services through a division known as
FlagTech and insurance services through a division known as Citizens Bank Agency
d/b/a Flag Insurance Services.

The Banks
---------

         First Flag  Bank.  First Flag  Bank,  formerly  known as First  Federal
Savings Bank of LaGrange, is a federally chartered savings bank headquartered in
LaGrange,  Troup County,  Georgia with five offices in LaGrange,  Georgia. First
Flag Bank was originally chartered by the State of Georgia in January 1927 under
the name "Home  Building  and Loan  Association."  First Flag Bank  received its
federal  charter  and  changed  its  name to  "First  Federal  Savings  and Loan
Association of LaGrange" in 1955,  and at that time its deposits  became insured
by the Federal Savings and Loan Insurance Corporation (the "FSLIC"). In December
1986,  First  Flag  Bank  converted  from a  federal  mutual  savings  and  loan
association to a federal stock savings and loan  association by selling  805,000
shares of Common Stock to the public  pursuant to a plan of conversion  approved
by the members of the institution.  In June 1989, First Flag Bank converted from
a federal stock savings and loan association to a federal stock savings bank and
changed its name to "First Federal  Savings Bank of LaGrange." In December 1998,
First Flag Bank  changed its name to "First Flag Bank." First Flag Bank filed an
application with the Georgia  Department of Banking and Finance ("GDBF") and the
OTS  to  convert  its  charter   from  a  federal   stock   savings  bank  to  a
state-chartered  bank.  First  Flag  Bank  had  total  assets  of  approximately
$260,832,699 at December 31, 1998. As of September 30, 1998, First Flag Bank was
the 5th  largest of 29 thrift  institutions  headquartered  in  Georgia  and the
largest financial  institution  headquartered in Troup County. First Flag Bank's
wholly-owned subsidiary, Piedmont Mortgage Service, Inc. is currently inactive.

         Citizens Bank.  Citizens Bank is a state bank organized  under the laws
of the State of Georgia with banking offices in the cities of Unadilla,  Vienna,
Byromville,  Montezuma, Cordele, Oglethorpe,  Pinehurst,  Homerville,  Waycross,
Milan,  McRae,  Cobbtown,  Reidsville  and Metter,  Georgia.  Citizens  Bank was
originally  chartered  in 1931 and became a  wholly-owned  subsidiary  of Middle
Georgia in 1989. On March 31, 1998, Middle Georgia merged into the Company,  and
Citizens Bank became a wholly-owned  subsidiary of the Company.  At December 31,
1998, Citizens Bank had total assets of approximately $177,077,920.

                                       3
<PAGE>

         Effective  December 31, 1998, The Brown Bank, with offices in Cobbtown,
Metter and Reidsville,  Georgia, merged into Citizens Bank. Effective January 1,
1999, Empire Banking Company, with offices in Homerville and Waycross,  Georgia,
merged into Citizens  Bank.  At December 31, 1998,  Empire  Banking  Company had
approximately  $69,112,755 in total assets.  Effective  January 1, 1999, Bank of
Milan, with offices in Milan and McRae,  Georgia,  merged into Citizens Bank. At
December 31, 1998, Bank of Milan had approximately $41,417,992 in total assets.

         The Brown Bank,  Empire Banking  Company,  and Bank of Milan operate as
divisions of Citizens Bank. Citizens Bank registered the names "The Brown Bank,"
"Empire  Banking  Company," and "Bank of Milan" as tradenames of Citizens  Bank.
Citizens Bank is the sole  shareholder  of CB Financial  Group,  Inc.,  which is
currently inactive.

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

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

         The Company's primary asset is its stock in the Banks. Accordingly, its
financial  performance  is determined  primarily by the results of operations of
the Banks. For information  regarding the consolidated  financial  condition and
results of  operations  of the Company as of December  31, 1998 and 1997 and for
the three  years in the  period  ended  December  31,  1998,  see  "Management's
Discussion and Analysis of Financial  Condition and Results of Operations,"  and
the  Consolidated  Financial  Statements  of the Company,  and the related notes
which are  incorporated  by reference  from the Company's  1998 Annual Report to
Shareholders.  All average balances  presented in this report were derived based
on monthly averages.

                                       4
<PAGE>

Recent Developments
-------------------

         On February 23, 1999 the Company and First Hogansville Bankshares, Inc.
executed a Letter of Intent that provides that First Hogansville will merge into
the Company.  The Letter of Intent states that the Company will exchange 6.08466
shares of Company common stock for each share of First Hogansville  common stock
outstanding.  The Company expects to issue  approximately  575,000 shares to the
First  Hogansville  shareholders.  The parties expect the merger to be accounted
for as a pooling of interest  and expect to  consummate  the merger in the third
quarter of 1999,  subject to  approval  of the First  Hogansville  shareholders,
approval of various  regulatory  authorities and other  customary  conditions of
closing.

         First  Hogansville is a bank holding  company  located in  Hogansville,
Georgia.  First  Hogansville  is the sole  shareholder of The Citizens Bank also
located in Hogansville, Georgia.

         On March 12,  1999 the  Company  and  Thomaston  Federal  Savings  Bank
executed  a Letter of Intent  that  provides  that  Thomaston  will merge into a
wholly-owned subsidiary of the Company. The Company will form the subsidiary for
the purpose of effecting the merger,  and Thomaston  will be the survivor of the
merger. The Letter of Intent states that the Company will exchange 1.7275 shares
of Company  common stock for each share of Thomaston  common stock  outstanding.
The Company  expects to issue  approximately  1,125,447  shares to the Thomaston
shareholders  and 49, 233 shares to the Thomaston  optionholders  on exercise of
their options. The parties expect the merger to be accounted for as a pooling of
interest  and  expect to  consummate  the  Merger in the third  quarter of 1999,
subject  to  approval  of  the  Thomaston  shareholders,   approval  of  various
regulatory authorities and other customary conditions of closing.

