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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q þ
    
    Quarterly Report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 for the quarterly period ended
March 31, 2005
 o
    
    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 þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ 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, 2005Common Stock, $1.25 par value
    
    3,324,004




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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 as of March 31, 2005 and December 31, 2004
    
    
    2Consolidated Statements of Earnings for the Three Months ended March 31, 2005 and March 31, 2004
    
    
    3Consolidated Statements of Comprehensive Income for the Three Months ended March 31, 2005 and March 31, 2004
    
    
    4Consolidated Statements of Cash Flows for the Three Months ended March 31, 2005 and March 31, 2004
    
    
    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
    
    
    13Item 4.
    
    Controls and Procedures
    
    
    13Part Two
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    15Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    15Item 3.
    
    Defaults Upon Senior Securities
    
    
    15Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    15Item 5.
    
    Other Information
    
    
    15Item 6.
    
    Exhibits
    
    
    15Signatures
    
    
    17EX-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, 2005 and December 31, 2004 March 31,
    
    
    December 31,2005
    
    
    2004(unaudited)
    
    
    (audited)AssetsCash and cash due from banks
    
    $
    16,254,046
    
    
    
    7,288,973Federal funds sold
    
    
    3,068,745
    
    
    
    767,270Cash and cash equivalents
    
    
    19,322,791
    
    
    
    8,056,243Securities available for sale
    
    
    61,595,189
    
    
    
    60,867,553Securities held to maturity
    
    
    5,079,701
    
    
    
    4,834,649Loans, net
    
    
    373,365,883
    
    
    
    352,247,628Premises and equipment, net
    
    
    8,507,917
    
    
    
    7,644,879Accrued interest receivable
    
    
    2,275,328
    
    
    
    2,097,166Other assets
    
    
    6,641,055
    
    
    
    6,180,855$
    476,787,864
    
    
    
    441,928,973Liabilities and Stockholders EquityDeposits:Demand
    
    $
    50,883,381
    
    
    
    44,730,335Interest bearing demand
    
    
    141,875,386
    
    
    
    133,603,250Savings
    
    
    12,093,431
    
    
    
    11,856,408Time
    
    
    95,180,314
    
    
    
    92,704,938Time, over $100,000
    
    
    75,264,472
    
    
    
    55,503,108Total deposits
    
    
    375,296,984
    
    
    
    338,398,039Federal Home Loan Bank advances
    
    
    52,000,000
    
    
    
    55,000,000Accrued interest payable
    
    
    1,285,232
    
    
    
    1,426,132Other liabilities
    
    
    2,832,935
    
    
    
    2,142,492Total liabilities
    
    
    431,415,151
    
    
    
    396,966,663CommitmentsStockholders equity:Common stock, $1.25 par value, 10,000,000 shares authorized;
3,324,004 and 3,325,774 shares issued and outstanding
    
    
    4,155,005
    
    
    
    4,157,218Additional paid-in capital
    
    
    4,852,236
    
    
    
    4,902,369Retained earnings
    
    
    35,678,240
    
    
    
    34,778,931Accumulated other comprehensive income
    
    
    687,232
    
    
    
    1,123,792Total stockholders equity
    
    
    45,372,713
    
    
    
    44,962,310$
    476,787,864
    
    
    
    441,928,973
 See accompanying notes to unaudited consolidated financial statements. 2




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WGNB CORP. 
 Consolidated Statements of Earnings
 For the Three Months Ended March 31, 2005 and 2004
(unaudited) For the Three MonthsEnded March 31,2005
    
    
    2004Interest income:Interest and fees on loans
    
    $
    6,178,634
    
    
    
    5,118,896Interest on federal funds sold
    
    
    51,311
    
    
    
    24,907Interest on investment securities:U.S. Government agencies
    
    
    255,706
    
    
    
    263,689State, county and municipal
    
    
    412,464
    
    
    
    348,382Other
    
    
    176,844
    
    
    
    144,296Total interest income
    
    
    7,074,959
    
    
    
    5,900,170Interest expense:Interest on deposits:Demand
    
    
    505,920
    
    
    
    259,246Savings
    
    
    14,879
    
    
    
    10,290Time
    
    
    1,273,884
    
    
    
