Flag Financial Corporation Reports Record $9.6 Million in 2005 Earnings.ATLANTA -- Flag Financial Corporation (Nasdaq: FLAG) today announced record net income for the year ended 2005 of $9.6 million, or $0.96 per diluted share, an increase of 30.0% from $7.4 million, or $0.82 per diluted share, when compared to the year ended 2004. Net income for the fourth quarter ended December 31, 2005 totaled $2.8 million, or $0.22 per diluted share, compared to $1.7 million, or $0.19 per diluted share, in the same period in 2004. Flag Financial completed its acquisition of First Capital Bancorp on November 21, 2005. The acquisition gives Flag Financial total assets of $1.7 billion and 26 offices in metro Atlanta, western and central Georgia. Results of operations from the former First Capital Bancorp are included in Flag Financial's fourth quarter and annual results from the date of the merger. Balance Sheet Growth Flag Financial's 2005 balance sheet growth is attributable to its merger with First Capital Bancorp and its continued organic growth. Flag Financial ended 2005 with total assets of $1.7 billion, an increase of 105.8% from December 31, 2004. Gross loans outstanding at quarter-end were $1.2 billion, an increase of $617.1 million or 102.1% over December 31, 2004. Deposits increased to $1.3 billion at December 31, 2005, an increase of $577.1 million or 81.6% over the same date in the prior year. Gross loans and deposits attributable to the merger with First Capital Bancorp totaled $492.0 million and $465.2 million, respectively. Flag Financial initiated a repositioning of its balance sheet designed to further reduce its exposure to an anticipated continued increase in interest rates and to improve net interest margin and net interest income levels. In the fourth quarter ended December 31, 2005, Flag Financial sold $67.6 million in fixed-rate investments with an average yield of 4.0% and recognized an after-tax charge to earnings of $740,000, or $0.07 per diluted share. Proceeds will be reinvested in a combination of fixed-rate and variable rate investments with a higher average yield. Net Interest Income Net interest income in 2005 increased $9.2 million or 30.0% to $39.7 million, compared to $30.6 million in 2004. Strong loan growth is the primary factor in the increase in net interest income in 2005 compared to 2004. In 2005, interest on loans increased $18.7 million to $55.8 million, compared to $37.1 million in 2004. The yield on loans increased 98 basis points to 7.86% in 2005, compared to 6.88% in 2004. In 2005, interest on deposits increased $9.9 million to $20.7 million, compared to $10.8 million in 2004. The cost of deposits increased 92 basis points to 2.82% in 2005, compared to 1.90% in 2004. Net interest income for the fourth quarter ended December 31, 2005, increased $3.4 million or 40.1% to $11.8, million compared to $8.4 million in the same period last year. Noninterest Income Noninterest income totaled $9.5 million in 2005, a decrease of $2.0 million or 17.5%, compared to $11.5 million in 2004. Noninterest income in 2005 includes pre-tax losses on sales of investment securities of $1.1 million. As discussed previously, Flag Financial initiated a repositioning of its balance sheet in the fourth quarter ended December 31, 2005 and sold $67.6 million in fixed-rate investments recognizing pre-tax losses on sales of investment securities of $1.2 million. In 2005, other noninterest income included fees generated by Payroll Solutions totaling $2.2 million and gains on sales of other real estate owned totaling $515,000. Included in 2004 noninterest income, is a $3.0 million gain on the sale of Flag Financial's Thomaston, Georgia, branch, gains on sales of investment securities of $700,000 and gains on sales of other real estate owned of $150,000. Noninterest income for the fourth quarter ended December 31, 2005, decreased $696,000 or 36.0% to $1.2 million, compared to $1.9 million in the same quarter last year. The primary factors driving this decrease are the losses on sales of investment securities discussed above. Somewhat offsetting the losses on sales of investments securities in the fourth quarter ended December 31, 2005, are fees generated by