         Thomaston is a federal savings bank located in Thomaston,  Georgia with
mortgage  production offices in Columbus and Macon,  Georgia and Phenix City and
Auburn, Alabama.

         Citizens  Bank entered into a Purchase and  Assumption  Agreement  with
First  Georgia Bank that  provides that Citizens Bank will acquire First Georgia
Bank's branch office  located in  Blackshear,  Georgia.  The branch  purchase is
subject to regulatory approval.
The parties  expect the  purchase to be completed  during the second  quarter of
1999.

         Citizens Bank plans to file an  application  with the GDBF and the FDIC
for approval to open a branch  office in  Statesboro,  Georgia.  Upon  receiving
regulatory approval,  Citizens Bank expects to open its Statesboro office during
the  second  quarter  of 1999.  The  office  will be known as First  Flag Bank -
Statesboro.  Citizens  Bank will register  "First Flag Bank -  Statesboro"  as a
tradename.

                                       5
<PAGE>

Employees
---------

         As of December  31,  1998,  the Company  (including  the Banks) had 244
full-time and 41 part-time  employees.  The employees are not represented by any
collective  bargaining unit, and the Company considers its relationship with its
employees to be good.

Competition
-----------

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

Supervision and Regulation
--------------------------

         The  following  discussion  sets  forth the  material  elements  of the
regulatory  framework  applicable  to bank holding  companies and their bank and
thrift  subsidiaries and provides certain  specific  information  related to the
Company.

General

         In  connection  with its  acquisition  of Middle  Georgia,  the Company
became a bank  holding  company  registered  with the Board of  Governors of the
Federal  Reserve System (the "Federal  Reserve") under the BHC Act. As such, the
Company  and  its  non-bank   subsidiaries   are  subject  to  the  supervision,
examination,  and reporting  requirements  of the BHC Act and the regulations of
the Federal Reserve.  In addition,  as a savings and loan holding  company,  the
Company  is also  registered  with  the OTS and is  subject  to the  regulation,
supervision, examination, and reporting requirements of the OTS.

         The BHC Act  requires  every bank  holding  company to obtain the prior
approval of the Federal  Reserve  before:  (1) it may acquire direct or indirect
ownership  or  control  of  any  voting  shares  of  any  bank  if,  after  such
acquisition, the bank holding company will directly or indirectly own or control
more  than  5% of  the  voting  shares  of  the  bank;  (2)  it or  any  of  its
subsidiaries,  other than a bank,  may acquire all or  substantially  all of the
assets  of any  bank;  or (3) it may merge or  consolidate  with any other  bank
holding company.

         The BHC Act further  provides that the Federal  Reserve may not approve
any  transaction  that would result in a monopoly or would be in  furtherance of
any  combination  or  conspiracy  to  monopolize  or attempt to  monopolize  the
business of banking in any section of the United States,  or the effect of which
may be  substantially  to lessen  competition or to tend to create a monopoly in
any section of the country, or that in any other manner would be in restraint of
trade,  unless the  anticompetitive  effects  of the  proposed  transaction  are
clearly  outweighed by the public  interest in meeting the convenience and needs
of the community to be served.  The Federal Reserve is also required to consider
the financial and managerial  resources and future prospects of the bank holding
companies and banks  concerned and the convenience and needs of the community to
be served.  Consideration of financial  resources  generally  focuses on capital
adequacy  and  consideration  of  convenience  and needs  issues  including  the
parties'  performance under the Community  Reinvestment Act of 1977 (the "CRA"),
both of which are discussed below.

                                       6
<PAGE>

         The BHC Act, as amended by the  interstate  banking  provisions  of the
Riegle-Neal  Interstate  Banking  and  Branching  Efficiency  Act of  1994  (the
"Interstate  Banking  Act"),  which  became  effective  on  September  29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks by
bank  holding  companies,  such that the  Company,  and any other  bank  holding
company  located in Georgia may now acquire a bank  located in any other  state,
and any bank holding company  located  outside Georgia may lawfully  acquire any
Georgia-based  bank,  regardless  of state law to the  contrary,  in either case
subject   to  certain   deposit-percentage,   aging   requirements,   and  other
restrictions.  The Interstate  Banking Act also  generally  provides that, as of
June 1, 1997, national and  state-chartered  banks may branch interstate through
acquisitions  of banks in other states.  By adopting  legislation  prior to that
date, a state had the ability  either to "opt in" and  accelerate the date after
which interstate  branching is permissible or "opt out" and prohibit  interstate
branching altogether.

         In response to the Interstate Banking Act, the Georgia General Assembly
adopted the Georgia Interstate Banking Act, which was effective on July 1, 1995.
The Georgia Interstate Banking Act provides that (1) interstate  acquisitions by
institutions  located in Georgia  will be  permitted  in states  that also allow
national interstate acquisitions and (2) interstate acquisitions of institutions
located  in Georgia  will be  permitted  by  institutions  in states  that allow
national interstate acquisitions.

         Additionally, on January 26, 1996, the Georgia General Assembly adopted
the Georgia Interstate Branching Act, which permits Georgia-based banks and bank
holding  companies  owning  or  acquiring  banks  outside  of  Georgia  and  all
non-Georgia  banks  and bank  holding  companies  owning or  acquiring  banks in
Georgia to merge any lawfully  acquired bank into an interstate  branch network.
The Georgia  Interstate  Branching  Act also allows  banks to  establish de novo
branches on a limited basis.  As of July 1, 1998, the number of de novo branches
that may be established is no longer limited.

