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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q [X]
    
    Quarterly Report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 for the quarterly period ended
March 31, 2004
 [   ]
    
    Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from  to
 Commission file number: 000-30805 WGNB CORP. 
  Georgia
    
    58-1640130(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 201 Maple Street
P.O. Box 280
Carrollton, Georgia 30112 
  (770) 832-3557 
  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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [   ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [   ] No [X] Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date: Class
    
    Outstanding at May 10, 2004Common Stock, $1.25 par value
    
    3,307,123




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WGNB CORP. INDEX TO FORM 10-Q Item Numberin Form 10-Q
    
    Description
    
    PagePart One
    
    Financial InformationItem 1.
    
    Financial StatementsConsolidated Balance Sheets at March 31, 2004 and December 31, 2003
    
    
    2Consolidated Statements of Earnings for Three Months ended March 31, 2004 and March 31, 2003
    
    
    3Consolidated Statements of Comprehensive Income for Three Months ended March 31, 2004 and March 31, 2003
    
    
    4Consolidated Statements of Cash Flows for Three Months ended March 31, 2004 and March 31, 2003
    
    
    5Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    12Item 4.
    
    Controls and Procedures
    
    
    13Part Two
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    14Item 2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchase of Equity Securities
    
    
    14Item 3.
    
    Defaults Upon Senior Securities
    
    
    14Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    14Item 5.
    
    Other Information
    
    
    14Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    15Signatures
    
    
    16EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO




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Part I  Financial Information 
 Item 1. Financial Statements The unaudited financial statements of WGNB Corp. (the Company) are set
forth on the following pages. All adjustments have been made which, in the
opinion of management, are necessary in order to make the financial statements
not misleading. 1




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WGNB CORP. 
 Consolidated Balance Sheets
 As of March 31, 2004 and December 31, 2003
(unaudited) March 31,
    
    December 31,2004
    
    2003AssetsCash and cash due from banks, including reserve requirements
Of $100,000
    
    $
    14,339,605
    
    
    
    15,564,312Federal funds sold
    
    
    14,166,155
    
    
    
    11,671,486Cash and cash equivalents
    
    
    28,505,760
    
    
    
    27,235,798Securities available for sale
    
    
    55,311,816
    
    
    
    55,276,742Securities held to maturity
    
    
    4,750,000
    
    
    
    4,250,000Loans, net
    
    
    315,694,774
    
    
    
    292,564,759Premises and equipment, net
    
    
    6,611,497
    
    
    
    6,762,895Accrued interest receivable
    
    
    1,954,349
    
    
    
    1,939,028Other assets
    
    
    6,172,668
    
    
    
    5,186,689$
    419,000,864
    
    
    
    393,215,911Liabilities and Stockholders EquityDeposits:Demand
    
    $
    41,784,919
    
    
    
    40,181,696Interest bearing demand
    
    
    137,877,460
    
    
    
    138,337,540Savings
    
    
    11,462,150
    
    
    
    11,215,937Time
    
    
    89,950,113
    
    
    
    82,537,712Time, over $100,000
    
    
    35,789,158
    
    
    
    31,043,295Total deposits
    
    
    316,863,800
    
    
    
    303,316,180Federal Home Loan Bank advances
    
    
    55,000,000
    
    
    
    45,000,000Accrued interest payable
    
    
    1,061,261
    
    
    
    1,028,269Other liabilities
    
    
    2,842,656
    
    
    
    1,782,200Total liabilities
    
    
    375,767,717
    
    
    
    351,126,649CommitmentsStockholders equity:Common stock, $1.25 par value, 10,000,000 shares authorized;
3,307,123 and 3,306,452 shares issued and outstanding
    
    
    4,133,904
    
    
    
    4,133,065Additional paid-in capital
    
    
    5,292,868
    
    
    
    5,287,947Retained earnings
    
    
    31,986,546
    
    
    
    31,279,245Accumulated comprehensive income
    
    
    1,819,829
    
    
    
    1,389,005Total stockholders equity
    
    
    43,233,147
    
    
    
    42,089,262$
    419,000,864
    
    
    
    393,215,911
 See accompanying notes to consolidated financial statements. 2




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WGNB CORP. 
 Consolidated Statements of Earnings
 For the Three Months Ended March 31, 2004 and 2003
(unaudited) For the Three MonthsEnded March 31,2004
    
    2003Interest income:Interest and fees on loans
    
    $
    5,118,896
    
    
    