Payroll Solutions totaling $553,000. Noninterest Expense Noninterest expense increased to $34.3 million in 2005, an increase of $4.8 million or 16.2%, compared to $29.5 million in 2004. Salaries and employee benefits increased $3.0 million, primarily as a result of an increase in production personnel in metro Atlanta and the addition of Payroll Solutions. These additions were also a driving factor in increases in other noninterest expenses including occupancy and communications and data. Noninterest expense increased $1.4 million or 18.7% to $8.9 million for the fourth quarter ended December 31, 2005, compared to $7.5 million in the same period last year, with the driving factors being the same as those noted for the year. Credit Quality Nonperforming assets were at 0.41% of total assets at December 31, 2005, compared to 0.64% at December 31, 2004. Annualized net recoveries to average loans were at 0.14% for the year ended December 31, 2005, compared to annualized net charge-offs of 0.06% for the year ended December 31, 2004. In the fourth quarter ended December 31, 2005, Flag Financial made a $1.4 million recovery of a 2003 loan charge-off. The allowance for loan losses totaled $16.8 million at December 31, 2005, compared to $8.6 million at December 31, 2004. The allowance for loan losses represented 1.37% of gross loans at December 31, 2005, compared to 1.42% of gross loans at December 31, 2004. While the allowance for loan loss to gross loans decreased, the ratio of the allowance for loan losses to nonperforming assets increased to 2.89 times compared to 2.00 times. The increase in coverage corresponds directly with the improvement in credit quality during 2005. Loan loss provision for the year ended December 31, 2005, totaled $750,000, compared to $1.8 million for the year ended December 31, 2004. Flag Financial Corporation is a bank holding company whose wholly owned subsidiary is Flag Bank (www.flagbank.com). The Flag Financial franchise consists of 26 offices, including 17 full-service banking offices and seven mortgage/loan production offices in 15 Georgia counties. In addition to traditional banking services, Flag Bank provides payroll services nationally to businesses through its Payroll Solutions division, and through its Smartstreet division, offers custom banking and cash management services for community associations and management companies throughout the United States. Flag Financial's common stock is traded on the NASDAQ Stock Market under the ticker "FLAG." Except for historical information contained herein, the matters discussed in this press release consist of forward-looking information under the Private Securities Litigation Reform Act of 1995. The accuracy of the forward-looking information is necessarily subject to and involves risks and uncertainties, which could cause actual results to differ materially from the forward-looking information. These risks and uncertainties include, but are not limited to, unforeseen general economic conditions, potential difficulties in the execution of Flag Financial's business and growth strategies, difficulties in integrating the First Capital acquisition, competitive risks and other factors set forth from time to time in Flag Financial's filings with the Securities and Exchange Commission. When used in this release, the words "believes," "estimates," "plans," "expects," "should," "will," "may," "might," "outlook," and "anticipates" are similar expressions as they relate to Flag Financial (including its subsidiaries), or its management, and are intended to identify forward-looking statements. Flag Financial from time to time becomes aware of rumors concerning its business, prospects and results of operations. As a matter of policy, Flag Financial does not comment on rumors. Investors are cautioned that in this age of instant communication and Internet access, it may be important to avoid relying on rumors and other unsubstantiated information. Flag Financial complies with federal and state laws applicable to the disclosure of information concerning its business, prospects and results of operations. Investors may be at significant risk in relying on unsubstantiated information from other sources.