         The BHC Act generally prohibits the Company from engaging in activities
other  than  banking  or  managing  or  controlling  banks or other  permissible
subsidiaries  and from acquiring or retaining  direct or indirect control of any
company engaged in any activities other than those activities  determined by the
Federal  Reserve to be so closely  related to banking or managing or controlling
banks as to be a proper incident  thereto.  In determining  whether a particular
activity  is  permissible,   the  Federal  Reserve  must  consider  whether  the
performance of such an activity  reasonably can be expected to produce  benefits
to the public, such as greater convenience,  increased competition,  or gains in
efficiency,  that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking  practices.  For example,  factoring accounts  receivable,  acquiring or
servicing  loans,  leasing personal  property,  conducting  discount  securities
brokerage  activities,  performing certain data processing  services,  acting as
agent or broker in selling  credit life  insurance  and  certain  other types of
insurance  in  connection  with  credit  transactions,  and  performing  certain
insurance  underwriting  activities  all have  been  determined  by the  Federal
Reserve to be permissible activities of bank holding companies. The BHC Act does
not place territorial  limitations on permissible non-banking activities of bank
holding companies.  Despite prior approval, the Federal Reserve has the power to
order a holding  company or its  subsidiaries  to  terminate  any activity or to
terminate  its  ownership or control of any  subsidiary  when it has  reasonable
cause to believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety,  soundness,  or stability of
any bank subsidiary of that bank holding company.

                                       7
<PAGE>

         The bank and thrift  subsidiaries  of the  Company  are  members of the
FDIC, and as such,  their deposits are insured by the FDIC to the maximum extent
provided  by law.  Such  subsidiaries  are also  subject to  numerous  state and
federal statutes and regulations that affect their businesses,  activities,  and
operations, and they are supervised and examined by one or more state or federal
bank regulatory agencies.

         All of the  Company's  depository  institution  subsidiaries  that  are
state-chartered  banks and are not  members of the  Federal  Reserve  System are
subject to supervision and examination by the FDIC and the Georgia Department of
Banking and Finance.  The Company's subsidiary that is a federal savings bank is
subject to regulation, supervision, and examination by the OTS and the FDIC. The
federal banking regulator for each of the Company's subsidiaries, as well as the
Georgia  Department of Banking and Finance for each of the subsidiary banks that
is a state chartered bank,  regularly  examines the operations of the subsidiary
banks and is given authority to approve or disapprove  mergers,  consolidations,
the establishment of branches,  and similar corporate  actions.  The federal and
state  banking  regulators  also have the power to prevent  the  continuance  or
development of unsafe or unsound banking practices or other violations of law.

Payment of Dividends

         The  Company  is  a  legal  entity   separate  and  distinct  from  its
subsidiaries.  The principal sources of cash flow of the Company, including cash
flow to pay dividends to its shareholders,  are dividends by its bank and thrift
subsidiaries.  There are statutory and regulatory  limitations on the payment of
dividends by such  subsidiaries  to the Company as well as by the Company to its
shareholders.

         As to  the  payment  of  dividends,  all of  the  Company's  depository
institution  subsidiaries that are state nonmember banks are subject to the laws
and  regulations of the state of Georgia and to the regulations of the FDIC. The
Company's  depository  institution  subsidiary that is a federal savings bank is
subject to the OTS' capital distributions regulation.

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

                                       8
<PAGE>

         At December 31, 1998, under dividend restrictions imposed under federal
and  state  laws,  the bank and  thrift  subsidiaries  of the  Company,  without
obtaining  governmental  approvals,  could  declare  aggregate  dividends to the
Company of up to approximately $2,000,000.

         The payment of dividends by the Company and its  subsidiaries  may also
be affected or limited by other  factors,  such as the  requirement  to maintain
adequate capital above regulatory guidelines.

Capital Adequacy

          The Company and its depository  institution  subsidiaries are required
to comply with the capital adequacy standards established by the Federal Reserve
and the  appropriate  federal  banking  regulator in the case of its  depository
institution  subsidiaries.  There are two basic measures of capital adequacy for
bank holding  companies  that have been  promulgated by the Federal  Reserve:  a
risk-based measure and a leverage measure. All applicable capital standards must
be satisfied for a bank holding company to be considered in compliance.

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

         The  minimum  guideline  for the ratio (the "Total  Risk-Based  Capital
Ratio") of total capital ("Total  Capital") to risk-weighted  assets  (including
certain  off-balance-sheet  items,  such as standby letters of credit) is 8%. At
least half of Total Capital must comprise  common stock,  minority  interests in
the  equity  accounts  of  consolidated  subsidiaries,  noncumulative  perpetual
preferred stock, and a limited amount of cumulative  perpetual  preferred stock,
less  goodwill and certain  other  intangible  assets  ("Tier 1  Capital").  The
remainder may consist of subordinated debt, other preferred stock, and a limited
amount of loan loss  reserves  ("Tier 2 Capital").  At December  31,  1998,  the
Company's  consolidated Total Risk-Based Capital Ratio and its Tier 1 Risk-Based
Capital Ratio (i.e., the ratio of Tier 1 Capital to  risk-weighted  assets) were
14.0% and 12.3%, respectively.