    5,047,958Interest on federal funds sold
    
    
    24,907
    
    
    
    79,214Interest on investment securities:U.S. Government agencies
    
    
    263,689
    
    
    
    307,199State, county and municipal
    
    
    348,382
    
    
    
    325,710Other
    
    
    144,296
    
    
    
    147,883Total interest income
    
    
    5,900,170
    
    
    
    5,907,964Interest expense:Interest on deposits:Demand
    
    
    259,246
    
    
    
    268,334Savings
    
    
    10,290
    
    
    
    18,312Time
    
    
    829,344
    
    
    
    1,110,362Interest on FHLB and other borrowings
    
    
    654,734
    
    
    
    608,875Total interest expense
    
    
    1,753,614
    
    
    
    2,005,883Net interest income
    
    
    4,146,556
    
    
    
    3,902,081Provision for loan losses
    
    
    150,000
    
    
    
    75,000Net interest income after provision
for loan losses
    
    
    3,996,556
    
    
    
    3,827,081Other income:Service charges on deposit accounts
    
    
    953,713
    
    
    
    838,447Mortgage origination fees
    
    
    127,240
    
    
    
    241,913Miscellaneous
    
    
    281,957
    
    
    
    244,251Total other income
    
    
    1,362,910
    
    
    
    1,324,611Other expenses:Salaries and employee benefits
    
    
    1,950,073
    
    
    
    1,843,005Occupancy
    
    
    506,405
    
    
    
    409,589Other operating
    
    
    991,504
    
    
    
    940,203Total other expenses
    
    
    3,447,982
    
    
    
    3,192,797Earnings before income taxes
    
    
    1,911,484
    
    
    
    1,958,895Income taxes
    
    
    600,633
    
    
    
    603,861Net earnings
    
    $
    1,310,851
    
    
    
    1,355,034Basic earnings per share
    
    $
    .40
    
    
    
    .41Diluted earnings per share
    
    $
    .39
    
    
    
    .40Dividends declared per share
    
    $
    .18
    
    
    
    .16
 See accompanying notes to consolidated financial statements. 3




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WGNB CORP. 
 Consolidated Statements of Comprehensive Income
 For the Three Months Ended March 31, 2004 and 2003
(unaudited) For the Three MonthsEnded March 31,2004
    
    2003Net earnings
    
    $
    1,310,851
    
    
    
    1,355,034Other comprehensive income, net of tax:Unrealized gains on investment
securities available for sale:Unrealized gains arising during
the period
    
    
    652,764
    
    
    
    211,583Associated taxes
    
    
    (221,940
    )
    
    
    (71,938
    )Other comprehensive income
    
    
    430,824
    
    
    
    139,645Comprehensive income
    
    $
    1,741,675
    
    
    
    1,494,679
 See accompanying notes to consolidated financial statements. 4




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WGNB CORP. 
 Consolidated Statements of Cash Flows
 For the Three Months Ended March 31, 2004 and 2003 For the Three MonthsEnded March 31,2004
    
    2003Cash flows from operating activities:Net earnings
    
    $
    1,310,851
    
    
    
    1,355,034Adjustments to reconcile net earnings to net cash
Provided by operating activities:Depreciation, amortization and accretion
    
    
    279,817
    
    
    
    247,270Provision for loan losses
    
    
    150,000
    
    
    
    75,000Gain on sale of premises and equipment
    
    
    (3,430
    )
    
    
    Loss on sale of other real estate owned
    
    
    44,447
    
    
    
    Change in:Other assets
    
    
    (1,302,135
    )
    
    
    (64,303
    )Other liabilities
    
    
    1,070,641
    
    
    
    845,329Net cash provided by operating activities
    
    
    1,550,191
    
    
    
    2,458,330Cash flows from investing activities:Proceeds from maturities of securities available for sale
    
    
    4,112,173
    
    
    
    3,454,080Purchases of securities available for sale
    
    
    (3,540,300
    )
    
    
    (4,923,868
    )Purchases of securities held to maturity
    
    
    (500,000
    )
    
    
    (500,000
    )Net change in loans
    
    
    (23,385,183
    )
    
    
    (12,161,590
    )Purchases of premises and equipment
    
    
    (82,602
    )
    
    
    (640,039
    )Proceeds from the sale of premises and equipment
    
    
    3,430
    
    
    
    Proceeds from the sale of other real estate owned
    
    
    139,616
    
    
    