    829,344Interest on FHLB and other borrowings
    
    
    576,873
    
    
    
    654,734Total interest expense
    
    
    2,371,556
    
    
    
    1,753,614Net interest income
    
    
    4,703,403
    
    
    
    4,146,556Provision for loan losses
    
    
    300,000
    
    
    
    150,000Net interest income after provision
for loan losses
    
    
    4,403,403
    
    
    
    3,996,556Other income:Service charges on deposit accounts
    
    
    929,454
    
    
    
    953,713Mortgage origination fees
    
    
    72,506
    
    
    
    127,240Miscellaneous
    
    
    351,434
    
    
    
    281,957Total other income
    
    
    1,353,394
    
    
    
    1,362,910Other expenses:Salaries and employee benefits
    
    
    2,099,271
    
    
    
    1,950,073Occupancy
    
    
    543,081
    
    
    
    506,405Other operating
    
    
    879,731
    
    
    
    991,504Total other expenses
    
    
    3,522,083
    
    
    
    3,447,982Earnings before income taxes
    
    
    2,234,714
    
    
    
    1,911,484Income taxes
    
    
    620,743
    
    
    
    600,633Net earnings
    
    $
    1,613,971
    
    
    
    1,310,851Basic earnings per share
    
    $
    .49
    
    
    
    .40Diluted earnings per share
    
    $
    .48
    
    
    
    .39Dividends declared per share
    
    $
    0.2150
    
    
    
    0.1825
 See accompanying notes to unaudited consolidated financial statements. 3




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WGNB CORP. 
 Consolidated Statements of Comprehensive Income
 For the Three Months Ended March 31, 2005 and 2004
(unaudited) For the Three MonthsEnded March 31,2005
    
    
    2004Net earnings
    
    $
    1,613,971
    
    
    
    1,310,851Other comprehensive income (loss), net of tax:Unrealized gains (losses) on investment
securities available for sale:Unrealized gains (losses) arising during
the period
    
    
    (661,455
    )
    
    
    652,764Associated taxes
    
    
    224,895
    
    
    
    (221,940
    )Other comprehensive income (loss)
    
    
    (436,560
    )
    
    
    430,824Comprehensive income
    
    $
    1,177,411
    
    
    
    1,741,675
 See accompanying notes to unaudited consolidated financial statements. 4




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WGNB CORP. 
 Consolidated Statements of Cash Flows
 For the Three Months Ended March 31, 2005 and 2004
(unaudited) For the Three MonthsEnded March 31,2005
    
    
    2004Cash flows from operating activities:Net earnings
    
    $
    1,613,971
    
    
    
    1,310,851Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation, amortization and accretion
    
    
    257,046
    
    
    
    279,817Provision for loan losses
    
    
    300,000
    
    
    
    150,000Gain on sale of premises and equipment
    
    
    (140
    )
    
    
    (3,430
    )Loss on sale of other real estate owned
    
    
    5,972
    
    
    
    44,447Change in:Other assets
    
    
    228,216
    
    
    
    (1,302,135
    )Other liabilities
    
    
    (140,900
    )
    
    
    1,070,641Net cash provided by operating activities
    
    
    2,264,165
    
    
    
    1,550,191Cash flows from investing activities:Proceeds from maturities of securities available for sale
    
    
    3,497,795
    
    
    
    4,112,173Purchases of securities available for sale
    
    
    (4,898,049
    )
    
    
    (3,540,300
    )Purchases of securities held to maturity
    
    
    (244,936
    )
    
    
    (500,000
    )Net change in loans
    
    
    (21,447,838
    )
    
    
    (23,385,183
    )Purchases of premises and equipment
    
    
    (1,108,038
    )
    
    
    (82,602
    )Proceeds from the sale of premises and equipment
    
    
    140
    
    
    
    3,430Proceeds from the sale of other real estate owned
    
    
    39,028
    
    
    
    139,616Net cash used by investing activities
    
    
    (24,161,898
    )
    
    
    (23,252,866
    )Cash flows from financing activities:Net change in deposits
    
    
    36,898,945
    
    
    
    13,547,620Proceeds from Federal Home Loan Bank borrowings
    
    
    
    
    
    
    10,000,000Repayment of Federal Home Loan Bank borrowings
    
    
    (3,000,000
    )
    