                                       9
<PAGE>

        In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding  companies.  These guidelines  provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets,  less goodwill
and certain other intangible  assets, of 3% for bank holding companies that meet
certain specified criteria,  including having the highest regulatory rating. All
other bank holding companies generally are required to maintain a Leverage Ratio
of at least 3%,  plus an  additional  cushion  of 100 to 200 basis  points.  The
Company's  Leverage  Ratio at December 31, 1998 was 8.4%.  The  guidelines  also
provide  that bank  holding  companies  experiencing  internal  growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant  reliance on intangible
assets.  Furthermore,  the Federal Reserve has indicated that it will consider a
"tangible Tier 1 Capital  Leverage Ratio"  (deducting all intangibles) and other
indicia of  capital  strength  in  evaluating  proposals  for  expansion  or new
activities.

         The  Company's  depository  institution  subsidiaries  are  subject  to
risk-based and leverage capital requirements adopted by their applicable federal
regulators,  which are  substantially  similar to those  adopted by the  Federal
Reserve for bank holding  companies.  Such  subsidiaries were in compliance with
applicable minimum capital requirements as of December 31, 1998. The Company has
not been advised by any federal  banking agency of any specific  minimum capital
ratio requirement applicable to it or its subsidiary depository institutions.

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

Community Reinvestment

         The Company's  subsidiaries  are subject to the  provisions of the CRA.
Under the terms of the CRA, the  subsidiaries  have a continuing and affirmative
obligation  consistent  with  their  safe and sound  operation  to help meet the
credit needs of their entire  communities,  including  low- and  moderate-income
neighborhoods.  The CRA does not  establish  specific  lending  requirements  or
programs  for  financial   institutions  nor  does  it  limit  an  institution's
discretion  to develop the types of products and  services  that it believes are
best  suited  to its  particular  community,  consistent  with the CRA.  The CRA
requires each appropriate federal bank regulatory agency, in connection with its
examination of a subsidiary depository institution, to assess such institution's
record in assessing and meeting the credit needs of the community served by that
institution,  including low- and moderate-income  neighborhoods.  The regulatory
agency's assessment of the institution's record is made available to the public.
Further,  such assessment is required of any  institution  which has applied to:
(1) charter a national bank; (2) obtain deposit  insurance  coverage for a newly
chartered  institution;  (3)  establish  a new branch  office  that will  accept
deposits;  (4) relocate an office;  or (5) merge or consolidate with, or acquire
the  assets  or assume  the  liabilities  of, a  federally  regulated  financial
institution.  In the case of a bank  holding  company  applying  for approval to
acquire a bank or other bank holding  company,  the Federal  Reserve will assess
the record of each  subsidiary  depository  institution  of the  applicant  bank
holding company,  and such records may be the basis for denying the application.
All of the  Company's  subsidiary  depository  institutions  received at least a
"satisfactory" CRA rating in their most recent examinations.

<PAGE>
                                       10
         In April 1995, the federal banking agencies adopted amendments revising
their  CRA  regulations,   with  a  phase-in  schedule   applicable  to  various
provisions. Among other things, the amended CRA regulations, implemented on July
1,  1997,  substitute  for the  prior  process-based  assessment  factors  a new
evaluation system that rates an institution  based on its actual  performance in
meeting community needs. In particular, the system focuses on three tests: (1) a
lending  test,  to  evaluate  the  institution's  record of making  loans in its
service areas; (2) an investment test, to evaluate the  institution's  record of
investing in community development projects; and (3) a service test, to evaluate
the  institution's  delivery of services  through its branches,  ATM's and other
offices.  The amended CRA  regulations  also  clarify how an  institution's  CRA
performance will be considered in the application process.

Support of Subsidiary Institutions

         Under  Federal  Reserve  policy,  the  Company is  expected to act as a
source of financial  strength for, and to commit  resources to support,  each of
its banking  subsidiaries.  This  support may be required at times when,  absent
such Federal Reserve  policy,  the Company may not be inclined to provide it. In
addition,  any capital loans by a bank holding  company to any of its depository
institution  subsidiaries are subordinate in right of payment to deposits and to
certain  other  indebtedness  of such  banks.  In the  event  of a bank  holding
company's  bankruptcy,  any commitment by the bank holding  company to a federal
bank  regulatory  agency to  maintain  the capital of a  depository  institution
subsidiaries  will be  assumed  by the  bankruptcy  trustee  and  entitled  to a
priority of payment.

         Under  the  Federal  Deposit  Insurance  Act  ("FDIA"),   a  depository
institution  insured by the FDIC can be held liable for any loss incurred by, or
reasonably  expected  to be  incurred  by,  the FDIC after  August 9,  1989,  in
connection with (1) the default of a commonly controlled FDIC-insured depository
institution  or (2)  any  assistance  provided  by  the  FDIC  to  any  commonly
controlled FDIC-insured depository institution "in danger of default." "Default"
is defined  generally as the  appointment of a conservator or receiver,  and "in
danger of default" is defined  generally as the existence of certain  conditions
indicating  that a  default  is  likely to occur in the  absence  of  regulatory
assistance.  The FDIC's claim for damages is superior to claims of  shareholders
of the insured depository institution or its holding company, but is subordinate
to claims of depositors,  secured  creditors,  and holders of subordinated  debt
(other  than  affiliates)  of  the  commonly   controlled   insured   depository
institution.  The subsidiary depository  institutions of the Company are subject
to these cross-guarantee  provisions. As a result, any loss suffered by the FDIC
in  respect  of these  subsidiaries  would  likely  result in  assertion  of the
cross-guarantee  provisions, the assessment of such estimated losses against the
depository  institution's  banking  affiliates,  and a  potential  loss  of  the
Company's investment in such other subsidiary depository institutions.