    Net cash used by investing activities
    
    
    (23,252,866
    )
    
    
    (14,771,417
    )Cash flows from financing activities:Net change in deposits
    
    
    13,547,620
    
    
    
    2,106,893Increase in borrowings
    
    
    10,000,000
    
    
    
    Dividends paid
    
    
    (580,743
    )
    
    
    (513,717
    )Exercise of stock options
    
    
    28,760
    
    
    
    46,045Retirement of common stock
    
    
    (23,000
    )
    
    
    (46,045
    )Net cash provided by financing activities
    
    
    22,972,637
    
    
    
    1,593,176Change in cash and cash equivalents
    
    
    1,269,962
    
    
    
    (10,719,911
    )Cash and cash equivalents at beginning of period
    
    
    27,235,798
    
    
    
    47,667,210Cash and cash equivalents at end of period
    
    $
    28,505,760
    
    
    
    36,947,299
 See accompanying notes to consolidated financial statements. 5




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WGNB CORP.
Consolidated Statements of Cash Flows, continued For the Three Months Ended March 31, 2004 and 2003
(unaudited) For the Three MonthsEnded March 31,2004
    
    2003Supplemental disclosure of cash flow information:Cash paid during the period for:Interest
    
    $
    1,720,622
    
    
    
    1,913,547Income taxes
    
    
    88,000
    
    
    
    60,000Non-cash investing and financing activities:Transfer of loans to other real estate
    
    
    105,168
    
    
    
    Change in unrealized gains (losses) on securities
available for sale, net of tax
    
    
    430,824
    
    
    
    139,645Change in dividends payable
    
    
    22,807
    
    
    
    15,829
 See accompanying notes to consolidated financial statements. 6




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WGNB Corp. 
 Notes to Consolidated Financial Statements NOTE (1)  BASIS OF PRESENTATION The consolidated financial statements include the accounts of WGNB Corp.
(the Company) and its wholly-owned subsidiary, West Georgia National Bank
(the Bank). All significant inter-company accounts have been eliminated in
consolidation. In some cases, certain prior period amounts have been
reclassified to conform with current year presentation. The accompanying unaudited interim consolidated financial statements
reflect all adjustments which, in the opinion of management, are necessary to
present fairly the Companys financial position as of March 31, 2004, and the
results of its operations and its cash flows for the three-month period then
ended. All such adjustments are normal and recurring in nature. The financial
statements included herein should be read in conjunction with consolidated
financial statements and the related notes and the report of independent
accountants included in the Companys filing on Form 10-K which included the
results of operations for the years ended December 31, 2003, 2002 and 2001. NOTE (2)  NET EARNINGS PER SHARE Basic earnings per share is based on the weighted average number of common
shares outstanding during the period while the effects of potential common
shares outstanding during the period are included in diluted earnings per
share. The average market price during the year is used to compute equivalent
shares. Reconciliation of the amounts used in the computation of both basic
earnings per share and diluted earnings per share for the quarter ended
March 31, 2004 and March 31, 2003 are as follows: For the three months ended March 31, 2004EarningsNet Earnings
    
    Common Shares
    
    per ShareBasic earnings per share
    
    $
    1,310,851
    
    
    
    3,306,793
    
    
    $
    .40Effect of dilutive securities  Stock Options
    
    
    
    
    
    
    50,594
    
    
    
    .01Diluted earnings per share
    
    $
    1,310,851
    
    
    
    3,357,387
    
    
    $
    .39
 For the three months ended March 31, 2003EarningsNet Earnings
    
    Common Shares
    
    per ShareBasic earnings per share
    
    $
    1,355,034
    
    
    
    3,307,296
    
    
    $
    .41Effect of dilutive securities  Stock Options
    
    
    
    
    
    
    44,237
    
    
    
    .01Diluted earnings per share
    
    $
    1,355,034
    
    
    