    
    Dividends paid
    
    
    (682,318
    )
    
    
    (580,743
    )Exercise of stock options
    
    
    
    
    
    
    28,760Purchase and retirement of common stock
    
    
    (52,346
    )
    
    
    (23,000
    )Net cash provided by financing activities
    
    
    33,164,281
    
    
    
    22,972,637Change in cash and cash equivalents
    
    
    11,266,548
    
    
    
    1,269,962Cash and cash equivalents at beginning of period
    
    
    8,056,243
    
    
    
    27,235,798Cash and cash equivalents at end of period
    
    $
    19,322,791
    
    
    
    28,505,760
 See accompanying notes to unaudited consolidated financial statements. 5




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WGNB CORP.
Consolidated Statements of Cash Flows, continued For the Three Months Ended March 31, 2005 and 2004
(unaudited) For the Three MonthsEnded March 31,2005
    
    
    2004Supplemental disclosure of cash flow information:Cash paid during the period for:Interest
    
    $
    2,512,456
    
    
    
    1,720,622Income taxes
    
    $
    10,000
    
    
    
    88,000Non-cash investing and financing activities:Transfer of loans to other real estate
    
    $
    29,582
    
    
    
    105,168Change in unrealized gains (losses) on securities
available for sale, net of tax
    
    $
    (436,560
    )
    
    
    430,824Change in dividends payable
    
    $
    32,343
    
    
    
    22,807
 See accompanying notes to unaudited consolidated financial statements. 6




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WGNB Corp. 
 Notes to Consolidated Financial Statements (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. 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, 2005, 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 2004 filing on Form 10-K which included the results of operations for the years ended
December 31, 2004, 2003 and 2002. (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 quarters ended March 31, 2005 and March 31, 2004 are as
follows: For the three months ended March 31, 2005EarningsNet Earnings
    
    
    Common Shares
    
    
    per ShareBasic earnings per share
    
    $
    1,613,971
    
    
    
    3,324,427
    
    
    $
    .49Effect of dilutive securities  Stock Options
    
    
    
    
    
    
    18,655
    
    
    
    (.01
    )Diluted earnings per share
    
    $
    1,613,971
    
    
    
    3,343,082
    
    
    $
    .48
 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
    
    
    
    (.01
    )Diluted earnings per share
    
    $
    1,310,851
    
    
    
    3,357,387
    
    
    $
    .39
 7




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WGNB Corp. Notes to Consolidated Financial Statements, continued (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
and earnings per share for the quarters ended March 31, 2005 and 2004 would have been reduced to
the proforma amounts indicated below: 2005
    
    
    2004Net earnings
    
    As reported
    
    $
    1,613,971
    
    
    
    1,310,851Proforma
    
    $
    1,544,357
    
    
    
    1,216,097Net earnings per share
    
    As reported
    
    $
    .49
    
    
    
    .40Proforma
    
    $
    .46
    
    
    
    .37Diluted earnings per share
    
    As reported
    
    $
    .48
    
    
    
    .39Proforma
    
    $
    .46
    
    
    
    .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 2005 and 2004,
respectively: dividend yield of 2.84% and 2.43%, risk free interest rates of 4.09% and 4.12%,
respectively, and an expected life of 10 years. 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. (4) Contingent Liabilities Various legal actions and proceedings are pending or are threatened against the Company and
its subsidiaries, some of which seek relief or damages in amounts that are substantial. These
actions and proceedings arose in the ordinary course of the Companys business. After consultation
with legal counsel, management believes that the aggregate liability, if any, resulting from such
pending and threatened actions and proceedings will not have a material adverse effect on the
Companys financial condition. 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, 2005 and 2004 and reviews important factors affecting WGNB Corp.s financial
condition at March 31, 2005, compared to December 31, 2004. 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 in the Companys
Annual Report on Form 10-K for the year ended December 31, 2004. 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, 2004 (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 9