                                       11
<PAGE>

Prompt Corrective Action

         FDICIA  establishes a system of prompt corrective action to resolve the
problems of  undercapitalized  institutions.  Under this  system,  which  became
effective  in December  1992,  the federal  banking  regulators  are required to
establish five capital  categories (well  capitalized,  adequately  capitalized,
undercapitalized,     significantly     undercapitalized,     and     critically
undercapitalized)  and to take certain mandatory  supervisory  actions,  and are
authorized to take other discretionary  actions, with respect to institutions in
the three  undercapitalized  categories,  the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to a
narrow  exception,  FDICIA  requires  the  regulator  to appoint a  receiver  or
conservator for an institution that is critically undercapitalized.  The federal
banking  agencies have  specified by regulation  the relevant  capital level for
each category.

         The  capital  levels  established  for  each of the  categories  are as
follows:
<TABLE>
<CAPTION>

========================== ================ =================== ============== ===================
                                            Total               Tier 1 Risk-
Capital Category           Tier 1 Capital   Risk-Based Capital  Based Capital  Other
========================== ================ =================== ============== ===================
<S>                        <C>              <C>                 <C>            <C>                
Well Capitalized           5% or more       10% or more         6% or more     Not subject to a
                                                                               capital directive
========================== ---------------- ------------------- -------------- ===================
Adequately Capitalized     4% or more       8% or more          4% or more              --
========================== ---------------- ------------------- -------------- ===================
Undercapitalized           Less than 4%     less than 8%        less than 4%            --
========================== ---------------- ------------------- -------------- ===================
Significantly              Less than 3%     less than 6%        less than 3%            --
Undercapitalized
========================== ================ =================== ============== ===================
Critically                 2% or less            --                  --                 --
Undercapitalized           tangible equity
========================== ================ =================== ============== ===================
</TABLE>

         For purposes of the  regulation,  the term "tangible  equity"  includes
core capital  elements  counted as Tier 1 Capital for purposes of the risk-based
capital standards, plus the amount of outstanding cumulative perpetual preferred
stock  (including  related  surplus),  minus all intangible  assets with certain
exceptions.  A depository  institution  may be deemed to be in a  capitalization
category  that is lower than is indicated by its actual  capital  position if it
receives an unsatisfactory examination rating.

         An institution that is categorized as  undercapitalized,  significantly
undercapitalized,  or  critically  undercapitalized  is  required  to  submit an
acceptable capital  restoration plan to its appropriate  federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan, subject to certain  limitations.
The obligation of a controlling  holding  company under FDICIA to fund a capital
restoration  plan  is  limited  to  the  lesser  of 5%  of  an  undercapitalized
subsidiary's   assets  or  the  amount  required  to  meet  regulatory   capital
requirements.  An undercapitalized institution is also generally prohibited from
increasing  its average  total assets,  making  acquisitions,  establishing  any
branches, or engaging in any new line of business,  except in accordance with an
accepted capital restoration plan or with the approval of the FDIC. In addition,
the  appropriate  federal  banking agency is given authority with respect to any
undercapitalized  depository  institution  to  take  any  of the  actions  it is
required  to or  may  take  with  respect  to a  significantly  undercapitalized
institution  as  described  below  if it  determines  "that  those  actions  are
necessary to carry out the purpose" of FDICIA.

                                       12
<PAGE>

         At December 31, 1998, the Company's depository institution subsidiaries
had the requisite capital levels to qualify as well capitalized.

FDIC Insurance Assessments

         Pursuant to FDICIA, the FDIC adopted a risk-based assessment system for
insured  depository  institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The system
assigns an institution to one of three capital categories: (1) well capitalized;
(2) adequately capitalized; and (3) undercapitalized. These three categories are
substantially  similar  to the prompt  corrective  action  categories  described
above,  with the  "undercapitalized"  category  including  institutions that are
undercapitalized,     significantly     undercapitalized,     and     critically
undercapitalized  for prompt corrective action purposes.  An institution is also
assigned by the FDIC to one of three  supervisory  subgroups within each capital
group. The supervisory  subgroup to which an institution is assigned is based on
a  supervisory  evaluation  provided  to the FDIC by the  institution's  primary
federal  regulator and  information  which the FDIC determines to be relevant to
the  institution's  financial  condition  and  the  risk  posed  to the  deposit
insurance funds (which may include, if applicable,  information  provided by the
institution's state supervisor).  An institution's  insurance assessment rate is
then determined based on the capital category and supervisory  category to which
it  is  assigned.  Under  the  risk-based  assessment  system,  there  are  nine
assessment  risk  classifications  (i.e.,  combinations  of  capital  groups and
supervisory subgroups) to which different assessment rates are applied.

         Pursuant  to  the  Deposit  Insurance  Funds  Act  of  1996,  the  FDIC
implemented a special  one-time  assessment of  approximately  65.7 basis points
(0.657%) on a depository  institution's  SAIF-insured  deposits held as of March
31, 1995 (or approximately  52.6 basis points on SAIF deposits acquired by banks
in certain qualifying transactions) and adopted revisions to the assessment rate
schedules that would generally  eliminate the disparity between assessment rates
applicable to the deposits  insured by the Bank  Insurance  Fund ("BIF") and the
SAIF. The revisions in the assessment rate schedules reduced assessment rates on
SAIF-insured deposits and would generally equalize BIF and SAIF assessment rates
by January, 2000. The Company anticipates that the net effect of the decrease in
the premium  assessment  rate on SAIF deposits will result in a reduction in its
total deposit  insurance premium  assessments  through 1999 as compared to years
prior to 1997,  assuming  no further  changes in  announced  premium  assessment
rates. The Company recorded a charge against earnings for the special assessment
in the quarter ended September 30, 1996, in the pre-tax amount of  approximately
$1,150,000.