    3,351,533
    
    
    $
    .40
 7




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WGNB Corp. Notes to Consolidated Financial Statements, continued NOTE (3)  STOCK COMPENSATION PLANS SFAS No. 123, Accounting for Stock-Based Compensation, encourages all
entities to adopt a fair value based method of accounting for employee stock
compensation plans, whereby compensation cost is measured at the grant date
based on the value of the award and is recognized over the service period,
which is usually the vesting period. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, whereby compensation cost
is the excess, if any, of the quoted market price of the stock at the grant
date (or other measurement date) over the amount an employee must pay to
acquire the stock. Stock options issued under the Companys stock option plan
have no intrinsic value at the grant date, and under Opinion No. 25 no
compensation cost is recognized for them. The Company has elected to continue
with the accounting methodology in Opinion No. 25 and, as a result, has
provided proforma disclosures of net income and earnings per share and other
disclosures, as if the fair value based method of accounting had been applied.
Had compensation cost for the plan been determined based upon the fair value
of the options at the grant dates, the Companys net earnings per share for the
quarters ended March 31, 2004 and 2003 would have been reduced to the proforma
amounts indicated below: 2004
    
    2003Net earnings
    
    As reported
    
    $
    1,310,851
    
    
    
    1,355,034Proforma
    
    $
    1,216,097
    
    
    
    1,205,320Net earnings per share
    
    As reported
    
    $
    .40
    
    
    
    .41Proforma
    
    $
    .37
    
    
    
    .36Diluted earnings per share
    
    As reported
    
    $
    .39
    
    
    
    .40Proforma
    
    $
    .36
    
    
    
    .36
 The fair value of each option is estimated on the date of the grant using
the Black-Scholes Model. The following weighted average assumptions were used
for grants in 2004 and 2003, respectively: dividend yield of 2.43% and 2.41%,
risk free interest rates of 4.12% and 3.90%, respectively, and an expected life
of 10 years. For disclosure purposes, the Company immediately recognized the
expense associated with the option grants assuming that all awards will vest.
The compensation expense included in the proforma results was determined based
on the fair value of the option at the time of grant multiplied by the number
of options granted net of tax effect. 8




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Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition The following analysis compares WGNB Corp.s results of operations for the
three month periods ended March 31, 2004 and 2003 and reviews important factors
affecting WGNB Corp.s financial condition at March 31, 2004, compared to
December 31, 2003. These comments should be read in conjunction with the
Companys consolidated financial statements and accompanying notes appearing in
this report. Cautionary Notice Regarding Forward-Looking Statements Certain of the statements made in this report 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, as well as oral statements made by WGNB Corp. (the Company) or
its officers, directors or employees, may constitute forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act). Such forward-looking statements are based on
managements beliefs, current expectations, estimates and projections about the
financial services industry, the economy and about the Company and the Bank in
general. The words expect, anticipate, intend, plan, believe,
seek, estimate and similar expressions are intended to identify such
forward-looking statements. Such forward-looking statements are not guarantees
of future performance and are subject to risks, uncertainties and other factors
that may cause the actual results, performance or achievements of the Company
to differ materially from historical results or from any results expressed or
implied by such forward-looking statements. The Company cautions readers that
the following important factors, among others, could cause the Companys actual
results to differ materially from the forward-looking statements contained in
this Report:       the effect of changes in laws and regulations, including federal and
state banking laws and regulations, with which the Company or the Bank must
comply, and the associated costs of compliance with such laws and regulations
either currently or in the future as applicable;       the effect of changes in accounting policies, standards, guidelines or
principles, as may be adopted by the regulatory agencies as well as by the
Financial Accounting Standards Board;       the effect of changes in the Companys organization, compensation and
benefit plans;       the effect on the Companys competitive position within its market area
of the increasing consolidation within the banking and financial services
industries, including the increased competition from larger regional and
out-of-state banking organizations as well as non-bank providers of various
financial services;       the effect of changes in interest rates;       the effect of changes in the business cycle and downturns in local, regional or national economies;       the matters described under Part I, Item 1, Business  Business Risks of
the Companys Annual Report on Form 10-K for the year ended December 31, 2003. The Company cautions that the foregoing list of important factors is not
exclusive. The Company undertakes no obligation to publicly update or revise
any forward-looking statements. Critical Accounting Policies The Company has established various accounting policies which govern the
application of accounting principles generally accepted in the United States in
the preparation of its financial statements. These significant accounting
policies are described in the notes to the consolidated financial statements
filed with the Companys Annual Report on Form 10-K for the year ended December
31, 2003 (the Notes). Certain accounting policies involve significant
judgments and assumptions by management which have a material impact on the
carrying value of certain assets and liabilities; management considers these
accounting policies to be critical accounting policies. The judgments and
assumptions used by management are based on historical experience and other
factors, which are believed to be reasonable under the circumstances. Because
of the nature of the judgments and assumptions made by management, actual
results could differ from these judgments and estimates which could have a
material impact on the carrying value of assets and liabilities and the results
of operations of the Company. All accounting policies are important, and all
policies described in Notes should be reviewed for a greater understanding of
how the Companys financial performance is recorded and reported. 9