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be reviewed for a greater understanding of how the Companys financial performance is recorded and
reported. 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, 2004 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, 2005 were $1,614,000, which represented an
increase of $303,000, or 23.1 percent, when compared to the three months ended March 31, 2004.
Comparing the first quarter of 2005 to the first quarter of 2004, the increase in earnings has
several components. Net interest income increased $557,000, or 13.4 percent, comparing the two
first quarter periods. This is the most significant operating change when comparing the two first
quarter periods and is attributable to continued loan growth. The provision for loan losses
doubled (from $150,000 to $300,000) in the first quarter of 2005 from the first quarter of 2004.
Total non-interest income decreased by $10,000, or 0.7 percent. The decrease in non-interest income
is attributable to a decrease in mortgage fee income of $55,000, or 43.0 percent, comparing the
first quarter of 2005 to the same period in 2004. Total non-interest expense increased $74,000, or
2.1 percent, comparing the first quarter of 2005 with that of 2004. Each of these components is
discussed in more detail in the following narrative. Net Interest Income Net interest income for the Company continues to increase as loan production and asset growth
remain strong. Market interest rates have begun to increase and are expected to increase
throughout 2005 and possibly into 2006. While year-to-date earning asset yields have increased
slightly in 2005 (6.68 percent in 2005 compared to 6.50 percent in 2004), the year-to-date cost of
funds has increased by thirty two basis points (2.32 percent in 2005 from 2.00 percent in 2004).
The net interest margin for the first quarter of 2005 was 4.49 percent, compared to 4.61 percent
for the first quarter of 2004. The cost of funds has been impacted by the increase in longer term
certificates of deposit that the Bank has attracted in order to fund its loan growth.
Additionally, the Banks cost of funds has been impacted by competition for deposits in its market
area. The Bank must pay higher than national rates to attract deposits in its own market. We
compete with five de novo banks that are willing to pay over market rates in order to build market
share. Management recognized early in 2004 that interest rates were beginning to rise and actively
managed the balance sheet throughout 2004 to minimize interest rate risk exposure to rising rates.
Management sought to become more asset sensitive. That is, since the Banks assets reprice faster
than its deposits, the assets side of the balance sheet would benefit from rising rates. In
actuality, the assets side of the balance sheet has become more sensitive to rising rates since the
beginning of 2004. However, the Bank issued certificates of deposit in late 2004 and in 2005 that
were longer term in order to stabilize its future cost of funds. This had the immediate impact of
increasing the Banks cost of funds and thereby reducing its net interest margin percentage.
However, as market interest rates continue to increase, the Banks net interest margin should be
impacted in a positive manner going forward in 2005. Any net interest margin reduction in terms of percentage from 2004 has been made up in earning
asset growth in 2005. Net interest income increased by $557,000 in the first quarter of 2005 from
the first quarter ended March 31, 2004. Total interest income increased by $1.17 million, or 19.9
percent, while total interest expense increased by $618,000, or 35.2 percent. Interest earning
assets outstanding averaged $437.9 million for the first quarter of 2005. This compares to average
interest earning assets outstanding of $372.4 million in the first quarter of 2004. The average
interest earning asset increase was $65.5 million, or 17.6 percent, since the first quarter of
2004. Comparing the first quarter of 2005 to 2004, interest bearing deposits and borrowings have
increased by $56.7 million, or 18.4 percent. The increase in the earning asset spread caused a
volume increase in the Banks interest margin in terms of actual dollars. 10