         Under the FDIA,  insurance  of deposits may be  terminated  by the FDIC
upon a finding that the institution has engaged in unsafe and unsound practices,
is in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.

                                       13
<PAGE>

Proposed Legislation and Regulatory Action

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

Selected Statistical Information

         Selected   statistical   information   is  included  in  the  Company's
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operation set forth on pages 16 through 24 of the Company's  1998 Annual Report.
Such information is incorporated by reference.

ITEM 2.  PROPERTIES
         ----------

The Company and First Flag Bank

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

         First Flag Bank also operates three full-service branch offices and one
drive-through  facility in LaGrange,  Georgia. One of the full-service  branches
contains  approximately  360  square  feet of  office  space  in the  Winn-Dixie
Marketplace  grocery store at 908 Hogansville  Road in LaGrange.  This office is
leased by First Flag Bank.  A second  full-service  branch  office is located at
1795 West  Point  Road at Lee's  Crossing  in  LaGrange.  This  office  contains
approximately  2,700 square feet of office  space on one acre of land,  and both
the land and the building are owned by First Flag Bank.  The third  full-service
branch  office is located at 1417  LaFayette  Parkway in  LaGrange.  This office
contains  approximately  2,300 square feet of office space on 1.2 acres of land,
and it has three drive through  lanes.  Both the building and the land are owned
by First Flag Bank. The  drive-through  facility is located at 306 Vernon Street
in LaGrange.  This facility contains  approximately  1,800 square feet of space,
and both the building and the land are owned by First Flag Bank.

         First Flag Bank leases  approximately 2,760 square feet of office space
at 5669 Whitesville Road, Suite A, Columbus,  Georgia, where its loan production
office is located.

         First Flag Bank leases approximately 600 square feet of office space at
200 Broad Street, Suite D, LaGrange, Georgia.

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

                                       14
<PAGE>

Citizens Bank

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

         One of the full-service  offices has 10,500 square feet of office space
on .85 acres of land that is owned by Citizens  Bank and is located at 100 Union
Street,  Vienna,  Georgia. The second full-service office has 15,127 square feet
of  office  space on 1.48  acres of land that is owned by  Citizens  Bank and is
located at 2233 Pine Street,  Unadilla,  Georgia.  The third full-service office
has  10,718  square  feet of office  space on 1.3 acres of land that is owned by
Citizens Bank and is located at 102 West Railroad  Street,  Montezuma,  Georgia.
The fourth  full-service  office has 2,000  square feet of office  space that is
leased  by  Citizens  Bank and is  located  at 602 East 16th  Avenue,  Suite G.,
Cordele, Georgia.

         One of the  limited-service  offices  has 1,750  square  feet of office
space on .07 acres and is  located  on Main  Street,  Byromville,  Georgia.  The
second  limited-service office has 2,500 square feet of office space on .6 acres
of land and is located at 130 North  Sumter  Street,  Oglethorpe,  Georgia.  The
third  limited-service  office has 843 square feet of office  space on .55 acres
and is located on Fullington Avenue, Pinehurst, Georgia. Citizens Bank owns each
of these properties.

         Citizens  Bank  owns  three  warehouse/meeting  facilities  located  in
Vienna, Georgia at the following locations: (1) 2nd Street, Vienna, Georgia with
4,100  square  feet of space  on .10  acres of  land,  (2) 3rd  Street,  Vienna,
Georgia,  with 2,940 square feet of office  space on .09 acres of land,  and (3)
3rd Street, Vienna, Georgia, with 1,755 square feet of office space on .05 acres
of land.

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

Bank of Milan Division of Citizens Bank

         Citizens  Bank,  through  its  Bank of  Milan  division,  operates  two
full-service offices in Milan and McRae, Georgia.  Citizens Bank owns the office
located at 1 Mt. Zion Street, Milan, Georgia. It has 5,124 square feet of office
space on .18 acres of land.  Citizens Bank leases the office located at 850 East
Oak Street, McRae, Georgia. It has 1,360 square feet of office space.

Empire Banking Company Division of Citizens Bank

         Citizens Bank,  through its Empire Banking Company  division,  operates
two full-service offices in Homerville and Waycross, Georgia. Citizens Bank owns
two buildings in Homerville  located at 115 East Dame Avenue comprising the main
office building that has approximately  5,000 square feet of office space and an
operations  building that has  approximately  2,200 square feet of office space.
Citizens  Bank also owns  about  3/4 acres in paved  parking  lots near the Dame
Avenue  office.  Additionally,  Citizens  Bank owns a  building  located at 2110
Memorial Drive, Waycross, Georgia that has 3,500 square feet of office space.

                                       15
<PAGE>

The Brown Bank Division of Citizens Bank

         Citizens  Bank,   through  its  Brown  Bank   division,   operates  two
full-service  offices in Metter and Cobbtown,  Georgia and a full-service office
in Reidsville,  Georgia that it leases.  The office located at 24-28 North Broad
Street,  Metter,  Georgia has 12,000 square feet of office space, of which 6,000
is used for banking operations and 6,000 is used for rental offices. This office
sits on .17 acres of land and has a paved parking lot on .34 acres also on North
Broad Street.  The office located at 1 Railroad Street in Cobbtown,  Georgia has
4,000  square  feet of office  space and sits on .066 acres of land.  The office
located at 132 A West Brazell Street, Reidsville,  Georgia has 6,000 square feet
of office space.

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

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

         The net  book  value of the  Company's  investment  in land,  premises,
furniture,  fixtures  and  equipment  totaled  approximately  $14.9  million  at
December 31, 1998. The Company owns most of its data processing equipment.