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The Company believes the allowance for loan losses is a critical
accounting policy that requires the most significant judgments and estimates
used in the preparation of the Companys consolidated financial statements.
The allowance for loan losses represents managements estimate of probable loan
losses inherent in the loan portfolio. Calculation of the allowance for loan
losses is a critical accounting estimate due to the significant judgment,
assumptions and estimates related to the amount and timing of estimated losses,
consideration of current and historical trends and the amount and timing of
cash flows related to impaired loans. Please refer to the section of the
Companys Annual Report on 10-K for the year ended December 31, 2003 entitled
Balance Sheet Overview  Provision and Allowance for Possible Loan and Lease
Losses and Note 1 and Note 3 to the Notes for a detailed description of the
Companys estimation processes and methodology related to the allowance for
loan losses. Results of Operations Overview Net earnings for the three months ended March 31, 2004 was $1,310,851,
which represented a decrease of $44,000, or 3.2 percent, when compared to the
three months ended March 31, 2003. Comparing the first quarter of 2004 to the
first quarter of 2003, the decrease in earnings has several components. Net
interest income increased $244,000, or 6.2 percent, comparing the two first
quarter periods. However, the provision for loan losses doubled (from $75,000
to $150,000) in the first quarter of 2004 from the first quarter of 2003.
While total non-interest income increased by $38,000, or 2.9 percent, mortgage
fee income decreased $115,000, or 47 percent, comparing the first quarter 2004
to 2003. In addition, non-interest expense increased $255,000, or 8.0 percent,
comparing the same two periods. Each of these components is discussed in
detail in the following narrative. Net Interest Income The net interest margin for the Company has increased since 2003. While
year to date earning asset yields have stabilized in 2004 (6.61 percent in 2004
and 6.64 percent in 2003) after a 24 month decline, the year to date cost of
funds has decreased by thirty basis points (2.03 percent in 2004 and 2.33
percent in 2003). The net interest margin for the first quarter of 2004 was
4.70 percent, compared to 4.44 percent for the first quarter of 2003. Despite
continued low interest rates, the Banks interest margin has actually
increased. Management recognized the potential impact of a prolonged low rate
environment in 2001 and actively managed the balance sheet to minimize interest
rate risk. Net interest income increased by $244,000 from the first quarter
ended March 31, 2003 compared to the same period in 2004. This increase is
primarily attributable to a decrease in interest expense of $252,000. Most of
that reduction is attributable to interest expense on time deposits. As time
deposits matured, they repriced downward to be reflective of lower market
rates. By way of comparison, the year to date average cost of time deposits
through the first quarter of 2004 was 2.89 percent and the year to date average
cost of time deposits in the first quarter of 2003 was 3.49 percent, almost one
hundred basis points higher. The year to date yield on earning assets has decreased by only three basis
points comparing the two first quarter periods. The earning asset mix has
shifted from 23 percent investment securities and 77 percent loans in 2003 to
19 percent investment securities and 81 percent loans in 2004. This will have
the effect of increasing the yield on earning assets as loans traditionally
carry higher yields than investment securities. The year to date average
balance of loans has increased by $24 million, or 8.6 percent, from the first
quarter ended March 31, 2003 to the same period in 2004. During that same time
period, the year to date average balance of investment securities including
federal funds sold has declined $16 million, or 19 percent. Management is
currently attempting to position the Banks balance sheet to benefit from
anticipated future increases in interest rates by, to the extent possible,
lengthening the repricing ability of liabilities and shortening the repricing
ability of assets. A prolonged low interest rate environment is expected to
have a detrimental impact on the net interest margin as loan and investment
yields decline and the cost of funds reaches an economic floor. Non-Interest Income and Expense Non-interest income increased by $38,000, or 2.9 percent, when comparing
the first quarter of 2004 to first quarter of 2003. Service charges on deposit
accounts increased by $115,000, mortgage origination fees decreased by $115,000
and other income increased by $38,000. Service charge income, which includes
overdraft charges, remains good and is attributable to collection efforts.
Mortgage origination volume has decreased since refinance volume has subsided.
In the first quarter of 2003, the Bank was in the middle of a resurgence of
refinance activity caused by a reduction in mortgage rates. Since the last
half of 2003, however, mortgage origination activity has slowed as reflected in
the 2004 results. When comparing non-interest expense for the three month periods ended
March 31, 2004 and 2003, there was a 10