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The average earning asset mix has shifted from 19 percent investment securities and 81 percent
loans as of March 31, 2004, to 17 percent investment securities and 83 percent loans as of March
31, 2005. The 2005 year-to-date weighted average yield on loans not including loan fees was 6.4
percent year-to-date 2005, compared to 6.2 percent for the same period in 2004. The year-to-date
average balance of loans has increased by $62 million, or 20.4 percent, from the first quarter
ended March 31, 2004 to the same period in 2005. Consequently, most of the earning asset growth
has been in total loans. Interest income from loans has increased by $1.06 million, or 20.7
percent, comparing the two periods ending March 31, 2004 and 2005. Non-Interest Income and Expense Non-interest income has decreased by $10,000, or less than 1 percent, when comparing the first
quarter of 2005 to first quarter of 2004. While service charges on deposit accounts decreased by
$24,000 and mortgage origination fees decreased by $55,000, other income increased by $69,000.
Service charge income decreased on a quarter-to-quarter basis for the first time in over five
years. The reduction is primarily attributable to a reduction in the volume of overdraft fees on
deposit accounts. Mortgage origination volume has decreased dramatically in 2005. The mortgage
origination volume that the Company is experiencing results from home purchases. Despite continued
low long-term rates, mortgage volume decreased in 2005 and is not expected to significantly
recover. Other income has increased by almost 25 percent comparing the first quarter of 2005 to
the first quarter of 2004. The change had two significant components. First, in the first quarter
of 2004, the Company experienced a loss on the sale of other real estate owned of $44,000 compared
to loss of $5,000 for 2005. Secondly, ATM network income is up $68,000 due to volume and fee
increases. When comparing total non-interest expense for the three month periods ended March 31, 2005
with that of 2004, the Company experienced an increase of $74,000, or 2.1 percent. That increase
was made up of a $149,000, or 7.7 percent, increase in salaries and benefits attributable to
increases in salaries and other compensation for employees resulting from annual raises and
incentive bonus accruals. The full time equivalent employee count at March 31, 2004 and 2005 was
143 and 144, respectively. Occupancy expense in the first quarter of 2005 increased $37,000, or
7.2 percent when compared to the first quarter of 2004. The increase in occupancy expense was
attributable primarily to increased depreciation expense and other occupancy cost related to the
new Mirror Lake facility placed in service in February 2005. Other operating expense decreased
approximately $112,000, or 11.3 percent, from the first quarter of 2004 to the first quarter of
2005. This decrease was primarily attributable to professional services and legal fees associated
with the management change that occurred in the first quarter of 2004 that was non-recurring in
nature. Income Taxes Income tax expense for the first three months of each year was $621,000 in 2005, and $601,000
in 2004. The effective tax rates for each of the periods ended March 31, 2005 and 2004 were 27.8
percent and 31.4 percent, respectively. The reduction of the effective tax rate is due to the
increased investment in tax advantaged community development and tax free assets. 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, 2005 was $4.3 million,
or 1.15 percent of total loans, compared to $4.1 million, or 1.14 percent of total loans, at
December 31, 2004. 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 $1.6 million at March 31, 2005, compared to $2.5
million at December 31, 2004. Non-performing assets as a percentage of total loans and real estate
owned at March 31, 2005 and December 31, 2004 were 0.41 percent and 0.85 percent, respectively. The Company has a loan review function that continually monitors selected loans for which
general economic 11




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##### Table of Contents



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 $477 million at March 31, 2005, an increase of $35 million, or 7.9 percent,
from December 31, 2004. During this same time period, total loans increased $21 million, or 6.0
percent, total deposits increased $37 million, or 11.0 percent, and borrowings decreased $3
million, or 5.5 percent. Loan demand in the Banks market area has remained strong since the
beginning of 2004. We have funded the loan growth with out of market deposits, which are more
readily available and are at a lower cost than the deposits in the Banks market area. The five
new banks in the Companys market area have increased the cost of both time and demand deposits
causing management to consider alternative funding sources. In past years, as new banks started in
our market, deposits became expensive and scarce. During that period, management funded its loan
growth through borrowings with the Federal Home Loan Bank allowing the Bank to reduce its exposure
to interest rate risk. Historically, these new banks would eventually be sold and deposit rates
normalized. Management believes a similar cycle could take place with respect to its more recent
new bank competitors and intends to maximize its interest margin and liquidity accordingly. Assets and Funding At March 31, 2005, earning assets totaled $450 million, an increase of $25 million, or 6.0
percent, from December 31, 2004. The mix of interest earning assets at first quarter end 2005 is
almost identical to that of year end 2004. Loans comprised 84 percent, investment securities
comprised 15 percent, and federal funds comprised 1 percent of earning assets at March 31, 2005.
Total loans to total deposits was 101 percent and 105 percent as of March 31, 2005 and December 31,
2004, respectively, as management used the proceeds from the Banks deposit growth to fund the
reduction of borrowings. At March 31, 2005, interest-bearing liabilities increased $28 million, or 8.0 percent, when
compared to December 31, 2004. Non-interest bearing demand accounts increased by $6 million, or
13.8 percent, and interest-bearing demand accounts increased by $8 million, or 6.2 percent. The
total increase in all demand accounts was $14 million, or 8.1 percent, which is significant for a
one quarter period. Total time deposits increased by $22 million, or 15.0 percent. Most of the
growth in time deposits ($20 million) came as the result of out of market certificates of deposit.
At March 31, 2005, deposits represented 86 percent and Federal Home Bank advances represented 14
percent of interest-bearing liabilities, respectively, compared to 84 percent and 16 percent,
respectively, as of December 31, 2004. Liquidity and Capital Resources Net cash provided by operating activities totaled $2.3 million for the three months ended
March 31, 2005. Net cash used by investing activities totaled $24.2 million, which consisted
primarily of a $21.4 million increase in loans and $1.6 million of cash to purchase investment
securities. Net cash provided by financing activities totaled $33.2 million for the three months
ended March 31, 2005, which primarily consisted of a $36.9 million increase in deposits and a $3
million reduction in borrowings. The net increase in cash and cash equivalents for the
year-to-date at March 31, 2005 was $11.3 million. Total stockholders equity at March 31, 2005 was 9.5 percent of total assets, down from 10.2
percent at December 31, 2004. Total stockholders equity increased by $410,000 due to current year
retained earnings of $969,000 and an offsetting decrease in accumulated other comprehensive income
of $437,000 attributable to decreased unrealized gains on the available-for-sale investment
portfolio. At March 31, 2005, WGNB Corp. was in compliance with various regulatory capital requirements
administered by federal banking agencies. The following is a table representing WGNB Corp.s
consolidated Tier-1, tangible capital, and risk-based capital: 12