ITEM 3.  LEGAL PROCEEDINGS
         -----------------

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

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

         First Flag Bank purchased  certain  warehouse  loans of Gulf Properties
Financial  Services,  Inc., a residential  mortgage broker.  The loans that Gulf
Properties  sold to First  Flag  Bank were  fraudulent.  Gulf  Properties  filed
Chapter 11  bankruptcy  on December 30, 1998.  First Flag Bank is serving on the
creditors' committee,  and the bankruptcy is pending. First Flag Bank's exposure
as a result of the fraud is approximately  $3 million.  Several other banks also
purchased fraudulent loans from Gulf Properties and the total amount of exposure
of all banks is approximately $32 million.

                                       16
<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 1998.


                                     PART II
                                     -------


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

         Information  relating to the market for,  holders of and dividends paid
on the  Company's  Common  Stock  is set  forth  under  the  caption  "Corporate
Information-Stock  Prices  and  Dividends"  on  the  inside  back  cover  of the
Company's  1998  Annual  Report.  Such  information  is  incorporated  herein by
reference.

ITEM 6.  SELECTED FINANCIAL DATA
         -----------------------

         Selected   consolidated   financial   data  for  the  Company  and  its
subsidiaries  for each year of the five-year  period ended  December 31, 1998 is
set forth under the caption "Financial  Highlights" on page 5 of the 1998 Annual
Report. Such financial data is incorporated herein by reference.

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

         Management's Discussion and Analysis of Financial Condition and Results
of Operations  is set forth on pages 16 through 24 of the Company's  1998 Annual
Report. Such information is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
         ---------------------------------------------------------- 

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

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

                                       17
<PAGE>


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

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

 As of December 31, 1998, the Company was in compliance with its ALCO policy.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
         -------------------------------------------

         The following  financial  statements are included in the Company's 1998
Annual Report on pages 26 through 52 and are incorporated herein by reference:

         Independent Auditor's Report
         Financial Statements
         Consolidated  Balance Sheets dated as of December 31, 1998 and
         1997  Consolidated  Statements  of Income for the years  ended
         December 31, 1998,  1997 and 1996  Consolidated  Statements of
         Cash Flows for the years ended  December  31,  1998,  1997 and
         1996   Consolidated   Statements   of   Comprehensive   Income
         Consolidated  Statements  of  Changes in  Shareholders  Equity
         Notes to Consolidated Financial Statements

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

         On February 20, 1997, the Company  engaged Porter Keadle Moore,  LLP as
independent  accountants  to audit the Company's  financial  statements  for the
fiscal year ended  December 31, 1997, and elected not to renew the engagement of
the Company's previous independent accountants, Robinson, Grimes & Company, P.C.
No adverse  opinions or disclaimers of opinion were given by Robinson,  Grimes &
Company,  P.C.  during the fiscal years ended  December 31, 1995,  and 1996, nor
were  any of  their  opinions  qualified  as to  uncertainty,  audit  scope,  or
accounting  principle,  during the time Robinson,  Grimes & Company was engaged.
There were no  disagreements  or  "reportable  events" of any nature between the
Company  and  Robinson,  Grimes & Company,  P.C.  during the fiscal  years ended
December 31, 1995, 1996, and the subsequent  interim period through February 20,
1997,  as  described  in Items  304(a) (1) (iv) and (v) of  Regulation  S-K. The
decision was approved by the Company's Audit Committee and Board of Directors.

<PAGE>
                                       18


                                    PART III
                                    --------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
         --------------------------------------------------

         Information  relating to the directors  and  executive  officers of the
Company   is  set  forth   under  the   captions   "Proposal   1   Election   of
Directors-Nominees"   and  "Proposal  1  -  Election  of   Directors-Information
Regarding  Nominees and Continuing  Directors" in the Company's  Proxy Statement
for its 1999 Annual Meeting of  Shareholders  to be held on April 21, 1998. Such
information  is  incorporated   herein  by  reference.   Information   regarding
compliance  with  Section  16(a) of the  Securities  Exchange  Act of  1934,  as
amended, by directors and executive officers of the Company and the Banks is set
forth  under  the  caption  "Compliance  with  Section  16(a) of the  Securities
Exchange Act of 1934" in the Proxy Statement referred to above. Such information
is incorporated herein by reference.  To the Company's knowledge,  no person was
the beneficial owner of more than 10% of the Company's common stock during 1998.

ITEM 11. EXECUTIVE COMPENSATION
         ----------------------

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT  
         --------------------------------------------------------------

         Information  regarding  ownership of the  Company's  common stock as of
December 31, 1998, by certain persons is set forth under the captions  "Voting -
Stock Ownership" and "Proposal 1 - Election of Directors - Information Regarding
Nominees and Continuing Directors" in the Proxy Statement referred to in Item 10
above. Such information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
         ----------------------------------------------

         Information   regarding  certain  transactions  between  the  Bank  and
affiliates of the Company and the Bank is set forth under the caption "Executive
Compensation - Loans to Management" in the Proxy  Statement  referred to in Item
10 above. Such information is incorporated herein by reference.