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$255,000, or 8.0 percent, increase. That increase was made up of a $107,000,
or 5.8 percent, increase in salaries and benefits which was attributable to
increases in salaries and bonuses for existing officers and employees, an
increase in fulltime equivalent employees and higher benefits costs associated
with health insurance. Occupancy expense in the first quarter of 2004
increased $97,000 when compared to the first quarter of 2003. The increase in
occupancy expense was attributable primarily to increased depreciation expense,
an expected result of the main office and branch upgrades which were placed in
service in the middle of 2003. In addition, the Bank elected to perform other
repairs and maintenance in the first quarter of 2004 which normally would have
been deferred until later in the year. Other operating expense increased
approximately $51,000 from the first quarter of 2003 to the first quarter of
2004. This increase was primarily attributable to professional services and
legal fees associated with the management change that occurred in the first
quarter of 2004 and disclosed in Part II, Item 5 of this report. Income Taxes Income tax expense for the first three months of each year was $601,000 in
2004, and $604,000 in 2003. The effective tax rates for each of the periods
ended March 31, 2004 and 2003 were 31.4 percent and 30.8 percent, respectively. Provision and Allowance for Loan Losses The adequacy of the allowance for loan losses is determined through
managements informed judgment concerning the amount of risk inherent in the
Banks loan and lease portfolios. This judgment is based on such factors as the
change in levels of non-performing and past due loans and leases, historical
loan loss experience, borrowers financial condition, concentration of loans to
specific borrowers and industries, estimated values of underlying collateral,
and current and prospective economic conditions. The allowance for loan losses
at March 31, 2004 was $3.6 million, or 1.13 percent of total loans, compared to
$3.5 million, or 1.18 percent of total loans, at December 31, 2003. Management
believes that the allowance for loan losses is adequate to absorb possible loss
in the loan portfolio. Non-Performing Assets and Past Due Loans Non-performing assets, comprised of real estate owned, non-accrual loans
and loans for which payments are more than 90 days past due, totaled $2.4
million at March 31, 2004, compared to $2.4 million at December 31, 2003.
Non-performing assets as a percentage of total loans and real estate owned at
March 31, 2004 and December 31, 2003 were 0.74 percent and 0.79 percent,
respectively. The Company has a loan review function that continually monitors selected
loans for which general economic conditions or changes within a particular
industry could cause the borrowers financial difficulties. The loan review
function also identifies loans with higher degrees of credit or other risks.
The focus of loan review as well as management is to maintain a low level of
non-performing assets and return current non-performing assets to earning
status. Management is unaware of any known trends, events or uncertainties
that will have or that are reasonably likely to have a material effect on
liquidity, capital resources or operations. Financial Condition Overview Total assets were $419 million at March 31, 2004 representing an increase
of $26 million, or 6.6 percent, from December 31, 2003. During this same time
period total loans increased $23 million, or 7.9 percent, total deposits
increased $14 million, or 4.5 percent, and borrowings increased $10 million, or
22 percent. Loan production has increased in the first quarter of 2004 after
falling off in 2003. The first quarter 2004 loan production was funded with
increased deposits, borrowings and existing balance sheet liquidity. Assets and Funding At March 31, 2004, earning assets totaled $394 million, an increase of $26
million, or 7.0 percent, from December 31, 2003. The mix of interest earning
assets has changed slightly since the end of 2003. Loans comprised 81 percent,
investment securities comprised 15 percent, and federal funds comprised 4
percent of earning assets at March 31, 2004. Total loans, investments and
federal funds, each expressed as a percentage of earning assets, were 80
percent, 17 percent and 3 percent, respectively, at December 31, 2003. At March 31, 2004, interest-bearing liabilities increased $22 million, or
7.1 percent, when compared to 11




