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                                  Exhibit 10.4

                             CANCELLATION AGREEMENT

         THIS AGREEMENT is made on February 19, 2002 (the "Effective Date"), by
and among FLAG Financial Corporation, a Georgia corporation (the "Employer"),
and J. PRESTON MARTIN, a resident of the State of Georgia (the "Employee").


                                R E C I T A L S:
                                 - - - - - - - -


         The Employer and the Employee entered into that certain change in
control agreement dated as of April 1, 2001 (the "Change in Control Agreement").

         The parties wish to cancel the provisions of the Change in Control
Agreement.

         In consideration of the above premises and the mutual agreements
hereinafter set forth, good and valuable consideration, the receipt and the
parties hereto agree as follows:

         1. Cancellation of the Change in Control Agreement. The Employer and
the Employee agree to cancel all provisions of the Change in Control Agreement.
In addition, the Employee will tender his resignation as a member of the Board
of Directors of the Employer, with such resignation to be effective no later
than the Effective Date.

        2. Consideration. In full and complete consideration of the cancellation
of the Change in Control Agreement, and in full and complete settlement of any
and all obligations of the Employer to the Employee under the Change in Control
Agreement, the Employer shall provide Employee with the following:

                  (a) Purchase Price for the Change in Control Agreement. For
         the settlement of its obligations to the Employee under the Change in
         Control Agreement, the Employer shall pay to the Employee a lump-sum
         cash payment equal to $400,000, payable on the Effective Date or as
         soon as practicable thereafter;

                  (b) Transfer of Automobile. The title to the automobile
         currently made available by the Employer to the Employee for his use
         shall be transferred to the Employee on the Effective Date or as soon
         as practicable thereafter. The Employee acknowledges that the value of
         the automobile at the time of transfer will constitute imputed income
         to the Employee; and

                  (c) Transfer of Insurance Policy. As of or as soon as
         practicable after the Effective Date, the Employer shall transfer to
         the Employee ownership of that certain life insurance policy on the
         life of the Employee with a policy number of 4761757, issued by Woodmen
         of the World Insurance Society.
<PAGE>

         3.       Protective Covenants.
                  --------------------

                  (a) Confidential Information. As a management employee of the
         Employer, the Employee has access to Confidential Information (as
         defined herein). The Employee agrees to maintain the confidentiality of
         all Confidential Information throughout his employment with the
         Employer and its affiliates and for a period of twelve (12) months
         thereafter. For purposes of this Section, the term "Confidential
         Information" means data and information relating to the business of the
         Employer which is or has been disclosed to the Employee or of which the
         Employee has become aware as a consequence of or through his employment
         relationship with the Employer and which has value to the Employer and
         is not generally known to its competitors. Confidential Information
         shall not include any data or information that has been voluntarily
         disclosed to the public by the Employer (except where such public
         disclosure was effected by the Employee without authorization) or that
         has been independently developed and disclosed by others or that
         otherwise enters the public domain through lawful means.

                  (b) Covenant Not to Compete or Solicit Employees or Customers.
         The Employee agrees, acknowledges and understands that the nature, kind
         and character of the business conducted by the Employer is highly
         competitive. For the considerations contained herein, the Employee
         agrees that:

                           (1) during his employment with the Employer and its
                  affiliates and for a period of twenty-four (24) months
                  thereafter, the Employee will not:

                                    (i) within the Area, enter into any
                           employment relationship with any bank, thrift
                           institution, other entity providing financial
                           services or an affiliate of any of the foregoing in a
                           capacity identical with or substantially similar to
                           the capacity in which he was employed by the Employer
                           at the time of his termination of employment;

                                    (ii) directly or indirectly, on his own
                           behalf or in the service or on behalf of others,
                           solicit, divert, appropriate or attempt to solicit,
                           divert or appropriate, any business from any of the
                           Employer's customers with whom the Employee has had
                           material contact during the two (2) years immediately
                           preceding the Employee's termination of employment,
                           for purposes of providing products or services that
                           are competitive with those provided by the Employer;
                           or

                                    (iii) on his own behalf or in the service or
                           on behalf of others, solicit, recruit or hire away,
                           or attempt to solicit, recruit or hire away, directly
                           or by assisting others, any employee of the Employer,
                           whether or not such employee is a full-time employee,
                           part-time or temporary employee of the Employer, and
                           whether or not such employment is pursuant to a
                           written agreement or is for a determined period or at
                           will.