                                       19
<PAGE>

                                     PART IV
                                     -------

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

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

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

(a)(3)   Exhibit List


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

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

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

     3.3  Amendment to Bylaws of the Company  (adopted by resolution of Board of
          Directors on October 19, 1998)

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

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

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

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


                                       20
<PAGE>


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

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

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

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

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

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

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

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

                                       21
<PAGE>

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

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

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

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

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

     10.17FLAG  Financial   Corporation  1994  Employees  Stock  Incentive  Plan
          (incorporated  by reference from Exhibit 10.6 to the Company's  Annual
          Report on Form 10-K for the fiscal year ended December 31, 1993)*

     10.18FLAG  Financial   Corporation  1994  Directors  Stock  Incentive  Plan
          (incorporated  by reference from Exhibit 10.7 to the Company's  Annual
          Report on Form 10-K for the fiscal year ended December 31, 1993)*

     13   1998 Annual Report to Shareholders+

                                       22
<PAGE>

     21   Subsidiaries

     27   Financial Data Schedule 

     99.1 Report of Robinson, Grimes & Company, P.C., dated January 31, 1997

     99.2 Report of Thigpen, Jones, Seaton & Co., P.C., dated January 28, 1998

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

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

     +    Portions of the  Company's  1998 Annual  Report,  as indicated in this
          report,  are  incorporated  herein by  reference.  Other than as noted
          herein,   the  Company's  1998  Annual  Report  is  furnished  to  the
          Securities and Exchange  Commission  solely for its information and is
          not deemed to be "filed" with the Securities  and Exchange  Commission
          or subject to the liabilities of Section 18 of the Securities Exchange
          Act of 1934, as amended.

(b)    Reports on Form 8-K.

       Reports on Form 8-K filed during fourth quarter of 1998

     o    A Current Report on Form 8-K filed October 6, 1998 regarding execution
          of Letter of Intent to purchase  branch in  Blackshear,  Georgia  from
          First Georgia Bank.

     o    A  Current  Report  on Form 8-K  filed  November  16,  1998  regarding
          execution  of  Mutual  Termination  Agreement  with  Heart of  Georgia
          Bancshares, Inc. to cancel plans to merge.

       Reports on Form 8-K filed since Year End 1998

     o    A  Current  Report  on  Form  8-K  filed  January  8,  1999  regarding
          consummation of merger with Empire Bank Corp. on December 11, 1998.

     o    A  Current  Report  on Form  8-K  filed  January  11,  1999  regarding
          consummation  of merger  between  Citizens  Bank and The Brown Bank on
          December 31, 1998.

     o    A Current Report on Form 8-K filed March 2, 1999  regarding  execution
          of Letter of Intent to merge First Hogansville  Bankshares,  Inc. with
          FLAG Financial Corporation.

     o    A Current Report on Form 8-K filed March 18, 1999 regarding  execution
          of Letter of Intent to acquire Thomaston Federal Savings Bank.

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

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

                                       23
<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 24, 1999               By:/s/ J. Daniel Speight, Jr.               
                                       -----------------------------------------
                                           J. Daniel Speight, Jr.
                                           President and Chief Executive Officer



                                POWER OF ATTORNEY

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

       Pursuant to the  requirements  of the Securities Act of 1934, this Report
has been signed by the following  persons in the  capacities  indicated on March
24, 1999


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

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


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

                                       24
<PAGE>

/s/ Leonard H. Bateman                    Director
---------------------------
    Leonard H. Bateman


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


/s/ Patti S. Davis                        Director, Senior Vice President,
---------------------------               Chief Financial Officer and Assistant
    Patti S. Davis                        Secretary (principal financial and
                                          accounting officer)


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


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


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


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


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


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


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


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

                                       26
<PAGE>



                           FLAG FINANCIAL CORPORATION

                                Index of Exhibits
                                -----------------

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

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


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

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

     3.3  Amendment to Bylaws of the Company  (adopted by resolution of Board of
          Directors on October 19, 1998)

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

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

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

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

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

                                       26
<PAGE>

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

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

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

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

     10.9 page  (incorporated  by reference from Exhibit 10.9 to Amendment No. 1
          to the  Company's  Annual  Report on Form  10-K/A for the fiscal  year
          ended December 31, 1997)*

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

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

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

     10.13Form of Flexible  Premium  Life  Insurance  Endorsement  Method  Split
          Dollar Plan Agreement  (pursuant to Director  Indexed Fee Continuation
          Program of First  Federal  Savings Bank of LaGrange)  for  individuals
          listed on exhibit cover page  (incorporated  by reference from Exhibit
          10.14 to Amendment No. 1 to the Company's Annual Report on Form 10-K/A
          for the fiscal year ended December 31, 1997)*
 
                                      27
<PAGE>

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

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

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

     10.17FLAG  Financial   Corporation  1994  Employees  Stock  Incentive  Plan
          (incorporated  by reference from Exhibit 10.6 to the Company's  Annual
          Report on Form 10-K for the fiscal year ended December 31, 1993)*

     10.18FLAG  Financial   Corporation  1994  Directors  Stock  Incentive  Plan
          (incorporated  by reference from Exhibit 10.7 to the Company's  Annual
          Report on Form 10-K for the fiscal year ended December 31, 1993)*

     13   1998 Annual Report to Shareholders+

     22   Subsidiaries

     27   Financial Data Schedule 

     99.1 Report of Robinson, Grimes & Company, P.C., dated January 31, 19997

     99.2 Report of Thigpen, Jones, Seaton & Co., P.C., dated January 28, 1998  
--------------------

     *    The indicated  exhibit is a compensatory  plan required to be filed as
          an exhibit to this Form 10-K.
   
     +    Portions of the  Company's  1998 Annual  Report,  as indicated in this
          report,  are  incorporated  herein by  reference.  Other than as noted
          herein,   the  Company's  1998  Annual  Report  is  furnished  to  the
          Securities and Exchange  Commission  solely for its information and is
          not deemed to be "filed" with the Securities  and Exchange  Commission
          or subject to the liabilities of Section 18 of the Securities Exchange
          Act of 1934, as amended.

                                       28
<PAGE>