Flag Financial Corporation and Subsidiary
Financial Summary
(Dollars in thousands except per share information)
(Unaudited)
----------------------------------------------------------------------
Three Months Ended
December 31,
2005 2004
--------------- ----------------
Interest income $ 20,491 $ 12,063
Interest expense 8,688 3,639
--------------- ----------------
Net interest income 11,803 8,424
Provision for loan losses - 375
--------------- ----------------
Net interest income after
provision 11,803 8,049
Noninterest income 1,235 1,931
Noninterest expense 8,888 7,490
--------------- ----------------
Income before taxes 4,150 2,490
Provision for income taxes 1,344 798
--------------- ----------------
Net income $ 2,806 $ 1,692
=============== ================
Per Common Share:
Basic earnings per share $ 0.23 $ 0.20
Diluted earnings per share 0.22 0.19
Cash dividends declared 0.06 0.06
Book value at quarter end 11.79 8.14
Tangible book value at quarter end 5.32 5.68
Performance Ratios:
Net interest margin, taxable
equivalent 4.05% 4.62%
Yield on interest-earning assets 7.01% 6.59%
Cost of interest-bearing liabilities 3.35% 2.16%
Efficiency ratio 68.68% 72.66%
Net overhead ratio 2.40% 2.83%
Return on average assets 0.88% 0.86%
Return on average equity 8.65% 10.25%
Credit Quality Ratios:
Allowance for loan losses $ 16,779 $ 8,602
Nonperforming assets 6,937 5,310
Allowance for loan losses to loans 1.37% 1.42%
Nonperforming assets to total assets 0.41% 0.64%
Net (recoveries) charge-offs (811) 101
Net (recoveries) charge-offs to
average loans (0.35)% 0.07%
At Quarter End:
Gross loans outstanding $ 1,221,825 $ 604,703
Mortgage loans-held-for-sale 11,665 10,688
Total assets 1,697,079 828,337
Interest-earnings assets 1,510,661 772,386
Deposits 1,283,952 706,847
Shareholders' equity 199,018 69,202
Average Balances:
Gross loans outstanding $ 916,634 $ 566,691
Mortgage loans-held-for-sale 9,003 6,156
Total assets 1,276,883 786,976
Interest-earning assets 1,166,315 733,709
Deposits 1,018,107 670,725
Shareholders' equity 129,803 66,016
Flag Financial Corporation and Subsidiary
Financial Summary
(Dollars in thousands except per share information)
(Unaudited)
----------------------------------------------------------------------
Twelve Months Ended
December 31,
2005 2004
--------------- ----------------
Interest income $ 63,275 $ 42,621
Interest expense 23,530 12,057
--------------- ----------------
Net interest income 39,745 30,564
Provision for loan losses 750 1,845
--------------- ----------------
Net interest income after
provision 38,995 28,719
Noninterest income 9,463 11,468
Noninterest expense 34,282 29,509
--------------- ----------------
Income before taxes 14,176 10,678
Provision for income taxes 4,600 3,310
--------------- ----------------
Net income $ 9,576 $ 7,368
=============== ================
Per Common Share:
Basic earnings per share $ 1.01 $ 0.88
Diluted earnings per share 0.96 0.82
Cash dividends declared 0.24 0.24
Performance Ratios:
Net interest margin, taxable
equivalent 4.50% 4.48%
Yield on interest-earning assets 7.13% 6.23%
Cost of interest-bearing liabilities 2.94% 1.92%
Efficiency ratio 69.67% 70.21%
Net overhead ratio 2.58% 3.24%
Return on average assets 0.99% 0.99%
Return on average equity 11.12% 11.19%
Average Balances:
Gross loans outstanding $ 703,880 $ 536,635
Mortgage loans-held-for-sale 8,710 4,867
Total assets 963,281 743,082
Interest-earning assets 892,598 690,187
Deposits 804,854 612,712
Shareholders' equity 86,111 65,854
Flag Financial Corporation and Subsidiary
Consolidated Balance Sheets
(Dollars in thousands, except share data)
----------------------------------------------------------------------
December 31, December 31,
2005 2004
--------------- ----------------
(unaudited) (audited)
Assets
Cash and due from banks $ 45,506 $ 13,345
Other interest-bearing deposits in
banks 2,085 13,397
Federal funds sold 23,184 13,574
--------------- ----------------
Total cash and cash equivalents 70,775 40,316
--------------- ----------------
Other interest-bearing deposits in
banks 4,698 5,473
Investment securities available-for-
sale 228,442 111,390
Other investments 18,762 13,161