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<PAGE>

                           For purposes of this Subsection (1), "Area" shall
                  mean the geographic area within the boundaries of Dooly, Troup
                  and Upson Counties, Georgia. It is the express intent of the
                  parties that the Area as defined herein is the area where the
                  Employee performs services on behalf of the Employer as of the
                  Effective Date.

                           (2) by virtue of the duties and special knowledge of
                  the affairs and operations of the Employer that the Employee
                  has and will obtain as a result of his employment relationship
                  with the Employer, a breach or threatened breach by him of the
                  provisions of this covenant not to compete and not to solicit
                  employees or customers shall cause irreparable injury to the
                  Employer and shall entitle the Employer, in addition to any
                  other remedy, to injunctive relief against such breach or
                  threatened breach.

         The Employee acknowledges that the foregoing covenants are reasonable
and necessary to protect the interests of the Employer.

         4. Litigation. Each party agrees that no party, nor any person or
organization on the party's behalf, has filed, or assigned others the right to
file, nor are there pending, any complaints, charges, or lawsuits against any
other party, with any federal, state or local governmental agency or court.

        5. Assignment. This Agreement shall inure to the benefit of and be
binding upon the Employee and upon the Employer and its successors and assigns.
The Employee may not assign his rights and obligations hereunder without the
written consent of the Employer.

         6. Entire Agreement. This Agreement, embodies the entire agreement of
the parties hereto relating to the subject matter hereof and supersede any and
all prior agreements, including, but not limited to, the Change in Control
Agreement. No amendment or modification of this Agreement shall be valid or
binding upon the parties unless made in writing and signed by the parties
hereto.

        7. Governing Law. This Agreement shall be governed by and construed in
accordance with any applicable federal law and the substantive laws of the State
of Georgia, without reference to its conflict of laws provisions.

        8. No Defense. The existence of any claim or cause of action of the
Employee against the Employer, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Employer of
any covenant contained in this Agreement.

         9. No Contract of Employment. Nothing in this Agreement shall be
construed to constitute or be evidence of an agreement or understanding, express
or implied, on the part of the Employer to continue the Employee's employment
for any specific period of time. The Employee's employment with the Employer
shall be terminable at the will of the Employer, with or without "Cause." For
purposes of this Section, "Cause" means (a) conduct constituting fraud or
dishonesty resulting in financial harm to the Employer or any of its affiliates;
(b) conviction of a crime involving breach of trust, moral turpitude, theft or
fraud; (c) performance in job duties which results in Employee not attaining

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pre-determined goals and objectives; (d) failure to follow reasonable
instructions from the Employee's supervisor; or (e) the failure to perform the
duties assigned to the Employee.

        10. Survival. The obligations of the parties as expressly set forth in
Section 2 and 3 hereof shall survive the Executive's termination of employment
as an at-will employee.

        11. Notice. Except as otherwise required under this Agreement, any
notice required or permitted to be given pursuant to this Agreement shall be
sufficiently given:

                  (a) to the Employee if in writing and personally delivered, or
         mailed (and if mailed shall be deemed given three (3) business days
         after mailing) registered or certified mail addressed to the Employee
         at the Employee's residence as shown in the records of the Employer or
         at such address as the Employee shall designate in a written notice to
         the Employer; and

                  (b) to the Employer if in writing and personally delivered to
         the Chief Executive Officer of the Employer or mailed (and if mailed,
         shall be deemed given three (3) business days after mailing) registered
         or certified mail addressed to FLAG Financial Corp., 235 Corporate
         Center, Stockbridge, Georgia 30281, Attn: Chief Executive Officer.


         IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year set forth below.

                                               FLAG FINANCIAL CORPORATION

                                               By:      /s/ Joseph W. Evans
                                                        -------------------

                                               Title:   Chairman and CEO
                                                        -----------------------



                                               /s/ J. Preston Martin
                                               -----------------------
                                               J. PRESTON MARTIN