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December 31, 2003. Interest-bearing demand accounts increased only marginally
while time deposits increased by $12 million and borrowings increased by $10
million. Federal Home Loan Bank advances increased to $55 million in the first
quarter of 2004 as the Bank funded its loan growth. At March 31, 2004,
deposits represented 83 percent and Federal Home Bank advances represented 17
percent of interest-bearing liabilities compared to 85 percent and 15 percent,
respectively, as of December 31, 2003. Liquidity and Capital Resources Net cash provided by operating activities totaled $1.6 million for the
three months ended March 31, 2004. Net cash used by investing activities
totaled $23.3 million which consisted primarily of a $23.4 million increase in
loans. Net cash provided by financing activities totaled $23.0 million for the
three months ended March 31, 2004, which primarily consisted of a $13.5 million
increase in deposits and a $10 million increase in borrowings. The net
increase in cash and cash equivalents for the year to date at March 31, 2004
was $1.3 million. Total stockholders equity at March 31, 2004 was 10.3 percent of total
assets, down slightly from 10.7 percent at December 31, 2003. Total
stockholders equity increased by $1.1 million due to current year retained
earnings and an increase in accumulated comprehensive income attributable to
increased unrealized gains on the available for sale investment portfolio. At March 31, 2004, WGNB Corp. was in compliance with various regulatory
capital requirements administered by federal and state banking agencies. The
following is a table representing WGNB Corp.s consolidated Tier-1, tangible
capital, and risk-based capital: March 31, 2004Actual
    
    
    
    
    
    Required
    
    
    
    
    
    ExcessAmount
    
    %
    
    Amount
    
    %
    
    Amount
    
    %Total capital (to risk-
weighted assets)
    
    $
    45,035
    
    
    
    13.62
    %
    
    $
    26,453
    
    
    
    8.00
    %
    
    $
    18,582
    
    
    
    5.62
    %Tier 1 capital (to risk-
weighted assets)
    
    
    41,412
    
    
    
    12.52
    %
    
    
    13,227
    
    
    
    4.00
    %
    
    
    28,185
    
    
    
    8.52
    %Tier 1 capital (to
average assets)
    
    
    41,412
    
    
    
    10.29
    %
    
    
    16,103
    
    
    
    4.00
    %
    
    
    25,309
    
    
    
    6.29
    %
 Off Balance Sheet Risk Through the operations of the Bank, the Company has made contractual
commitments to extend credit in the ordinary course of its business activities.
These commitments are legally binding agreements to lend money to the Banks
customers at predetermined interest rates for a specified period of time. At
March 31, 2004, the Bank had issued commitments to extend credit of $56,072,000
through various types of commercial lending arrangements and additional
commitments through standby letters of credit of $3,152,000. The Company
evaluates each customers creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on its credit evaluation of the borrower. Collateral varies
but may include accounts receivable, inventory, property, plant and equipment,
commercial and residential real estate. The Company manages the credit risk on
these commitments by subjecting them to normal underwriting and risk management
processes. Because these commitments generally have fixed expiration dates and
many will expire without being drawn upon, the total commitment level does not
necessarily represent future cash requirements. If needed to fund these
outstanding commitments, the Company has the ability to liquidate Federal funds
sold or securities available-for-sale or on a short-term basis to borrow and
purchase Federal funds from other financial institutions. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Companys market risk arises primarily from interest rate
risk inherent in its lending and deposit-taking activities. The Company has
little or no risk related to trading accounts, commodities or foreign
exchanges. Interest rate risk, which encompasses price risk, is the exposure of a
banking organizations financial condition and earnings ability to adverse
movements in interest rates. The measurement of market risk associated with
financial instruments is meaningful only when all related and offsetting on-and
off-balance sheet transactions are aggregated, and the resulting net positions
are identified. Disclosures about the fair value of financial instruments as
of December 31, 12




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##### Table of Contents



2003, which reflected changes in market prices and rates, can be found in the
Companys Annual Report to Stockholders on Form 10-K for the year ended
December 31, 2003 under the section entitled Managements Discussion and
Analysis of Financial Condition and Results of Operation  Asset/Liability
Management. Management actively monitors and manages the Companys interest rate risk
exposure. The primary objective in managing interest rate risk is to limit,
within established guidelines, the adverse impact of changes in interest rates
on the Companys net interest income and capital, while adjusting the Companys
asset-liability structure to obtain the maximum yield versus cost spread on
that structure. Management relies primarily on its asset-liability structure
to control interest rate risk. However, a sudden and substantial increase in
interest rates borne by assets and liabilities do not change at the same speed,
to the same extent, or on the same basis. Management believes that there have
been no significant changes in the Companys market risk exposure since
December 31, 2003. 
 Item 4. Controls and Procedures The Company maintains disclosure controls and procedures, as defined in
Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the
Exchange Act), that are designed to ensure that information required to be
disclosed in the reports that the Company files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission and
that such information is accumulated and communicated to the Companys
management, including its chief executive and chief financial officers, as
appropriate, to allow timely decisions regarding required disclosure. The
Company carried out an evaluation, under the supervision and with the
participation of its management, including its chief executive and chief
financial officers, of the effectiveness of the design and operation of its
disclosure controls and procedures as of the end of the period covered by this
Report. Based on the evaluation of these disclosure controls and procedures,
the chief executive and chief financial officers of the Company concluded that
the Companys disclosure controls and procedures were effective as of the end
of the period covered by this Report. There were no changes in the Companys internal control over financial
reporting during the Companys fiscal quarter ended March 31, 2004 that have
materially affected, or are reasonably likely to materially effect, the
Companys internal control over financial reporting. 13