Mortgage loans held-for-sale 11,665 10,688
Loans, net of allowance for loan
losses of $16,779 and $8,602,
respectively 1,205,046 596,101
Premises and equipment, net 13,985 14,458
Intangible assets 109,252 20,919
Other assets 34,454 15,831
--------------- ----------------
Total assets $ 1,697,079 $ 828,337
=============== ================
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing deposits $ 172,725 $ 48,812
Interest-bearing demand deposits 532,464 347,940
Savings 19,450 20,940
Time 559,313 289,155
--------------- ----------------
Total deposits 1,283,952 706,847
--------------- ----------------
Advances from Federal Home Loan Bank 143,469 25,000
Federal funds purchased and
repurchase agreements 4,142 2,295
Other borrowings - 4,300
Junior subordinated debentures 46,599 14,433
Other liabilities 19,899 6,260
--------------- ----------------
Total liabilities 1,498,061 759,135
--------------- ----------------
Preferred stock, 10,000,000 shares
authorized, none issued and
outstanding - -
Common stock, $1 par value,
20,000,000 shares authorized,
18,425,034 and 10,053,572 shares
issued at December 31, 2005 and
December 31, 2004, respectively 18,425 10,054
Additional paid-in capital 142,280 27,954
Retained earnings 51,692 44,642
Accumulated other comprehensive
income 125 56
Less: Treasury stock at cost;
1,551,186 shares at December 31,
2005 and 2004 (13,504) (13,504)
--------------- ----------------
Total stockholders' equity 199,018 69,202
--------------- ----------------
Total liabilities and
stockholders' equity $ 1,697,079 $ 828,337
=============== ================
Flag Financial Corporation and Subsidiary
Consolidated Statements of Earnings
(Dollars in thousands, except per share data)
Three Months Twelve Months
Ended Ended
December 31, December 31,
2005 2004 2005 2004
-------- -------- -------- --------
(unaudited)
Interest income:
Interest and fees on loans $17,695 $10,753 $55,815 $37,066
Interest on investment
securities 2,154 1,136 5,873 5,061
Interest on federal funds sold
and other interest-bearing
deposits in banks 642 174 1,587 494
-------- -------- -------- --------
Total interest income 20,491 12,063 63,275 42,621
-------- -------- -------- --------
Interest expense:
Interest on deposits:
Demand 2,936 1,533 8,899 5,108
Savings 33 31 131 130
Time 4,345 1,734 11,714 5,591
Interest on other borrowings 1,374 341 2,786 1,228
-------- -------- -------- --------
Total interest expense 8,688 3,639 23,530 12,057
-------- -------- -------- --------
Net interest income
before provision for
loan losses 11,803 8,424 39,745 30,564
Provision for loan losses - 375 750 1,845
-------- -------- -------- --------
Net interest income after
provision for loan
losses 11,803 8,049 38,995 28,719
-------- -------- -------- --------
Noninterest income:
Service charges on deposit
accounts 833 864 3,261 3,660
Mortgage banking activities 677 541 2,834 2,410
Insurance commissions and
brokerage fees 53 63 251 501
Gain on sale of branch - - - 3,000
(Loss) gain on sales of other
real estate owned (43) 150 515 150
(Loss) gain on sales of
investment securities
available-for-sale (1,193) - (1,064) 700
Other 908 313 3,666 1,047
-------- -------- -------- --------
Total noninterest income 1,235 1,931 9,463 11,468
-------- -------- -------- --------
Noninterest expense:
Salaries and employee benefits 4,969 4,356 20,728 17,703
Occupancy 1,060 932 3,975 3,679
Professional fees 479 460 1,941 1,277
Postage, printing and supplies 388 221 1,122 914
Communications 764 482 2,412 2,152
Other 1,228 1,039 4,104 3,784
-------- -------- -------- --------
Total noninterest expense 8,888 7,490 34,282 29,509
-------- -------- -------- --------
Earnings before provision
for income taxes 4,150 2,490 14,176 10,678
Provision for income taxes 1,344 798 4,600 3,310
-------- -------- -------- --------
Net earnings $ 2,806 $ 1,692 $ 9,576 $ 7,368
======== ======== ======== ========
Basic earnings per share $ 0.23 $ 0.20 $ 1.01 $ 0.88
======== ======== ======== ========
Diluted earnings per share $ 0.22 $ 0.19 $ 0.96 $ 0.82
======== ======== ======== ========
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