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##### Table of Contents



March 31, 2005Actual
    
    
    
    
    
    
    Required
    
    
    
    
    
    
    ExcessAmount
    
    
    
    %
    
    
    Amount
    
    
    
    %
    
    
    
    Amount
    
    
    
    %Total capital (to risk-weighted assets)
    
    $
    49,034
    
    
    
    12.28
    %
    
    $
    31,991
    
    
    
    8.00
    %
    
    $
    17,043
    
    
    
    4.28
    %Tier 1 capital (to risk-weighted assets)
    
    
    44,685
    
    
    
    11.19
    %
    
    
    15,995
    
    
    
    4.00
    %
    
    
    28,690
    
    
    
    7.19
    %Tier 1 capital (to average assets)
    
    
    44,685
    
    
    
    9.55
    %
    
    
    18,708
    
    
    
    4.00
    %
    
    
    25,977
    
    
    
    5.55
    %
 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, 2005, the Bank had issued commitments to extend credit of $58,922,000
through various types of commercial lending arrangements and additional commitments through standby
letters of credit of $12,357,000. 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. Derivative Instruments and Hedging Activities As of March 31, 2005, the Company held an interest rate swap, which it entered into as a means
of managing its interest rate risk and accounted for the hedge instrument as a fair value hedge.
The interest rate swap contract, with a notional amount of $30 million, was used to hedge the
Banks fixed rate interest risk related to its borrowings with the Federal Home Loan Bank. Under
the interest rate swap contract, the Company received a fixed rate of 3.40 percent and paid a rate
of 90 day LIBOR which was 2.87 percent as of March 31, 2005. 
 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, 2004,
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, 2004 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, 2004. 
 Item 4. Controls and Procedures The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e)
promulgated under the 13




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##### Table of Contents



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, 2005 that have materially affected, or are reasonably
likely to materially effect, the Companys internal control over financial reporting. 14




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##### Table of Contents



Part II  Other Information 
 Item 1. Legal Proceedings While the Company and its subsidiaries are from time to time party to various legal
proceedings arising from the ordinary course of business, management believes that there are no
proceedings of material risk threatened or pending. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (a) Not applicable. (b) 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
continue to remain invested in corporate bonds and federal funds. (c) Not applicable. During the first quarter of 2005, the Company declared quarterly cash dividends amounting to
21.50 cents per share which were paid on April 1, 2005. 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 Not applicable. 
 Item 6. Exhibits (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 2002 15




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##### Table of Contents



31.2
    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 16




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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, 2005 WGNB CORP.By:
    /s/ L. Leighton AlstonL. Leighton AlstonPresident and CEOBy:
    /s/ Steven J. HaackSteven J. HaackTreasurer
Principal Financial Officer 17