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##### Table of Contents



Part II  Other Information 
 Item 1. Legal Proceedings There are no material, pending legal proceedings to which the Company or
any of its subsidiaries is a party or of which any of their property is the
subject. 
 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities (a) Not applicable. (b) Not applicable. (c) The Company issued the following securities during the quarter ended
March 31, 2004 without registering the securities under the Securities Act,
pursuant to the exemption provided in Section 4(2) thereof, as a transaction
not involving a public offering: Options to purchase 15,639 shares of Common Stock were granted during the
quarter to individuals pursuant to the Companys Incentive Stock Option Plan
having a weighted average exercise price of $28.87. These options may be
exercised anytime according to a ratable five year vesting period from the date
of grant and ending ten years from the date of grant at which point they
expire. A total of 1,438 options were exercised in the first quarter of 2004,
at a weighted average exercise price of $20.00. (d) The Company has previously reported the completion of a registered
public offering pursuant to which it sold 200,000 shares of its Common Stock at
a purchase price of $24.00 per share. The net proceeds from the offering
(which was completed in April 2002) of $4,766,454 have not yet been used by the
Company but continue to remain invested in corporate bonds and federal funds. (e) Not applicable. During the first quarter of 2004, the Company declared and paid quarterly
cash dividends amounting to 16.00 cents per share. The declaration of future
dividends is within the discretion of the Board of Directors and will depend,
among other things, upon business conditions, earnings, the financial condition
of the Bank and the Company, and regulatory requirements 
 Item 3. Defaults Upon Senior Securities Not applicable. 
 Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 
 Item 5. Other Information On March 18, 2004, the Company issued a press release announcing the
appointment of H.B. Rocky Lipham, III as the Banks president and executive
vice president of WGNB Corp. Mr. Lipham is the successor of long time Bank
president, Richard Duncan, who has retired from his officer positions but
continues to serve on the Board of Directors of both the Company and the Bank. 14




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##### Table of Contents



Item 6. Exhibits and Reports on Form 8-K  (a)
    
    The following exhibits are filed as part of this Report:  3.1
    
    Amended and Restated Articles of Incorporation (Incorporated by
reference to Exhibit 3.1 to the Companys Registration Statement on
Form 10-SB filed June 14, 2000 (the Form 10-SB).3.2
    
    Amended and Restated Bylaws (Incorporated by reference to
Exhibit 3.2 to the Form 10-SB).4.1
    
    See exhibits 3.1 and 3.2 for provisions of Companys Articles
of Incorporation and Bylaws Defining the Rights of Shareholders.4.2
    
    Specimen certificate representing shares of Common Stock
(Incorporated by reference to Exhibit 4.2 to the Form 10-SB).4.3
    
    Rights Agreement dated as of February 12, 1997 between the
Company and SunTrust Bank, Atlanta (Incorporated by reference to
Exhibit 4.3 to the Form 10-SB).31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002  (b)
    
    Reports on Form 8-K On January 9, 2004, the Company furnished a current report on Form 8-K to
disclose under Item 12 the issuance of its press release announcing the
Companys results of operations for the for the quarterly period and fiscal
year ended December 31, 2003. 15




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##### Table of Contents



SIGNATURES In accordance with the requirements of the Securities Exchange Act of
1934, the Company has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. Dated: May 10, 2004 WGNB CORP.By:
    /s/ L. Leighton AlstonL. Leighton AlstonPresident and CEO By:
    /s/ Steven J. HaackSteven J. HaackTreasurer
Principal Financial Officer 16